Issues surrounding tax residency determination
The given case of fct v. Applegate is associated with a taxpayer who was a member of legal profession in “sydney solicitors”. In june 1972, mr. Applegate was deported to a villa in new hebrides for managing and establishment of a new branch. In this regard, he went to sydney in the villa with his wife for brief two periods of taxation year. Therefore, he decided to remain there for the rest of the assessment year. On the decision of departing from sydney, the taxpayer decided to give up the tenancy of the flat which he had been staying with his wife. It is worth noting that mr. Applegate did not have any assets in australia but retained the membership in australia as a result of hospital’s contribution fund. After arriving in australia, he along with his wife decided to spend the initial two weeks in a hotel and booked a lease for house in villa. The term for lease during the beginning of the stay was identified as 12 months with a choice to further renew it for 12 months. In this regard, in the new hebrides region, the respondent was also admitted as a solicitor. This attributed to mr. Applegate obtaining a residency permit for a period of 12 months which was renewed for two years consecutively. During july 1973, the taxpayer arrived at sydney for his treatment due to illness. After returning from his treatment in the villa in september 1973, the firm had already decided for a replacement. As a result of follow off related to the international business, the branch office in the villa got closed in 1975. The intention of the taxpayer and the firm was to wait for his return in the office at sydney. However, the there was no mention of the specific period and it was only anticipated for a substantial period of time. The discourse of the report enumerates the issue of how on 30 june 1972, the taxpayer claimed that the salary earned by him in villa was exempt from taxation section under 23(r) as the income resulting was by a non-resident pertaining to sources wholly out of australia.
Based on the facts of the given case, between 8 november 1971 to 30 june 1972, the income received by the taxpayer was able to derive relevant income from various types of sources outside australia. The taxpayer was domiciled in australia during this period. In this regard, the main issue to be decided relates to whether or not, between 8 november 1971 to 30 june 1972 the taxpayer was a non-resident.
The legislative application for the identified issue is based on deciding whether or not mr. Applegate was considered as resident as per sec. “25(1) and sec 23 (r) of itaa 1936”. In addition to this, the applicable legislation can be also seen with “sec. 6(1) of itaa 1936”. The following issue was considered to be taken into account in the plea from the review board and the decision was given to supreme court of nsw. Based on seeking for leave appeal to the fct, the “sec 196 of itaa” Has been also taken into account for the final ruling. In addition to this, the legal applications are directly seen to be in accordance with sec. 6(1), 23(r) and 25 of itaa 1936, which includes relevant principles to be applied in determining the circumstances when an individual owns a permanent place of abode outside the premises of australia. Additionally, this act is also applicable for deciding relevant principles to be applied in identifying when and in what circumstances and individual can cease to be considered as a resident of australia as per the meaning of that. Lastly, principal according to this section is also applicable in deciding in what circumstances and when the income derived by the resident is outside the sources of australia and can be claimed for exemption from income tax.
Applicable legislation (sec. 6(1), sec. 23(r), sec. 25(1))
In terms of the application of case laws, fct examined the definition of ‘resident’ as per “avon downs pty. Ltd. V. F.c. Of t. (1949) 78 c.l.r. 353 per dixon j. At p. 360”. Along with this, the court also cited cases related to “melbourne home of ford pty. Ltd. And ors. V. Trade practices commission and anor” For the purpose of deciding whether or not the taxpayer was a non-resident.
The material factors considered in this case is associated with taxpayer’s ‘presence’ or ‘continuity’. In other words, the period of the presence and durability of this association is the main material fact associated to a particular place. Additionally, based on the material facts and arguments of the given case, during 30 june 1972, it was discerned that the taxpayer had a permanent place of abode outside the country. However, it does not withstand the fact that he expressed the intention of returning to australia. As per the application of legal applications which is directly seen to be in accordance with “sec. 6(1)”, mr. Applegate had been considered as a non-resident and was exempt from australian taxation pertaining to the income sourced in vila. The definition of permanent place of abode given by franki j defines how the intention of the taxpayer is based on living for the rest of his or her life. The enquiry related to the question of residency is related with whether or not there is permanent place of residency outside australia. Moreover, it is also dependent on the fact on the total amount of time and individual decides to reside outside australia. In case in the relevant income year, the taxpayer does not decide to reside in australia then it can be discerned as a permanent place of abode outside australia. In the given case, the taxpayer decided to abandon his place of abode in australia and establish a new residence outside the country. Along with this, the definition of franki j, the concept of prominent place of abode is related with taxpayer’s habitual and fixed place of residence. There needs to be material factors to be considered for continuity of services in relation to taxpayer’s presence. Considered with taxpayer’s presence during the duration of the stay in the permanent place of abode. Therefore, the intention of the taxpayer and the time is an important factor that characterises the definition of permanent residency. It found that in a certain income year the taxpayer has expressed his intention to reside in a place outside australia, then the factors deciding a non-resident is restricted to only one.
The rulings of the case finally identifies that the definition of relevance as per para (a)(ii) is not applicable in relation to the facts of the appeal but the paragraph is set out contrast the terminology given in para (a)(i). Between 8 november 1971 to 30 june 1972, the income received by taxpayer was identified to be derived fully out of australia. During this time, the taxpayer was resided in australia. Based on the consideration of “sec. 25(1) or sec. 23(r)” Of itaa 1936, the issue was seen to be raised in appeal from the supreme court of nsw. In the initial instance, the court of nsw granted the leave to appeal.
