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Case Q33

Judges:
KP Brady Ch
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 13 May 1983.

K.P. Brady (Chairman) and J.E. Stewart (Member)

This reference concerns the year of income ended 30th June 1977 and raises the following questions for our decision:

  • (a) whether the taxpayer was a resident of Australia as defined in sec. 6 of the Income Tax Assessment Act during the year in issue;
  • (b) whether an amount of $19,342 derived by him from employment in Saudi Arabia was correctly included in his assessable income under sec. 25(1) of the Act;
  • (c) whether that income was exempt from income tax under the provisions of sec. 23(q) of the Act;
  • (d) alternatively, whether that income was exempt from income tax under the provisions of sec. 23(r) of the Act.

2. The taxpayer, a married man, was born in Holland and lived there for many years. At all relevant times he held a Dutch passport. It appears that he relinquished that passport only recently when he became a naturalised Australian citizen. However, from the time of his first visit to Australia in 1968 until at least the end of the year in issue, i.e. the year ended 30th June 1977 he held a number of visas which permitted him to live and to work here. For present purposes it is noteworthy that the visa granted to him in June 1976 on a ``Resident of Australia Authority to Return'' basis (Exhibit B) was valid (for Immigration purposes) for a three year period, and apparently it enabled him to travel freely to and from Australia in that period.

3. On the taxpayer's arrival in Australia in 1968, he commenced to work under a 12 months' contract as a marine engineer on a seagoing dredge owned by an Australian company (which we shall call W). At that time the dredge was being operated at various locations around the Australian coastline. The taxpayer was not accompanied by his wife and son. At the expiration of the contract he returned to Holland. After a short stay there he accepted a new contract with W for a period of three years and, on that occasion, accompanied by his wife and son, he returned to Australia to live in a city that we shall refer to as X. At the end of the three year period he returned to Holland with his wife and son for a holiday lasting some three months. At the end of that time he again, with his wife and son, returned to X to work under contract to W for a further period of three years.

4. It appears that, during the latter period, the taxpayer's relationship with his wife became strained and that led in due course to the issue of a Court order on 30th April 1976 restraining him from ``assaulting, molesting or harassing the wife, or otherwise interfering with her manner of life'' (Exhibit E). In evidence the taxpayer stated that he did not see his wife or son during the period between 7th April 1976 and 28th March 1977; his wife and son continued to live in X during that period. The taxpayer did not support his family during that time.

5. It also appears that the taxpayer's contract with W was terminated on 23rd May 1976 at or about which time the dredge was

ATC 141

leased to an ex-Australian consortium that was to carry out dredging work in Saudi Arabian waters. It would seem that the consortium itself did not undertake the dredging work. That work appears to have been done under a sub-contract by a company (which we shall refer to as D). D was a Cyprus based company and was, it seems, responsible for the employment of the personnel necessary to operate the dredge.

6. It seems that W, acting under authority from D, contacted the taxpayer (and other personnel in Australia) and offered him employment on the dredge to be operated in the circumstances mentioned. Conditions of employment that are understood by us to have been generally applicable to personnel recruited in Australia are set out in a pro forma agreement (Exhibit 2), which (omitting parts considered not to be relevant for present purposes) read as follows:

``1. You shall be employed by [D], Cyprus, in the capacity of... on the cutter suction dredger [name] which will operate initially at Dammam in Saudi Arabia.

2. You shall serve (3) terms in any one year, each term to be for a period of three (3) months.

...

5. (d) Cash advances for personal requirements may be taken in Dammam. The balance of your wages will be paid each four (4) weekly period by [D] to your nominated bank account through the Bank of Cyprus.

...

7. [D has] advised that you will be liable for personal income tax in Cyprus at the rate of approximately 5% of your gross earnings.

8. You will become entitled to leave in Australia, of one (1) calendar day for each three (3) calendar days you are away from Australia, days of arrival and departure included. The time for the taking of such leave shall be decided by [D].

9. Payment for each day of leave entitled to be taken in Australia will be at the rate of $A... per calendar day.

10. An allowance of $A... shall be paid for each and every voyage you make travelling to and from your home port in Australia. This allowance shall be to reimburse you for the cost of out of pocket expenses incurred in such travel including travel to and from airport.

