ADMINISTRATIVE APPEALS TRIBUNAL OF AUSTRALIA | Philippines | domiciled | Relevant Cases in the field of international taxation

ADMINISTRATIVE APPEALS TRIBUNAL OF AUSTRALIA | Philippines | domiciled | Relevant Cases in the field of international taxation

ADMINISTRATIVE APPEALS TRIBUNAL OF AUSTRALIA

Paul Baker

v.

Commissioner of Taxation*

S. WEBB, MEMBER

FILE NOS. 4680 & 4681 OF 2011

MARCH 16, 2012

†Australia - Section 6 of the Australian Income Tax Assessment Act 1936 (Cth) and section 6.5 of Australian Income Tax Assessment Act 1997 (Cth) - Resident in Australia - Tax Years 2009-10 and 2010-11 - Applicant PB was employed by Department of Defence - He departed Australia and moved to live and work in Philippines with Australian Embassy - He did not immediately resign from his Defence employment and was granted leave without pay - On his seeking private ruling about his residency status for Australian taxation purposes, Commissioner of Taxation ruled that he was resident of Australia while he remained member of superannuation scheme - PB objected to ruling but it was affirmed on reconsideration - PB made application for review - Whether even though PB was employed locally by Australian Embassy in Manila from June 2009, his status as ongoing or permanent employee of Department did not come to end until 18 May 2011 i.e. date on which he resigned from that employment - Held, yes - Whether PB's employment did not cease when he was granted leave without pay; his status as ongoing employee of Department continued under Public Service Act, albeit that he did not provide service and he did not receive remunerations - Held, yes - Whether non-accrual of entitlements to leave or contribute to his PSS Scheme account did not change his status as ongoing employee of Department of Defence until date of his resignation - Held, yes - Whether since PB was full time ongoing employee of Department of Defence at all relevant times, including while he was absent on approved leave without pay, he was 'regular member' of PSS Scheme - Held, yes - Whether so long as he continued to be permanent or ongoing employee of Department of Defence until his resignation on 18 May 2011 his membership of PSS Scheme was active, even though he was not obligated to make contributions during this period under Rule 4.1.1 - Held, yes - Whether PB left Australia having agreed upon arrangement with his employing Department that preserved his right to return to his employment in Australia after period of absence on leave without pay - Held, yes - Whether PB preserved his Commonwealth employment in Australia by taking leave of absence and, in so doing, extended his active membership of PSS Scheme and his Australian residency for taxation purposes - Held, yes - Whether, therefore objection decisions were to be affirmed - Held, yes [In favour of Revenue]

FACTS

---

The applicant PB (Paul Baker) was an ongoing employee of the Department of Defence. On or about 15 June 2009, he departed Australia to take up a contract of employment as a locally engaged contractor with the Australian Embassy in the Philippines. This employment contract was extended and continued through the period under consideration. On or about 21 June 2009, PB was granted leave without pay by the Department of Defence initially for one year. This was extended for a second year. Under the extended grant of leave, PB was due to return to his employment in Australia on 20 June 2011. From 21 June 2009 to his resignation on 18 May 2011 no further superannuation contributions were made to PB's Public Sector Superannuation Scheme (PSS Scheme) account. Since leaving Australia, PB resided in the Philippines and had not been domiciled in Australia.

PB asserted that he should not be treated as a resident of Australia for taxation purposes during the two years in issue, since the superannuation test in the 'resident of Australia' definition at section 6 of the Income Tax Assessment Act 1936(Cth) did not apply to a person in his circumstances. According to him the phrase 'member of the superannuation scheme' should be construed to mean a contributing member, rather than an inactive member like him who provided no service and received no payment, including in relation to superannuation, during the said period.

Initially PB sought a private ruling from the Commissioner of Taxation about his residency status for Australian taxation purposes. The Commissioner ruled that he was a resident of Australia while he remained a member of a superannuation scheme. PB objected to the ruling but it was affirmed on reconsideration and in the present case it became the subject of PB's application for review.

