Case Q68
Judges:KP Brady Ch
JE Stewart M
DJ Trowse M
Court:
No. 2 Board of Review
K.P. Brady (Chairman), J.E. Stewart and D.J. Trowse (Members)
By consent, the two references in this case that came before us for review were heard together. The references concern the years of income ended 30 June 1977 and 1978, and raise for our consideration the question of whether the taxpayer, a bank employee, was a ``resident'' of Australia within the meaning of the definition in sec. 6 of the Income Tax Assessment Act, and therefore the question of whether amounts of $7,600 and $20,056, being salary and allowances received by the taxpayer during the income years ended 30 June 1977 and 1978 respectively, were correctly included in his assessable income of those years pursuant to the provisions of sec. 25(1) and 26(e) of that Act.
2. The Commissioner disallowed the taxpayer's claims that the above amounts of $7,600 and $20,056, derived by him outside Australia as an employee, were exempt income under sec. 23(r) of the Act. Those amounts were derived by him as occupant of a senior position in the Port Vila branch of an Australian bank. He occupied the position for a period of two years that commenced in January 1977. While the Commissioner accepts that the taxpayer remained outside Australia for some two years and derived the income in issue in the place and in the circumstances mentioned, he is not satisfied that the taxpayer's ``permanent place of abode'' within the meaning of ``resident'' or ``resident of Australia'', as defined in sec. 6 of the Act, is outside Australia. Further, while the Commissioner accepts that the taxpayer had a ``place of abode'' outside Australia in the relevant period, he does not accept that the ``place of abode'' occupied by the taxpayer in Vila falls within the meaning of the word ``permanent'' that precedes that term in the definition.
3. The taxpayer objected to the Commissioner's disallowance of his claims and, upon the Commissioner's disallowance of the objections against the assessments, the taxpayer requested that the decisions on the objections be referred to a Board of Review for review. At the hearing the taxpayer appeared in person and gave evidence under oath. He was represented by a senior officer of the employer Bank. The Commissioner was represented by counsel.
4. The taxpayer, whose domicile of origin was Australia, commenced his career in Australia with the Bank in 1954. His career followed traditional lines of advancement through various phases of retail banking. In the early 1960s he was appointed to the Bank's international operations department where he remained for some five years. He subsequently returned to retail banking where he gained further general experience. Later he gained experience as an accountant and as manager in several of the Bank's metropolitan branches. Since his return to Australia from Vila in January 1979, he has relieved as manager for some months on several occasions and has occupied one particular position as manager for some four years.
5. It appears that in November 1976 the taxpayer was asked by his superiors to consider an appointment to a position in the New Hebrides as the Bank's representative. It also appears that the duties of the position embraced his earlier training in international operations and as branch manager. He was given one week in which to consider the posting. It seems that, during that week, the taxpayer and his wife made enquiries concerning various aspects of the conditions that would be encountered by them in Port Vila. It did not emerge from examination in chief what the nature of those enquiries were or where they were made. However, it emerged from examination in chief concerned with events after that week, and from cross-examination, that the taxpayer and his wife were at all relevant times (both before and after their departure to Vila) greatly concerned about the school facilities that would be available to their three sons (all of primary school age in 1976), and especially the eldest son who would enter the secondary school education level in early 1979. It appears that this concern prompted the taxpayer during the week mentioned, or shortly thereafter, to write to an acquaintance in Vila for the purposes of obtaining information that would enable him to determine whether the secondary education provided in Vila might be suitable for his son's education. It also appears that (at least by inference), on receipt of advice that the secondary school facilities would not be suitable, the taxpayer unsuccessfully sought to persuade his superiors that he
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should be permitted to proceed to Vila on the understanding that he could return to Australia at a time of his choosing if in due course he and his wife considered that the school facilities were not up to standard. However, from the evidence overall, it appears to us to be a reasonable inference in this matter that the Bank was reluctant to accede to the taxpayer's apparent wishes because of its concern of being placed in a situation in which the length of the taxpayer's stay in Vila could be determined by him and not by the Bank.6. In the events that happened, it appears nevertheless that the taxpayer, within the period of one week referred to, indicated his willingness to accept the appointment offered to him in Vila. The taxpayer gave us to understand that, up to that time, he had not considered the period of time that might be involved in the appointment, although, at the time, his understanding was that it could be for a period extending up to three years. The Bank formally advised the taxpayer of his appointment in a letter dated 8 December 1976 (Exhibit B). The letter provided, inter alia, details concerning his pay and allowances in the new position, which would bring him under the control of the Bank's International Division, the probable commencing date for him to take up the position and advice that he would be required to spend a brief period in the International Division before departing to take up the position. While the letter advised that a residence in Vila would be provided for his use, it did not give ``details of the accommodation and other domestic aspects'' which the letter indicated had been under discussion between the taxpayer and the Bank's personnel manager. The letter did not indicate the period for which the appointment had been made. However, under cross-examination, the taxpayer revealed that his discussions concerning accommodation related to the type of house to be provided in Vila and his rights in the matter of refurnishing it if it became necessary. The ``other domestic aspects'' discussed were conceded by the taxpayer to relate principally to his son's problems concerned with schooling referred to earlier. The taxpayer also conceded that, as a consequence of those discussions, it was finally accepted by the Bank as a condition of his appointment that he and his family should be returned to Australia at the end of two years.
