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Shand and Commissioner of Taxation [2003] AATA 279; (2003) 52 ATR 1088; 2003 ATC 2080 (26 March 2003)

Last Updated: 30 September 2009



Administrative

Appeals

Tribunal


DECISION AND REASONS FOR DECISION [2003] AATA 279

ADMINISTRATIVE APPEALS TRIBUNAL )

) No QT2000/142

) QT2001/96

TAXATION APPEALS DIVISION
)

Re
ROBERT MARTIN SHAND

Applicant
And
COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal
Deputy President Don Muller

Date 26 March 2003

Place Brisbane

Decision
The Tribunal:
1. Affirms the objection decision which determined that in the income tax years ending 30 June 1995 and 30 June 1996, Robert Martin Shand was a resident of Australia.
2. Sets aside the decision which imposed by way of penalty, additional tax equal to 25% of the amount of the shortfall and in substitution remits the whole of the additional tax payable by Robert Martin Shand.



.............(Signed).................................
D.W. MULLER

DEPUTY PRESIDENT


CATCHWORDS

TAXATION – whether resident of Australia – domicile – permanent place of abode – penalty – unarguable position – discretion to remit

Income Tax Assessment Act 1936: ss.6, 25(1)(a), 222C, 226K, 227(3)

Domicile Act 1982: s.10


REASONS FOR DECISION
Deputy President Don Muller

  1. This is an application to review objection decisions that Robert Martin Shand, the Applicant taxpayer, was to be considered an Australian resident for the purposes of the Income Tax Assessment Act 1936 (the Act) for the year ended 30 June 1995 and 30 June 1996.
  2. During the income tax years ended 30 June 1995 and 1996, Mr. Shand travelled on numerous occasions between Australia and Kuwait, as well as to other countries, in his capacity as representative for Western Star Trucks Inc (WSTI), a company incorporated in Canada.
  3. In the 1995 tax year, Mr. Shand spent a total of 257 days outside Australia and in the 1996 year he spent a total of 193 days outside Australia. A large proportion of the time outside Australia was spent in Kuwait.
  4. In the years in question Mr. Shand held a residency visa for Kuwait which was valid until January 1997.
  5. Mr. Shand resigned from WSTI in June 1996 and returned from Kuwait to live with his spouse in Australia.
  6. The questions for determination by the Tribunal are:
  7. The following background facts are not in dispute and the Tribunal finds as follows:
  8. For the sake of completeness on the facts relevant to this review, the Tribunal also notes that Mr. Shand gave evidence that when he was in Canada with his wife in mid-1996, they looked at the possibility of purchasing a business in Canada. They also looked at houses in the Okanaugan Valley, near Kimberley and at Silverstar, near Vernon. When Mr. Shand telephoned to enquire about purchasing the property at Silverstar, he was told the house was under contract. As for the business, Mr. Shand gave evidence that he looked at a fuel distribution company in Kelowna, but was not quick enough to purchase.
  9. Mr. Shand put his financial affairs in the hands of a reputable accounting firm in Brisbane. The firm had prepared Mr. Shand’s tax returns for many years, including the relevant years of income. The Tribunal accepts that Mr. Shand sought and relied on their advice from time to time and that it was the firm’s advice to him that he would not be characterised as a resident of Australia in the relevant years of income. His income tax returns were prepared and lodged on that basis.
  10. An investigation into Mr. Shand’s taxation affairs was not initiated until March 1999.
  11. The legislation relevant to this review is contained in the following sections of the Income Tax Assessment Act 1936.
“25. (1) The assessable income of a taxpayer shall include:
(a) where the taxpayer is a resident:
the gross income derived directly or indirectly from all sources whether in or out of Australia; and
6. “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;”

and in the Domicile Act 1982:

“Intention for domicile of choice
10. The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his home indefinitely in that country.”

