Hughes and Commissioner of Taxation (Taxation) [2015] AATA 1007 (22 December 2015)

Last Updated: 22 December 2015

Hughes and Commissioner of Taxation (Taxation) [2015] AATA 1007 (22 December 2015)

Division	TAXATION & COMMERCIAL DIVISION
File Number(s)	2015/1074 2015/1075 2015/1076
Re	William Hughes
	APPLICANT
And	Commissioner of Taxation
	RESPONDENT

DECISION

Tribunal	Senior Member McCabe
Date	22 December 2015
Place	Brisbane

The decision under review is affirmed.

................................[Sgd]........................................

Senior Member McCabe

Catchwords

TAXATION – Whether Applicant was an Australian resident in the years of income – Pilot employed overseas – ‘resides’ bears ordinary English meaning – Ordinary concepts test – domicile test – transient living arrangements – decision under review affirmed

Legislation
Tax Assessment Act 1997 (Cth) ss 6-5(2), 6-10(4), 995-1
Income Tax Assessment Act 1936 (Cth) s 6(1)

Cases

Dempsey and Commissioner of Taxation [2014] AATA 335

Agius and Commissioner of Taxation [2014] AATA 854

REASONS FOR DECISION

Senior Member McCabe


22 December 2015

1. The applicant, Mr William Hughes, was a commercial airline pilot who worked overseas for a foreign airline during the income tax years ended 30 June 2010, 30 June 2011, and 30 June 2012. He says he should not have to pay income tax in Australia on the income he earned from that work because he was not an Australian resident at the time. The Commissioner disagrees. He has pointed to aspects of the applicant’s life and living arrangements which suggest the applicant should be regarded as an Australian resident for the purposes of the income tax legislation.
2. The Commissioner is right. I am satisfied the applicant was an Australian resident in the years of income in question. I explain my reasons below.

The applicant’s living circumstances

3. The applicant is an Australian citizen who was born in Malaysia. He came to this country as a child when his parents moved here. He also holds a British passport.
4. The applicant was formerly employed by Ansett. He resided with his wife and young family in Melbourne at the time. When Ansett collapsed in 2001, he held the rank of captain but he was unable to find alternative satisfactory work in this country. He said he had no choice but to look for work overseas: exhibit 3. His first role overseas was in Indonesia. He began working there in March 2002. He says he moved to live in that country and no longer resided in Australia after that date. He then moved to China Airlines, which is based in Taiwan, in 2003. He was subsequently employed by Korean Air, an international airline based in Seoul. He entered into a 5 year contract in June 2008 which he anticipated would be renewed in due course. He said he moved to Seoul around the time he started work at Korean Air. He said he expected to remain there indefinitely. He did not hold South Korean citizenship. He held an “E-5 working visa”.
5. The applicant’s work as a pilot took him all over the world. He appears to have had a successful career. He became one of Korean Air’s most senior pilots: exhibit 3 at [32]. He said the roster at Korean Air typically provided that he work a rotation of 2-3 weeks on with 10-11 days off each month: exhibit 3 at [34]. During his working periods, he was often in the air or in an overseas port.
6. The evidence in relation to the applicant’s living arrangements was difficult to follow. His statement is short on detail in this regard. In his oral evidence, he said he lived in a rented one bedroom flat in Taipei when he worked for China Airlines. He said he did not take any personal effects apart from a few books and other small items when he moved to South Korea in June 2008. His statement (exhibit 3) spoke of him residing in a three bedroom apartment near the airport in Incheon. He said he shared the apartment with two colleagues: exhibit 3 at [42]. In cross-examination, a more detailed picture emerged. It turns out the applicant stayed in a hotel during periods when he was in Seoul when he first began to work for Korean Air. He entered into an arrangement with an American pilot he knew in January 2009. A copy of the sub-lease is translated and reproduced in exhibit 1.2 (at pp 135ff). The term of the agreement was from 1 January 2009 until 31 December 2011. The wording of the agreement is interesting. It says:

Tenant represents and warrants to Landlord, and Landlord acknowledges and agrees, that is their intention that Tenant’s occupancy will be on an “as needed” basis. Landlord agrees to provide Tenant accommodation during those times Tenant is located at Incheon International Airport as required by Tenant’s B747 Captain Employment at Korean Air.

