Kirtlan and Commissioner of Taxation (Taxation)
[2025] ARTA 539
•8 May 2025
Kirtlan and Commissioner of Taxation (Taxation) [2025] ARTA 539 (8 May 2025)
Applicant: Robert Edward Kirtlan
Respondent: Commissioner of Taxation
Tribunal Number: 2021/9179-81
Tribunal:Senior Member R Olding
Place:Brisbane
Date:08 May 2025
Decision:The Tribunal sets aside the decision under review and in substitution decides to allow in full the applicant’s objection against the assessments of income tax and administrative penalties.
................[Sgnd]......................
Senior Member R Olding
Catchwords
TAXATION – whether the applicant discharged the burden of proving the respondent should not have been satisfied taxation shortfalls were due to evasion – where applicant claimed to be not a resident of Australia in Australian taxation returns and not a resident of the United Kingdom in UK returns, such that income not brought to account in either jurisdiction - where applicant relied upon accountant to prepare returns – whether accountant sufficiently informed – burden of proof discharged
Legislation
Income Tax Assessment Act 1936 (Cth), ss 6(1), 170(1)
Taxation Administration Act 1953 (Cth), s 14ZZKCases
Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296
Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212
Harding v Federal Commissioner of Taxation (2019) 269 FCR 311Click here to enter text.
Statement of Reasons
WHAT IS THIS CASE ABOUT?
The applicant, Mr Kirtlan, in the periods relevant to this review, was located partly in Australia and partly in the United Kingdom. He lodged his Australian income tax returns on the basis that he was not a resident of Australia and his UK returns on the basis that he was not a UK resident. Consequently, the significant UK-sourced income derived by Mr Kirtlan was not brought to account in either jurisdiction.[1]
[1] On the premise of Mr Kirtlan not being an Australian resident, his returns disclosed only his Australian-sourced income. If it were the case that Mr Kirtlan was an Australian resident during the relevant periods, his worldwide income would have been subject to tax in Australia. In that case, Mr Kirtlan’s UK-sourced income should also have been brought to account in his Australian income tax returns.
The Commissioner of Taxation decided Mr Kirtlan was an Australian resident but would have been out of time to issue amended assessments unless of the opinion that there had been fraud or evasion. The Commissioner formed the opinion that there had been evasion.[2] On that footing, the Commissioner issued amended income tax assessments along with assessments of administrative penalties.
[2] The Commissioner did not contend that the returns were attended by fraud.
As the case finally came to be put on his behalf, Mr Kirtlan confined his challenge to the income tax assessments to the single ground that the Commissioner should not have formed the opinion that there had been evasion.
DECISION UNDER REVIEW
The case concerns Mr Kirtlan’s taxation liabilities for the 2006, 2007 and 2008 income years.[3]
[3] Mr Kirtlan accepts that he was a resident of Australia from April 2008. His 2008 tax return was prepared on that basis.
The following table sets out for each of those income years the taxable income returned by Mr Kirtlan and the taxable income as amended by the Commissioner. The difference reflects the amendment of Mr Kirtlan’s assessable income to include UK-sourced income and other income. The resulting tax shortfalls and administrative penalties assessed by the Commissioner at the rate of 50% of the shortfalls for recklessness are also included.
Income year
Taxable income returned
$Amended taxable income
$Tax shortfall
$Penalty
$2006
74,710
742,960
320,283.40
160,141.70
2007
0
1,255,217
564,025.90
282.012.95
2008
42,395
6,311,572
2,906,780.73
1,453,390.35
TOTALS:
$117,105
$8,309,749
$3,791,090.03
$1,895,545.00
Mr Kirtlan objected against the income tax and penalty assessments. On 24 September 2021, the Commissioner wholly disallowed the objection. It is the Commissioner’s objection decision that is before the Tribunal for review.
It is because the Commissioner’s amended assessments of income tax and penalty assessments did not issue until 2018 that the evasion question arises, as discussed further below.
ISSUE FOR DETERMINATION AND PRINCIPLES TO BE APPLIED
Burden of proof
Mr Kirtlan has the burden of proving the assessments are excessive and what amounts should have been assessed.[4]
[4] Taxation Administration Act 1953 (Cth), s 14ZZK.
