Groves and Commissioner of Taxation [2011] AATA 609 (1 September 2011)

Last Updated: 17 November 2011

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION

[2011] AATA 609

ADMINISTRATIVE APPEALS TRIBUNAL )
Sitting as the ) No 2011/1248

SMALL TAXATION CLAIMS TRIBUNAL		)
	Re		Matthew GROVES

Applicant

And

Commissioner of Taxation

Respondent

DECISION

Tribunal

Mr R P Handley, Deputy President

Date 1 September 2011

Place Sydney

Decision

The Tribunal sets aside the decision under review and remits the matter to the Respondent with a direction that the Applicant was a resident of Australia for taxation purposes for the tax year ending on 30 June 2010 and has a part-year residency period of 11 months for that year. These proceedings have been terminated in a manner favourable to the Applicant.

......................[sgd]....................
Mr R P Handley
Deputy President

CATCHWORDS

TAXATION AND REVENUE – income tax - objection to assessment - resident for taxation purposes – in Australia continuously or intermittently during more than one-half of the year of income – usual place of abode – eligibility for tax-free threshold - resident for taxation purposes for whole or part year – decision under review set aside and remitted

RELEVANT ACTS

Income Tax Assessment Act 1997 (Cth): ss 995-1

Income Tax Assessment Act 1936 (Cth): ss 6

Taxation Administration Act 1953 (Cth): s 14ZZK

Income Tax Rates Act 1986 (Cth): ss 3, 18, 20

CITATIONS

Commissioner of Taxation v Executors of the Estate of Santha Thevy (2001) 116 FCR 180; (2001) 189 ALR 666; 2002 ATC 4001; (2001) 49 ATR 29; [2001] FCA 1836

(1965) 12 CTBR Case 20

(1968) 11 CTBR Case 78

REASONS FOR DECISION

1 September 2011

Mr R P Handley, Deputy President

1. Matthew Groves (the Applicant) is a British citizen who arrived in Australia on a working holiday visa on 2 July 2009. After arriving, he spent about one and a half months travelling and then rented accommodation in Coogee from September 2009 to 27 May 2010 when he departed Australia, returning to the UK. During the income tax year ending on 30 June 2010, he had earnings from work as a bar attendant in a Sydney hotel.
2. Mr Groves engaged a Tax Agent, Backpackers Buddy Pty Ltd, to prepare and lodge a tax return for him for the tax year ending on 30 June 2010. By letter dated 20 August 2010, the Australian Taxation Office (ATO) requested further information concerning the amounts claimed in the tax return. On 16 September 2010, Backpackers Buddy supplied further information to the ATO on Mr Groves’ behalf. On 12 October 2010, a delegate of the Commissioner (the Respondent) issued Mr Groves with a Notice of Assessment for the year ending on 30 June 2010 on the basis that his status for taxation purposes was that of a non-resident.
3. On 2 December 2010, Cabel Partners, a registered tax agent and accountancy firm, acting for Mr Groves, lodged an objection with the Respondent contending that Mr Groves should be treated as a resident for tax purposes because he had been in Australia for more than 183 days and did not have his usual place of abode outside Australia. On 28 January 2011, this objection was disallowed. On 5 April 2011, Cabel Partners lodged an application for a review of this decision with the Tribunal.
4. On 19 April 2011, the Respondent, having reviewed its objection decision, set aside the decision and filed draft terms of settlement with the Tribunal. Cabel Partners responded that the Applicant was not prepared to sign the proposed terms of settlement and asked that the matter be referred for a hearing so that there is a decision on this issue “on the record”. Consequently, I made directions for the exchange of documents pre-hearing. On 3 June 2011, the Respondent sought an order from the Tribunal under s 42D(1) of the Administrative Appeals Tribunal Act 1975 remitting the matter to the Respondent for reconsideration on the basis that the objection decision would be set aside and a new decision made in the Applicant’s favour. Cabel Partners opposed the request for an order under s 42D(1) and, after further submissions from the parties on this issue, I decided not to make such an order.

LEGISLATIVE BACKGROUND

5. Section 995-1(1) of the Income Tax Assessment Act 1997 defines ‘Australian resident’ as meaning “a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936”. The Income Tax Assessment Act 1936 (the ITAA 1936), s 6(1), defines ‘resident or resident of Australia’ in relation to an individual as meaning:

(a) a person, other than a company, who resides in Australia and includes a person:
(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;
(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or
(iii) who is:
(A) a member of the superannuation scheme established by deed under the Superannuation Act 1990 ; or
(B) an eligible employee for the purposes of the Superannuation Act 1976 ; or
(C) the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B);
...

DISCUSSION

6. The effect of the s 6(1) definition is that there are four tests used to determine whether an individual will be regarded as a resident for Australian taxation purposes. These are whether:

(1) a person is resident in Australia as ordinarily understood,
(2) a person is domiciled in Australia unless the Commissioner is satisfied that the person’s permanent place of abode is outside Australia,
(3) a person has been in Australia continuously or intermittently during more than one-half of the year of income (ie 183 days) unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and the person does not intend to take up residence in Australia, and
(4) a person meets the superannuation requirements.

