TANUMIHARDJO v FC of T
Judges:Heerey J
Court:
Federal Court
Heerey J
The applicant appeals against a decision of the Administrative Appeals Tribunal, (Taxation Appeals Division), constituted by Mr B H Pascoe, Senior Member, which affirmed decisions by the Commissioner to disallow objections against assessments of income tax for the tax years 1984 to 1987 (both inclusive). The income at issue is one-half of the interest earned on deposits with financial institutions in the joint names of the applicant and her mother. The disputed income is as follows:
Tax year $
1984 9,248
1985 25,919
1986 30,320
1987 60,167
The contentions of the applicant were briefly as follows:
- (i) Because the applicant's mother provided all the funds for the deposits, there was a resulting trust in her favour in respect of the applicant's share. The presumption of advancement was rebutted because the applicant's mother intended to retain full beneficial ownership of the deposits and the income therefrom.
- (ii) The applicant was not a ``resident'' within the meaning of s 6(1) of the Income Tax Assessment Act 1936 (Cth) (the Act).
- (iii) In any case, the assessments were null and void since notice was not served ``as soon as conveniently may be'' within the meaning of s 174 of the Act.
If (i) or (ii) is correct, the income in question would have been derived by a non-resident (the mother in the case of (i) and the applicant in the case of (ii)) and by virtue of s 128B would be liable to payment of withholding tax rather than income tax.
Evidence before the Tribunal
The applicant was born in Indonesia on 19 March 1964. She came to Australia in 1982 on a student visa. She completed secondary school and then tertiary studies. Until 1987 she was the holder of an annual student visa. She was granted permanent resident status in 1994.
The applicant's mother is a medical practitioner in Indonesia. She is a widow. The applicant is her only child.
When the applicant first came to Australia she was accompanied by her mother. The applicant opened a savings account in her own name with a bank. Her mother wanted to have funds in Australia as security for any unexpected costs. Funds were placed on a three to six months term deposit with the Commonwealth Bank. The deposits were made in the joint names of the applicant and her mother. The reasons for decision of the Tribunal do not contain any more detail as to dates and amounts. Further sums were transferred from the applicant's mother in Indonesia from time to time and some were placed on term deposit with the ANZ Bank, again in joint names. The interest on some of
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the term deposits were transferred to the applicant's savings account. With other deposits, interest was reinvested with deposits being rolled over at the expiration of each term. The lodgement authorities that were in evidence all appear to authorise withdrawals by one or other of the applicant or her mother.In 1983 or 1984 funds were withdrawn to purchase a new motor vehicle for the applicant's use. This was at the suggestion of the applicant's mother. The amount involved is not stated but the vehicle was a Toyota Corolla so presumably the cost then would have been of the order of $10,000 to $12,000.
In 1984 a house was purchased in Albert Park. The property was located by the applicant and purchased at auction. The contract was signed by the applicant but the subsequent transfer was taken in the joint names of the applicant and her mother. The applicant has lived in the house since taking possession. The price was $265,000 and was paid by withdrawals from the term deposits.
The applicant maintained in her evidence that all funds invested in Australia remained the property of her mother, and the investment in joint names was solely to enable the applicant to obtain funds to meet expenses when required and to provide security for her if anything happened to her mother. She said that she had never believed that any of the invested funds were hers. She claimed she had no right to sell any assets nor retain any proceeds. She would telephone her mother and advise her of expenses such as rates and house maintenance. Her mother would then authorise her to pay such expenses out of her own account to which interest on the term deposits had been credited.
In 1988 the applicant's mother sought permanent resident status in Australia. A solicitor acting on her behalf (apparently the same solicitor as acted for the applicant in the present proceedings) wrote a letter dated 4 February 1988 which included the statement:
``The assets jointly owned by our client and her daughter
in Australia are as follows:
Property 350,000
Cash approximately 900,000
----------
$1,250,000''
The applicant said she had no memory of discussing this application with the solicitor and assumed that her mother had instructed him by telephone. The applicant assumed that if her mother had migrated to Australia she would have lived with the applicant at the house purchased in 1984. She said the possibility of migration had been discussed only briefly with her mother and she understood that her mother had a desire to have a home available if she decided to leave Indonesia.
