Applegate v. Federal Commissioner of Taxation.
Judges:Sheppard J
Court:
Supreme Court of New South Wales
Sheppard J.: This is an appeal from a decision of a Board of Review given on 29th July 1977. The Board confirmed the disallowance by the Commissioner of an objection by the appellant to an assessment of income tax for the year ended 30th June 1972. The appellant is a solicitor who at the relevant time was employed by a firm of Sydney solicitors, Messrs. Sly & Russell. During the year in question he was given the task of opening a branch office of the firm at Vila in the New Hebrides. He left Australia on 8th November 1971 and remained in Vila for the balance of the income tax year in question.
His contention is that he was for the period 8th November 1971 to 30th June 1972 in receipt of income from sources wholly out of Australia and was non-resident during that time (sec. 23(r) of the Act). The Commissioner agreed that the income was derived from sources wholly out of Australia but took the view that the appellant was not a non-resident. That expression is defined in sec. 6(1) of the Act to mean a person who is not a resident of Australia. The word ``resident'' is defined in the same subsection to mean, inter alia, a person whose domicile is in Australia ``unless the Commissioner is satisfied that his permanent place of abode is outside Australia''. The Commissioner was not satisfied that the appellant's permanent place of abode was outside Australia, nor was the Board. It is agreed by counsel that the submissions which have been made raise a question of law, but there is disagreement between them as to whether the fact that a point of law has been raised of itself empowers me to substitute my own findings of fact if I think that is what justice requires. It is the Commissioner's submission that I may only enter upon the question of what facts, both primary and ultimate, it was appropriate to find if I am satisfied that the Board has made an error of law. It is the appellant's submission that I may enter upon factual questions and decide them if a point of law is squarely raised, notwithstanding that I may take the view that in relation to the point of law the Board were right. I prefer the appellant's view of the matter which is based upon the decision of Walsh J., in
Krew v. F.C. of T. 71 ATC 4213 at p. 4215. In the view that I take of this matter, however, it matters not which of the competing submissions is correct because I am satisfied that the Board has made an error of law.
The facts of the matter are amply set out in the reasons for decision of the members of the Board. It is sufficient if I shortly state what they are. The appellant before going to Vila was married. His wife was expecting their first child. He had the tenancy of a flat in Sydney. This was given up. When the appellant and his wife arrived in Vila they spent the first two weeks in an hotel and then moved into a house of which the appellant had a lease for twelve months with an option to renew the lease for a further period of twelve months. He became admitted as a practitioner in the New Hebrides and established an office. In the early period after his arrival his staff consisted only of a secretary but later it was increased as is described in the evidence. The taxpayer and his wife had intended that her confinement for the birth of the child would take place in Vila but, because of their view of medical treatment
ATC 4056
available there, she returned to Sydney for the birth of the child. The appellant returned for a holiday shortly before the baby was born. He again returned to Sydney after it had been born and his wife and child then returned to Vila where they remained until the end of the tax year in question. They continued during that period and thereafter to live in Vila in the house to which I have referred. At the end of 1972 they came back to Sydney for a holiday. In the middle of 1973 the appellant became ill, apparently with typhoid fever. He was treated in Vila but was worried about his health and returned to Sydney for medical diagnosis and attention. After he recovered, the decision was reached that the climate and environment of Vila presented a danger to him and it was decided both by the firm and by himself that he should return to Sydney to live. He returned to Vila until September 1973 when he was succeeded by another employee. The branch was given up in 1975 because of a downturn in international business. The appellant after his return was made a partner in the firm.It was always intended by himself and by the firm that after the lapse of an indefinite period of time he would return to the Sydney office. The period was not specified or defined in the minds either of the appellant or the firm but it was anticipated that it would be of substantial length. Certainly the appellant would have remained in Vila beyond September 1973 if it had not been for his illness. Evidence was given by one of the partners of the joint intention in the following terms:
``... There was no definite period set. He was asked to go there for an indefinite period. There was obviously the establishment of the office which had to be contemplated. We always looked at a period of a couple of years just to get to a break-even stage, so we regarded that as just the establishment period. But Mr. Applegate's function was not merely to establish the office, it was to establish it and get it running, because we were very conscious of the fact that whoever went there would get a certain amount of on the job expertise that would be hard to replace and we certainly would not want to discard it after it had just been achieved.''
In his own evidence the appellant said:
``I certainly intended that not only would I establish but manage it and be the manager of that branch office. My expectation was that I would be permitted to return if I wanted to, whenever I wanted to, but I would come back if I was ever recalled. Beyond that I had no expectation.
The Chairman: When you say you would be permitted to return, this is because of your status with the firm and as an associate partner - is that so? - Yes, I would think so. The conditions were not easy in that sort of environment and I expected that not only my stay, but I think the firm was a reasonably tolerant employer and I would have permission to return if I did not enjoy it. In fact I did enjoy it.''
