ADMINISTRATIVE APPEALS TRIBUNAL - Australia and Indonesia | permanent residency | Relevant Cases in the field of international taxation

ADMINISTRATIVE APPEALS TRIBUNAL - Australia and Indonesia | permanent residency | Relevant Cases in the field of international taxation

ADMINISTRATIVE APPEALS TRIBUNAL - AUSTRALIA

Sugianto Gunawan

v.

Commissioner of Taxation*

M.D. ALLEN, SENIOR MEMBER

FILE NOS. 2010/4217 - 4219, 4223 - 4225 & 2011/2792-2795

FEBRUARY 28, 2012

I. †Australia and Indonesia - Australian Income Tax Assessment Act, 1936 - Australian Resident - Tax years ended 30 June 2002, 2003, 2005 and 2006 - Applicant S arrived in Australia in 1995 on a Business Skills visa - Said visa gave him status of permanent residency in Australia and thereafter his family resided there - He purchased property in Australia for purpose of housing his wife and children and also held investment properties from which rent was received - He worked for A as a sales agent on commission selling Australian residential property to overseas investors mainly in Indonesia - He claimed that as he had spent more than 183 days in each of relevant tax years outside Australia he was not resident of Australia in those years - He sought review of objection decisions made by Commissioner together with penalties imposed - Whether when applicant stated that property purchased in Australia was family home where applicant and his wife and children lived and that his children had grown up and been educated in Australia, he had his settled place of abode in Australia and therefore had been resident in Australia - Held, yes  [In favour of revenue]

II. Section 284-75 of Schedule 1 to the Australian Taxation Administration Act, 1953 - Penalty - Whether applicant failed to file tax returns in circumstances where it should have been readily foreseeable that he would be regarded as a resident or domiciled in Australia - Held, yes - Whether even when returns were lodged applicant did not disclose all sources of income - Held, yes - Whether since applicant had attempted to disguise true state of his affairs and income derived as a result, penalties imposed were to be affirmed - Held, yes [In favour of revenue]

FACTS

---

The applicant S, arrived in Australia in 1995 on a Business Skills visa which gave him status of permanent residency and since then his family resided there. He purchased property in Australia for the purpose of housing his wife and children and also held investment properties from which rent was received. He worked for A (Austindo Pty. Ltd.) as a sales agent on commission for M (Meriton Apartments) selling Australian residential property to overseas investors mainly in Indonesia. He claimed that as he had spent more than 183 days in each of the relevant tax years ended 30 June 2002, 2003, 2005 and 2006 outside Australia he was not a resident of Australia in those years.

In the instant proceedings the Applicant sought review of objection decisions made by the Commissioner in respect of the relevant tax years together with penalties imposed with respect to those years. The Applicant submitted that the questions before the Tribunal for consideration were :

(a)  whether the Applicant was a resident of Australia in the relevant years;

(b)  whether the withdrawals made by the Applicant from the 'A' bank account were properly characterised as income according to ordinary concepts;

(c)  whether, if not income according to ordinary concepts, those withdrawals constituted dividends; and

(d)  whether all or part of the penalty imposed should be remitted.

HELD

---

Residence

"Resident" or "resident of Australia" is defined in s 6 of the Income Tax Assessment Act, 1936 (ITAA). [Para 4]

As understood from the Applicant's submissions, he claimed that as he had spent more than 183 days in each of the relevant tax years outside Australia he was not a resident of Australia in those years. [Para 5]

This submission was misconceived in that it failed to take into account neither the provisions of s 6(a)(i) of the ITAA nor the fact of residence in Australia. [Para 6]

The Applicant arrived in Australia in 1995 on a Business Skills visa. Significantly, s 134 of the Migration Act, 1958 required the holder of such a visa to:

(a)  Obtain a substantial ownership in an eligible business in Australia;

(b)  Utilise his or her skills in actively participating at a senior level in the day to day management of that business.

