Mynott and Commissioner of Taxation [2011] AATA 539 (4 August 2011)

Last Updated: 5 August 2011

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 539

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2010/2689-92

TAXATION APPEALS DIVISION		)
	Re		TREVOR JOHN MYNOTT

Applicant

And

COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal

Senior Member R W Dunne

Date 4 August 2011

Place Adelaide

Decision

The Tribunal sets aside the objection decisions under review.

..............................................
R W DUNNE
(Senior Member)

CATCHWORDS

TAXATION – income tax – residence – applicant left Australia in September 1997– worked overseas for various foreign entities between 1997 and 2002 – returned to Australia in January 2002 – whether applicant resident of Australia – whether permanent place of abode outside Australia – power of respondent to issue or amend assessments – fraud or evasion – applicant omitted to include foreign earnings in income tax returns – whether omission amounted to fraud or evasion – penalties – objection decisions under review set aside.
Income Tax Assessment Act 1936 (Cth) ss 6(1)(a), 170(1) & (2), 171A(1) & (2)(a), 222A, 226G, 226H, 227(3)

Taxation Administration Act 1953 (Cth) ss 14ZQ, Schedule 1, ss 284-75, 284-90, 298-20
FC of T v Miller [1946] HCA 23; (1946) 73 CLR 93
Re Executors of the Estate of Subrahmanyam and FC of T [2002] AATA 1298
Hafzav v Director-General of Social Security [1985] FCA 164; (1985) 6 FCR 444
Federal Commissioner of Taxation v Applegate [1979] FCA 37; (1979) 38 FLR 1
Case S19, (1985) 85 ATC 225
Australasian Jam Co Pty Ltd v FC of T [1953] HCA 52; (1953) 88 CLR 23
Federal Commissioner of Taxation v Barton [1957] HCA 5; (1957) 96 CLR 359
Case X66, (1990) 90 ATC 499
Kajewski & Ors v FC of T [2003] FCA 258
Re Mano and Commissioner of Taxation [2010] AATA 289
Denver Chemical Manufacturing Co v C of T (NSW) [1949] HCA 25; (1949) 79 CLR 296
Case No 9, (1950) TBRD 17
Re SRBBB and Commissioner of Taxation [2001] AATA 529
Hart v C of T [2003] FCAFC 105
Forrest v C of T [2010] FCAFC 6
BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164

REASONS FOR DECISION

4 August 2011

Senior Member R W Dunne

INTRODUCTION

1. Mr Trevor Mynott (“applicant”) comes to this Tribunal seeking review of objection decisions made by the Commissioner of Taxation (“respondent”) in respect of assessments or amended assessments for the 1999, 2000, 2001 and 2002 tax years.
2. Mr Mynott left Australia on 18 September 1997. Between 1997 and 2002 he worked overseas as an employee or contractor for various foreign entities. He returned to Australia on 30 January 2002. He did not include the foreign earnings in his 1999-2002 income tax returns and the respondent issued assessments or amended assessments for the relevant years of income to include those earnings. Mr Mynott objected against the assessments and the respondent disallowed the objections in full.
3. At the hearing, Mr Mynott was represented by Mr B Kasep (of counsel) and the respondent was represented by Mr Stuart Cole (of counsel). I received into evidence the T documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Exhibit R1 and Exhibit R2), together with the following exhibits:
   • applicant’s witness statement dated 21 December 2010, with Attachments (Exhibit A1);
   • various documents used for the preparation of the applicant’s 1999-2002 income tax returns (Exhibit A2); and
   • copy of the applicant’s 1988 income tax return with Attachments (Exhibit A3).

ISSUES FOR THE TRIBUNAL

4. The main issue before me is whether, in each of the 1999, 2000, 2001 and 2002 tax years or part of those years, the applicant was a “resident” or a “resident of Australia” within the meaning of s 6(1) of the Income Tax Assessment Act 1936 (“1936 Act”). In the event that I find the applicant was a resident or a resident of Australia in each of the relevant tax years, the following subsidiary issues should be determined:

(a) Whether the respondent was able to amend each of the applicant’s assessments for the 1999, 2000, 2001 and 2002 tax years.

(b) Whether the respondent was able to make original assessments in relation to the applicant’s income tax returns for the 1999 and 2000 tax years.

(c) Whether, under s 171A(2) of the 1936 Act, there has been fraud or evasion such that s 171A(1) has no application in respect of the applicant’s income tax returns for the 1999 and 2000 tax years.

(d) Whether, under s 226H of the 1936 Act or under s 284-75 of Schedule 1 to the Taxation Administration Act 1953 (“Administration Act”), the respondent was entitled to impose a penalty in respect of a tax shortfall for the 1999 and 2000 tax years or for the 2001 and 2002 tax years.

(e) Whether, under s 227(3) of the 1936 Act or under s 298-20 of Schedule 1 to the Administration Act, the respondent should have exercised the discretion to remit the penalty, wholly or in part, imposed under s 226H of the 1936 Act or under s 284-75 of Schedule 1 to the Administration Act.

LEGISLATION

5. In relation to the main issue before me, s 6(1) of the 1936 Act relevantly defines “resident” or “resident of Australia” to mean:

“(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 onehalf 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
...”

6. In relation to the subsidiary issues in paragraph 4 above, in the event that I find that Mr Mynott is a resident of Australia under s 6(1)(a) of the 1936 Act, the provisions of the 1936 Act and the Administration Act that are relevant follow.
7. The provisions of Part IV of the 1936 Act relevantly read:

“170 Amendment of Assessments
(1) The Commissioner may, subject to this section, at any time amend any assessment by making such alterations therein or additions thereto as he thinks necessary, notwithstanding that tax may have been paid in respect of the assessment.
...
(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; or
...
(c) if neither paragraph (a) nor (b) applies and the taxpayer is not a SPOR taxpayer for the year of income to which the assessment relates—within 4 years after the day on which tax became due and payable under the assessment; or
amend the assessment by making such alterations in it or additions to it as the Commissioner thinks necessary to correct the assessment.
...
171A Limited period to make assessments for nil liability returns for the 200304 year of income or earlier
(1) If the circumstances set out in column 2 of the following table apply to a taxpayer in relation to the 200304 year of income (a nil year) or an earlier year of income (also a nil year), the Commissioner cannot make an original assessment for that taxpayer for that year in the circumstances set out in column 3:

Making assessments
Column 1 Item	Column 2 In this case:		Column 3 the position is:
1	The taxpayer’s return of income for a nil year disclosed, or the Commissioner has given the taxpayer a notice for a nil year that stated, either of the following: (a) the taxpayer had an amount of taxable income, and that no tax was payable; (b) the taxpayer had no taxable income because the taxpayer’s deductions equalled the taxpayer’s assessable income; and the taxpayer did not deduct a tax loss in the nil year		The Commissioner cannot make an original assessment for the taxpayer for the nil year after the later of the following: (a) 31 October 2008; (b) the period of 4 years beginning on the day on which the taxpayer lodged the taxpayer’s return of income for the nil year.

(2) Subsection (1) does not apply in relation to a nil year if:
(a) the Commissioner is of the opinion there has been fraud or evasion; or
...”

