Sanderson v FC of T

Members:
R Olding SM

Tribunal:
Administrative Appeals Tribunal, Brisbane

MEDIA NEUTRAL CITATION: [2021] AATA 4305

Decision date: 16 November 2021

R Olding (Senior Member)

1. This case concerns the income tax affairs of the applicant, Mr Sanderson, in respect of the year ended 30 June 2016.^[1] Another member of the Tribunal conducted the first two days of the hearing alone. As that member’s retirement from the Tribunal was then imminent, I was also constituted to hear the matter and attended the third day of the hearing at which that member continued to preside. Additionally, I have had the benefit of viewing a video recording of the first two days of the hearing and reviewing the transcript for all three days; the written submissions filed between the second and third days of the hearing; and all other evidence and documents before the Tribunal.

2. Two issues are raised by the application for review:

(a) Whether Mr Sanderson was an Australian resident in the 2016 income year.
(b) Whether certain funds transferred to Mr Sanderson's account from companies in Malaysia are income.

3. If Mr Sanderson was an Australian resident, his assessable income includes his worldwide income; that is, income derived from Australian and foreign sources.^[2] Income Tax Assessment Act 1997, s 6-5(2). If he was not, only his income derived from Australian sources income is assessable.^[3] Income Tax Assessment Act 1997, s 6-5(3).

4. Because the contested payments were from a foreign source, the second issue only arises if Mr Sanderson fails to establish that he was not an Australian resident. Mr Sanderson says the transfers were not income but rather

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repayments of monies he had loaned to the companies on earlier occasions.

5. The reviewable decision before the Tribunal is the decision of the respondent Commissioner disallowing Mr Sanderson's objection against his amended income tax assessment for the 2016 income year. Mr Sanderson has the burden of proving the assessment is excessive and what the assessment should have been.^[4] Taxation Administration Act 1953 , s 14ZZK.

6. However, because the Commissioner has confined the issues in dispute to those outlined above,^[5] Sibai v Commissioner of Taxation [2021] FCA 1353 , [58]-[60] . the questions for determination by the Tribunal are:

(a) Has Mr Sanderson discharged the burden of proving that he was not an Australian resident in the 2016 income year?
(b) If not, has Mr Sanderson discharged the burden of proving the contested transfers were not income but rather repayments of loans?

WAS MR SANDERSON AN AUSTRALIAN RESIDENT?

Statutory framework

7. Section 995-1(1) of the Income Tax Assessment Act 1997 defines 'Australian resident' as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (' ITAA 1936 ').

8. So far as relevant to the current matter, s 6(1) of the ITAA 1936 defines a resident of Australia in these terms:

(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 the person's permanent place of abode is outside Australia; …

9. Thus, the questions for consideration become whether, in respect of the 2016 income year, Mr Sanderson has discharged the burden of proving that:

(a) he did not reside in Australia (the ' resident under ordinary concepts issue '); and
(b) his domicile was not in Australia or, if it was, the Tribunal should be satisfied that his permanent place of abode was outside Australia (' the domicile/permanent place of abode issue ').

10. If Mr Sanderson fails to prove either of those propositions, the assessment must be regarded as correctly treating him as an Australian resident.

Summary of Mr Sanderson's history

11. Mr Sanderson was born in Australia on 26 June 1952 and remains an Australian citizen.

12. He describes himself as 'an international businessman' and the founder of Sanderson Group International Pty Ltd (' Sanderson Group ').^[6] ‘ Statement of Fact ’ of Stephen Allan Sanderson dated 25 June 2020 (‘ SAS Statement ’), 5, section 2.1. That company specialised in the design and construction of theme parks, with clientele located in Asia and the Middle East.^[7] SAS Statement, 5, section 2.1.

13. Mr Sanderson commenced spending a significant amount of time outside of Australia from around 2000 and in Malaysia from 2006. Reflecting his view that he was not an Australian resident from that time, Mr Sanderson lodged income tax returns in foreign jurisdictions as follows:

(a) Macau - 2001 to 2005;
(b) Malaysia - 2006 to 2016.^[8] SAS Statement, 7, section 3, [12].

14. He did not initially lodge income tax returns in Australia for any income year in this period. (It was only upon being prompted by correspondence from the Commissioner's officers, and under peril of penalties for failing to do so, that on 13 March 2018 Mr Sanderson lodged, under protest, returns for the 2014, 2015 and 2016 income years.)

15. In 2001, while married to his first wife, Mr Sanderson acquired a house in Surfers Paradise. Mr Sanderson had four children with his first wife. Although he remarried in 2007, Mr Sanderson's children from his first marriage continued to reside at the property which he retained until it was sold in January 2010.