7. In a letter dated 26 January 1977 (Exhibit C), the taxpayer was advised by the Bank's Chief Manager, International Division of his acceptance into that division. The same letter provided him with a broad outline of the Bank's policy in Vila and of the duties that were to be performed there by him. Of particular relevance for present purposes is the following extract from the letter that concerned the taxpayer's term of appointment:
``Generally speaking, the term of overseas appointments is 2 to 3 years this giving the degree of flexibility so desirable in co-ordinating the movement of officers on further assignments. In your own case however, Personnel Division acknowledge your particular need to return to Australia prior to the commencement of the 1979 school year, therefore your appointment will terminate late 1978.''
8. The above advice was not seriously challenged as to its true meaning by the taxpayer's representative. It strongly supports, in our opinion, the proposition emerging from the evidence generally that the taxpayer's appointment was for a period of two years only and that the Bank's acceptance of that position arose out of the taxpayer's representations concerning the school problems referred to earlier, that were commenced shortly after he was offered the position. The evidence overall clearly indicates, in our opinion, that the taxpayer was aware of the definite period of his appointment for some time before he proceeded overseas. In the circumstances, we do not accept that the particulars surrounding the taxpayer's stay in Port Vila were fully revealed in an undated letter several years later, signed by the taxpayer, that was addressed to the Deputy Commissioner of Taxation, or that the letter correctly set out the position that existed in fact. That letter accompanied the taxpayer's returns of income for the 1977 and 1978 years (lodged in March 1979), and intimated that the ``appointment overseas was for an indefinite term (although unlikely to exceed three years)'' and that ``depending upon the
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success or otherwise of the exercise and the possibility of other overseas vacancies within the Bank, it was possible that my stay overseas could have been much longer''.9. The taxpayer departed with his wife and family for Port Vila on 28 January 1977. For the first week there, they resided in a hotel after which they moved into a house that was leased by the Bank from one of its clients. It seems that the provision of a house was an entitlement that attached to the position. It is mentioned in passing that, although the taxpayer did not pay rent for the house, the Bank determined a value in respect of it for tax purposes. Generally speaking, the house was fully furnished and ready for occupation by the taxpayer and family upon its being vacated by his predecessor. However, it appears that some furniture and fittings were, at the taxpayer's request, replaced by the Bank at its expense. Further, it appears that the taxpayer and family took with them from Australia seven suitcases of clothing, etc., and two large crates that contained toys and bikes and similar articles for their children, personal effects for the taxpayer and his wife in the nature of curios and other memorabilia and, significantly for present purposes, a supply of linen for the family for two years. It seems that the taxpayer and family settled into the business, social and school life of Vila within a matter of weeks.
10. During his absence of two years from Australia the taxpayer did not visit here. However, when on holidays, totalling some six weeks, taken during that time, he and his family visited America, Fiji and New Caledonia. It appears that the taxpayer did not acquire any property in Port Vila or elsewhere in the New Hebrides. It also appears that, in the latter part of 1978, arrangements were made for his eldest son to commence his secondary education in or near the suburb where the family lived before going to Port Vila and where they resumed living shortly after their return to Australia on or about 25 January 1979.
