Robert Agius and Commissioner of Taxation
[2014] AATA 854
•17 November 2014
[2014] AATA 854
Division TAXATION APPEALS DIVISION File Number(s)
2011/3772-3781
Re
Robert Agius
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Deputy President S E Frost Date 17 November 2014 Place Sydney The objection decision is each matter is affirmed.
...................[sgd]..............................................
Deputy President S E Frost
CATCHWORDS
TAXATION AND REVENUE – income tax – default assessments – whether applicant was a resident of Australia – source of income – burden of proof – imposition of administrative penalty – whether return required to be lodged – remission of penalty – objection decisions affirmed
LEGISLATION
Income Tax Assessment Act 1936 ss 6, 44, 92, 161, 167
Income Tax Assessment Act 1997 ss 1-3, 4-15, 6-1, 6-5, 6-10
Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013 Sch 5, item 27Taxation Administration Act 1953 s 14ZZK; Sch 1, ss 284-75, 284-90
CASES
Commissioner of Taxation v Rigoli [2013] FCA 784
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Federal Commissioner of Taxation v French (1957) 98 CLR 398
George v Federal Commissioner of Taxation (1952) 86 CLR 183
Gregory v Deputy Federal Commissioner of Taxation (1937) 57 CLR 774
Levene v Inland Revenue Commissioners [1928] AC 217
Nathan v Federal Commissioner of Taxation (1918) 25 CLR 183
Re Dempsey and Commissioner of Taxation [2014] AATA 335
Rigoli v Commissioner of Taxation [2014] FCAFC 29; (2014) 141 ALD 529
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
Vale Press Pty Ltd v Commissioner of Taxation (No. 2) (1994) 53 FCR 92Watson v Commissioner of Taxation (1930) 44 CLR 94
SECONDARY MATERIALS
Commonwealth of Australia Gazette (No. S 244, 29 June 2001) p 1
Commonwealth of Australia Gazette (No. S 220, 27 June 2002) p 1
Commonwealth of Australia Gazette (No. S 240, 27 June 2003) p 1
Commonwealth of Australia Gazette (No. S 240, 29 June 2004) p 1
Commonwealth of Australia Gazette (No. GN 25, 29 June 2005) p 1536
Lodgment of returns and statements in accordance with the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953 for the year ended 30 June 2005
Lodgment of returns in accordance with the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 Taxation Administration Act 1953 and the Superannuation Industry (Supervision) Act 1993 for the year of income ended 30 June 2006PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936 and other similar provisions
REASONS FOR DECISION
Deputy President S E Frost
17 November 2014
INTRODUCTION
Robert Agius is a citizen of Vanuatu. In 2008 he was arrested in Perth by Australian Federal Police officers attached to Project Wickenby, an Australian government cross-agency taskforce set up to combat international tax evasion. He was subsequently charged with conspiring with an accountant, the late Owen T Daniel, and others to defraud the Commonwealth/dishonestly cause a loss to the Commonwealth between 1997 and 2006. In 2012 he was convicted and sentenced to a term of imprisonment.
By the time of his arrest, the Commissioner had assessed Mr Agius to Australian income tax for the income years 1997 to 2006 inclusive (the relevant years). The assessments – so-called “default assessments” under s 167 of the Income Tax Assessment Act 1936 (the ITAA 1936) – were based on the Commissioner’s opinion that, although Mr Agius was not a resident of Australia during that period, he had nevertheless derived Australian-sourced income. The income related to the dealings that Mr Agius had had with Mr Daniel and his clients, and the transactions that arose – according to the Commissioner – from those dealings.
In respect of the 1997 to 2000 income years, the notice of assessment included the imposition, in each case, of an amount described as “Additional Tax for Late Return”, calculated at the rate of 50 per cent of the primary tax payable. In respect of the 2001 to 2006 income years, there was imposed an administrative penalty for “Failure to provide a document”, calculated at the rate of 75 per cent of the primary tax payable.
Mr Agius objected against the assessments. In relation to some of the income years the objections were allowed in part; in relation to others the objections were disallowed. In some cases the taxable income assessed by the Commissioner was increased, as a result of the Commissioner’s becoming aware of further amounts that were considered to represent Mr Agius’ Australian-sourced income. The Commissioner made amended assessments to reflect the objection decisions. These amended assessments, although still based on the Commissioner’s opinion that Mr Agius was not a resident of Australia, calculated his tax payable as if he were. That error was soon corrected, with further amended assessments being made, with no change to the taxable income assessed, but calculating the tax payable by reference to the non-resident tax scales.
Furthermore, the Commissioner took the view that the “Additional Tax for Late Return” imposed for the 1997 to 2000 income years could not stand, and so the objection in respect of each year was allowed in part to remove that imposition. On the other hand, the Commissioner saw no justification for the removal or reduction of the administrative penalty rate of 75 per cent for the 2001 to 2006 years; the objections to that extent were disallowed.
Mr Agius applied to the Tribunal for review of the objection decisions.
THE ISSUES
There are two areas of dispute between Mr Agius and the Commissioner: residence and source. In particular, the issues are:
·Was Mr Agius a resident of Australia during any of the income years?
·How much of Mr Agius’ income during the relevant years was from Australian sources?
For any income year when Mr Agius was a resident of Australia, the second question is irrelevant because, as a resident, he would be assessable on all his income from all sources, whether in Australia or not.
Resolution of those issues will enable me to determine whether Mr Agius has discharged his burden, under s 14ZZK of the Taxation Administration Act 1953 (TAA), of proving that the assessments are excessive.
RELEVANT LEGISLATION
The assessment for the 1997 income year was made under the Income Tax Assessment Act 1936 (the ITAA 1936) while the assessments for the other years were made under the Income Tax Assessment Act 1997 (the ITAA 1997). There are some differences in language between the two Acts but in broad terms, those differences are not meant to convey any difference in concept: s 1-3 of the ITAA 1997. I will focus on the terms of the ITAA 1997.
A person’s assessable income includes both ordinary income and statutory income: ss 6-5(1) and 6-10(1) and (2).
If you are an Australian resident, your assessable income includes:
·the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year (s 6-5(2)); and
·your statutory income from all sources, whether in or out of Australia (s 6-10(4)).
If you are a foreign resident, your assessable income includes:
·the ordinary income you derived directly or indirectly from all Australian sources during the income year (s 6-5(3)(a)); and
·other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source (s 6-5(3)(b)); and
·your statutory income from all Australian sources (s 6-10(5)(a)); and
·other statutory income that a provision includes in your assessable income on some basis other than having an Australian source (s 6-10(5)(b)).