DOES THE APPLICANT SATISFY THE 183 DAY TEST?

7. The Applicant contends that he falls into the third category, because he was in Australia continuously for more than one-half of the year of income, thereby satisfying what is commonly referred to as the 183 day residency test. The Applicant submits that he did not have a usual place of abode outside Australia during the time that he was here. Indeed his usual place of abode, at least from September 2009 to May 2010, was in Coogee. The Applicant informed the Respondent that he rented shared accommodation in Coogee for a period of nine months, where he joined both the local RSL and a gym, and he worked as a bar attendant in a hotel (between September and November 2009) and maintained a superannuation account and a bank account while he was here. Information provided to the Respondent indicates that in 2009 Mr Groves was aged 22, and that while he had clothing and a bed which were stored at his parents’ house in the UK, he had no other substantial assets.
8. In the Full Federal Court decision in Commissioner of Taxation v Executors of the Estate of Santha Thevy Subrahmanyam (2001) 116 FCR 180; [2001] FCA 1836 (Subrahmanyam), at FCR 188 [30]-[31], Hill J said of the 183 day residency test:

30 The structure of the second statutory test is to treat a person as prima facie a resident where that person has in a year of income been actually in Australia for more than one-half of the year of income. The prima facie position will be displaced, however, where the person satisfies the Commissioner (or in the event of a review, the Tribunal) that his or her usual place of abode is outside Australia and that the person has not the intention of taking up residence in Australia.
31 Accordingly, in a case such as the present the task for the Commissioner (or, on a review, the Tribunal) will be to determine where the taxpayer's usual place of abode is. If that usual place of abode is in Australia or if the Commissioner (or, on the review, the Tribunal) is unable to be satisfied that the usual place of abode is outside Australia the consequence will be that the prima facie position has not been displaced and that accordingly the person will be a resident of Australia. A reading of the Tribunal's reasons set out above show that the Tribunal considered the question whether the taxpayer had a usual place of abode in Australia and decided that she did not. But, that was not the end of the enquiry which the Tribunal was bound to undertake. It was necessary for the Tribunal to continue and inquire whether the taxpayer had a usual place of abode somewhere outside Australia. Logically, the fact that a taxpayer does not have a usual place of abode within Australia does not mean that the taxpayer necessarily has a usual place of abode somewhere else. ...

9. In the present case, the Respondent now concedes that the Applicant resided in Australia continuously during more than one-half of the 2010 year of income and that “the Applicant’s behaviour reflects a degree of continuity, routine or habit that is consistent with residing in Australia”. The Respondent said he arrived at this view based on the Applicant’s continuous stay in the one place of rented accommodation for nine months, on the Applicant’s links in the community – his joining the local gym and RSL club - and his having the same employer during the period September 2009 to November 2009, during which he made superannuation payments. Thus, the Respondent was satisfied that the first limb of the 183 day residency test was satisfied and was of the view that the second limb of the test (that the person does not intend to take up residence in Australia) was not relevant.
10. Mr Browne of Cabel Partners, in his submissions for the Applicant, sought to emphasise that the relevant focus of the rebuttal of the presumption contained in the 183 day residency test is on whether the person’s usual place of abode during the relevant period is outside Australia and that the focus should not be on whether the person’s usual place of abode is in Australia. In my view, this is correct and accords with how the provision was interpreted by the Federal Court in Subrahmanyam. Mr Browne said he thought the ATO sometimes confused ‘permanent place of abode’ with ‘usual place of abode’ which is, of course, the relevant wording in this provision. He noted that the ordinary meaning of the word ‘abode’ is a habitual place of residence and the ordinary meaning of the word ‘usual’ is that of something which is ordinary, common or accustomed. Thus, the ‘usual place of abode’ is the physical place where a person currently lives.
11. Ms Sayed, for the Respondent, acknowledged that the 183 day test was incorrectly applied at the objection decision stage but noted that the Respondent had sought to correct the decision when the Applicant applied to the Tribunal for a further review. The Respondent’s offer of terms of settlement was rejected by the Applicant and the Tribunal refused to order that the matter be remitted to the Respondent for reconsideration. Ms Sayed noted that when, by letter dated 20 August 2010, the ATO sought further information from the Applicant, included among the information sought was information about the Applicant’s overseas connections.
12. I note the Respondent’s concession. There is no dispute that the Applicant was in Australia from 2 July 2009 to 27 May 2010. I am not satisfied that the Applicant’s usual place of abode was outside Australia at that time. In so concluding, I had regard to the information provided to the ATO by the Applicant which indicates that while he left some clothes, a bed and, presumably, other personal possessions at his parents’ house in England while he was away, he had no place of abode in England nor any investments or other assets there. Essentially, at the age of 22, he was doing what many young people do, which is to take the opportunity to travel and experience other countries.
13. In my view, in determining whether a person has a usual place of abode outside Australia, it may still be relevant to consider what arrangements the person has made during his stay in Australia because this may contribute to the overall picture as to whether the person’s usual place of abode is outside Australia. In the Applicant’s case, he had rented accommodation in Coogee for a period of nine months, worked as bar attendant in a hotel from September to November 2009 and joined the local RSL Club and a local gym. In my view, this supports a finding that the Applicant did not have a usual place of abode outside Australia during the relevant period.
14. Mr Browne submitted that it was appropriate for the ‘usual place of abode’ test to be applied half way through the tax year. In my view, there is no need to dictate at what point of time the test is applied. It is more likely to be a matter of what is appropriate in the particular circumstances of the individual case and I should have thought this will be often be at the end of the tax year.

