Individual not a tax resident of Australia

The Administrative Appeals Tribunal (AAT) has held that a taxpayer was not an Australian resident for tax purposes during the 2009 to 2011 income years.

Background

The AAT said there was little dispute about the underlying facts in the proceedings. In June 2006, after release from jail for drug offences and having no assets, the taxpayer decided he had no future in Australia and moved to Thailand to live with his then wife. In 2008, after the marriage had broken down, the taxpayer moved to Bali and commenced a relationship with a new person (now his wife). In early 2009, the taxpayer acquired a sub-lease of the property he was renting in Bali. The taxpayer had also obtained the right to reside in Indonesia as a retired person.

Between 2008 and 2010, the taxpayer made a number of trips back to Australia. His initial visits lasted from 20 to 83 days. His later visits from September 2009 onwards would only be for a few days at a time. On each of these occasions, he stayed with friends in Darwin. During his last visit in February 2010, he was arrested and charged with possession of a precursor to a dangerous drug. The taxpayer was convicted and sentenced to 18 months’ imprisonment. Shortly after his release from jail in December 2011, he was served a departure prohibition order. That order has remained in place and has prevented the taxpayer's return to Bali.

Following an audit of the taxpayer's affairs, the Commissioner issued default assessments. The taxpayer's taxable income was assessed as follows: $191,699 for the 2009 year, $765,342 for the 2010 year and $37,439 for the 2011 year – with penalties in excess of $350,000.

The AAT heard that the Commissioner had come into possession of documents showing that in the 2009 income year the taxpayer had paid $191,699 towards the cost of building a boat in Indonesia. The Commissioner concluded that the taxpayer had been a resident of Australia during that year, and the subsequent years, and that the sum of $191,699 represented income in the taxpayer's hands. For the 2010 income year, the Commissioner had access to bank documents that showed the taxpayer was receiving regular payments of interest. The Commissioner calculated the amount of principal that would exist in order to earn the interest shown, and treated that sum, $450,000, as unexplained income. Additionally, an amount of $297,903 shown in another bank was treated as earned income in the 2010 year, along with $17,439 in interest receipts. In the 2011 income year, the Commissioner determined the amount of interest actually earned to January 2011 and estimated the amount that would have been earned thereafter.

The taxpayer's objection to the assessments was disallowed and he appealed. The AAT said the only issue to be determined was whether the taxpayer was an Australian resident for the relevant years.

Decision

The AAT was satisfied that the taxpayer was not a resident of Australia according to ordinary concepts during any part of the three years in question. It was of the view that the taxpayer had not been residing in Australia since mid-2006 and that he had established a home in Bali from early 2008. The AAT noted that from mid-2006, the taxpayer no longer had a regular place to live in Australia. It also noted that from early 2008, he had resided in Bali with his then de facto partner (now his wife) and had developed social relationships in that country, and that his assets were held in Indonesia. The AAT also noted that the taxpayer had "virtually no contact with any member of his biological family in Australia with the exception of a brother".

The Commissioner attempted to prove that the taxpayer was a resident by arguing the fact of the taxpayer's frequent visits to Australia, and by highlighting how the taxpayer had completed immigration cards on some occasions (eg by ticking "Resident returning to Australia") and that the taxpayer had received Medicare benefits, which were only available to Australian residents, on 30 occasions. However, the AAT said the taxpayer's visits to Australia (even though some were initially lengthy) "did not destroy the continuity of association he had with Bali". In relation to the immigration cards, the AAT said, among other things, that the taxpayer was not, in completing the cards, "turning his mind to the notion of residence according to ordinary concepts". Further, the AAT said in receiving Medicare benefits, the taxpayer was not acknowledging residence in Australia.

The AAT was also of the view that the taxpayer's detention in Australia did not alter its conclusion that the taxpayer was not a resident of Australia for the years in question. Accordingly, the AAT remitted the matter to the Commissioner with a direction that the taxpayer's objections be allowed in full.

Re Murray and FCT [2013] AATA 780, www.austlii.edu.au/au/cases/cth/AATA/2013/780.html.