The expression “Australian resident” is defined in the ITAA 1997 to mean “a person who is a resident of Australia for the purposes of [the ITAA 1936]”. The ITAA 1936 contains this definition in s 6(1):
resident or resident of Australia means:
(a) a person, other than a company, who resides in Australia and includes a person:
(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person’s permanent place of abode is outside Australia;
(ii) who has actually been in Australia, continuously or intermittently, during more than one‑half of the year of income, unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or
(iii) …
The Commissioner accepts two things that are relevant to that definition. The first is that Mr Agius was not in Australia for more than one-half of any of the relevant years. The second is that, although Mr Agius’ domicile was in Australia, he had established a permanent place of abode outside Australia. That means that subparagraphs (i) and (ii) of the definition will have no relevance here; the residence issue will turn on whether Mr Agius “reside[d] in Australia” during the relevant years. (My own view, in relation to subparagraph (i), would have been that Mr Agius had very likely acquired a domicile of choice in Vanuatu, but at the end of the day nothing turns on that.)
The other expression that is important in this case is “Australian source”. The ITAA 1997 defines the expression in the following way:
Australian source: *ordinary income or *statutory income has an Australian source if, and only if, it is *derived from a source in Australia for the purposes of [the ITAA 1936].
I will deal with the residence issue first.
RESIDENCE
Mr Agius was born in Ethiopia in 1949. He came to live in Australia in 1952, when he was about two years old.
All his primary, secondary and tertiary education was undertaken in Australia.
In 1971 he got his first job in an accountancy practice, Priestley & Morris, in Sydney. He worked with that firm until 1974. In May 1974 he started working with Priestley & Morris in the United Kingdom, which he continued doing until November 1975. While in the UK he married Pauline Price in 1974.
He returned to Australia shortly after his stint in the UK and by 1978 Mr Agius was working with Priestley & Morris again.
In July 1979 he accepted what he thought would be a two-year transfer to be a resident partner of the Port Vila office of Moore & Priestley, a firm established by Moore Stephens & Co and Priestley & Morris. Mr Agius’ expectation was that when he came back to Australia he would become a partner of Priestley & Morris.
When the initial term of his transfer ended in July 1981, Mr Agius was offered a further term of five to eight years as a resident partner of Moore & Priestley. The arrangement ultimately became, in his words, a “permanent position as a resident partner with Moore Stephens & Co (later known as PKF Vanuatu)”.
There was some inconsistency between Mr Agius’ evidence and that of his ex-wife Pauline, now Pauline Pollock, about their living arrangements in the early to mid-1980s. Mr Agius said that he and Pauline lived in Port Vila from 1979 to 1986 but that she had come back to Australia for the birth of their second and third sons – one in 1980 and one in 1984.
Mrs Pollock said that her third son was born in March 1983, not 1984, and that she had come back to Australia in late 1982 in preparation for the birth. After the birth she had gone back to Vanuatu but by about November 1983 she had had enough of living in Port Vila and decided to come back to Sydney with the boys. She fixed upon that time, late 1983, as the point when she moved back to Australia permanently. Mrs Pollock’s recollection seemed more reliable than Mr Agius’ and I find that she and the boys moved back permanently to Australia in 1983, not 1986.
Mrs Pollock now says that by the late 1980s she regarded herself as a “single married woman”, a contradiction perhaps best explained by her admitted “Catholic guilt associated with divorce”[1]. She acknowledges that by that time she and Mr Agius were “estranged”.
[1] Exhibit A11
Counsel for the Commissioner, Mr McGovern SC, asked her whether she was still fulfilling the role of a wife between 1982 and 1986 and she said “Not really”. She conceded that when Mr Agius came back to Australia during that period he would be with her and the boys as a family but she added:
Well when you say he came back to be with the family it sounds like he was there being with them rather than just a visitor to the house.
Despite the tensions between them, in August 1986 Mr Agius and his then wife, as joint tenants, bought a house in Douglas Street, Stanmore, a suburb of Sydney. This is the home that Pauline would live in with her sons. Meanwhile Mr Agius continued to live and work in Port Vila.
They continued to live apart and eventually divorced in February 1997. Also around that time Mr Agius became a citizen of the Republic of Vanuatu, in the process renouncing his Australian citizenship.
Mr Agius has lived in various residences in Vanuatu since 1979. During the time when he and Pauline were together, the family lived in Malapoa, Port Vila. The “principal home” that the family lived in was a three-bedroom residence located about 15 minutes’ drive from Mr Agius’ offices. Mr Agius did not own this property; it was leased to a company under his control, Astro Properties Ltd.
After Pauline moved back to Australia, Mr Agius moved out of the Malapoa home to allow one of his PKF partners to live in the property. Mr Agius then lived in different apartments and houses in and around Port Vila.
In around 1998 Mr Agius entered into a domestic relationship with Betty Forster. From mid-1998 they lived at a property at Pango, which is a short distance from Port Vila. That property was leased to Thomas Pacific Limited, a company of which Mr Agius was a director. In about 1999 he moved, with Betty, back into the house at Malapoa.
Then between June 2001 and February 2005 Mr Agius was in what he described as a bona fide domestic de facto marriage with Camilla Hannent. They lived on a property known as Dry Creek, a rural property located in the Vanuatu countryside about a 45-minute drive from the office. Dry Creek Pastoral Co Limited was the lessee of the property.
While Mr Agius and Ms Hannent were together they bought an apartment in Kent Street in Sydney. Mr Agius explained that the apartment was purchased in April 2003 as an investment for the two of them, and that it was:
… used for short period accommodation on my visits to Sydney. Camilla and her family also visited and stayed at the property whilst in Sydney. By comparison to my residences in Vanuatu, the Kent Street property was basically furnished and maintained.
When their relationship broke down in 2005, Ms Hannent’s interest in the apartment was transferred to Mr Agius. Since then the apartment has been held solely in his name.
Over the years Mr Agius visited Australia often, either to spend time with his sons, or to attend family gatherings such as birthdays, weddings, funerals or graduation ceremonies, or sometimes for business purposes – about which more later. His sons also visited him quite regularly, spending many school holidays with him in Vanuatu. He has retained a very close relationship with his sons; his ex-wife Pauline agreed that he has remained a devoted father.
In the early days of their separation, from 1983, when Mr Agius came to Australia he would stay with the family in the family home, which was then in Petersham. Later he would sometimes stay in the house in Douglas Street. Sometimes he stayed at Pauline’s mother’s house in Leichhardt, an adjoining suburb to Stanmore where Pauline and the boys lived. He explained that he did this because by then he was not always welcome at the Douglas Street house. Sometimes he would visit the family at Douglas Street and then go on to stay with a friend or with his mother-in-law. But when he did stay at Douglas Street it was generally only for a night at a time, and not always by design. Sometimes it was because there had been some sort of family function or get-together at the home and it had been more sensible for him to stay at the home rather than to drive somewhere after he had had a few drinks. He stayed in a spare room. It was not a room that was “designated” as Mr Agius’ room, despite the Commissioner’s attempt to characterise it that way. Instead, it was a room that was available for use by any visitor to the home who was going to stay the night. It is appropriately described as a guest room, or a spare bedroom.