The Applicant's visa status gave the Applicant permanent residency in Australia, and his current immigration status was still that of a permanent resident. [Para 8]

Since coming to Australia in 1995 the Applicant's family, including his wife, had resided in Australia, and his children had been educated in Australia. He had purchased property in Australia, not only for the purposes of housing his wife and children, but had also held investment properties from which he received rent. [Para 9]

On 10 January 1996 P and M authorised and appointed PT, an Indonesian company of which the Applicant was Managing Director, to act on their behalf in the sale of residential units developed by M. [Para 10]

On 29 October 1996 A (Austindo Pty. Ltd.) was incorporated in New South Wales. The directors were the Applicant and his daughter, although additional directors were appointed later. Each of the Applicant and Ms G held a single ordinary share in A. The registered office for A was at a unit in Bondi Junction, which had been purchased from M by the Applicant. [Para 11]

The Applicant worked for A as a sales agent on commission for M selling Australian residential property to overseas investors mainly in Indonesia. [Para 12]

On 16 July 1997 the Applicant signed, on behalf of PT, a joint agency agreement with PP. This agreement provided for PT to be the exclusive agent for PP for the purpose of marketing property in Jakarta, Indonesia. The agreement provided for the payment by PP to PT a commission of 1.5 per cent of the purchase price for a completed sale of each M apartment that PT referred. The agreement further provided that PP would meet half the costs of certain marketing activities, such as exhibition costs and production of relevant receipts for those costs. [Para 13]

On or around 18 February 2003 the Applicant and his wife purchased a property in Kensington, New South Wales. In an interview held by the Australian Taxation Office on 17 September 2009 the Applicant stated that this property was the family home where the Applicant and his wife and children lived and that his children had grown up and been educated in Australia. Each time the Applicant had re-entered Australia from Indonesia he had re-entered on the basis of his permanent residency in this country. [Para 14]

This Tribunal was therefore satisfied that at all relevant times, notwithstanding his absences in Indonesia where he was engaged in selling, on commission, properties constructed by M, the Applicant had had his home, that is to say his settled place of abode, in Australia and therefore had been resident in Australia. [Para 15]

Withdrawals from the Bank Accounts of A

During the income years relevant to this application the Applicant was engaged in selling M Apartments in Indonesia. He withdrew sums from the bank account of A set out as below:

2002 $53,990.00	2003 $98,600.00
2005 $27,316.00	2006 $13,900.00

In these proceedings the Applicant claimed that the said amounts were reimbursement for expenses. The said expenses were incurred in arranging venues for and then conducting promotions with the aim of selling M apartments to Indonesian investors. [Para 17]

Although not formally tendered as evidence, the Applicant lodged with the Tribunal a number of documents which appeared to be accounts for expenses incurred in Indonesia by and on behalf of A. No explanation was given regarding these documents or as to their provenance. [Para 20]

In any event, this Tribunal had a more fundamental difficulty with the Applicant's case. In the course of cross-examination he conceded that he had made false statements to the National Australia Bank as to his income in order to obtain funds to purchase real estate. [Para 21]

Given this admission, it was found that this Tribunal could give no credence to any evidence given by the Applicant unless it was corroborated. [Para 22]

Although the Applicant claimed that the withdrawals from the funds of A were to reimburse expenditure incurred, the accounts of A showed the sums as being "commission". [Para 23]

On cross-examination the Applicant initially stated that the accounts of the company were prepared by his daughter. Later he retracted that statement and said that the accounts were prepared by a firm of accountants acting on information provided by the directors of the company. [Para 24]

This Tribunal could see no reason why a firm of accountants responsible for preparing the accounts for a company, for both taxation and Australian Securities and Investments Commission purposes, should class a reimbursement of expenses incurred in carrying out the company's business as "commission". [Para 25]

No witness was called by the Applicant from the firm of accountants to state how the accounts had been prepared and why, according to the Applicant, the term "commission" referred to expenditure incurred. [Para 26]

This Tribunal was not satisfied that the Applicant had proved that the assessments of income challenged by him were in any way incorrect. [Para 27]

