Farzad Farshidian and Commissioner of Taxation
[2014] AATA 214
•11 April 2014
[2014] AATA 214
Division SMALL TAXATION CLAIMS TRIBUNAL File Number(s)
2013/1756
Re
Farzad Farshidian
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Ms G Lazanas, Senior Member
Date 11 April 2014 Place Sydney The decision under review is affirmed.
..................[SGD]......................................................
Ms G Lazanas, Senior Member
CATCHWORDS
TAXATION –Income tax – entitlement to dependent spouse rebate – meaning of spouse – claim that spouse includes fiancé with whom taxpayer had an emotional bond and mutually acknowledged affection for – fiancé did not live with taxpayer on a genuine domestic basis in a relationship as a couple - maintenance payments - decision affirmed
LEGISLATION
Income Tax Assessment Act 1936 (Cth) ss 6(1), 159J, 159HA
Income Tax Assessment Act 1997 (Cth) s 995-1
Marriage Act 1961 (Cth) s 88
Acts Interpretation Act 1901 (Cth) ss 2D, 2ECASES
Roy v Sturgeon (1987) 11 NSWLR 454
NSW Trustee and Guardian v McGrath [2013] NSWSC 1894
Case P87, 82 ATC 421
REASONS FOR DECISION
Ms G Lazanas, Senior Member
11 April 2014
INTRODUCTION
The only issue before the Tribunal in this application is whether Mr Farzad Farshidian is entitled to claim the dependant spouse tax rebate under s 159J of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) in his tax return for the income year ended 30 June 2011 (Relevant Year). In that year, Mr Farshidian considered himself committed to marry Ms Maryam Barani but they did not “get married legally”, as he put it, until 27 July 2011.
The Commissioner audited Mr Farshidian and determined that he did not have a spouse for the 2011 year and was, therefore, not entitled to claim the dependent spouse rebate in the amount of $2,286, being the set relevant amount for that year. The Commissioner also contended that Ms Barani was not a dependant and, in addition, that Mr Farshidian had not contributed to the maintenance of Ms Barani during the Relevant Year as she was residing in Iran with her parents. Furthermore, the Commissioner contended that even if Ms Barani was a spouse as defined for the Relevant Year and, even it was found that she was wholly dependant on Mr Farshidian, Ms Barani was nevertheless not a resident of Australia during the 2011 income year as she had a permanent place of abode outside Australia.
The Commissioner also imposed penalties of 25% on the tax shortfall on the basis that Mr Farshidian failed to take reasonable care. However, the issue of penalties is not before the Tribunal as Mr Farshidian had not objected to the Commissioner’s decision to impose penalties nor had he objected to the Commissioner’s decision not to remit penalties.
I have concluded that Mr Farshidian was not entitled to claim the dependant spouse rebate because Ms Barani was not his spouse in the Relevant Year. In addition, although it is not necessary for me to decide the other issues, I consider that Ms Barani was not wholly dependant on Mr Farshidian nor was she a resident of Australia during the Relevant Year.
If Mr Farshidian had objected to the Commissioner’s decision to impose penalties and the issue had come before this Tribunal, the evidence before me suggests that part of the penalties should be remitted by the Commissioner. Mr Farshidian satisfied me that he genuinely considered Ms Barani to be his dependant spouse and, having regard to the different cultural customs and religious traditions, I accept his explanation. However, there is no application for review of the penalty issue in this matter and consequently the Tribunal does not have jurisdiction to make a decision in this regard.
THE FACTS
The following findings of fact are based on witness statements given by Mr Farshidian and Ms Barani, as well as letters provided by other members of their families. Mr Farshidian and Ms Barani also gave oral evidence and were extensively cross examined by the Commissioner’s representative.
Mr Farshidian said that he met Ms Barani at a party in 2008 when he was in Tehran for a holiday period of some five weeks, even though his family and her family were known to each other for many years beforehand. He said that he continued to communicate with Ms Barani when he returned to Australia but due to visa restrictions was unable to travel back to see her until about July 2011 when they married.