HELD

---

Under section 6.5 of the Income Tax Assessment Act 1997 (Cth) the assessable income of an Australian resident includes ordinary income from all sources in Australia and overseas during the income year. The term 'Australian resident' has the same meaning as 'resident of Australia' under section 6(1) of the 1936 Income Tax Act. [Para 9]

As can be seen, the definition applies to a person who resides in Australia. On the facts, after June 2009 PB did not reside in Australia and, applying the ordinary meaning of the word 'resides', he did not satisfy the Australian residence test. [Para 10]

It was necessary to determine whether he satisfied one of the three statutory tests that extended the meaning of 'resident' and 'resident of Australia' to include a person who did not reside in Australia according to ordinary concepts. These tests are the 'domicile or permanent place of abode test', the '183-day test' and the 'Commonwealth superannuation test'. [Para 11]

It was agreed that after June 2009 PB did not have a domicile or permanent place of abode in Australia, nor had he actually been in Australia, continuously or intermittently, for more than half of one of the ensuing income years. On these points, the only evidence before this Tribunal was that of PB. Nevertheless, as these matters were not controversial and his evidence was not under attack, this Tribunal would proceed on the basis that PB did not satisfy the 'domicile and permanent place of abode test' and the '183-day test'. [Para 12]

The 'Commonwealth superannuation test' requires consideration of Commonwealth superannuation schemes under the Superannuation Act 1990 (Cth) (the 1990 Superannuation Act) and the Superannuation Act 1976 (Cth) (the 1976 Superannuation Act). [Para 13]

The 1976 Superannuation Act deals with the Commonwealth Superannuation Scheme. By operation of section 15A of that Act PB was not within the meaning of 'eligible employee' - he became a permanent employee after 1 July 1990. Thus subsection 6(1)(a)(iii)(B) of this test did not apply to him. [Para 14]

The 1990 Superannuation Act deals with the PSS Scheme. Part 3 of this Act sets out provisions governing membership of the PSS Scheme. As can be seen, under section 6(1)(a) of the 1990 Superannuation Act, a 'permanent employee' is a member of the Scheme. The meaning of 'permanent employee' is set out in section 3. [Para 15]

There was no doubt that section 6(1)(a) applied to PB when he was employed by the Department of Defence as an ongoing employee under the Public Service Act 1999 (Cth) (the Public Service Act). It was for this reason that he became a member of the PSS Scheme. The fact that he subsequently left Australia did not render him outside the meaning of 'permanent employee' for the purposes of Part 3 of the 1990 Superannuation Act and it did not bring his membership of the PSS Scheme to an end. PB was not 'engaged or appointed for employment outside Australia only' during the period from 21 June 2009, when he was granted leave of absence without pay, until he resigned from his employment by the Department of Defence on 18 May 2011. Even though he was employed locally by the Australian Embassy in Manila from June 2009, his status as an ongoing or permanent employee of the Department did not come to an end until 18 May 2011. [Para 16]

PB cavilled with the proposition that he was an ongoing or permanent employee of the Commonwealth during the period in which he was granted leave without pay. He said that he provided no service or labour, he was not paid and he did not accrue any entitlements to leave or superannuation contributions during this period. [Para 17]

But it was very clear that PB's employment did not cease when he was granted leave without pay - his status as an ongoing employee of the Department continued under the Public Service Act, albeit that he did not provide service and he did not receive remunerations. Conditions attaching to the grant of leave, in the form of PB's ongoing obligations to his employer, in respect of "real or perceived conflicts of interest in relation to your employment with Defence" for example, were set out in the letter of approval. The fact that PB did not accrue entitlements to leave or contribute to his PSS Scheme account did not change his status as an ongoing employee of the Department of Defence until the date of his resignation. [Para 18]

Consideration of section 22(5) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the Superannuation Guarantee Act) did not advance the matter. This section excludes a period of leave without pay from a period of employment when calculating a reduction to the employer's charge percentage. The employer's charge percentage is a factor applied when calculating the employer's individual superannuation guarantee shortfall for a quarter under section 19 of this Act. It does not follow from these provisions that a person ceases to be a permanent or ongoing employee of the Commonwealth, or a member of the PSS Scheme, during an approved period of leave without pay. [Para 19]

The PSS Scheme Trust Deed sets out Rules, which specify the types of member of the PSS Scheme and provide for the cessation of membership. Rule 1.2.1 defines 'member' to mean a "regular member or a casual member". Under the Rule 2.1.2, members are classified by the nature of their Commonwealth employment. As PB was a full time ongoing employee of the Department of Defence at all relevant times, including while he was absent on approved leave without pay, he was a 'regular member' of the PSS Scheme. Rule 2.1.8 permits a person who is making contributions to elect to cease membership of the PSS Scheme. This provision applies to persons who are permitted to make contributions of 0 percent. The Rules note that a member who is on a period of leave without pay who cannot pay contributions under the Rules may be able to make such an election when the relevant period of leave has ended. [Para 20]