The applicant's mother gave evidence by telephone from Indonesia through an interpreter. She said that the investments were made in joint names so that the applicant could look after the investments and, if funds were needed, could call her and then draw the money without the need for papers going to and from Indonesia. She maintained that her daughter was required to get approval for the use of the money and, being young, was not allowed to spend excessively. She said that the house was purchased ``as it was a better investment than money in the bank'' and to provide a place for the daughter to live. She understood the concept of survivorship and that the title would pass to her daughter on her death. She stated that within her Chinese culture money would pass to the children on the death of the parent but until then remained the property of the parent, except to the extent that it had been given to a child when needed.
On the question of delay in the assessments, an officer of the Australian Taxation Office gave evidence that ``dummy returns'' were prepared within the office in relation to the applicant for the relevant years. These were prepared to provide input into the computer for preparation of notices of assessment. Calculations of the penalty for incorrect return were done manually. The officer was unable to explain why the notices of assessment were not issued until 16 May 1994 when the returns and calculations had been prepared on 22 November 1988.
(i) Beneficial ownership by applicant's mother
The Tribunal cited the following extract from Jacobs Law of Trusts 5th edition, 1986, at par 1212. Speaking of the resulting trust which arises where a person paying the purchase price of property takes title in the name of another, the learned author says:
``A resulting trust is raised... because the court presumes, in the absence of evidence to the contrary, that the person paying the purchase money intended to obtain the beneficial interest in the property. But where
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the legal title is, on a purchase, vested in someone whom the person providing the purchase money is under an obligation to support, namely, his wife, child or someone to whom he stands in loco parentis, there is no presumption of a resulting trust in favour of the purchaser; there is on the contrary, a presumption that the property was vested as an absolute gift or as an advancement.''
The Tribunal noted that recent decisions hold that the presumption of advancement is now to be regarded as applying in the case of gifts by a mother, as well as by a father, to a child:
Brown v Brown 1994 ANZ ConvR 521; (1993) 31 NSWLR 582,
Nelson v Nelson 1996 ANZ ConvR 280; (1995) 184 CLR 538. The Tribunal then said:
``13. In this case involving the investment of funds by a mother who is a widow in the name of her only daughter who has established an independent life in another country, it would now seem clear that there is a presumption of advancement. This presumption can be rebutted by the evidence. Here the evidence was equivocal. Whilst both the applicant and her mother stated that the funds invested in joint names remained the property of the mother, the reasons for so investing in joint names were somewhat vague. Given the significant difference between the amount of personal income tax applicable to one-half of the income if the legal interest of the applicant is owned beneficially and the amount of withholding tax at 10% if the interest is beneficially owned by the non-resident mother, their assertions must be tested and received with some caution. The reasons for the investments being in joint names was somewhat vague. It was said to have been based originally on the advice of a bank officer with the Commonwealth Bank. What instructions he received as to the requirements of the parties before giving such advice was not clear. The applicant contradicted herself between her written statement and oral evidence as to whether she alone visited the bank or whether she was accompanied by her mother. The mother could not recall whether she accompanied the daughter on that visit. Subsequently, funds were withdrawn from term deposit to pay for the purchase of a house in joint names. The applicant alone located the house said to be suitable and a solicitor was engaged to attend the auction and bid for the house. Why the house was registered in joint names and what instructions were given to the solicitor was not explained in evidence. The applicant has had exclusive use of the house since purchase. The same solicitor, in a letter relating to an application for a permanent residence visa, described the investments as `assets jointly owned by our client and her daughter'. The solicitor was not called to give evidence although it must be assumed that he had received instructions relating to the then existing term deposits and the transfer of title to the house.