It became clear that the most difficult period for Mr Agius and his then wife, as far as their personal relationship is concerned, was the period from 1986 onwards, and through until about the mid-1990s. Pauline said that “in the end” – by which she meant, in my view, the mid-1990s – Mr Agius rarely stayed in the house when he came to Sydney, preferring to be “away from my proximity”[2]. She also said that by 1997 “Robert and I were not having much to do with each other at all”[3].
[2] Transcript page 355
[3] Transcript page 360
But, as is often the case, the relationship became less strained over time. Once, in about January 2000, he stayed at Douglas Street for four or five days while Pauline and her partner (who has since become her husband) took a break from looking after one of the sons, who had been ill.
Until about 2003, whenever he came to Australia Mr Agius would generally complete his Incoming Passenger Movement Card by nominating his “intended address in Australia” as the Douglas Street address. Sometimes he would nominate his mother-in-law’s address in Leichhardt. From 2003 onwards he generally nominated the Kent Street address of the apartment he had bought with Ms Hannent.
After the purchase of the Kent Street apartment Mr Agius would usually stay there when he was in Sydney. In April 2004 he sent an email to the strata manager[4] indicating that at that stage he was travelling to Sydney “often” and asking that future strata levy account statements be sent to the apartment address rather than to Vanuatu. Mr McGovern suggested to Mr Agius that the motivation for that request was that he was there so regularly that it would be more convenient for him to receive them that way than if they were sent to Vanuatu. Mr Agius explained that it was not so much the convenience as the certainty of receiving the statements. Apparently the strata manager’s staff put a local stamp on the envelope when posting the statements and that meant that the statements would never reach him in Vanuatu. He would end up paying the fees late; the nomination of the local address was a way of receiving the statements in a timely fashion.
[4] Page 276 of the annexure to Exhibit A1
As already mentioned, Mr Agius described the Kent Street apartment as having been “basically furnished and maintained”. It had two bedrooms, one of which was used as a study. It had a small kitchen and a combined lounge and dining room. Mr Agius had a desktop computer and a small filing cabinet in the apartment. He said he had “rudimentary stuff” there, “nothing flash”[5].
[5] Transcript page 141
It is also the case that from time to time he met “clients” at the apartment. At this stage it is not necessary to descend into the detail of whether these “clients” were clients of Mr Agius personally, or of Owen T Daniel, or of PKF Vanuatu, or of any of the many entities with which Mr Agius is or was connected. It is sufficient to note that commercial activities, in the way of business-oriented meetings, were undertaken at the apartment.
Mr Agius’ Passenger Movement Cards for the relevant years are contained in Volume 1 of the Commissioner’s Tender Bundle, Exhibit R5. I accept as accurate the summary included in paragraph 13 of the Commissioner’s closing written submissions which shows that Mr Agius was present in Australia during the relevant years as follows:
Income year Number of days 1997 82 1998 81 1999 74 2000 66 2001 84 2002 80 2003 77 2004 61 2005 48 2006 69
To some extent those numbers are misleading, since they include those occasions when Mr Agius transited through Australia when on a journey between Vanuatu and another overseas destination. But the very existence of those occasions also shows that Mr Agius did not spend the entire balance of his time in Vanuatu.
Sometimes, during the relevant years, Mr Agius would be in Australia for up to three weeks at a time. His longer stays in Australia would be over the Christmas/New Year period – over Christmas 1996/New Year 1997 he was here for 21 days; in December 1998 for 20 days; over Christmas 2001/New Year 2002 for 17 days and Christmas 2003/New Year 2004 for 12 days. On his Passenger Movement Cards he would describe the purpose of these visits as “holidays”. Overwhelmingly, though, apart from these occasions, he would spend only a handful of days in Australia at a time – often only two or three days, sometimes five or six but rarely more than that. He would describe the purpose of these other, shorter, visits by ticking the boxes marked “visiting friends/relatives” or “convention/conference” or, sometimes, “business”.
Before his arrest in 2008 Mr Agius had built up significant ties to the Vanuatu community. The following contents of his witness statement dated 14 November 2012 (Exhibit A1) were not challenged and I accept them:
My sporting/club connections are with the Mele Bulls Cricket Club and with a local chapter of the Hash House Harriers as well as the local yacht club. I was an active member of Rotary and SKAL International. I was also an active member of the Vanuatu Amateur Theatrical society. In addition to my involvement with the PKF Vanuatu firm (and fostering ni-Vanuatu employees), I had numerous business connections in Vanuatu and I was closely involved with the Vanuatu government and other businesses in the promotion of Vanuatu as a finance centre. I was the President of the Vanuatu Finance Centre. I also have close ties to the ni-Vanuatu people of the Mele village. Amongst my many activities was being Treasurer of the Vanuatu Hotel Association … I was a member of the Vanuatu Cultural Society and Vice President of the Cricket Association.
In Australia Mr Agius had taken out membership at Telstra Stadium prior to the Olympic Games in 2000 but he eventually realised that he could not justify the expense and so he let the membership lapse in about 2004.
At some stage (it is not clear when) he terminated his medical insurance cover in Australia. From time to time he came to Australia for medical attention including a problem with his knee but he did not claim any rebate from Medicare because “I wasn’t in Medicare or whatever they call it …”[6]. He had medical insurance in Vanuatu.
[6] Transcript page 74
What are the principles for determining whether a person resides in Australia?
Recently, in Re Dempsey and Commissioner of Taxation [2014] AATA 335, the Tribunal (constituted by Logan J, Deputy President Hack SC and Senior Member Kenny) emphasised at [13] “the importance to the assessment and collection of tax according to law of subservience by officers of the Executive to pertinent and binding judicial authority”.
The Tribunal continued (some footnote references omitted):
[89] In Federal Commissioner of Taxation v Miller [(1946) 73 CLR 93] (Miller) and in the context of the ITAA 36, the following statement of Viscount Cave LC in Levene v Inland Revenue Commissioners [[1928] AC 217 at 222] (Levene) as to the meaning of the word “resides” were regarded as authoritative:
... the word ‘reside’ is a familiar English word and is defined in the Oxford English Dictionary as meaning ‘to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place.’ No doubt this definition must for present purposes be taken subject to any modification which may result from the terms of the Income Tax Act and Schedules; but, subject to that observation, it may be accepted as an accurate indication of the meaning of the word ‘reside.’ In most cases there is no difficulty in determining where a man has his settled or usual abode, and if that is ascertained he is not the less resident there because from time to time he leaves it for the purpose of business or pleasure.
In another case decided on the same day as Levene, Inland Revenue Commissioners v Lysaght [[1928] AC 234], the House of Lords adopted this same approach to the interpretation of that word.
