Sanderson v CofT – Australian based in Malaysia an Australian tax ‘resident’ and thus assessable on receipts found to be foreign source income

The AAT has decided that an Australian citizen who was based in Malaysia but visited his family in Australia 11 times in the 2015-16 income year, staying a total of 83 days, was an Australian tax resident for that year. The case involved some payments from foreign companies, which the Commissioner wanted to assess, but they appeared to have a foreign source, and so the taxpayer had to be resident. The taxpayer lost on both counts, so the assessment was upheld.

The facts were as follows:

• The taxpayer was an Australian businessman based in Malaysia. In 2007 he married his second wife (Wife2) in the Philippines and a year later they had a son (she already had a child from a previous relationship).
• Wife2 and the 2 children lived in the Philippines, but in 2010 they moved to a home on the Gold Coast purchased by the taxpayer.
• He supported them financially and visited them as often as he could, staying in the Gold Coast home.
• In the 2015-16 income year, the taxpayer visited Australia 11 times staying a total of 83 days. Of those 11 visits, he stated 3 were for business.
• In 2017 he sold the Gold Coast home and almost 12 months later he and his family relocated to the Philippines.

The AAT decided:

1. the taxpayer was an Australian tax resident in 2015-16. His connections with Australia outweighed his connections with Malaysia, in particular:
   1. he maintained a family home in Australia;
   2. he spent a considerable amount of time in Australia (11 visits totalling 83 days) staying in the family home;
   3. a portion of his wages was deposited to an account in Australia;
   4. he had business interests in Australia; and
   5. he continued to be treated by medical professionals in Australia and maintained health insurance here.
2. The AAT also decided that the taxpayer had failed to show that certain funds transferred to his account from Malaysia were not income. He was unable to provide evidence to support his contention the funds were loan repayments.

[LTN 228, 25/11/21]

Decision

In affirming the objection decision under review, the AAT said that the objective evidence that the taxpayer had maintained a continuity of association with Australia was overwhelming. Relevant factors included that he owned a home in Australia where he lived with his wife and child when in Australia, he returned to Australia as often as he could to be with his family, he did not have a regular place of residence in Malaysia, he was committed to financially supporting his wife and child, he had business interests in Australia and access to a company vehicle here for personal use, and he maintained Medicare and medical insurance (and continuity of medical care) in Australia. There were also contemporaneous statements of intention inconsistent with his denial that he intended to reside in Australia. The taxpayer had not discharged the burden of proving he did not reside in Australia under the ordinary concepts test of residency in s 6(1) of the Income Tax Assessment Act 1936 (ITAA36).

The AAT found that the amended assessment did not indicate any double counting. The net amount payable shown in the amended assessment was arrived at after deducting tax previously assessed and allowing for foreign income tax offsets. Further, there was no direct evidence that the transfers were repayments of loans and not income other than the taxpayer’s assertions. What evidence was adduced did not go anywhere near establishing that amounts transferred in the 2016 year were loan repayments. The taxpayer had not discharged the burden of proving that the funds transferred were not income.

[ATW 46, 26/11/21]

ATO’s agreement to limit scope of AAT’s ‘review’ – in this case, the AAT agreed to ameliorate the severity of the normal taxpayer ‘onus’ – see paras 5 & 6 of the reasons.

5. …Mr Sanderson has the burden of proving the assessment is excessive and what the assessment should have been.^[4]

6. However, because the Commissioner has confined the issues in dispute to those outlined above,^[5] the questions for determination by the Tribunal are:

(a) Has Mr Sanderson discharged the burden of proving that he was not an Australian resident in the 2016 income year?

(b) If not, has Mr Sanderson discharged the burden of proving the contested transfers were not income but rather repayments of loans?

The definition of ‘resident’ (of Australia), so far as was relevant – the AAT set out in para 8, as follows.

8. So far as relevant to the current matter, s 6(1) of the ITAA 1936 defines a resident of Australia in these terms:

(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; . . .

The list of factors mentioned above, was a summary of the tests which the AAT articulated as relevant to determining the ‘ordinary meaning’ of ‘resident’ (which it decided the taxpayer was – obviating the need to apply the ‘domicile’ / ‘permanent place of abode’ test).

The AAT cited these tests with relatively few references to case authority (and in saying this I mean no disrespect to the Tribunal Member, who I know and respect). These tests were set out in para 23, citing just the following cases:

[11]  See, for example, Commissioner of Taxation v Addy [2020] FCAFC 135, [73] (Derrington J); Commissioner of Taxation v Pike [2020] FCAFC 158.

^[12] Federal Commissioner of Taxation v Miller [1946] HCA 23; (1946) 73 CLR 93, 99 (Latham CJ).

The conclusion is, with respect, probably right – in any event.

(Sanderson and FCT [2021] AATA 4305 (AAT, Olding SM, 16 November 2021.)

[Tax Month – November 2021 – Previous 2021] 26.11.21