In or about August 2009, after having discussed marriage with Ms Barani, a traditional engagement took place in Tehran, although Mr Farshidian was not present at that engagement as he was in Australia. Ms Barani explained that their engagement was a traditional one and that it involved an exchange of rings and gifts, and she was then committed to marrying Mr Farshidian.
As to their relationship prior to marriage, Ms Barani’s evidence was that there was a bond of an emotional kind with Mr Farshidian from about the time of their meeting in 2008. Mr Farshidian also gave evidence about his love and care for Ms Barani since 2008. Further, Mr Farshidian’s father in law wrote in a letter in evidence before the Tribunal that “I ... witness that my daughter and my son in law been in relationship from 2008”. However, both Mr Farshidian and Ms Barani accepted that they were married in July 2011 and their marriage was officially registered at that time.
Mr Farshidian claimed to have provided financially for Ms Barani from about 2008, and especially after their engagement in mid-2009, by paying her living costs, including those associated with her university course. Her father provided a letter stating that Mr Farshidian “has been supporting her since 2008 for university, other living cost and visa examination and application costs”. Mr Farshidian’s father also provided a letter stating that:
“Farzad informed me that he had been in contact with Maryam and advised me to deliver portion of money to Maryam which he transferred to my account to spend on living and universities costs. Also I witness that we used some budget to buy gifts to my bride between 2009 and 2012”.
The banking records produced showed the following sums being transferred overseas on behalf of Mr Farshidian in the Relevant Year, as indicated:
(a)in March 2010 – approximately $9,000;
(b)in July 2010 – approximately $11,000; and
(c)in December 2010 – approximately $10,400.
Mr Farshidian stated that the monies were transferred to his father’s bank account for the purpose of his father making investments on his behalf, as well as to pay for Ms Barani’s living costs and purchase her gifts. However, although the Commissioner’s representative questioned both Mr Farshidian and Ms Barani extensively, neither could say approximately how much money reached Ms Barani nor could they give any details of the regularity of such payments. The letters referred to in paragraph 10 above from Mr Farshidian’s father in law and father were also general and non-specific.
On the other hand, Ms Barani could recall a payment of approximately $600 in 2009 for dental work. She also remembered receiving numerous gifts, including jewellery and clothes, on special occasions. Although Ms Barani said that Mr Farshidian provided for her living and university expenses, she acknowledged that as she lived with her family in the Relevant Year, her accommodation and food were provided by her family. She also stated that she was not allowed to live with Mr Farshidian’s family due to cultural and religious reasons. Accordingly, I find that Ms Barani was reliant on her parents and not Mr Farshidian for the majority of her financial needs.
After they married in July 2011 in Iran, Ms Barani accompanied Mr Farshidian to live with him in Australia. They arrived in Sydney in August 2011. In October 2011, Ms Barani made a visa application, which was granted in July 2012.
WAS MS MARYAM BARANI THE SPOUSE OF MR FARZAD FARSHIDIAN DURING THE RELEVANT YEAR?
In broad terms, s 159J of the ITAA 1936 provides that a taxpayer is entitled to claim a rebate against their income tax otherwise payable for a year where the taxpayer contributes to the maintenance of a person (referred to in the section as a ‘dependant’) and that person is a resident. The definition of ‘resident’ in s 6(1) of the ITAA 1936 is modified for the purposes of s 159J by subsection 159J(3A) of the ITAA 1936, as discussed below. Section 159J also provides for the apportionment of the rebate in certain circumstances as set out in subsection 159J(3).