[90] At the time when Miller was decided, the definition of “resident” in s 6 of the ITAA was in similar, though not identical form to the definition as it stood in the 2009 and 2010 income years. Notably, it was then, as now, cast in a “means and includes” format. Neither party to the review submitted, nor do we consider, that the differences raise any issue as to the meaning to afford the word “resides” in the definition. In Miller, Latham CJ [73 CLR at 99] prefaced his quotation of this passage from Viscount Cave’s speech in Levene with the following observations:
I should have thought that there was no doubt that a man resided where he lived, and I do not think that there is any interpretation of the word “reside” by the courts which makes it impossible to apply the ordinary meaning of the word “reside” in the present case.
Having quoted Viscount Cave’s speech, Latham CJ continued [73 CLR at 100]:
In Cesena Sulphur Co. Ltd. v. Nicholson, Huddleston B. said: “There is not much difficulty in defining the residence of an individual; it is where he sleeps and lives.” In De Beers Consolidated Mines Ltd. v. Howe, the decision in the Cesena Sulphur Co. Case was referred to as a decision which had been acted upon for many years, and in applying the conception of residence to a company by analogy to the case of an individual it was said: “A company cannot eat or sleep, but it can keep house and do business. We ought therefore to see where it really keeps house and does business.” An individual person can eat and sleep as well as keep house and do business. [Footnote references omitted]
[91] In Miller, Rich J [73 CLR at 100-101] likewise emphasised that the word “resides” was “not a term of art denoting a field with precisely defined boundaries” and “is an ordinary English word extending over a field the boundaries of which constitute a broad limbo with blurred edges”. His Honour [73 CLR at 101] and Dixon J [73 CLR at 103] were of the view that the meaning of the word “resides” being so understood, the question as to where someone resided entailed questions of degree and was one of fact.
[92] Miller, and hence the guidance offered by Viscount Cave LC in Levene remains authoritative in Australia as to the meaning of “resides” in the ITAA 36. That guidance also remains authoritative in the United Kingdom on that same subject.
[93] The settled position at ultimate appellate level has thus long been that, as used in the definition in s 6 of the ITAA 36, “resides” bears its ordinary English meaning, which is “to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place”.
[94] Miller provides no warrant for adopting some broad meaning of the word “resides” (whatever that may be), much less any broad application of that word. Even were we at liberty to depart from the meaning given to the word in Miller, and neither we, nor before us the Commissioner, enjoy any such liberty, neither the text of the definition nor its context lead to any conclusion other than that the word “resides” bears its ordinary meaning, not some broad meaning. Adopting and applying what was said in [Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27] as to the approach to statutory construction should put any contrary notion firmly and finally to rest.
[95] Adopting that ordinary meaning of “resides” does not mean that a conclusion on the facts that an individual “resides” in one location precludes a conclusion on the facts that he also “resides” in another. That has long been settled. As Dixon J observed in respect of cognate expressions, and by reference to earlier authority in Gregory v Deputy Federal Commissioner of Taxation [(1937) 57 CLR 774 at 777] (Gregory), “The well settled interpretation of the words includes in their application a man who resides in two or more places.” ...
It is by reference to those principles that the question of Mr Agius’ residence is to be determined.
Did Mr Agius reside in Australia in any of the relevant years?
There is no doubt that Mr Agius resided in Vanuatu in the relevant years. In fact he became a resident of Vanuatu at least as long ago as 1981 and perhaps even earlier than that. But that conclusion does not dispose of the issue in this case because it is no answer to the question raised. The question here is not whether Mr Agius resided in Vanuatu but whether he resided in Australia. It is, as noted in Gregory v Deputy Federal Commissioner of Taxation (1937) 57 CLR 774 and other cases, possible for a person to reside in two different places. The Commissioner submits Mr Agius did just that in the relevant years – that he resided in Australia as well as in Vanuatu.
I do not agree.
It is certainly the case that Mr Agius spent time in Australia. It is also the case that, when he came to Australia, he would stay (although not always) in the family home in Petersham and later at Douglas Street, or at his mother-in-law’s house in Leichhardt, or at friends’ houses, or, from 2003 onwards, generally at the Kent Street apartment. But he did not live in any of those locations. They were not his home. They were places where he stayed; they were not places where he lived.
Mr Agius’ circumstances are not the same as a person who, for example, chooses to live for part of the year in one location and part of the year in another. Nor are they the same as a person who has multiple residences around the country and who lives at different times in one or another of them.
Mr Agius’ circumstances are simply this: he lived in Vanuatu, and he sometimes – even often – visited Australia. When he visited Australia, he did not live here, in the sense referred to in Levene v Inland Revenue Commissioners [1928] AC 217, of dwelling here permanently or for a considerable time. He did not have his settled or usual abode (or one of his settled or usual abodes) here; the only settled or usual abode he had was in Vanuatu. His connection with Australia, and with particular locations in Australia, during the relevant years lacks the permanent, long-term or non-transient quality that is suggested by the word “reside”. Even when he was here for longer periods of some weeks at a time, it is not apt to describe what he did as “dwelling” here. He simply stayed in the Douglas Street home, or in the Kent Street apartment. He did not live in either one of them, or in any other place in Australia.
Mr Agius was not a resident of Australia at any time during any of the relevant years.
THE RATIONALE UNDERPINNING THE ASSESSMENTS
It is convenient to provide a brief explanation of the methodology the Commissioner used to assess Mr Agius’ Australian-sourced income during the relevant years.
The Commissioner started with the fact that Mr Agius attended meetings in Australia with clients of Owen T Daniel & Co (OTD). The meetings usually took place at OTD’s business premises. Mr Daniel would introduce Mr Agius to the client. Mr Agius would provide information to the client. The Commissioner characterised the content of the information provided by Mr Agius as “tax consultancy services”; Mr Agius says that all he did was explain “how offshore worked”[7], and Mr Daniel was the one who provided tax advice. Any clients who were interested in taking advantage of what they had been told about offshore opportunities would then send money to either Vanuatu or New Zealand for the implementation of an offshore arrangement, which would include the incorporation of a company in Vanuatu. That money – less a fee or commission – would often find its way back to the client or a related entity in Australia.
[7] Transcript pages 156-157
The money that was transferred overseas from Australia was often, but not always, directed to a New Zealand account in the name of International Finance Trust Company Limited, or IFTC, based in Vanuatu. Other companies that received funds in this way (generally into accounts in New Zealand) included:
(a)Billbury Limited, based in the United Kingdom;
(b)Lime Street Commercial and General Insurance Limited, based in Vanuatu;
(c)Security Life Nominees Limited, based in Ireland;
(d)Southern Hemisphere Insurances Limited, based in Vanuatu;
(e)Uniton Limited, based in Vanuatu;
(f)Centurion Technology and Marketing Inc, based in the United States; and
(g)Edgecumbe Finance Limited, based in Ireland.