The PSS Scheme Trust Deed also governs the payment of contributions by a member during a period of leave without pay. Under Rule 4.1.1(c) a member is excepted from making contributions during a period of leave without pay if the period is not an 'excluded period of leave of absence' under Rule 4.2.1. The contrary holds, however - if the period is an excluded period of absence under Rule 4.2.1 the person will be required to make contributions, although these may be deferred. Rule 4.2.2 provides that the person on leave without pay may not pay contributions under paragraph (e) of Rule 4.2.1 unless the temporary employer makes payments as specified. [Para 21]

It appeared that PB's period of approved absence on leave without pay was not an excluded period of leave of absence. PB's employing Department informed him that he would not be "eligible to contribute to [his] superannuation" during the period of his absence on leave without pay. From this it might be inferred that the Agency Head was not satisfied that PB's employment by the Australian Embassy in Manila was in the interest of the Australian Public Service. If Rule 4.2.1(e)(i) is not made out, as appears likely, then under Rule 4.1.1 PB would be excepted from making contributions to the PSS Scheme for the duration of his absence from employment on approved leave without pay. As it happened, he and his employing Department made no contributions to the PSS Scheme during this period prior to his resignation on 18 May 2011. It did not follow, however, that PB ceased to be a member of the PSS Scheme during this period. Plainly enough, he did not. [Para 22]

On PB's reasoning, he was not an active member of the PSS Scheme from June 2009 as from that time he was not eligible or entitled to contribute to the Scheme. He relied on the Australian Taxation Office Interpretative Decision 2001/226 (the Interpretative Decision) in which, he said, the Commissioner applied the concept of active membership of a specified superannuation scheme, being a contributing member, when determining Australian residency. PB asserted that a consistent interpretation should be applied in his case. [Para 23]

The Interpretative Decision was not on all fours with PB's case - it turned on different facts and was decided by application of the first statutory test of residence, the domicile or permanent place of abode test. Nevertheless, the fact that the taxpayer in that case was a contributing member of the employer's superannuation fund was noted as a matter of relevance. [Para 24]

PB's contention that the superannuation test of residency should be confined to a contributing member of a Commonwealth superannuation scheme, specifically in his case the PSS Scheme, had some force. The Taxation Laws Amendment Act 1992 (Cth) (the Amendment Act) amended the meaning of 'resident of Australia' to include Commonwealth public servants covered by the (then new) PSS Scheme. The Explanatory Memorandum to this Act, on this point, expressed the intention of the legislature to apply to members of the PSS Scheme the previously existing arrangement "to include all Commonwealth public servants as residents" by "treating as a resident a person who contributes to the Commonwealth Superannuation Scheme". To this AAT, it was appropriate to construe the superannuation test of Australian residence in this way. [Para 25]

The concept of contributing to the PSS Scheme is not simply one of making a contribution payment on a contribution day, however. Under the PSS Scheme Rules, the word 'amount' is defined to include a nil amount and a member may be taken to be making contributions even if the member's actual contribution is 0 percent - see Rule 2.1.8, for example. Division 2 of Part 4 of the Rules clearly makes provision for a member to make contributions during a period of absence on leave without pay in certain circumstances, if, for example, the period is an 'excluded period of leave of absence'. [Para 26]

To this AAT, the fact that PB made no superannuation contributions during the period of approved leave without pay did not mean that he was not an active member of the PSS Scheme at that time. Even though he made no contributions, his employment as a full-time ongoing Commonwealth employee continued to qualify his membership of the PSS Scheme and his PSS Scheme benefits had not been preserved. Prior to commencing his leave without pay period, PB had not elected to cease his membership of the PSS Scheme under section 6B of the 1990 Superannuation Act and Rule 2.1.8 of the PSS Scheme Trust Deed. Under that Act and the PSS Scheme Rules, PB continued to be a member during the period of his approved leave without pay. So long as he continued to be a permanent or ongoing employee of the Department of Defence until his resignation on 18 May 2011 his membership of the PSS Scheme was active, even though he was not obligated to make contributions during this period under Rule 4.1.1. [Para 27]

In PB's submission, the superannuation test of residency was not intended to apply to a person in his circumstances; rather it was intended to apply to Commonwealth Government employees who were usually resident in Australia but who were living and working abroad during the particular income year. [Para 28]

This AAT noted that the Explanatory Memorandum to the Amendment Act gave brief expression to the policy underlying the superannuation test in respect of members of the PSS Scheme:

[M]embers of the CSS [Commonwealth Superannuation Scheme] were treated as residents of Australia even though they may have been posted overseas for a period of time that would otherwise cause them to be considered as non-residents of Australia. The same arrangements will apply to members of the PSS. [Para 29]

PB departed Australia and was granted leave of absence from his ongoing employment, without pay, in order to take up a contract of employment with the Australian Embassy in Manila. Under the terms of that contract, it appeared likely that PB was a locally engaged employee for the purposes of section 74 of the Public Service Act. Even though PB was not posted to Manila by his employer or under the terms of his ongoing Commonwealth employment, the grant of leave without pay was a finite and formal arrangement that preserved his ongoing Commonwealth employment and required him to return to that employment once the grant of leave expired. To this AAT, these arrangements bore important similarities to the concept of being posted overseas for a period. In both cases, ongoing Commonwealth employment in Australia was preserved. [Para 30]

PB said that he had no intention of returning to Australia to live. That might presently be so. But it did not negate the formal arrangement he entered into in June 2009 and again, by extension, in June 2010, to preserve his ongoing employment status with his employing Department in a manner that predicted his return to that employment on a particular day. [Para 31]

PB said that the Australian residence test relating to superannuation was discriminatory as it applied to employees who commenced work before or after a certain date - it did not apply to members of the Public Sector Superannuation Accumulation Plan (PSSAP) established under the Superannuation Act 2005 (the 2005 Superannuation Act). He asserted that the amendment of section 23AG of the 1936 Income Tax Act as of 1 July 2009 highlighted discriminatory elements of the test - these amendments were not intended to adversely affect people, such as himself, who genuinely resided in foreign countries and earned foreign income. Furthermore, PB said that if the construction for which the Commissioner contended was accepted, it would have the unintended and unfair consequence that his Filipina wife would be treated as an Australian resident and would be required to pay tax in Australia on her foreign earnings even though she had visited Australia only once for a brief period and she had no visa entitling her to work in Australia. [Para 32]

These submissions did not advance the matter. [Para 33]

PB's assertion that the definition of 'resident of Australia' in the 1936 Income Tax Act (and in consequence the 1997 Income Tax Act) did not refer to the PSSAP superannuation scheme was correct. The 2005 Superannuation Act set out membership parameters for the PSSAP that differed in important ways from those applying to the PSS Scheme under the 1990 Superannuation Act, particularly in reference to a 'public sector employee' and an 'excluded overseas employee'. If there was an anomaly in the residence tests under these Acts that had a discriminatory effect (and this was not proved), it did not persuade or compel this AAT to construe the superannuation test of residency differently for the purposes of the 1936 and 1997 Income Tax Acts. [Para 34]

The Tribunal must interpret and apply the legislation as it stood to the circumstances of each case. PB left Australia having agreed upon an arrangement with his employing Department that preserved his right to return to his employment in Australia after a period of absence on leave without pay. This arrangement clearly contemplated and proceeded on the basis of PB returning to Australia to resume his erstwhile employment on the nominated dates. These circumstances were to be distinguished from circumstances in which a person left Australia to live and work in a foreign country, with no intention of returning. If PB had departed Australia and his Departmental employment in circumstances of that kind, it was likely that his employment would have come to an end, he would have ceased to be a member of the PSS Scheme and his Australian residency status for taxation purposes would not have become an issue. But this was not what he did. Instead, he preserved his Commonwealth employment in Australia by taking leave of absence and, in so doing, extended his active membership of the PSS Scheme and his Australian residency for taxation purposes. [Para 35]

Finally, with regard to PB's submissions concerning the effects of Australian residence on his spouse, these matters had not been tested or established. They did not persuade or compel this AAT to interpret the superannuation test of Australian residency in the manner for which he contended. [Para 36]

The objection decisions were to be affirmed. [Para 37]

Daniel Nescifor the Respondent.

REASONS FOR DECISION

---

1. Paul Baker was employed by the Department of Defence. He moved to live and work in the Philippines. He did not immediately resign from his Defence employment and was granted leave without pay. He sought a private ruling from the Commissioner of Taxation about his residency status for Australian taxation purposes. The Commissioner ruled that he was a resident of Australia while he remained a member of a superannuation scheme. Mr Baker objected to the ruling. It was affirmed on reconsideration and is presently the subject of Mr Baker's application for review.

2. The issue to be addressed is whether Mr Baker is a resident of Australia for taxation purposes during the 2009-2010 and 2010-2011 tax years.