8. The provisions of Part VII of the 1936 Act relevantly read:

“s 222A Interpretation
(1) In this Part:
...
tax shortfall, in relation to a taxpayer and a year, means the amount, if any, by which the taxpayer's statement tax for that year at the time at which it was lowest is less than the taxpayer's proper tax for that year.
...
s 226G Penalty tax where shortfall caused by lack of reasonable care
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 failure of the taxpayer or of a registered tax agent to take reasonable care to comply with this Act or the regulations;
the taxpayer is liable to pay, by way of penalty, additional tax equal to 25% of the amount of the shortfall or part.
...
s 226H Penalty tax where shortfall caused by recklessness
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 recklessness of the taxpayer or of a registered tax agent with regard to the correct operation of this Act or the regulations;
the taxpayer is liable to pay, by way of penalty, additional tax equal to 50% of the amount of the shortfall or part.
...
s 227 Assessment of additional tax
...
(3) 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.”

9. The provisions of the Administration Act, including Schedule 1 to that Act, relevantly read:

“14ZQ General interpretation provisions
In this Part:
...
‘reviewable objection decision’ means an objection decision that is not:
(a) an ineligible income tax remission decision; or
(b) an ineligible sales tax remission decision.

...

‘taxation decision’ means the assessment, determination, notice or decision against which a taxation objection may be, or has been, made.
...
28475 Liability to penalty
(1) You are liable to an administrative penalty if:
(a) you or your agent makes a statement to the Commissioner or to an entity that is exercising powers or performing functions under a ^*taxation law; and
(b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and
(c) you have a ^*shortfall amount as a result of the statement.
...
28490 Base penalty amount
(1) The base penalty amount under this Subdivision is worked out using this table:
...

Base penalty amount
Item	In this situation:	The base penalty amount is:
1	...	...
2	Your *shortfall amount or part of it resulted from recklessness by you or your agent as to the operation of a *taxation law	50% of your *shortfall amount or part
3	Your *shortfall amount or part of it resulted from a failure by you or your agent to take reasonable care to comply with a *taxation law	25% of your *shortfall amount or part

...
298-20 Remission of penalty
(1) The Commissioner may remit all or part of the penalty.”

BACKGROUND FACTS

10. In this section of my reasons, I will set out the facts that I have found. For the most part, there is no dispute between the parties as to those facts. Where there is dispute or uncertainty, I will refer to the evidence on which I have relied to make those findings.
11. Mr Mynott is an electronic engineer, having gained his professional qualifications in 1984. After graduation, he worked in Australia for 13 years. He left Australia on 18 September 1997 and, over the next 9 months, he worked overseas for United Kingdom companies as an employee or contractor in the United Kingdom and Switzerland. Prior to leaving, he owned three properties in Australia. These were:
    • 10 Little Cove Road, Russell Island, Queensland (vacant block);
    • 10 Christina Court, Mermaid Waters, Queensland (home unit); and
    • 771 Greenhill Road, Greenhill, South Australia (personal residence).
12. When he left Australia to work overseas, Mr Mynott sold the properties above, apart from the vacant block. The Queensland property was sold in August 1997 and his personal residence was sold in June 1999. The personal residence took almost two years to sell. The vacant block had dropped significantly in value since it had been acquired in 1989 and it was not worthwhile selling.
13. In 1998, Mr Mynott was employed by a United States company to render services for 6 months in Malaysia. He arrived in Malaysia on 26 July 1998 and lived in Kuala Lumpar in a 3 bedroom apartment which he rented. Soon after arriving in Malaysia, he met Ms Rose Punzalan. She was working in Kuala Lumpar to support her three children, by her first marriage, who lived in Manila. Mr Mynott went to Manila on 25 October 1998 and met Ms Punzalan’s children. He entered into, what he called, a “domestic relationship” with her. She became pregnant with his child in late 1998. Ms Punzalan wanted to move permanently back to Manila and, when Mr Mynott went to visit her again in Manila, in December 1998 they rented a 2 bedroom apartment together. There was no formal lease of the apartment and Mr Mynott paid the fortnightly rental and also for the cost of food and the children’s schooling. Ms Punzalan lost the baby at Easter 1999.
14. Mr Mynott sought work in his field in the Philippines and, when he was unable to find a position, he pursued contract work outside the country to support Ms Punzalan and the family. In about March 1999, he worked in the Czech Republic for about 6 months and then terminated the contract when he went to work in Turkey. This lasted for about a month. He also worked briefly in Italy. During this period, he visited Australia on two occasions, those being:
    • 7 February to 1 March 1999 to organise a visa for travel to the Czech Republic; and
    • 9 September to 13 September 1999, most likely to complete his income tax return.
15. Between early 2000 and January 2002, Mr Mynott worked in South Africa, the United States, Germany, Thailand and China. He returned to live in Australia on or about 30 January 2002 after his relationship with Ms Punzalan came to an end earlier that month.
16. The following schedule (which is Attachment 2 to Exhibit A1) sets out Mr Mynott’s Australian departures and arrivals during the period 18 September 1997 to 30 January 2002:

Depart	Arrive
18 September 1997 26 April 1998 26 July 1998 1 March 1999 11 July 1999 13 September 1999 26 February 2000 10 October 2000 5 May 2001 26 May 2001 21 October 2001	3 April 1998 22 June 1998 7 February 1999 7 July 1999 9 September 1999 15 October 1999 21 September 2000 29 April 2001 14 May 2001 25 July 2001 30 January 2002

17. The following schedule (which is Attachment 3 to Exhibit A1) sets out Mr Mynott’s Philippines arrivals and departures during the period 25 October 1998 to 29 January 2002:

Depart	Arrive
25 October 1998 2 November 1998 19 December 1998 25 April 1999 3 July 1999 3 September 1999 5 May 2000 9 June 2000 8 September 2000 ? 19 January 2002	28 October 1998 30 November 1998 5 January 1999 3 May 1999 6 July 1999 8 September 1999 ? 18 June 2000 20 September 2000 13 May 2001 29 January 2002