In view of the way the parties’ respective cases were put, it is common ground that Mr Kirtlan will succeed in the application for review of the objection decisions relating to his income tax assessments if, and only if, he persuades the Tribunal that the Commissioner should not have formed the opinion that there was evasion.[5] If he succeeds in that argument, there will be no tax shortfalls, and the penalty assessments will also fall away.
[5] Income Tax Assessment Act 1936 (Cth), s 170(1).
If he fails to persuade the Tribunal that the evasion opinion should not have been formed, Mr Kirtlan submits in the alternative that the penalty assessments should be set aside on the basis of absence of recklessness or that any penalties should be remitted.
It is common ground that evasion requires more than mere avoidance of tax or withholding of information or provision of misleading information. Some blameworthy act or omission is required. However, ‘[an] intention to withhold information lest the Commissioner should consider the taxpayer is liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion’.[6] Intentionally omitting income without a credible explanation would constitute evasion.[7]
[6] Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296, 313.
[7] Ibid.
In considering whether the evasion opinion should have been formed, the Tribunal is not confined to the evidence before the Commissioner. The issue is to be determined by reference to all of the relevant evidence before the Tribunal.
The residence question
Because of the way the applicant’s case was put, it is not necessary for the Tribunal to reach a view on whether Mr Kirtlan was a resident in the relevant periods. However, that does not mean the question is irrelevant. The strength of the indicators for and against that proposition is relevant to whether there was a credible explanation for Mr Kirtlan lodging his returns on the basis that he was not a resident. That in turn is relevant to whether Mr Kirtlan stating he was not a resident constitutes a mere misstatement or was a blameworthy act indicative of evasion.
It is also not necessary for the Tribunal to determine whether Mr Kirtlan was a UK resident for UK tax purposes. Indeed, it is not possible to do so in the absence of expert evidence regarding UK tax law.[8]
[8] Mr Kirtlan called an accountant to give evidence regarding his claim not to be a UK resident for UK tax purposes. However, the evidence was of limited utility for the reasons discussed below.
Nor is whether there was a rational basis for Mr Kirtlan stating that he was not a UK resident in his UK returns of the same significance as whether there was a credible explanation for his claim to not be an Australian resident for Australian tax purposes. It is no part of the Tribunal’s role to determine or opine upon Mr Kirtlan’s UK tax obligations. However, the statements in Mr Kirtlan’s UK tax returns, and his claim, in effect, to be not a resident of either jurisdiction are part of the context for consideration of whether he has a credible explanation for the statements in his Australian returns.
‘Resident’ is relevantly defined for Australian tax purposes in these terms:
resident or resident of Australia means:
(a) a person . . . who resides in Australia and includes a person:
(i) whose domicile is in Australia, unless the Commissioner is satisfied 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 . . .[9]
[9] Income Tax Assessment Act 1936 (Cth), s 6(1).
It is not in dispute that Mr Kirtlan spent the following number of days in Australia in the relevant income years:
(a)2006: 173 days;
(b)2007: 187 days;
(c)2008: 249 days.
While there is some overlap between residence according to ordinary concepts and permanent place of abode, they are separate concepts. Residence connotes an intention to treat a place as one’s home, so that a continuity of association with a place and an intention to return to it as one’s home would mark the place as remaining one’s residence, noting that a person may reside in more than one place. A permanent place of abode outside Australia connotes abandonment of a place of residence in Australia.[10]
[10] Harding v Federal Commissioner of Taxation (2019) 269 FCR 311.
Mr Kirtlan does not claim to have abandoned his Australian domicile. Thus, the debate regarding whether Mr Kirtlan had a credible basis for claiming not to be a resident of Australia mainly focussed on whether Mr Kirtlan was a resident according to ordinary concepts and, if not, had a permanent place of abode outside Australia. In particular, whether the evidence established that Mr Kirtlan intended to reside in the UK indefinitely and not return to Australia should be accepted having regard to various documentary and other evidence and the context referred to above.
EVIDENCE AND FINDINGS
The evidence in the proceedings comprised:
(a) the T documents;
(b) four affidavits sworn by Mr Kirtlan;
(c) two affidavits sworn by Mr Kirtlan’s wife, Mrs Angela Kirtlan;
(d) an affidavit sworn by Mr Kirtlan’s long-term accountant and friend, Mr Kathal Kester Spence; and
(e) an “expert” report provided by another accountant, Mr Alan Collett, concerning UK tax law and practices concerning residency.