7. That wording does not suggest the applicant had strong ties with Seoul. In any event, the applicant did not stay in the apartment for the full term of the sub-lease. He said in cross-examination that he moved out in October 2010. He stayed in the Hyatt hotel whenever he was in Seoul over the next two months. He moved into a three bedroom apartment with two colleagues in December 2010. The lease documentation is reproduced in exhibit one at pp 91ff. The apartment was partially furnished and the applicant had his own room. He acquired a few personal effects; he apparently pooled resources with his housemates to buy appliances like a television.
8. I was provided with evidence about the applicant’s social life while he was present in Seoul. He said in his statement (exhibit 3 at [41]) that he routinely took his meals in restaurants. He said that was not unusual in Asian cultures. I was provided with information about local bars during his evidence-in-chief (including an establishment known as the “Jet Lagged Lizard”) where he conducted his social life between flights out of Seoul: exhibits 4 – 4.5.
9. As it happens, the applicant spent little time on the ground in Seoul. He was often travelling for work, of course: see his journey log at exhibit 1.2 at pp 141ff. He conceded during cross-examination that he never spent more than a week in Seoul at a stretch. He said he typically spent no more than a night or two in his accommodation between flights.
10. When the applicant had time off, he tended to return to Australia. The Commissioner annexed schedules to his Statement of Facts Issues and Contentions which showed how much time the applicant was present in this country. He spent 136 days in Australia in the year ended 30 June 2010, 158 days here in the year ended 30 June 2011 and 156 days here in the year ended 30 June 2012. The applicant’s wife said he did not always spend the time in Australia with her and their sons.
11. On around ten occasions during the years of income in question, he spent time in Sydney with his brother: exhibit 3 at [65]. But the applicant’s statement confirms (exhibit 3 at [64], and the tables at schedule E to the statement) he spent most of the time when he was in Australia with his wife and family. They also holidayed as a family overseas. In her statement, after explaining (at [9]) she was left to manage the home and children “basically on my own”, the applicant’s wife said:

I can tell you this: he is away for 20 days a month and enjoys his “Break” for 10 days. I say “Break” because I am the one still holding the fort even when he is in Australia. I expect [the applicant] to come to Australia and spend time with his children, to be a father figure. This causes a bit of tension, because [the applicant] just wants to rest and can’t always come to Australia.

12. The applicant’s statement confirms he attempted to maintain a balanced life when in Australia. The extent of that balance occasionally led to tension with his wife. He explained (at [65]) he would visit friends and sporting events in an attempt to maintain relationships. He suggested he and his wife had a number of separate friendships.
13. I should say something more at this juncture about the applicant’s long-suffering wife. She made it clear in her statement that she was unhappy with the couple’s living arrangements. She spoke about the history of her marriage in her statement. She explained she was pregnant when her husband took up work overseas in 2002. She also had two small boys at the time. She said it was decided the couple would sell their Melbourne residence and she would move to Brisbane in 2003. (The applicant explained in his oral evidence that the couple had lived in Brisbane between 1991 and 1994. Her family still lived there.) She said she wanted to be close to her own family who could assist her in raising the children. The applicant also pointed out in his statement (exhibit 3 at [21]) that Brisbane was attractive because China Airlines, his new employer, had just started flying to Brisbane. That meant “it was also easier for me to visit when time allowed.”
14. The house in Brisbane was purchased in the name of the applicant’s wife. She made it clear in her statement that she ran the household and managed their boys during the years of income in question. She also worked four days a week as a teachers’ aide. She paid the bills, saw to the maintenance of the property and looked after the children whom she insisted would be schooled in Australia. She lamented the impact of this lifestyle on her marriage. She referred to the “struggle” and said she was “at my wits end”: exhibit 2 at [15]-[16]. Her statement gives the clear impression she resents her husband’s failure to contribute equally to their family and home.
15. The applicant says he does not own any other assets in this country. He says he is not on the electoral role. He did not own a car here in his own name although he continues to hold an Australian drivers licence. (He did not have a car in Seoul: he lived near the airport and was able to take advantage of excellent public transport. He said it was convenient to maintain an Australian driver’s licence because it was easier to hire a car in the United States using an Australian licence when he visited. He also agreed he did not have any other assets in Seoul.) He has an old superannuation account in Australia in his own name from his days at Ansett but he said he was not making any contributions. His wife is a beneficiary. He insisted in his statement that he is not a resident of this country.
16. The applicant is paid in US currency. His pay goes into an HSBC account in Jersey. It is then transferred to an Australian account held in his name. He explained in cross-examination that he would transfer funds from his own account to a joint account with his wife. Those monies would be used to meet mortgage repayments and meet other household expenses for the family in Australia. Substantial amounts were transferred to Australia: AUSTRAC reports (reproduced in exhibit one at pp 153-155) confirm the applicant sent $148,086 to Australia in the 2010 year of income, $52,729 in the 2011 year of income, and $136,638 in the year ended 30 June 2012.
17. The applicant and his wife remained married. There is no suggestion that they separated. Indeed, they explained in evidence that the applicant has recently accepted a new job in the Middle East. The applicant’s wife and their youngest child have moved to be with the applicant in his new residence in that location.

The meaning of the expression Australian resident

18. Section 6-5(2) of the Income Tax Assessment Act 1997 (Cth) (ITAA97) says:

If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

19. Section 6-10(4) adds that an Australian resident’s statutory income from all sources – whether those sources are inside or outside Australia – must also be included in that individual’s assessable income. It follows it is important to define the expression Australian resident.
20. The expression was defined in s 6(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA36).^[1] The definition embodies four tests for determining whether a person is a resident of Australia. Two are potentially relevant in this case. They are:
    • Whether the person was a resident of Australia according to ordinary concepts; or
    • The domicile test.
21. The applicant will be treated as an Australian resident for tax purposes if he satisfies either of these tests.

What is meant by “a resident of Australia according to ordinary concepts”?

