MAYHEW v FC of T

Members:
G Hughes M

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2013] AATA 130

Decision date: 13 March 2013

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Gordon Hughes (Member)

BACKGROUND

1. The applicant is seeking review of an objection decision by the respondent to amend the applicant's assessment for the income year ended 30 June 2008. The amended assessment included an additional $52,521 as assessable foreign source income, derived from the applicant's employment in the United Arab Emirates (UAE).

2. Specifically, the issue in dispute was whether the applicant, who had migrated to Australia from New Zealand in 1985, and who had commenced employment with an engineering company in Abu Dhabi in December 2007, had a permanent place of abode outside of Australia in the income year ended 30 June 2008.

LEGISLATION

3. Section 6-5(2) of the Income Tax Assessment Act 1997 provides:

If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

4. Section 6(1) of the Income Tax Assessment Act 1936 defines resident or resident of Australia as meaning:

• (a) a person, other than a company, who resides in Australia and includes the person:
  • (i) whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia …

CONSIDERATION OF ISSUES

5. The Tribunal is required to decide whether the applicant was an Australian resident during the financial year ended 30 June 2008. If the applicant's domicile was in Australia, the issue was specifically whether his permanent place of abode was outside Australia.

6. The respondent contended that the applicant was a resident of Australia during the year in question. The applicant contended that he was residing in Abu Dhabi and that while his domicile was in Australia prior to his departure for the UAE on 3 December 2007, he changed his permanent place of abode as at that date.

7. The respondent's contention revolved around the strength of the applicant's continued links with Australia, particularly the fact that he maintained his Australian home in Paddington, Brisbane, following his departure in December 2007. The applicant's principal contention was that although he maintained ownership of the Brisbane residence, neither he nor is wife had any intention to live in it again. The applicant argued that although the residence was leased to his son under a relatively informal arrangement, he effectively abandoned his personal interest in the property.

THE APPLICANT'S EVIDENCE

8. The applicant tendered a statement. He also provided evidence to the Tribunal by video link from Dubai.

9. The applicant was born in England and immigrated with his parents to New Zealand in 1957 at the age of five. He has two siblings who still live in New Zealand, along with other family members. There are also family members who reside in the United Kingdom (UK).

10. The applicant is a citizen of New Zealand and the UK, holding passports from both countries. He is not an Australian citizen.

11. The applicant has three children who reside in Australia, although one of these children is studying in New Zealand.

12. In 1985, the applicant first accepted a job in Australia with the Baulderstone Hornibrook Group. He worked in Adelaide for two years and then moved to Brisbane. He subsequently lived in several locations in Queensland until 1994, when he changed jobs and accepted a position as a manager with John Holland International in Sri Lanka. He lived with his family in Sri Lanka until 1998. Then he relocated to Malaysia, where he remained until August 1999.

13.

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Between 1994 and 1999 the applicant purchased a number of investment properties in Queensland.

14. In September 1999 the applicant accepted employment with a company called Thiess in Brisbane, where he remained until March 2003. He then worked with Macmahon Holdings in Brisbane until 2007, when an opportunity arose to take up a senior management role with Leighton International Ltd in Abu Dhabi. The applicant commenced this new position in December 2007 and continues to work with Habtoor Leighton.

15. The applicant's wife did not move with him to Abu Dhabi immediately. She wished to continue working, as a nurse specialising in coronary care at the Queensland Institute of Medical Research, until her contract finished in December 2008.

16. The applicant took personal items to Abu Dhabi and leased his primary residence in Brisbane to his son in consideration for his overseeing the applicant's various investment properties. The applicant's wife moved out of the primary residence and stayed with friends.

17. The applicant applied for a UAE residence visa and work permit in February 2008 and this was issued on his UK passport. He nominated New Zealand as his preferred repatriation destination on his employment contract.

18. The applicant's salary was initially paid into his SunCorp bank account in Australia but once his Emirates NBD bank account was opened, his salary was paid into a local account.

19. The applicant initially maintained an Australian health insurance policy with MBF, explaining that this was so his youngest son could continue to have the benefit of the policy. He subsequently cancelled this policy.

20. In Abu Dhabi, the applicant initially resided in an apartment leased by his employer but subsequently found more permanent accommodation in or around February 2008.

