Federal Commissioner of Taxation v. Applegate.

Judges: Franki J
Northrop J

Fisher J

Court:
Full Federal Court

Judgment date: Judgment handed down 29 June 1979.

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Fisher J.: This is an appeal brought by the Commissioner of Taxation (``the Commissioner'') against a decision of the Supreme Court of New South Wales in its Administrative Law Division. By its decision that Court allowed an appeal against the decision of Board of Review No. 1. The Board had confirmed the disallowance by the Commissioner of an objection by Geoffrey David Applegate (``the taxpayer'') against an income tax assessment issued by the Commissioner against the taxpayer in respect of the year of income ended 30 June 1972.

In his return for that year the taxpayer claimed that he had established a permanent place of abode outside Australia and accordingly was not liable to Australian income tax in respect of salary earned after 1 November 1971. The Commissioner in making his assessment added to the assessable income as returned by the taxpayer the salary earned by the taxpayer in his employment subsequent to 1 November 1971. The taxpayer objected on the ground that the Commissioner was in error in including in his taxable income income earned during the period 1 November 1971 to 30 June 1972 because such income was earned by him as a non-resident from sources outside Australia and accordingly not liable to inclusion as assessable income. The Commissioner disallowed the objection, which disallowance was at the taxpayer's request referred to the Board of Review. The Board upheld the assessment for the year of

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income but on appeal the Supreme Court of New South Wales upheld the taxpayer's appeal.