16. Mr Sanderson married Venus Sanderson (' Mrs Sanderson ') in the Philippines in 2007. Mrs Sanderson brought a child with her into the marriage and Mr and Mrs Sanderson's son was born in 2008. Mr Sanderson also maintained a relationship with the children of his first marriage, visiting them on some of the occasions when he returned to Australia.

17. A home was purchased in the Philippines in Mrs Sanderson's name in 2008. Mr Sanderson's name was added to the title in June 2018 although he maintains that he sought do so some years earlier and, additionally, that as Mrs Sanderson's husband he had

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certain rights in respect of the property under the laws of the Philippines.^[9] This circumstance may be relevant to whether Mr Sanderson had, as he submitted, a domicile or permanent place of abode in the Philippines. As I have concluded that Mr Sanderson was a resident of Australia under ordinary concepts for the 2016 income year, it is not necessary to pursue the circumstances relating to the ownership of the Philippines property further.

18. Neither Mr Sanderson nor Mrs Sanderson were Malaysian citizens. Although spending a significant amount of time in Malaysia, not being of the Islamic faith Mr Sanderson was unable to obtain permanent residency. It was also necessary for Mrs Sanderson and their son to travel in and out of Malaysia regularly to renew their visas.

19. In 2010, Mr and Mrs Sanderson decided that Mrs Sanderson should seek to become an Australian citizen. This required Mrs Sanderson to reside continuously in Australia for at least five years. The decision was motivated by the desire to give their son an Australian education and so that Mrs Sanderson and their son would have access to the Australian health care system. Additionally, Mr Sanderson wanted his son raised with what he considered to be the positive cultural attributes of being an Australian.^[10] Transcript of proceedings, P-34, ln 32-39.

20. Mr and Mrs Sanderson purchased a home at Benowa on the Gold Coast in 2010. The two children resided with Mrs Sanderson at this address. Mr Sanderson supported Mrs Sanderson and the children financially.

21. Mr Sanderson returned to Australia to visit his family as often as he could. He did so 11 times in the 2016 income year staying a total of 83 days. Of those 11 visits, Mr Sanderson stated three were for business. When in Australia he stayed with Mrs Sanderson and the children at the Benowa home, although he also visited friends and associates. When in Malaysia, he lived in various hotels or serviced apartments sourced by his employer.

22. Mr Sanderson departed from Malaysia in 2017 and has not returned. Mr and Mrs Sanderson sold the Benowa property in July 2017. Mrs Sanderson and the children continued to reside in Australia until Mr and Mrs Sanderson relocated to the Philippines with their children in June 2018 following Mr Sanderson's retirement.

Consideration of residency issue

Resident under ordinary concepts - the legal principles

23. The principles for determining whether a person is a resident of Australia are well established.^[11] See, for example, Commissioner of Taxation v Addy [2020] FCAFC 135 , [73] (Derrington J); Commissioner of Taxation v Pike [2020] FCAFC 158 . They include:

(a) To 'reside' in a place for Australian income tax purposes means 'to dwell permanently or for a considerable time, to have one's settled or usual place of abode, to live in or at a particular place'.^[12] Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 , 99 (Latham CJ).
(b) The reaching of a conclusion as to where a person resides requires consideration of not just physical elements but also intention.
(c) Thus, a person does not necessarily cease to reside at a place because they are physically absent. It is necessary to consider whether the person has maintained a continuity of association with the place with an intention to return and an attitude that the place remains their home.
(d) This is a question of fact involving consideration of such factors as:
- (i) the degree of physical presence at the place;
- (ii) nationality;
- (iii) history of residences and movements;
- (iv) habits and 'modes of life';
- (v) frequency, regularity and duration of visits to the place;
- (vi) purpose of visits and absences;
- (vii) family and business ties to the place and another place;
- (viii) whether a place of abode is maintained at the place.
- (e) A person may reside at more than one place.

24. No single factor is likely to be determinative. All relevant circumstances must be considered.

Consideration of Mr Sanderson's circumstances

25. Mr Sanderson has spent a great deal of time living away from Australia. In the 2016 income year, and years leading up to that year, he spent much time in Malaysia. He had substantial business interests and financial investments and obligations in that country. He may well be said to have resided in Malaysia during this time.

26. Mr Sanderson denied that he resided or intended to reside in Australia. However, in my view the objective evidence that he has maintained a continuity of association with Australia - such that he must, at the least, be

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regarded as having resided here, even if he also resided in Malaysia - is overwhelming.

27. Relevant considerations in that regard include:^[13] These findings, although not the conclusions to be drawn from them, are uncontroversial and generally based on Mr Sanderson’s own evidence.