EVIDENCE

Evidence of Mr Mynott

18. It was Mr Mynott’s evidence that he formed the intention to leave Australia permanently when he departed on 18 September 1997. There was plenty of work outside Australia and he would work wherever he could find work. When he returned to Australia each year he visited his parents. This usually occurred between jobs, when he was pursuing new employment or when he was having a break. He had a room available in his parents’ home, where he would leave some of his personal belongings when working overseas.
19. Since the middle of 1998, he had not paid income tax in any country on his overseas earnings. He did not know if he owed tax to any country on his earnings; he relied on his Australian accountant, Mr Evans, to advise him. He understood he did not have to pay Australian income tax on his overseas earnings because Mr Evans told him so and because he said he was a non-resident of Australia. When he worked in Belgium for Quotient Communications Limited, a United Kingdom company, he paid tax in the United Kingdom on his earnings. He had engaged accountants in the United Kingdom to prepare and lodge tax returns in respect of his United Kingdom income. Those accountants did not give him any advice in relation to his Australian taxation affairs. He did not purchase any real estate overseas or make investments of any sort there.
20. He maintained a bank account with the CPS Credit Union in Adelaide and he also had local bank accounts overseas, depending on where he was working. He used the CPS account to send money overseas and, with his father, he had a Visa card to access the account. The local bank accounts were used for his own living expenses and sending money back to the Philippines. He did not maintain a local bank account in the Philippines. If he needed money, he would use a local bank account or he would use the CPS account, which was convenient to pay for living expenses anywhere. It was easier to send money to the Philippines from a local bank account than to transfer it from his CPS account. He would transfer money from his CPS account to his local bank accounts, and then to the Philippines.
21. When Mr Kasep referred him to his witness statement, Mr Mynott said that Attachment 3 detailed all his arrivals in and departures from the Philippines between October 1998 and January 2002. When he wasn’t in the Philippines he was either working overseas or in Australia. When he was in the Philippines he was visiting and staying with Rose Punzalan and her children in their rented apartment. He went to the Philippines on a tourist visa. He did not have a permanent resident’s visa, but he could get whatever visa he needed. He hadn’t applied for a resident’s visa because he didn’t need one.
22. When he was referred to various immigration outgoing and incoming passenger cards in the T documents (Exhibit R1) that he used when arriving in or departing from Australia, he said he was required to indicate on the outgoing cards whether he was a visitor or temporary entrant departing, a resident departing temporarily or a resident departing permanently. On the incoming cards, he had to indicate whether he was migrating permanently to Australia, a visitor or temporary entrant or a resident returning to Australia. He said he had no instructions to guide him in completing the cards. The answers he had to give were ambiguous, so he completed them in the manner that he thought was appropriate at the time. When Mr Cole suggested that, in completing the outgoing passenger cards he could have ticked himself as a resident departing temporarily, Mr Mynott said he thought himself to be a non-resident of Australia. He had a family overseas and was working overseas “to keep sending money back home so the kids could go to school”.
23. In further cross-examination, Mr Cole took Mr Mynott to the particular outgoing and incoming passenger cards dated 26 May 2001 and 25 July 2001 (Exhibit R1, pages 138-139). Mr Mynott said he had answered the questions differently in these cards because he had always been confused about the choices that were available, and the following further interchange then took place:

“What’s the confusion, Mr Mynott? You are asked, are you a visitor or temporary entrant departing? Or, are you an Australian resident departing permanently? What’s confusing about that?I considered myself to be a non-resident and there’s no box there for non-residents.
There’s a box for visitor or temporary resident?That does not say non-resident.
You don’t think a visitor might be a non-resident of Australia?I didn’t know this had anything to do with tax.
I’m sure you didn’t. But what I’m asking you is, wouldn’t you have thought a visitor was applicable to a non-resident of Australia?Again , you are referring to tax. The intention of this card is not for tax, as I understand it. When I filled it out I was not aware it was for tax.
It’s not?Then it’s for immigration.
That’s right. The question is: wasn’t it clear to you, and if you saw yourself to be a non-resident, that you would fit the category of visitor or temporary resident when you came to Australia?For short stays it can become quite confusing when you have temporary written in (e) and you have temporary written in (d).
The truth is, is it not, that you were and saw yourself at all times to be an Australian resident doing some temporary trips overseas for work from time to time?I saw myself as a non-resident of Australia because I did not live in Australia. I had a family in the Philippines. I was planning to live in the Philippines. I spent most of the year outside of Australia. Also, there was plenty of work outside Australia. I had no intention to return to live or work in Australia.” [Transcript page 33]

24. When asked about the discussions with his Australian accountant, Mr Evans, Mr Mynott answered:

“He would have advised me that he saw me as a non-resident of Australia and he had no problems putting me forward as a non-resident of Australia, based on information I’d provided with him and any questions he’d had to ask me.
...
I would ask him that if I hadn’t pay tax overseas, I’d tell him, whether I hadn’t paid tax overseas. I’d tell him the amount of time I spent in Australia, that’s shown on that form, that tax year. And he had no problems putting me forward as a non-resident of Australia and he put that down on the tax return.
...
What happened was I asked him whether I need to pay tax in Australia for my overseas income. He assured me every time that he considered me as a non-resident of Australia so that I didn’t need to include my overseas income in my tax return.” [Transcript pages 35-36]

25. In relation to the advice he had received from Mr Evans, I asked Mr Mynott whether he had ever received anything in writing from him confirming his view that he was not a resident and was not required to pay tax in Australia. Mr Mynott responded:

“No, I didn’t receive anything from – I had some copies of old tax returns. That’s all I had, nothing from [Mr] Evans. He would just give me these papers that I presented to him back to me. That’s why we have the originals here today. He didn’t keep any copies. He was able to extract this information.” [Transcript page 38]

26. When I asked him about his taxation returns from 1999 and onwards, Mr Mynott said:

“Yes, I presented my overseas income. I told him I hadn’t paid tax. This was my, and, this was my total of my overseas earnings. I asked him whether I had to pay income tax in Australia on those overseas earnings. He said that he considered me as a non-resident of Australia for that. But, and that I didn’t need to pay tax in Australia on those earnings. And that’s clearly what he put down on the taxation returns that he would forward onto the Australian Taxation Office.” [Transcript page 41]

27. Mr Cole then asked Mr Mynott whether Mr Evans had told him that he was a non-resident of Australia for the whole of the 2001/2002 tax year. Mr Mynott responded that he had been so advised, based on his work overseas. When Mr Cole questioned him further about his Australian taxation affairs, the following additional interchange took place:

“Well, did you think to yourself, “Look, this is pretty good. I’ve worked overseas between the middle of ’98 and early 2002. I haven’t paid tax overseas and now I’m told I don’t have to pay tax here either”?I guess I considered I’d earned what I deserved then I paid the tax that I should.
Where had you paid the tax that you should?In Australia.
When?On the Australian tax returns that [Mr] Evans put in, plus the UK tax.
But you haven’t paid tax on your overseas earnings between the middle of 1998 and early 2002, had you?No, because I wasn’t in other countries long enough to get around to that.” [Transcript pages 44-45]

Evidence of Mr Evans

28. In examination by Mr Kasep, Mr Evans was referred to his letter dated 9 April 2008 (Exhibit R1, pages 321-322) in which he had responded to a questionnaire issued by the respondent dated 4 April 2008. The relevant questions and answers referred to in the correspondence are as follows:

(a) Who made the decision on the residency status of Mr Trevor John Mynott (Mr Mynott)?
Answer:
Mr Mynott, we expect, was provided that advice by his overseas Accountant and that advice was conveyed to our office.
(b) What were the facts used to come to that decision?
Answer:
As we did not provide that advice, the question would need to be put to his overseas Accountant.
(c) Did Mr Mynott provide evidence to support his residency status? If so, what was that evidence?
Answer:
Unknown.
(d) Did you provide Mr Mynott with any advice on determining his residency status? If so what was that advice?
Answer:
Not that the writer can recall.
(e) Did you, or any colleague, or Mr Mynott seek advice for the Tax Office in relation to the residency status of Mr Mynott? If so, please explain how the advice was sought, and what advice was received.
Answer:
Not that the writer can recall.
(f) Please explain how you would correspond with Mr Mynott while he was overseas. For example, what was Mr Mynott’s mailing address while he was overseas; and did he meet with you in person, over the phone, or through a third party.
Answer:
All correspondence would be sent to a nominated address; that would be his parents who have been clients of the firm for many years. The writer believes that Mr Mynott attended our offices in those years, 2001 and 2002, delivered his information and the completed returns were sent out for signature to his parent’s address.
(g) Did Mr Mynott inform you of where had had spent the majority of his time? If he did, which country(ies) did he spend the majority of his time?
Answer:
The notes that are on file indicate that Mr Mynott spent less than two (2) months in Australia in 2001 and the notes on file for 2002 indicate that Mr Mynott advised that he had no employment income in 2002 but that he would be a resident for tax purposes in 2003.
The writer cannot recall where Mr Mynott indicated that he worked; he was, as we recall, in the Telecommunications Industry and was in Europe.
(h) Did Mr Mynott inform you of which country he intended to stay in the future? If so, which country did he intend to stay?
Answer:
Not that the writer recalls.
(i) How long did he intend to stay out of Australia?
Answer:
Not known, however as stated in (g) above, our file note seems to indicate that he was to return to Australia in 2003. As you are aware, we have not lodged a return on his behalf since 2002.
(j) Who signed Mr Mynott’s return?
Answer:
We would presume Mr Mynott. We take this opportunity to provide copies of Client Substantiation Declarations for 2001 and 2002 signed by Mr Mynott and dated 16 August 2001 and 13 September 2002 which coincide with the lodgement dates. We can only presume that it is his signature.

