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SHAND v FC of T

Members:
D Muller DP

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2003] AATA 279

Decision date: 26 March 2003

D Muller (Deputy President)

This is an application to review objection decisions that Robert Martin Shand, the Applicant taxpayer, was to be considered an Australian resident for the purposes of the Income Tax Assessment Act 1936 (the Act) for the year ended 30 June 1995 and 30 June 1996.

2. During the income tax years ended 30 June 1995 and 1996, Mr. Shand travelled on numerous occasions between Australia and Kuwait, as well as to other countries, in his capacity as representative for Western Star Trucks Inc (WSTI), a company incorporated in Canada.

3. In the 1995 tax year, Mr. Shand spent a total of 257 days outside Australia and in the 1996 year he spent a total of 193 days outside Australia. A large proportion of the time outside Australia was spent in Kuwait.

4. In the years in question Mr. Shand held a residency visa for Kuwait which was valid until January 1997.

5. Mr. Shand resigned from WSTI in June 1996 and returned from Kuwait to live with his spouse in Australia.

6. The questions for determination by the Tribunal are:

  • (1) Whether the Applicant was a resident of Australia for the purposes of the Act in the income tax years ending 30 June 1995 and 30 June 1996.
  • (2) Whether a penalty of 25% should have been imposed pursuant to s 226K of the Act.

7. The following background facts are not in dispute and the Tribunal finds as follows:

  • (1) Mr. Shand's parents were both Canadian. He was born in Quebec on 17 December 1934 and he grew up in Canada. Mr. Shand's wife, Jean and her family were also Canadian. They were married in Canada and their two children were born in Canada. They lived in Canada until 1972.
  • (2) In early 1972 Mr. Shand was employed in Canada by the White Motor Corporation Inc. of Cleveland, Ohio. Mr. Shand was approached by White Motor Corporation Inc. to see if he was interested in relocating to Australia to start up a new company called White Motor Corporation of Australia Pty Ltd and to take over the management of its truck operation in Australia, which had become dormant. In February 1972, Mr. Shand visited Australia. He spent a number of weeks evaluating what was going on here before travelling to South Africa.
  • (3) Mr. Shand decided to accept the position as manager of the truck division in Australia. He and his family arrived in Australia in May 1972. Mr. Shand was aged about 38 at the time and his two children were aged about 11 and 13. Mr. Shand and his family hired a 20 foot shipping container to transfer their personal possessions from Canada to Australia.
  • (4) Mr. Shand sold his home before leaving Canada and shortly after arriving in Australia he and his wife purchased a house at Fig Tree Pocket in Brisbane. That suburb was badly affected by the 1974 floods. Mr. and Mrs. Shand purchased land at Bellbowrie, an outer suburb of Brisbane, and in 1977 they built a house on that land as their new home. At the time, the land cost about $15,000 to purchase, and the house cost about $50,000 to build.
  • (5) At the time of leaving Canada Mr. Shand owned a small farm which was shortly afterwards transferred to his sister to keep it in the family. Mr. Shand has continued to maintain in Canada a bank account, a modest life insurance policy with a Canadian insurer, both of which he established in 1955 and Quebec health insurance. Mr. Shand and his family intended to stay in Australia for an indefinite period - ``as long as it suited them'' - but

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    thought that they would probably eventually return to Canada to live, depending on what their children decided to do.
  • (6) In 1981 White Motor Corporation Inc. became insolvent and subsequently, around 1982, went into liquidation. The future of the Canadian subsidiaries (``White Trucks Canada Ltd and its subsidiary Western Star Trucks Inc'') and the Australian subsidiary was unclear at the time. Subsequently the United States based assets of White Motor Corporation were purchased by Volvo. The Canadian subsidiary, Western Star Trucks Inc. was purchased by Nova Corporation Inc. and Bovar Investments Inc. and continued to carry on operations at Kelowna, British Columbia.
  • (7) Mr. Shand was unemployed during 1982. He lived at Bellbowrie for that period. He conducted negotiations with the Canadian corporation, Western Star Trucks Inc. to obtain a license to distribute trucks in Australia.
  • (8) In February 1983, Mr. Shand became one of the directors of Western Star Trucks (Australasia) Pty Ltd and his family company became a shareholder in that company. Mr. Shand's family company paid about $25,000 to acquire its interest in the Australian company. Initially, Mr. Shand's company was one of three shareholders but later it was only one of two shareholders holding 24% of the issued shares.
  • (9) In 1983, Western Star Trucks (Australasia) Pty Ltd commenced operations with a franchise from Western Star Trucks Inc, with some former core employees of White Motor Corporation of Australia Pty Ltd and with some plant acquired in the liquidation of White Motor Corporation. Mr. Shand was the general manager of the company due to his experience in the manufacture, assembly and distribution of trucks.
  • (10) In 1988-1989, Mr. Shand made renovations to the house at Bellbowrie. He built a large recreation room underneath the original high set house and a swimming pool at a cost of approximately $100,000. He and his family had decided that they intended to live in Australia permanently.
  • (11) In 1990 Nova Corporation Inc and Bovar Investments Inc were trying to sell Western Star Trucks Inc Canada. Western Star Trucks (Australasia) Pty Ltd had entered into negotiations with DAF Trucks of the Netherlands and another party to acquire Western Star. DAF Trucks was a major Dutch truck manufacturer. Western Star Trucks (Australasia) Pty Ltd had acquired the business and the assets of DAF Trucks Australasia.
  • (12) In January 1991, Mr. Shand received a telephone call from a director of Nova Corp Inc of Canada alerting him to the fact that Western Star Trucks Inc. was going to be placed into liquidation the following day. On the same day, Mr. Shand telephoned an official of the British Columbian government and obtained a stay for seven to ten days which was subsequently extended. The next day Mr. Shand travelled to Canada to conduct negotiations for the acquisition of the company. (Travel records show a departure on 15 January 1991 and return on 9 February 1991 and another departure on 28 February 1991 and return on 29 April 1991.)
  • (13) The Australian company, Western Star Trucks (Australasia) Pty Ltd, had a very big investment of inventories and stock here in Australia and could not survive if their main supply points for engineering, materials, designs and ancillary items failed. Furthermore, if the company that owned the brand name Western Star went into liquidation, that would result in a loss in value of the Australian company and in the value of the inventories and spare parts.
  • (14) Western Star International Pte Ltd (incorporated in Singapore) and Western Star Trucks Holdings Ltd (incorporated in British Columbia) were established with a view to acquiring the shares in Western Star Trucks Inc., Canada.
  • (15) However, the majority shareholder of Western Star Trucks (Australasia) Pty Ltd was not prepared to proceed with the purchase of Western Star Trucks Inc Canada, unless Mr. Shand agreed to return to live in Canada and manage the operations of the Canadian company. Mr. Shand agreed to this condition. Mr. Shand expected that if he was successful in turning the company around he would be living in Canada permanently. It was also agreed with Mr. Shand that his 24 percent shareholding in