(a) Mr Sanderson owned a home in Australia, the Benowa property, where he lived with his wife and child when in Australia. As Mr Sanderson stated: 'we call it a family home'.^[14] Transcript, P-25, ln 16. Mr Sanderson added ‘ but we also call the home in the Philippines the family home. ’ That is not inconsistent with Mr Sanderson residing in Australia; as noted above, a person may reside in more than one place.
(b) During the 2016 income year, Mr Sanderson returned to Australia on 11 separate occasions, spending some 83 days in total in Australia. Lest it be thought that he spent the balance of the year in Malaysia, I note Mr Sanderson's evidence was that he spent around 50% of his time travelling for work purposes.
(c) The time spent in Australia in 2016 was not an aberration. Mr Sanderson spent broadly comparable periods here in other years as well, returning as often as he could to be with his family.
(d) In contrast to the family's Benowa residence in Australia, Mr Sanderson did not have a regular place of residence in Malaysia. Rather, on each occasion that he returned to Malaysia, his assistant booked hotel or serviced apartment accommodation, having rung around to secure the best rates. The accommodation was booked in the name of a Sanderson group company.
(e) At least a portion of Mr Sanderson's wages was deposited to an account in Australia, consistent with his commitment to financially supporting his wife and child.^[15] Mr Sanderson seemed to indicate that all of his wages were so deposited at least in the 2016 income year as discussed later in these reasons.
(f) Although the evidence was not as clear and consistent as might have been desirable, it must be the case that Mr Sanderson had business interests in Australia. He stated that three of the occasions when he returned to Australia in the 2016 income year were for business purposes and that Sanderson Group maintained a serviced office here. He held directorships in Australian companies for some 30 years including in the 2016 income year.^[16] This included one company of which Mr Sanderson was the sole director, noting that Australian law requires an Australian company to have at least one director who is an Australian resident. However, Mr Sanderson gave evidence that he was unaware of this requirement which I accept.
(g) Mr and Mrs Sanderson had access to a company car in Australia which he regarded as his own vehicle.
(h) Mr Sanderson continued to be treated by medical professionals here with whom he had longstanding relationships.
(i) Mr Sanderson maintained Medicare and medical insurance coverage in Australia, although he also had health insurance coverage elsewhere.

28. There are also contemporaneous statements of intention outlined below indicating that Mr Sanderson regarded the Benowa property he shared with Mrs Sanderson and the children when in Australia as his home. Although I would reach the same conclusion without reference to these, the statements are consistent with such an intention and inconsistent with Mr Sanderson's denial that he intended to reside in Australia.^[17] The respondent entered into evidence a document provided by Mr Sanderson’s accountants dated 4 June 2019 providing responses to 19 questions posed to Mr Sanderson by the respondent. Mr Sanderson advised that this document was a draft provided to the respondent in error. A version of the responses dated 17 June 2019, which Mr Sanderson described as the final, was also entered into evidence. I accept that the 4 June 2019 document, which I have disregarded, was provided in error.

29. One is the manner in which Mr Sanderson completed incoming passenger cards when he returned to Australia. He declared that he was a 'Resident returning to Australia' and on various cards indicated an intention to stay in Australia for the next 12 months. Mr Sanderson's response to cross-examination about the passenger cards - 'I guess I lied on the form'^[18] Transcript of proceedings, P-46, ln 27. - does not help his credibility, but is probably correct in respect of the latter question since his stays were for less than 12 months.

30. Another is a loan application form completed by Mr Sanderson in March 2011. The Benowa property was listed as Mr Sanderson's residential address with the status box 'Own home' selected and the property described as 'live in'. Again, Mr Sanderson's response to questioning - 'Maybe I lied to get the loan I don't know. I don't recall.'^[19] Transcript of proceedings, P-43, ln 15-16. - was unhelpful. What is clear is that either the statement was not accurate or Mr Sanderson's evidence that he did not intend to live in the home at the time was not truthful; both statements cannot be correct.

31. Mr Sanderson also confirmed in cross-examination that after he and Mrs Sanderson acquired the Benowa property he caused his accountants to update his residential address records at the Australian Securities and Investment Commission to that address.^[20] Transcript of proceedings, P-50, ln 19-29.

32. Mr Sanderson did provide a newsletter and other documents indicating his connections with Malaysia. Not surprisingly, since he was so often travelling, these suggested his main

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social connections in Malaysia were business related. In any case, even if he was so connected with Malaysia that it would be said that Mr Sanderson was a resident of Malaysia, as already noted that is not inconsistent with a conclusion that he was also a resident of Australia.