29. In relation to question (a) above, Mr Evans said he had no records that indicated who made the decision on Mr Mynott’s Australian residency status. His recollection was that Mr Mynott had engaged an overseas accountant who had advised him that he was a non-resident of Australia. Mr Evans did not hold any records relating to advice that had been received from the overseas accountant. He had no recollection of any advice that he had provided himself as to Mr Mynott’s residency status. He would have relied on Mr Mynott’s own representations as to his residency. When he was directed to the draft documents that had been provided by Mr Mynott for the preparation of his 1999-2002 income tax returns (Exhibit A2), Mr Evans said he had ticked the hand-written items because Mr Mynott had represented that he was a non-resident of Australia. He denied that he had formed the view that Mr Mynott was a resident of Australia during the relevant 1999-2002 tax years. He said he had accepted the representation of Mr Mynott in preparing his income tax returns and had relied on all the information that had been provided to him. He was unable to say when Mr Mynott had actually represented his Australian residency status to him.
30. In cross-examination, Mr Evans was not sure whether all of the source documents that were included in Exhibit A2 in relation to the preparation of Mr Mynott’s 1998/1999 income tax return had actually come to him. In relation to the produced source documents for the 1998/1999 and 1999/2000 tax years, he acknowledged that the overseas income of $144,053.82 and $134,179.99 in those respective tax years was substantial. He said that, if he had been advised of these substantial amounts, he would have sought a private ruling from the respondent on Mr Mynott’s residency status. He did not seek a ruling because Mr Mynott had advised him that he was a non-resident of Australia for income tax purposes.

CONSIDERATION

Was the applicant a “resident” or a “resident of Australia” in each of the 1999, 2000, 2001 and 2002 tax years?

31. The main issue in this case is whether, in each of the relevant 1999, 2000, 2001 and 2002 tax years, Mr Mynott was a “resident” or a “resident of Australia” as defined in s 6(1) of the 1936 Act.
32. Paragraph (a) of the definition in s 6(1) refers to the word “reside”, which has been described in the High Court in FC of T v Miller [1946] HCA 23; (1946) 73 CLR 93, by Latham CJ at pages 99-100, as having a wide meaning, one of the dictionary meanings being “to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place”. The reference to the word “reside” is commonly referred to as the “residence according to ordinary concepts” test. An extended definition of “resident” and “resident of Australia” is contained in sub-paragraph 6(1)(a)(i) of the 1936 Act. This sub-paragraph is commonly referred to as the “domicile/permanent place of abode” test.
33. In Re Executors of the Estate of Subrahmanyam and FC of T [2002] AATA 1298 at paragraph [23], Deputy President Forgie referred to the judgment of Wilcox J in Hafzav v Director-General of Social Security [1985] FCA 164; (1985) 6 FCR 444, where the learned Judge usefully canvassed a number of the earlier authorities considering residence. At pages 449-450, Wilcox J said:

“There is a plethora of decisions, arising in various contexts but predominantly matrimonial causes and revenue cases, relating to the legal concept of residence. As a general concept residence includes two elements: physical presence in a particular place and the intention to treat that place as home; at least for the time being, not necessarily forever. The concept was explained in a taxation case, Koitaki Para Rubber Estates Limited v The Federal Commissioner of Taxation [1941] HCA 13; [1941] HCA 13; (1941) 64 CLR. 241 at 249, by Williams J:
'The place of residence of an individual is determined, not by the situation of some business or property which he is carrying on or owns, but by reference to where he eats and sleeps and has his settled or usual abode. If he maintains a home or homes he resides in the locality or localities where it or they are situate, but he may also reside where he habitually lives even if this is in hotels or on a yacht or some other abode.'
Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place even involuntarily (see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248 and Keil v Keil [1947] VicLawRp 56; [1947] VLR 383) a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place (Levene v Commissioners of Inland Revenue [1928] UKHL 1; [1928] UKHL 1; [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149) together with an intention to return to that place and an attitude that that place remains 'home' (see Norman v Norman (1969) 16 FLR 231 at 236). It is important to observe firstly, that a person may simultaneously be a resident in more than one place, - see the facts of Lysaght and the reference by Williams J to 'a home or homes' - and, secondly, that the application of the general concept of residence to any particular case must depend upon the wording, and underlying purposes, of the particular statute in relation to which the question arises. But, where the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as 'home', a change of intention may be decisive of the question whether residence in a particular place has been maintained."

34. Also, in Re Executors of the Estate of Subrahmanyam, when dealing with the word “resides”, Deputy President Forgie said (at paragraph [48]):

“In its broadest sense, "resides" carries with it the notion of having a home in a particular place. It carries with it the notion of some physical presence with the notion of an intention to treat a place as a home, at least for some time although not necessarily forever. It may be expressed in terms of dwelling in a place. In general terms, that would seem to be the sense in which the word is used in the definition of "resident" in s. 6(1) of the 1936 Act. ...”

35. Then, in Federal Commissioner of Taxation v Applegate [1979] FCA 37; (1979) 38 FLR 1, in dealing with the phrases “reside”, “place of abode” and “residence” as applying to Mr Applegate, who went to the New Hebrides to establish and manage a branch office of his law firm and was forced to return to Australia after about 18 months, Northrup J said (at page 11):

“During that period he did not reside in Australia. He had no residence in Australia. He had no home in Australia. He did not carry on business or work in Australia. He received no income from sources within Australia. It follows, therefore, that the real issue is whether, during the period in question, the taxpayer's place of abode outside Australia was permanent or not.”