The question for determination by this Court is the correct construction to place upon the definition of ``resident'' which is contained in sec. 6(1) of the Income Tax Assessment Act 1936 (``the Act'') as follows:

```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 of 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...''

The Commissioner's contention is that the taxpayer was during the relevant period a resident of Australia in that he was a person who was domiciled in Australia but in respect of whom the Commissioner was correctly not satisfied that his permanent place of abode was outside Australia. The taxpayer for his part concedes that his domicile is in Australia, but submits that upon the true construction of the definition the Commissioner should have been satisfied that his permanent place of abode was at the relevant time outside Australia. It is accepted that the income under consideration was derived from sources wholly out of Australia.

The facts are not in dispute and having been set out in detail by the members of the Board need not be stated exhaustively here. The taxpayer is a solicitor who throughout the relevant time was employed by a large firm of Sydney solicitors, Sly and Russell. During the year of income the firm opened a branch office in the New Hebrides at Vila. The taxpayer who had been admitted to practice in 1968 was in 1971 invited to undertake the management of the new branch on behalf of the firm. At the time he was not a partner in the firm but an ``Associate'', having been employed for up to three years. He left Sydney for Vila with his wife on 8 November 1971 for the purpose of opening the new branch on behalf of his employer and remained in Vila for the remainder of the year of income.

On leaving Sydney the taxpayer gave up the tenancy of the flat in which he and his wife were living. He left no assets in Australia apart from a life policy which he kept up whilst in the New Hebrides. Upon arrival in Vila he and his wife lived for two weeks in a hotel and then obtained the lease of a dwelling house in Vila. The term of the lease was initially twelve months with a right of renewal for a further like period. He opened the branch office on behalf of the firm, the staff consisting initially of a secretary, but gradually increasing until it comprised four persons in addition to the appellant by the time of his departure. He was admitted as a practitioner in New Hebrides and acquired a residency permit for the period of twelve months which he subsequently renewed for a second term of two years.

The taxpayer's wife was expecting their first child at the time of their departure from Sydney. They had intended that she would be confined in Vila but being unhappy with the quality of medical treatment available there, she returned to Sydney for the birth of her child which occurred in February 1972. The taxpayer joined her in Sydney prior to Christmas and remained there on holiday for three weeks. He also came to Sydney for 3 days in March 1972 to collect his wife and child and return them to Vila. Apart from these two visits he and his wife and child remained in Vila for the balance of the year of income. Throughout that time and thereafter they lived in the leased dwelling house. Shortly after the birth of her child the wife of the taxpayer applied in Sydney for child endowment. The amount thereof was paid into the wife's mother's bank account at

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Wellington, New South Wales. The taxpayer was not aware either of his wife's application for or her receipt of child endowment.

Over Christmas 1972 the taxpayer and his wife and child holidayed for just over a month in New South Wales, otherwise remained in Vila throughout the year of income ended 30 June 1973. However about the middle of the calendar year 1973 the taxpayer became ill with what was ultimately diagnosed as typhoid fever. He was in hospital in Vila but went to Sydney for a week in July 1973 for specialist medical attention. His Sydney advisers recommended that ``he should take it easy'', and he was himself disinclined to return to Vila and live permanently in the tropical climate. The firm agreed that he should be replaced and he returned to Vila on 20 July 1973 for just over two months. On 29 September 1973 he, together with his wife and child returned to Sydney. It is not disputed that but for his illness he would not have returned to Sydney at this time, being happy and prepared to stay in Vila ``as long as necessary''. His position was taken by another employee of the firm, but the branch was closed down in 1975 in consequence of a falling off in international business.

Great significance was attached by the Commissioner to the taxpayer's state of mind, and in particular to his intentions in respect of returning to Australia. In his argument before the trial judge he submitted that because the taxpayer had the intention eventually to return to Australia, he could not qualify as a non-resident under the definition. This was, he said, because on its proper construction the particular subsection of the definition only applied where a taxpayer formed a firm intention to leave Australia forever but although he might live in another country, he had not formed the intention to make that other country his home. This submission was rejected, and in my view correctly rejected by the trial judge.

Before us the Commissioner's submission again placed great emphasis on the taxpayer's intentions in respect of his return to Australia. No person who was domiciled in Australia, he said, could be a non-resident unless he intended 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. It was only in these circumstances that a person could be said to have his permanent place of abode outside Australia.

Both of these tests to my mind attach too much significance to the taxpayer's subjective state of mind with reference to returning to Australia to be appropriate for present purposes. Moreover such a degree of subtlety is hardly warranted in the present context, namely of seeking to determine a taxpayer's residence, itself primarily question of fact. It would be a different matter if the issue was to his domicile with its attendant consequences for the personal law and status of the taxpayer.

To my mind the trial judge correctly found against the Commissioner. The taxpayer contended, and in that judge's view and in my view correctly contended, that the inquiry was whether there was a permanent place of abode outside Australia. Such an enquiry was to be determined upon objective consideration of the facts, one of which was the expressed intention of the taxpayer as to the length of time he will be outside Australia. Of crucial significance were not only the facts concerning his acquisition of a house in Vila, but also that he was intending and intended by his firm to remain indefinitely, albeit for a limited time.

The section is difficult to apply particularly if the emphasis is on subjective intention. It is made doubly difficult by the indiscriminate use of the differing concepts of domicile, residence, permanent place of abode and usual place of abode. Moreover the concept of permanence is used in a context in which it does not, and could not, bear its primary meaning of ``everlasting''. It would amount to a contradiction in terms to suggest that an independent person could be domiciled in Australia but with his permanent residence outside Australia, if permanent bears its ordinary meaning.

But it is clear that the meaning of permanent is far from intractable, and very much takes its colour from its context. As the Master of the Rolls, Lord Evershed said in
McClelland v. North Ireland Health Board (1957) 2 All. E.R. 129 at p. 140 :

``The word (permanent) is clearly capable, according to the context, of many shades of meaning.''

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In that case an advertisement offering ``permanent employment'' was not construed as employment for life but employment on the ``general'' as opposed to the temporary staff. The word ``permanent'' is a relative term and not necessarily synonymous with everlasting (see
Henriksen v. Grafton Hotel Ltd. (1942) 2 K.B. 184 at p. 196 du Parcq L.J.). Lord Clyde in
I.R. Commrs. v. Adam (1928) S.C. 738 spoke of a right which had been acquired for a period of eight years as having ``a relatively permanent character''. In McClelland's case (supra) Lord Keith indicated that he considered that a statement that a person holds a permanent post as very imprecise, saying at p. 136: ``it contains no indication of the degree of permanence''. Lord Denning M.R. also accepts that there are varying degrees of permanence holding in
Fox v. Stirk (1970) 2 Q.B. 463 at p. 470 , an electoral case, that ``a person may properly be said to be `resident' in a place when his stay there has a considerable degree of permanence''. Piper J. in
Tyers v. Barmera Packing Company Ltd. (1930) S.A.S.R. 123 at p. 125 held that in a contract of hiring, the word ``permanent'' was used by way of contrast with an ``occasional or seasonal hiring'' but that it did not bind either party for any term.

To my mind it is significant that the word ``permanent'' is used to qualify the expression ``place of abode'' i.e. the physical surroundings in which a person lives, and to describe that place. It does not necessarily direct attention to the taxpayer's state of mind in respect of that or any other place. Such a state of mind is crucial to the determination of his domicile i.e. his permanent ``home'', and if he retains his Australian domicile he is considered a resident of Australia until he acquires a place of abode of a particular character elsewhere. Such a place of abode may be his ``home'' for the time being but it is not his permanent home if he proposes ultimately making his home elsewhere. Should he, whilst living in his permanent place of abode, abandon his intention ultimately to make his home elsewhere, his permanent place of abode will become his permanent home. He will in consequence be held to have abandoned his Australian domicile and to have acquired a domicile of choice in the country of his home.

It follows that it is in my view proper to pay greater regard to the nature and quality of the use which a taxpayer makes of a particular place of abode for the purpose of determining whether it qualifies as his permanent place of abode. His intentions with respect to the duration of his residence is just one of the factors which has relevance. 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. It is to my mind perfectly consistent with the establishing of a home in a particular place that the taxpayer is aware that the duration of his enjoyment of the home, although indefinite in length, will be only for a limited period. The knowledge that eventually he will return to the country of his domicile does not in my opinion deny him a capacity to make his home outside of his country domicile. Such a conclusion is particularly open in the present circumstances where the taxpayer was not a completely free agent in the choice of when to return, it being a matter for negotiation between him and his employers.

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.

It follows then that in my opinion the intention of the taxpayer as far as returning to Australia is concerned is just one of the factors for consideration. But it is a factor which I consider has less significance than the taxpayer's intention in relation to his place of abode outside Australia. Intention to return to Australia is a crucial feature in considering whether the taxpayer has retained an Australian domicile. Intention to

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make his home for the time being in his place of abode outside Australia is an important element in characterising that place of abode as his ``permanent'' place of abode.

In the present matter I am of opinion that notwithstanding the fact that he intended ultimately to return to Australia, he was capable of establishing a permanent place of abode in the sense abovementioned outside of Australia. I have further formed the view that he did in fact establish such a permanent place of abode during the year of income. In the circumstances therefore he is a ``non-resident'' within the definition and exempt from Australian tax on his income derived from sources outside of Australia.

The appeal should be dismissed with costs.

ORDER:

The appeal is dismissed with costs.