In a recent decision, the AAT, with Logan J sitting as a Presidential Member, rejected the Commissioner’s submissions that the ordinary meaning of ‘resides’ should be given a wide interpretation so as to generate as much income tax as possible.
We acted for the taxpayer, Mr Dempsey, in the matter.
The AAT concluded that Mr Dempsey was not a resident for tax purposes, and was not required to make a ‘donation’ to the Australian consolidated revenue.
Mr Dempsey’s particular circumstances
Mr Dempsey is a building and construction industry project manager, who worked on a construction project in Saudi Arabia from September 2007 until May 2010. While living and working in Saudi Arabia, he:
- maintained a house in Australia (formerly his home), which, while he lived abroad, he used to store his furniture and cars; and
- returned to Australia about twice a year for holidays and visiting family (who he had never lived with), usually staying two or three days at the house to check everything was in order.
In Saudi Arabia, he lived in a residential apartment supplied by his employer, and had a visa that was renewed every 12 months. He holidayed primarily in Thailand, but also in Bahrain and Australia.
‘Resides’ has its ordinary meaning
In its decision, the AAT confirmed that the meaning of the word ‘resides’ in Australia must be taken from the High Court decision in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93. The AAT stated ‘resides’ has its ordinary English 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’.
The AAT rejected the Commissioner’s submissions, stating that Miller provides ‘no warrant for adopting some broad meaning’.
ATO checklists are not the law
Our experience is that the ATO often works through a checklist of factors, which can sometimes distract from the real question of where a person ‘resides’ – meaning where the person ‘dwells permanently’, has a ‘settled or usual abode’ and ‘lives in or at a particular place’.
In its decision, the AAT explicitly warned against relying on these checklists.
In Ivengar v Federal Commissioner of Taxation Senior Member Walsh developed from earlier cases a non-exhaustive list of criteria which she regarded as relevant to the determination of whether or not an individual was a resident of Australia for the purposes of the definition in s.6 of the ITAA 36. That list has gained some later currency in the Tribunal. However useful such checklist maybe, they are no substitute for the text of a statute and the recollection that ultimate appellant authority dictates that the word ‘resides’ be construed and applied to the facts according to its ordinary meaning.
Interpreting the legislation with a view to collecting more revenue
The AAT also made it clear that the tax-free status of the overseas country cannot affect a taxpayer’s liability to tax in Australia. The AAT stated that Mr Dempsey:
was not obliged to make a donation to Australian consolidated revenue in respect of income derived from non-Australian sources just because that income was not subject to taxation abroad. Nor was he obliged to make such a donation because he retained Australian citizenship.
In a dispute with the ATO? Or concerned a dispute could be around the corner?
Each matter must be considered based on its particular facts.
However, the decision in Dempsey may provide some relief to taxpayers who have become unsure of the meaning of the word ‘resides’ given the Commissioner’s expansive interpretation in recent years.
In existing disputes with the ATO, the key is to collate all of the relevant evidence, as the total circumstances must be considered (not just those in the checklist). Prudent taxpayers will also collect evidence and take steps to reduce their risk of the ATO commencing audit activity.