36. In the present case, Mr Mynott sold his principal place of residence in 1999, having left Australia in 1987. According to paragraph 18 of the respondent’s statement of facts, issues and contentions, which Mr Kasep did not dispute, in the period between 1 July 1998 and 30 June 2002, Mr Mynott spent 468 days in Australia. Notwithstanding this period, he did not have any business relations with Australia or any employment in Australia. He did make trips to Australia to visit his parents and he stayed with them. However, in my view, it would be difficult to say that his parents’ house was his “home”, for the purpose of residency. Mr Mynott’s evidence was not, as Mr Cole submitted, that he “kept a room at his parent’s house” with his personal belongings in it. It was simply a place where he stayed when he was visiting his parents. It was not consistent with him “residing” in a place.
37. Mr Cole submitted that Mr Mynott had maintained his links with Australia. He retained investments in Australia, he disclosed his parent’s residential address on his taxation returns and in relation to his Australian investments, and he kept his name on the electoral roll. In relation to this latter point, much the same occurred in Case S19, (1985) 85 ATC 225. The taxpayer there was posted to the New Hebrides for two years, he remained on the electoral roll, he did not advise the Australian Electoral Office of his departure and he intended to vote wherever he was located overseas. The Taxation Board of Review did not see this as a factor that would affect his claim that he was a non-resident of Australia. As Mr Kasep put to me, Mr Mynott was an Australian citizen and his entitlement to vote was a right that was antecedent to being an Australian citizen, to not being an Australian resident.
38. Mr Mynott maintained a CPS Credit Union bank account in Adelaide. It was a bank account into which his overseas earnings were deposited and then transferred to the Philippines, via local bank accounts. The local bank accounts were only for living expenses and sending money back to the Philippines for his living expenses and the living and schooling expenses of his partner, Ms Punzalan, and her children. According to his witness statement (Exhibit A1, paragraph 21), which was not challenged, he kept in contact with Ms Punzalan when he was in Adelaide and sent her money to meet the rental of their apartment and family costs of living. Again, according to his witness statement (Exhibit R1, paragraph 22), the money he sent her between November 1999 and February 2003 was $45,910.
39. Mr Cole suggested to me that, on his evidence, Mr Mynott did not turn his mind to the fact that, having not paid tax in Australia and having not paid tax overseas, there might be a “gap” for him to attend to. At first blush, this might appear obvious. However, Mr Mynott’s answer was that he had not paid tax overseas because he “wasn’t in other countries long enough to get around to that”. Mr Cole also submitted that, contrary to what he had stated in his witness statement, Mr Mynott had not left Australia permanently in 1997 to work overseas. He said Mr Mynott’s intention was to make the most of overseas opportunities and he would simply reside where it was appropriate to reside, having regard to his employment. It seems to me, and I find on the evidence, Mr Mynott’s situation was that he could not work in the Philippines, he worked where he could find work as an electronic engineer, and he used the Philippines (or his apartment there, where he resided with Ms Punzalan) as his base. When he was in the Philippines, he lived in a domestic relationship with Ms Punzalan. As he said in his witness statement (paragraph 15):

“We did the usual things that families do together. We shopped for food, clothing, books and toys. We went to the movies, ate in restaurants together and went swimming together and went on a holiday for a few days to Subic Bay.”

40. Mr Kasep submitted that Mr Mynott’s evidence about his relationship with Ms Punzalan was largely left unchallenged by the respondent. I agree with this submission. There was little cross-examination of the evidence that Mr Mynott gave in respect of that relationship and his trips to the Philippines. There was much discussion by Mr Cole about Mr Mynott’s use of the incoming and outgoing passenger cards. Mr Mynott ticked or crossed the boxes in the cards that he was an Australian resident. But, as he explained, there was simply no box for non-residents. As to the use of the expression “resident” or “Australian resident” in the passenger cards, that information was collected in a context that was different from a taxation context and it is clear, from his evidence, that he did not believe it to be a taxation context. In my view, as to the question of whether Mr Mynott believed he was a resident of Australia for income tax purposes, little can be made of what he put in the passenger cards when he arrived in and departed from Australia.
41. When I balance up all of the above considerations, I am of the view that Mr Mynott did not “reside” in Australia during the relevant tax years. More particularly, I am satisfied that, for the 1999, 2000 and 2001 tax years, Mr Mynott was not a resident or a resident of Australia under the residence according to ordinary concepts test in s 6(1) of the 1936 Act, and I so find. I am reminded that Mr Mynott returned to Australia on 30 January 2002. His 2002 income tax return is not in evidence, but a notice of assessment and a notice of amended assessment for the year ended 30 June 2002 appear respectively as Exhibit R1 at pages 185-186 and as Exhibit R2 at pages 545-546. These assessments seem to indicate that Mr Mynott derived no income during the period from 30 January 2002 to 30 June 2002. It is also my finding that Mr Mynott cannot be considered a resident or a resident of Australia under the residence according to ordinary concepts test in s 6(1) during the 2002 tax year, in the period from 1 July 2001 to 29 January 2002.
42. Like the findings made by Northrop J in Applegate (supra) referred to in paragraph 35 above, it follows that the real question is whether, during the relevant tax years, Mr Mynott fell within the extended definition of “resident” or “resident of Australia” under the “domicile/permanent place of abode” test contained in sub-paragraph 6(1)(a)(i) of the 1936 Act.
43. The issue of Mr Mynott’s domicile was not canvassed in the hearing before me. It appears Mr Mynott had done nothing to abandon his Australian domicile of origin, there being no evidence that he had sought to acquire a domicile of choice or that there had been a change of domicile by law. In the circumstances, I find that Mr Mynott’s domicile was in Australia during the 1999, 2000, 2001 and 2002 tax years. Such a finding is open, even though Mr Mynott did not reside in Australia during most of those tax years. The construction of the definition in sub-paragraph 6(1)(a)(i) is such that it must be construed as conclusive of persons whose domicile is in Australia, unless the permanent place of abode qualification in the sub-paragraph is satisfied.
44. Should I be satisfied that Mr Mynott’s permanent place of abode was outside Australia during the relevant 1999-2002 tax years? While the test as to a person’s domicile is a subjective one, the Federal Court made it clear in Applegate (supra) that the enquiry as to whether a taxpayer has a permanent place of abode outside Australia is an objective test. In Applegate, Franki J (at pages 4-5) made the following comment:

“Accordingly in my opinion the phrase ‘permanent place of abode outside Australia’ is to be read as something less than a permanent place of abode in which the taxpayer intends to live for the rest of his life. (at p4)
There is nothing in the subsection which requires the intent of the taxpayer to be the critical factor even though it is, of course, a relevant factor. Essentially the question is whether, as a matter of fact, the taxpayer's permanent place of abode was outside Australia at the relevant time.”

45. Also, in Applegate, Northrop J rejected a contention made on behalf of the respondent Commissioner that, in the extended definition of “resident” in sub-paragraph 6(1)(a)(i), the phrase “his permanent place of abode is outside Australia” should be construed as applying to a person who “intends to live outside Australia indefinitely, without any definite intention of ever returning to Australia in the foreseeable future, except at some remote albeit specific point of time”. In rejecting the contention, Northrop J said (at page 11):

“In my opinion that contention should be rejected. 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’ ...
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 L.J. in Henriksen (Inspector of Taxes) v. Grafton Hotel Ltd.: ‘”Permanent’ is indeed a relative term and is not synonymous with 'everlasting'" (1942) 2 KB 184, at p 196 . The word ‘permanent’ must be construed according to the context in which it appears, see per Lord Evershed in McClelland v. Northern Ireland General Health Services Board (1957) 1 WLR 594 .”

46. Northrop J further observed (at page 12) that the word “permanent” must be construed as having a shade of meaning applicable to the particular year of income under consideration and that:

“... 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. ...”

