Decision impact statement

Dempsey and Commissioner of Taxation

Court Citation(s):
[2014] AATA 335
2014 ATC 10-363

Venue: Administrative Appeals Tribunal
Venue Reference No: 2013/4861; 2013/4862
Judge Name: Justice Logan, Presidential Member, Deputy President Hack SC, Senior Member Kenny
Judgment date: 29 May 2014
Appeals on foot: No
Decision Outcome: Unfavourable to the Commissioner

Impacted Advice

Relevant Rulings/Determinations:

• None

Subject References:
Resident of Australia

Précis

Outlines the ATO's response to this case which concerned whether the taxpayer was a 'resident of Australia' as defined by section 6(1) of the Income tax Assessment Act 1936 in the 2009 and 2010 years.

Brief summary of facts

The facts as outlined reflect the oral evidence given by Mr Dempsey and accepted by the Administrative Appeals Tribunal (AAT) in making their decision. Mr Dempsey worked on a construction project in Saudi Arabia. He was employed under a contract of indefinite duration by the Saudi Arabian subsidiary of a multi-national construction industry group of companies. At the relevant time, the subsidiary also had a contract for another large construction project in Saudi Arabia and Mr Dempsey gave evidence to the AAT that he intended staying on to work on that project. In the end, he worked on the first project from September 2007 until May 2010 and then returned permanently to Australia.

For the duration of his stay in Saudi Arabia, Mr Dempsey lived in two furnished studio apartments supplied by his employer, in one for nine months and the other for the remainder of his stay. He had the right of exclusive occupancy of these properties, including during his weekends and holidays away. The properties were equipped with laundry and cooking facilities and Mr Dempsey self-catered in his apartment, acquiring his own beverages and groceries.

He spent most of each relevant year in Saudi Arabia, and when on leave travelled to Bahrain, Thailand and Australia. His trips to Australia were brief and when holidaying, Mr Dempsey spent more time in Thailand. On weekends, Mr Dempsey met and socialised with work colleagues and other expatriates at the nearby hotel club where he was a member. He held a Saudi Arabian driver's licence and had a work visa that he renewed annually.

Mr Dempsey owned a house at the Gold Coast where he had lived prior to leaving for Saudi Arabia. He chose not to sell or rent out this house while in Saudi Arabia and he advised the AAT that he also stopped paying off his housing loan over that period. As a hobby, Mr Dempsey maintained a collection of firearms, with the requisite Queensland weapons licences, and stored these in a secure armoury at his Gold Coast house. He also kept a motor vehicle at the house.

Mr Dempsey was single and his parents were deceased. While he had siblings, they did not keep in contact with one another. On his brief trips to Australia, he spent some time at his house on the Gold Coast and also travelled to Canberra to visit his son and daughter. His children and their mother lived interstate and had never resided with him in his Gold Coast house. They also did not visit him in Saudi Arabia.

On trips to Australia, Mr Dempsey indicated on his immigration cards that he was "a resident returning to Australia" or an "Australian resident departing temporarily". He explained to the AAT that of the available options on the cards these seemed the most relevant given he was an Australian citizen. While he also prepared a tax return in Australia indicating he was a resident, and giving his Gold Coast residence as his address, his evidence at the AAT was that this was not deliberate.

Issues Decided by the Court

The question considered by the AAT was whether Mr Dempsey was a resident of Australia in the 2009 and 2010 income years so that his assessable income included income derived by him from employment in Saudi Arabia in those years. In making this determination, the AAT considered the following questions:

•

Did Mr Dempsey "reside" in Australia in those years?; and

•

Given he was domiciled in Australia in those years, were they satisfied that his permanent place of abode was outside Australia?

After weighing the facts presented to it at the hearing, the AAT concluded that Mr Dempsey did not reside in Australia in the 2009 and 2010 years and also that his permanent place of abode was outside Australia.

In making its decision the AAT considered a number of the relevant authorities on residency including Federal Commissioner of Taxation v Miller. It noted that in Miller the High Court found that the word "resides" was "not a term of art denoting a field with precisely defined boundaries" and also that it "is an ordinary English word extending over a field the boundaries of which constitute a broad limbo with blurred edges". In Miller, the High Court also found that the question as to where someone resides, "therefore entails questions of degree and is one of fact". The AAT noted that this is one reason why "not all outcomes on particular facts on the subject of residency are readily reconcilable". In considering Miller, the AAT noted that the word "resides" bears its ordinary meaning, not some broad meaning. In considering the authorities the AAT also noted that each case turns on its own facts, taking into account not just both the physical elements (such as physical presence) but also the taxpayer's intention (paragraphs 89 to 100).