11. On their return to Australia, the taxpayer and his family, after a short stay in a motel, returned to live in the same house where they resided before going overseas. No attempt had been made to sell the house immediately before or during their absence overseas because, it seems, it was always the intention to return to live in it. The house was let unfurnished to two tenants (the first tenant vacated after a very short period) on the basis of a 12 months' lease with an option for a further 12 months' lease. The furniture was stored at bank expense for an unstated period. Rent for the house was paid into a bank account in Australia maintained by the taxpayer for that purpose. The taxpayer also had a second account here, while his wife maintained a separate account here in her name. It appears that social security payments in respect of family allowances made during the two-year period were paid into that account. Further, concerning arrangements made for the period of their absence, it appears that the taxpayer and his wife advised the appropriate electoral authorities of their pending absence from Australia and of their return here.
12. Finally, in presenting the relevant facts, it appears from the evidence of a senior bank official called for the taxpayer that, although the Bank seeks to maintain a policy of flexibility in its appointments to positions, especially overseas appointments, it does so on the basis that it would not be committed to a situation (despite the wishes of individual officers) that it could not change to suit Bank needs. It was said that the Bank ``always reserves the right to make changes to meet its needs as they arise'' and that, as one general consequence of that policy, officers were not usually advised specifically of the term of their appointments; the advice given is usually limited to a general indication of the period of time that might be involved with each appointment. The witness also gave us to understand that, where changes to appointments are made, for any reason, the periods of time involved are usually shortened rather than extended. The witness did not have personal knowledge concerning the circumstances surrounding the taxpayer's appointment to Port Vila. However, he appeared to accept, notwithstanding the general policy mentioned, that, in the taxpayer's situation where school requirements were in issue, the Bank, in the extract quoted in para. 7 above, was following its general practice in those circumstances of responding to particular representations made by its officers and of advising its decision in the matters raised by them.
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13. The meaning of the term ``permanent place of abode outside Australia'' that is included in the extended definition of the word ``resident'' in sec. 6 of the Act was considered at some length by the Full Federal Court in
F.C. of T. v. Applegate 79 ATC 4307, and in a more recent decision by the Queensland Supreme Court in
F.C. of T. v. Jenkins 82 ATC 4098. However, before examining those decisions, it is helpful for present purposes to consider, first, the ordinary dictionary meaning of the adjective ``permanent'' that introduces that term. In this connection, it is observed that in the Shorter Oxford English Dictionary (3rd ed.) the word ``permanent'' is said to mean ``(1) lasting or designed to last indefinitely without change; enduring; persistent: as opposed to temporary. (2) of persons: continuing steadfast in a course''. It is also observed that in the Random House Dictionary of the English Language (an American publication), the first two meanings attributed to the word are ``(1) existing perpetually; everlasting. (2) intended to exist or function for a long, indefinite period without regard to unforeseeable conditions''. While on the authorities the word ``permanent'' must be given a meaning consistent with the context in which it is found, it appears, in the light of the definitions referred to that its ordinary, general meaning connotes periods of time that are indefinite and enduring, lasting or designed to last. On general principles, therefore, it seems to us that in the present case where the evidence in our opinion establishes that a term of two years was agreed between the taxpayer and the Bank as a condition of the taxpayer's appointment to Port Vila, the taxpayer's place of abode in that place for that period was not intended to be, nor was it in fact, ``permanent'' in the sense of its being indefinite, enduring, lasting or designed to last.