47. In analysing the expression “permanent place of abode” Fisher J (in Applegate) made the following comments (at pages 16-17):

“To my mind it is significant that the word ‘permanent’ is used to qualify the expression ‘place of abode’ i.e. the physical surroundings in which a person lives, and to describe that place. It does not necessarily direct attention to the taxpayer's state of mind in respect of that or any other place. Such a state of mind is crucial to the determination of his domicile i.e. his permanent ‘home’, and if he retains his Australian domicile he is considered a resident of Australia until he acquires a place of abode of a particular character elsewhere. Such a place of abode may be his ‘home’ for the time being but it is not his permanent home if he proposes ultimately making his home elsewhere. Should he, whilst living in his permanent place of abode, abandon his intention ultimately to make his home elsewhere, his permanent place of abode will become his permanent home. He will in consequence be held to have abandoned his Australian domicile and to have acquired a domicile of choice in the country of his home.
It follows that it is, in my view, proper to pay greater regard to the nature and quality of the use which a taxpayer makes of a particular place of abode for the purpose of determining whether it qualifies as his permanent place of abode. His intentions with respect to the duration of his residence is just one of the factors which has relevance. Obviously if his stay is purely temporary and he intends to move on or return to Australia at some definite point of time this denies the place of abode an essential characteristic of a home, namely durability. Moreover it seems appropriate to view objectively the nature and quality of the use which the taxpayer makes of the place of abode to determine whether it has the characteristics of his fixed place of abode, his home. It is to my mind perfectly consistent with the establishing of a home in a particular place that the taxpayer is aware that the duration of his enjoyment of the home, although indefinite in length, will be only for a limited period. The knowledge that eventually he will return to the country of his domicile does not in my opinion deny him a capacity to make his home outside of his country domicile....
To my mind the proper construction to place upon the phrase ‘permanent place of abode’ is that it is the taxpayer's fixed and habitual place of abode. It is his home, but not his permanent home. It connotes a more enduring relationship with the particular place of abode than that of a person who is ordinarily resident there or who has there his usual place of abode. Material factors for consideration will be the continuity or otherwise of the taxpayer's presence, the duration of his presence and the durability of his association with the particular place.” [emphasis added]

48. I have found that, during the relevant tax years, Mr Mynott did not reside in Australia under the residence according to ordinary concepts test. He had no residence or home in Australia and he did not carry on business or work here. He travelled overseas for work and each of the trips that he took to the Philippines to be with Ms Punzalan and her children were for fairly short periods of duration. That is understandable because he could not secure work in the Philippines and needed to travel elsewhere to get it. When he completed a contract and no further work was available at the time, he would visit his parents. But he would always return to the Philippines where his partner and her children lived. As Fisher J said in Applegate, it is appropriate to view objectively the nature and quality of the use that Mr Mynott made of his apartment to determine whether it had the characteristics of his fixed place of abode, his home. In my view, Mr Mynott had established his home in the Philippines and was aware that the duration of his enjoyment of the home, although indefinite in length, might be only for a limited period. The knowledge that eventually he would return to Australia does not deny him a capacity to make his home outside Australia.
49. Mr Cole submitted that the decision of the Court in Applegate involved a substantially different scenario to the present case. What impressed the Court was that Mr Applegate had basically divested himself of assets and personal residency links in Australia (apart from health insurance), and it was not difficult for the Court to find that there was the establishment of a permanent place of abode in the New Hebrides. Mr Cole argued that, on the evidence, Mr Mynott went overseas with his suitcase and the materials he needed and he did not take anything else. But, I note that Mr Mynott had also disposed of his substantial assets and, apart from the contacts with his parents, an essential banking facility, small investments and personal ties he maintained as an Australian citizen, his factual circumstances and what took place when he left Australia were not significantly different to those of Mr Applegate.
50. I am satisfied that, during the 1999, 2000, 2001 and 2002 tax years, up to the time of his return to Australia on 30 January 2002, Mr Mynott’s permanent place of abode was in the Philippines. It follows that he was not a “resident” or a “resident of Australia” under the domicile/permanent place of abode test during the 1999, 2000 and 2001 tax years and during the 2002 tax year up to and including 29 June 2002, under s 6(1)(a) of the 1936 Act.
51. It is of note that Mr Mynott was in Australia for more than 183 days in the 2002 tax year. However, he spent 152 days of that tax year in Australia after his return on 30 January 2002. As I am satisfied that his permanent place of abode up to 29 January 2002 was in the Philippines, the extended definition of “resident” or “resident of Australia” contained in sub-paragraph 6(1)(a)(iii) of the 1936 Act is not applicable.
52. Should I be found to have erred in my findings as to Mr Mynott’s residency status under s 6(1)(a) of the 1936 Act, the issue of fraud and evasion, in the context of a number of subsidiary issues, requires consideration. I do so below.

Was the respondent able to amend each of the applicant’s assessments in the 1999-2002 tax years?

53. In my view and for the reasons given below, the respondent was not able to amend each of the applicant’s assessments for the 1999, 2000, 2001 and 2002 tax years.
54. The respondent’s power to amend the applicant’s assessments for the 1999-2002 tax years is contained in s 170 of the 1936 Act. Former s 170(1) allowed the respondent to amend an assessment of the applicant, subject to the limitations contained in the section. Former s 170(2) applied to the tax years before 30 June 2004 and effectively provided that, where there had been an avoidance of tax, the time for the respondent to amend the applicant’s assessments was limited to four years from the time an assessment was made or the tax became due and payable under the assessment. However, former s 170(2)(a) went on to provide that, where there was an avoidance of tax, the respondent could amend an assessment at any time if he was of the opinion that the avoidance of tax was due to fraud or evasion.
55. Although the term “avoidance of tax” is not defined in the tax legislation, the meaning can be found in case law. In Australasian Jam Co Pty Ltd v FC of T [1953] HCA 52; (1953) 88 CLR 23, Fullagar J made the following comments (at pages 33-34):

“... I would think that even a merely inadvertent omission of a material fact may be enough to enable the Commissioner to maintain that the full and true disclosure required has not been made. ...
... If the absence of full disclosure has in fact resulted in less tax being paid than ought to have been paid, there has been an avoidance of tax. ...’

56. Further guidance is provided by Dixon CJ and Kitto and Taylor JJ in Federal Commissioner of Taxation v Barton [1957] HCA 5; (1957) 96 CLR 359 where, at page 366, the Court said:

“In s 170(2) it seems clearly enough to refer to an avoidance by under-assessment.”

57. It is clear that avoidance means no more than diminution of tax (Case X66, (1990) 90 ATC 499) and involves a taxpayer paying less tax than he or she ought to pay in particular years of income. If one proceeds on the basis that Mr Mynott did not disclose his overseas income in his 1999-2002 tax returns in circumstances where he was required to do so, there would have been an avoidance of tax in those relevant tax years.
58. Was the avoidance of tax due to fraud or evasion? I consider this in paragraphs 67-73 below.

Was the respondent able to make original assessments in relation to the applicant’s income tax returns for the 1999 and 2000 tax years?

59. In my view and for the reasons given below, the respondent was not able to make original assessments in relation to the applicant’s income tax returns for the 1999 and 2000 tax years.
60. Section 171A of the 1936 Act applies to the 2004 and earlier tax years. Section 171A(1) provides that, where the respondent has given the taxpayer a notice for a year stating that the taxpayer had no taxable income because deductions equalled assessable income and the taxpayer did not deduct a tax loss in that year, the respondent cannot make an original assessment for the taxpayer after the later of:

(a) 31 October 2008; and

(b) the period of four years beginning on the day on which the taxpayer lodged their taxation return for the year.