Mr and Mrs Kirtlan, and Mr Collett, were cross-examined. Mr Spence was not.
The activities of Mr Kirtlan and his family
Approach to the evidence of Mr and Mrs Kirtlan
In considering the evidence of Mr and Mrs Kirtlan, I am mindful of the following principles:
(a) Facts may be found on the basis of oral evidence alone. In other words, there is no requirement that direct evidence by oral testimony may only be accepted if corroborated, for example, by documentary evidence; a fact may be found on the basis of the uncorroborated evidence of a witness.
(b) However, self-serving statements should be given close scrutiny.
(c) Nevertheless, evidence of a taxpayer is not to be regarded as prima facie unacceptable.
(d) If the taxpayer succeeds in ‘weighing down [the] scales ever so slightly in [the taxpayer’s] favour then [the taxpayer] has discharged the burden [the taxpayer] carries’.[11]
[11] Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212.
Having regard to these principles, I have based my conclusions primarily on the objective evidence rather than the evidence of Mr and Mrs Kirtlan regarding Mr Kirtlan’s intention at the relevant times. Such evidence includes the number of days Mr Kirtlan spent in Australia; the retention of a home in Australia and maintenance of the family unit; various communications as outlined below; the statements in Mr Kirtlan’s UK tax returns; and, significantly for the reasons set out below, the advice provided by Mr Spence.
Before leaving for the UK
The following findings are based on the affidavits of Mr and Mrs Kirtlan and are understood to be uncontroversial unless otherwise indicated.
Mr Kirtlan was born in Western Australia and Mrs Kirtlan in the UK. Both hold dual Australian and UK citizenship. They met in 1987 and shortly afterwards purchased a house in Perth where they lived until they moved to Sydney in 1995 and then to New York, returning to Sydney in 2000, and later re-locating to Perth.
Although never completing a degree in business or commerce, Mr Kirtlan has a long history in business, providing corporate advisory and capital raising services, particularly, but not limited to, the mining industry. His early business life included working with Paladian Securities, a Perth-based entrepreneurial firm with a range of business interests; a Perth stockbroking firm, Hartley Poynton; Deutsche Bank in New York; and briefly, upon his return to Australia from New York, with what became Citibank.
In February 2000, Mr Kirtlan started his own corporate advisory business through a corporate vehicle, owned by Mr and Mrs Kirtlan, known as Ark Securities. Mr Kirtlan was a director of Ark Securities at all relevant times. In addition to providing advisory services, Ark Securities in its capacity as trustee for a family trust took up equity positions in three ASX-listed companies. Mr Kirtlan became involved in the management of those companies, leveraging his network of connections to find potential new projects and sources of capital. He was also involved in other companies.
In late 2004, Mr and Mrs Kirtlan purchased a home in Mosman Park, Perth with the intention of living in the home. However, as they shortly after re-located to the UK, they rented the house to the previous owner who continued to live in it.
The move to the UK – April 2005
Mr and Mrs Kirtlan and their young daughter, Portia, moved to the UK in April 2005.
Mr Kirtlan says, and I accept, that the primary reason for the move to the UK in April 2005 was to advance the interests of the companies with whom he was working. I return later to evidence that tends to support, or otherwise, Mr Kirtlan’s assertion that he and Mrs Kirtlan intended to stay in the UK indefinitely.
Following an initial short stay in South Kensington, the family rented a four-bedroom house in Chiswick in May 2005 under a 12-month lease. However, Mr Kirtlan broke the lease after 6 months because, he says, of the noise caused by the house being under a busy flight path.
After less than seven months, Mrs Kirtlan, being unhappy with living in London, returned to Australia in November 2005, along with Portia. Mr Kirtlan travelled with them to Australia. The previous owner was still living in the Mossman Park house as a tenant but moved out shortly afterwards, allowing the family to move into the home in late December 2005 or early January 2006.
Mr Kirtlan returned to London in February 2006. He secured rented premises in which he stayed when in London, along with Mrs Kirtlan and Portia during their regular visits.