14. We turn now to the Court cases referred to earlier. The relevant facts in Applegate are recited from the headnote of the 79 ATC report, at p. 4307, 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 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 examining the principles established in Applegate and considering how they might be applied in the present case, it is of assistance to, first, compare the facts in that case with those in the present case. At the time of leaving Australia, it was Mr. Applegate's intention and that of his firm that he would remain in Port Vila for an indefinite period of time. It was not specified or defined but it was to be of substantial duration, even though it was anticipated by both Mr. Applegate and his firm that he would return to Sydney at some future time. The period of absence was to be in excess of two years, although intervening ill health brought about his return to Australia after a relatively short time. The period of time was apparently intended to be of sufficient duration that would enable him to successfully establish his firm's practice in the New Hebrides. He obtained a residency
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permit there for a period of 12 months, which he subsequently renewed for a second term of two years. He took a lease on a house in Vila for 12 months with a further 12 month renewal option. He left no assets in Australia.16. By way of contrast, both the taxpayer in the present case and his employer, the Bank, clearly intended that he should be absent from Australia for a period of two years only and in fact he was absent for that period, plus a day or so. The taxpayer's return here was prearranged and did not arise out of some unforeseen circumstance, for example, ill health that could be said to have curtailed an intended absence of indefinite or of extended duration. The taxpayer in the present case was not concerned to establish a new business for himself or for the Bank with the possibility that an extended stay in Port Vila could become necessary for that purpose. On the contrary, there is evidence to suggest that the Bank was concerned that its continued presence there was open to some doubt because of civil disturbances that occurred during the time of the taxpayer's appointment there. As an employee of the Bank, the taxpayer was apparently not required to, and did not in our understanding, obtain a residency permit for the New Hebrides. Nor did he acquire any property or other interests there. It appears that his stay in Vila and his occupancy of bank-leased premises depended upon his continued employment with the Bank and in the position to which he had been appointed for the two-year period agreed upon. It also appears that the taxpayer's appointment to Vila just came within the parameters of two to three years that the Bank would, generally speaking, expect an overseas appointment to last. Continued employment with the Bank also meant, in our understanding, that the taxpayer would in any event be required, as a general proposition, to return to Australia at the end of three years. Unlike Mr. Applegate, the taxpayer in the present case left most of his assets in Australia comprising his matrimonial home, furniture and several bank accounts. Rental income and interest from sources in Australia, schooling arrangements made in respect of his eldest son and the payment of family allowances into his wife's separate bank here are further factors which, considered together and with the other matters mentioned, clearly distinguish, in our opinion, the present case from Applegate.
17. While, as pointed out in Applegate by Franki J. at p. 4309 (79 ATC 4307), 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. That intention, as explained by his Honour, would appear to be in contrast to his intention 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. In the present case there is no evidence in our opinion that would support a conclusion that the taxpayer formed the intention before or during either of the years in issue to abandon Australia 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 it was the taxpayer's intention at all relevant times to return to Australia at the end of two years, and that that event happened in fact. The evidence also shows, in our opinion, that the taxpayer's place of abode in Port Vila was temporary or transitory in two respects because, first, it depended upon the Bank continuing to lease the house in which he and his family lived and also because of the Bank's continuing agreement, in any event, to permit the taxpayer and his family to live in it. Secondly, having regard to the two-year period of his appointment, the taxpayer's place of abode in Port Vila, whilst being his home for the time being, was ``not his permanent home'' or the place of his permanent abode in the sense, as we would
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understand it, explained by Fisher J. This is so because, first, it lacked a ``more enduring relationship'' than that which could otherwise be expected to exist between the particular house or place of abode of a person who ordinarily resides there or who uses it as his usual place of abode. Secondly, arising out of the definite and temporary nature of the taxpayer's appointment, his home or place of abode in Port Vila lacked the essential characteristic of durability that we would understand to be a necessary ingredient of the meaning to be attached to the word ``permanent'' in the context in which it is used. In the circumstances, we do not think, on the basis of the Applegate decision, that the taxpayer established a ``permanent place of abode'' outside Australia during either of the years in issue or that his income from salary derived while in Port Vila is exempt from Australian tax.19. As pointed out by Franki J. at p. 4309 in Applegate, ``Essentially the question is whether, as a matter of fact the taxpayer's permanent place of abode was outside Australia at the relevant time.'' As already indicated, we have found as a fact that that was not the position in the present case with the consequence that, in a material way, the facts differ from those in Jenkins (supra) where Sheahan J. concluded that Mr. Jenkins (on transfer to the New Hebrides for three years and who returned to Australia after 18 months) as a fact had a permanent place of abode outside Australia during the 1977 income year. As a consequence, his Honour was unable to say that the Board of Review No. 3, whose decision was under appeal, was in error in holding that the income of that year was not liable to income tax. In relation to the 1978 income year, also in issue, 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'' (82 ATC 4098 at 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. Having regard to the differing facts in the present case and the Federal Court decision in Applegate, we do not think that the decision in Jenkins assists the present taxpayer.
20. For the above reasons, we would uphold the Commissioner's decisions on the objections and confirm the assessments in issue.
Claims disallowed
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