Case U165

Members:
RK Todd DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 19 August 1987.

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R.K. Todd (Deputy President)

The applicant in this review was in Italy, where he has lived for many years, at the time of the hearing, but had advised, in letters to the Tribunal dated 1 April 1987 and 17 July 1987, that he was unable to attend or be represented at the hearing and that he requested that the matter be heard in his absence.

2. The applicant migrated from Italy to Australia and worked as a gardener for the Department of Territories (or its predecessor) from 1961 to 1964. He sustained a back injury in 1964 and has been entitled to, and has been receiving, compensation payments from the Department pursuant to the Compensation (Commonwealth Government Employees) Act 1971 ever since that date. The applicant stated in his taxation return for the year ended 30 June 1985 that he had returned to Italy in 1971.

3. It appears from the evidence before the Tribunal that, assuming the Commissioner is correct in his submissions, taxation instalments should have been deducted from the applicant's compensation payments by the Department of Territories from the time the applicant left Australia in 1971. This did not in fact happen until some time in the year ended 30 June 1985, with the result that the applicant was placed in the position of being liable for income tax in the sum of $1,581 in respect of the 1985 year. The Commissioner's representative at the hearing indicated that the Commissioner would, very properly in my view, in all likelihood not be investigating years prior to 1985 in this particular matter. Pragmatic grounds alone would strongly support this stance.

4. The questions before the Tribunal are, first, whether the applicant is a resident for the purposes of the Income Tax Assessment Act 1936 (the "ITAA"); secondly, whether the payments are assessable under sec. 25(1)(b) of the ITAA; and, thirdly, whether the Income Tax (International Agreements) Act 1953 has any operation in this matter.

5. A resident is defined in subsec. 6(1) of the ITAA as:

"6(1)(a) a person, other than a company, who resides in Australia and includes a person -

• (i) whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia;
• (ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he does not intend to take up residence in Australia; or
• (iii) who is an eligible employee for the purposes of the Superannuation Act 1976 or is the spouse or a child under 16 years of age of such a person; and

(b) a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia;"

6. Whether or not a person is a resident has been held to be a question of fact rather than of law: see
Lysaght v. I.R. Commrs (1928) 13 T.C. 511 and
F.C. of T. v. Miller (1946) 73 C.L.R. 93. The facts before the Tribunal on this point were that the applicant had returned to Italy in 1971; had stated in his 1985 taxation return that he was "No longer resident in Australia"; and had a permanent place of abode in Italy and was an Italian national. It is consequently impossible, considering the definition in sec.

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ATC 957

6(1) of the ITAA, for me to find that the applicant was a resident of Australia during the year of income ended 30 June 1985. I therefore find that the applicant was a non-resident for the purposes of the ITAA in respect of that year.

7. A number of cases, such as
F.C. of T. v. Smith 81 ATC 4114, have held that compensation payments such as those received by the applicant in this case are assessable under sec. 25(1) of the ITAA. This is in my opinion clearly correct.

8. As to whether such payments are "sourced" in Australia, the factors to be taken into account include: from where the payments are sent; by whom and to whom they are sent and received respectively; and where the liability to make the payment arises.

9. The present payments are sent from Canberra by an Australian Government Department in discharge of a liability that arose under an Australian statute and due to an injury that occurred in Australia. The only connection which these payments have with a place outside Australia is their destination. It is clear, in my opinion, that the source of these payments is Australia. They are therefore assessable under sec. 25(1)(b) of the ITAA.

10. This conclusion has the effect of rendering superfluous the submissions made by the Commissioner's representative in respect of the Income Tax (International Agreements) Act.

11. The effect of the above findings is that the applicant is liable, as a non-resident, to pay the Commissioner $3,186.90 for the year of income ended 30 June 1985 rather than the $1,607.67 he would have paid had he been a resident. Instalments of $1,605.50 have already been deducted from his payments for 1985 and he therefore owes the Commissioner $1,581 referred to above. For the most part the increased incidence of tax arises from the inapplicability of the "threshold" provision which in the case of residents renders an initial amount of income free of tax. The 30% tax rate applicable under sec. 25(1)(b) was also, in the 1985 year, a little higher than the marginal rate that would have applied to a resident having the same income as the applicant. The applicant's financial situation is however clearly bleak, and to be put in a situation in which, due to an administrative error made by a government department, he became liable to pay back $1,581 would appear harsh. Whether the matter should be pursued is however a matter that is beyond this Tribunal, and I therefore make no further comment.

12. The objection decision of the Commissioner is affirmed for the above reasons.