In a letter dated 25th September, 1973, written to the Commissioner the appellant said:
``At the time of leaving Australia in November 1971 it was my intention to set up a home for myself and my family so that I could attend to the job assigned to me by my employer, namely the establishment and operation of a Vila Branch Office of the Sydney firm. I did not, under any circumstances, intend to return to Australia after a short period of temporary absence. Nor did I ever intend that I would never return to Australia. As I have never claimed to have abandoned my domicile of origin I submit that this is irrelevant. The position to which I was appointed was (and is) a permanent position and required me to establish a permanent abode or residence for myself and family. My clear intention was that I would reside outside Australia permanently but not indefinitely.''
During his cross-examination the appellant was referred to the last sentence in the paragraph which I have just cited. In relation to it, he said:
``I think the word `indefinitely' is probably on reflection not a good choice of words; if that means without finite term I think it is not right. What I meant to say was, not forever.''
Three further matters need to be mentioned. Firstly, the appellant left behind no assets in Australia apart from a life policy which he maintained during his absence. Secondly, he retained his membership of the Hospitals Contribution Fund. Thirdly, after the birth of the child, his wife, unbeknown to him applied for and received child endowment.
ATC 4057
There is a fundamental difference between the appellant and the Commissioner as to the construction of the definition of ``resident'' in sec. 6(1) of the Act. It is the appellant's submission that the words in question are to be construed objectively and not subjectively. The question to be answered is, whether a taxpayer's permanent place of abode during the relevant period is in fact outside Australia. It is a consequence of the appellant's submission that the provision will not apply unless the taxpayer has in fact a permanent place of abode which is outside Australia.
The Commissioner approaches the problem of construction quite differently. He submits that the exception was designed to deal with what may be regarded as a very special case. According to that submission the provision applies only in cases where a person domiciled in Australia leaves Australia with the intention of never returning to live in this country, but does not form the necessary intention to acquire a domicile of choice in some other country. In order that a domicile of choice be acquired there must be an intention both to abandon the previous domicile and to make the new country one's home. According to the Commissioner's submission the exception is to deal with cases where a firm intention to leave Australia forever is formed but, although the taxpayer may live in some other country, he has not, at least at the time that the matter is being looked at, formed the intention of making that other country his home. In support of his submissions counsel for the Commissioner has referred me to a number of cases dealing with the question of what is needed before it can be said that a person has acquired a domicile of choice. In those cases there are dicta which deal with the situation of a person who has formed an intention permanently to abandon the country of his domicile but has not formed an intention to make any other country his permanent home. In such case he retains his domicile of origin until he acquires a domicile of choice. The Commissioner's submission is that the section was designed to meet that case and no other. The Commissioner's submission assumed that everyone not only had a domicile, but also had a permanent place of abode, notwithstanding that he might have forsaken the country of his origin and be on an extended tour involving him in passing and re-passing at frequent intervals through a number of countries. The basis of this submission was that ``place of abode'' in the definition referred, not to the place of residence of a taxpayer in the sense of the house or town or city in which he lived permanently, but to the country where he happened to be, however temporarily, at any given time. But unless he had forsaken Australia for all time, so the submission ran, he did not, within the meaning of the provision, have a permanent place of abode outside Australia.
I can understand that the Commissioner may have reasons for wishing the section to be construed as he has contended but I cannot myself derive from the words which the statute uses the meaning for which he contends. Nor can I perceive why the cases on the acquisition of a domicile of choice have the relevance which he submits they have. I think the task is to construe the words according to their ordinary meaning and in that task I do not find the domicile cases of assistance. I am in agreement with the submissions of the appellant that what is required is that there be a permanent place of abode outside Australia and that the inquiry as to whether there is or not is an objective one, notwithstanding the fact that the intention of the taxpayer in relation to the length of time that he will reside in a place outside Australia is a relevant factor to be taken into account.
I also agree with submissions made to me on behalf of the appellant that the word permanent is used in a comparative sense. It is not used in the sense of everlasting but rather in contradistinction to words such as temporary or transitory; cf.
Henriksen v. Grafton Hotel Ltd. (1942) 2 K.B. 184 at p. 196.
The members of the Board of Review did not each approach the matter in the same way. One member thought that the domicile cases were determinative of the matter. He said:
``The animus manendi is the intention of making the sole or principal permanent home in the country of residence, and of continuing to reside there indefinitely; an intention to reside there until the happening of some clearly foreseen and reasonably anticipated event will not be sufficient; but an intention to change his residence upon some vague or improbable contingency is irrelevant...''
