An individual has been successful before the AAT in arguing that he was not a "resident" of Australia for tax purposes for the 2009 and 2010 income years. This was despite being an Australian citizen, maintaining an Australian bank account for his salary, and retaining his house in Queensland.

During the years in question, the taxpayer had signed up with a company to work on a project in Saudi Arabia. The project was expected to last three years and the taxpayer had an expectation that upon completion of the project, he would move on to another project located in Saudi Arabia.

In making various findings of fact, the AAT largely accepted the taxpayer's evidence. It said that the taxpayer's presence in Saudi Arabia "was hardly casual or passing". The AAT accepted that the taxpayer had formed an intention to make Saudi Arabia his home for the duration of the project and beyond.

This case demonstrates that proving tax residency requires a detailed examination of various facts, and the weighing up of those facts, to come to a conclusion that an individual is (or is not) a tax resident. It also demonstrates the importance of having corroborating evidence to prove the taxpayer's case

The AAT has allowed a taxpayer's objection to amended assessments issued to him for the 2009 and 2010 income years after finding that the taxpayer was not a "resident" of Australia as that term is defined in s 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Background

The Commissioner had issued amended assessments to the taxpayer increasing his assessable income for the 2009 and 2010 income years by $200,540 and $305,516 respectively. The increases were the result of the Commissioner's inclusion of income derived by the taxpayer from his employment in Saudi Arabia during each of the income years in question. The taxpayer had prepared and lodged his income tax returns for those years on the basis that he was a foreign resident. It was common ground that the taxpayer was domiciled in Australia for each of the income years in question.

In making various findings of fact, the AAT largely accepted the taxpayer's evidence. The taxpayer was a building and construction project manager and in August 2007 he signed an employment contract with a company (a Saudi Arabian subsidiary of a company group) to work on a project located in Saudi Arabia. When he first travelled to Saudi Arabia in September 2007, the taxpayer had an expectation that the project would last three years. It was also the taxpayer's expectation that upon completion of the project, he would move on to another project located in Saudi Arabia. While in Saudi Arabia, the taxpayer lived in an apartment situated in a secure residential compound, which was provided by his employer and for which he had exclusivity of occupancy. The taxpayer was single at the time and did not share the apartment with anyone. The taxpayer spent recreational time in Bahrain and holidays in Thailand and Australia, with the greater time spent in Thailand.

The AAT accepted the taxpayer's reasons for not selling or renting his house located on the Gold Coast while he was employed in Saudi Arabia. The taxpayer had left belongings in the house and had it secured before he left Australia. The AAT accepted that the taxpayer initially decided to retain the house because he was uncertain as to what he would encounter when he took up his employment in Saudi Arabia, but that his reasons later changed when he found that he enjoyed the employment. Among other things, the AAT inferred that the taxpayer could well afford to make such choices given that he was well paid and did not need additional income from renting out the property. The AAT also considered the cost that would have been incurred in obtaining alternative storage for his collection of pistols and rifles as telling against his renting out of the house.

The AAT noted that on occasions when the taxpayer did return to the house during holidays, he never spent more than a few days at a time at the house. The taxpayer returned to Australia in May 2010 at the conclusion of the project and from then on he lived at the house. However, when he did return to Australia in May 2010, he had expected further employment in Saudi Arabia. The AAT noted some discrepancies in the taxpayer's evidence regarding his holidays but accepted that this was the result of exact details being lost through the passage of time.

On incoming and outgoing passenger cards, the taxpayer had selected "Resident returning to Australia" and "Australian resident departing temporarily". The taxpayer explained that he thought that, as an Australian citizen, these were the options that ought to be selected. The AAT said: "The options presented by the incoming and outgoing passenger cards, if one is versed in the law with respect to residency, do embrace the situation of a citizen who is a resident of Australia returning after a temporary absence or departing temporarily. Equally though, they do not separately and expressly address the situation of a person who holds citizenship but is leaving Australia to live and work abroad indefinitely or returning temporarily but not intending to give up living and working abroad indefinitely".

The taxpayer maintained an Australian bank account into which his salary was paid in Australian dollars. The taxpayer did not open a bank account in Saudi Arabia for the purpose of receiving his salary as this would have entailed his being paid in Saudi riyal. There were also local Saudi exchange controls that meant it could have taken months to get the money out of the country if held in a local bank account. The taxpayer also organised for accumulated mail to be couriered to him. The taxpayer did not inform the Australian Electoral Commissioner that he was living in Saudi Arabia.

In lodging the relevant income tax returns, which were prepared with the assistance of a tax agent, the taxpayer had declared that he was an Australian resident with the Gold Coast house as his home address. The taxpayer's belief was that he was only obliged to lodge an income tax return for his Australian-sourced income. The AAT was of the view that the taxpayer's affirmative response in respect of residency and the specification of the Gold Coast house as his home address were the result of "inadvertence, probably shared with the tax agent, not a considered manifestation of his intention as to residency".

Decision

The AAT rejected the Commissioner's submission that the definition of "resident" in s 6(1) of the ITAA 1936 "should be accorded a wide meaning because it is used in revenue legislation for the purposes of the imposition of tax". The AAT said the word "resides", as used in s 6 of the ITAA 1936, bears its ordinary meaning, which is "to dwell permanently or for a considerable time, to have one's settled or usual abode, to live in or at a particular place". It added that adopting and applying what was said about statutory construction in Alcan (NT) Alumina Pty Ltd v Comr of Territory Revenue (2009) 73 ATR 256 (in which it was stated that the task of statutory construction must begin with a consideration of the text itself) "should put any contrary notion firmly and finally to rest".

The AAT said the taxpayer's presence in Saudi Arabia "was hardly casual or passing. So far as intention is relevant, [the taxpayer] had, at the time when he first left Australia for the Kingdom, a reservation as to whether he would make Saudi Arabia his home for the duration of the [project] and beyond". The AAT accepted that the taxpayer had then at some point intended to make Saudi Arabia his home for the duration of the project and beyond into the indefinite future (although the AAT noted that it would be difficult, if not impossible, to assign the precise day on which the taxpayer formed such an intention).

The AAT was of the view that by the commencement of the 2009 income year, the Gold Coast house was no longer the taxpayer's usual place of abode, but rather a convenient place to briefly visit in transit while on holidays and a place to store part of his capital. It said the principal purpose of his visits to Australia was not to resume residency in the Gold Coast house, but rather to catch up with his children and ex-spouse in Canberra. It added that those visits did not make him a resident in Canberra.

The AAT concluded that the taxpayer resided in Saudi Arabia in the 2009 and 2010 income years. It was also satisfied that the taxpayer's permanent place of abode was in Saudi Arabia for the years in question. The AAT noted that circumstances concerning expected follow-on employment had changed after the project ended and that at the end of June 2010 (or so), the taxpayer's intention changed and he again made Australia his settled place of abode.

Accordingly, the AAT held that the taxpayer had discharged the burden of proof that the amended assessments were excessive.

Re Dempsey and FCT [2014] AATA 335, www.austlii.edu.au/au/cases/cth/AATA/2014/335.html.