The Full Federal Court has allowed a taxpayer’s appeal and found that the AAT had denied him procedural fairness in finding he was not an employee during his foreign service. The substantive matter in the case essentially concerned whether the taxpayer was engaged in foreign service within the meaning of s 23AG(7) of the ITAA 1936 and thereby exempt from income tax, and whether the appellant was an “employee” under s 23AG(7).
During the period 2006 to 2011, the taxpayer worked as an oilfield diver or diving supervisor in the oil and gas industry for overseas entities. His practice was to travel from Australia to a nominated overseas location for a work assignment. After he had carried out the work assignment at an overseas location, he would then typically return to Western Australia for a period before embarking upon one or more other overseas assignments. The taxpayer remitted the monies he earned from the work he carried out overseas to his Commonwealth Bank account in Australia. The taxpayer is, and was, during the relevant time, married; and with his wife, owned 2 properties in Western Australia. One of the properties was an investment property and the other was the house in which the taxpayer and his wife lived when he was in Australia.
After the Commissioner audited the taxpayer for the years ended 30 June 2006 to 30 June 2011, the taxpayer was issued with an audit position paper which recorded the Commissioner’s view that the taxpayer was a resident of Australia for those income tax years. In November 2012, the taxpayer lodged his tax returns for the years 2006 to 2011 which reported net rental income from his investment property in Western Australia but no assessable foreign sourced income. On 15 May 2013, the Commissioner issued amended assessments which included the taxpayer’s foreign sourced income and a shortfall interest charge. The taxpayer’s objection was disallowed.
In Shord and FCT [2015] AATA 355, the AAT affirmed the Commissioner’s objection decisions and found that the taxpayer was a resident of Australia for the 2006 to 2011 income years, despite the taxpayer’s claim that he had “let go” of Australia in 1999. The AAT also ruled that the taxpayer had not satisfied the requirements in s 23AG of the ITAA 1936 (as then relevant) to have his foreign sourced income treated as exempt income. The taxpayer’s appeal to the Federal Court was unsuccessful – Shord v FCT [2016] FCA 761 (Gilmour J).
Before the AAT, the Commissioner advised the Tribunal that he no longer pursued a contention in the statement of facts and contentions as to whether the taxpayer was an employee during his foreign service. The taxpayer’s representative nevertheless adduced evidence and made submissions on that contention. The Tribunal found against the taxpayer on that contention, and the issue before the Full Federal Court was whether there was a denial of procedural fairness.
After review, the Full Federal Court allowed the taxpayer’s appeal and ordered the setting aside of the orders of Gilmour J and remitted the matter to the primary judge for consideration of the taxpayer’s appeal insofar as it concerned the application of s 23AG(6) and s 23AG(6A) and whether, in the light of the determination of those questions, the order of the Tribunal of 21 May 2015 (Shord and FCT [2015] AATA 355) affirming the objection decision should also be set aside and the matter remitted to the Tribunal for further hearing.
(Shord v FCT [2017] FCAFC 167, Full Federal Court, Siopis, Logan and White JJ, 26 October 2017.)
[Tax Technical: related TM article, & related Tax Article; LTN 207, 30/10/17; TM Oct 2017]
If this seems a bit impenetrable, the back story is like this.
The taxpayer was provided with heavy diving equipment by the person he called his employer. He first argued he was non-resident and not taxable on his foreign source income (but he lost the ‘non-resident’ point). However, he’d also also argued, in the alternative, that he was an employee and entitled to s23AG exemption on his earnings. The Commissioner had opposed one of the necessary s23AG points, which was that he was an ’employee’. He did this, initially, in his Statement of Facts Issues and Contentions (SFIC) but then conceded the point at the beginning of the hearing. The Taxpayer still made some submissions about the ’employee’ point and, yet, the Tribunal still managed to find that he was not an ’employee’ for s23AG purposes. It seems that the Tribunal was going off the Commissioner’s subsequently abandoned point in his SFIC. Somehow this got past the Federal Court, too, where the matter will now return.