From this time, Mr Kirtlan made regular trips to Australia, as the following table indicates:
Arrival in Australia Departure from Australia No. of days in Australia 2006 income year 05.09.2005 16.09.2005 11 08.11.2005 16.11.2005 8 21.11.2005 14.02.2006 85 17.03.2006 26.03.2006 9 31.03.2006 07.05.2006 38 08.06.2006 30.06.2006 22 Total 173
2007 income year 01.07.2006 09.07.2006 8 15.07.2006 13.08.2006 29 18.08.2006 20.08.2006 2 24.08.2006 11.09.2006 18 10.10.2006 15.11.2006 36 17.11.2006 29.11.2006 12 11.12.2006 01.02.2007 52 10.02.2007 18.02.2007 8 03.03.2007 12.03.2007 9 18.03.2007 31.03.2007 13 Total 187
2008 income year 02.07.2007 23.07.2007 21 02.08.2007 10.09.2007 39 27.09.2007 01.10.2007 4 09.10.2007 19.11.2007 41 31.12.2007 03.02.2008 35 15.02.2008 04.03.2008 17 14.03.2008 25.05.2008 72 29.05.2008 08.06.2008 10 20.06.2008 30.06.2008 10
Total 249
On these occasions, Mr Kirtlan generally stayed with Mrs Kirtlan and Portia at their home in Perth, and they stayed with him at his rented flat when in London. Mr Kirtlan was also regularly travelling elsewhere for business, notably to Africa, and sometimes met up with Mrs Kirtlan and Portia while traveling in Asia.
Mr Kirtlan surrenders lease and returns to Australia
The equity markets were disrupted by the global economic crisis which occurred in 2008. The boards of two of the companies Mr Kirtlan worked with advised they no longer required his services in London.
Mr Kirtlan surrendered the lease on his London flat in May 2008 and returned to Australia. He has lived with Mrs Kirtlan and Portia in Australia since that time.
Advice provided by Mr Kirtlan’s accountant, Mr Spence
Approach to the evidence of Mr Spence
Mr Spence provided a detailed affidavit. He deposed to advice he gave Mr Kirtlan to the effect that Mr Kirtlan was not a resident of Australia for tax purposes. His firm prepared Mr Kirtlan’s income tax returns on that basis and in accordance with his usual practice Mr Spence reviewed and approved the returns before they were signed by Mr Kirtlan and lodged on his behalf.
There were some aspects of Mr Spence’s evidence in which he recounted, for example, the timing and content of conversations with Mr Kirtlan, with surprising specificity having regard to the effluxion of time between the events and the swearing of his affidavit. Had Mr Spence been cross-examined, it is to be expected the cross-examiner, or the Tribunal, might have explored his recollection of these aspects with Mr Spence.
However, as already indicated, the Commissioner chose not to cross-examine Mr Spence. It is common ground, though, that the Tribunal is not bound to accept all of Mr Spence’s evidence merely on the basis that he was not cross-examined by the Commissioner.
However, the Commissioner’s counsel, Ms FitzGerald, confirmed during the hearing that the Commissioner does not submit that Mr Spence’s evidence should not be believed. Rather, the Commissioner submitted that Mr Spence’s affidavit does not disclose sufficient of the details of Mr Kirtlan’s circumstances relevant to his residency status to demonstrate that informed advice had been provided. Further, Ms FitzGerald submitted that, apart from in respect of his initial advice, Mr Spence does not state that his view about Mr Kirtlan’s residency was communicated to Mr Kirtlan.
On these premises, the Commissioner submits that Mr Spence’s advice does not support a finding that Mr Kirtlan had a credible explanation for authorising the filing of his Australian returns on the basis that he was not an Australian resident in the relevant years. Rather, having regard to various matters, in particular the contrary statements in his UK returns, the Commissioner says Mr Kirtlan could not have held a genuine belief that he was not an Australian resident.
Mr Spence’s evidence is, in my view, crucial to the evasion question. I return to it in greater detail below.
Evidence of Mr Collett
Mr Collett is a Fellow of the Institute of Chartered Accountants in England and Wales. He migrated to Australia in 2001 but has continued to provide advice on tax compliance in the UK and Australia, including on residency matters.
Based on the facts stated by his instructors, Mr Collett provided an opinion that it is reasonable to conclude that Mr Kirtlan was a tax resident of the UK for the relevant years.
It was confirmed in cross-examination that Mr Collett is not a lawyer and does not hold a law degree. He is not able to provide an expert opinion on UK tax law. Mr May, who appeared for Mr Kirtlan, stated in closing submissions that he did not rely on Mr Collett’s evidence for other than as evidence of how the UK revenue authorities might approach the issue of Mr Kirtlan’s UK tax status and therefore what would have been reasonable in the circumstances.