Put simply, the Commissioner’s methodology was to calculate the net amount involved in these arrangements – the sums sent overseas, less the sums returned to Australia – and to assess that entire amount to Mr Agius as his Australian-sourced income. This was despite the fact that the payments were not made to Mr Agius personally, but to one or other of those companies, which the Commissioner considered were owned or controlled by or otherwise connected with Mr Agius. The Commissioner considered that the income was properly attributed to Mr Agius, as income earned by him in Australia from the tax consultancy services that he provided. That broad principle followed through to the objection decision, although the Commissioner did make some adjustments to the quantum of the assessments.
The Commissioner still considers his original approach to be soundly based, but he now takes the view that there are very likely additional amounts that might be included in Mr Agius’ Australian-sourced income for the relevant years. Given that likelihood, the Commissioner submits that Mr Agius has not shown the assessments to be excessive, and for that reason they should be upheld.
THE BURDEN OF PROOF – SECTION 14ZZK
Amendments made to s 14ZZK of the TAA by the Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013 (the 2013 Amendment Act) do not apply to the assessments under examination here: see item 27 in Schedule 5 to the 2013 Amendment Act.
Mr Agius therefore bears the burden of proving, in respect of the assessment for each of the relevant years, that “the assessment is excessive”: s 14ZZK(b)(i).
There have been many formulations of what that expression means.
Over 60 years ago the High Court explained in George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 201, referring to authorities going back as far as 1918, that:
... the law has always been taken to be that in an appeal from an assessment the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income ...
As Brennan J (as his Honour then was) put it in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 621:
... the purpose of the procedure of assessment, objection and appeal or review is to ascertain the true tax liability of the taxpayer under the substantive provisions of the Act.
When both George and Dalco were decided the burden of proof provision was in s 190(b) of the ITAA 1936, but it was in identical terms to the TAA provision that applies here.
In a sales tax case dealing with what are now the uniform burden of proof provisions in Part IVC of the TAA (s 14ZZK for Tribunal reviews and s 14ZZO for Federal Court appeals), Hill J said in Vale Press Pty Ltd v Commissioner of Taxation (No. 2) (1994) 53 FCR 92 at 99, after referring to a number of cases including George and Dalco:
… the word “excessive” requires that the taxpayer show that the assessment made by the Commissioner exceeds some nominated figure being the taxpayer’s liability.
The Federal Court has recently explained how a taxpayer proves a s 167 assessment excessive. In Commissioner of Taxation v Rigoli [2013] FCA 784 Pagone J said:
[8] … In Gashi [Gashi v Commissioner of Taxation [2013] FCAFC 30], the Court had held that a taxpayer wanting to challenge an assessment made under s 167 upon the asset betterment method of calculation could only do so by establishing the actual taxable income for the period in dispute saying at [63]:
A taxpayer who seeks to establish that a s 167 assessment based on the asset betterment method of calculation is excessive must positively prove his or her “actual taxable income” and, in doing so, must show that the amount of money for which tax is levied by the assessment exceeds the actual substantive liability of the taxpayer: Dalco at 623-5 and Trautwein [Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63] at 88. The taxpayer must show that the unexplained accumulated wealth was from non-income sources. The manner in which a taxpayer discharges that burden is not defined or specified – it varies with the circumstances: Dalco at 624.
The reason for this conclusion lay in the difference between assessments made under s 166 and those made under s 167 which at [53]-[55] the Court had explained:
The s 167 power is necessarily different to that in s 166. Under s 166, the power is to “make an assessment of the amount of the taxable income”. The phrase “taxable income” is defined to mean “assessable income” minus “deductions”: s 4-15 of the 1997 Act and s 6(1) of the 1936 Act. Under s 167, that process of calculating taxable income as assessable income minus deductions is not possible (in whole or in part) because of one of the preconditions to the exercise of the power in sub-paras (a) to (c) of s 167 – a failure by a person to lodge a tax return, the tax return is deficient or the Commissioner has reason to believe that a person who has not lodged a return has derived taxable income. It is for those reasons that the balance of s 167 empowers the Commissioner to make an assessment of the amount upon which income tax ought to be levied and for that amount to be deemed to be the taxpayer’s taxable income for the purposes of s 166.
The third part of the section – the deeming provision – would be futile if it was necessary for the Commissioner to undertake a process of the kind referred to in s 166. As the Commissioner submitted, the assessment of the “amount” in s 167 is not constrained by a process of subtracting “deductions” from “assessable income”. Instead, in making his judgment of the “amount” that becomes taxable, the Commissioner may use what is known as the “asset betterment” method: Trautwein at 87, 99-100 and 105.
The asset betterment method, and the resulting assessment, is necessarily a guess to some extent and “almost certainly inaccurate in fact”: Trautwein at 87. It is therefore “no part of the duty of the commissioner to establish affirmatively what judgment he formed [under s 167 of the 1936 Act], much less the grounds of it, and even less still the truth of the facts affording the grounds”: George v Federal Commissioner of Taxation at 204.
The need, therefore, for a taxpayer to prove the “actual taxable income” in order to establish the excessiveness of an assessment made under s 167 was not so much that the assessment in Gashi was based upon the asset betterment basis of calculation as that it was made under s 167 where the “process of calculating taxable income as assessable income minus deductions is not possible (in whole or in part)”. The figure arrived at by the Commissioner under s 167 may in any given case be based upon calculations similar to those where the taxpayer has furnished a return under s 166, but an assessment under s 167 is fundamentally different from one under s 166. A taxpayer seeking to establish that an assessment under s 167 is excessive needs to establish not that some element in the assessment is wrong but that “the amount upon which in [the Commissioner’s judgment] income tax ought to be levied” was the taxpayer’s actual taxable income. The primary obligation of a taxpayer is to furnish a return of income under s 166 and an assessment under s 167 does not provide a means by which taxpayers may be relieved of their obligation to establish their actual taxable income. It is, rather, a means by which the Commissioner may impose a liability where the taxpayer has failed to furnish a return.
…
[10] A taxpayer seeking to challenge an assessment under s 167 will not succeed merely by proving error by the Commissioner: George v Federal Commissioner of Taxation (1952) 86 CLR 183; Dalco. The task for the taxpayer on objection is not to prove that the Commissioner erred but to prove, albeit on the balance of probabilities (see Ma v Commissioner of Taxation (1992) 37 FCR 225), the correct amount upon which tax should be levied. The subject matter of challenge to an assessment under s 167 of the 1936 Act is “the amount” upon which the Commissioner has determined tax ought to be levied. The subject matter of challenge in such cases is not to the individual elements of assessable income and deductions which together would have made up taxable income to the assessment if it had been made under s 166.