3. Before addressing the issue, it is necessary to set out the brief facts.

4. Mr Baker was an ongoing employee of the Department of Defence. He resigned from that employment on 18 May 2011¹.

5. On or about 15 June 2009, he departed Australia to take up a contract of employment as a locally engaged contractor with the Australian Embassy in the Philippines². This employment contract was extended and continued through the period under consideration; it is ongoing. The employment contract made the following provisions in respect to taxation -

10. Taxation

Australian resident locally engaged contractors who are not the spouse of Australian based officers will be liable for Australian taxation on income earned from this office unless they are granted a written exemption from the Australian Taxation Office (ATO). Australian taxation is not deducted from your payment by this office.

Contractors will be given a statement of earnings at the end of each Australian financial year for Australian taxation authorities.

Unless they produce written evidence from the ATO that they are not required to pay Australian tax on local earnings, this office is obliged to report your local earnings to the ATO at the end of the Australian financial year.³

The contract also provides that monthly payments in respect of services will be made in Philippine Pesos and that the monthly rate of payment -

includes the SGC [Superannuation Guarantee Contribution] and should you be determined to be an Australian resident for Australian Taxation purposes, the Embassy will remit this Superannuation Guarantee Contribution on your behalf.⁴

6. On or about 21 June 2009, Mr Baker was granted leave without pay by the Department of Defence initially for one year. This was extended for a second year. Under the extended grant of leave, Mr Baker was due to return to his employment in Australia on 20 June 2011. He was informed that "[w]hile on leave without pay, you will not accrue personal or annual leave credits, nor will you be eligible to contribute to your superannuation. This period will not count as service for long service leave purposes"⁵. It appears that from 21 June 2009 to his resignation on 18 May 2011 no further superannuation contributions were made to Mr Baker's Public Sector Superannuation Scheme (the PSS Scheme) account⁶.

7. Since leaving Australia in June 2009, Mr Baker has resided in the Philippines; he has not been domiciled in Australia; and he has not been in Australia, continuously or intermittently, for more than half a year. Mr Baker is married to a national of the Philippines and says he has no intention of returning to live in Australia.

8. Mr Baker asserts that he should not be treated as a resident of Australia for taxation purposes during the two years in issue. In his submission, the superannuation test in the 'resident of Australia' definition at section 6 of the Income Tax Assessment Act 1936(Cth) (the 1936 Income Tax Act) does not apply to a person in his circumstances. He says that the phrase 'member of the superannuation scheme' should be construed to mean a contributing member, rather than an inactive member. Mr Baker says that he was not a contributing or active member of the PSS Scheme after leaving Australia in June 2009. Furthermore, Mr Baker asserts that he was not a permanent employee during the period in which he was granted leave without pay. He says that he provided no service and he received no payment, including in relation to superannuation, during this period.

9. Under section 6.5 of the Income Tax Assessment Act 1997 (Cth) (the 1997 Income Tax Act) the assessable income of an Australian resident includes ordinary income from all sources in Australia and overseas during the income year. The term 'Australian resident' has the same meaning as 'resident of Australia' under section 6(1) of the 1936 Income Tax Act -

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 his 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 his usual place of abode is outside Australia and that he 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-paragraph (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.

10. As can be seen, the definition applies to a person who resides in Australia. On the facts, after June 2009 Mr Baker did not reside in Australia and, applying the ordinary meaning of the word 'resides', he does not satisfy the Australian residence test.

11. It is necessary to determine whether he satisfies one of the three statutory tests that extend the meaning of 'resident' and 'resident of Australia' to include a person who does not reside in Australia according to ordinary concepts. These tests are the 'domicile or permanent place of abode test', the '183-day test' and the 'Commonwealth superannuation test'.

12. It is agreed that after June 2009 Mr Baker did not have a domicile or permanent place of abode in Australia, nor has he actually been in Australia, continuously or intermittently, for more than half of one of the ensuing income years. On these points, the only evidence before me is that of Mr Baker. Nevertheless, as these matters are not controversial and his evidence is not under attack, I will proceed on the basis that Mr Baker does not satisfy the 'domicile and permanent place of abode test' and the '183-day test'.

13. The 'Commonwealth superannuation test' requires consideration of Commonwealth superannuation schemes under the Superannuation Act 1990(Cth) (the 1990 Superannuation Act) and the Superannuation Act 1976 (Cth) (the 1976 Superannuation Act).

