CROCKETT (No 2) v FC of T
Members:KL Beddoe SM
Tribunal:
Administrative Appeals Tribunal
KL Beddoe (Senior Member)
The applicant seeks review of objection decisions of the respondent dated 13 August 1998 in respect of the years of income ended 30 June 1988 to 30 June 1996. Those objection decisions made substantial adjustments, in the applicant's
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favour, to the assessments of taxable income thereby conceding that the assessments were excessive. Adjustments were also made to increase the assessable income. The issues in contention for determination by the Tribunal on review are:- • whether the applicant was a resident as defined during the relevant periods;
- • if so, whether the assessable income of the applicant during the relevant periods should include income from sources identified as United Kingdom (``UK'') Building Society interest; Australian Rental Income; Australian Building Society interest; and
- • penalty tax - quantum of additional tax for late lodgement and incorrect returns.
2. A number of issues in relation to the above were conceded by the respondent during the Tribunal hearing.
3. At the hearing, the applicant appeared in person and the respondent was represented by Mrs Pash. The documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 were admitted into evidence as were further documents including the supplementary s 37 documents and a summary of claims which were marked as Exhibit 1. Building society account records (Australian) tendered by the respondent were marked as Exhibit 2 and a schedule of the applicant's son's arrivals and departures from Australia also admitted into evidence was marked as Exhibit 3. Various further documents provided by the applicant were marked as Exhibits A, B and C.
4. The resumed hearing of this matter was expedited because the applicant is seeking a departure authorization certificate in respect of a departure prohibition order issued by the respondent. At the applicant's request and his stated desire to join his family for Christmas in Sarawak where they reside, the resumed hearing was scheduled for hearing prior to the necessarily expedited hearing of the review by this Tribunal of the decision to refuse a departure authorization certificate.
5. It was essentially the applicant's case that he was not a resident of Australia during the relevant periods and that assessments of income tax on UK and Australian sourced interest funds were incorrect in that not all the assessed interest funds were his but those of his son William Louis Crockett who was a resident of the UK at all relevant times.
Background
6. By way of background the Tribunal finds that the applicant was previously a UK resident and citizen who was granted citizenship in Australia in 1993. He had been married twice previously and his present wife and 2 children of that marriage resided in Sarawak where the applicant now works in providing aid and medical assistance to the local people. It was also accepted that the applicant has engaged in work of a missionary nature including the proposed building of a church and Sunday School in his wife's village.
7. There are also two children of the applicant's first marriage - William Louis Crockett born in 1970 and James Martin Crockett born in 1966 who are UK citizens and residents In 1981 the applicant met his second wife in England and they married in Brisbane in April 1983 later separating in September 1990 and then divorcing. The applicant and his second wife had on the wife's evidence in an affidavit prepared for Family Court proceedings migrated to Australia in May 1987. The applicant confirmed that he had a resident's visa from May 1987. Immigration records show that for the period from May 1987 to May 1988 the applicant remained in Australia for 53 days and for the period May 1988 to May 1989 he was in Australia for 60 days.
8. From 1982 until 1987 the applicant and his second wife lived in a property in Buckinghamshire, England called ``Nouveau'' which they renovated and later leased in April 1987. In October 1985 they purchased another house ``Naiad Villa'' which was a 300 year old former inn and which was also renovated as was another property ``Astoria''. All properties were sold for considerable profit in 1988 with ``Naiad Villa'' achieving a sale price of £ 200,000; ``Astoria'' - £102,000 and ``Nouveau'' - £93,000.
