Decision impact statement

The Engineering Manager and Commissioner of Taxation

Venue: Administrative Appeals Tribunal
Venue Reference No: 2014/0089
Judge Name: Senior Member Lazanas
Judgment date: 24 December 2014
Appeals on foot: No
Decision Outcome: Unfavourable to the Commissioner

Impacted Advice

Relevant Rulings/Determinations:

• None

Subject References:
Resident of Australia

Précis

Outlines the ATO's response to this case which concerned whether the taxpayer ["Mr M"] was a 'resident of Australia', as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), in the 2011 year.

Brief summary of facts

The facts as outlined reflect the oral and written evidence given by Mr M and his wife Mrs M and accepted by the Administrative Appeals Tribunal (AAT) in making the decision.

In 2003 Mr and Mrs M jointly purchased a residential property in the suburbs of Perth and built a house there to accommodate their family which included their four children [the Perth Property]. Mr M started working overseas in 2004 at about the same time that Mrs M and their four children moved into the Perth Property. Mrs M gave evidence that only some of Mr M's personal possessions, such as some clothes, were moved to and kept at the Perth Property. Mr M took 'his favourite personal belongings 'including squash gear, laptop, guitar and most of his clothes when he left Australia and lived overseas.

Mr M, an engineer, gave evidence that part of his decision to work overseas from 2004 was 'marital issues' he and Mrs M started having at around that time. Mrs M and the four children stayed in the Perth Property while he worked overseas. Mr M worked overseas for various employers in various locations - Thailand, South Korea, Qatar, Japan and Oman - from 2004 to 2011. Relevantly, Mr M's final overseas contract before returning permanently to Australia was in Oman from January 2010 to April 2011.

In January 2010 Mr M commenced work as an engineering manager in Oman on an ongoing project - he expected his role to continue for a considerable period. His contract was based on a one year term and was renewable annually. The contract was renewed in early 2011. The contract negotiated by Mr M entitled him to employer paid travel to Perth for each period of leave. He was entitled to about 14 days of leave every couple of months. Mr M stated he took as much leave as he could to return to Perth to see his children. His leave was subject to approval and did not follow a set pattern like that of a fly in fly out worker. His visa to work in Oman was renewable every two years.

In Oman Mr M lived alone in a house he leased privately. He had an employer provided car which he drove to work each day.

Mr M had a bank account in Oman into which his income from Oman was paid. He transferred the bulk of this income into an Australian bank account held jointly with his wife which was used by her to cover family living expenses. The balance of his income was used by Mr M to cover his living expenses in Oman.

Between 1 July 2010 and his permanent return to Australia in April 2011, Mr M travelled to Perth four times for approximately two weeks each time. He stated that the purpose of these trips was to see his children and spend as much time as possible with them. In doing so, he stayed at the Perth property where they lived with his wife for the duration of his stay. Mr M gave evidence he had been estranged from his wife since 2004 and that their relationship was on 'shaky ropes' during the 2011 year but that he had hoped it would improve. Mrs M gave evidence that she consulted a divorce lawyer in 2009.

Although Mr M had planned to return to Australia eventually, he had intended to continue to work overseas as he had done since 2004. He expected to remain in Oman for a considerable period. However he changed his mind in about April 2011 when Mrs M began to talk to him about how overwhelmed she was with raising their four children on her own. Mrs M wanted him to stop working overseas and return to Perth so that he could play a greater role in 'fathering' the children.

Issues Decided by the Tribunal

The question considered by the AAT was whether Mr M was a resident of Australia in the 2011 income year so that his assessable income included income derived from employment in Oman that year. In making this determination, the AAT considered the following questions:

•

did Mr M 'reside' in Australia in the 2011 year and,

•

given Mr M was domiciled in Australia in the 2011 year, was his permanent place of abode outside Australia?

After considering the evidence presented to it at the hearing, the AAT concluded that while a person can have more than one residence, this was not the case in relation to Mr M. Instead, the AAT concluded that for the period up until 29 April 2011, Mr M was not a resident of Australia. It was also satisfied that until that date, Mr M's permanent place of abode was outside Australia.