Confined to that purpose, Mr Collett’s evidence provides little assistance in determining whether Mr Kirtlan has a credible explanation for not disclosing his UK income in his Australian tax returns. Further, Mr Collett conceded in cross-examination that in formulating his opinion he may have applied an incorrect test. Accordingly, I have not taken Mr Collett’s evidence into account in determining the evasion question.
HAS MR KIRTLAN PROVED THE COMMISSIONER SHOULD NOT HAVE BEEN SATISFIED THERE WAS EVASION?
There are numerous aspects of the evidence highlighted on behalf of Mr Kirtlan and the Commissioner that are said to support their respective positions regarding whether Mr Kirtlan was a resident of Australia at the relevant times.
As already indicated, it is not necessary for me to weigh up all of those factors and make a finding regarding whether Mr Kirtlan was an Australian resident. However, the following factors provide context for consideration of Mr Kirtlan’s evidence that he intended to reside in the UK indefinitely and his contention that he relied upon Mr Spence’s advice. In particular, whether he could have held a genuine belief that he was not an Australian resident for Australian tax purposes. As such, they go to the question of whether Mr Kirtlan has a credible explanation for lodging his Australian tax returns on the basis that he was not an Australian resident.
The relatively high number of days Mr Kirtlan spent in Australia, in the latter two years spending more than half the year in total in Australia, would weigh against a conclusion that Mr Kirtlan was not an Australian resident. It is not determinative, but certainly could have been expected at the least to have given rise to an awareness on the part of Mr Kirtlan and Mr Spence of a potential issue. Without more, it would call into question whether Mr Kirtlan’s explanation for the omissions from his returns, that he was not a resident, is credible.
However, there are various factors and contemporaneous documents that are consistent with Mr Kirtlan having an intention, when he left Australia in 2005, to live indefinitely in and make his home in the UK. To be clear, some of these factors could also be seen as consistent with an intention to reside in part in London and in part in Australia.
First, Mr Kirtlan’s evidence that he chose to move to the UK for business reasons is not improbable. Having regard to the nature of his business interests, the access to financial markets and proximity to other places to which Mr Kirtlan travelled, the explanation is inherently probable. I accept the explanation.
Secondly, there is 2005 correspondence with third parties in evidence in which Mr Kirtlan stated that he had departed from Australia to reside in the UK indefinitely and referred to living in the UK for the foreseeable future, along with a 2006 letter referencing his earlier decision to reside permanently in the UK.[12] There is nothing to suggest these statements were contrivances created to bolster his Australian tax position.
[12] Hearing Book, pp 974, 2454, 2470, 2148.
Thirdly, Mr Kirtlan leasing a home in London for 12 months that he considered to be suitable for himself as well as Mrs Kirtlan and Portia is consistent with an intention to live in London indefinitely.
Fourthly, Portia was enrolled in nursery school in the UK.
Fifthly, Mr and Mrs Kirtlan undertook various steps consistent with an intention to remain in the UK indefinitely including opening bank accounts, joining a sporting club, taking out health insurance, registering for the National Health Service and purchasing a motor vehicle.
Sixthly, when Mrs Kirtlan left London for Australia with Portia, Mr Kirtlan committed to another 12-month lease of a flat to live in and, subsequently, in August 2007, took out a lease on a different property.
Seventhly, Mr Kirtlan’s incoming passenger cards completed during visits to Australia identified his country of residence as the UK rather than indicating he was a returning Australian resident.
Eighthly, Mr Spence’s evidence, discussed below, includes reference to consistent statements by Mr Kirtlan regarding his intention to reside in the UK.
Ninthly, the explanation for Mrs Kirtlan returning to Australia after a relatively short period is not improbable, relating as it does in part to health considerations which I need not detail and supported by Mr Spence’s evidence of strains on Mr and Mrs Kirtlan’s marriage at the time.
Tenthly, the explanation for Mr Kirtlan’s return to Australia is not improbable. Although not widely predicted, the disruption and uncertainly caused by the global financial crisis is well known. Further, Mr Kirtlan gave evidence, against the context of the strains in their marriage and Mrs Kirtlan’s health, regarding his perception by that time that he should return to Australia for the sake of his family. Common human experience informs that such developments in close personal relations do not necessarily follow a predictable or linear path.