    ATC 2083

    the Australian company, Western Star Trucks (Australasia) Pty Ltd, would be converted into shares with an equivalent value in the Canadian company, which would have brought his shareholding in the Canadian company to somewhere between eight and ten percent of the issued shares. However, negotiations about the precise percentage were not conclusive, no agreement was ever finally reached in writing. Mr. Shand never acquired any shares in the Canadian company under or as a result of this agreement.
  • (16) The shares in Western Star Trucks Inc. Canada were acquired by Western Star Trucks Holdings Ltd, effective on 12 March 1991. The Canadian company was acquired with backing of the government of British Columbia (a provincial loan of $C5.5M) because the company employed many people at Kelowna in that province.
  • (17) Mr. Shand was Vice President of the company. The senior executive in charge of Western Star Trucks Inc. His role was to restructure the whole company. In the first part of 1991 the company, Western Star Trucks Inc was recapitalised and restructured, costs were cut, offices were closed and new people were recruited.
  • (18) Western Star trucks Inc lodged a tender to supply 2750 military trucks to the Canadian Minister of Defence within a few days after the acquisition of the company. Mr. Shand was heavily involved in the negotiations for the tender and for the contract.
  • (19) On 20 April 1991, Mr. Shand arrived back in Australia. Four days later, on 28 April 1991, Mr. and Mrs. Shand both flew to Canada on the same flight. Initially, Mr. and Mrs. Shand rented a furnished apartment but after a few months they moved into a furnished home at 1525 Alberta Court, Kenowla, which was provided by the company, Western Star Trucks Inc. Mr. and Mrs. Shand took no furniture with them to Canada. They took clothing only.
  • (20) In 1991, immediately after the Kuwait war, Mr. Shand first visited Kuwait and negotiated the sale of approximately 50 trucks to the Kuwait Oil Company and Santa Fe Drilling Corporation (which was owned by Kuwait Petroleum Corporation). Subsequently about 63 trucks were supplied between 1991 to 1993.
  • (21) When Mr. and Mrs. Shand left for Canada in 1991, their daughter and her family (her husband and their two children) moved into their house at Bellbowrie and lived their during 1991 and 1992. Their daughter was having financial and marital difficulties, which later resulted in her separation from her husband sometime between 1996 and 1998 and subsequent divorce. Their daughter and her family lived at the Bellbowrie home during 1991 and 1992 until early 1993, when Mr. Shand gave them a down payment for the purchase of a house of their own in the western suburbs of Brisbane.
  • (22) On 8 August 1991, Mr. and Mrs. Shand visited Australia (having been away about 102 days) for less than 2½ weeks before returning to Canada on 25 August 1991.
  • (23) In August 1991, Mrs. Shand took their passports to the Immigration Office to have their visas renewed. Their visas were only valid for five years (the life the visa was the life of the Canadian passport, which was five years). There was a problem with renewing Mr. Shand's residency visa. The officer in charge explained that the holder of such a visa was required to remain in Australia for a minimum number of days in a two year period. Mr. Shand was said to be on the borderline. He was called in for an interview because of the amount of time he had spent overseas. Mr. Shand was found to be about two days under the limit for absence from Australia and a new visa (6920076141 1) was granted on 22 August 1991 on Canadian passport PZ284025. (The visa category appears to have been changed from Category ``R'' to ``BF-155P000''.) However, the immigration officer suggested he take out Australian citizenship and to obtain an Australian passport to permit entry into Australia. Mr. Shand decided to take advantage of the convenience of having dual citizenship and the possession of two Australian passports (one for doing business in Israel and one for doing business in the Moslem countries).
  • (24) Mr. and Mrs. Shand subsequently applied for Australian citizenship by application dated 30 March 1992. They became Australian citizens in November

    ATC 2084

    1992 and were issued with Australian passports in early 1993.
  • (25) At all times since first arriving in Australia, Mr. and Mrs. Shand have maintained their Canadian citizenship and held Canadian passports which Mr. Shand used in North America and elsewhere.
  • (26) On 25 August 1991, Mr. and Mrs. Shand again departed for Canada, where they both remained until mid December 1991. (Mrs. Shand arrived in Australia on 11 December 1991 and Mr. Shand arrived on 15 December 1991, having been away for about 112 days.)
  • (27) When Mr. and Mrs. Shand visited Australia during 1991 and 1992, they stayed with their daughter's family in the Bellbowrie house but slept in the recreation room under the house. Mr. and Mrs. Shand set up a bed in the recreation room and a curtain and divider so that they could have some privacy.
  • (28) In September or October 1991, Western Star Trucks Inc. entered into a deal with DAF Trucks of Holland to utilise their existing international dealer network around the world to market Western Star Trucks through their dealerships. The government of the Province of British Columbia advanced or provided a loan arrangement to Western Star with an advance of $3.5M to cover the costs of Western Star in the implementation of this project.
  • (29) On 30 October 1991, Western Star Trucks Inc. was formally advised that it had been awarded a contract worth about $200M to build 2,750 light trucks for the Canadian armed forces. Because of an extended period of negotiations, the contract to supply the light trucks to the Canadian military was not signed until 2 March 1992. The contract was subsequently amended on 15 July 1992 to increase the number of trucks to be supplied to 2,850.
  • (30) In January 1992, Mr. and Mrs. Shand consulted a real estate agent to obtain an informal appraisal of the house at Bellbowrie with a view to selling the house because of the commitment he had made to move to Canada. By a letter dated 21 January 1992, from The Professionals to Mr. and Mrs. Shand, the real estate agent expressed the opinion that the house had a market value in the range of $250,000 and $275,000. The real estate agent advised the Shands that they had overcapitalised the property and that they should add a fourth bedroom and tidy up the end of the house by adding a carport.
  • (31) By a memorandum of transfer dated 30 January 1992, Mr. Shand transferred his share in the house at Bellbowrie to Mrs. Shand. The stamp duty on the transfer was calculated on a value of $130,000 for the transfer of the share. Mr. Shand gave evidence that he transferred his share in the house to his wife primarily to facilitate the sale of the house while he was overseas. The transfer documents would only need one signature if his wife was the sole owner.
  • (32) Mr. Shand was in Canada (principally) from 2 February 1992 to 29 March 1992, 11 April 1992 to 29 May 1992 and 12 June 1992 to 1 July 1992 (about 122 days out of 183 days in the first six months of the calendar year). Mrs. Shand was overseas from 2 February 1992 until 28 March 1992 and again left on 19 April 1992 and remained overseas until 5 August 1992 (whereas Mr. Shand had travelled backwards and forwards a number of times by himself in that period, including a further flight by himself from 17 July 1992 until 5 August 1992). During this period, Mrs. Shand remained in Canada while her husband was regularly visiting Australia.
  • (33) In May 1992, Mr. Shand was asked to come to Australia with a group of Canadian managers, Western Star people, to investigate and evaluate a proposed merger with the Ford Truck operations. He was in Australia to negotiate terms and conditions and evaluate the prospects of merging their truck operations together and then to go back to Canada. The exercise was finished in September 1992. The merger did not proceed.
  • (34) On 5 September 1992, at the end of the preparation of the feasibility study for the merger with Ford trucks in Australia, Mr. Shand left Australia to visit a remote logging camp in East Kalimantan. He returned to Australia on 19 September 1992.
  • (35) Following the termination of the merger negotiations with Ford Trucks in September 1992, Western Star Trucks (Australasia) Pty Ltd began to be restructured for sale to