Penalties

So far as penalties were concerned, this Tribunal found that the suggestion that the Applicant was not liable to pay income tax because of the time spent out of Australia to be misconceived. [Para 28]

The decision under review found that the Applicant or his agent acted recklessly. [Para 31]

Recklessness involves behaviour that shows disregard or indifference to a risk that is foreseeable by a reasonable person. [Para 32]

The Applicant failed to file tax returns in circumstances where it should have been readily foreseeable that he would be regarded as a resident or domiciled in Australia. [Para 33]

Material obtained by the Respondent by summons showed that the Applicant had incurred considerable interest expenses on properties purchased. For example, in 2003 $45,171.35, 2005 $100,435.33 and in 2006 $108,123.95. Although servicing these interest payments, no substantial source of income had been disclosed. Even when the returns were lodged the Applicant did not disclose all sources of income. [Para 34]

As this Tribunal was satisfied that the Applicant had attempted to disguise the true state of his affairs and the income derived as a result, the Tribunal was satisfied that the penalties imposed should be affirmed. [Para 35]

For the reasons outlined above the decisions under review were to be affirmed. [Para 36]

CASES REFERRED TO

---

Federal Commissioner of Taxation v. Dalco [1990] 168 CLR 164 (para 3), Hafza v. Director General of Social Security [1985] 6 FCR 444 (para 7), Hart v. Federal Commissioner of Taxation [2003] 131 FCR 2003 (para 32), BRK (Bris) Pty. Ltd. v. Federal Commissioner of Taxation [2001] 46 ATR 347 (para 32).

D. Gunawanfor the Applicant.J. Mitchell (Solicitor - Ms. R. Sayed)for the Respondent.

REASONS FOR DECISION

---

1. In these proceedings the Applicant sought review of objection decisions made by the Respondent in respect of the tax years ended 30 June 2002, 2003, 2005 and 2006, together with penalties imposed with respect to those years.

2. The Tax Agent who appeared for the Applicant submitted that the questions before the Tribunal had been correctly summarised at paragraph 3.2 of the Respondent's written submissions namely:

(a) whether the Applicant was a resident of Australia in the relevant years;

(b) whether the withdrawals made by the Applicant from the Austindo bank account are properly characterised as income according to ordinary concepts;

(c) whether, if not income according to ordinary concepts, those withdrawals constitute dividends; and

(d) whether all or part of the penalty imposed should be remitted.

3. Pursuant to s 14ZZK of the Tax Administration Act 1953 the Applicant bears the onus of proving that any assessment of tax is excessive. In order to discharge the onus of proof, a taxpayer must prove not only that the assessment is excessive, but also prove what the true amount should be. See Federal Commissioner of Taxation v. Dalco (1990) 168 CLR 164.

Residence

4. "Resident" or "resident of Australia" is defined in s 6 of the Income Tax Assessment Act 1936 (ITAA) in the following terms:

resident or resident of Australia means:

(a) a person, other than a company, who resides in Australia 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;

(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; 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); and

(b) a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.

5. As I understand the Applicant's submissions, he claimed that as he had spent more than 183 days in each of the relevant tax years outside Australia he was not a resident of Australia in those years.

6. This submission is misconceived in that it fails to take into account neither the provisions of s 6(a)(i) of the ITAA nor the fact of residence in Australia.

7. The concept of residence was summed up by Wilcox J in Hafza v. Director-General of Social Security (1985) 6 FCR 444 at 449:

There is a plethora of decisions, arising in various contexts but predominantly matrimonial causes and revenue cases, relating to the legal concept of residence. As a general concept residence includes two elements: physical presence in a particular place and the intention to treat that place as home; at least for the time being, not necessarily forever. The concept was explained in a taxation case, Koitaki Para Rubber Estates Ltd v. Commissioner of Taxation (Cth) (1941) 64 CLR 241 at 249, by Williams J:

"The place of residence of an individual is determined, not by the situation of some business or property which he is carrying on or owns, but by reference to where he eats and sleeps and has his settled or usual abode. If he maintains a home or homes he resides in the locality or localities where it or they are situate, but he may also reside where he habitually lives even if this is in hotels or on a yacht or some other abode."