The AAT concluded that Mr Dempsey's "presence in Saudi Arabia was hardly casual or passing". It noted that his apartments were neither transient nor temporary accommodation. They were where he settled as a matter of deliberate choice. It also noted that on his trips to Australia in that period he was 'but a casual visitor'. Viewing all the facts presented to it as a whole it reached the conclusion that Mr Dempsey had made Saudi Arabia his home for the indefinite future (paragraphs 104 to 122).

It also noted that while statements made by Mr Dempsey on his immigration passenger cards and income tax returns were relevant, they were not determinative of residency and had to be considered within the whole of the facts and circumstances. The AAT also considered that the reasons given by Mr Dempsey were plausible and did not indicate he regarded himself as an Australian resident for taxation purposes (paragraph 119).

The AAT also referred to the decision of Iyengar v Federal Commissioner of Taxation in which Senior Member Walsh "developed from earlier cases a non-exhaustive list of criteria which she regarded as relevant to the determination of whether or not an individual was a resident of Australia for the purposes of the definition in s 6 of the ITAA 36". The AAT noted that lists like these are useful but that "they are no substitute for the text of the statute" and the word resides must be construed and applied to the facts according to its ordinary meaning (paragraph 101).

The AAT further concluded that, for reasons which were peculiar to Mr Dempsey's circumstances, his permanent abode was outside Australia in the relevant years. It determined that in the 2009 and 2010 income years, Mr Dempsey "had made a settled employment, lifestyle and residence choice for the indefinite future" and that was "to make his home in Saudi Arabia". It also considered that his Gold Coast house was "but a convenient place" for him to visit briefly and to store items but it "had ceased to be his habitual or usual place of abode" (paragraphs 124-127).

ATO view of decision

The ATO accepts that the decision was reasonably open to the AAT.

The AAT accepted that "the facts of this case [were] not all one way" but determined that "viewing them as a whole" the preferable conclusion was that "Mr Dempsey, as a matter of deliberate choice, made Saudi Arabia his home for the duration of the project and ... beyond." They concluded that based on Mr Dempsey's peculiar circumstances and after weighing the evidence presented to them at the hearing, including Mr Dempsey's statements about his intention, he "had made a settled employment, lifestyle and residence choice for the indefinite future" and that was "to make his home in Saudi Arabia". For these reasons the conclusion they drew was that he was a resident of Saudi Arabia and not a resident of Australia during the relevant years.

The approach taken by the AAT in reaching its decision is consistent with the ATO's approach to issues of residency, including the ATO view expressed in IT 2650. This approach is that the question requires a weighing of all the relevant facts and circumstances and an application of the statute and authorities to those facts. We consider the outcome of the case is confined to its facts and creates no new law in this area. This is because, as stated by the AAT, each case is a matter of fact and degree.

Administrative Treatment

The decision of the AAT does not change the ATO's approach to residency cases. As concluded by the Tribunal, these matters involve questions of fact and degree and different facts may result in different conclusions as to residency. The ATO will continue to approach residency cases by weighing all the relevant facts and circumstances and applying the relevant tax law and authorities to those facts.

Implications for impacted ATO precedential documents (Public Rulings & Determinations etc)

Nil

Implications for impacted Law Administration Practice Statements

Nil

Related Rulings/Determinations:

• Taxation Ruling IT 2650

Taxation Ruling IT 2650

Legislative References:
Income Tax Assessment Act 1936
6(1)

Case References:
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue
[2009] HCA 41
(2009) 239 CLR 27
(2009) 73 ATR 256
2009 ATC 20-134

Applegate v Federal Commissioner of Taxation
[1978] 1 NSWLR 126
(1978) 18 ALR 459
78 ATC 4054
(1978) 8 ATR 372

Federal Commissioner of Taxation v Applegate
[1979] FCA 66
(1979) 38 FLR 1
(1979) 9 ATR 899
79 ATC 4307

Federal Commissioner of Taxation v Miller
(1946) 73 CLR 93

Hafza v Director-General of Social Security
(1985) 6 FCR 444
60 ALR 674

Inland Revenue Commissioners v Lysaght
[1928] AC 234
[1928] All ER 575

Iyengar v Federal Commissioner of Taxation
[2011] AATA 856
2011 ATC 10-222
(2011) 85 ATR 924

Koitaki Para Rubber Estates Ltd v Federal Commissioner of Taxation
(1941) 64 CLR 241
(1941) 6 ATD 82
[1941] HCA 13

Levene v Inland Revenue Commissioners
[1928] AC 217

Subrahmanyam v Commissioner of Taxation
[2002] AATA 1298
2002 ATC 2303
(2002) 51 ATR 1173