    ATC 2085

    Western Star Trucks Inc. Canada. As a result of that restructure, Western Star Trucks (Australasia) Pty Ltd became an importer of the product made in Canada. They were distributing the product throughout Australia and New Zealand through a dealer system. About 120 people were put out of work in Australia and what was left was essentially a sales force, with one engineer left on staff here, whose only role was to ensure that the product met the Australian design rules.
  • (36) On or about 30 October 1992, Mr. Shand ceased to be a director of Western Star Trucks (Australasia) Pty Ltd and at or about that time his family company's shareholding in Western Star Trucks (Australasia) Pty Ltd was terminated for a nominal consideration.
  • (37) On 23 November 1992, Mr. Shand left Australia on a flight going to East Kalimantan via Singapore and Jakarta and from there he was scheduled to go to Seoul and then Canada. Mr. Shand had experienced problems with neck pain from July 1992 and while in Kalimantan he broke off his journey because of very severe pain. He returned to Singapore, where he met his wife who had taken his medical records to Singapore. He consulted a doctor who put him in a brace and advised immediate surgery. On Wednesday 2 December 1992, Mr. and Mrs. Shand travelled from Singapore to Brisbane. He visited a surgeon on the Friday and was operated on the following Monday. During December 1992 - January 1993 he was on sick leave for about six weeks and recuperated in the recreation room underneath the Bellbowrie house. His daughter's family were still living in the house at the time. Mr. Shand continued to wear the neck brace for approximately six months after the operation. His daughter and her family moved out of the Bellbowrie house into their own home in early 1993. Mr. and Mrs. Shand then moved back into the Bellbowrie house. They also had a rented house in Canada at this stage.
  • (38) In mid-January 1993, Mr. Shand returned to work to negotiate the redundancy package with the Australian Vehicle Builders Union on the termination pay for about 120 people who were to lose their jobs.
  • (39) After Mr. Shand finished the union negotiations in January 1993, he resigned his directorship of Western Star Trucks Inc Canada. He still retained the title Vice President of that company.
  • (40) Mr. Shand's role became international sales. His first trip in this role was to Freeport (in Irian Jaya) in February 1993. Then from Freeport to Canada and later to Kuwait. Mr. Shand's role in 1993/94 and 1995/96 was to develop markets in the Middle East for certain types of trucks and one of those was the military market.
  • (41) The improvements to the house at Bellbowrie, recommended by the real estate agents, were delayed during 1992-1994 because Mr. Shand was concentrating on the Canadian business and then the Kuwait business. In 1994, Mr. Shand engaged a friend of his to draw up plans for the improvements which were lodged with the Council for approval, which was granted in June 1995. The plumbing required a separate application and for external changes an application had to be filed with the Council. The work commenced in 1995, but the completion of the improvements was delayed by a major hail storm in November 1995, which severely damaged the roof of the house. The roof had to be replaced and there was a dispute about the insurance cover. The work was not completed until early 1996.
  • (42) In February 1993 there was a problem with the first delivery of Western Star Trucks to Freeport Mine in Irian Jaya. On 24 February 1993 Mr. Shand travelled to the mine to find out what the problem was and arrange for it to be fixed. (The problem was found to be the design of the transfer case in the gear box.) Mr Shand returned to Australia and on 21 March 1993 flew to Canada to inter alia provide information to the engineers working on the gear box problem.
  • (43) In late March 1993, Mr. Shand flew from Canada to Kuwait before returning to Australia via Singapore on 23 April 1993. In March 1993, Western Star Trucks Inc Canada entered into agreements in writing with El-Hoss Engineering and Transport Co WLL of Kuwait, as its commercial agent (to

    ATC 2086

    provide service and support and spare parts including warranty support) and the Delta Group (to provide lobbying, sales and marketing assistance), which were signed and registered with the Kuwaiti authorities. The agreements were signed in Kuwait by Mr. Shand under the corporate seal.
  • (44) A foreign company could not establish its own branch in Kuwait and could not engage in commercial activities except through a commercial agent. The commercial agent was entitled to a minimum of 10% commission.
  • (45) On 28 April 1993, Mr. Shand sent a fax to representatives of the commercial agent and the political agent for Western Star Trucks Inc in Kuwait notifying them that the Export Development Corporation of Canada had available a $500M line of credit for financing 85% of the sale price of Canadian goods and services to buyers in Kuwait.
  • (46) On 18 May 1993 Mr. Shand flew via Singapore to Kuwait and returned to Australia via Singapore on 1 June 1993. The flight on 18 May 1993 appears to have been the first occasion Mr. Shand used the Australian passport. The Australian passport also has an entry visa dated 14 May 1993 issued by the Saudi Arabian Consulate in Sydney. Mr. Shand was visiting Kuwait and conducting negotiations in relation to a letter of interest for the sale of approximately 3000 heavy duty trucks to the Ministry of Defence, Kuwait using finance provided by the Export Development Corporation of Canada.
  • (47) The two visits to Kuwait in early 1993 were to meet the official in charge of the evaluation committee who explained what the Ministry of Defence's requirements were and the volume of trucks required (he indicated a volume of 2,200 trucks). Based on these briefings, a ``Financial and Technical Summary Document'' was prepared in Canada.
  • (48) Under a letter dated 12 June 1993, Western Star Trucks Inc made its first written submission (Financial and Technical Summary Document) to the Under Secretary of the Ministry of Defence in relation to the tender for the supply of military trucks. Mr. Shand was named as the signatory to the letter dated 12 June 1993 and described as ``Executive Vice President - International Operations''. The document highlighted three or four models of trucks, their capabilities and their technical specifications. On the basis of that document, Western Star Trucks Inc were invited to bring trucks into Kuwait to have them evaluated.
  • (49) On 28 June 1993, Western Star Trucks Inc acquired all the issued shares in a new company called Western Star Trucks (Australia) Pty Ltd for nominal consideration and that company, Western Star Trucks (Australia) Pty Ltd, then purchased all the assets and business of the previously existing Australian company, Western Star Trucks (Australasia) Pty Ltd, for approximately $5.3M, based on a valuation conducted by chartered accountants.
  • (50) In the second half of 1993, Mr. Shand was working predominantly in the Middle East, with frequent trips to Canada.
  • (51) On 10 July 1993, Mr. and Mrs. Shand both flew to Canada and on 21 August 1993 arrived in Australia via Singapore. In early September 1993, Mr. Shand obtained visas for Freeport, Indonesia and Saudi Arabia (but does not appear to have used them). On 21 September 1993, Mr. Shand departed Australia via Singapore and on 27 November 1993 returned to Australia via Singapore. For part of this second period, Mrs. Shand was also overseas for 22 days (leaving on 21 October 1993 and arriving on 12 November 1993).
  • (52) In or around October 1993, the first 4×4 seven tonne military truck arrived in Kuwait for evaluation in a Lufthansa 747. Western Star Trucks Inc was the first in the world to design and build a 4×4 military truck with a rating of seven tonne. The company was applying for the supply of about 1500 of these trucks and about 150 heavy duty trucks to the Kuwait Ministry of Defence.
  • (53) On 18 December 1993, Mr. Shand again departed from Australia via Singapore and returned on a direct flight from Bahrain via Singapore on 23 December 1993.
  • (54) The evaluation of the trucks took place in Kuwait in late 1993, early 1994. However, the formal evaluation report on Western Star's M4844 (which appears to be the 4×4 truck of seven tonnes) had not been