22. The statutory definition refers to a person “who resides in Australia”. But what does “resides” mean?
23. After reviewing the authorities, the Tribunal summarised the law in Dempsey and Commissioner of Taxation [2014] AATA 335 at [93]:

[The word] ’resides’ bears its ordinary English meaning, which is “to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place”.

24. The applicant’s representative insisted there was danger in using checklists of indicia that suggested a continuing association between the taxpayer and a place. The Tribunal in Dempsey acknowledged that checklists were no substitute for the words of the statute: at [101]. But I did not understand the Commissioner to suggest there was a simple checklist that could be applied mechanically. The Commissioner’s submissions properly focused on illustrating how the facts of this case suggested the applicant resided in Australia in the ordinary sense of that term.
25. I acknowledge the applicant had a long term contract of employment with Korean Air which necessitated him working from Seoul. That arrangement is, on its face, strong evidence that he resided or lived there. But when I consider all of the circumstances, I am not persuaded the applicant resided there – or that he did not reside in Australia.
26. The applicant’s wife and children continued to live in this country throughout the period in question. He supported them financially and regularly returned to Australia to spend time with them in the family home. He was not a guest or interloper; his wife’s statement makes it clear he was coming home where he was expected to undertake parental responsibilities – even if she was not always satisfied with his performance in that role.
27. I do not attach much significance to some of the carefully crafted language used by the applicant and his wife in their statements. For example, I note the applicant refers to the family home as his wife’s residence, and that it was owned in her name. But he funded the mortgage and clearly regarded it as the home of the family of which he remained part. He spent more time in Australia with that family than he did with colleagues in Seoul. Indeed, his evidence suggests he did not spend any time in Seoul unless he had to – only if he was completing a course, for example, or was between flights. He maintained friendships and had a social life in this country, whereas his social life in Seoul was limited: he mixed with colleagues and led an essentially transient existence. Indeed, he actually stayed in hotels for some of the time he was in Seoul. The transient nature of his accommodation was clear from the language of the sub-lease over the first apartment that I quoted above.
28. The applicant was really a “fly-in fly-out” worker. He lived that life out of necessity: he could not access the same career opportunities in Australia. But while he worked from Seoul, he did not spend much time there. For long stretches he occupied essentially temporary accommodation near his workplace. Indeed, he did not maintain any sort of base during some periods as he stayed in hotels. Whenever he could, he returned to his life in Australia and the embrace of his family. The applicant was returning home to an ongoing familial relationship.
29. That bond can be contrasted with the more tenuous connection between the taxpayer and members of his family in Agius and Commissioner of Taxation [2014] AATA 854. In that case, which the applicant discussed at [5.55] of submissions lodged on his behalf, the Tribunal accepted Mr Agius was a mere visitor when he came to Australia from Vanuatu to see his family. Mr Agius was a citizen of Vanuatu and had lived there for many years. He was estranged from his wife and did not stay in the family home when he was in Sydney. The Commissioner said he resided in both countries; the Tribunal disagreed. The facts in this case are different. The applicant in these proceedings maintains a regular and healthy relationship with his family – indeed, he remains part of that family.
30. I am satisfied the applicant was a resident of Australia according to ordinary concepts during the years of income in question. He lived here with his family; this was his usual place of abode, even if he had to fly back and forth from South Korea to work.

The domicile test

31. Given my findings, it is strictly speaking unnecessary for me to consider how the applicant would fare under the second test of residency contemplated in s 6(1) of ITAA36 – namely, the ‘domicile’ test. I will discuss the application of the test briefly anyway. It yields the same outcome.
32. The applicant was domiciled in Australia during the years in question: there is no doubt about that. In those circumstances, he would be regarded as an Australian resident unless the Commissioner (or the Tribunal on review) is satisfied the applicant has a permanent place of abode outside Australia.
33. I accept the applicant does not need to establish he intended remaining in South Korea for the rest of his life. Provided his presence there is more than merely transient, that may be enough. The applicant’s long term contract of appointment that required him to work out of Seoul would be enough to connote permanency in the sense intended by the Act.
34. For reasons I have already given, it should be apparent I do not regard the applicant as having a long term place of abode in Seoul. He did not live there. He lived with his family in this country. He had essentially temporary accommodation for some of the time in Seoul. For long stretches, as I explained, he lived in hotels when he spent nights in the city. He had few financial or social connections there; he did not own any property to speak of or maintain long term relationships. The family residence in Australia had the qualities of a fixed place of abode. The arrangements in Seoul had the characteristics of temporary accommodation that was suited to an essentially itinerant worker.

Conclusion

35. The applicant was an Australian resident in the years of income in question. The objection decisions under review should therefore be affirmed.

I certify that the preceding 35 (thirty-five) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

.........................[Sgd].................................
Associate

Dated 22 December 2015

Date of hearing	26 October 2015
Counsel for the Applicant Solicitors for the Applicant	Mr H Lakis Think Legal
Counsel for the Respondent Solicitors for the Respondent	Mr D Butler Review and Dispute Resolution, Australian Tax Office

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^[1] Section 995-1 of ITAA97 adopts the definition in s 6(1) of ITAA36.