The relevant extracts from s 159J in their form at the relevant time are, as follows:
(1)Where, during the year of income, a taxpayer contributes to the maintenance of a person (in this section referred to as a dependant) specified in column 2 of the table set out in subsection (2) and that person is a resident, the taxpayer is entitled, in his assessment in respect of income of that year of income, to a rebate of tax ascertained in accordance with this section…
(2)Subject to this section, the amount of the rebate allowable in the assessment of the taxpayer in respect of a dependant under this section is the relevant amount specified in column 3 of the following table:
Column 1
Class
Column 2
Dependent
Column 3
Amounts of Rebate
1
Spouse of the taxpayer
$2,100
(3) Where:
(a) the taxpayer contributes to the maintenance of a dependant during part only of the year of income;
(aa) a dependant is a resident during part only of the year of income;
(b) during the whole or part of the year of income, 2 or more persons contribute to the maintenance of a person who is a dependant in relation to 1 or more of the persons so contributing;
(c) a dependant, being the spouse of the taxpayer, is the spouse of the taxpayer during part only of the year of income;
(d) a dependant, being a child‑housekeeper, is wholly engaged in keeping house for the taxpayer during part only of the year of income….
the rebate allowable to the taxpayer in respect of that dependant shall be such part of the relevant amount specified in column 3 of that table as, in the opinion of the Commissioner, is reasonable in the circumstances.
By virtue of indexation, the amount in Colum 3 above was $2,286 in the Relevant Year (see s 158HA of the ITAA 1936).
The definition of ‘spouse’ for the purposes of s 159J of the ITAA 1936 is contained in s 995-1 of the Income Tax Assessment Act 1997 (Cth) and, at the relevant time, provided as follows:
spouse of an individual includes:
(a) another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a *State law or *Territory law prescribed for the purposes of section 22B of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and
(b) another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.
The reference to s 22B in paragraph (a) of the definition was replaced, with effect in late 2011, by a reference to s 2E of the Acts Interpretation Act 1901. For present purposes it is relevantly in similar terms (see below at paragraph 21).
It is noted at the outset that the definition is expressed in inclusive terms. ‘Spouse’, therefore, includes a person’s husband or wife under a marriage solemnised in Australia, as well as under a marriage solemnised in a foreign country where, under the local law, the marriage was at the time it was solemnised, recognised as valid (s 88C(1)(a) of the Marriage Act 1961 (Cth)).
A person’s de facto partner is a ‘spouse’ if the relationship is one that is registered under a prescribed law of a State or Territory (see ss 2D and 2E of the Acts Interpretation Act 1901 (Cth)). A ‘spouse’ is also a person that lives with the individual on a genuine domestic basis in a relationship as a couple (see paragraph (b) of the definition of ‘spouse’). The discrete issue for the Tribunal is whether Ms Barani falls within paragraph (b) of the definition of ‘spouse’ or whether Ms Barani could be considered to be Mr Farshidian’s spouse on any other basis, noting that the definition is an inclusive one.
There are many references to de facto relationships in state and federal law and these prescribe the factors that can be considered. They are helpful in this analysis, especially as the test is similar to that of ‘spouse’ in the income tax law. For example, in the case of Roy v Sturgeon (1987) 11 NSWLR 454, Powell J listed a number of factors which (although not exclusive) point to the existence of a de facto relationship, namely, “living together as husband and wife in a bona fide domestic relationship for the purposes of the De Facto Relationships Act 1984 (NSW)”. These factors are as follows:
(a)the duration of the relationship;
(b)the nature and extent of the common residence;
(c)whether or not a sexual relationship existed;
(d)the degree of financial independence, and any arrangements for support, between or by the parties;
(e)the ownership, acquisition and use of property;
(f)the procreation of children;
(g)the performance of household duties;
(h)the degree of mutual commitment and support; and
(i)the reputation and “public” aspects of the relations.
More recently, in NSW Trustee and Guardian v McGrath [2013] NSWSC 1894 (McGrath case), the plaintiff sought the advice of the court as to whether the deceased (Ms Ethel Clarke) who died intestate had left a de facto spouse (Mr Maurice McGrath), so as to determine the manner in which to distribute her estate, as the only remaining family members were six grandchildren. The case is important for present purposes because Young AJ found that a couple who had made a conscious decision not to live together, and only spent each Saturday sleeping in the same residence, were a de facto couple.