    ATC 2087

    completed by 25 May 1994, although it was expected within a few weeks of that date.
  • (55) In the first half of 1994, Mr. Shand was spending more and more time visiting Kuwait and did so every month for the first half year. He departed Australia for Kuwait on 8 January 1994 and arrived back on 5 February 1994, only to have to leave again the next day and remain there until 17 February 1994. On 16 March 1994 he again travelled to Kuwait until 31 March 1994 and on 16 April 1994 he again travelled to Kuwait until 13 May 1994. During the income tax year ending 30 June 1994, Mr. Shand spent 231 days outside Australia.
  • (56) By May 1994, the level of activity had grown continuously and it was obvious that Western Star Trucks Inc would be successful. There was an expectation that the Kuwait contract would be awarded in June 1994.
  • (57) By letter dated 25 May 1994, El-Hoss Engineering & Transport WLL wrote to Mr. Shand, Western Star Trucks Inc. Canada, referring to the two projects (to supply trucks to the Ministry of Defence and the National Guard) and suggesting he reconsider living in Kuwait. El-Hoss offered to provide office accommodation and storage area, to sponsor his residency visa and to provide accommodation in the El- Hoss Apartments for Mr. Shand and his wife. It was expected that the projects would be very demanding over the following year or two.
  • (58) Mr. Shand had been previously asked by the political agent as well as the commercial agent if he would move to Kuwait (ie open an office and live there) some time before receiving this letter. In early June 1994, Mr. Shand decided to accept the offer from El-Hoss.
  • (59) On 4 June 1994, Mr. and Mrs. Shand left Australia and flew to Kuwait via Dubai (before later flying on to Canada). Dubai is a hub for international flights where one stops in transit to Kuwait.
  • (60) On 5 June 1994, Mr. and Mrs. Shand opened a bank account with Lloyds Bank in Dubai and made an opening deposit on that date of $US3,383.00. Mr. Shand did not want to have a bank account in Kuwait, so he opened it in the United Arab Emirates.
  • (61) On 6 June 1994, Mr. and Mrs. Shand arrived in Kuwait where they remained until 20 June 1994 when they departed for Canada. Upon arriving in Kuwait they went to the villa where their apartment was in the suburb of Salmiya in Kuwait city. Exhibit 12 is a photograph of the apartment in the villa. Prior to this period, Mr. Shand had stayed in hotels when visiting Kuwait. However, under the deal made between Western Star Trucks Inc and El-Hoss Engineering & Transport Co. WLL, they were to provide him (and Mrs. Shand) with free accommodation in one of their villas. (The cost of the rent was borne by El-Hoss itself and was not recharged to Western Star Trucks Inc. or passed on to Mr. Shand.) Mr. and Mrs. Shand took clothes only to Kuwait.
  • (62) Mr. Shand (with Mrs. Shand from time to time) was the only occupant of the apartment in the villa during the following two years which were the years of income the subject of this review, that is, 1994/95 and 1995/96. They had air conditioning installed at his request, kept personal possessions in the apartment during those two years of income and came and went at his convenience during those two years of income (until 3 June 1996 when Mr. Shand departed for Canada for the last time).
  • (63) It soon became clear to Mr. and Mrs. Shand that it would be impossible for Mrs. Shand to live in Kuwait. She could not venture outside the unit on her own. She was not permitted to drive a car. They regarded Kuwait as a terrible place to live. Mr. Shand went to Kuwait solely for business purposes. He never went to Kuwait for pleasure. He never stayed in Kuwait longer than was necessary to negotiate or finalise contracts.
  • (64) El-Hoss Engineering & Transport Co WLL carried on business from premises in Lot 6 in the city of Ahmadi, about 45 kilometres south of Kuwait city. Under the arrangements agreed to by that company, the company agreed to renovate an area of their offices, which they did, to provide record storage and two offices, one for Mr. Shand and the other for visiting Western Star staff. Another area in lot 9 was to be turned into the location for servicing military vehicles, once those facilities had been approved by the military.

    ATC 2088

  • (65) After Mr. Shand arrived in Kuwait on 6 June 1994, he set up these offices. The office provided to Western Star Trucks Inc was a private office with a separate lockable entrance to it. There was an entrance with a locked door that opened up into a small vestibule and then there were two offices. All the records were kept in the office - there were three or four filing cabinets in that office that contained all the paperwork - submissions - everything to do with the projects. That office and all those records are still there.
  • (66) Under the arrangements made with El- Hoss Engineering & Transport Co WLL, Western Star Trucks Inc did not pay rent for the offices to El- Hoss or its Kuwaiti landlord, but all the costs of operating the office and telephones, faxes, paper, photocopying, the secretarial work, were recharged to Canada.
  • (67) Under the laws of Kuwait, a foreigner could not own property in Kuwait. A WLL company was one of the two forms of limited liability company in which foreign individuals or companies could conduct business in Kuwait. Consequently, the arrangements made by Western Star Trucks Inc for accommodation and office space were made to avoid difficulties with the local laws of Kuwait.
  • (68) By a facsimile message dated 10 June 1994 from Mr. Shand to Stewart Smith (the financial controller at Western Star Trucks Inc Canada), Mr. Shand notified the company of the details of his bank account at Lloyds Bank, Dubai and requested inter alia that an amount of $US143,810, which included $US2,300 (visa), be transferred to the bank account as soon as possible and that from 1 July his monthly salary totalling $US11,357 be transferred to that account. (In addition to his salary, Mr. Shand was entitled to a commission or incentive of 2% or 2.5% upon the value of the annual sales over a threshold value, payable at the end of the financial year. However, no commission was ever paid.
  • (69) In the years of income from March 1991 up to 30 June 1994, even though Mr. Shand was working for Western Star Trucks Inc Canada, he was on the Transpacific payroll and his salary was being paid to him in Australia, first by Western Star Trucks (Australasia) Pty Ltd prior to the corporate restructure on 28 June 1993 and thereafter by Western Star Trucks (Australia) Pty Ltd. Transpacific had been administering a computerised payroll system and a superannuation program for these companies for a number of years.
  • (70) In June 1994, Transpacific suddenly terminated its payroll and superannuation arrangements for all non-Transpacific employees, with effect from 1 July 1994.
  • (71) For the year of income up to 30 June 1994, Mr. Shand participated in a salary sacrifice program in order to maximise his employer's superannuation contributions. When Mr. Shand started the company, for the first years, his salary was purposely low because it was in the interests of the shareholders of the company to build up the company from nothing. That salary grew as the years progressed, but Mr. Shand's salary was kept low, approximately $40,000 or so a year after salary sacrifice, as the maximum amount was being contributed to the Transpacific superannuation fund.
  • (72) Because the Transpacific superannuation fund was to close as at 30 June 1994, Mr. Shand had to make some arrangement about his existing superannuation entitlement. Mr. Shand was on his way out of the country and only had about one week to roll over the funds. He did not get involved in any detailed discussions about what to do. He simply made a couple of telephone calls and rolled over the superannuation funds to MLC. At a later time, Mr. Shand rolled the fund over again to Hannan & Co and then to a personal superannuation fund administered by Bentleys because of commissions and fees the professional managers were charging.
  • (73) In the facsimile dated 10 June 1994, the sum of $US2,300 was for the cost of applying for the residency permit in Kuwait. Under Kuwaiti law, a non-resident cannot live in Kuwait unless he or she is sponsored and has a residency permit. Mr. Shand applied for a residency visa. Obtaining a residency permit took several months because Mr. Shand had to undergo a medical examination and police report. Mr. Shand's residency permit was eventually entered on his Australian passport in January 1995. The