The Full Court rejected the taxpayer’s appeal from that decision (Rigoli v Commissioner of Taxation [2014] FCAFC 29; (2014) 141 ALD 529), observing at [27] that “[t]he reasoning and conclusions of the primary judge were entirely correct”.
These authorities establish that to prove the Commissioner’s assessments excessive, Mr Agius must prove what his actual taxable income was in each of the relevant years. That requires him not only to identify those categories of income (if any) that generated Australian-sourced income, but also to prove that there were no others that did so. Having done that, he must satisfy me as to the quantum of income attributable to those Australian-source categories. The sum of all such amounts would equal his “actual taxable income”.
WHAT IS THE “SOURCE” OF AN ITEM OF INCOME?
In Nathan v Federal Commissioner of Taxation (1918) 25 CLR 183 the High Court said at 189-190:
The Legislature in using the word “source” meant, not a legal concept, but something which a practical man would regard as a real source of income. Legal concepts must, of course, enter into the question when we have to consider to whom a given source belongs. But the ascertainment of the actual source of a given income is a practical, hard matter of fact. [Emphasis added.]
In Federal Commissioner of Taxation v French (1957) 98 CLR 398 Kitto J explained at 417 that the ITAA 1936:
… assumes that it is possible to identify, with respect to every amount of income, some activity event or thing which may properly, though metaphorically, be described as the source from which that income has been derived …
The focus is not on the origin of the money but on the activity, event or thing which led to its receipt. In other words, the question is not “Where did the money come from?” but “Where was the income earned?”
CATEGORIES OF INCOME THAT MR AGIUS ADMITS
Mr Agius identifies his income during the relevant years as falling into only two categories, namely:
(a)His share in the net income of the Moore Stephens/PKF Vanuatu practice (which was paid to him as a regular monthly payment described as “partner salary”, plus a final allocation at year end, calculated so that his total remuneration equalled the agreed portion of the partnership’s profits); and
(b)Director’s fees paid to him by IFTC[8].
[8] See [61] above
MR AGIUS’ CLAIMS AS TO SOURCE
He emphasises, however, that none of the income he derived in either of those categories had an Australian source.
Alternatively, he submits that, if the Tribunal should find that he also derived income in the form of dividends from IFTC, any such dividends did not have an Australian source.
At this stage I should note my finding, contrary to Mr Agius’ principal submission, that he did indeed derive income in the form of dividends from IFTC. That finding is supported by the contentious document identified as page 670A of Exhibit R7 and its recording of figures that are consistent with pages 81, 82, 83, 84 and 85 (the Moore Stephens/PKF Periodic General Ledger) of Exhibit A1 for the calendar years 2001, 2000, 1999, 1998 and 1997 respectively. Although Mr Agius attempted to disown both page 670A and the differently configured page 670, the congruence between page 670A and the identified pages of Exhibit A1 compels me to reject the claim that he did not receive dividends from IFTC.
In relation to the issue of source, and in amplification of his position summarised at [78] and [79] above, Mr Agius submits that:
(a)IFTC is a Vanuatu trust company that is registered to carry on business in Vanuatu, and the director’s fees derived by Mr Agius did not have an Australian source;
(b)fees paid to IFTC by the Australian participants[9] were for professional services rendered in Vanuatu in relation to the incorporation, registration and administration of Vanuatu international corporations, and did not have an Australian source, and accordingly, no part of the dividends paid by IFTC were paid out of profits having an Australian source for the purposes of s 44(1)(b) of the ITAA 1936;
(c)Moore Stephens/PKF is a Vanuatu-based chartered accountancy practice that carried on business in Vanuatu and earned fees for professional services provided in Vanuatu (predominantly for preparing the annual financial statements of the Vanuatu international corporations);
(d)fees paid to Moore Stephens/PKF were paid for professional services rendered in Vanuatu to the Vanuatu international corporations, and did not have an Australian source, and accordingly, no part of the partnership’s net income was attributable to sources in Australia and no part of Mr Agius’ “partner salary” or his share of the partnership profits was assessable;
(e)the insurance companies carried on business in Vanuatu, and premiums earned by the insurance companies did not have an Australian source, and any payments by the insurance companies to Moore Stephens/PKF for services, or distributions made to IFTC, by the insurance companies did not have an Australian source.
[9] “Australian participants” are the individuals or corporate entities (introduced to Mr Agius through OTD) that participated in offshore arrangements of the kind described in [60]-[61] of these reasons
CALCULATION OF ACTUAL TAXABLE INCOME
Wisely, he does not allow the submission to end there, for if he did, and I were to find against him on the source of any of those categories of income, the objection decisions would have to be affirmed because of Mr Agius’ failure to establish his actual taxable income. And so he provides detailed worksheets which, he says, show his taxable income for each of the relevant years, based on the following principles:
(a)that he is a foreign resident;
(b)that there is Australian-source fee income of IFTC and Moore Stephens/PKF resulting in a profit or net partnership income attributable under:
(i)s 92(1)(b) of the ITAA 1936 for the partnership; and
(ii)s 44(1)(b)(i) in relation to dividends paid by IFTC;
(iii)similar general concepts for the director’s fees paid to Mr Agius by IFTC (that are deducted in working out IFTC’s profit);
(c)the erroneous figures used by the Commissioner are replaced by the invoices issued by IFTC and Moore Stephens/PKF in respect of the 19 Vanuatu international companies/Australian participants[10];
(d)those fees are converted from $US to $A and then reduced by government fees, turnover tax and disbursements;
(e)the basis of apportionment looks at the percentage that the $US income of Mr Agius bears to the total $US fees of the nearest corresponding period ended 31 December;
(f)the percentages in (e) are then applied to the converted $A fees to give an amount attributable to Australian sources for the purposes of (b).
[10] The “Australian participants” each had a “Vanuatu international company” as part of the transaction or payment flow.
The result is an asserted actual taxable income figure for each of the relevant years, and a total for the entire period of $90,273.
THE WORKSHEETS
Critical elements of the calculation worksheets are the information summarised in [82](b) and the step in [82](c).
The arithmetic itself is exposed in Worksheets B, C and N, and some of it is based on assumptions. Those assumptions go to the heart of the question whether Mr Agius has discharged his burden of proof under s 14ZZK of the TAA.
One of the assumptions underpinning Worksheet B is that the only income of the Moore Stephens/PKF partnership that is Australian-sourced is represented by the fees charged in relation to the offshore arrangements of the 19 Australian participants. That is an unsafe assumption, for two reasons. The first is explained immediately below, the second later in these reasons at [97]-[98].
Australian-sourced income of the partnership from other activities
Mr Agius said in his witness statement dated 14 November 2012 (Exhibit A1) that:
… there were no services performed by me in Australia relating to the affairs of IFTC, PKF Vanuatu or Moore Stephens that were undertaken on my own account.