61. Section 171A(2), however, provides that s 171A(1) does not apply if the respondent is of the opinion that there has been fraud or evasion.
62. Mr Mynott lodged his 1999 and 2000 tax returns on 4 November 1999 and 10 October 2000 respectively. Consequently, the last day the respondent could make an original assessment for these years, in the absence of a finding of fraud or evasion, was 31 October 2008. As the 1999 and 2000 assessments issued on 17 December 2008, the respondent could only have issued the assessments if he had formed the opinion that there was fraud or evasion.
63. In relation to the original assessments issued to Mr Mynott in respect of the 2001 and 2002 tax years, tax became due and payable on 21 March 2002 and 21 March 2003, respectively. As the 2001 and 2002 amended assessments issued on 17 December 2008, being more than four years after tax became due and payable on the original assessments, the respondent again could only have issued the amended assessments if he had found that there had been an avoidance of tax due to fraud or evasion.

What was the contrasting evidence of Mr Mynott and Mr Evans?

64. In relation to the question of fraud or evasion, both Mr Kasep and Mr Cole referred in their closing to the contrasting oral evidence given at the hearing by Mr Mynott and Mr Evans which related to Mr Mynott’s residency status in the 1999-2002 tax years. Mr Mynott was adamant that, in preparing his relevant taxation returns, Mr Evans had formed the view that he was not a resident of Australia for income tax purposes. He said that Mr Evans “would have advised me that he saw me as a non-resident of Australia and he had no problems putting me forward as a non-resident of Australia, based on information I’d provided with him and any questions he’d had to ask me”. When I asked Mr Mynott whether he had received any written advice from Mr Evans confirming his view that he was a non-resident and was not required to pay tax in Australia, Mr Mynott said he had not received anything from Mr Evans. He only had copies of his old taxation returns. Mr Evans said he had no recollection of any advice that he had provided Mr Mynott as to his Australian residency status, and he had no records indicating who made the decision on that status. He had not advised him that he would not have to pay tax in Australia on his overseas earnings. His recollection was that Mr Mynott had engaged an overseas accountant who had advised him that he was a non-resident of Australia.
65. I find the circumstances relating to the decision about Mr Mynott’s Australian residency (or non-residency) status intriguing. Mr Evans had acted for Mr Mynott since 1988 and was a registered tax agent. As an experienced accountant and tax agent faced with a residency question, I would have thought he would have required more information (over and above merely having details about Mr Mynott’s work overseas) to form a reasonable view as to his non-residency. And, as there might have been some doubt, one would have expected him to put something in writing to Mr Mynott to confirm his view or to have requested a private ruling from the respondent. Mr Kasep submitted that the absence of any written advice or private ruling had to be balanced with the longstanding relationship that had existed between Mr Mynott and Mr Evans. He said Mr Mynott trusted what Mr Evans said implicitly. Although such a relationship may have existed, in my view, the over-riding consideration would have had to be the need to ensure, as far as possible, that Mr Mynott’s residency status for Australian taxation purposes had been properly established. I would have expected that Mr Evans would have wished to do this in the case of his longstanding client and, better still, to maintain confidence and trust in his professional ability.
66. There was nothing discerning in the evidence of either Mr Mynott or Mr Evans to suggest that they were both not witnesses of truth. I can only assume that there must have been a misunderstanding or a breakdown in communication between them on the question of Mr Mynott’s residency during the relevant tax years. On balance and in reviewing all the evidence, I am not satisfied that Mr Evans had himself formed the view that Mr Mynott was a non-resident of Australia during the 1999-2002 tax years. I am satisfied Mr Evans accepted and relied upon the representations that Mr Mynott put to him regarding his non-residency status and prepared his income tax returns for the 1999-2002 tax years on the basis of the instructions given to him.

Was there fraud or evasion on the part of Mr Mynott in relation to the 1999-2002 tax years?

67. The terms “fraud” and “evasion” are not defined in the Australian tax laws for the purposes of former s 170(2) of the 1936 Act. However, in Kajewski & Ors v FC of T [2003] FCA 258, Drummond J said (at paragraph 111):

“...Fraud within s 170(2)(a) involves something in the nature of fraud at common law, ie, the making of a statement to the Commissioner relevant to the taxpayer's liability to tax which the maker believes to be false or is recklessly careless whether it be true or false. ...”

68. In my view, there is no evidence of fraud in the present case, and there has been no contention by the respondent to that effect.
69. On the issue of evasion, I note the decision of Senior Member Sweidan in Re Mano and Commissioner of Taxation [2010] AATA 289. There, Ms Mano lodged returns for 1993 to 1996 and for 1999 to 2001 without including her foreign investment income and assessments were issued in accordance with those returns. Following an audit, the respondent amended the assessments to include amounts of foreign income. Due to the four year time limit under former s 170 of the 1936 Act, the respondent was not entitled to issue the amended assessments for the years prior to 2002 unless there had been an avoidance of tax due to fraud or evasion. Ms Mano contended that she was not aware of the extent of her financial position and her dealings overseas. Senior Member Sweidan said (at paragraph 54):

“In the Tribunal’s opinion to file taxation returns without any deliberate action to omit income or in circumstances where an adequate explanation is given for not declaring income cannot amount to a ‘design’ or ‘purpose’ to support the opinion of ‘fraud’ or ‘evasion’.”

In its statement of facts, issues and contentions, the respondent contended that the factors relevant in Re Mano did not exist in Mr Mynott’s case and set out what were seen as the differences. In my view, there is no force in any of the differences that the respondent has identified. It was Mr Kasep’s submission (which I accept) that the observations of Senior Member Sweidan in Re Mano are apposite in the present proceedings. There are no facts that give rise to any suggestion that Mr Mynott, or indeed, Mr Evans, had any intention to either deliberately withhold information from the respondent or in any way set out to deceive the respondent in relation to the issue of residency.

70. In Denver Chemical Manufacturing Co v C of T (NSW) [1949] HCA 25; (1949) 79 CLR 296, Dixon J (as he then was) set out the test for evasion (at page 313) in the following terms:

“I think it is unwise to attempt to define the word ‘evasion’. The context of s. 210(2) [of the Income Tax (Management) Act 1936 (NSW)] shows that it means more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion.”