14. I am not satisfied that the reasons given for investment in joint names were accurate. If the requirements were to enable interest to be credited to an account in the applicant's name for her personal use and to enable deposits withdrawals or reinvestment to be made without the need to send forms to Indonesia for signature, these requirements could have been met without investment in joint names. The investments could have been made in the name of the mother solely with the daughter as an authorised signatory or holding a limited power of attorney. In her oral evidence the applicant accepted that the term deposit application provided for either party to sign but stated that, at the time, she had no idea what that meant and had always understood that both parties had to sign. This is at odds with the lack of any evidence that it was anybody other than the applicant alone who obtained funds from term deposits to purchase a motor car and the house in 1983 and 1984. Notwithstanding the applicant's statement that she advised her mother by telephone and received approval for payment of expenditure out of the jointly owned funds or the income, I was left with the clear impression that the applicant had a relatively unfettered ability to deal with the funds. In her evidence a statement made by the mother was interpreted as `whatever I have got is hers and whatever she has is mine'. I have attributed very little weight to this comment given the inherent difficulty of adopting English words for testimony given in another language and by a person with a different cultural background. Nevertheless,
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the mother appeared to be a professional person with an intelligent grasp of financial matters. Whilst she also stated that it was her intention that the ownership of the term deposits and house would pass by survivorship to her daughter on her death, it was clear that she was prepared to allow the daughter to exercise considerable authority over the funds in Australia. There was no indication of what wealth remained in the ownership of the mother and not so invested in the joint names.15. After consideration of all the evidence, I find that the presumption of advancement to the daughter has not been rebutted by that evidence. As a result, I find that the applicant at all times had a legal and beneficial interest in the term deposits and one-half of the interest derived therefrom.''
In my view, no error of law has been made out. The Tribunal correctly identified the legal issue and the applicable principles. As the Tribunal pointed out, the onus of proof was on the applicant to show that her mother did not intend her to acquire a beneficial joint interest in the term deposits: s 14ZZK Taxation Administration Act 1953 (Cth). It was not conclusive of this issue that, as counsel for the applicant put it, the ``undisputed testimony'' of the applicant's mother was that all of the monies deposited in the joint accounts belonged to her alone. In
Martin v Martin (1959) 110 CLR 297 at 304 Dixon CJ, McTiernan, Fullagar and Windeyer JJ cited the following passage from the judgment of Cussen J in
Davies v The National Trustees Executors and Agency Co of Australasia Limited [1912] VLR 397 at 403:
``It is impossible to try to arrange into certain sets of categories certain facts, and say beforehand that they will or will not become decisive or immaterial. The attention must be kept steadily fixed on the one fact in issue - what was at the time the intention of the purchaser or transferor? Anything which is relevant to that issue is admissible. You may have the evidence of the purchaser or transferor himself, if he is alive, as to his mental condition in the past, and though in some circumstances such evidence should be received with caution, yet it may be accepted.''
After citing that passage the members of the High Court say:
``His Honour's judgment, which contains a very clear formulation of the principles involved, makes it entirely a question of fact. The burden of proof is firmly placed upon the person asserting that a trust was intended but the issue depends upon the intention with which the property was purchased by the parent in the name of the child or the husband in the name of the wife or as the case may be.''
The reference of Cussen J to circumstances in which evidence of the purchaser or transferor is ``received with caution'' was particularly applicable to the Tribunal's fact finding task in this case, having regard to the significant tax consequences of a finding that the intention of the applicant's mother was as she asserted before the Tribunal. This is particularly so having regard to other evidence which the Tribunal rightly regarded as significant, namely the letter of the mother's solicitor relating to the permanent residence application.
On an occasion when it was in the interest of the applicant's mother to maximise the extent of her investments in Australia, she acknowledged that she owned assets jointly with her daughter and not in her own right.