I find that claim to be accurate. It is certainly the case that what Mr Agius did, by way of explaining how companies could be set up in Vanuatu, and how arrangements between the Australian participants and those offshore companies could be structured, was an essential and significant step in what became the impugned tax avoidance schemes. But he did that work for either or both of IFTC and Moore Stephens/PKF. Any fees relating to Mr Agius’ activities are the fees of either IFTC or Moore Stephens/PKF.
However, his witness statement continues:
During this period I was appointed Receiver and Administrator of various companies by Westpac. These appointments were all made on behalf of PKF Vanuatu or Moore Stephens. The appointment required many trips to Australia for discussions with potential buyers of these businesses. It also required attendances with lawyers in Australia. Further, I was a director of various companies in Vanuatu. As part of these duties I was required to visit Australia. I also attended Partners’ conferences in Australia for PKF and Moore Stephens.
There is no greater level of specificity about those activities and, significantly, there is no suggestion that the activities were conducted only in some of the relevant years and not in others.
Mr McGovern asked him about that part of his statement:
… you were also doing work as a receiver and administrator for entities that Westpac had taken over exercising its powers under mortgages and charges, weren’t you?
Mr Agius: I don’t know whether you’d call it work. The lawyers that Westpac Vanuatu use are a firm called the Pacific Lawyers in Sydney and they requested my attendance to go through documents for – – – if there was a potential buyer. …
Plainly enough, these were paid engagements undertaken by the Moore Stephens/PKF partnership and they entailed the carrying out of work in Australia. I dismiss Mr Agius’ inconsistent claim – “I don’t know whether you’d call it work” – as mere flourish.
The generation of fees by a Vanuatu-based partnership, where the work to which those fees relate is performed in Australia, in my view undoubtedly constitutes the derivation of income with an Australian source. The difficulty for Mr Agius, and the evident gap in his worksheets, is that there has been no attempt to quantify the proportion of Moore Stephens/PKF’s fees that this Australian-sourced income represents.
Mr Agius submits that the High Court decision in Watson v Commissioner of Taxation (1930) 44 CLR 94 should lead me to the view that this category of income was actually sourced in Vanuatu. His reliance on Watson, however, is misplaced. Watson was not a case where, as here, the service provider was remunerated, on hourly charge-out rates[11], for the work actually done. Rather, it was a case where the taxpayer was paid a set fee for producing a result (a refund of tax previously paid by the client). The fact that some of the work to procure that result was performed outside the taxing jurisdiction did not lead to a conclusion that the income, “arising or accruing to any person … from any profession … carried on in Western Australia”, was “income earned outside” that State.
[11] Exhibit A1 [59]
Section 92(1)(b) of the ITAA 1936 provides that the assessable income of a partner in a partnership includes:
… so much of the individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was not a resident and is also attributable to sources in Australia.
It is not possible to quantify this amount because of Mr Agius’ failure to provide comprehensive information about the proportion of the partnership’s net income that is attributable to sources in Australia.
Australian-sourced income from other Australian participants
While the general methodology in [82](c) is sound, Mr Agius has failed to establish that arrangements of the kind dealt with in the methodology were confined to the 19 identified Australian participants.
Mr Agius gave evidence that his meetings in Australia were usually, but not always, with clients of OTD. Sometimes he would be asked by other accountancy firms in Sydney to talk to their clients about the opportunities in Vanuatu. When Mr McGovern asked him if any of the clients of those other firms became involved in arrangements with IFTC and/or PKF, Mr Agius answered “Not necessarily”[12], but he later acknowledged that there were people other than OTD clients who “would have set up structures in Vanuatu, not necessarily [the] same type of thing as Owen Daniel wanted for his clients”[13]. In context, I take that to mean that the “structures” they set up would have included some involvement on the part of IFTC or PKF and the consequent derivation of fees by that entity on the same basis as the arrangements with the clients of OTD. Those fees have not been identified, and their quantum has not been included as an integer in any of the worksheet calculations.
[12] Transcript page 87
[13] Transcript page 447
AT LEAST ONE ADDITIONAL CATEGORY OF INCOME
MSAN Woodward is a firm of chartered accountants based on the Sunshine Coast. From about 2001 it was owned by either PKF[14] or IFTC[15]. There is no evidence as to the earnings of the firm (largely, if not exclusively, one must assume, sourced in Australia) or the extent to which its profits, if any, were distributed to either of the Vanuatu entities and ultimately to the persons, including Mr Agius, who controlled them. Mr Agius has failed to exclude the very strong likelihood that there is a further category of income derived by him and having an Australian source.
[14] Exhibit A1 page 51
[15] Transcript page 120
Conclusion on substantive liability
The heavy burden cast on Mr Agius by s 14ZZK of the TAA has not been discharged.
It is not to the point that the amount on which the Commissioner has fixed in the assessments is almost certainly wrong; that will invariably be so in the case of a default assessment under s 167 of the ITAA 1936: see Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87. What matters is that, because of the shortcomings identified in [87]-[99] of these reasons, Mr Agius has not established what his actual taxable income was in each of the relevant years.
ADMINISTRATIVE PENALTY
The administrative penalty in respect of the 2001 to 2006 income years, described in the notice as being for “Failure to provide a document”, was imposed under s 284-75(3) in Schedule 1 to the TAA, which provides as follows:
You are liable to an administrative penalty if:
(a)you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and
(b)that document is necessary for the Commissioner to determine a *tax‑related liability of yours accurately; and
(c)the Commissioner determines the tax‑related liability without the assistance of that document.
Mr Agius submits[16] that:
… penalties imposed should not have been imposed and penalties and interest should now be remitted in accordance with the contentions made in the Applicant’s SFIC[17].
[16] Applicant’s Closing Submissions at [137]
[17] Statement of Facts, Issues and Contentions
Mr Agius’ SFIC[18] had included the following[19]:
[18] At [47]
[19] References omitted
The Applicant contends that in the income years ended 30 June 2001 and each of the following years
(i)the Applicant is not, in terms of s 284-75(3)(a) of Schedule 1 to the TAA, liable for an administrative penalty because he did not fail to give a return to the Respondent by the day it was required to be given
(ii)in particular:
a. as he did not derive Australian source income, the Applicant was not required by a notice in the Gazette (or by a legislative instrument registered on the Federal Register of Legislative Instruments) to lodge a return for the relevant income year; and
b. contrary to PS LA 2007/24, which required the Respondent to demand lodgement and subsequently provide a reasonable opportunity for the Applicant to lodge income tax returns, the Respondent did not consult the Applicant concerning the audit findings (aggregate taxable income of $801,675) and determined to issue default assessments rather than requiring the Applicant to give him a return
(iii)the Applicant is not, in terms of s 284-75(3)(b) of Schedule 1 of the TAA, liable for an administrative penalty because such returns were not necessary for the Respondent to accurately determine the tax-related liabilities of the Applicant
(iv)in particular, the Respondent determined that he did not need to consult the Applicant concerning the audit findings (aggregate taxable income of $801,675); and that he had obtained the material facts; and that he had a reasonable basis for default assessment under s 167 of ITAA 1936
(v)that is, save as to the errors that were made by the Respondent at audit (and are reflected in the default assessments), returns lodged by the Applicant were not necessary as the Respondent did have all materials necessary to have accurately determined, according to his methodology (had that methodology been properly applied), the taxable income of the [Applicant].