9. It was the applicant's evidence that he was granted entry into Australia because of the funds of some $A1.1million being the proceeds from the property sales which he brought into the country and deposited in Building Society accounts. Accounts were held in the applicant's own name, as joint accounts with his second wife and in an account in the name of William Louis Crockett, the eldest son. Because of some misgivings and guilt in leaving the children of
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his first marriage when the applicant met his second wife, he explained in somewhat emotional terms that he thought it only fair to compensate his eldest children for the period of time they were without a father. For these emotional reasons, he said, he made property investments on their behalf and held accounts also on their behalf.10. Vacant land situated at 51 Baikal Place, Westlakes was purchased in the name William Crockett in March 1988 for the amount of $130,000 as stated by the applicant in evidence. A building contract was entered into in May 1988 to build a large house on the land and following some construction disputes the house was completed and this property remained in the name of William Crockett. The applicant asserted that this property was purchased for his second son and that all sale proceeds of the home were eventually sent to that son in the UK.
11. In about November 1988 another property was bought for $116,000 in the name of James Martin Crockett from the UK sale proceeds That property was situated at 99 Horizon Drive, Middle Park. At about the same time another property was also bought for $120,000 at 98 Horizon Drive, Middle Park in the name of William James Crockett which was sold in April 1989 for $139,000.
12. The matrimonial home at 10 St Amand St, Sinnamon Park was purchased in the name of the second wife in 1987 for $101,000 and then transferred to William James Crockett in 1990. Pursuant to a Family Court settlement that property was sold in early 1991 for $161,000.
13. In 1991 the applicant and his second wife agreed upon consent terms for a property settlement in the Family Court. The wife's interest in the properties at 51 Baikal Place, Westlake and 99 Horizon Drive, Middle Park and moneys in the applicant's accounts at the Ipswich and West Moreton Building Society were relinquished by her to the applicant in return for payment of $120,000 by the applicant. Furthermore 50% of the net sale proceeds from the sale of the property at 10 St Amand St, Sinnamon Park was paid to the wife.
14. The applicant estimated that in total some $300,000 was paid by him in 1991 to his ex- wife as a result of these property settlement proceedings and associated legal fees.
15. During the 1988 to 1990 financial years the applicant was permanently employed as a baggage handler with Air Canada based in London. He had previously worked as a design engineer but was unable to continue with that work. The conditions of his employment with the airline allowed him to accumulate considerable paid hours in lieu if shift work was undertaken and to also obtain 10 airline tickets per year at a considerably discounted price for any travel by himself and his family. The applicant availed himself of these benefits and travelled frequently between Australia and the UK during the relevant period while still employed with the airline.
16. Sometime during the 1990 financial year the applicant injured his back in a work place accident while unloading baggage and subsequently was off work for a period. In 1991 he received compensation of some £7,000 which he stated reimbursed him only for medical treatment. The applicant then ceased work with Air Canada and returned to Australia.
17. It was accepted by the respondent who, in determining the objection found that the applicant was a resident, that s 23AG of the Income Tax Assessment Act 1936 (``the Act'') applied in exempting from tax the foreign source income of the applicant for the 1988 to 1990 financial years inclusive. This being the income of the applicant derived in England while employed with Air Canada which was considered to be for a period of continuous foreign service for the purposes of the provisions. While the issue arising under s 23AG was not in dispute, on appeal to the Tribunal the applicant sought to assert that he was not a resident for the relevant period for the financial years July 1988 to July 1990.
Residency
18. In considering the issue of whether the applicant was a resident in the relevant years of income I made the finding that the applicant was a resident and gave oral reasons for that decision in the course of the hearing. For the sake of completeness I will set out the evidence and reasons for that decision.
19. A ``resident'' is defined in s 6(1) of the Act as follows:
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```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;
- (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; or
- (iii) who is:
- (A) a member of the super- annuation scheme established by deed under the Superannuation Act 1990; or
- (B) an eligible employee for the purposes of the Superannuation Act 1976; or
- (C) the spouse, or a child under 16, of a person covered by sub- subparagraph (A) or (B); and
...''
20. On the applicant's evidence he and his second wife came to Australia in May 1987 because she had a sister residing in Australia and they were able to live rent-free in a unit the wife's sister owned in Brisbane. After a year they purchased the house at 10 St Amand Street as they had a shipment of furniture sent from England and needed somewhere to store it. They therefore decided on the purchase of a house. During the period 1987 to 1990, the applicant returned to England and continued work as a baggage handler and also completed the renovation of the UK houses.