21. The applicant's wife visited Abu Dhabi between 8 February and 25 February 2008 to help settle and furnish the apartment. She visited again for about three weeks in April 2008.

22. The applicant made two visits to Australia between December 2007 and 30 June 2008. Both trips were work-related.

23. The applicant has remained outside Australia. He continues to work with the same employer. In 2009 he moved to Kuwait, where he was joined by his wife permanently in April 2009. In May 2011, the applicant and his wife moved to Dubai which they now consider to be their home.

24. The applicant tendered a witness statement by his wife. Mrs Mayhew also gave evidence via video link from Dubai. Mrs Mayhew corroborated the applicant's evidence.

25. The applicant also tendered a witness statement by his son, Christopher Mayhew, which corroborated the applicant's evidence.

26. Both the applicant and his wife impressed the Tribunal as honest and articulate witnesses.

THE RESPONDENT'S SUBMISSIONS

27. The respondent's position was that as the word reside means to dwell permanently or for considerable time, the applicant had by definition failed to fall into this category. The applicant only departed from Australia for the UAE during the financial year in question. During the financial year ended 2008, the applicant spent more time in Australia than the UAE. The applicant returned to Australia for work purposes twice after his initial departure and also for Christmas at the end of 2009. The respondent considered it significant that the applicant maintained substantial assets in Australia following his departure. The respondent argued that there was no evidence of an intention at the time of departure to establish a permanent place of abode outside of Australia during the financial year ending 30 June 2008.

28. In short, the respondent contended that the applicant had not abandoned his Australian home. He did not sell the primary residence and there was doubt over the bona fides of the rental arrangements, whereby the applicant's eldest son continued to live there in consideration for managing the applicant's various investments. The respondent contended that the tasks defined for the son (in his capacity as lessee) were vague and included jobs such as maintaining the grounds and pool, painting a newly renovated part of the home and acting in an

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undefined way as agent in respect of the other investment properties. The respondent contended that the services were consistent with an adult child simply being permitted to reside at the family home while his parents were overseas. The respondent contended that it was significant that the applicant had never sought a commercial valuation of the rental for the Brisbane residence, or of the management services provided by his son.

29. The respondent contended that the applicant's long history of taking overseas postings did not detract from the fact that Australia continued to be the family base. The maintenance of the family home and the retention of investments and cars were consistent with retaining a home base in Australia. There was no significance, according to the respondent, in the fact that the applicant had not taken out Australian citizenship at any stage.

30. The respondent contended that it was also of significance that the applicant's wife did not join him in the Middle East until 2009. She had renewed her employment contract in Australia on 21 January 2008. There was no evidence that Mrs Mayhew had sought work opportunities in Abu Dhabi or sought to obtain a resident's visa or work permit in the Middle East.

THE TRIBUNAL'S REASONING

31. The facts in this matter were not in dispute in any essential sense, as opposed to the interpretation of those facts when applied to the definition of resident of Australia in section 6(1) of the Income Tax Assessment Act 1936. The Tribunal does not share the respondent's interpretation of the facts. To the extent that any facts were in dispute, the Tribunal accepts the applicant's evidence.

32. The Tribunal does not consider that the applicant resided in Australian after 3 December 2007. In
Koitaki Para Rubber Estates limited v Federal Commissioner of Taxation (1941) 64 CLR 241, Williams J stated (at 249):

The place of residence of an individual is determined, not by the situation of some business or property which he is carrying on or owns, but by reference to where he eats and sleeps and his settled or usual abode. If he maintains a home or homes he resides in the locality or localities where it or they are situated, but he may also reside where he habitually lives even if this is in hotels or on a yacht or some other abode.

33. It is the Tribunal's opinion that the applicant was clearly not residing in Australia after 3 December 2007, but rather in Abu Dhabi. He was working there on a permanent contract and only returned to Australia for business purposes. When returning to Australia, he stayed in temporary accommodation (mainly hotels), and did not in any sense use the former family home as a residence.

34. Similarly, although the applicant acknowledged that his domicile was Australia, his permanent place of abode became, as the applicant intended it to be, Abu Dhabi, from the date he left Australia in December 2007.