...

SPECIAL CONDITIONS

...

Cessation of Service

Employment may be terminated as follows:

By the employee

  • (a) At the time of having completed three (3) terms of three (3) months service by giving one month's notice in writing. In this event the employee will be provided with a return passage to Australia and remuneration of his bonus.
  • (b) At any time by giving one month's notice in writing. In this event the employee shall forfeit his right to his bonus and his right to a free return passage to Australia, if such termination is within any of the three (3) month periods.

By [D]

  • (a) When the dredge... ceases its overseas operations to return to Australia. At this time the employee will be provided with a return passage to Australia and remuneration for his bonus.
  • (b) At any time by giving one month's notice in writing to the employee or at the employer's option one month's pay in lieu of notice. In either event the employee shall retain his right to the payment of bonus and the free passage to Australia.
  • (c) At any time without notice in the event of the employee's misconduct or his inability through his own act or default to carry out his duties to the reasonable satisfaction of the employer. In this event the employee shall forfeit his right to the bonus, his free passage to Australia and to any further free medical treatment.''

ATC 142

7. It is our understanding that the abovementioned pro forma agreement was intended to accompany a letter that W sent to the taxpayer offering him the employment adverted to. The letter made reference to the agreement and to several specific matters that were not included in that document. The letter also required the taxpayer to sign an enclosed duplicate copy of it and to return it to W if he were prepared to accept the offer of employment contained in it. There seems to be no doubt that the taxpayer received the letter and its duplicate while still in Australia and that he signed the duplicate and returned it to W as requested. For completeness we set out the contents of a letter (Exhibit H) to the extent considered relevant, which was not addressed to the taxpayer but which we understand to be identical as to its terms to the one received by him:

``Due to the lack of dredging contracts in Australia the [dredge] has been chartered to... Joint Venture, a company engaged in work in Saudi Arabia.

The company is prepared to offer employment to certain key personnel who have been employed in Australia on [dredge], and we took the liberty of including your name on the list of such key personnel which was forwarded to them.

The company has now advised that they are prepared to offer you employment in Saudi Arabia initially on a contract at...

In general the terms and conditions of such employment will be similar to those contained in the attached document.

Should you be willing to accept employment by... Joint Venture you will be asked to sign an Agreement similar to this document when you arrive in...

Several specific matters have not been included in the document and these are as follows:

...

3. Communications received from the dredging company which chartered the [dredge] has indicated that personal income tax, to be paid locally, will be in the order of 5% of gross earnings.

4. The Agreement you will be asked to sign is based on conditions applying to dredge employees employed from Europe. From time to time modifications will be made to the Agreement to keep it in tune with those conditions applying to people from Europe. However, these will be additional benefits and you will receive remuneration and work under conditions of employment, not less than the terms, etc., appearing in the attached Agreement.

You will appreciate that we wish to know whether you are prepared to accept this offer of employment by... Joint Venture for work in... Should you be so prepared will you sign the duplicate copy of this letter and return it to this office so that we may be in receipt of it by [date not shown].

On receipt of this advice we will be able to advise your prospective employers of your acceptance and arrangements can be made for your travel to Saudi Arabia, sometime after [date not shown]...''

8. While the evidence indicates that the taxpayer accepted employment while in Australia in terms of the abovementioned letter, there is some doubt that the pro forma agreement was executed in Australia, if in fact it was ever executed. However, there is no evidence to indicate that the taxpayer might have signed some other document (besides the letter and/or the pro forma agreement) concerning overseas employment while still in Australia or in Cyprus (a country that he has not visited) or in Saudi Arabia where he was employed. We are satisfied on the evidence that it was the taxpayer's intention at the time of entering into the contract to be absent from Australia for a period of approximately nine months, although at the time he probably knew that the initial contract was for a period of 12 months with the possibility that its term could be extended to three years if he so desired.