In making its decision the AAT considered a number of the relevant authorities on residency and referred to a recent decision of the AAT Re Dempsey v Commissioner of Taxation which canvassed the law with respect to an individual's residency in Australia for tax purposes. The AAT noted Rich J's emphasis in Federal Commissioner of Taxation v Miller that the word resides 'is an ordinary English word extending over a field the boundaries of which constitute a broad limbo with blurred edges'. The High Court noted in Miller that 'the question as to where someone resided entailed questions of degree and was one of fact' [51 and 54].

The AAT also noted Dixon's observations in Gregory v Deputy Commissioner of Taxation that it had long been settled that a person could 'reside in two or more places' but found that Mr M did not have more than one residence (paragraphs 51 and 54).

The AAT found that Mr M intended to return to Perth eventually. The AAT also accepted Mr M's evidence that he had intended to continue to pursue his career overseas as he had done since 2004 and that he expected to remain in Oman for a considerable period of time due to the size and ongoing nature of the project he was employed on. The AAT accepted the evidence of Mr and Mrs M that he changed his mind about remaining overseas in about April 2011, due to family circumstances and his wife's urging, and returned to Perth permanently in April 2011.

The AAT stated that whether a person is a resident of Australia is determined on the totality of the taxpayer's factual circumstances and not those of his or her family unit. The AAT found that for the most part Mr M 'was not physically present in Australia nor did he intend to live in Australia'. It noted that Mr M's attachment to his work was a very significant factor in deciding he was not a resident when weighed 'with other considerations'. The AAT considered that Mr M's connection with his children and travel back to Perth to see them was a significant factor but not determinative of the question of whether he was a resident of Australia. It also noted that Mr M's 'far from harmonious' marital relationship was a 'very significant factor' (paragraphs 55 to 56). The AAT also concluded that Mr M did not regard the Perth Property as home during the relevant year (paragraph 57).

The AAT also referred to Federal Commissioner of Taxation v Applegate the principal authority on the meaning of 'permanent place of abode' in section 6 of ITAA 1936. Fisher J in Applegate held that the proper construction of that term was that it is 'the taxpayer's fixed and habitual place of abode' and the factors he particularly relied on to assess that were the continuity or otherwise of the taxpayer's presence, the duration of his presence and the durability of his association with the particular place. The AAT also relied on Sheahan J in Commissioner of Taxation v Jenkins to find that a stay outside of Australia by a person for a fixed period is not prevented from being 'permanent' in the relevant sense simply because the stay is for a fixed period. The AAT found that Mr M's permanent place of abode was outside Australia even though he intended to return to Australia in the future (and in fact did return in April 2011). It found that Mr M had established his fixed and habitual place of abode in Oman close to his work. The AAT considered that Mr M's intention to treat Oman as his home for the time being was an important aspect of that finding.

ATO view of decision

The Tribunal has approached the question of residency by weighing the facts and circumstances it considered relevant. This is consistent with the ATO's approach to issues of residency, including the ATO view expressed in IT 2650.

The ATO considers that the AAT's decision creates no new law in this area.

Whether a person who leaves Australia to live and work overseas for a period of time remains an Australian resident for income tax purposes will depend on their particular circumstances. More information can be found in the International Tax for Individuals section of the ATO website (https://www.ato.gov.au/Individuals/International-tax-for-individuals/).

Administrative Treatment

The decision of the AAT does not change the ATO's approach to residency cases. As concluded by the AAT, these matters involve questions of fact and degree and different facts may result in different conclusions as to residency. The ATO will continue to approach residency cases by weighing all the relevant facts and circumstances and applying the relevant tax law and authorities to those facts.

Implications for impacted ATO precedential documents (Public Rulings and Determinations)

None

Implications for impacted Law Administration Practice Statements

None

Court citation:
[2014] AATA 969
2014 ATC 1-071

Legislative References:
Income Tax Assessment Act 1936
6(1)

Case References:
Commissioner of Taxation v Jenkins
(1982) 12 ATR 745
82 ATC 4098

Federal Commissioner of Taxation v Applegate
[1979] FCA 66
(1979) 9 ATR 899
79 ATC 4307

Federal Commissioner of Taxation v Miller
(1946) 73 CLR 93
(1946) 8 ATD 146

Gregory v Deputy Commissioner of Taxation
(1937) 57 CLR 774
(1937) 4 ATD 397

Re Dempsey and Commissioner of Taxation
[2014] AATA 335
2014 ATC 10-363