71. In my view, the test for evasion set out in Denver Chemical Manufacturing Co is not satisfied in Mr Mynott’s case. There is no evidence to be able to conclude that Mr Mynott engaged in some blameworthy act or had any “intention to withhold information lest the Commissioner should consider [him] liable to some greater extent”. Mr Mynott believed, rightly or wrongly, that he did not have to declare his overseas income in his relevant income tax returns, based upon advice he believed he had received from Mr Evans. It would seem that Mr Mynott is supported in his position by the decision of Board of Review No 1 in Case No 9, (1950) TBRD 17, where the Board said (at page 19):

“It was argued by the Commissioner’s representative that the mere taking of advice favourable to a taxpayer’s course of conduct in omitting from his returns income which is proved to be assessable for income tax, does not of itself resolve the question whether the avoidance of tax in a particular case is due to evasion. With this contention we express full agreement. The question must be decided in the light of all the facts and the particular circumstances of the individual taxpayer. In the case before us we do not think that we are directly concerned with the soundness or otherwise of the advice given by the solicitor to the taxpayer where we are satisfied as to its bona fides. Consequential effect of unsound advice is a matter of concern only to the taxpayer and his adviser and we do not feel obliged to enter upon an examination as to whether or not the solicitor in his practice ought to have been better informed in the light of previous court decisions. The true test in this case appears to be whether in being guided by such advice the taxpayer acted honestly and reasonably in relation to his obligations under the Income Tax Assessment Acts.” [emphasis added]

72. In Re SRBBB and Commissioner of Taxation [2001] AATA 529, the taxpayer did not conduct his affairs in accord with his professional advisers’ advice and the issue of evasion was raised there. Deputy President RNJ Purvis said (at paragraph 59):

“... It is trite to say that the role of a professional tax adviser is relevant or can be relevant in determining whether there has been evasion. To seek assistance in such a situation where a tax adviser has been utilised, a taxpayer having the onus of disavowing evasion has a need to show that the tax adviser was appraised of the situation, as was the taxpayer. Thus, where it can be established that a tax adviser was fully informed by a taxpayer and the taxpayer received appropriate advice, then the intent of the taxpayer may be shown as other than one directed to deceiving the Respondent with the object of evading tax. In such a case it may be that a taxpayer could maintain a credible explanation for a failure to include income in a return. This in circumstances where there was an honest and reasonable reliance upon a tax agent.”

In analysing Re SRBBB, the taxpayer there endeavoured to hide behind his professional advisers’ advice to escape a finding of evasion. In my view, these are not the circumstances of Mr Mynott’s case. For evasion to have occurred, Mr Mynott would have had to have engaged in conduct which was intended to keep information from Mr Evans in the preparation of his taxation returns for the relevant years. As there is no evidence of this conduct taking place, it is not possible to assert evasion. There is no blameworthy conduct by Mr Mynott, as is referred to by Dixon J in Denver Chemical Manufacturing Co.

73. In paragraph 74 of the respondent’s statement of facts, issues and contentions, the respondent sought to rely on the comments by Drummond J in Kajewski (supra) in suggesting that Mr Mynott had engaged in evasion if a claim of evasion could have been made out against Mr Evans. Drummond J said (at paragraph 114):

“To enliven the power to amend an assessment under s 170(2)(a), the Commissioner only has to be of the opinion that an avoidance of tax is due to fraud or evasion. There is no justification for implying a limitation on these clear words to restrict the Commissioner's power under the provision to amend an assessment only where the avoidance of tax is due to fraud or evasion by the taxpayer personally. The wording of s 170(2)(a) is apt to empower the Commissioner to issue an amended assessment where an avoidance of tax is due to the fraud or evasion of the taxpayer's agent engaged to prepare returns signed by the taxpayer and to lodge those returns on the taxpayer's behalf ...”

In the present case, there was nothing to suggest that Mr Evans engaged in conduct that would be sufficient to support a finding of evasion against him. There was simply no evidence of any such conduct by Mr Evans.

74. I am satisfied that there was no evasion on the part of Mr Mynott in relation to the 1999-2002 tax years, and I so find.

Was the respondent entitled to impose a penalty in respect of a tax shortfall for the 1999 and 2000 tax years and for the 2001 and 2002 tax years?

75. On the question of penalties, during the hearing Mr Cole conceded that Mr Mynott had validly objected against the penalty assessments for the 1999-2002 tax years. According to the applicant’s statement of facts, issues and contentions, the notices of amended assessment included the following amounts of penalty:
    • 1999 income year $32,594.51;
    • 2000 income year $28,686.04;
    • 2001 income year $56,005.35;
    • 2002 income year $17,091.15.
76. In the provisions of Part VII of the 1936 Act, which have been repealed but still apply in the present case, a system of tax penalties applies where there is a “tax shortfall” caused by particular behaviour of the taxpayer. In respect of the 1999 and 2000 tax years, the penalties are imposed under s 226G and s 226H of the 1936 Act. Where the tax shortfall is caused by recklessness of the taxpayer with regard to the correct operation of the income tax law, the taxpayer is liable to pay a penalty tax of 50% of the amount of the shortfall. Where the tax shortfall is caused by the failure of the taxpayer to take reasonable care to comply with the income tax law, the taxpayer is liable to pay penalty tax of 25% of the amount of the shortfall. Under s 227(3), the respondent (and this Tribunal on review) has a discretion to remit a tax shortfall penalty, wholly or in part.
77. In respect of the 2001 and 2002 tax years, similar penalties in the case of recklessness and failure to take reasonable care are imposed under Item 2 and Item 3 of the Table in s 284-90(1) of the Administration Act. Under s 298-20, the respondent (and this Tribunal on review) has a discretion to remit all or part of a tax shortfall penalty.
78. In paragraph 57 above, I expressed the view that there would have been an avoidance of tax by Mr Mynott if he did not disclose his overseas income in his 1999-2002 tax returns in circumstances where he was required to do so. On the basis of this view, the respondent was entitled to impose a penalty in respect of the tax shortfall for the 1999-2002 tax years.
79. In the 1999-2002 amended assessments, the penalties were imposed on the basis that Mr Mynott’s conduct was reckless. In Hart v C of T [2003] FCAFC 105, Spender J observed (at paragraph 34) that recklessness consisted in making a claim “not caring whether the claim is true or false”. In Forrest v C of T [2010] FCAFC 6, the Full Federal Court observed (at paragraph147) that recklessness was objective and required “gross carelessness”, rather than mere negligence (see also the comments of Cooper J in BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164 at paragraph 77) . The respondent submitted that Mr Mynott acted recklessly and a 50% penalty had been correctly imposed. In my view, there is insufficient evidence which demonstrates that Mr Mynott acted recklessly, that is that he made a representation about being a resident of Australia, not caring whether or not he actually was a resident. Having regard to the contrasting evidence given by Mr Mynott and Mr Evans on the question of residency, I believe Mr Mynott failed to take reasonable care to comply with the taxation law. Giving his evidence the best construction I can, it would seem that he misunderstood the advice Mr Evans gave him or that there was a breakdown in their communications. Alternatively, he may have relied on the advice of his United Kingdom accountant when Mr Evans prepared his 1999-2002 tax returns. In these circumstances, I am of the view that the level of penalty should be reduced to 25% of the amount of the tax shortfall in each of the 1999, 2000, 2001 and 2002 tax years.

Should the respondent exercise the discretion to remit the penalty imposed in respect of the tax shortfall for the 1999 and 2000 tax years and for the 2001 and 2002 tax years?

80. Having regard to the reduction in penalty I have found in paragraph 79, no (or no further) remission of penalty is warranted.

DECISION

81. For the reasons outlined above, the objection decisions are set aside.

I certify that the 81 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne

Signed: ...........J Coulthard........................................

Associate

Dates of Hearing 26-27 May 2011

Date of Decision 4 August 2011

Counsel for the Applicant Mr B Kasep

Solicitor for the Applicant SBN Lawyers

Counsel for the Respondent Mr S Cole

Solicitor for the Respondent ATO Legal Services Branch