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The Tribunal has determined that a mechanical engineer seeking a refund of $524k in PAYG withholdings was an Australian resident for tax purposes.
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AAT upholds ATO view in tax residency case
04 March 2024
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***UPDATE*** The Federal Court overturned the findings of the Administrative Appeals Tribunal in a decision handed down in July. The Federal Court ruled in favour of Quy, finding that the ATO had incorrectly classed him as an Australian resident for tax purposes, quashing the earlier tribunal ruling “infected by errors of law”.
In the Federal Court decision, Justice John Logan found the AAT conflated tax concepts relating to determining domicile with residency according to the ordinary concepts test.
The Administrative Appeals Tribunal has determined that a taxpayer was a resident of Australia for taxation purposes for certain income years and that tax assessments issued by the ATO were therefore correct.
The taxpayer in this case, Trong Quy, had objected to notices of assessment issued by the ATO in relation to the income years ending 30 June 2016 through to 30 June 2020.
The applicant, Quy, did not have any tax payable for the relevant tax years but was seeking a refund of the pay-as-you-go (PAYG) tax withheld from his income by his employer during this period. The total amount of PAYG withholdings amounted to $524,943.29.
In addition, the Applicant sought to claim deductions for capital allowances and capital works expenses on his Merrylands rental properties in all the tax years in question, other than the income year ended 30 June 2020.
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The Commissioner of Taxation had disallowed the applicant’s objections for these income years about his residency status as he considered the applicant to be an Australian resident for taxation purposes during those years.
The Commissioner did however allow the objections regarding the claimed capital allowance and capital works expenses for the rental properties.
The Tribunal had to determine whether Quy could demonstrate that he was not a resident of Australia according to ordinary concepts and that his domicile was outside of Australia under the Domicile Test.
The applicant in the case was born in Vietnam and obtained Australian citizenship in 1978. He was a mechanical engineer and commenced working with CBI Constructions Pty Ltd (C&BI) in Sydney in 1986.
On 13 September 2015, the Applicant accepted an internal assignment to Dubai, with the host company for the international assignment based in Dubai.
The contract commenced on 29 September 2015 and would end after the international assignment. At the end of that assignment CB&I would endeavour to identify an alternative position however there was no guarantee of ongoing employment beyond the assignment.
The Commissioner of Taxation contended that Quy was a resident of Australia for tax purposes during the tax years in question because on leaving for Dubai and throughout his posting, he retained the family home and paid all expenses relating to the home.
The Commissioner noted that Quy left all furniture, appliances, and equipment in the Beldon family home. He also retained several vehicles at the Beldon property, for which he continued to pay the registration and insurance. He also renewed his Western Australian driver’s licence in 2017 and 2022.
The ATO also noted that his wife was in Western Australia for more than half of any of the relevant years and often over 300 days each year.
It also noted that the applicant’s employment contracts demonstrated that throughout his time in Dubai, the Applicant’s employer remained CBI Construction Pty Ltd, an Australian entity, incorporated under the Corporations Act 2001.
The Applicant’s contract of employment made various provisions for the Applicant to mobilise from, visit and ultimately return to his point of hire, Perth, WA, at the employer’s expense.
The Applicant’s base salary was also paid by his Australian employer into an Australian bank account save for a relatively small amount paid into a Dubai account to comply with Dubai’s labour regulations.
The Commissioner contended that for those reasons the applicant had maintained extensive connections to Australia and taking the evidence into account was a resident in Australia for tax purposes for each of the tax years in question under the Ordinary Concepts Test, on the same basis as the taxpayer was in Commissioner of Taxation v Pike [2020] FCAFC 158.
The ATO also contented that on departing Australia and ongoing, the Applicant did not take any steps commensurate with an individual intending to quit Australia and set up a permanent place of abode elsewhere.
The Tax Office contended that whilst the applicant may have been physically present in Dubai when viewed objectively, there was no intention to make that his permanent place of abode.
The Tribunal found that the applicant was a resident of Australia under the definition in section 6(1)(a) of the Income Tax Assessment Act 1936 during the tax years in question.
The AAT noted that while the term “reside” is not defined in the relevant statute, the principles established by case law provide that physical presence or absence from a particular location is not its determinative of where a person is taken to reside for taxation purposes.
“A person’s continuity of association and intention to return to and to continue to treat a place as home are relevant determinative factors,” the Tribunal stated.
“The Applicant resided at his Beldon home before he commenced his work assignment in Dubai, he also resided there on most occasions when he returned to Australia throughout the tax years in question.”
The Tribunal said that despite being absent from Australia for the majority of the tax years in question, the applicant maintained an intention to return to Australia and an attitude that Australia remained his home during the tax years in question.
It said this was evidenced by the fact the applicant left his wife and children in his family home while he worked in Dubai, continuing to fully support his family financially and choosing to spend each of his leave periods back with his family in Australia, staying in the family home.
It also noted that the applicant held a visa and accommodation tied to the length of his employment assignment which did not allow him to establish a real connection with his residence in Dubai.
“Particularly where the applicant did not take furnishings from Australia to Dubai or take the furnishings he purchased in Dubai to his next assignment,” it stated.
The Tribunal affirmed the assessments for the income years ending 30 June 2016 to 30 June 2020 were not excessive or otherwise incorrect.
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