Later he said:
``I would hold that as the taxpayer's task was to set up and operate the overseas
ATC 4058
branch office until he was relieved or replaced, his intention was to remain in that overseas country until the happening of some clearly foreseen and reasonably anticipated event (though of unknown future date); his purpose was to remain there for a period unascertainable at the outset, whilst looking forward to an event which would be an inducement to return to Australia. As `permanently' and `indefinitely' are synonymous in definitions of animus manendi his stay there was not `indefinite' in the appropriate meaning of that word...''
The emphasis is to be found in his reasons for decision.
In my opinion the learned member's approach is erroneous because he has applied principles which are appropriate to be applied where the question is whether a person has acquired a domicile of choice. If that were the correct test the exception could never have any operation because, ex hypothesi, the taxpayer would not be domiciled in Australia.
The other members of the Board were aware of this problem. The Chairman said:
``To give the phrase a rational application the permanent nature of the abode outside Australia which is therein contemplated must be less `permanent' than that exhibited by an animus manendi to the degree which effects a change in domicile.''
The Chairman then referred to some cases before earlier Boards of Review including Case 56 (
15 C.T.B.R. (O.S.) 421) where the Chairman in that case said (p. 426):
``The expression (i.e., permanent place of abode)... is capable of application to a wide variety of circumstances and, taking the view that it was adopted for that very reason I venture to think it is wide enough to cover the case of any person who, though domiciled in Australia, is living, and continuing indefinitely to live, outside Australia without any definite intention of ever returning there to live.''
It is of course the Commissioner's submission that the provision is limited to that type of case and to no other. But I do not find in the passage which I have cited anything which indicates that the Chairman in Case 56 was restricting the words in the way that is contended for. He was saying no more than that that was a case to which the exception would apply. He was not saying that there were not other types of cases to which it would also apply. So much is clear from the use by him of the words, ``The expression... is capable of application to a wide variety of circumstances'', and from a reading of the whole of his reasons for decision.
Notwithstanding those considerations the Chairman in the present case seemed to regard the passage as indicating a view on the part of the Chairman in Case 56 that the exception would only apply where there was established an intention on the part of the taxpayer never to return to Australia. After citing the passage to which I have referred he went on to say:
``In the instant case I do not think it can be said of the taxpayer that while at X (Vila) he lacked the definite intention of ever returning to Australia to live. On the contrary, although the period of his stay at X was indefinite in the sense that the date of termination could not, at any time before about July 1973, be predicted with certainty, yet it is a fair conclusion on the evidence that the taxpayer would return to Australia with his wife and family after what might be called a term of duty at X. With a partnership at head office in the offing it was most unlikely that the taxpayer would remain out of Australia for more than three or four years.''
Insofar as the Chairman is applying a principle which is in accordance with the submissions made to me by the Commissioner, I think he has applied a principle which is erroneous in law. If, on the other hand, he is doing no more than treating as a conclusive factor the circumstances that the appellant did in due course intend to return to Australia, then I think the passage I have just cited indicates that he has given undue weight to that circumstance.
The third member of the Board also saw that the exception applied in a situation short of the acquisition of a domicile of choice. The essential portion of his decision is as follows:
``Here it is, I think, a fair conclusion on the evidence that both the taxpayer and the firm had it in mind when he left Australia that he would come back to the Sydney office at such time in the future as it was judged that the branch office, its existence being still justified, could be managed
ATC 4059
successfully by someone other than the taxpayer when his services would be better employed in the Sydney office. Although the period during which he was to manage the branch could not be foretold at the outset, it was clearly envisaged that it would be but an interregnum when he would be out of Australia but only for a purpose temporary in time and exceptional in circumstance and accompanied by a sense of transitoriness. In this view it follows that I am not `satisfied that his permanent place of abode (was) outside Australia' and, accordingly, I would confirm the Commissioner's assessment.''
In my opinion that passage discloses an approach to the problem which is much nearer the correct one but I think it erroneous because it fails to concentrate sufficiently upon the real problem which is whether the appellant had, during the relevant period, his permanent place of abode outside Australia. The fact that there may have been in the appellant's professional life an interregnum when he would be out of Australia ``but only for a purpose temporary in time and exceptional in circumstance and accompanied by a sense of transitoriness'' is an indication in my opinion that the learned member's mind was directed away from the real question which had to be answered.
There being the error to which I have referred in the reasons for decision of the members of the Board it is a matter for me to decide whether the Commissioner should have been satisfied of the matters specified in the exception.
Before I come directly to that question I wish to say something about the expression ``place of abode''. I have derived assistance in coming to a conclusion as to its meaning from the reasons for decision of the Chairman in Case 56 earlier referred to. That case was concerned with the question of whether a sea captain who had his home on his ship was a non-resident of Australia, the ship not being based here or very often operating in Australian waters. He said (pp. 424-426):
``In what I think is its most ordinary sense `abode' means `a place of habitation, house or home' (Shorter Oxford English Dictionary). In one of its various senses `place' has a similar meaning (ibid.); so also has the term `place of abode' in one of its most common uses (ibid.) - see definition of `habitation'. If this is one of the senses in which the term is used in the definition of `resident' it is necessary to hold that at the material times the taxpayer's permanent place of abode was outside Australia. The ship (at first the `X' and later the `Y') was his habitation or home, and therefore his place of abode, in the completest sense of the term: it was the place, and the only place, in which he ate, slept, worked and had his recreation. A ship can certainly be a person's residence in the sense of a habitation or home.