The facts in the McGrath case were based on a letter written by the late Mr McGrath (who passed away after Ms Clarke) which described his relationship with Ms Clarke. In summary, Mr McGrath stated that he and Ms Ethel Clarke were friends for approximately 20 years. They had formed a close bond after their respective partners had passed away and shared that bond right up until her death. Mr McGrath described their relationship as "boyfriend / girlfriend". He wrote that they had “discussed the matter, but made a conscious decision not to formally live together, however Ethel was a regular guest at my home, staying most weekends .... We had an intimate relationship”.
In addition, on a weekly basis, he would go shopping with her and to a local club for lunch. He would also visit her every Wednesday and they would talk every night on the phone. They holidayed together in Forster for two weeks every June and, additionally, Ms Clarke joined him and his family for all festive occasions. After Ms Clarke was admitted to hospital, Mr McGrath visited her every day and would take her clothes home to wash. Later, when she went to a nursing home, Mr McGrath visited her at least once a week up until her death. During this time, he bought all her clothes and personal items for her and ensured that she was well cared for.
Young AJ then canvassed the relevant law. Significantly, Young AJ relevantly stated, as follows (at [13] – [22]):
Human relationships cover a wide spectrum. The cases show that there have been many situations other than the situation where a man and a woman share the one residence and live as if they were man and wife for the whole week where a de facto relationship has been held to be made out. One of the earlier cases was my own decision in Weston v Public Trustee (1986) 4 NSWLR 407 where to quote what I said at 410:
A typical week, the plaintiff told me, would mean that the deceased would stay at the weekend with her at Homebush and then, after he retired, he would go back to his flat at Bondi for two to three days through the week but he would always ring her to let her know whether he was coming back to Homebush or staying at Bondi. Before that when he was at work if he was staying the night that he left for work at Homebush and the next night at Bondi, she would give him a container of curry or stew to heat up the following night...
I held it was a borderline case but that the parties were properly classified as de facto spouses.
The basal problem is the words "living together" in the definition of de facto relationship. There have been cases, and a good example is Light v Anderson [1992] NSWCA 136; (1992) DFC 95-120 where a housekeeper gradually became a de facto wife.
In most of the cases the couple have actually shared a residence. In some of the cases the residence has not been for the whole week, each week, such as in Jonah v White [2011] FamCA 221; (2011) 258 FLR 236, a decision of Murphy J in the Family Court of Australia.
As Campbell JA pointed out in Piras v Egan [2008] NSWCA 59 at [146] although there are a list of circumstances in s 4(2) of the Property (Relationships) Act listing matters which the Court should consider "in deciding whether two people are in a de facto relationship ... [they] do not state its essence. The essence is to be found in the definition in s 4(1). If two people do not "live together as a couple" they do not satisfy the definition of being in a de facto relationship, regardless of what might be the situation concerning the various "circumstances" listed in s 4(2)."
However the concept of living together does not relate to sharing a particular residence but rather what Murphy J said in Jonah v White, whether a couple manifests a relationship of "coupledom" which involves the merger of two lives.
Generally speaking it seems to me that this concept has been picked up in most of the cases that have had this particular problem of a relatively devoted couple who have not shared the one residence for a lengthy period of time. See for instance the decision of the Queensland Court of Appeal in PY v CY [2005] QCA 247; (2005) 34 Fam LR 245, the decision of White J in this Court in Vaughan v Hoskovich [2010] NSWSC 706 at [51] and the decision of the NSW Court of Appeal in Hayes v Marquis [2008] NSWCA 10; (2008) DFC 95-415.
Hayes' case involved a man who in the first three years of his relationship with a woman stayed at her house on an average of three times per week, later four times and then the parties moved in and lived together fulltime for about three years. The Court of Appeal consisted of Beazley and McColl JJA and Einstein J. McColl JA, with whom Beazley JA substantially agreed, held that the primary Judge was correct in holding that the concept of "living together" did not require the parties to live together fulltime. McColl JA at 76,068 [78]:
The definition of "close personal relationship" does not require the two adults to live together fulltime. The language...does not require such co-habitation...A de facto relationship is one which might ordinarily be expected to emphasise common residence. However, while the definition of a de facto relationship requires a relationship between two adult persons who live together as a couple, s 4(2) makes it plain that sharing "common residence" fulltime is not essential to a conclusion that a de facto relationship exists.
