Tribunal affirms ATO’s view in tax residency case

An engineer who was on work assignment for five years in Dubai has lost an appeal against an ATO decision concerning tax residency, with the Administrative Review Tribunal (ART) affirming that he was a resident of Australia for the purposes of the definition in subsection 6(1) of the Income Tax Assessment Act 1936.

The Administrative Appeals Tribunal (AAT) previously handed down a decision on the same matter in February last year, ruling in favour of the Commissioner. However, the Federal Court ordered the decision be quashed and remitted the matter back to the tribunal.

In the previous decision, the AAT found that mechanical engineer Trong Quy was a resident for tax purposes and affirmed that tax assessments from the Tax Office were “not excessive or otherwise incorrect”.

Quy had come to Australia in the 1970s from Vietnam and became a citizen in 1978. He worked for Sydney company CBI Construction since 1986 and was deployed to Dubai in 2015.

Despite spending the majority of each tax year in Dubai, Quy had a family home in Beldon, Western Australia, where his wife and daughters primarily resided.

The tax dispute arose over $524,943.29 in pay-as-you-go (PAYG) CBI withheld for the tax years 2016 to 2020, treating him as an Australian resident.

While Quy did not have any tax debts, he argued the PAYG sum should be refunded as he was not an Australian resident, did not have an Australian domicile and had a permanent place of abode outside Australia.

A person is considered a tax resident if they pass one of four tests: the ordinary concepts test, the domicile test, the 183-day test or the Commonwealth superannuation fund test under section 6(1)(a) of the Income Tax Assessment Act 1936.

The AAT, applying the ordinary concepts test, said whether Quy was a resident depended on whether he intended to remain in Dubai "permanently or indefinitely".

Quy, on appeal to the Federal Court, argued that such intention was more appropriate for the domicile test and that the correct approach should have focused on whether he treated Dubai as his home "for the time being."

Quy also argued that the AAT then misapplied the domicile test, considering whether he had proved his intention to remain in Dubai when it was “not necessary for a taxpayer to prove” to establish their permanent place of abode.

The AAT also considered whether he had definitely abandoned Australia when the relevant question was whether he had definitely abandoned residence in Australia, he said.

The Federal Court sided with the Dubai worker, with the Court stating that the AAT conflated tax concepts relating to determining domicile with residency according to the ordinary concepts test.

“The tribunal’s reasons are infected by errors of law,” Justice John Logan said.

“The tribunal has erroneously incorporated a reference to intention for the purpose of determining a person's domicile … the error was not a passing one.”

Despite the Federal Court's findings, the ART affirmed the Commissioner's decision that the applicant was a resident of Australia.

While the tribunal found that the applicant was not a resident of Australia under the ordinary concepts test, it was not satisfied that his permanent place of abode was outside Australia in any of the relevant years.

The applicant said that he had abandoned his residence in Australia and had a permanent place of abode in Dubai during the relevant years.

He also pointed to the fact that he took up a full-time job in Dubai, that he moved his personal belongings associated with his pattern of living to Dubai and that he severed his social ties in Australia.

Although the Dubai apartment was leased on an annual basis, he lived there for five years, and he chose that apartment intending to live there other than on a temporary basis.

He also noted the fact that the applicant and his wife had furnished the Dubai apartment themselves, partly with their own funds and in a manner which did not suggest a mere temporary presence.

The Commissioner contended that while the applicant might have been physically present in Dubai, he did not act in a manner consistent with an individual intending to quit Australia and set up a permanent place of abode elsewhere.

The ATO said Quy had no intention to make Dubai his permanent place of abode. The reason for the applicant's presence in Dubai was solely for the purposes of an international work assignment with his Australian employer, it said.

It also noted that the ability to remain in Dubai was entirely dependent on a temporary residence permit linked to sponsorship by his host company.

The lease on the Dubai apartment was also in the name of his employer, which also paid for utilities for the property. The respondent viewed the nature of the furnishings in the Dubai apartment as being 'transient' and not indicative of an intention to set up a new home.

The tribunal said the question of whether a person has a permanent place of abode outside Australia goes beyond whether they can demonstrate that they were living, working and socialising in another place, even for an extended period.

"They must demonstrate that they have abandoned their residence in Australia, and established a place where they are residing permanently," it said.

"Having regard to all of the facts, the Tribunal cannot be satisfied that the Applicant had a ‘permanent place of abode’ outside Australia in any of the relevant years."