On the other hand, as already indicated, Mr Kirtlan spent a very considerable amount of time in Australia with this family. Additionally, and importantly, the family maintained a home, and in fact later, in 2006, purchased a more expensive home at Buckland Hill, in which Mrs Kirtlan and Portia, and Mr Kirtlan when in Australia, resided. Further, Portia attended a school in Perth at which her name had been maintained on a waiting list since her birth and which held a particular significance for Mrs Kirtlan.
The Commissioner also emphasised the retention of a family home in Australia and that the family unit remained intact as evidenced by Mr Kirtlan regularly returning to Australia and Mrs Kirtlan and Portia visiting Mr Kirtlan on various occasions in the UK and elsewhere for holidays. This is plainly a strong factor pointing in the direction of Mr Kirtlan remaining an Australian resident, as the authorities emphasise.
When leaving for the UK, the Kirtlans left their car and pets with family members and retrieved them when Mrs Kirtlan and Portia returned to Australia and retained some furniture. This could be said, as the Commissioner submitted, to point in the direction of the departure being temporary rather than permanent. However, to the extent that they relate to family arrangements, I do not find this to be a particularly persuasive factor. That Mrs Kirtlan retrieved the family’s pets and the family car (which the family members had not purchased from them) upon her return to Australia with Portia is not inconsistent with her return to Australia being unexpected. The later purchase of a different vehicle would also not be inconsistent with Mr Kirtlan remaining in the UK while Mrs Kirtlan lived in Australia with Portia but the choice to register it in Mr Kirtlan’s name is.
The parties seek to draw out different inferences from the circumstances of Mr Kirtlan’s departure from the UK in 2008. Mr Kirtlan’s submissions draw a contrast with the circumstances surrounding Mrs Kirtlan’s return to Australia when Mr Kirtlan leased a new flat, retained his UK motor vehicle and so on, whereas in the lead up to his departure from the UK in May 2008, Mr Kirtlan surrendered the lease on his flat and sold his car. The Commissioner on the other hand pointed to the relative ease with which the departure occurred as consistent with Mr Kirtlan’s time in the UK being of a temporary nature, so that he could easily uproot himself to return to Australia. In my view, these features provide limited assistance, forming but part of the matrix of circumstances that would require consideration to determine whether Mr Kirtlan was a resident in the relevant years.
The statements in Mr Kirtlan’s UK tax returns are problematic for Mr Kirtlan’s claim to have had a credible basis for asserting in his Australian returns that he is not an Australian resident.
The 2006 UK return form directly posed the question: In which country are you a resident? The answer that was inserted is ‘Australia’. Another question was: When you came to the UK did you intend to stay here for at least three years? That question is answered by ticking the ‘No’ box.
In the 2007 UK return, a check box for I am . . . not a resident of the UK is ticked. Curiously, in a prominent box on the form, occupying about one-third of the page, the following words appear:
My visits to the UK will cease in March 2008.[13]
[13] Hearing Book, p 2821.
Mr Kirtlan was unable to explain that reference to ‘visits’ which on its face is inconsistent with residing indefinitely in the UK as his home. It is not altogether clear when Mr Kirtlan signed or lodged the return but in any case, this reference remained unexplained.
The 2008 UK return also has the box checked against Not resident in the UK . . .and included reference to Mr Kirtlan being ‘on assignment’ which, again, suggests a temporary arrangement rather than regarding the UK as his home.
Mr Kirtlan claimed to have only scanned the returns and not to have noticed the discrepancies highlighted above. That may be so, since he relied on tax professionals to prepare his returns. But it would defy commonsense to accept that a businessman of Mr Kirtlan’s experience was not aware of the consequences of not bringing substantial income to account in any tax jurisdiction and that his UK tax position was dependent upon his residency status.
Mr Kirtlan gave evidence that he believed UK tax would be payable on a remittance basis; that is on income remitted to the UK. There is no evidence of what UK tax, if any, Mr Kirtlan actually paid. However, he did not seem to deny that he was aware the claiming of non-residence status for both Australia and the UK would produce a very favourable outcome. While the returns were prepared by tax accountants, there is no specific evidence regarding the instructions Mr Kirtlan provided or the advice, if any, he was given; I have therefore given no weight to the evidence that the returns were prepared by professionals rather than by Mr Kirtlan.