    ATC 2089

    residency permit became invalid if one was absent outside the country for more than six months.
  • (74) Mr. Shand also obtained a civil identity card and a driver's licence. He later obtained a temporary Ministry of Defence Entry Permit for the period from 12 September 1995 to 11 December 1995.
  • (75) From 1 July 1994, Mr. Shand's monthly salary was paid by wire transfer from Western Star Trucks Inc Canada to his bank account with Lloyds Bank in Dubai (see T35 pages 402 to 408) and bank account entries marked ``Western St'' on the bank statements (T25 pages 306 to 328). No personal income tax was payable to the Kuwait government.
  • (76) As mentioned above, on 4 June 1994, Mr. and Mrs. Shand had flown from Australia to Kuwait and on 22 June 1994 departed Kuwait for Canada. Mr. Shand was about to travel back to Kuwait when he received news that his mother was seriously ill. On 11 July 1994, Mr. and Mrs. Shand arrived in Australia. Mr. Shand's mother died on 4 or 6 August 1994.
  • (77) Mr. Shand's mother had suffered from cancer some years earlier and was suffering from dementia. His sister in the United States looked after her for some time but was then financially unable to do so. While Mr. Shand was working in Canada in 1991-1992, he arranged for her to be looked after in a nursing home in British Columbia for about 1½ years. When Mr. Shand's role of managing Western Star Trucks in Canada ceased and he took on the role of international business, he arranged for his mother to be moved to Brisbane because his brother was in Australia at the time. Subsequently, that arrangement did not work and his mother was being looked after in a nursing home in Brisbane at the time of her death. After attending his mother's funeral, Mr. Shand arranged for her ashes to be sent to Canada for burial.
  • (78) On 26 August 1994 Mr. Shand flew to Kuwait via Singapore and did not arrive back in Australia until 16 December 1994.
  • (79) By a letter dated 12 September 1994, executed under the corporate seal of Western Star Trucks Inc, Mr. Shand was authorised to sign contracts on behalf of Western Star Trucks Inc.
  • (80) In September and October 1994, Mr. Shand was working on the military contracts when Iraq moved their army back to the Kuwait border. The letter dated 3 October 1994 (Exhibit 10, tab 23) contains a summary of their activities at that point of time immediately before the emergency. By letter dated 9 October 1994, Mr. Shand wrote to the Under-Secretary of the Ministry of Defence in relation to the emergency and the response on the tender that was under consideration. Confirmation of the emergency also appears in the copy of the Consular Travel Advice for Kuwait dated 10 October 1994 issued by the Department of Foreign Affairs and Trade.
  • (81) On 8 October 1994, Mrs. Shand flew to Kuwait and did not return to Australia until 9 November 1994. Mr. Shand received a telephone call from his daughter at the time of Mrs. Shand's departure from Australia, upset about her mother's departure at that time. Mrs. Shand stayed at the villa during that period, notwithstanding that Kuwait was immediately evacuated by westerners except for military people who were arriving in force.
  • (82) On 11 November 1994, Mr. Shand negotiated and signed a protocol on behalf of Western Star Trucks Inc for a feasibility study into the supply of 61 trucks to carry Russian Smersh missiles.
  • (83) Negotiations had recommenced in mid November 1994 in relation to the supply of trucks, as is evidenced by the correspondence dated 15 and 16 November 1994 and 19 and 22 November 1994. The letter dated 19 November 1994 refers to a logistics contract with a value of $C150M.
  • (84) During this period, Mr. Shand also visited Saudi Arabia for three days in relation to a large account with the Consolidated Electrical Commission.
  • (85) In the last quarter of 1994, at Mr. Shand's request, steps were being taken for the renovation of the house at Bellbowrie for sale. Mr. Shand claims that it was in contemplation of the return to Canada of him and his wife.
  • (86) On 16 December 1994, Mr. Shand left Kuwait to visit Mrs. Shand in Australia. On