  1. Although the facts of this case are not the same as those before the Full Federal Court in Federal Commissioner of Taxation v Applegate [1920] HCA 61; 27 ALR 114, the issues are similar and they were summed up by Northrop J at 122 where he said:
“Any person who resides in Australia is, by definition, a resident within the meaning of the Act. The word “reside” has a very wide meaning, see FC of T v Miller [1946] HCA 23; (1946) 73 CLR 93; 3 AITR 333 per Latham CJ at 99-100; 337. 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”. A person may reside in more than one country at any one time: see Robertson v FC of T [1937] HCA 32; (1937) 57 CLR 147; 1 AITR 152 per Dixon J at 163; 164 and Gregory v DFC of T (WA) [1937] HCA 57; (1937) 57 CLR 774; 1 AITR 201 per Dixon J at 777-8; 202.
...
From 8 November 1971 to 30 June 1972 the taxpayer resided at Vila but not at the one house. On no view of the facts can it be said that during that period he resided in Australia. The extended definition of “resident” contained in para (a)(ii) cannot apply since the taxpayer had not “actually been in Australia, continuously or intermittently during more than one half of the year of income”. This paragraph appears to draw a distinction between “usual place of abode” and “residence” but it is not necessary to consider that matter further. Under para (a)(i) of the definition, the meaning of “resident” is extended to include persons, subject to one qualification, whose domicile is in Australia. This includes persons whose domicile of origin is in Australia as well as persons who have acquired a domicile of choice in Australia. The one qualification to this extended meaning of “resident” is that of a person whose domicile is in Australia but “his permanent place of abode is outside Australia”. This qualification must relate to the year of income during which the income has been derived.
....
The qualification applies to persons who although domiciled in Australia, do not reside in Australia within the accepted meaning of the word “reside”.. The qualification is stated in an affirmative form, namely, where the person has his permanent place of abode outside Australia. The qualification is not concerned with whether a person has abandoned his Australian domicile or has acquired a new domicile or not. The qualification is concerned with the persons’ permanent place of abode. The phrase “place of abode” may have many meanings, it can refer to the building or place where a person sleeps and it can refer to the building or place where he is usually found, for instance, “his place of business”, see Price v West London Investment Building Soc [1964] 2 All ER 318 per Danckwerts LJ at 321, 1 WLR 616 at 619. The phrase is often used as being synonymous with the word “residence” see, for example, Levene v IR Comrs [1928] UKHL 1; [1928] AC 217; 13 TC 486 and IR Comrs v Lysaght [1928] AC 234; 13 TC 511.
....
The word “permanent” can have many shades of meanings. This is illustrated by a reference to the Shorter Oxford Dictionary, and as was said by du Parcq LJ in Henriksen v Grafton Hotel Ltd [1942] 2 KB 184 at 196; 24 TC 453 at 462: “ ‘Permanent’ is indeed a relative term, and is not synonymous with ‘everlasting’ “. The word “permanent” must be construed according to the context in which is appears: see per Lord Evershed in McClelland v Northern Ireland General Health Services Board [1957] 2 All ER 129 at 140; 1 WLR 594 at 609.
...
In the present case the phrase “permanent place of abode” appears in a taxing statute by which income tax is levied on income derived during a financial year. Where a taxpayer resides in Australia, the assessable income of that person includes the gross income derived from all sources but where the person does not reside in Australia, then subject to the extended meaning given to the word “resident”, the assessable income of that person includes the gross income derived from all sources in Australia only; it does not include the gross income derived from sources outside Australia. The tax is assessable on gross income received on an annual basis and is assessed on an annual basis. The word “permanent” as used in para (a)(i) of the extended definition of “resident”, must be construed as having a shade of meaning applicable to the particular year of income under consideration. In this context it is unreal to consider whether a taxpayer has formed the intention to live or reside or to have a place of abode outside of Australia indefinitely, without any definite intention of ever returning to Australia in the foreseeable future. The Act is not concerned with domicile except to the extent necessary to show whether a taxpayer has an Australian domicile. What is of importance is whether the taxpayer has abandoned any residence or place of abode he may have had in Australia. Each year of income must be looked at separately. If in that year a taxpayer does not reside in Australia in the sense in which that word has been interpreted, but has formed the intention to, and in fact has, resided outside Australia, then truly it can be said that his permanent place of abode is outside Australia during that year of income. This is to be contrasted with a temporary or transitory place of abode outside Australia. In any event the extended meaning of “resident” becomes relevant only when, during the year of income under consideration, the taxpayer does not reside in Australia. Paragraphs (a)(i) and (ii) of the definition are complementary provisions enlarging the group of person who do not reside in Australia but become liable to pay income tax in Australia.”