That leaves the Tribunal in a position where it could not be satisfied that Mr Kirtlan did not lodge his Australian and UK tax returns on bases that he knew would result in significant amounts of income going untaxed. Indeed, Mr Kirtlan seemed to acknowledge as much in answer to a question I posed to him. But that does not answer whether Mr Kirtlan has proved he did not lodge his Australian income tax returns for the relevant periods on the basis that he was not a resident for Australian tax purposes while knowing that he was a resident, and that the income returned would therefore be understated.
The Commissioner pointed to other factors in support of a submission that Mr Kirtlan was an Australian resident, including continuing to maintain bank accounts in and derive income from Australia.[14] Taking into account all of the evidence, I acknowledge the force of the Commissioner’s submissions in that regard. If the question for the Tribunal were whether Mr Kirtlan has proved that he was not an Australian resident at the relevant times, the factors raised by the Commissioner would be a considerable hurdle for Mr Kirtlan to overcome. But that is not the question I must consider which is whether Mr Kirtlan has proved the Commissioner should not have been satisfied there was evasion.
[14] Respondent’s Closing Submissions, [190]-[212], [234]-[250].
The evidence of Mr Spence
I turn now to what, as I have already indicated, I consider to be a crucial consideration in that regard, the evidence of Mr Kirtlan’s accountant, Mr Spence.[15]
[15] Mr Kirtlan also referred to advice that he was not a resident of Australia provided by Ernst & Young. However, there was no independent evidence of the content of the advice or the basis on which it was given. I have given no weight to this evidence.
If a properly informed accountant provides advice and/or prepares returns in a particular way and, as here, there is no suggestion of collusion between the accountant and the taxpayer to defraud the Commonwealth, it is difficult to see how a taxpayer following that advice and lodging returns in that way could be said to have engaged in evasion. Put another way, is it not the case that acting on the advice of a properly informed accountant would provide a credible explanation for a shortfall in a taxpayer’s returns such that there could not be said there was evasion?
Mr Spence swore unequivocally that he advised Mr Kirtlan in around April 2005 that he would not be an Australian resident for tax purposes. As already noted, the Commissioner does not say that Mr Kirtlan’s evidence should not be believed. Mr Spence approved Mr Kirtlan’s Australian tax returns prepared on the basis that Mr Kirtlan was not an Australian resident at the relevant time. I accept this evidence.
However, the Commissioner says this evidence does not establish whether Mr Spence was provided with sufficient information to reach an informed view on the question.
In his affidavit, Mr Spence says he based his view on advice from Mr Kirtlan that he and his family were moving to the UK permanently; his understanding from many conversations that Mr Kirtlan was bored with living in Perth; and Mr Kirtlan’s previous living pattern of living overseas and not being settled in Perth, along with his (Mr Spence’s) understanding of relevant legal authorities.
Mr Spence also referred to Mr Kirtlan’s ‘three prong’ business model – which included an investment fund based in Europe - that he intended to pursue to set himself up for the rest of his life in London before retiring to the south of France as he had said on many occasions he wanted to do. Mr Kirtlan was, Mr Spence deposed, something of a ‘Europhile’ who enjoyed European culture.
In relation to the return of Mrs Kirtlan and Portia to Australia in November 2005, Mr Spence recounted that Mr Kirtlan said he was still going to live in London. Mr Spence recalls specifically considering whether the return of Mrs Kirtlan and Portia to Australia would change his view regarding Mr Kirtlan’s residency status and determined that it would not.
Importantly, Mr Spence also recalls questioning Mr Kirtlan about the acquisition of the Buckland Hill property. Mr Kirtlan said it was a good investment, being a large double block, and specifically confirmed that he had no intention of returning to Australia to live in the home.
In addition to submitting that Mr Spence’s affidavit does not provide sufficient detail regarding the information on which he based his view that Mr Kirtlan was not an Australian resident, the Commissioner also points out that, apart from the initial advice, there is no evidence of Mr Spence communicating his continuing view that Mr Kirtlan was not an Australian resident to Mr Kirtlan. I give limited weight to this consideration; Mr Spence’s view was, after all, reflected in the returns he caused to be prepared for Mr Kirtlan and which he approved for lodgement by Mr Kirtlan.
