In a rather generous decision, the Administrative Appeals Tribunal (AAT) has recently held that a taxpayer was a non-resident of Australia for income tax purposes and not subject to income tax on foreign income derived from 1999 to 2002 income years.

Background

The taxpayer is an electronic engineer who left Australia in 1997 in pursuit of overseas contracting opportunities.  He obtained work in Czech Republic, Turkey, South Africa, USA, Germany, Thailand and China (all on a short-term basis) before returning to Australia on a permanent basis on 30 January 2002.

During this time the taxpayer established a domestic relationship with a Philippine national and established a base in Manila.  He considered himself a non-resident for Australian income tax purposes and as such did not include any foreign income derived overseas in his Australian income tax returns for the income years in question

The Commissioner of Taxation (the Commissioner), on the other hand, sought to assess the taxpayer as a resident for Australian income tax purposes and issued amended assessments including the foreign income for the income years in question.

The AAT ruled that the taxpayer was not a resident under the Australian income tax legislation primarily on the basis that:

• He sold his principal place of residence in 1999;
• The taxpayer did not maintain any business ties with Australia; and
• His domicile/permanent place of abode was considered by AAT to be in the Philippines for the relevant years resulting from his domestic relationship.

Comments

It was a rather surprising result considering the taxpayer had retained strong personal ties with Australia.

The taxpayer also did not seek to argue that in the event that he is considered a resident of Australia for income tax purposes, the foreign employment income exemption under former section 23AG of the Income Tax Assessment Act 1936 would apply, presumably because he was engaged in the capacity as a contractor, rather than as an employee.

However, the case highlights the importance of establishing a permanent place of abode outside of Australia for employees seeking to become foreign residents of Australia for income tax purposes.

Questions
Please contact Michael van Schaik, Associate Director, Employment & Remuneration Services.

Authors: Michael van Schaik and Peejade Cheng



Contact

Michael van Schaik
T  +61 3 8635 1800
mvanschaik@moorestephens.com.au

www.moorestephens.com.au