  1. In the tax year 1994-95, Mr. Shand spent 182 days in Kuwait and 108 days in Australia (at Bellbowrie).
  2. In the tax year 1994-95, Mr. Shand spent 145 days in Kuwait and 172 days in Australia (at Bellbowrie).
  3. It was submitted on behalf of Mr. Shand that in the relevant tax years:
  4. It was submitted for the Respondent that in the relevant tax years:
  5. Counsel for the Respondent prepared a list of factors which she submitted indicated that Mr. Shand resided in Australia during the relevant tax years. Of those factors in the list, the Tribunal adopts the following as indicative of residence in Australia.
  6. The evidence shows that although Mr. Shand spent a significant amount of time in Kuwait during the relevant tax years, he spent almost as much time in Australia. His personal effects and emotional ties were within Australia, whereas the only factor which tied him to Kuwait was his business.
  7. The Tribunal takes the view that during the relevant tax years, Mr. Shand had not abandoned his residence and place of abode in Australia. The El-Hoss apartment in Kuwait was a temporary or transitory place of abode. Mr. Shand resided in Australia during the relevant tax years.
  8. For completeness the Tribunal will also make a determination on the question of domicile and “permanent place of abode outside Australia”.
  9. There is no contest between the parties that Mr. Shand’s domicile of origin was Canada and that when he and his family relocated to Australia in 1972 they did so with the intention of making their home indefinitely in Australia. That is, in 1972, Mr. Shand acquired a domicile of choice in Australia.
  10. It was submitted on behalf of Mr. Shand that he re-acquired his domicile of origin in Canada upon returning to Canada in 1991-1992 and that he did not re-acquire a domicile of choice in Australia at some point in time before the tax years 1994/95 and 1995/96.
  11. It was further submitted that Mr. Shand had divested himself of the character of resident of Australia before he went to Kuwait and that he intended that after his business in Kuwait was completed, he would then retire to Canada.
  12. The terms “indefinite” and “permanent” as they apply to the concept of domicile were canvassed in the judgment of Langton J, in Gulbenkian v Gulbenkian [1937] 4 AM ER 618 at 626 et seq:
“I have not lost sight of the fact that, as both the EARL OF HALSBURY and LORD MacNAGHTEN insist, the burden cast upon those who seek to aver that the domicil of origin has been superseded by a domicil of choice is exceedingly heavy. Heavy as it is, in my view the defendant here has discharged that burden, by proving to my satisfaction that the plaintiff really intends to remain in England, and will always exercise his option in that direction, unless forced to a reluctant departure by circumstances beyond his control. I entirely agree with Sir Patrick Hastings that this case cannot be decided by any loose determination that, upon the evidence as a whole, the plaintiff prefers England to any other country. It is necessary to go far further than that. I am finding expressly that Mr. Nubar Gulbenkian has an English domicil of choice, because I do not believe that he has the slightest intention of willingly living anywhere else.
As to Sir Patrick’s quarrel with Mr. Dicey upon the use of the word “indefinite” in r. 7, there is, to my mind, the high authority of Sir George Jessel, M.R., in King v. Foxwell (4) to warrant the wording of the rule. SIR GEORGE JESSEL, M.R., there said, at p.520:
What is domicil? I have had before me a great number of authorities, and the conclusion I draw is this, that in order that a man may change his domicil of origin, he must choose a new domicil – the word “choose” indicates that the act is voluntary on his part – he must choose a new domicil by fixing his sole or principal residence in a new country (that is, a country which is not his country of origin), with the intention of residing there for a period not limited as to time.
The last words are, to my mind, the warrant for Mr. Dicey’s phrase, and give a certain shading to the expression “permanent”, without rendering that word inapplicable in the circumstances. In other words, the intention must be a present intention to reside permanently, but it does not mean that such intention must necessarily be irrevocable. It must be an intention unlimited in period, but not irrevocable in character. The opinion of LORD WESTBURY in Udny v. Udny (3) is a veritable treatise upon this most difficult question. He deals in detail and with great lucidity with the circumstances which create or constitute a domicil of choice, and concludes his review of these circumstances with the following sentence, at p. 458:
It is true that residence originally temporary, or intended for a limited period, may afterwards become general and unlimited, and in such a case so soon as the change of purpose, or animus manendi can be inferred, the fact of domicil is established.
Prominence is given throughout to the necessity of a free choice, and the fact that the residence has not been selected for a limited period or for a particular purpose, but, as I read it, a domicil of choice can be inferred notwithstanding the fact that the individual to whom it is ascribed is not conscious of having taken any deliberate decision at any given or particular moment.”