14. The 1976 Superannuation Act deals with the Commonwealth Superannuation Scheme. By operation of section 15A of that Act Mr Baker is not within the meaning of 'eligible employee' - he became a permanent employee after 1 July 1990. Thus subsection 6(1)(a)(iii)(B) of this test does not apply to him.

15. The 1990 Superannuation Act deals with the PSS Scheme. Part 3 of this Act sets out provisions governing membership of the PSS Scheme. As can be seen, under section 6(1)(a) of the 1990 Superannuation Act, a 'permanent employee' is a member of the Scheme. The meaning of 'permanent employee' is set out in section 3 in the following terms -

permanent employee means a person employed in a permanent capacity by the Commonwealth or by an approved authority, but does not include a person who is engaged or appointed for employment outside Australia only, not being a person who is included in a class of persons approved by the Minister, in writing, for the purposes of this definition.

16. There is no doubt that section 6(1)(a) applied to Mr Baker when he was employed by the Department of Defence as an ongoing employee under the Public Service Act 1999 (Cth) (the Public Service Act). It was for this reason that he became a member of the PSS Scheme. The fact that he subsequently left Australia does not render him outside the meaning of 'permanent employee' for the purposes of Part 3 of the 1990 Superannuation Act and it did not bring his membership of the PSS Scheme to an end. Mr Baker was not 'engaged or appointed for employment outside Australia only' during the period from 21 June 2009, when he was granted leave of absence without pay, until he resigned from his employment by the Department of Defence on 18 May 2011. Even though he was employed locally by the Australian Embassy in Manila from June 2009, his status as an ongoing or permanent employee of the Department did not come to an end until 18 May 2011.

17. Mr Baker cavils with the proposition that he was an ongoing or permanent employee of the Commonwealth during the period in which he was granted leave without pay. He says that he provided no service or labour, he was not paid and he did not accrue any entitlements to leave or superannuation contributions during this period.

18. But it is very clear that Mr Baker's employment did not cease when he was granted leave without pay - his status as an ongoing employee of the Department continued under the Public Service Act, albeit that he did not provide service and he did not receive remunerations. Conditions attaching to the grant of leave, in the form of Mr Baker's ongoing obligations to his employer, in respect of "real or perceived conflicts of interest in relation to your employment with Defence"⁷ for example, are set out in the letter of approval. The fact that Mr Baker did not accrue entitlements to leave or contribute to his PSS Scheme account does not change his status as an ongoing employee of the Department of Defence until the date of his resignation.

19. Consideration of section 22(5) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the Superannuation Guarantee Act) does not advance the matter. This section excludes a period of leave without pay from a period of employment when calculating a reduction to the employer's charge percentage. The employer's charge percentage is a factor applied when calculating the employer's individual superannuation guarantee shortfall for a quarter under section 19 of this Act. It does not follow from these provisions that a person ceases to be a permanent or ongoing employee of the Commonwealth, or a member of the PSS Scheme, during an approved period of leave without pay.

20. The PSS Scheme Trust Deed sets out Rules, which specify the types of member of the PSS Scheme and provide for the cessation of membership. Rule 1.2.1 defines 'member' to mean a "regular member or a casual member". Under the Rule 2.1.2, members are classified by the nature of their Commonwealth employment. As Mr Baker was a full time ongoing employee of the Department of Defence at all relevant times, including while he was absent on approved leave without pay, he was a 'regular member' of the PSS Scheme. Rule 2.1.8 permits a person who is making contributions to elect to cease membership of the PSS Scheme. This provision applies to persons who are permitted to make contributions of 0 percent. The Rules note that a member who is on a period of leave without pay who cannot pay contributions under the Rules may be able to make such an election when the relevant period of leave has ended.

21. The PSS Scheme Trust Deed also governs the payment of contributions by a member during a period of leave without pay. Under Rule 4.1.1(c) a member is excepted from making contributions during a period of leave without pay if the period is not an 'excluded period of leave of absence' under Rule 4.2.1. The contrary holds, however - if the period is an excluded period of absence under Rule 4.2.1 the person will be required to make contributions, although these may be deferred. An 'excluded period of leave of absence' under Rule 4.2.1 includes -

(e) a period of leave of absence for the purpose of engaging in other employment (other than employment by an organisation specified in paragraph 4.2.1(f)) if the temporary employer complies with the requirements of Rule 4.2.2 and:

 (i)  if the person is employed in an APS Agency - the Agency Head (within the meaning of the Public Service Act 1999) of the Agency is satisfied that the engagement of the person in the other employment is in the interest of the Australian Public Service; or

 (ii)  in respect of any other person - the person's usual employer is satisfied that the engagement of the person in the other employment is in the usual employer's interest;

Rule 4.2.2 provides that the person on leave without pay may not pay contributions under paragraph (e) of Rule 4.2.1 unless the temporary employer makes payments as specified.