9. It appears that the taxpayer left Australia for Saudi Arabia on 6th July 1976, where he was employed by D. After working there for some 10 weeks he proceeded on five weeks' leave; he spent approximately three weeks visiting relatives in Holland and Belgium and then returned to Australia where he spent approximately two weeks in X. At the conclusion of leave he returned to

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Saudi Arabia where he worked until 25th December 1976, when further leave fell due. He spent all of that leave in X and then returned to Saudi Arabia where he worked for a further 10 weeks. On or about 28th March 1977 he terminated his contract with D and returned to X where he remained for the rest of the year in issue. Immediately on his return to X he commenced a property management business in partnership with his wife. We understand that his wife returned to live with him a week or so later.

10. It would seem that accommodation was provided for the taxpayer in Saudi Arabia by D and that it was of a temporary or transitory nature in the form of single men's quarters, or barracks. Meals were also provided. Both the sleeping quarters and mess facilities were located in a compound that had been specially constructed for D's employees some three-quarters of an hour's drive from the work site. While in Saudi Arabia the taxpayer received small amounts by way of cash advances on salary to cover incidental day to day expenses. No amounts were deducted from those payments for tax or for any other purpose. In accordance with the taxpayer's authority, D's office in Cyprus (where the taxpayer had no bank account or other property) paid what is understood to be the greater part of the balances of his pay entitlements into his personal bank account maintained throughout the relevant period in X. It appears that the balances paid into that account were net amounts after first deducting the advance payments referred to, secondly, deducting amounts in Cyprus said to be required to be paid to a government authority and to be ``in the order of 5% of gross earnings'' (Exhibit J) and thirdly, undisclosed amounts apparently paid to a cheque account said to have been maintained by the taxpayer in Holland. It was not disclosed how the moneys in those accounts were used other than that, on one occasion, money in the account in X was transferred to his wife's account, also in X, for the purpose of assisting his son to purchase a motor car. It appears also that friends of the taxpayer in X looked after his car during his absences.

11. The submissions put to us by the taxpayer's representative in support of the taxpayer's claims were not easy to follow. However, we would understand them to be (in summary) as follows:

  • (a) The taxpayer was not a resident of Australia for tax purposes because his country of origin and citizenship was not Australia; in addition, his relatives lived in Holland.
  • (b) His frequent absences from Australia since 1968 and the need for visas to enter here were not consistent with the concept of his being an Australian resident or of his having a permanent place of abode here. In fact, when he visited here during the year in issue, he stayed in hotels, i.e. in temporary accommodation.
  • (c) As an employee of D he was expected to work anywhere in the world as directed, so that, in a practical sense, the source of his income, irrespective of where his income producing activities were carried on in any year, could only be Cyprus where D was based and from where payments were made.
  • (d) When the taxpayer proceeded under contract to work in Saudi Arabia from 1976, he had ``no idea that he would be returning to Australia'' (transcript at p. 54) and therefore he could not be regarded as a resident for Australian tax purposes in the year in issue.

12. Before proceeding to examine the submissions outlined in subpara. 11(a), (b) and (c) above, it is convenient first to consider the submission referred to in subpara. 11(d) above. We consider that there is no substance in that submission because, in our opinion, the evidence does not support it and, on the contrary, it supports the proposition that, while the taxpayer signed the Saudi Arabian contract for a period of 12 months with the possibility that its term might be extended to a three year period if he so desired, it was his intention to return to Australia (in addition, perhaps, to spending holiday periods here) at the end of nine months for an indeterminate period. Direct evidence that supports that conclusion includes the following:

  • • A document filled out by the taxpayer, which bears the date of 10th June 1976 (forming part of Exhibit 1), and which contains the following question and answer:

    ATC 144

  • ``Q. Intended period of absence? - A. Appr. 9 months.''
  • That information was supplied by the taxpayer to the Australian Taxation Office in connection with a request for assessment before departing for overseas in July 1976. The information was supplied at a time when there was no dispute with the Commissioner and when it could be expected that the taxpayer would make an accurate statement of what he understood the position to be at that time.
  • • The taxpayer's replies to questions put to him in cross-examination. Transcript at p. 40:
  • ``Q. That was your intention when you left Australia, to be away for approximately nine months, was it not? - A. Yes.
  • Q. Why did you put nine months? That was in fact in reply to a question which said, what was the intended period of your absence from Australia, and you put approximately nine months. That in fact was at the point of time what was in your mind, that you were going to be away for approximately nine months. Is that right? - A. That is correct, yes.''
  • Transcript at p. 41:
    • When queried further in relation to the same matter, he stated ``my initial intention was to stay away for nine months and that is what I put down''.
  • Transcript at p. 43:
  • ``Q. You always expected or hoped that during the period of that absence of nine months, somewhere along the line there would be a reconciliation of your marital disharmony during that period? - A. That is right.
  • Q. What attempts did you make to contact your wife and reconcile the position as it existed then? - A. We had friends who were my wife's friends as well as my friends and they helped me, finding this particular job which I took on as caretaker later on early in the year when I came back from the Middle East. That was actually the reason why we got back together again.
  • Q. We may say this friend acted as an intermediary in the reconciliation with your wife? - A. Exactly. I did not know they were still in contact with my wife and my wife did not know they were in contact with me.
  • Q. In fact, when you returned to Australia on 28th March 1977 you went into partnership with your wife on that very same day? - A. That had already been arranged, yes.
  • Q. So, effectively, during the period of your absence, a reconciliation of your marital problems had been effected? - A. That is the main reason why I resigned from the company in the Middle East. As soon as I got a message that this job was available and that my wife was returning to me, I resigned from the company and returned to Australia.
  • Q. On that very same day you did enter into partnership with your wife in a business operating under the business name...? - A. That is correct.''

13. Before proceeding to examine the taxpayer's submissions concerned with his residency status, his permanent place of abode and the source of his income in the year in issue (and whether or not the income of $19,342 derived by him in Saudi Arabia is assessable to Australian tax), it is helpful to have regard, first, to the relevant provisions of the Act. Section 25(1) provides as follows:

``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
  • (b) where the taxpayer is a non-resident -
  • the gross income derived directly or indirectly from all sources in Australia,

which is not exempt income.''

Section 23(r) provides as follows:

``23. The following income shall be exempt from income tax: -

ATC 145

  • ...
  • (r) income derived by a non-resident from sources wholly out of Australia;.''

For present purposes, sec. 23(r) does not appear to add anything to the provisions contained in sec. 25(1)(b) of the Act. In so far as it is relevant for present purposes, the interpretation section of the Act provides as follows:

``6.(1) In this Act, unless the contrary intention appears -

  • ...
  • `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...''

Section 23(q) provides (in so far as it is relevant for present purposes) as follows:

``23. The following income shall be exempt from income tax: -

  • ...
  • (q) income... derived by a resident from sources out of Australia... where that income is not exempt from income tax in the country where it is derived...
  • Provided that this paragraph shall not apply to exempt any income unless -
    • (i) where there is a liability for payment of income tax in the country where that income is derived - the Commissioner is satisfied that the tax has been paid or will be paid...''

14. Despite the submissions put to us in support of the taxpayer's claims, it appears to us on the evidence that the taxpayer should properly be regarded as a resident of Australia for tax purposes for some seven years prior to the year in issue and that he had in that time acquired a domicile of choice in Australia. However, in relation to the year in issue, there appeared to be no dispute that the taxpayer was a ``resident'' of Australia from 1st July 1976 to 6th July 1976 and from 28th March 1977 to 30th June 1977. The dispute in issue, therefore, concerns the period of 6th July 1976 to 28th March 1977, in which his residential status must be determined by resorting to the extended definition of ``resident'' contained in sec. 6 of the Act. In the case of
F.C. of T. v. Applegate 79 ATC 4307, the Full Federal Court, in discussing an appeal by the Commissioner from a decision of the Supreme Court of New South Wales (Sheppard J.) (reported at 78 ATC 4054), considered, inter alia, the meaning of the word ``resident'' and of the words ``permanent place of abode outside Australia''. For present purposes, it is therefore essential to consider that case in some detail and for that purpose the relevant facts of the case are recited from the headnote of the 79 ATC report, as follows:

``The taxpayer was at the relevant time a solicitor employed by a firm of Sydney solicitors. During the year ended 30 June 1972, he was sent to Vila in the New Hebrides to open and manage a branch office for the firm there. He left Sydney for Vila with his wife on 8 November 1971 where, apart from two brief periods, he remained for the balance of the tax year. On leaving Sydney, the taxpayer gave up the tenancy of the flat in which he and his wife had been living. He left no assets in Australia but retained his membership in Australia of a hospitals contribution fund. When he arrived in Vila, he and his wife spent the first two weeks in a hotel and then obtained a lease of a house in Vila. The term of the lease was initially for 12 months with an option to renew for a further 12 months. The taxpayer was admitted as a legal practitioner in the New Hebrides. He obtained a residency permit for a period of 12 months which he subsequently renewed for a second term of two years.

In July 1973, the taxpayer became ill and came to Sydney for treatment. He later returned to Vila but the firm agreed to replace him. In September of that year he and his wife came back to Australia. Owing to a fall off in international business, the branch office at Vila was closed in 1975. It was always intended by the taxpayer and his firm that, after the

ATC 146

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 taxpayer or the firm but it was anticipated that it would be of substantial length.''

15. Before turning to the principles established in Applegate and considering how they might be applied in the instant case, it is of assistance to, first, compare the facts of Applegate with those in the instant case. Mr. Applegate departed from Australia on 8th November 1971 and had not returned here by 30th June 1972, the close of the relevant year of income. In the instant case, the taxpayer left Australia on 6th July 1976 and by 30th June 1977, the close of the year of income in issue, he had completed his employment under the contract and had returned to Australia to reside, it would seem, on a permanent basis. At the time of leaving Australia, Applegate's intention was to remain overseas for an indefinite period of time. It was not specified or defined but it was to be of substantial length. It was to be in excess of two years. His wife accompanied him, he left no assets in Australia, he obtained a residency permit in Vila for 12 months and renewed it for a further two years, and he took a lease on a house in Vila for 12 months with a further 12-month renewal option. By way of contrast, the taxpayer in the instant case clearly intended to be absent from Australia for approximately nine months and in fact was away for that period only, his wife and son remained in Australia and he had a bank account and a motor car here (unlike Applegate). The nature of the accommodation provided by the taxpayer's employer was of a temporary or transitory nature in the form of single men's quarters, or barracks, or compound accommodation, similar to those found on many construction sites, which, we would understand, had to be vacated by the taxpayer on the completion of the term of his contract.

16. At p. 4313 in Applegate, Northrop J. stated:

``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.''

At p. 4309 in the same case, Franki J. stated:

``In the case of an adult male whose domicile of choice was Australia it is difficult to see how he could be domiciled in Australia if he had left Australia with the intention of residing elsewhere permanently in the sense of for the rest of his life.''

At pp. 4317-4318, again in the same case, Fisher J., following a discussion concerning the phrase ``permanent place of abode'', stated:

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

17. It appears from the above dicta that the essential question for our decision in this matter is whether as a fact the taxpayer's permanent place of abode was outside Australia at the relevant time. While, as pointed out by Franki J. at p. 4309, a ```permanent place of abode outside Australia' is to be read as something less than a permanent place of abode in which the taxpayer intends to live for the rest of his life'', it is important to know, as pointed out by Northrop J. at p. 4314, ``whether the taxpayer has abandoned any residence or place of abode he may have had in Australia'' and whether he has ``formed the intention to'' reside indefinitely outside Australia in contrast, it would seem, to an

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intention by him to reside in a ``temporary or transitory place of abode outside Australia''. In the words of Fisher J. at p. 4317, the phrase ``permanent place of abode'' means ``the taxpayer's fixed and habitual place of abode. It is his home, but not his permanent home. It connotes a more enduring relationship with the particular place of abode than that of a person who is ordinarily resident there or who has there his usual place of abode.''