Counsel for the applicant attacked the comment of the Tribunal that there were more convenient ways than investments in joint names of achieving what was now said to be the object of making the deposits. But this was a matter the Tribunal was entitled to take into account. It is not to the point that this comment might not have been made at the hearing. The Tribunal was entitled to use its experience of everyday affairs, such as the operation of bank accounts, to test the likelihood of the account it was being asked to accept.
The issue of the intention of the applicant's mother was a question of fact. By virtue of both s 14ZZK and the presumption of advancement, the onus was on the applicant. The conclusion the Tribunal reached was plainly open on the evidence.
(ii) Residence of the applicant
Section 6(1) of the Act defines ``resident'' relevantly for present purposes to mean:
- ``(a) a person... who resides in Australia and includes a person-
- (i) whose domicile is in Australia, unless the Commissioner is satisfied that his
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permanent place of abode is outside Australia;- (ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he does not intend to take up residence in Australia;...
- (iii)...''
The Tribunal said as to this issue
``11.... I have no difficulty in finding that the applicant was resident during the relevant period to which the assessments in dispute relate. Since her arrival in 1982 she has been physically present in Australia apart from an annual visit to Indonesia in December. Her evidence was that she came to Australia to study for a career. She was not able to say that she had any intention other than to remain and pursue her career in Australia indefinitely. Although little weight can be placed on the letter seeking a permanent residence visa for her mother, it provides an indication that her mother gave serious consideration to the possibility of coming to Australia to live with her daughter. In 1984 a house was purchased in joint names and was occupied by the daughter as her usual place of abode.
...
In my view, the applicant clearly satisfies (the) definition (in s 6(1)). (1) Even if I was prepared to accept Mr Farrow's submission that the applicant could not have formed an intention to take up residence in Australia, this is only relevant to a person whose usual place of abode is outside Australia. This was not the position with this applicant. Her usual place of abode was not outside but in Australia. In any event, I find that not only did the applicant intend to take up residence in Australia but, if [sic] fact, did take up residence. Here the word `residence' has its normal and understood meaning. Residence is where a person resides, or continues to live on a long term or indefinite basis. There was no evidence to indicate that she was in Australia temporarily or on some limited period of stay.''
The applicant fell within the opening words of the definition. She was a person who ``reside(d)'' in Australia. As Northrop J said in
FC of T v Applegate 79 ATC 4307 at 4313 (citations deleted, emphasis in original):
``The word `reside' has a very wide meaning. 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'.''
Accordingly, as the Tribunal held, it was not necessary to go to the extended definition of resident in sub-par (ii). It is in my opinion not correct to say, as was urged by counsel for the applicant, that sub-par (ii) of the definition necessarily implies that a person can be physically present in Australia during the whole of the year of income but still not be a ``resident'' for the purpose of the Act. On the contrary, persons who do not reside in Australia, within the ordinary meaning of that term, will be caught by the extended definition if they are in Australia for more than half of the year, unless they bring themselves within both exclusions from that status of deemed residency. Such persons would have to show they have a usual place of abode outside Australia and do not intend to take up residence in Australia. It was argued that the applicant was in Australia on a temporary student visa which precluded her from taking employment and which required her to return to her country of origin on the completion of her studies. She was therefore a person, so the argument ran, who could not have lawfully held an intention to take up residence in Australia. However, it was open to the Tribunal to find that her usual place of abode, in the sense of the building or place where a person sleeps or may be found, was not outside Australia. But in any event, as I have said, one does not get to this question. It was open to the Tribunal to find the applicant was, in the relevant years, a person who ``resides'' in Australia.
(iii) Section 174 - ``As soon as conveniently may be''
Section 174(1) of the Act provides:
``As soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax.''
Also relevant is s 175:
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``The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.''
and s 177(1):
``(1) The production of a notice of assessment, or of a document under the hand of the Commissioner... purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.''