22. It appears that Mr Baker's period of approved absence on leave without pay was not an excluded period of leave of absence. Mr Baker's employing Department informed him that he would not be "eligible to contribute to [his] superannuation"⁸ during the period of his absence on leave without pay. From this it may be inferred that the Agency Head was not satisfied that Mr Baker's employment by the Australian Embassy in Manila was in the interest of the Australian Public Service. If Rule 4.2.1(e)(i) is not made out, as appears likely, then under Rule 4.1.1 Mr Baker would be excepted from making contributions to the PSS Scheme for the duration of his absence from employment on approved leave without pay. As it happened, he and his employing Department made no contributions to the PSS Scheme during this period prior to his resignation on 18 May 2011. It does not follow, however, that Mr Baker ceased to be a member of the PSS Scheme during this period. Plainly enough, he did not.

23. On Mr Baker's reasoning, he was not an active member of the PSS Scheme from June 2009 as from that time he was not eligible or entitled to contribute to the Scheme. He relies on the Australian Taxation Office Interpretative Decision 2001/226⁹ (the Interpretative Decision) in which, he says, the Commissioner applied the concept of active membership of a specified superannuation scheme, being a contributing member, when determining Australian residency. Mr Baker asserts that a consistent interpretation should be applied in his case.

24. The Interpretative Decision is not on all fours with Mr Baker's case - it turned on different facts and was decided by application of the first statutory test of residence, the domicile or permanent place of abode test. Nevertheless, the fact that the taxpayer in that case was a contributing member of the employer's superannuation fund was noted as a matter of relevance.

25. Mr Baker's contention that the superannuation test of residency should be confined to a contributing member of a Commonwealth superannuation scheme, specifically in his case the PSS Scheme, has some force. The Taxation Laws Amendment Act 1992 (Cth) (the Amendment Act) amended the meaning of 'resident of Australia' to include Commonwealth public servants covered by the (then new) PSS Scheme. The Explanatory Memorandum to this Act¹⁰ , on this point, expresses the intention of the legislature to apply to members of the PSS Scheme the previously existing arrangement "to include all Commonwealth public servants as residents" by "treating as a resident a person who contributes to the Commonwealth Superannuation Scheme".¹¹ To my mind, it is appropriate to construe the superannuation test of Australian residence in this way.

26. The concept of contributing to the PSS Scheme is not simply one of making a contribution payment on a contribution day, however. Under the PSS Scheme Rules, the word 'amount' is defined to include a nil amount and a member may be taken to be making contributions even if the member's actual contribution is 0 percent - see Rule 2.1.8, for example. Division 2 of Part 4 of the Rules clearly makes provision for a member to make contributions during a period of absence on leave without pay in certain circumstances, if, for example, the period is an 'excluded period of leave of absence'.

27. To my mind, the fact that Mr Baker made no superannuation contributions during the period of approved leave without pay does not mean that he was not an active member of the PSS Scheme at that time. Even though he made no contributions, his employment as a full-time ongoing Commonwealth employee continued to qualify his membership of the PSS Scheme and his PSS Scheme benefits had not been preserved. Prior to commencing his leave without pay period, Mr Baker had not elected to cease his membership of the PSS Scheme under section 6B of the 1990 Superannuation Act and Rule 2.1.8 of the PSS Scheme Trust Deed. Under that Act and the PSS Scheme Rules, Mr Baker continued to be a member during the period of his approved leave without pay. So long as he continued to be a permanent or ongoing employee of the Department of Defence until his resignation on 18 May 2011 his membership of the PSS Scheme was active, even though he was not obligated to make contributions during this period under Rule 4.1.1.

28. In Mr Baker's submission, the superannuation test of residency was not intended to apply to a person in his circumstances; rather it was intended to apply to Commonwealth Government employees who are usually resident in Australia but who are living and working abroad during the particular income year.