In my view, it is important to consider Mr Spence’s evidence regarding his view as to Mr Kirtlan’s tax residency in the context of his and Mr Kirtlan’s evidence of a longstanding business relationship and friendship and the evidence Mr Spence gave regarding his regular contact and discussions with Mr Kirtlan. This is not a case where a taxpayer visited his tax agent once a year and the tax agent relied on information provided by the taxpayer at that time.
Mr Spence deposed that he first met Mr Kirtlan in 1990 through a political association. They became friends and saw each other regularly on various occasions, meeting for meals and drinks, and to play golf. In 1991, Mr Spence commenced to provide tax and accounting services to Mr and Mrs Kirtlan and has done so ever since.
Mr Spence deposed that during the relevant period he spoke to Mr Kirtlan many times each week, generally on the telephone. Even when Mr Kirtlan was in London, they generally spoke each fortnight. They spoke about business and personal matters.
The Commissioner is correct in asserting that Mr Spence’s affidavit does not set out every possible factor that might be taken into account in reaching a view regarding Mr Kirtlan’s residency status. It does not, as the Commissioner pointed out, descend to such details as whether Mr Kirtlan parted with title to the family motor vehicle when departing for the UK.
However, it is clear that Mr Spence was aware of key details such as the retention of the Mosman Park property and the acquisition of the Buckland Hill property. It may readily be inferred from Mr Spence’s evidence regarding the nature of their relationship and his regular ongoing contact with Mr Kirtlan that Mr Spence was aware of the properties; Mrs Kirtlan and Portia’s living arrangements after their return to Australia; and Mr Kirtlan’s regular trips to Australia.
It is clear that Mr Spence and Mr Kirtlan regularly discussed not only business but also personal matters and Mr Kirtlan’s intentions regarding his business and personal affairs. Mr Spence was, for example, aware of Mrs Kirtlan’s health issues and strains on Mr and Mrs Kirtlan’s marriage. Further, it was not put to Mr Kirtlan that he lied to his longstanding friend or withheld information relevant to his residency status.
It may be that a different picture would have emerged if Mr Spence had been cross-examined. But he was not. The Commissioner no doubt had good reasons for not troubling Mr Spence with cross-examination. But having taken that decision, the Tribunal is left with Mr Spence’s unchallenged evidence. I accept Mr Spence’s affidavit as an honest account of his interactions with Mr Kirtlan. There is no reason not to. The Commissioner did not submit otherwise.
On the foundation of that evidence, especially in relation to their long friendship and many and regular conversations, I am prepared to infer that Mr Spence was well informed regarding the business and personal activities of Mr Kirtlan relevant to his residency status. From that base of knowledge, which probably put Mr Spence in a superior position to many advisors in respect of their understanding of the factual context against which their advice to clients is formulated, Mr Spence provided advice to Mr Kirtlan regarding his view as to Mr Kirtlan’s tax residency status and prepared or approved tax returns for Mr Kirtlan’s signature. Mr Kirtlan acted on that advice and authorised the filing of his returns on that basis.
In those circumstances, I accept that Mr Kirtlan has provided a credible explanation for filing his returns on the footing that he was not a resident of Australia at the relevant times. The returns may have been inaccurate, but they were prepared or approved by an accountant of long experience and in a very good position because of their business and personal relationship to understand Mr Kirtlan’s activities and intentions. I accept the returns were not attended by evasion.
DISPOSITION OF THE REVIEW
As I have concluded that Mr Kirtlan has proved there was no evasion, it follows that the assessments are out of time and therefore excessive. The objection decision must therefore be set aside and a decision substituted allowing the objections in full.
By way of final observation, I note that this decision may result in significant income going untaxed in either jurisdiction. If that is so, it would be contrary to the spirit of the tax legislation. But the statutory time limits on amending returns were enacted by Parliament for good reason, to bring certainty to taxpayers’ affairs unless there is fraud or evasion. Having proved there was no evasion in this case, and since fraud is not alleged, Mr Kirtlan is entitled to the benefit of the time limit for amendment of assessments enacted by Parliament.
Dates of hearing: 9-10, 19 December 2024 Counsel for the Applicant:
Solicitors for the Applicant:
M May
Cooper Grace Ward Lawyers
Counsel for the Respondent: J FitzGerald, with B McIniery Solicitors for the Respondent: McInnes Wilson Lawyers
Key Legal Topics
Areas of Law
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Taxation Law
Legal Concepts
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Taxation Assessments
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Evasion
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Burden of Proof
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Residency
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Intentional Omission
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