Re Mynott and Commissioner of Taxation
Document type: Impact of Court Decisions Report
Venue: Administrative Appeals Tribunal (2010/2689-92)
Judgment date: 4 August 2011
Date published: 8 November 2011
Decision outcome: Adverse

Summary of decision:
Outlines the ATO's approach to this case which concerned whether the applicant was a 'resident of Australia', as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for the 1999, 2000, 2001 and 2002 tax years.

Overview of facts:
After graduation as an electronic engineer in 1984, the applicant worked in Australia for 13 years, leaving on 18 September 1997 to work overseas. The applicant worked on various short term contracts in different countries until he returned to Australia permanently on 30 January 2002. | The applicant entered into a domestic relationship with a woman in the Philippines and rented an apartment with her in Manila from December 1998 until he returned to Australia in January 2002. During this time, when the applicant wasn't in Manila for fairly short periods on a tourist visa, he was either working overseas or visiting his parents in Australia. | The applicant sold his personal residence in Australia in June 1999, but maintained a bank account in Australia into which his contract payments were made. He also had local bank accounts overseas that were used for his own living expenses and for sending money to his partner in the Philippines, but did not otherwise acquire any overseas property or investments. | During the 1999 to 2002 income years, the applicant derived foreign income from his work, but did not include the income in his Australian income tax returns for those years, and did not pay any foreign tax on the income after mid-1998. | The applicant gave evidence to the Tribunal that his agent advised him orally that he was not a resident of Australia for the years in dispute. His agent gave evidence that he did not recall providing any advice to the applicant about his residence status and would have relied on the applicant's own representations as to his status in preparing the relevant tax returns. | Issues decided by the Administrative Appeals Tribunal | The Tribunal accepted that the applicant did not 'reside' in Australia for the purposes of the definition of 'resident of Australia' in subsection 6(1) of the ITAA 1936 for the 1999, 2000 and 2001 years, and up to 29 January 2002. While the applicant kept a bank account in Australia during this period, and regularly visited his parents, he sold his principal Australian residence in 1999, did not work in Australia during that time, and kept a domestic base in the Philippines for much of the time (paragraphs 36 to 41). | While the Tribunal accepted that the applicant's domicile was in Australia for the relevant years, for the purposes of subparagraph (a)(i) of the definition of 'resident of Australia' (paragraph 43), the objective conclusion was that he had established his home in the Philippines during that period and that was where he had his permanent place of abode (paragraphs 48 to 50). | Though the Tribunal found that the applicant was not a resident of Australia for the relevant periods, it commented that the Commissioner was not able to issue original assessments to the applicant for the 1999 and 2000 tax years, nor issue amended assessments to the applicant for the 2001 and 2002 years, because the avoidance of tax in not being assessed on his foreign earnings was not due to fraud or evasion under section 171A and the former subsection 170(2) of the ITAA 1936. While there was contrasting evidence given by the applicant and his agent about why his tax returns for the relevant years were prepared on the basis that the taxpayer was not a resident of Australia, the Tribunal accepted that this was due to a misunderstanding or a breakdown in communication between the two, and was not due to any intention to withhold information nor to any blameworthy act of the applicant (paragraphs 64 to 73). | The Tribunal also commented that, if penalties were payable, they would have been at 25% of the tax shortfall in each year for lack of reasonable care, not at 50% for recklessness, and that no remission of penalty was warranted (paragraphs 79 to 80).

Issues decided:
The Tribunal accepted that the applicant did not 'reside' in Australia for the purposes of the definition of 'resident of Australia' in subsection 6(1) of the ITAA 1936 for the 1999, 2000 and 2001 years, and up to 29 January 2002. While the applicant kept a bank account in Australia during this period, and regularly visited his parents, he sold his principal Australian residence in 1999, did not work in Australia during that time, and kept a domestic base in the Philippines for much of the time (paragraphs 36 to 41). While the Tribunal accepted that the applicant's domicile was in Australia for the relevant years, for the purposes of subparagraph (a)(i) of the definition of 'resident of Australia' (paragraph 43), the objective conclusion was that he had established his home in the Philippines during that period and that was where he had his permanent place of abode (paragraphs 48 to 50). Though the Tribunal found that the applicant was not a resident of Australia for the relevant periods, it commented that the Commissioner was not able to issue original assessments to the applicant for the 1999 and 2000 tax years, nor issue amended assessments to the applicant for the 2001 and 2002 years, because the avoidance of tax in not being assessed on his foreign earnings was not due to fraud or evasion under section 171A and the former subsection 170(2) of the ITAA 1936. While there was contrasting evidence given by the applicant and his agent about why his tax returns for the relevant years were prepared on the basis that the taxpayer was not a resident of Australia, the Tribunal accepted that this was due to a misunderstanding or a breakdown in communication between the two, and was not due to any intention to withhold information nor to any blameworthy act of the applicant (paragraphs 64 to 73). The Tribunal also commented that, if penalties were payable, they would have been at 25% of the tax shortfall in each year for lack of reasonable care, not at 50% for recklessness, and that no remission of penalty was warranted (paragraphs 79 to 80).

ATO view of decision:
The ATO accepts that it was reasonably open to the Tribunal, on the evidence before it, to decide that the applicant did not reside in Australia, and had a permanent place of abode in the Philippines, between 18 September 1997 and 30 January 2002. | Though not part of its decision, the ATO also accepts that it was reasonably open to the Tribunal to comment that any avoidance of tax was not due to fraud or evasion, and that any penalties would have been properly payable for a failure to take reasonable care.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None

Legislative references: Income Tax assessment Act 1936 6(1) 170(1) 170(2) 171A 222A 226G 226H 227(3) Taxation Administration Act 1953 14ZQ Schedule 1 284-75 284-90 298-20
Case references: FC of T v Miller (1946) 73 CLR 93 Re Executors of the Estate of Subrahmanyam and FC of T [2002] AATA 1298 Hafzav v Director-General of Social Security (1985) 6 FCR 444 Federal Commissioner of Taxation v Applegate (1979) 38 FLR 1 9 ATR 899 79 ATC 4307 Case S19 85 ATC 225 (1985) 28 CTBR (NS) 240 Australasian Jam Co Pty Ltd v FC of T (1953) 88 CLR 23 F C of T v Barton [1957] HCA 5 96 CLR 359 Case X66 90 ATC 499 21 ATR 3542 Kajewski& Ors v FC of T [2003] FCA 258 2003 ATC 4375 52 ATR 455 Re Mano and FC of T [2010] AATA 289 2010 ATC 10-134 78 ATR 981 Denver Chemical Manufacturing Co v C of T (NSW) (1949) 79 CLR 296 Case No 9 (1950) TBRD 17 Re SRBBB and FC of T [2001] AATA 529 47 ATR 1191 2001 ATC 2194 Hart v FC of T [2003] FCAFC 105 2003 ATC 4665 53 ATR 371 Forrest v FC of T [2010] FCAFC 6 2010 ATC 20-163 78 ATR 417 BRK (Bris) Pty Ltd v FC of T [2001] FCA 164 2001 ATC 4111 46 ATR 347
Subject references: Resident of Australia Domicile Permanent place of abode outside Australia Assessment Fraud or evasion Penalties Recklessness Failure to take reasonable care