At 76,069 [83] McColl JA affirmed what Barrett J had said in Petersen v Gregory [2007] NSWSC 8 at [11] that the concept of "living together as a couple" involves "a personal commitment that is mutually acknowledged and of an emotional kind transcending the mere fact of the shared residential setting".
The third Judge, Einstein J, did not agree - see at 76,081 [166] - where his Honour indicated that a joint residence is essential. However one must go by the decision of the majority, especially a majority which is in accord with what the Queensland Court of Appeal held in PY v CY.
His Honour concluded in the McGrath case [at 23] that, although this was another borderline case, the factors favoured the late Mr McGrath being, in law, a de facto spouse of the deceased even though they did not live together.
Turning to Mr Farshidian, during the Relevant Year, he and Ms Barani were engaged, but they only legally married in July 2011. However, Mr Farshidian did not rely on the fact alone of Ms Barani being his fiancé to argue that she was his spouse. In that regard, Mr Farshidian’s case is to be contrasted with Case P87, 82 ATC 421 where the taxpayer was unsuccessful in convincing the Tribunal that his fiancé was his spouse based on several dictionary definitions. In that case the taxpayer failed because he did not provide precise evidence of their relationship.
Mr Farshidian suggested to the Tribunal that Ms Barani was his spouse on the basis of their mutually acknowledged affection for each other and, in addition, their engagement to marry. The Commissioner points out that Mr Farshidian was not at any stage living together with Ms Barani for the Relevant Year, nor was there any evidence of an intimate relationship, nor any evidence that they owned property together or that they had established financial dependence.
The question for the Tribunal is whether, having regard to the decision of Young AJ in the recent McGrath case, and the other cases there referred to, Ms Barani can be considered to be Mr Farshidian’s spouse during the Relevant Year even if they did not share a residence. In evaluating the evidence, I accept and find that they had a romantic relationship and that they had frequent online communications as he was in Sydney and she was in Tehran over the period from about 2008 to July 2011. I also find that there was public acceptance of that relationship as this can be inferred from the letters of Mr Farshidian’s father and father in law. In addition, there were gifts and some financial support. However, those factors are insufficient to allow me to be satisfied that they were living with each other “on a genuine domestic basis in a relationship as a couple”. In particular, the facts in the McGrath case demonstrate frequent personal interactions, including of an intimate kind. Mr Farshidian and Ms Barani simply had no opportunity for those kinds of interactions because of the distance between them; moreover, theirs was not a case where there was a break in them living together or where they deliberately chose not to live together. They were engaged while Mr Farshidian was in Sydney and Ms Barani was in Tehran. They did not, and indeed their evidence was that they could not for religious and cultural reasons, have a relationship as a couple until after they married.
Finally, the Commissioner also pointed out that Mr Farshidian’s income tax return for the 2010 income year did not refer to him having a spouse. This is curious but I accept Mr Farshidian’s explanation that a tax agent had prepared his return for the 2010 income year and that the agent would have probably asked him whether he was married. In order to save costs, Mr Farshidian had prepared his own tax return in respect of the following year, being the subject of this proceeding, and had approached the question of whether he had a spouse from a different perspective.
I therefore accept the Commissioner’s position that Mr Farshidian cannot be said to have had a spouse for the relevant income year for the purposes of s 159J and that his claim must fail on that basis alone. Given my conclusion on this issue, it is unnecessary for me to consider the other matters. Nevertheless, in circumstances where the parties addressed me on those, it is appropriate to record some of my observations.
DID MR FARSHIDIAN CONTRIBUTE TO THE MAINTENANCE OF MS BARANI DURING THE RELEVANT YEAR?