IS THE APPLICANT ENTITLED TO BE TREATED AS A RESIDENT FOR ALL OR PART ONLY OF THE TAX YEAR ENDING 30 JUNE 2010?

15. A further issue has been raised as a result of Mr Browne’s submission that the Applicant should be treated as resident in Australia for 365 days of the tax year ending on 30 June 2010 rather than just during the period 2 July 2009 to 27 May 2010 when he was actually present in Australia. The Respondent says this issue was not raised in the ‘objection to original decision’ made by the Applicant and submits that he should therefore seek leave to extend the grounds of the objection under s 14ZZK(a) of the Taxation Administration Act 1953. However, the Commissioner states he would not oppose leave being granted if sought by the Applicant. The Applicant contends that this issue was encompassed in the objection to the original decision but “for completeness” seeks leave. In my view, it is appropriate to grant such leave, which is, therefore, granted.
16. The Applicant contends that he is entitled to a full year tax-free threshold - for the period 1 July 2009 to 30 June 2010. Mr Browne submitted that having satisfied the 183 day test, the Applicant is deemed to be a resident for tax purposes for the whole of the tax year in question. Mr Browne said the actual dates have no relevance. Thus, in the Applicant’s case, he is entitled to a tax-free threshold for the full 12 months. In support of his submission, Mr Browne referred to Commonwealth Taxation Board of Review decisions in which the Board deemed the taxpayer to be a resident for the whole of the year of income: (1965) 12 CTBR Case 20, at 126; and 11 CTBR Case 78, at 157. (It is not clear when this later decision was published, but the application was made in 1944 and the decision is likely to have been published at around that time. The dates of these two decisions are only relevant to the extent that they pre-dated the 1986 legislation referred to in the next paragraph.)
17. The Respondent submits that s 18(1)(c) of the Income Tax Rates Act 1986 (the ITRA 1986) applies. This states:

(1) Subject to subsection (2), the following periods are part-year residency periods in relation to a person in relation to a year of income:
...
(c) where the person commenced to be a resident during a month of the year of income and continued to be a resident until a time during a subsequent month of the year of income when the person ceased to be a resident--the period from the beginning of that first-mentioned month until the end of that subsequent month.

Section 20 allows for the pro-rating of the tax-free threshold in such circumstances according to the formula provided.

18. The Respondent notes the definition of ‘resident taxpayer’ in relation to a year of income in s 3(1) of the ITRA 1986 “means a taxpayer who is not a prescribed non-resident in relation to that year of income”. The term ‘prescribed non-resident’ is defined as meaning a person who, at all times during the year of income, is a “non-resident”. The Respondent submits the Applicant was a resident taxpayer during the tax year ending 30 June 2010 and s 18 is, therefore, applicable to him. Noting that the Applicant arrived in Australia on 2 July 2009 and departed on 27 May 2010, the Respondent submits that in accordance with s 18(1)(c), the applicable part-year residency period is from 1 July 2009 to 31 May 2010. Thus, the Applicant is entitled to a tax-free threshold for 11 months.
19. Ms Sayed noted that the word ‘resident’ is used in s 18 and, thereby, does not limit the application of the section to a particular category of resident identifiable from the definition of ‘resident’ or ‘resident of Australia’ in s 6(1) of the ITAA 1936. In relation to the Taxation Board of Review decisions to which Mr Browne referred, Ms Sayed pointed out that these all pre-dated the ITRA 1986 and should no longer be regarded as relevant authorities.
20. In my view, the Respondent is correct. The ITRA 1986 amended the law at the time it came into effect and s 18 provided for part-year residency periods. If this section were not to apply in a case such as the Applicant’s, the section would have no utility and it should be assumed this was not the intention of the Legislature. I am satisfied that the Respondent’s submission that the Applicant should be treated as having a part-year residency period of 11 months is correct.

DECISION

21. The Tribunal sets aside the decision under review and remits the matter to the Respondent with a direction that the Applicant was a resident of Australia for taxation purposes for the tax year ending on 30 June 2010 and has a part-year residency period of 11 months for that year.
22. These proceedings have been terminated in a manner favourable to the Applicant.

I certify that the 22 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R P Handley, Deputy President.

Signed:...........[sgd]....................................................................

Associate

Date of Hearing 25 August 2011

Date of Decision 1 September 2011

Representative for the Applicant P Browne, Cabel Partners Chartered Accountants

Solicitor for the Respondent R Sayed, Australian Taxation Office Legal Services Branch