Printable version

Impact of Court Decisions Report

Re Mynott and Commissioner of Taxation

Venue: Administrative Appeals Tribunal
Venue Reference No: 2010/2689-92
Judge Name: SM Dunne
Judgment date: 4 August 2011
Appeals on foot:
No

Administrative Treatment (Implication on current Public Rulings and Determinations)

Relevant Rulings/Determinations:

Subject References:
Resident of Australia
Domicile
Permanent place of abode outside Australia
Assessment
Fraud or evasion
Penalties
Recklessness
Failure to take reasonable care

Decision Outcome:

Adverse

Précis

Outlines the ATO's approach to this case which concerned whether the applicant was a 'resident of Australia', as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for the 1999, 2000, 2001 and 2002 tax years.

Brief Summary of Facts

After graduation as an electronic engineer in 1984, the applicant worked in Australia for 13 years, leaving on 18 September 1997 to work overseas. The applicant worked on various short term contracts in different countries until he returned to Australia permanently on 30 January 2002.

The applicant entered into a domestic relationship with a woman in the Philippines and rented an apartment with her in Manila from December 1998 until he returned to Australia in January 2002. During this time, when the applicant wasn't in Manila for fairly short periods on a tourist visa, he was either working overseas or visiting his parents in Australia.

The applicant sold his personal residence in Australia in June 1999, but maintained a bank account in Australia into which his contract payments were made. He also had local bank accounts overseas that were used for his own living expenses and for sending money to his partner in the Philippines, but did not otherwise acquire any overseas property or investments.

During the 1999 to 2002 income years, the applicant derived foreign income from his work, but did not include the income in his Australian income tax returns for those years, and did not pay any foreign tax on the income after mid-1998.

The applicant gave evidence to the Tribunal that his agent advised him orally that he was not a resident of Australia for the years in dispute. His agent gave evidence that he did not recall providing any advice to the applicant about his residence status and would have relied on the applicant's own representations as to his status in preparing the relevant tax returns.

Issues decided by the Administrative Appeals Tribunal

The Tribunal accepted that the applicant did not 'reside' in Australia for the purposes of the definition of 'resident of Australia' in subsection 6(1) of the ITAA 1936 for the 1999, 2000 and 2001 years, and up to 29 January 2002. While the applicant kept a bank account in Australia during this period, and regularly visited his parents, he sold his principal Australian residence in 1999, did not work in Australia during that time, and kept a domestic base in the Philippines for much of the time (paragraphs 36 to 41).

While the Tribunal accepted that the applicant's domicile was in Australia for the relevant years, for the purposes of subparagraph (a)(i) of the definition of 'resident of Australia' (paragraph 43), the objective conclusion was that he had established his home in the Philippines during that period and that was where he had his permanent place of abode (paragraphs 48 to 50).

Though the Tribunal found that the applicant was not a resident of Australia for the relevant periods, it commented that the Commissioner was not able to issue original assessments to the applicant for the 1999 and 2000 tax years, nor issue amended assessments to the applicant for the 2001 and 2002 years, because the avoidance of tax in not being assessed on his foreign earnings was not due to fraud or evasion under section 171A and the former subsection 170(2) of the ITAA 1936. While there was contrasting evidence given by the applicant and his agent about why his tax returns for the relevant years were prepared on the basis that the taxpayer was not a resident of Australia, the Tribunal accepted that this was due to a misunderstanding or a breakdown in communication between the two, and was not due to any intention to withhold information nor to any blameworthy act of the applicant (paragraphs 64 to 73).

The Tribunal also commented that, if penalties were payable, they would have been at 25% of the tax shortfall in each year for lack of reasonable care, not at 50% for recklessness, and that no remission of penalty was warranted (paragraphs 79 to 80).

Tax Office view of Decision

The ATO accepts that it was reasonably open to the Tribunal, on the evidence before it, to decide that the applicant did not reside in Australia, and had a permanent place of abode in the Philippines, between 18 September 1997 and 30 January 2002.

Though not part of its decision, the ATO also accepts that it was reasonably open to the Tribunal to comment that any avoidance of tax was not due to fraud or evasion, and that any penalties would have been properly payable for a failure to take reasonable care.

Administrative Treatment

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

None

Implications for Law Administration Practice Statements

None

Your comments

We invite you to advise us if you feel this decision has consequences we have not identified, or if a precedential decision such as a Public Ruling or an ATO ID requires reconsideration or amendment. Please forward your comments to the contact officer.

Date Issued:	8 November 2011
Due Date:	3 January 2012
Contact officer:	Paul Bray
Email address:	paul.bray@ato.gov.au
Telephone:	(03) 9275 5124
Facsimile:	(03) 9275 4801
Address:	6 Gladstone St Moonee Ponds Vic. 3039

Legislative References:
Income Tax assessment Act 1936
6(1)
170(1)
170(2)
171A
222A
226G
226H
227(3)

Taxation Administration Act 1953
14ZQ
Schedule 1
284-75
284-90
298-20

Case References:
FC of T v. Miller
(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) 6 FCR 444

Federal Commissioner of Taxation v. Applegate
(1979) 38 FLR 1
9 ATR 899
79 ATC 4307

Case S19
85 ATC 225
(1985) 28 CTBR (NS) 240

Australasian Jam Co Pty Ltd v. FC of T
(1953) 88 CLR 23

F C of T v. Barton
[1957] HCA 5
96 CLR 359

Case X66
90 ATC 499
21 ATR 3542

Kajewski& Ors v. FC of T
[2003] FCA 258
2003 ATC 4375
52 ATR 455

Re Mano and FC of T
[2010] AATA 289
2010 ATC 10-134
78 ATR 981

Denver Chemical Manufacturing Co v. C of T (NSW)
(1949) 79 CLR 296

Case No 9
(1950) TBRD 17

Re SRBBB and FC of T
[2001] AATA 529
47 ATR 1191
2001 ATC 2194

Hart v. FC of T
[2003] FCAFC 105
2003 ATC 4665
53 ATR 371

Forrest v. FC of T
[2010] FCAFC 6
2010 ATC 20-163
78 ATR 417

BRK (Bris) Pty Ltd v. FC of T
[2001] FCA 164
2001 ATC 4111
46 ATR 347