Case W13

Members:
RA Layton DP
WJF Purcell SM
DJ Trowse M

Tribunal:
Administrative Appeals Tribunal

Decision date: 20 December 1988.

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R. Layton (Deputy President), W.J.F. Purcell (Senior Member) and D.J. Trowse (Member)

The references in this application for review concern four financial years being the years ending 30 June 1983, 1984, 1985 and 1986 in which the applicants disclosed rental income from a supermarket and flats during periods in which they were living in Greece. The applicants were assessed at the rates of tax applicable to non-residents of Australia and objected to each of the assessments.

2. The issue to be determined is whether or not the applicants are ``residents'' or ``residents of Australia'' within the meaning of subsec. 6(1) of the Income Tax Assessment Act 1936 (``the Assessment Act''). The applicants submit that their domicile is in Australia and that their permanent place of abode was not outside Australia during the relevant years. The respondent on the other hand contends that although it is not disputed that the applicants' domicile is in Australia, nevertheless the applicants' permanent place of abode was outside Australia during the relevant years.

3. At the review hearing, the information before the Tribunal comprised supplementary documents lodged with the Tribunal and additional documentation, including a statement of agreed facts. In addition the male applicant gave oral evidence. The applicants were represented by their agent and the Commissioner by one of his officers.

4. There is no dispute between the parties as to the facts; the disagreement is as to how those facts are to be interpreted in the light of the legislation and the case law.

5. The applicants were born in Mitiline, an island of Greece, in the case of the male applicant Mr K on 8 October 1935, and the female applicant Mrs K on 25 January 1940. Mr K migrated to Australia from Greece on 31 May 1962 and Mrs K on 17 September 1964. The applicants married on 3 October 1964 and they have three children, Peter born on 5 September 1965 (being the subject of another reference which was heard together with the applicants' reference), Anna born on 3 October 1966 and Paul born on 26 June 1970. On 23 November 1971 the applicants were naturalised in Australia.

6. In 1968 the applicants purchased a supermarket and its stock-in-trade and in addition, a nearby house situated on the same block of land in a country town, which house was used as the family home. In 1974 the applicants bought five flats which they rented out. On 24 June 1977 the applicants decided to sell the business of the supermarket but retain the building, which was then leased out for a four-year term. The persons leasing those premises also had access to the family home for no additional rental as the supermarket premises did not have any kitchen or toilet facilities. These commercial arrangements allowed the applicants and their family to take an extended holiday overseas to Malaysia, Singapore, Greece, Cyprus, Bulgaria, Romania, Yugoslavia, Germany and Italy for some two years. Their reason for such a holiday was that they had had no significant holidays during the nine years of operation of the supermarket and ``felt they had earned a long break''.

7. The applicants returned to Australia on 5 October 1979. The male applicant gave evidence that it was their intention at that time to buy another business, however, upon receiving a letter advising that his father (who

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was in his late 70s) had had a stroke and was paralysed, the applicants decided they must return to Greece. The applicants and their three children left Australia on 12 November 1979 to live with Mr K's parents in Athens. After arriving in Athens they then arranged for Mrs K's parents, who were also aged, to join them in Mr K's parents' family home in Athens. Thereafter, the applicants, their children and each of their parents all lived together in Athens, although from time to time they moved to the island of Mitiline for part of the summer period. The applicants' children began attending the American Community School in Athens.

8. When the applicants entered Greece, they did do so on an alien resident's permit which did not entitle them to work in Greece. The applicants supported themselves by using some $3,000 received annually as part of the proceeds from rental of the supermarket and flats, which money was sent to them in Greece, the balance of the rental moneys remaining in Australia for the purposes of paying various accounts. Later, when two of the children began attending university in America, rental money was also used for their tuition. Apart from the rental received by the applicants, each of their parents received an equivalent government pension. All of the family moneys were pooled together for their joint support.

9. On 5 May 1984 the applicants returned to Australia for a pre-planned of three months. The purpose of this visit was to effect maintenance and repair work on the supermarket premises and flats. This work was performed, and the applicants again returned to Greece. There were some brief trips by the applicants from Greece to various parts of Europe, presumably on holiday, namely two weeks in each of Yugoslavia, Germany and Italy in the years 1979, 1980 and 1981 respectively.