  1. The Tribunal is mindful of the fact that courts have accepted that a domicile of choice may be less retentive, and therefore more easily abandoned, than a domicile of origin, see Qureshi v Qureshi [1971] 1 ALL ER 325 at 338. Nevertheless, this Tribunal would not make a finding that Mr. Shand abandoned his domicile of choice in Australia without cogent evidence of acts done and objective signs of abandonment, independent of the mere expression of desire by Mr. Shand to re-settle in Canada.
  2. The contrast between the relocation of the Shand family from Canada to Australia in 1972 and the transfer of Mr. and Mrs. Shand to Canada in 1992 is instructive of the difference in intention in the two instances. In 1972 the family severed practically all physical ties with Canada, hired a shipping container to transfer their possessions to Australia and bought land and built a house in Australia. In 1992, Mr. and Mrs. Shand retained their home in Australia, rented accommodation in Canada and took with them a few suitcases of clothes.
  3. The Tribunal finds that although Mr. Shand may have had some vague notion that he might one day return to live in Canada, he did not actually form the intention of living anywhere but Australia. He did not abandon his domicile of choice in Australia when he went to Canada for two years in 1991-92.
  4. Mr. Shand certainly did not acquire a domicile of choice in Kuwait. He went there for a limited period and for a particular business purpose. He had no intention of making his home indefinitely in that country.
  5. Upon retirement, Mr. Shand toyed with the idea of retiring to Canada but within a month or so of his retirement he returned to Australia, where he has lived ever since.
  6. The Tribunal finds that Mr. Shand has at no stage abandoned his domicile of choice in Australia
  7. As to whether or not Mr. Shand had a permanent place of abode in Kuwait, the Tribunal repeats what it said above. The El-Hoss apartment was a temporary or transitory place of abode, used solely for business trips and for as long as Mr. Shand was involved in the business of selling trucks in Kuwait.
  8. Mr. Shand was a resident in Australia during the relevant years.

