The Commissioner continues to heavily scrutinise the affairs of expatriate foreign workers in a bid to keep them within the clutches of the Australian income tax system.
Given that residency cases regularly turn on whether an individual “resides” in Australia – which is ultimately a question of both fact and degree – it is very difficult for advisers to build systematic thinking or a “checklist” approach to forecast the view that the Commissioner or the tribunal would be likely to form.
A comparison of the recent decisions of Shord v Commissioner of Taxation [2015] AATA 355 (Shord) and Dempsey v FC of T [2014] AATA 335 (Dempsey) illustrate that, aside from the difficulty in comparing residency decisions based on the facts, the tribunal’s legal approach to addressing whether one “resides” may deviate from case to case.
An inconsistent approach to Australian residency?
In Dempsey, the AAT found that a project manager who had worked in Saudi Arabia but maintained a house, car and personal possessions in Australia did not reside in Australia and was not an Australian tax resident.
The AAT argued that determining whether someone resides in Australia requires a consideration of the whole of the relevant evidence. Given that an assessment of fact and degree is required, it was therefore possible that similar factual scenarios might not create readily reconcilable decisions. In essence, one could not blithely depend on precedent decisions or a formulaic approach.
Whilst Shord mentioned the rationale cited in Dempsey, the AAT opted to focus on whether there was a continuity of association with Australia and whether significant physical, emotional and financial ties existed, and Mr Shord was ruled to be a Australian tax resident.
The AAT’s approach in Shord is arguably inconsistent with the broader test advocated in Dempsey.
Mr Shord has appealed the decision.
Coming up short with evidence
Putting aside the intricacies of the law applied, it appears that Mr Shord did have significant difficulty in substantiating the arguments he put forth. He could not, for example, produce evidence to support that he:
- Had established a residence in the UK;
- Owned personal assets of any kind in anywhere else but Australia;
- Was enrolled to vote in the UK;
- Had health insurance in the UK; or
- Had dealt with his Australian superannuation as he contended.
The AAT did not accept Mr Shord’s assertions regarding the amount of time he’d spent in Australia between 2000 and 2011 as it conflicted with his Department of Immigration records. It is not clear whether Mr Shord will be successful in his appeal, although the decision will hopefully clarify whether the AAT’s approach was inconsistent.
What does it mean for me?
Although expatriates continue to be a prime target for the Commissioner, they aren’t the only type of individual that might find themselves the subject of ATO scrutiny. Given the wealth of tools available to the Commissioner to monitor travel, international monetary transfers and taxation records, you should be encouraging your clients to seek further advice about their residency position sooner rather than later if there are any doubts.
It should also be made clear that sufficient evidence will always be required where one’s residency is disputed by the Commissioner.
If you have any concerns regarding tax residency please contact us on (07) 3223 6100 or at tax@redchip.com.au.