...
No doubt other and broader meanings of the term `place of abode' are also contemplated by the statutory expression under consideration. The other definitions of `abode', as given by the Shorter Oxford English Dictionary, are `action of waiting, a temporary stay' (both of which are irrelevant here) and `habitual residence' (which is one of the meanings probably contemplated by the statutory expression). The more common meanings of `place' are `a material space, a particular part of a space... sometimes applied to a part of the earth's surface, locality, situation, a general designation for a city, town, village, hamlet, &c.' (ibid.). I would gather from these definitions and from such knowledge and experience as I have of the use of the term, that the meaning of `place of abode' is much the same and just as variable as that of `residence' or `place of residence' and that, according to what is intended to be conveyed by the person using the term, the meaning may be a `person's home or dwelling house or other habitation or the village, town, city, district, county, country, or other part of the world in which a person has his home or dwelling-house or other habitation or in which he habitually resides'. In the broader of these senses the taxpayer's `abode' at the material times was his ship or on his ship, and his place of abode was the particular part of the world where the ship happened to be at any given time. Even applying that sense it could, I think, be held that the taxpayer's permanent place of abode was outside Australia. But I do not see why the term `place of abode' should be interpreted in a sense which is necessarily exclusive of any of the meanings I have given.''
ATC 4060
There then follows the passage which was relied upon by the Chairman in the present case and which I have earlier cited.
Although I have found assistance from what the Chairman in Case 56 has said, I do not wish to be taken as being in agreement with his conclusion that the term ``place of abode'' may be interpreted in a sense which is not necessarily exclusive of any of the meanings of which it is capable. The question is whether the taxpayer in a given case has satisfied the Commissioner that he has a permanent place of abode outside Australia. Upon the basis of the Chairman's analysis (that is in Case 56) - and with that analysis I do agree - ``place of abode'' may mean the house in which a person lives or the country, city or town in which he is for the time being to be found. I am of the view that the latter is the meaning of the expression used in sec. 6(1) of the Act. Thus a person might be correctly said to have a permanent place of abode in, say, Vila, notwithstanding that during a given period he lived in a number of different establishments occupying each for only a relatively short period. His case is no different from one where a person, such as the appellant here, lives, for a substantial period, in the same house. Leaving aside for the moment the effect to be given to the word ``permanent'' it is correct, in the present case, to say that the appellant's place of abode as from 8th November, 1971, until the end of the income year in question and beyond was Vila, not overlooking the fact that the first two weeks of this period were spent, not in a house, but in temporary quarters in an hotel. During the whole of that period his place of abode was outside Australia and at Vila in the New Hebrides.
The question then is whether Vila, during the relevant period, was his permanent place of abode. I have earlier indicated that I accept the submission made on behalf of the appellant that permanent is used in the sense of something which is to be contrasted with that which is temporary or transitory. It does not mean everlasting. The question is thus one of fact and degree. Plainly the appellant, once he left Australia, had no place of abode permanently or otherwise in Australia. Clearly his place of abode was Vila in the New Hebrides. Was it his permanent place of abode using that expression in the sense which I have indicated? He was to remain in Vila for an indefinite period. It is true that that period would come to an end in what might be described as the foreseeable future, but that period would have been - indeed it was - a number of years; and the period was intended to be longer than in fact it was. Unquestionably if it had not been for the appellant's illness he would have remained for considerably longer - perhaps until the office closed in 1975.
Having had regard to the whole of the evidence I have reached the conclusion that the Commissioner and also the Board ought to have been satisfied that during the relevant period the appellant did have a permanent place of abode outside Australia.
In reaching that conclusion I have taken into account the circumstances that the appellant's wife returned to Australia for the birth of the child, that the appellant and his wife had holidays here, and that he came to Australia for treatment for his illness. I have also taken into account the fact that during his absence the appellant continued to pay premiums in respect of the policy taken out upon his life. I do not regard any of those circumstances as having significance; indeed I think there is a good deal to be said for the view that they are irrelevant considerations. The facts that the appellant maintained his membership of a medical fund here and that his wife, albeit without his knowledge, applied for and obtained child endowment for the child are matters to which I have had regard but they do not affect the conclusion at which I have arrived.
For the above reasons I consider that the appeal be allowed. The matter is remitted to the Commissioner to amend the assessment in question to give effect to my judgment. The Commissioner is ordered to pay the appellant's costs of the appeal.
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