Counsel for the Commissioner also relied on the amendment provisions of s 170(2) which relevantly provide:
``(2) Subject to this section, where there has been an avoidance of tax, the Commissioner may:
- (a) if the Commissioner is of the opinion that the avoidance of tax is due to fraud or evasion - at any time; and
- (b) in any other case
- (i)...
- (ii) otherwise - within 4 years from the date upon which the tax became due and payable under the assessment;
amend the assessment by making such alterations in it or additions to it as the Commissioner thinks necessary to correct the assessment.''
Reference was also made to s 171(1) and (2).
The time that elapsed here was some five and a half years. There was no evidence before the Tribunal of any circumstances which might have explained that delay so as to make the service of the notices something that happened as soon as could be conveniently done. The Tribunal, while being critical of the ``long and unexplained delay'' rejected the submission that it resulted in the assessments being invalid.
The Tribunal applied the decision of the High Court in
Batagol v FC of T (1963) 13 ATD 202; (1963) 109 CLR 243. In that case the Court was concerned with the operation of s 170. In three income years the Commissioner's staff processed the appellant's returns and, incorrectly as a matter of law, concluded that the appellant had no taxable income. That conclusion was recorded on the file which was put away. Subsequently the Commissioner served notices of assessment. The appellant argued that in respect of the years in question the Commissioner had made an earlier assessment, which, there being a full and true disclosure of all material facts, the Commissioner had no power to amend. The High Court dismissed this argument, holding that there had been no assessment for the purpose of s 170 until the notice was served. The definition of ``assessment'' in s 6 meant, unless the contrary intention appeared, ``the ascertainment of the amount of taxable income and of the tax payable thereon''. The High Court took the view that there could not be any ``ascertainment'' until the Commissioner, having gone through the process of calculation, served on the taxpayer a notice that he had assessed the taxable income and the tax at specified amounts: 13 ATD at 203; 109 CLR at 250. It was only then that there was brought about an ``ascertainment''. Nothing done in the Commissioner's office ``... can amount to more than steps which will form part of an assessment if, but only if, they lead to and are followed by the service of a notice of assessment'': per Kitto J at ATD 204; CLR 252.
This view obviously does not fit easily with s 174(1) which expressly contemplates assessment as something which occurs prior to the service of notice thereof by writing. Kitto J explains this in the following terms (at ATD 204; CLR 252-253):
``There is, it is true, a lack of harmony between the view I have expressed and the language of s. 174, which provides that as soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof upon the person liable to pay the tax. The provision is taken from sub-s. (1) of s. 40 of the Income Tax Assessment Act, 1922 (Cth). Subsection (2) of s. 40 enacted that the omission to give any such notice should not invalidate the assessment. There was no definition of `assessment'. Thus the scheme of the Act of 1922 as regards assessment was much less clearly marked than is the scheme of the present Act. It would, I think, be unsound to allow the form of words carried over into s. 174 a dominating effect on the present question. Rather it is necessary on proper
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principles of construction to give the section a meaning which fits the context. Accordingly it should, I think, be understood to mean that the Commissioner shall serve a notice of assessment as soon as conveniently may be after his work for the making of the assessment has been done.''
I think therefore that there was a non- compliance with s 174. But s 175 deprives that of any legal consequence. I agree with counsel for the Commissioner that this conclusion is supported by the fact that elsewhere in the Act time limits having consequences for tax liability are specifically provided for, as in s 170(2)(b)(ii). It would be a highly inconvenient reading of the Act to treat non-compliance with the requirement to serve the notice ``as soon as conveniently may be'' as determining tax liability. With any statutory limitation period, certainty is achieved by prescribing a fixed period of time. However on the applicant's contention there would be a most imprecise criterion involving enquiry in every case into the internal procedures of the ATO as to what could or could not have been conveniently done.
Conclusion
None of the grounds of appeal have been made out. The application will be dismissed with costs, including reserved costs.
THE COURT ORDERS THAT:
The application is dismissed with costs, including reserved costs.
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