The Administrative Appeals Tribunal (Tribunal) has held in Quy v FCT [2024] AATA 245 that a taxpayer, who was physically in Australia for less than 2 months each year, was a resident of Australia for tax purposes.
Background and relevant facts
The taxpayer, Mr Quy, was born in Vietnam, but held Australian citizenship since 1978. He was a mechanical engineer and was a long-term employee of CBI Constructions Pty Ltd (CBI). That employment started in Sydney in 1986, but he later accepted work assignments overseas.
Between 1998 and 2009, Mr Quy moved to Dubai with his wife and daughters. In 2009, because of the GFC, he returned to Australia, moving his family to Perth but continuing to work with CBI.
In September 2015, Mr Quy accepted a new assignment with CBI and moved to Dubai.
Unusually, Mr Quy did not have any tax to pay but rather objected to his assessments, seeking a refund of PAYG tax withheld by CBI for the 2016 to 2020 income years (relevant years) on the basis he was a non-resident. The Commissioner disallowed the objections.
During the relevant years:
Mr Quy owned properties in Parramatta and Merrylands, New South Wales, and Beldon, Western Australia (Beldon Property). Mr Quy bought the Beldon Property in 2010 to be the family home.
Unlike Mr Quy’s move overseas in 1998, during the relevant years his children (the two eldest at university, and the youngest in her final year of school before starting at university) remained in Australia and did not relocate to Dubai.
While Mr Quy’s wife initially agreed to accompany Mr Quy to Dubai, the evidence demonstrated that she ended up spending more time in Australia because she wanted to look after her adult daughters while they were undertaking tertiary study, and, in some years, care for her ailing mother.
At least one of the daughters continued to live in the Beldon Property rent free during the relevant years. Mr Quy paid the mortgage and all costs associated with the Beldon Property. Mr Quy and his wife stayed in the Beldon Property when they were in Australia.
Mr Quy owned, maintained and had registered, four motor vehicles, which were kept in the Beldon Property and used by him when he was in Australia.
During the relevant years Mr Quy spent most of each year outside of Australia as follows:
|
Income year |
Days in Australia |
Days out of Australia |
Number of Departures |
|
2016* |
119 |
247 |
3 |
|
2017 |
47 |
318 |
3 |
|
2018 |
29 |
336 |
2 |
|
2019 |
34 |
331 |
2 |
|
2020 |
41 |
325 |
2 |
The statutory tests
Subsection 6(1) of the Income Tax Assessment Act 1936 defines resident or resident of Australia to mean:
… a person, other than a company, who resides in Australia [known as the Ordinary Concepts Test] and includes a person:
(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person’s permanent place of abode is outside Australia; [known as the Domicile Test]
(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; [known as the 183-Day Test] or
(iii) who is:
(A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or
(B) an eligible employee for the purposes of the Superannuation Act 1976; or
(C) the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B); [known as the Superannuation Test] …
Subsection 6(1) negatively defines non-resident of Australia to mean a person who is not a resident of Australia.
Accordingly, Mr Quy had to satisfy the Tribunal that he did not meet any of the tests in the definition of resident. In the circumstances, the only tests relevant to Mr Quy were the Ordinary Concepts Test and the Domicile Test.
Tribunal’s decision
The Tribunal affirmed the Commissioner’s decision that Mr Quy was a resident of Australia for tax purposes, holding that he satisfied both the Ordinary Concepts Test and the Domicile Test.
In relation to the Ordinary Concepts Test, the Tribunal held that despite Mr Quy being absent from Australia for most of the relevant years, he maintained an intention to return to Australia and an attitude that Australia remained his home. The Tribunal considered that the “intention, attitude and continued connection with Australia” was shown by:
Leaving his wife and children in the Beldon Property, fully supporting them financially, and choosing to spend his leave periods in Australia, staying in the Beldon Property.
Maintaining his vehicles and their registrations (which he used when he returned to Australia) and maintaining his Australian driver’s licence despite purchasing a car in Dubai.
Intending to retire in Australia (although that intention changed, and he and his wife moved to Thailand after retiring).
Holding a visa and having accommodation tied to his employment.
Not showing any connection with Dubai outside of the employment.
Maintaining his Australian private health insurance.