18. There is no evidence before us to support a conclusion that the taxpayer in the instant case formed the intention before or during the year in issue to abandon Australia and X as his place of residence or to reside indefinitely outside Australia within the time constraints explained in the Applegate case. On the contrary, the evidence shows that the taxpayer lived in a temporary or transitory place of abode outside Australia and that it was his intention to return to Australia at the end of nine months. In our opinion the facts in the instant case are also distinguishable from those in the Queensland Supreme Court case of
F.C. of T. v. Jenkins 82 ATC 4098, where Sheahan J. dismissed the Commissioner's appeal from the decision of No. 3 Board of Review in Case N81,
81 ATC 414. In that case a bank officer was transferred to the New Hebrides for three years. He returned to Australia after only 18 months. He had tried to sell his family home before going overseas but was unable to find a buyer. In the circumstances, his employer agreed to lease the house on a 12 months' basis with options to renew. Furniture was stored at his employer's expense. The officer retained a bank account in Australia to deal with rent receipts and expenses in respect of the house. Having arrived at the conclusion that the bank officer as a fact had a permanent place of abode outside Australia during the period he was overseas, Sheahan J. was unable to say that the Board of Review was in error in holding that the income for the 1977 year was not liable to income tax. In relation to the year of income ended 30th June 1978, his Honour was ``unable to discern from the evidence before me whether prior to that date the taxpayer knew that the duration of his stay in Vila was going to be curtailed'' (p. 4101), and accordingly his Honour formed the opinion that the officer's New Hebrides' income was not assessable and that the Board was not in error in coming to that same conclusion.

19. On the other hand, the evidence in the instant case shows that, at the end of the year in issue, the taxpayer had in the preceding 12 months completed his nine months' contract of employment in accordance with his original intentions, he had returned to Australia to X on two occasions during that nine months' period, he had achieved a reconciliation with his wife and had returned to X to reside with her, and he had entered into a business partnership with her that was commenced in X on the date of his return to Australia. During that time he had a son living in X; also, he maintained a cheque account there (into which most of his Saudi Arabian income was paid) and owned a motor car there. In our opinion the evidence in the instant case could only lead to the conclusion that the taxpayer did not have a permanent place of abode outside Australia during the year in issue and that he remained during the whole of that time a resident of Australia within the meaning contained in sec. 6 of the Act. In the circumstances, we find it necessary to reject the taxpayer's submissions referred to in subpara. 11(a) and (b) above.

20. We turn our attention now to the question of whether sec. 23(q) of the Act applies in the instant case (see submission referred to in subpara. 11(c) above) and, in doing so, draw attention to the decision of Board of Review No. 1 in Case P60,
82 ATC 287. It is convenient to recite the relevant facts of that case from the headnote, which reads as follows:

``The taxpayer was a tug boat master. He had spent most of his working life working out of ports in his State of birth and had set up home in a seaside town where he lived with his wife and family. Due to the unavailability of suitable work in Australian waters, he entered into a contract of employment to work in country Z. The taxpayer's accommodation in Z was provided by his employer and he was granted substantial leave periods away from Z which he spent in Australia with his family. The taxpayer's wages were paid from country X (where his employer had an office) and were taxed in that country. He paid no income tax in Z.

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The taxpayer claimed that the source of his wages income was country X and, as that country had levied income tax on the wages, he was entitled to exemption from Australian income tax under sec. 23(q). The Commissioner contended that the source of the wages income was country Z and therefore sec. 23(q) did not apply. The taxpayer also contended that the income was exempt under sec. 23(r).''

It was held by the Board in that case that the source of the wages was country Z where the work was done by the taxpayer, and not country X. It was also held that, as the taxpayer was under no liability for income tax in the country of source, the exemption in sec. 23(q) did not apply. Further, it was held that (in circumstances that are distinguishable from those to be found in the instant case) the taxpayer was at all relevant times a resident of Australia and that, therefore, sec. 23(r) did not apply.