21. The respondent argued that the applicant was a resident as he met the first test prescribed which is a resident according to ordinary concepts. it was considered that he satisfied the factors of physical presence in Australia which was aligned with the factors of intention and purpose of presence in Australia. The frequency and regularity of his visits and his obtaining of a permanent resident visa in 1989 were relevant. Also considered relevant was the obtaining of Australian citizenship in 1993 and the statement in his affidavit for the Family Court proceedings that ``in May 1987 we migrated to Australia''. During the relevant period the applicant's wife remained in Australia and the applicant returned frequently to be with her.
22. It was contended therefore that the applicant's family ties, locality of assets and home was Australia as the properties in the UK were sold in 1988. Proceeds of the sales were transferred to Australian bank accounts and real property later bought in Australia. Furthermore it was stated that the applicant did not have a Axed place of abode outside of Australia. The written submissions provided by the respondent detailed the arguments in relation to the various tests of ``resident'' as provided in sub- paragraphs (a)(i)-(iii).
23. On the ordinary concept test as provided in paragraph (a) and stated as ``a person, other than a company, who resides in Australia'', I found that the applicant was a person who ``resided'' in Australia during the relevant period In this regard I accepted the arguments of the respondent particularly the factors of intention evidenced by the deliberate decision in 1987 to migrate to Australia, the subsequent application and grant of citizenship and the family and social ties with Australia evidenced by the fact that the applicant and his family lived in Australia until 1996.
Assessable income
24. The applicant failed to lodge income tax returns until such returns were demanded by the respondent. Returns then lodged disclosed substantial amounts of interest in sterling and wages income derived from employment with Air Canada. Both sources of income were said to have been taxed in the United Kingdom (``UK''). The returns lodged presented a story of a non-resident of Australia with an Australian place of abode deriving wages and interest from sources in the UK.
25. The applicant conducted interest bearing accounts at the Ipswich and West Moreton Building Society but did not return interest derived from this source. Nor did the applicant disclose any other Australian source income.
26. Although the respondent assessed rental income it is now conceded that such income was not derived by the applicant.
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27. The applicant's income tax returns substantially overstated Building Society interest derived in the UK. This is because he set out the amounts of principal in each account rather than the interest derived. That arose, according to the applicant, because he became confused about the requirements of the Australian income tax return forms. I am satisfied, as claimed by the applicant, that his psychiatric capacity is impaired because of a nervous breakdown and depressive illness (Exhibit A). He finds filling out forms and detail associated therewith as difficult to cope with. He also suffers memory impairment and emotional instability.
28 Exhibit C consists of letters recently obtained by the applicant as to interest income derived in the UK. The respondent does not accept but does not dispute the contents of these letters. In summary the details are as follows - the exchange conversions are the Tribunal's:
Nationwide Building Society UK $Aus
December 1988 441.15 1,051
December 1989 350.65 739
December 1990 170.10 359
December 1991 6.83 16
December 1992 3.14 7
Cheltenham and Gloucester
Year ended 89/90 6.70 14
'' '' 90/91 8.44 20
'' '' 91/92 1.40 3
(Exchange Rates used are those set out at folio 58 of the T documents.)
Those amounts are substantially less than the amounts returned by the applicant and assessed by the respondent. There is nothing before the Tribunal to suggest the information is incorrect and I accept it.