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v. Lysaght [1928] AC 234 at 248 and Keil v. Keil [1947] VR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v. Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v. Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains "home": see Norman v. Norman (No 3) (1969) 16 FLR 231 at 236. It is important to observe firstly, that a person may simultaneously be a resident in more than one place - see the facts of Lysaght (supra) and the reference by Williams J to "a home or homes" - and, secondly, that the application of the general concept of residence to any particular case must depend upon the wording, and underlying purposes, of the particular statute in relation to which the question arises. But, where the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as "home", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

8. The Applicant arrived in Australia in 1995 on a Business Skills visa. Significantly, s 134 of the Migration Act 1958 requires the holder of such a visa to:

(a) Obtain a substantial ownership in an eligible business in Australia;

(b) Utilise his or her skills in actively participating at a senior level in the day to day management of that business.

The Applicant's visa status gave the Applicant permanent residency in Australia, and his current immigration status is still that of a permanent resident.

9. Since coming to Australia in 1995 the Applicant's family, including his wife, have resided in Australia, and his children have been educated in Australia. He has purchased property in Australia, not only for the purposes of housing his wife and children, but has also held investment properties from which he received rent.

10. On 10 January 1996 Penta Property Group Pty Ltd and Meriton Apartments Pty Ltd authorised and appointed PT Austindo Penta Abadi, an Indonesian company of which the Applicant was Managing Director, to act on their behalf in the sale of residential units developed by Meriton Apartments.

11. On 29 October 1996 Austindo Pty Ltd ("Austindo") was incorporated in New South Wales. The directors were the Applicant and his daughter, although additional directors were appointed later. Each of the Applicant and Ms Gunawan held a single ordinary share in Austindo. The registered office for Austindo was at a unit in Bondi Junction, which had been purchased from Meriton by the Applicant.

12. The Applicant worked for Austindo as a sales agent on commission for Meriton Apartments selling Australian residential property to overseas investors mainly in Indonesia.

13. On 16 July 1997 the Applicant signed, on behalf of PT Austindo Penta Abadi, a joint agency agreement with Penta Properties International Pty Ltd. This agreement provided for PT Austindo Penta Abadi to be the exclusive agent for Penta Properties International Pty Ltd for the purpose of marketing property in Jakarta, Indonesia. The agreement provided for the payment by Penta Properties International Pty Ltd to PT Austindo Penta Abadi a commission of 1.5 per cent of the purchase price for a completed sale of each Meriton apartment that PT Austindo Penta Abadi referred. The agreement further provided that Penta Properties International Pty Ltd would meet half the costs of certain marketing activities, such as exhibition costs and production of relevant receipts for those costs.

14. On or around 18 February 2003 the Applicant and his wife purchased a property in Kensington, New South Wales. In an interview held by the Australian Taxation Office on 17 September 2009 the Applicant stated that this property was the family home where the Applicant and his wife and children lived and that his children have grown up and been educated in Australia. Each time the Applicant has re-entered Australia from Indonesia he has re-entered on the basis of his permanent residency in this country.

15. I am therefore satisfied that at all relevant times, notwithstanding his absences in Indonesia where he was engaged in selling, on commission, properties constructed by Meriton Apartments Pty Ltd, the Applicant has had his home, that is to say his settled place of abode, in Australia and therefore had been resident in Australia.

Withdrawals from the Bank Accounts of Austindo

16. As stated above Austindo was incorporated in New South Wales. The original directors were the Applicant and his daughter. Later, additional directors were appointed.

17. During the income years relevant to this application the Applicant was engaged in selling Meriton Apartments in Indonesia. He withdrew sums from the bank account of Austindo set out as below:

2002	$53,990.00	2003	$98,600.00
2005	$27,316.00	2006	$13,900.00

18. In these proceedings the Applicant claimed that the said amounts were reimbursement for expenses. The said expenses were incurred in arranging venues for and then conducting promotions with the aim of selling Meriton Apartments to Indonesian investors.