    ATC 2090

    6 January 1995, Mr. and Mrs. Shand both travelled to Canada, to attend a conference in Canada in relation to the restructuring of the international division. From Canada, Mr. and Mrs. Shand travelled to the United Arab Emirates (in transit for five days), Oman (one day) and Kuwait (20 days).
  • (87) During this period, by a letter dated 21 January 1995, Mr. Shand wrote to the Canadian Ambassador in Kuwait in relation to a forthcoming Ministerial visit to Kuwait. He set out the current status of negotiations at that time.
  • (88) On 12 February 1995, Mr. and Mrs. Shand arrived in Australia via Singapore and Mr. Shand departed again on 25 February 1995. Mr. Shand arrived in Australia again on 29 March 1995. On 20 April 1995 Mr. and Mrs. Shand both departed Australia for Kuwait. On 26 June 1995 both arrived back in Australia via Canada.
  • (89) The schedules of flights and places visited in the years of income ended 30 June 1995 and 30 June 1996 appear at page 330 of the Tribunal documents. In the income year ended 30 June 1995, the schedule discloses that Mr. Shand spent 182 days in Kuwait, 44 in Canada, 18 in the United Arab Emirates (usually transit) and 13 days in other countries and 108 days in Australia.
  • (90) On 25 July 1995, Mr. Shand departed for Kuwait and remained there until 6 September 1995. On 16 September 1995 he departed Australia via Singapore to Kuwait, where he stayed for 32 days, before attending an international dealer conference in Orlando, Florida (for three days). He arrived in Australia via Canada on 28 October 1995.
  • (91) In September 1995, Mr. Shand had a meeting with Mr. Peabody in Dubai in the course of which Mr. Shand was advised that his employment would be terminated in December 1996, three years earlier than planned. (Mr. Shand claims that he had been intending to continue his employment until aged 65 and then retire to Canada.)
  • (92) Mr. Shand visited Australia from 28 October 1995 until 9 November 1995 when he returned to Kuwait until 15 December 1995. In November 1995, while Mr. Shand was in Australia, a hail storm caused substantial damage to the roof and solar hot water system on the house at Bellbowrie. There was then a dispute with the insurance adjustor about the damage. Mr. Shand retained Mr. Al Deruse to attend to the problem and left for Kuwait a few days later. The repair work and the renovations were not completed until early 1996.
  • (93) In 1995, Mrs. Shand borrowed $190,000 to finance the purchase of two investment properties at Peregian Beach, north of Brisbane. Her daughter and her grandchildren lived in that area.
  • (94) Mr. Shand was in Australia from 15 December 1995 until 29 February 1996. This period was linked to Ramadan.
  • (95) Mr. Shand remained in Kuwait until 28 March 1996. During this period he visited Saudi Arabia to attend to the Consolidated Electrical account and make a courtesy visit to Doah.
  • (96) On 29 February 1996 Mrs. Shand made arrangements with Ray White, Kenmore, for the auction of the Bellbowrie house. On 23 April 1996 she paid them $5,953 for the auction. The house failed to sell at auction and was listed on the market for sale. However, it was not sold until November 1997 after being vacant for one year. The sale price was $270,000.
  • (97) Mr. Shand returned to Kuwait for the last time on 16 May 1996. While in Kuwait, he met the new Vice President of his company, Mr. Michael Harvey, and took him through the files in Kuwait.
  • (98) On 3 June 1996, Mr. Shand flew to Canada and negotiated the cessation of his employment and entered into a retirement agreement with the company, dated 14 June 1996 (see page 240 T documents). The terms of the retirement agreement provided for the payment of a sum of money calculated for a period of six months. The acceleration of the exercise date of stock options issued to Mr. Shand in Western Star Holdings Inc (referred to in the Prospectus) and for a restrictive covenant for a period of two years.
  • (99) In the income year ended 30 June 1996, the schedule on page 330 of the T- documents discloses that Mr. Shand spent 145 days in Kuwait, 32 in Canada, 4 in the United Arab Emirates, 3 in the United States

    ATC 2091

    of America, 9 in other countries and 172 in Australia.
  • (100) Mrs. Shand met Mr. Shand in Canada and he informed her that he had left the company. Mr. and Mrs. Shand visited Mrs. Shand's mother, who lived in Vancouver, for about ten days. She appeared to them to be terminally ill at the time.
  • (101) In July 1996, Mrs. Shand bought a house at Marcus Beach, which is near Peregian Beach. Mr. and Mrs. Shand moved into the Marcus Beach house soon after it was purchased and they remain there to this day.
  • (102) For the purposes of providing a postal address for all bank statements and other personal and business correspondence, the address at Bellbowrie was used by Mr. Shand until he and his wife moved to Marcus Beach, which then became the official address for correspondence.

8. For the sake of completeness on the facts relevant to this review, the Tribunal also notes that Mr. Shand gave evidence that when he was in Canada with his wife in mid-1996, they looked at the possibility of purchasing a business in Canada. They also looked at houses in the Okanaugan Valley, near Kimberley and at Silverstar, near Vernon. When Mr. Shand telephoned to enquire about purchasing the property at Silverstar, he was told the house was under contract. As for the business, Mr. Shand gave evidence that he looked at a fuel distribution company in Kelowna, but was not quick enough to purchase.

9. Mr. Shand put his financial affairs in the hands of a reputable accounting firm in Brisbane. The firm had prepared Mr. Shand's tax returns for many years, including the relevant years of income. The Tribunal accepts that Mr. Shand sought and relied on their advice from time to time and that it was the firm's advice to him that he would not be characterised as a resident of Australia in the relevant years of income. His income tax returns were prepared and lodged on that basis.

10. An investigation into Mr. Shand's taxation affairs was not initiated until March 1999.

11. The legislation relevant to this review is contained in the following sections of the Income Tax Assessment Act 1936.

``25(1) The assessable income of a taxpayer shall include-

  • (a) where the taxpayer is a resident-
    • the gross income derived directly or indirectly from all sources whether in or out of Australia; and

6(1) ...

`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;''

and in the Domicile Act 1982:

``Intention for domicile of choice

10 The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his home indefinitely in that country.''

12. Although the facts of this case are not the same as those before the Full Federal Court in
FC of T v Applegate 79 ATC 4307; 27 ALR 114, the issues are similar and they were summed up by Northrop J at ATC 4313-4314; ALR 122 where he said:

``Any person who resides in Australia is, by definition, a resident within the meaning of the Act. The word `reside' has a very wide meaning, see
FC of T v Miller (1946) 73 CLR 93 per Latham CJ at 99-100. One of the dictionary meanings of the word `reside' is `to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place'. A person may reside in more than one country at any one time: see
Robertson v FC of T (1937) 57 CLR 147 per Dixon J at 163 and
Gregory v DFC of T (WA) (1937) 57 CLR 774 per Dixon J at 777-778.

From 8 November 1971 to 30 June 1972 the taxpayer resided at Vila but not at the one house. On no view of the facts can it be said that during that period he resided in Australia. The extended definition of `resident' contained in para (a)(ii) cannot apply since the taxpayer had not `actually been in Australia, continuously or intermittently during more than one half of the year of income'. This paragraph appears

ATC 2092

to draw a distinction between `usual place of abode' and `residence' but it is not necessary to consider that matter further. Under para (a)(i) of the definition, the meaning of `resident' is extended to include persons, subject to one qualification, whose domicile is in Australia. This includes persons whose domicile of origin is in Australia as well as persons who have acquired a domicile of choice in Australia. The one qualification to this extended meaning of `resident' is that of a person whose domicile is in Australia but `his permanent place of abode is outside Australia'. This qualification must relate to the year of income during which the income has been derived.

....

... 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', see
Price v West London Investment Building Society [1964] 2 All ER 318 per Danckwerts LJ at 321. The phrase is often used as being synonymous with the word `residence' see, for example,
Levene v IR Commrs [1928] AC 217 and
IR Commrs v Lysaght [1928] AC 234...