Conclusion on residence

33. For the reasons set out above, I conclude that Mr Sanderson has not discharged the burden of proving that he was not an Australian resident under ordinary concepts. I have taken into account countervailing factors emphasised by Mr Sanderson, such as the significant amount of time Mr Sanderson spent outside Australia; his connections with Malaysia and the Philippines;^[21] Although the house in the Philippines was acquired in 2010, and Mr and Mrs Sanderson relocated to the Philippines in June 2018, the evidence does not support a conclusion that in 2016 Mr Sanderson intended to reside in the Philippines rather than Australia. Indeed, when it was put to Mr Sanderson that he did not intend to live in the Philippines, he responded: ‘ I didn’t know where I wanted to live .’: Transcript of proceeding, P-84, ln 25-26. and that he did not vote in Australian elections or claim social welfare benefits; or have superannuation in Australia. However, in my view these factors do not outweigh the strong remaining connections with Australia, particularly the maintenance of a family home at which Mr Sanderson's wife and children lived, as did Mr Sanderson when in Australia, as outlined above. That conclusion makes it unnecessary to consider the domicile/permanent place of abode issue.

THE TRANSFERS OF FUNDS TO MR SANDERSON'S ACCOUNT

Double taxing?

34. Mr Sanderson's written submissions filed after the second day of the hearing asserted that the amended assessment resulted in double counting.

35. The amended assessment brought to account assessable income of $494,668. Mr Sanderson appeared to assert that that amount included wages of $338,828 on which he had already paid tax following the lodgement of his return bringing that amount to account.

36. The original notice of assessment showed net tax payable in the amount of $48,332.95,^[22] T Documents, T10, 98. based on taxable income of $330,828 and allowing for foreign income tax offsets of $84,620.77. The amended notice of assessment showed Mr Sanderson's taxable income at $494,668,^[23] T Documents, T16, 135. but the net amount payable was arrived at after deducting the tax of $48,332.95 previously assessed and again allowing for the foreign income tax offsets.

37. On this basis, I am unable to identify any double counting.

Has Mr Sanderson proved the amounts transferred to his account were repayments of loans?

38. In approaching this issue, I am mindful of two judicial warnings. One is that self-serving evidence of taxpayers should be approach with caution. The other is that nevertheless a taxpayer's evidence should not be regarded as prima facie unacceptable unless corroborated.^[24] Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 148 , 155 ; and generally: Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212 .

39. Thus, although there is no direct evidence that each of the transfers were repayments of loans other than Mr Sanderson's assertions, it is open to me to be persuaded by Mr Sanderson's oral and written testimony, and documentary evidence, such that it is, that the transfers were indeed loan repayments.

40. The difficulty I face in being so persuaded is twofold. First, the absence of any documentary evidence not only of any loan agreement for what is said to have been substantial indebtedness, but also any record of the amounts said to have been loaned and amounts said to have been repaid. The second is that vagueness and contradictions in Mr Sanderson's statements in the course of this matter, and to a lesser extent the history of less than honest, self-serving statements mentioned above in respect of the passenger cards and loan application, make it difficult to accept Mr Sanderson's assertion at face value without corroboration. An example of the former is that Mr Sanderson seemed reluctant to acknowledge that he undertook business activities in Australia,^[25] See, for example, the exchanges at Transcript of proceedings, P-56 to P-58. but also said that three trips to Australia in 2016 were for business purposes.

41. Mr Sanderson did adduce evidence from a former director and a general manager of Sanderson group companies identifying historical amounts loaned to Sanderson companies, and produced some bank statements indicating some transfers of funds although not in respect of the 2016 income year. However, there was no clear correlation between the documents referenced by these witnesses and any amounts said to have been repaid to Mr Sanderson in the 2016 income year. Even if this evidence were capable of establishing that Mr Sanderson did lend money to the companies on

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occasions and that there was a hope that the loans would be repaid if success of the corporate projects permitted, it does not go anywhere near establishing that the particular amounts transferred in the 2016 year were loan repayments.

42. It is surprising that Mr Sanderson did not produce loan account entries or some other record of the existence of the loan and, in particular, the alleged repayments. Nor did he produce any evidence of the terms of his employment from which it might be possible to draw an inference that a particular proportion of the transfers constituted wages with the balance being loan repayments. The general manager indicated that, for reasons that were not ventilated, the loans and payments were recorded separately but not reflected in the relevant corporate financial statements.