21. While there appear to be some material differences between the facts in the instant case and those appearing in the published reasons for the Board's decision in Case P60 (supra), it would seem that, in so far as the employment arrangements were concerned, no substantial differences existed. In the circumstances it is helpful, in considering the application of sec. 23(q) in the instant case, to have regard to the following observations of Hunt J. at p. 4076 in
Foreman v. F.C. of T. 83 ATC 4073, a case in which the taxpayer unsuccessfully sought an extension of the time for filing a notice of appeal against the Board's decision in Case P60:

``I am unable to find in the transcript before the Board or in the reasons for its decision any reference to a dispute between the parties as to the relevant principles to be applied in determining the source of income in the situation where a taxpayer is obliged by reason of the nature of his employment to render his services in a place other than that from which the payment is made by his employer for those services. Both parties identified the relevant case to be the decision of the High Court in
F.C. of T. v. Mitchum (1965) 113 C.L.R. 401, in which it was held (at p. 407, quoting from
F.C. of T. v. French (1957) 98 C.L.R. 398 at p. 410) that the identification of the source of income was in each case a conclusion of fact:

  • ... a practical hard matter of fact... something which a practical man would regard as a real source of income...

The remainder of the relevant passage in French's case was said by the High Court in Mitchum's case (at p. 408) to be no more than a recognition that, in point of hard practical fact, in a case of wages for work the performance of the work would be the source of the wages.

The taxpayer in the present case (who appeared in person before the Board) spent a considerable amount of time and effort in arguing (very creditably, if I may say so) that the situation of his employment in the present case fell within the facts of the Mitchum case rather than within the fact of the more recent decision by the Full Court of the Federal Court in
F.C. of T. v. Efstathakis 79 ATC 4256. This more recent case did not lay down any principles of law different to those laid down either in French's case or in Mitchum's case; what happened was that the Federal Court came to a particular conclusion upon the facts of that case which differed from the conclusions come to upon the facts in the earlier cases, but it still applied the `practical hard matter of fact' test.''

22. At the hearing we were not referred to any specific authority, nor are we aware of any, that might of itself be decisive ``in determining the source of income in the situation where a taxpayer (as in the instant case) is obliged by reason of the nature of his employment to render his services in a place other than that from which the payment is made by his employer for those services''. In the circumstances, we must rely for our decision upon the ``practical hard matter of fact'' test stated by his Honour to have emerged from French's case and Mitchum's case and to have been applied by the Full Court of the Federal Court in Efstathakis' case. In applying that test, we find on the evidence that the taxpayer in the instant case entered into a contract in Australia to perform specific duties on the dredge that was being operated at the relevant time in

ATC 149

Saudi Arabian waters and that he performed those duties. Therefore, we conclude upon the basis of practical considerations that emerge from the application of that test that the source from which the taxpayer's income was derived was the duties that were performed by him in or about Saudi Arabia rather than in the processes of payment that were undertaken in Cyprus as distinct from the maintenance of records of time worked and the compilation of other data (no doubt in Saudi Arabia) that enabled the amounts of the wages payable to be quantified. Further, as there was evidence to show that the taxpayer was not under any liability to pay income tax in Saudi Arabia where the income was derived, and that he did not pay tax there, the proviso to sec. 23(q) cannot be relied upon by him to provide an exemption that is not otherwise available to him under the substantive provisions of that section. Having regard to the principles of law that we have felt bound to apply in arriving at our conclusion in this matter, it is not relevant in our opinion whether the amounts deducted from the taxpayer's pay in Cyprus were in the nature of an income tax paid in that country. In the circumstances, we refrain from deciding whether certain documents tendered in evidence (and subject to objection by the Commissioner's representative) should properly be regarded as evidence of payment of tax in Cyprus and also whether, in the absence of any evidence concerning the laws of Cyprus, those amounts should be regarded for the purposes of sec. 23(q) as the payment of income tax in that country. For these reasons, we would reject the taxpayer's submission referred to in para. 11(c) above.

23. We are satisfied on the evidence that the taxpayer was a resident of Australia for income tax purposes during the year in issue, that the source of his wages income of $19,342 was Saudi Arabia where no income tax was paid or was payable by him and that the amount, not being exempt income under sec. 23(q) or 23(r) of the Act, was correctly included in his assessable income under sec. 25(1) of the Act.

24. For the above reasons, we would uphold the Commissioner's decision on the objection and would confirm the assessment in issue.

Claim disallowed


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