29. I note that the Explanatory Memorandum to the Amendment Act gives brief expression to the policy underlying the superannuation test in respect of members of the PSS Scheme:

[M]embers of the CSS [Commonwealth Superannuation Scheme] were treated as residents of Australia even though they may have been posted overseas for a period of time that would otherwise cause them to be considered as non-residents of Australia. The same arrangements will apply to members of the PSS.¹²

30. Mr Baker departed Australia and was granted leave of absence from his ongoing employment, without pay, in order to take up a contract of employment with the Australian Embassy in Manila. Under the terms of that contract, it appears likely that Mr Baker is a locally engaged employee for the purposes of section 74 of the Public Service Act. Even though Mr Baker was not posted to Manila by his employer or under the terms of his ongoing Commonwealth employment, the grant of leave without pay was a finite and formal arrangement that preserved his ongoing Commonwealth employment and required him to return to that employment once the grant of leave expired. To my mind, these arrangements bear important similarities to the concept of being posted overseas for a period. In both cases, ongoing Commonwealth employment in Australia is preserved.

31. Mr Baker says that he has no intention of returning to Australia to live. That may presently be so. But it does not negate the formal arrangement he entered into in June 2009 and again, by extension, in June 2010, to preserve his ongoing employment status with his employing Department in a manner that predicted his return to that employment on a particular day.

32. Mr Baker says that the Australian residence test relating to superannuation is discriminatory as it applies to employees who commenced work before or after a certain date - it does not apply to members of the Public Sector Superannuation Accumulation Plan (PSSAP) established under the Superannuation Act 2005 (the 2005 Superannuation Act). He asserts that the amendment of section 23AG of the 1936 Income Tax Act as of 1 July 2009 highlighted discriminatory elements of the test - these amendments were not intended to adversely affect people, such as himself, who genuinely reside in foreign countries and earn foreign income. Furthermore, Mr Baker says that if the construction for which the Commissioner contends is accepted, it would have the unintended and unfair consequence that his Filipina wife would be treated as an Australian resident and would be required to pay tax in Australia on her foreign earnings even though she has visited Australia only once for a brief period and she has no visa entitling her to work in Australia.

33. These submissions do not advance the matter.

34. Mr Baker's assertion that the definition of 'resident of Australia' in the 1936 Income Tax Act (and in consequence the 1997 Income Tax Act) does not refer to the PSSAP superannuation scheme is correct. The 2005 Superannuation Act sets out membership parameters for the PSSAP that differ in important ways from those applying to the PSS Scheme under the 1990 Superannuation Act, particularly in reference to a 'public sector employee' and an 'excluded overseas employee'. If there is an anomaly in the residence tests under these Acts that has a discriminatory effect (and this is not proved), it does not persuade or compel me to construe the superannuation test of residency differently for the purposes of the 1936 and 1997 Income Tax Acts.

35. The Tribunal must interpret and apply the legislation as it stands to the circumstances of each case. Mr Baker left Australia having agreed upon an arrangement with his employing Department that preserved his right to return to his employment in Australia after a period of absence on leave without pay. This arrangement clearly contemplated and proceeded on the basis of Mr Baker returning to Australia to resume his erstwhile employment on the nominated dates. These circumstances are to be distinguished from circumstances in which a person leaves Australia to live and work in a foreign country, with no intention of returning. If Mr Baker had departed Australia and his Departmental employment in circumstances of that kind, it is likely that his employment would have come to an end, he would have ceased to be a member of the PSS Scheme and his Australian residency status for taxation purposes would not have become an issue. But this is not what he did. Instead, he preserved his Commonwealth employment in Australia by taking leave of absence and, in so doing, extended his active membership of the PSS Scheme and his Australian residency for taxation purposes.

36. Finally, with regard to Mr Baker's submissions concerning the effects of Australian residence his spouse, these matters have not been tested or established. They do not persuade or compel me to interpret the superannuation test of Australian residency in the manner for which he contends.

37. The objection decisions are affirmed.

■■

____________

*In favour of Revenue.

†Resident - Australia - Australian Income tax Assessment Act, 1936 (cth). Australian Income tax Assessment Act, 1997 (cth) - Australian Taxation Laws Amendment Act, 1992 (cth).

 1.  T3 folio 62.

 2.  T3 folio 28.

 3.  T3 folio 31.

 4.  T3 folio 29.

 5.  T3 folio 27.

 6.  T1 folios 3 to 14.

 7.  T3 folio 27.

 8.  T3 folio 27.

9.  ATO ID 2001/226 - Residency: Australian Defence Force member residing overseas and engaged in discharge of government functions.

10.  Taxation Laws Amendment Bill (No. 2) 1992 (Cth) Explanatory Memorandum.

11.  Ibid. at par 10.5.

12.  Ibid. at par 10.7.