Penalty

  1. The Respondent imposed additional tax at the rate of 25% pursuant to section 226K of the Act, on the ground that the Applicant’s position was not reasonably arguable. The relevant sections of the Act provide:
“SECTION 222C REASONABLY ARGUABLE
222C(1) [Regard to relevant authorities] For the purposes of this Part:
(a) the correctness of the treatment of the application of a law; or
(b) another matter;
is reasonably arguable if, having regard to the relevant authorities and the matter in relation to which the law is applied or the other matter, it would be concluded that what is argued for is about as likely as not correct.
222C(2) [Assumption re Commissioner’s discretion] For the purposes of this Part, if the treatment of the application of a law assumed that the Commissioner would exercise a discretion in a particular way, the correctness of the treatment is reasonably arguable, in so far as it consisted of the assumption, if the exercise by the Commissioner of the discretion in that way would be reasonably arguably in accordance with law.
222C(3) [Court’s decision] For the purposes of this Part, the exercise, or assumed exercise, by the Commissioner of a discretion is reasonably arguably in accordance with law if, having regard to the relevant authorities and the matter in relation to which the discretion is or would be exercised, it would be concluded that a court would be about as likely as not to hold that the exercise is or would be in accordance with law.
222C(4) [“authority”] In this section:
“authority” includes:
(a) an income tax law; or
(b) material for the purposes of subsection 15AB(1) of the Acts Interpretation Act 1901; or
(c) a decision of a court (whether or not an Australian court), the Tribunal or a Board of Review; or
(d) a public ruling within the meaning of Part IVAAA of the Taxation Administration Act 1953.

SECTION 226K PENALTY TAX WHERE UNARGUABLE POSITION TAKEN
226K Subject to this Part, if:
(a) a taxpayer has a tax shortfall for a year; and
(b) the shortfall or part of it was caused by the taxpayer, in a taxation statement, treating an income tax law as applying in relation to a matter or identical matters in a particular way; and
(c) the shortfall or part, as the case may be, so caused exceeded whichever is the higher of:
(i) $10,000; or
(ii) 1% of the taxpayer’s return tax for that year; and
(d) when the statement was made, it was not reasonably arguable that the way in which the application of the law was treated was correct;
the taxpayer is liable to pay, by way of penalty, additional tax equal to 25% of the amount of the shortfall or part.”

  1. Apart from the question as to whether the Applicant’s position was reasonably arguable, the Commissioner and hence the Tribunal, has a discretion to remit the whole or any part of the additional tax, pursuant to subsection 227(3) of the Act.
“227(3) [Commissioner’s discretion to remit] The Commissioner may, in the Commissioner’s discretion, remit the whole or any part of the additional tax payable by a person under a provision of this Part, but, for the purposes of the application of subsection 33(1) of the Acts Interpretation Act 1901 to the power of remission conferred by this subsection, nothing in this Act shall be taken to preclude the exercise of the power at a time before an assessment is made under subsection (1) of the additional tax.”

  1. The Tribunal is mindful of the fact that questions of residence, domicile, permanent place of abode, have frequently been found by courts and tribunals to be difficult to assess on a factual level and not easy to define in concrete legal terms.
  2. Mr. Shand spent a large portion of the relevant years in Kuwait. He was of Canadian origin. He travelled away from Australia for extended periods. He harboured notions from time to time of returning to Canada to retire. He wanted to sell the home at Bellbowrie.
  3. Mr. Shand put his faith in his financial advisers who, no doubt, took most of the above factors into account when they advised him of the course eventually taken.
  4. The Tribunal is not prepared to find that the question of Mr. Shand’s residency in Australia was so finely balanced as to conclude that the argument on his behalf was about as likely as not to be correct. Consequently, the Tribunal finds that Mr. Shand’s advisers did adopt an unarguable position.
  5. However, the Tribunal does not consider that Mr. Shand’s position was entirely without merit, nor does it consider that Mr. Shand was personally in any way blameworthy.
  6. Consequently, the Tribunal intends to use the discretion conferred by subsection 227(3) to remit the whole of the additional tax payable by Mr. Shand.

I certify that the 40 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President Don Muller


Signed: .......................................................................................

C. O’Donovan, Associate


Date/s of Hearing 17–21.12.01, 18.2.02

Date of Decision 26 March 2003

Counsel for the Applicant Mr. H. Alexander

Solicitor for the Applicant Hopgood Ganim

Counsel for the Respondent Ms. E. Ford

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