The word `permanent' can have many shades of meanings. This is illustrated by a reference to the Shorter Oxford Dictionary, and as was said by du Parcq LJ in
Henriksen (Inspector of Taxes) v Grafton Hotel Ltd [1942] 2 KB 184 at 196:

```Permanent'' is indeed a relative term, and is not synonymous with ``everlasting''.'

The word `permanent' must be construed according to the context in which it appears: see per Lord Evershed in
McClelland v Northern Ireland General Health Services Board [1957] 2 All ER 129 at 140.

In the present case the phrase `permanent place of abode' appears in a taxing statute by which income tax is levied on income derived during a financial year. Where a taxpayer resides in Australia, the assessable income of that person includes the gross income derived from all sources but where the person does not reside in Australia, then subject to the extended meaning given to the word `resident', the assessable income of that person includes the gross income derived from all sources in Australia only; it does not include the gross income derived from sources outside Australia. The tax is assessable on gross income received on an annual basis and is assessed on an annual basis. The word `permanent' as used in para (a)(i) of the extended definition of `resident', must be construed as having a shade of meaning applicable to the particular year of income under consideration. In this context it is unreal to consider whether a taxpayer has formed the intention to live or reside or to have a place of abode outside of Australia indefinitely, without any definite intention of ever returning to Australia in the foreseeable future. The Act is not concerned with domicile except to the extent necessary to show whether a taxpayer has an Australian domicile. 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. In any event the extended meaning of `resident' becomes relevant only when, during the year of income under consideration, the taxpayer does not reside in Australia. Paragraphs (a)(i) and (ii) of the definition are complementary provisions enlarging the group of persons who do not reside in

ATC 2093

Australia but become liable to pay income tax in Australia.''

13. In the tax year 1994-95, Mr. Shand spent 182 days in Kuwait and 108 days in Australia (at Bellbowrie).

14. In the tax year 1994-95, Mr. Shand spent 145 days in Kuwait and 172 days in Australia (at Bellbowrie).

15. It was submitted on behalf of Mr. Shand that in the relevant tax years:

  • (1) He did not reside in Australia;
  • (2) His domicile was not Australia;
  • (3) The El-Hoss apartment in Kuwait was his permanent place of abode;
  • (4) He visited his wife in Australia from time to time.

16. It was submitted for the Respondent that in the relevant tax years:

  • (1) Mr. Shand resided in Australia;
  • (2) His domicile was in Australia;
  • (3) The El-Hoss apartment was not his permanent place of abode;
  • (4) He went to Kuwait purely for business purposes and on each occasion he returned to his home in Australia immediately his specific business dealings were concluded.

17. Counsel for the Respondent prepared a list of factors which she submitted indicated that Mr. Shand resided in Australia during the relevant tax years. Of those factors in the list, the Tribunal adopts the following as indicative of residence in Australia.

  • • During the relevant tax years (in addition to before and after that time) he viewed the Bellbowrie residence as his home - ``a place to come back to'' after doing business;
  • • His wife and children and grandchildren lived in Brisbane;
  • • He had lived in Brisbane since 1972;
  • • It was the place he went to when the doctor in Singapore told him to go home;
  • • He stated on Immigration arrival and departure cards that he was a resident departing or arriving as the case may be;
  • • He took out Australian citizenship as did all of his family members;
  • • He paid tax as a resident of Australia between 1972 to the present day apart from the two years in question;
  • • He set up a self managed Australian based superannuation fund in 1996;
  • • Most of the money paid to him while overseas was transferred to Australian bank accounts of his and his wife;
  • • He returned to his home in Bellbowrie whenever his business commitments allowed eg during the quiet period of Ramadan;
  • • He maintained his medical insurance in Australia and elected to undergo medical treatment here;
  • • Upon retirement he continued to reside in Queensland even though his son relocated to Canada;
  • • His Bellbowrie residence contained all his possessions up until it was placed on the market and sold;
  • • It was the address he gave whenever he was asked for his residential address (Lloyds Bank in Dubai, Advance Bank, Westpac Bank, ANZ Bank, tax returns and superannuation fund);
  • • His wife obtained a loan in Australia for $190,000 in 1995 for the wife's purchase of investment properties - which had the added advantage of being close to the applicant's daughter and grandchildren who were members of the Peregian Beach Surf Club;
  • • He played a role in the decision to purchase property on the Sunshine Coast of Australia as he and his wife discussed the purchase of the investment properties;
  • • He paid all expenses relating to ownership of the home;
  • • He brought his mother to live in Brisbane;
  • • Apart from one trip which straddled the 1994/1995 tax years and one long trip of 112 days, the average length of his absences from Australia during the relevant years was 41.5 days;
  • • His accommodation in Kuwait consisted of a furnished bedroom, lounge room and bathroom provided to him free of charge;
  • • He took with him to Kuwait only the clothes he needed;
  • • His Australian based business had initiated the purchase of a Canadian business which moved the original Australian business from being that of a regional manufacturer to one of global recognition;

    ATC 2094

  • • He has continued to reside in Queensland after retirement in circumstances where the investigation by the respondent did not commence until March 1999.

18. The evidence shows that although Mr. Shand spent a significant amount of time in Kuwait during the relevant tax years, he spent almost as much time in Australia. His personal effects and emotional ties were within Australia, whereas the only factor which tied him to Kuwait was his business.

19. The Tribunal takes the view that during the relevant tax years, Mr. Shand had not abandoned his residence and place of abode in Australia. The El-Hoss apartment in Kuwait was a temporary or transitory place of abode. Mr. Shand resided in Australia during the relevant tax years.

20. For completeness the Tribunal will also make a determination on the question of domicile and ``permanent place of abode outside Australia''.

21. There is no contest between the parties that Mr. Shand's domicile of origin was Canada and that when he and his family relocated to Australia in 1972 they did so with the intention of making their home indefinitely in Australia. That is, in 1972, Mr. Shand acquired a domicile of choice in Australia.

22. It was submitted on behalf of Mr. Shand that he reacquired his domicile of origin in Canada upon returning to Canada in 1991-1992 and that he did not reacquire a domicile of choice in Australia at some point in time before the tax years 1994/95 and 1995/96.

23. It was further submitted that Mr. Shand had divested himself of the character of resident of Australia before he went to Kuwait and that he intended that after his business in Kuwait was completed, he would then retire to Canada.

24. The terms ``indefinite'' and ``permanent'' as they apply to the concept of domicile were canvassed in the judgment of Langton J, in
Gulbenkian v Gulbenkian [1937] 4 AM ER 618 at 626 et seq:

``I have not lost sight of the fact that, as both the EARL OF HALSBURY and LORD MacNAGHTEN insist, the burden cast upon those who seek to aver that the domicil of origin has been superseded by a domicil of choice is exceedingly heavy. Heavy as it is, in my view the defendant here has discharged that burden, by proving to my satisfaction that the plaintiff really intends to remain in England, and will always exercise his option in that direction, unless forced to a reluctant departure by circumstances beyond his control. I entirely agree with Sir Patrick Hastings that this case cannot be decided by any loose determination that, upon the evidence as a whole, the plaintiff prefers England to any other country. It is necessary to go far further than that. I am finding expressly that Mr. Nubar Gulbenkian has an English domicil of choice, because I do not believe that he has the slightest intention of willingly living anywhere else.

As to Sir Patrick's quarrel with Mr. Dicey upon the use of the word `indefinite' in r. 7, there is, to my mind, the high authority of Sir George Jessel, M.R., in King v. Foxwell (4) to warrant the wording of the rule. SIR GEORGE JESSEL, M.R., there said, at p. 520:

`What is domicil? I have had before me a great number of authorities, and the conclusion I draw is this, that in order that a man may change his domicil of origin, he must choose a new domicil - the word ``choose'' indicates that the act is voluntary on his part - he must choose a new domicil by fixing his sole or principal residence in a new country (that is, a country which is not his country of origin), with the intention of residing there for a period not limited as to time.'

The last words are, to my mind, the warrant for Mr. Dicey's phrase, and give a certain shading to the expression `permanent', without rendering that word inapplicable in the circumstances. In other words, the intention must be a present intention to reside permanently, but it does not mean that such intention must necessarily be irrevocable. It must be an intention unlimited in period, but not irrevocable in character. The opinion of LORD WESTBURY in Udny v. Udny (3) is a veritable treatise upon this most difficult question. He deals in detail and with great lucidity with the circumstances which create or constitute a domicil of choice, and concludes his review of these circumstances with the following sentence, at p. 458:

ATC 2095

`It is true that residence originally temporary, or intended for a limited period, may afterwards become general and unlimited, and in such a case so soon as the change of purpose, or animus manendi can be inferred, the fact of domicil is established.'

Prominence is given throughout to the necessity of a free choice, and the fact that the residence has not been selected for a limited period or for a particular purpose, but, as I read it, a domicil of choice can be inferred notwithstanding the fact that the individual to whom it is ascribed is not conscious of having taken any deliberate decision at any given or particular moment.''

25. The Tribunal is mindful of the fact that courts have accepted that a domicile of choice may be less retentive, and therefore more easily abandoned, than a domicile of origin, see
Qureshi v Qureshi [1971] 1 All ER 325 at 338. Nevertheless, this Tribunal would not make a finding that Mr. Shand abandoned his domicile of choice in Australia without cogent evidence of acts done and objective signs of abandonment, independent of the mere expression of desire by Mr. Shand to resettle in Canada.

26. The contrast between the relocation of the Shand family from Canada to Australia in 1972 and the transfer of Mr. and Mrs. Shand to Canada in 1992 is instructive of the difference in intention in the two instances. In 1972 the family severed practically all physical ties with Canada, hired a shipping container to transfer their possessions to Australia and bought land and built a house in Australia. In 1992, Mr. and Mrs. Shand retained their home in Australia, rented accommodation in Canada and took with them a few suitcases of clothes.

27. The Tribunal finds that although Mr. Shand may have had some vague notion that he might one day return to live in Canada, he did not actually form the intention of living anywhere but Australia. He did not abandon his domicile of choice in Australia when he went to Canada for two years in 1991-92.

28. Mr. Shand certainly did not acquire a domicile of choice in Kuwait. He went there for a limited period and for a particular business purpose. He had no intention of making his home indefinitely in that country.

29. Upon retirement, Mr. Shand toyed with the idea of retiring to Canada but within a month or so of his retirement he returned to Australia, where he has lived ever since.

30. The Tribunal finds that Mr. Shand has at no stage abandoned his domicile of choice in Australia.

31. As to whether or not Mr. Shand had a permanent place of abode in Kuwait, the Tribunal repeats what it said above. The El- Hoss apartment was a temporary or transitory place of abode, used solely for business trips and for as long as Mr. Shand was involved in the business of selling trucks in Kuwait.

32. Mr. Shand was a resident in Australia during the relevant years.

Penalty

33. The Respondent imposed additional tax at the rate of 25% pursuant to section 226K of the Act, on the ground that the Applicant's position was not reasonably arguable. The relevant sections of the Act provide:

``SECTION 222C REASONABLY ARGUABLE

222C(1) [Regard to relevant authorities] For the purposes of this Part:

  • (a) the correctness of the treatment of the application of a law; or
  • (b) another matter;

is reasonably arguable if, having regard to the relevant authorities and the matter in relation to which the law is applied or the other matter, it would be concluded that what is argued for is about as likely as not correct.

222C(2) [Assumption re Commissioner's discretion] For the purposes of this Part, if the treatment of the application of a law assumed that the Commissioner would exercise a discretion in a particular way, the correctness of the treatment is reasonably arguable, in so far as it consisted of the assumption, if the exercise by the Commissioner of the discretion in that way would be reasonably arguably in accordance with law.

222C(3) [Court's decision] For the purposes of this Part, the exercise, or assumed exercise, by the Commissioner of a discretion is reasonably arguably in accordance with law if, having regard to the

ATC 2096

relevant authorities and the matter in relation to which the discretion is or would be exercised, it would be concluded that a court would be about as likely as not to hold that the exercise is or would be in accordance with law.

222C(4) [`authority'] In this section:

`authority' includes:

  • (a) an income tax law; or
  • (b) material for the purposes of subsection 15AB(1) of the Acts Interpretation Act 1901; or
  • (c) a decision of a court (whether or not an Australian court), the Tribunal or a Board of Review; or
  • (d) a public ruling within the meaning of Part IVAAA of the Taxation Administration Act 1953.

...

SECTION 226K PENALTY TAX WHERE UNARGUABLE POSITION TAKEN

226K Subject to this Part, if:

  • (a) a taxpayer has a tax shortfall for a year; and
  • (b) the shortfall or part of it was caused by the taxpayer, in a taxation statement, treating an income tax law as applying in relation to a matter or identical matters in a particular way; and
  • (c) the shortfall or part, as the case may be, so caused exceeded whichever is the higher of:
    • (i) $10,000; or
    • (ii) 1% of the taxpayer's return tax for that year; and
  • (d) when the statement was made, it was not reasonably arguable that the way in which the application of the law was treated was correct;

the taxpayer is liable to pay, by way of penalty, additional tax equal to 25% of the amount of the shortfall or part.''

34. Apart from the question as to whether the Applicant's position was reasonably arguable, the Commissioner and hence the Tribunal, has a discretion to remit the whole or any part of the additional tax, pursuant to subsection 227(3) of the Act.

``227(3) [Commissioner's discretion to remit] The Commissioner may, in the Commissioner's discretion, remit the whole or any part of the additional tax payable by a person under a provision of this Part, but, for the purposes of the application of subsection 33(1) of the Acts Interpretation Act 1901 to the power of remission conferred by this subsection, nothing in this Act shall be taken to preclude the exercise of the power at a time before an assessment is made under subsection (1) of the additional tax.''

35. The Tribunal is mindful of the fact that questions of residence, domicile, permanent place of abode, have frequently been found by courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.

36. Mr. Shand spent a large portion of the relevant years in Kuwait. He was of Canadian origin. He travelled away from Australia for extended periods. He harboured notions from time to time of returning to Canada to retire. He wanted to sell the home at Bellbowrie.

37. Mr. Shand put his faith in his financial advisers who, no doubt, took most of the above factors into account when they advised him of the course eventually taken.

38. The Tribunal is not prepared to find that the question of Mr. Shand's residency in Australia was so finely balanced as to conclude that the argument on his behalf was about as likely as not to be correct. Consequently, the Tribunal finds that Mr. Shand's advisers did adopt an unarguable position.

39. However, the Tribunal does not consider that Mr. Shand's position was entirely without merit, nor does it consider that Mr. Shand was personally in any way blameworthy.

40. Consequently, the Tribunal intends to use the discretion conferred by subsection 227(3) to remit the whole of the additional tax payable by Mr. Shand.


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