The Tribunal did state (at [102]):
While the actions of Mrs Quy and where she resided is not determinative of the Applicant's residency status, it goes to strengthening the Applicant's tie to Australia during the tax years in question. The Applicant had not simply provided a place for his daughters to live while they completed their study, he maintained the family home. The Applicant maintained the family home for his wife and children and returned to it on almost all occasions he had leave from work.
In relation to the Domicile Test, the Tribunal held that the Applicant had a domicile of choice in Australia, and there was no evidence to suggest otherwise. In relation to whether his permanent place of abode was in Dubai, the Tribunal held that Mr Quy’s submissions were contradictory and did little to support his position that his permanent place of abode was in Dubai. Accordingly, the Tribunal agreed with the Commissioner’s contentions that:
The quality of Mr Quy’s engagement with Dubai and the UAE was not consistent with a person who intends to, or in fact does, permanently reside there.
The lease of the apartment in Dubai was in the name of CBI, which also paid most of his utility bills.
The overseas bank account (to which CBI paid part of Mr Quy’s employment income) showed minimal discretionary or leisure spending in Dubai beyond food purchases.
The photographs of the apartment did not show furniture indicative of setting up a new home and the fact Mr Quy did not ship the furniture to Thailand when he left Dubai reinforced the transient nature of those items.
Mr Quy did not provide the Australian Taxation Office (ATO) with any community groups, clubs, or organisations that he was associated with in Dubai and his description of daily activities did not have any references to social networks, friendships, community groups, clubs, or organisations.
Changes to the individual residency rules – where is it?
On 11 May 2021, in the 2021‑22 Budget, the former Government announced that it would replace the individual tax residency rules with a “new, modernised framework”, based on the model recommended by the Board of Taxation in its 2019 report Individual Tax Residency Rules – a model for modernisation. In July 2023, Treasury released a Consultation Paper on a new, modernised individual tax residency framework.
While that consultation has finished, the framework outlined in the Consultation Paper has not received Government approval and is not yet law and may not become law. It is still to be seen whether the Government will prioritise making changes to individual residency in 2024. Consequently, the Consultation Paper is merely a guide as to how the framework might work.
It is interesting to highlight that if the framework outlined in Treasury’s Consultation Paper were law during the relevant years, for at least some of those years Mr Quy would likely have been a non-resident (under both the primary and secondary ceasing residency test).
Lessons to be learned
The Tribunal’s decision highlights the challenges faced by taxpayers on proving they are non-residents, particularly when their immediate family stays in Australia. The decision highlights the Board of Taxation’s findings that “the current [residency rules] do not reflect global work practices, and impose an inappropriate compliance burden on many taxpayers in all but the simplest of cases”.
In the circumstances, and despite being in Australia for less than two months each year, the Tribunal held that Mr Quy maintained an intention to return to Australia and an attitude that Australia remained his home, with no demonstrated behaviour consistent with the formation of any definite plans to abandon Australia completely. His wife and adult children staying in Australia, and in the Beldon Property, were no small factors. However, and as the Tribunal states, in the modern globally mobile world where working and living in a different country from the rest of your family has become more common, this factor is not determinative.
The Tribunal was critical of the evidence and submissions before it, particularly given Mr Quy looked to introduce new evidence and because there was a disparity between the evidence provided prior to the hearing and at the hearing. The Tribunal said that the evidence and submissions were confusing and contradictory.
It is a good reminder for taxpayers: they often face insurmountable hurdles in satisfying the burden of proof when their evidence and submissions are not well thought through or have inconsistencies (even if those inconsistencies arise because of misremembering events which happened in the past, or barriers associated with English being a second language).
Taxpayers must ensure their evidence, given both during reviews and audits, as well as on objection and in Part IVC proceedings is considered, consistent, and easy to understand. Ensuring you have the right advisor before making any decisions to cease Australian tax residency, and early in any engagement with the ATO in relation to the question of residency, can be critical.
For more information please contact:
Kaitilin Lowdon
Special Counsel
M +61 402 859 214 | T+61 3 9611 0120
E: klowdon@sladen.com.au
Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au
Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327 | T +61 3 9611 0105
E: dsmedley@sladen.com.au
Edward Hennebry
Senior Associate
T +61 3 9611 0113 | M +61 428 439 730
E: ehennebry@sladen.com.au