10. Mr K gave evidence that his intention in returning to Greece on 12 November 1979 was to care for his debilitated father as well as the other ageing parents and that he and his family would remain in Greece until such time as they died.

11. The first of the parents to die and Mr K's father, on 28 March 1987, followed three weeks later by Mrs K's father in April 1987 and then Mrs K's mother on 18 August 1988.

12. The applicants returned to Australia in August 1988. The reasons given for their return to Australia was again to perform maintenance work on the supermarket premises and also to try and earn more income to support themselves and their family. Mr K gave evidence that his mother, who was younger than the other parents, but still in her 70s, was presently being cared for by friends.

13. The applicants have returned to live in the previous family home where all the furniture and fittings had remained untouched during their stay overseas. Their toilet and kitchen facilities are still required by the supermarket lessees, but Mr K is currently making arrangements to build new kitchen and toilet facilities on to the back of the supermarket.

14. The male applicant also gave evidence that there have been three lease arrangements in relation to the supermarket premises, each for a four-year term, but those terms were not generally completed because the lease was either transferred or renegotiated before the expiration of the term. The most recent four-year lease is due to expire on 28 April 1989.

15. It is upon these facts that we are to determine the specific issue of whether or not the applicants fall within the meaning of ``resident'' contained in subsec. 6(1) of the Assessment Act.