As noted above in paragraph 10 a number of letters provided by family members refer to financial assistance being provided by Mr Farshidian to Ms Barani. Ms Barani was also cross examined extensively about this aspect. I agree with the submissions of the Commissioner’s representative that the evidence about financial assistance was very vague, especially as to the amounts and the frequency of any payments made to Ms Barani.
In those circumstances, I could not be persuaded as to the extent of the financial support that was provided. This is because I was not satisfied as to what part of the money that Mr Farshidian sent to his father was used to provide regular financial assistance to Ms Barani. I have no doubt that some of the money was used to purchase gifts for her, but that is not the same thing as supporting her daily living requirements. Also, I note that even if Mr Farshidian did contribute in part to the maintenance of Ms Barani, there was insufficient evidence in order to prorate the claim for the dependent spouse rebate under s 159J(3).
WAS MS MARYAM BARANI A RESIDENT OF AUSTRALIA DURING THE RELEVANT YEAR?
The definition of resident in s 6(1) of the ITAA 1936 is relevantly, as follows:
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; ...
Subsection 159J(3A) of the ITAA 1936 provided, at the relevant time:
(3A) In the application of the definition of resident in subsection 6(1) for the purposes of this section, a dependant included in class 1, 2, 3 or 4, and a child of the taxpayer being a dependant included in class 5, in the table in subsection (2) shall be deemed to have a domicile in Australia at all times when the taxpayer has a domicile in Australia.
Broadly, subsection 159J(3A) operates to ensure that overseas dependents in the process of migrating do not need to satisfy the ‘domicile’ element of the residency test for the purposes of the dependant spouse rebate where the taxpayer had a domicile in Australia. The Commissioner accepts that Mr Farshidian had a domicile in Australia during the Relevant Year. However, the Commissioner says that Mr Farshidian cannot avail himself of s 159J(3A) (even if Ms Barani was his spouse and he maintained her) because there is still the requirement that the overseas dependant must otherwise satisfy the definition of ‘resident’, namely, as to the person’s permanent place of abode. This is because included in the definition of ‘resident’ is a person whose domicile is in Australia “unless the Commissioner is satisfied that the person’s permanent place of abode is outside Australia”. The Commissioner says he is satisfied that Ms Barani’s permanent place of abode in the Relevant Year was Iran.
The Commissioner’s representative helpfully drew my attention to the Commissioner’s practice which is to accept that where an overseas dependant is in the process of migrating to Australia, this is usually indicative that the person has no permanent place of abode outside of Australia and their place of abode overseas can only be classified as temporary. In these circumstances, the Commissioner will allow a taxpayer to claim the dependant spouse tax rebate for an overseas dependant spouse up to five years after the taxpayer’s arrival in Australia (see, for example, ATO Interpretative Decision ATO ID 2003/405).
The Commissioner says, however, that this does not apply to Mr Farshidian because the spouse visa application for Ms Barani was lodged in October 2011 (in the subsequent income tax year). As that is the only objective evidence of proving Ms Barani’s intention to leave Iran for entry into Australia, the Commissioner submits that Ms Barani had a permanent place of abode outside Australia for the Relevant Year. I agree with the Commissioner’s position. An evaluation of all the relevant facts leads me to the conclusion that Ms Barani had a permanent place of abode outside Australia during the Relevant Year, and Ms Barani had not taken any steps to migrate to Australia in the Relevant Year.
CONCLUSION
For the reasons outlined above, Mr Farshidian was not entitled to claim the dependent spouse rebate in the Relevant Year. Accordingly, I affirm the Commissioner’s objection decision under review.
I certify that the preceding 40 (forty) paragraphs are a true copy of the reasons for the decision herein of Ms G Lazanas, Senior Member ...........................[SGD].............................................
Associate
Dated 11 April 2014
Date(s) of hearing 21 January 2014 Applicant In person Solicitors for the Respondent Mr R Pandey, ATO Legal Services Branch
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