19. It appears from the evidence before me, that the presentations in Indonesia also suggested that by purchasing an apartment in Australia migration to Australia would be facilitated.

20. Although not formally tendered as evidence, the Applicant's Tax Agent lodged with the Tribunal a number of documents which appear to be accounts for expenses incurred in Indonesia by and on behalf of Austindo. No explanation was given regarding these documents or as to their provenance.

21. In any event, I have a more fundamental difficulty with the Applicant's case. In the course of cross-examination he conceded that he had made false statements to the National Australia Bank as to his income in order to obtain funds to purchase real estate.

22. Given this admission, I find that I can give no credence to any evidence given by the Applicant unless it is corroborated.

23. Although the Applicant claimed that the withdrawals from the funds of Austindo were to reimburse expenditure incurred, the accounts of Austindo show the sums as being "commission".

24. On cross-examination the Applicant initially stated that the accounts of the company were prepared by his daughter. Later he retracted that statement and said that the accounts were prepared by a firm of accountants acting on information provided by the directors of the company.

25. I can see no reason why a firm of accountants responsible for preparing the accounts for a company, for both taxation and Australian Securities and Investments Commission purposes, should class a reimbursement of expenses incurred in carrying out the company's business as "commission".

26. No witness was called by the Applicant from the firm of accountants to state how the accounts had been prepared and why, according to the Applicant, the term "commission" referred to expenditure incurred.

27. I am not satisfied that the Applicant has proved that the assessments of income challenged by him are in any way incorrect.

Penalties

28. So far as penalties are concerned, I find that the suggestion that the Applicant was not liable to pay income tax because of the time spent out of Australia to be misconceived.

29. Section 284-75 of Schedule 1 to the Taxation Administration Act 1953 relevantly imposes a penalty if:

(c) the taxpayer or taxpayer's tax agent makes a statement to the Commissioner;

(d) the statement is false and misleading; and

(e) the taxpayer has a shortfall amount as a result of the statement.

30. Section 284-90 of Schedule 1 to the TAA provides that the base penalty amount is:

(a) 50 per cent of the shortfall amount if the shortfall amount resulted from recklessness by the taxpayer or the taxpayer's agent; or

(b) 25 per cent of the shortfall amount if the shortfall amount resulted from a failure by the taxpayer or the taxpayer's agent to take reasonable care.

31. The decision under review found that the Applicant or his agent acted recklessly.

32. Recklessness involves behaviour that shows disregard or indifference to a risk that is foreseeable by a reasonable person. The Full Court of the Federal Court in Hart v. Federal Commissioner of Taxation (2003) 131 FCR 203 endorsed the following comments of Cooper J in BRK (Bris) Pty Ltd v. Federal Commissioner of Taxation (2001) 46 ATR 347 at 364, namely:

Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk, that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness.

33. The Applicant failed to file tax returns in circumstances where it should have been readily foreseeable that he would be regarded as a resident or domiciled in Australia.

34. Material obtained by the Respondent by summons shows that the Applicant has incurred considerable interest expenses on properties purchased. For example, in 2003 $45,171.35, 2005 $100,435.33 and in 2006 $108,123.95. Although servicing these interest payments, no substantial source of income has been disclosed. Even when the returns were lodged the Applicant did not disclose all sources of income.

35. As I am satisfied that the Applicant has attempted to disguise the true state of his affairs and the income derived as a result, I am satisfied that the penalties imposed should be affirmed.

36. For the reasons outlined above the decisions under review are affirmed.

I certify that the preceding 36 (thirty- six) paragraphs are a true copy of the reasons for the decision herein of M D Allen, Senior Member.

____________

*In favour of revenue.

†Resident - Australia - Article 4 of OECD Model tax Convention - Australian Income-tax Assessment Act, 1936 - Australian Tax Administration Act, 1953.