Analysis of case laws (Avon Downs Pty Ltd. v. F.C. of T., Melbourne Home of Ford Pty. Ltd. and Ors. v. Trade Practices Commission and anor)
Based on the decision given by the federal court of australia on 15 june 1978, the fct is seen to grant leave to commissioner associated with appealing for the judgement of supreme court of nsw on the condition that the commissioner agrees to pay the cost of the taxpayer in the course of this event. As per subsequent notices, the commissioner also raised the issue that supreme court should have dismissed the appeal from the board of review as there was no support in conclusion in application of principles of relevant law. This was the first time in australia that an issue of such a nature was raised and application was rejected. The proposal for new ground dependent on discretion forward by the commissioner as per sec. 193. In this regard, the definition of resident was reviewed and examine after application of case law such as “f.c. Of t. V. Brian hatch timber co. (sales) pty. Ltd. 71 atc 4093” And “avon downs pty. Ltd. V. F.c. Of t. (1949) 78 c.l.r. 353”. Despite giving the initial instance court of nsw granting the leave to appeal, it was later on refused by fct. An individual seen to be residing comprises of a very different meaning in “f.c. Of t. V. Miller (1946) 73 c.l.r. 93”. In this aspect, the act of residing is to dwell permanently for a considerable period of time so that a settlement can be called as usual place of abode. In this aspect, an individual can decide to deciding one country at a time with reference to “gregory v. D.f.c. Of t. (w.a.) (1937) 57 c.l.r. 774 per dixon j. At pp. 777-8”.
As per the given situation, from november 1971 to june 1972, the taxpayer resided at villa and not in a single house. Based on this context, federal court was unable to form any facts which can indicate that the respondent during this period dwelled in australia. Along with this the federal court also applied to extended definition of resident as per para (a) (ii), which suggests that the taxpayer had not actually been continuously staying in the country for more than half of the income year. The federal court used such a statement to draw the distinction between ‘usual place of residence’ and ‘residence’. Additionally, as per para (a) (i), the meaning of resident had further taken into consideration the factors which decide an individual’s domicile in australia along with qualification. In addition to this, the qualification must relate to the income year during which the income was derived.
The main contention of fct’s senior commissioner was to extend the definition of resident phrase with application of permanent place of abode outside australia to be applicable to an individual who intends to live outside the country for an indefinite period without any specific reason of ever returning to australia in future. The senior commissioner further put forward his opinion on how mr. Applegate already had a definite intention of returning to australia in the foreseeable future and therefore, the qualification criteria as per the para. (a)(i) of resident’s definition is not applicable. In this manner, the full decision taken by the federal court opined on rejecting the contention. The qualification is only applicable for individual’s despite of being resided in australia but does not account for being domiciled in australia within the acceptable meaning of the word reside. Qualification is therefore stated under affirmative form and applicable only when person is in his permanent place of resident situated outside australia. The qualification criterion is not applicable for person who has abandoned the country or has acquired a new domicile. The qualification is only applicable to those individuals who have permanent place of residence. It is worth noting that the phrase permanent place of residence as per taxation statute is applicable on income derived during the particular taxation year. In a situation where taxpayer resides in australia, the assessable income of an individual comprises of the gross income taken into account from all sources but in a situation where a person does not reside in australia then as per the subject of protracted meaning of the word resident, the income of the individual includes the gross income which has been earned from australia only. It does not include any income which has been derived outside the country.
The rational for dismissing the appeal with costs is identified with application of the phrase permanent place of residence only when it is identified as the fixed or habitual place of abode for the taxpayer. It can be considered as a home but not a permanent one. Such a definition relates to enduring association with particular place of residence than that of a person who would ordinarily become a resident in usual circumstances. In this manner, the material factors to be taken into account such as continuity or taxpayer’s presence has also accounted for the relevant consideration of the tax payer’s intention to decide on a particular place. As per the decision made by the court and in my opinion as well, the intention of the taxpayer of returning to australia is just one of the factors for dismissing the appeal with costs. It is also worth noting that the respondent ultimately intended to return to australia as he was capable of establishing permanent place of residence outside the country. In my opinion, he did this to create an illusion of permanent place of abode during the year of income. In such a circumstance, mr. Applegate was considered as non-resident within the application of definition as per itaa 1936 and therefore is exempt from taxation on his income derived from sources outside australia.
Conclusion
On a concluding note, we are able to discuss the relevant legal issues, legislative application and issues along with material facts and arguments which ultimately led to dismissing the appeal with costs. We have identified the relevant sections as per application of “sec. 25(1) and sec 23 (r) of itaa 1936”. Along with this, the applicable case laws have also been conducive in examining the phrase how permanent place of abode is taken into consideration as the fixed or habitual place of the taxpayer but it cannot be considered as a permanent one when it comes to tax assessment.
References
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https://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s202ee.html. Accessed 4 jan 2022.
” Income tax assessment act 1936 – sect 202ee non-residents “. Www5.austlii.edu.au, 2022,
https://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s202ee.html. Accessed 4 jan 2022.
” Income tax assessment act 1936 “. Www5.austlii.edu.au, 2022,
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