43. Mr Sanderson said that because the company was sold in late 2017 he did not have any financial records to substantiate the loans other than his banking records. This, too, is surprising. In support of his assertions that the transfers were loan repayments, Mr Sanderson noted that the Sanderson Group 2016 tax return identified him as an unsecured creditor to the tune of $698,252. That is a substantial debt. Especially in circumstances involving the sale of a company, it is surprising that Mr Sanderson did not retain some record of the movements in such substantial levels of indebtedness.

44. In summary, the paucity of evidence is such that I cannot be satisfied the transfers were repayments of loans and not income. As the Commissioner submitted:

The evidence is inconclusive as to whether there was a loan, if there were such a loan, who were the parties to the loan, the terms of the loan, and time and amounts, if any, of the loan that had been repaid.^[26] Respondent’s closing submissions, [111].

45. Ultimately, the evidence amounts to uncorroborated and unparticularised assertions. That, in my view, is not sufficient to discharge the applicant's burden of proof.

DISPOSITION OF REVIEW

46. It follows from my conclusions in respect of the two issues discussed above that Mr Sanderson has not discharged the burden of proving the amended assessment is excessive. The objection decision must therefore be affirmed.

Footnotes

^[1] Another member of the Tribunal conducted the first two days of the hearing alone. As that member’s retirement from the Tribunal was then imminent, I was also constituted to hear the matter and attended the third day of the hearing at which that member continued to preside. Additionally, I have had the benefit of viewing a video recording of the first two days of the hearing and reviewing the transcript for all three days; the written submissions filed between the second and third days of the hearing; and all other evidence and documents before the Tribunal.
^[2] Income Tax Assessment Act 1997, s 6-5(2).
^[3] Income Tax Assessment Act 1997, s 6-5(3).
^[4] Taxation Administration Act 1953 , s 14ZZK.
^[5] Sibai v Commissioner of Taxation [2021] FCA 1353 , [58]-[60] .
^[6] ‘ Statement of Fact ’ of Stephen Allan Sanderson dated 25 June 2020 (‘ SAS Statement ’), 5, section 2.1.
^[7] SAS Statement, 5, section 2.1.
^[8] SAS Statement, 7, section 3, [12].
^[9] This circumstance may be relevant to whether Mr Sanderson had, as he submitted, a domicile or permanent place of abode in the Philippines. As I have concluded that Mr Sanderson was a resident of Australia under ordinary concepts for the 2016 income year, it is not necessary to pursue the circumstances relating to the ownership of the Philippines property further.
^[10] Transcript of proceedings, P-34, ln 32-39.
^[11] See, for example, Commissioner of Taxation v Addy [2020] FCAFC 135 , [73] (Derrington J); Commissioner of Taxation v Pike [2020] FCAFC 158 .
^[12] Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 , 99 (Latham CJ).
^[13] These findings, although not the conclusions to be drawn from them, are uncontroversial and generally based on Mr Sanderson’s own evidence.
^[14] Transcript, P-25, ln 16. Mr Sanderson added ‘ but we also call the home in the Philippines the family home. ’ That is not inconsistent with Mr Sanderson residing in Australia; as noted above, a person may reside in more than one place.
^[15] Mr Sanderson seemed to indicate that all of his wages were so deposited at least in the 2016 income year as discussed later in these reasons.
^[16] This included one company of which Mr Sanderson was the sole director, noting that Australian law requires an Australian company to have at least one director who is an Australian resident. However, Mr Sanderson gave evidence that he was unaware of this requirement which I accept.
^[17] The respondent entered into evidence a document provided by Mr Sanderson’s accountants dated 4 June 2019 providing responses to 19 questions posed to Mr Sanderson by the respondent. Mr Sanderson advised that this document was a draft provided to the respondent in error. A version of the responses dated 17 June 2019, which Mr Sanderson described as the final, was also entered into evidence. I accept that the 4 June 2019 document, which I have disregarded, was provided in error.
^[18] Transcript of proceedings, P-46, ln 27.
^[19] Transcript of proceedings, P-43, ln 15-16.
^[20] Transcript of proceedings, P-50, ln 19-29.
^[21] Although the house in the Philippines was acquired in 2010, and Mr and Mrs Sanderson relocated to the Philippines in June 2018, the evidence does not support a conclusion that in 2016 Mr Sanderson intended to reside in the Philippines rather than Australia. Indeed, when it was put to Mr Sanderson that he did not intend to live in the Philippines, he responded: ‘ I didn’t know where I wanted to live .’: Transcript of proceeding, P-84, ln 25-26.
^[22] T Documents, T10, 98.
^[23] T Documents, T16, 135.
^[24] Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 148 , 155 ; and generally: Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212 .
^[25] See, for example, the exchanges at Transcript of proceedings, P-56 to P-58.
^[26] Respondent’s closing submissions, [111].

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