35. The leading authority on the meaning of permanent place of abode is a decision of the Full Court of the Federal Court of Australia in
Federal Commissioner of Taxation v Applegate (1978) 9 ATR 899. The Full Court upheld the decision of Sheppard J:
Applegate v Federal Commissioner of Taxation (1978) 8 ATR 372.

36. At first instance, Sheppard J said, in relation to the expression place of abode:

'place of abode' may mean the house in which a person lives or the country, city or town in which he is for the time being to be found. I'm of the view that the latter is the meaning of the expression used in s 6(1) of the Act. Thus a person might be correctly said to have a place of abode in, say Vila, notwithstanding that during a given period he lived in a number of different establishments occupying each for only a relatively short period.

37. The decision of the Full Court emphasised that a taxpayer need not establish an unwavering commitment to a new home in order to satisfy the requirement of a permanent place of abode … outside Australia.

38. Franki J interpreted the expression (at page 901) as being something less than a permanent place of abode which the taxpayer intends to live for the rest of his life. Northrop J observed (pages 906-7) that it would be unreal to consider whether a taxpayer has formed an intention to live or reside or to have a place of

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abode outside Australia indefinitely, without any definite intention of ever returning to Australia in the foreseeable future.

39. In
Federal Commissioner of Taxation v Jenkins (1982) 12 ATR 745, Sheahan J considered that the taxpayer satisfied the test for a permanent place of abode outside of Australia in circumstances where he acted in anticipation that, until an unspecified future date, he would be living in Port Vila [Vanuatu] and nowhere else.

40. In the Tribunal's opinion, all the evidence points to the applicant having established a permanent place of abode in Abu Dhabi during the year in question. Against a history of following work opportunities around the world, he accepted an employment contract for a permanent position in the Middle East. He established a home in Abu Dhabi as soon as practicable and furnished the home in a manner consistent with an intention to remain in the location indefinitely. The Tribunal accepts that market forces made it difficult for the applicant to lease accommodation in his own name earlier than he did.

41. The Tribunal considers the applicant's lease arrangement with his son in respect of the Brisbane residence to be quite plausible. There is no evidence that the other children, or the applicant's wife, occupied the premises once the applicant left for the Middle East. The arrangement between the applicant and his son had an identifiable commercial element, which provided benefits to both parties. There is no evidence that the applicant sought to stay at the house during his two trips to Australia during the year in question.

42. The Tribunal does not consider it to be of significance that Mrs Mayhew did not join her husband in the Middle East immediately. She is clearly an independent person with strong career interests, which she elected to pursue and complete prior to joining her husband overseas. The Tribunal accepts Mrs Mayhew's explanation that it was consistent with the lifestyle they had always followed together that she would eventually abandon her job in Australia and join her husband overseas; and this is precisely what occurred.

43. The Tribunal attributes no significance to the fact that the applicant's cars remain registered in his own name and were used by his children. This is not an unusual or remarkable scenario in a modern family.

44. Likewise, the Tribunal accepts the applicant's explanation that he had given little thought to the timing of the cancellation of his Australian health insurance with MBF or to the return of his Medicare card. The explanation by the applicant and his wife that they were unfamiliar with the process for discontinuing Medicare is totally plausible; a lack of familiarity, which the Tribunal suspects, is shared by many Australians.

45. The Tribunal has considered the various other facts raised by the respondent as being indicia of the applicant not having abandoned his Australian home or not having established a permanent place of abode outside Australia. For the most part, the Tribunal considers the examples raised are typical of arrangements which need to be made, or unravelled, when the head of a family relocates overseas. Furniture is typically allocated amongst family members; arrangements have to be made for family pets; and some mail is redirected but some mail is not.

THE TRIBUNAL'S DECISION

46. The Tribunal concludes that the applicant handled his departure from Australia, and his relocation to the Middle East, in a manner consistent with a person who had resolved to permanently leave Australia. He had to make arrangements in relation to his children and the assets he was leaving behind. And this he did in his own way and in his own time, according to the priorities which would have been confronting him during this phase of his career.

47. For the above reasons, the Tribunal sets aside the decision under review and substitutes a finding that, in the financial year ending 30 June 2008, the taxpayer had a permanent place of abode outside of Australia and was therefore not a resident of Australia for the purposes of taxation.