29. The interest paid in Australia by the Ipswich and West Moreton Building Society has been calculated as follows:
+----------------------------------------------------------------------+
| Financial Account Account Account Account Total |
| year 26365 26366 39885 50441 |
| $ $ $ $ $ |
|------------------------------------------------------------------------|
| 1988 1,729.36 1,787.21 3,516.57 |
| 1989 8,046.60 49,811.92 57,858.52 |
| 1990 9,32 34,566.19 34,575.51 |
| 1991 2.48 65,568.59 888.87 66,459.94 |
| 1992 769.61 18,074.04 18,843.65 |
| 1993 3,641.19 775.18 4,416.37 |
| 1994 460.19 460.19 |
| 1995 20,085.94 20,085.94 |
| 1996 29,888.51 29,888.51 |
+------------------------------------------------------------------------+
30. Account 26365 was a joint account with the applicant's former wife. He said during the hearing that the account was, in fact, his own and the interest derived was his.
31. Account 50441 is much more contentious as to ownership. The applicant says that the account was his son's (William Louis Crockett) which he could operate as an authorised signatory. Documents in evidence (Exhibit 1) point quite strongly to the account having been in the applicant's name until at least November 1994 and some documents suggest May 1995.
32. The account appears to have been kept as a number of sub accounts which were in the nature of term deposits together with the ``Cash Reserve'' account. While the primary documents suggest otherwise and support the respondent's contention that the account was
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the applicant's, the statements of account are in the son's name. That satisfies me that it is more likely than not that the account belonged to the applicant's son at all relevant times. I am also satisfied that the funds were eventually remitted to the benefit of the son.33. I have taken into account the fact that the applicant was authorised to operate the account and that he did so on a regular basis. I have also taken into account the son's arrivals and departures from Australia as set out in Exhibit 3. When account No 50441 was opened on 10 February 1993 the applicant's son was 22 years of age and in Australia. While I accept that the funds can be traced back to the applicant I also accept that the funds belonged to the son and were not held in the account for the benefit of the applicant. In that regard the applicant made it clear in his evidence that because of personal reasons unconnected with liability for taxation he had adopted a course of advancing his sons before 1993 because he felt obliged to make it up to them because of his actions in the past. I am satisfied that the applicant did not have a beneficial interest in account 50441.
34. It was not seriously contended that the accounts 20366 and 39885 were other than the applicant's and that the interest was derived by him. The accounts were in his name - the interest derived was his!
Additional tax
35. I have been unable to fathom the basis upon which additional tax has been remitted in part by the respondent.
36. The applicant failed to lodge the 1988 to 1992 income tax returns until prosecution action was commenced by the respondent. Whatever may be said about the applicant's status and the differing obligations of a non- resident in relation to lodgment of income tax returns the fact remains that he derived substantial amounts of interest from the Ipswich and West Moreton Building Society and, I am satisfied, he quoted a tax file number (his own) in relation to that income. The income was his and it was not remitted overseas.
37. The failure to lodge income tax returns was therefore inexcusable and cannot be explained by claimed status as a non-resident. I do not see any basis for interfering with the respondent's basis for imposing penalties for non-lodgment although they will, of course, have to be recalculated in the light of the Tribunal's decision about the respective taxable incomes.
38. The applicant's returns for 1988 to 1992 were both late and false. They were false, in particular, because they failed to correctly disclose interest derived from building societies. I am satisfied this is a case where the applicant lodged the initial returns without regard to the consequences. In Case 74/96,
96 ATC 662 I discussed the meaning of ``reckless'' as it appears in s 226G of the Income Tax Assessment Act 1936. That provision first applies in relation to the year ended 30 June 1993. I adopt the reasons in Case 74/96 and apply them, mutatis mutandis, in this case, as being descriptive of the applicant's position in relation to his income tax affairs.
39. The objection decisions under review will be set aside and the objections remitted to the respondent with directions that the applicant's assessable income for each year of income is as follows:
Year of income ended $
30 June 1988 4,567.00
30 June 1989 58,597.00
30 June 1990 34,948.00
30 June 1991 66,495.00
30 June 1992 18,853.00
30 June 1994 Nil
30 June 1995 Nil
30 June 1996 Nil
40. The respondent to reassess on the basis that the applicant is a resident of Australia and include only the above amounts of assessable income. Additional and penalty taxes assessed to be adjusted accordingly.
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