16. The word ``resident'' or the phrase ``resident of Australia'' is set out in the definition clause in subsec. 6(1) of the Assessment Act:

```resident' or `resident of Australia' means -

• (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

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    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;.''

Paragraph (a) of that definition refers to the word ``reside'' which has been described by the High Court in
F.C. of T. v. Miller (1946) 73 C.L.R. 93 by Latham C.J. at pp. 99-100, as having a wide meaning, one of the dictionary meanings being ``to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place''.

17. Extended definitions of ``resident'' are contained in subpara. 6(1)(a)(i), (ii) and (iii). The only definition specifically referable to this applicant is that contained in subpara. (i) which refers to a person ``whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia;''.

18. As previously mentioned it is not disputed by the Commissioner that the applicants' domicile is in Australia, therefore the sole issue on the facts is whether the qualification in subpara. (i) applies or, alternatively, whether the applicants could be regarded as ``resident'', within the common law interpretation of that word.

19. The term ``place of abode'' has been interpreted in the case of
R. v. Hammond (1852) 117 E.R. 1477 at p. 1480 as ``a place of residence'' which is in turn accepted as meaning ``the place where a person lives with his family and sleeps at night''.

20. The leading case on the meaning of the qualification in subpara. 6(1)(a)(i) is that of the
F.C. of T. v. Applegate 79 ATC 4307. Franki J. at p. 4309 made the following comment:

``Accordingly in my opinion the phrase `permanent place of abode outside Australia' is to be read as something less than a permanent place of abode in which the taxpayer intends to live for the rest of his life.

There is nothing in the subsection which requires the intent of the taxpayer to be the critical factor even though it is, of course, a relevant factor. Essentially the question is whether, as a matter of fact the taxpayer's permanent place of abode was outside Australia at the relevant time.''

The learned Judge continued by saying that:

``The question is one of degree and bearing in mind the association of the phrase `permanent place of abode' with the word `domicile' and the fact that the liability for tax falls to be determined annually...''

21. Northrop J. in the same case rejected a contention made on behalf of the Commissioner that in the extended definition of ``resident'', the phrase ``his permanent place of abode is outside Australia'' should be construed as applying to a person who ``intends to live outside Australia indefinitely, without any definite intention of ever returning to Australia in the foreseeable future, except at some remote albeit specific point of time''. In rejecting that argument, Northrop J. made the following comments at p. 4313:

``In my opinion that contention should be rejected. The qualification applies to persons who although domiciled in Australia, do not reside in Australia within the accepted meaning of the word `reside'. The qualification is stated in an affirmative form, namely, where the person has his permanent place of abode outside Australia. The qualification is not concerned with whether a person has abandoned his Australian domicile or has acquired a new domicile or not. The qualification is concerned with the person's permanent place of abode. The phrase `place of abode' may have many meanings, it can refer to the building or place where a person sleeps and it can refer to the building or place where he is usually found, for instance, `his place of business'.''

His Honour then continued to consider the word ``permanent'' and noted that there could be many shades of meaning, but adopted a decision of du Parcq L.J. who said that the word ``permanent'' is indeed a relative term, and is not synonymous with ``everlasting''. Northrop J. further observed at p. 4314 that the word ``permanent'' must be construed to have a shade of meaning applicable to the year of income under consideration and that it was:

``... unreal to consider whether a taxpayer has formed the intention to live or reside or

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to have a place of abode outside of Australia indefinitely, without any definite intention of ever returning to Australia in the foreseeable future... What is of importance is whether the taxpayer has abandoned any residence or place of abode he may have had in Australia. Each year of income must be looked at separately. If in that year a taxpayer does not reside in Australia in the sense in which that word has been interpreted, but has formed the intention to, and in fact has, resided outside Australia, then truly it can be said that his permanent place of abode is outside Australia during that year of income. This is to be contrasted with a temporary or transitory place of abode outside Australia.''

22. Fisher J. in the same case of Applegate (supra), reinforced the view that the words ``permanent place of abode'' do not necessarily direct attention to the taxpayer's state of mind in respect of that or any other place, and whilst such a state of mind is crucial to ``domicile'', when looking at ``permanent place of abode'', a greater emphasis must be placed on the nature and quality of the use which a taxpayer makes of a particular place of abode. At p. 4317 his Honour said:

``Obviously if his stay is purely temporary and he intends to move on or return to Australia at some definite point of time this denies the place of abode an essential characteristic of a home, namely durability. Moreover it seems appropriate to view objectively the nature and quality of the use which the taxpayer makes of the place of abode to determine whether it has the characteristics of his fixed place of abode, his home...

To my mind the proper construction to place upon the phrase `permanent place of abode' is that it is the taxpayer's fixed and habitual place of abode. It is his home, but not his permanent home. It connotes a more enduring relationship with the particular place of abode than that of a person who is ordinarily resident there or who has there his usual place of abode. Material factors for consideration will be the continuity or otherwise of the taxpayer's presence, the duration of his presence and the durability of his association with the particular place.''

23. The Federal Court's decision in Applegate (supra) has subsequently been endorsed and relied upon in a number of decisions, notably
F.C. of T. v. Jenkins 82 ATC 4098.

24. In the present review, the relevant years are the financial years 1983, 1984, 1985 and 1986. During each of those years the applicants were residing outside Australia, in Greece. They had already been located in that country since late 1979, although in the financial year overlapping 1984 and 1985, the applicants returned to Australia for a fixed and limited duration of three months for a known and pre-arranged purpose which was fulfilled before they returned again to Greece.

25. During these financial years, Mr K's father and the other parents were still alive. Therefore during these years the deliberate intention of the applicants was to remain in Greece, in the absence of a catastrophe in which all four parents died.

26. Although it may not have been the applicants' intention to remain in Greece forever, that is not relevant. Their intention was to remain in Greece and live outside Australia for an indefinite time contingent upon the health and well-being of their respective parents. This period has only recently been brought to a close following the death of Mrs K's mother on 18 August 1988.

27. During the three relevant years, the applicants resided with all of their children outside Australia in Mr K's parents' home. In this situation we fail to see how the Commissioner and ourselves could be other than satisfied that the applicants' permanent place of abode for the relevant years was outside Australia. Whilst it is true that the applicants retained assets in Australia including supermarket premises, their house and furniture, and some rental proceeds for the purposes of paying various accounts, in every other sense the applicants were living outside Australia during those years and the period was long-term and indefinite.

28. In this circumstance we cannot see how the applicants could fulfil the common law requirement of residency as contained in para. 6(1)(a) nor the extended statutory definition encompassed in subpara. 6(1)(a)(i). The length of time involved in this review is significant; many other cases that the Tribunal has considered have related to stays of two to three years and not as in this case, a stay of four to

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six years during the relevant period and a return some nine years after initially leaving Australia. We are of the view that the short return trip which the applicants made to Australia in May 1984 was temporary only and did not alter the fact that their permanent place of abode was outside Australia, in Greece.

29. For these reasons therefore we consider that the Commissioner's decision should be upheld.