The Commissioner’s SFIC engaged with none of those contentions, instead maintaining simply as follows[20]:
The Applicant’s circumstances meet the criteria in s 284-75(3) of Schedule 1 to the TAA and is [sic] therefore liable for an administrative penalty of 75% of the tax related liability for the years ended 30 June 2001 to 30 June 2006.
[20] At [169]
The first question under s 284-75(3) is whether Mr Agius “fail[ed] to give a return … to the Commissioner by the day it [was] required to be given”. A critical issue is whether Mr Agius was under an obligation to lodge a return in the first place.
Was Mr Agius required to lodge a return?
Section 161(1) of the ITAA 1936 provides as follows:
Every person must, if required by the Commissioner by notice published in the Gazette, give to the Commissioner a return for a year of income within the period specified in the notice.
For many years it has been the Commissioner’s practice to publish a notice, shortly before the end of an income year, specifying the classes of persons who must lodge a return for that income year. For each of the 2001 to 2006 income years, the Commissioner published a notice requiring, from the specified classes, a return by 31 October following the end of the income year. Each notice contained a particular reference to persons, like Mr Agius, who were not residents of Australia. The notices required returns in the following circumstances[21]:
[21] For the income years 2001, 2002, 2003 and 2004 see Commonwealth of Australia Gazettes No. S 244, 29 June 2001, page 1; S 220, 27 June 2002, page 1; No. S 240, 27 June 2003, page 1; No. S 240, 29 June 2004, page 1 respectively. From 2005 onwards it is sufficient that the notice is published in the Federal Register of Legislative Instruments: Legislative Instruments Act 2003 and Commonwealth of Australia Gazette No. GN 25, 29 June 2005, page 1536
Income year Table Description 2001 D Every person who, at any time during the year of income ended 30 June 2001, was not an Australian resident and derived income that is taxable in Australia, other than income subject to withholding payments covered by subdivision 12-F of Schedule 1 of the TAA 1953. 2002 D Every person who, at any time during the year of income ended 30 June 2002, was not an Australian resident and derived income that is taxable in Australia, other than income subject to withholding payments covered by subdivision 12-F in Schedule 1 to the TAA 1953. 2003 D Every person (not being a full self-assessment taxpayer), except where they are described in Table L, who at any time during the year of income ended 30 June 2003, was not an Australian resident and derived income that is taxable in Australia, other than income subject to withholding payments covered by subdivision 12-F in Schedule 1 to the TAA 1953. 2004 D Every person (not being a full self-assessment taxpayer), except where they are described in Table L, who at any time during the year of income ended 30 June 2004, was not an Australian resident and derived income (including capital gains) that is taxable in Australia other than dividend, interest or royalty income subject to withholding payments covered by Subdivision 12-F in Schedule 1 to the TAA 1953. 2005 D Every person (not being a full self-assessment taxpayer), except where they are described in Table L, who at any time during the year of income was not an Australian resident and derived income (including capital gains) that is taxable in Australia other than dividend, interest or royalty income subject to withholding payments covered by Subdivision 12-F in Schedule 1 to the TAA 1953. 2006 D Every person (not being a full self-assessment taxpayer), except where they are described in Table L, who at any time during the year of income was not an Australian resident and derived income (including capital gains) that is taxable in Australia other than dividend, interest or royalty income subject to withholding payments covered by Subdivision 12-F in Schedule 1 to the TAA 1953.
Common to each of the notices is a requirement that a return must be lodged by a non-resident who “derived income … that is taxable in Australia”.
The word “taxable” in that context initially seems out of place; “assessable” might have been thought more appropriate. That is because income that is derived is not taxable, as such, but either assessable or exempt (or non-assessable non-exempt): see s 6-1 of the ITAA 1997 and the diagram there. But the expression used in the notices is not trying to fix upon either “assessable income” or “taxable income” (both of which are well understood expressions, the latter being the difference between assessable income and allowable deductions: s 4-15 of the ITAA 1997). It is trying to fix upon “income … that is taxable in Australia”, and in that expression the word “taxable” takes its ordinary meaning of “capable of being taxed”, or “subject to tax”.
It is clear that Mr Agius’ Australian-sourced income during the relevant years was “capable of being taxed”, or “subject to tax”, in Australia. It follows that he was required to lodge an Australian tax return for each of the relevant years, and by 31 October following the end of the income year.
Did Mr Agius fail to lodge a return by the due date?
Yes. Paragraph (a) of s 284-75(3) in Schedule 1 to the TAA is satisfied. That the Commissioner did not demand lodgement in accordance with PS LA 2007/24 is beside the point: Mr Agius was required to lodge a return whether or not the Commissioner specifically demanded one from him.
Was a return necessary for the Commissioner to determine Mr Agius’ tax-related liability accurately?
Yes. The Commissioner was left in the position of having to derive an “amount upon which in his or her judgment income tax ought to be levied” (s 167 of the ITAA 1936) because he did not have a return from Mr Agius. He needed a return to determine Mr Agius’ liability accurately. Paragraph (b) of s 284-75(3) in Schedule 1 to the TAA is satisfied.
Did the Commissioner determine Mr Agius’ liability without the assistance of a return?
Yes. The Commissioner made an assessment without the assistance of a return from Mr Agius. Paragraph (c) of s 284-75(3) in Schedule 1 to the TAA is satisfied.
Conclusion on the imposition of administrative penalty
Administrative penalty was correctly imposed at 75 per cent under s 284-75(3) in Schedule 1 to the TAA.[22]
[22] Table item 7 in s 284-90(1) in Schedule 1 to the TAA
Remission
In respect of the remission of the administrative penalty, Mr Agius’ SFIC included the following:
[48] The Applicant contends that the Respondent has failed in his obligations to exercise his discretions to remit administrative penalties and interest in accordance with the law and the principles in Elias v Commissioner of Taxation [2002] FCA 845; (2002) 123 FCR 499.
[49] In the absence of detailed written statements of reasons for his remission decisions that were required to be given to the Applicant by inter alia s 280-165 and s 298-20 in Schedule 1 of the TAA (the contents of which must comply with the rules in s 25D of the Acts Interpretation Act 1901), the Applicant contends that the failure by the Commissioner to properly consider the application of his remission guidelines (rather than the withdrawn guidelines and policies that he did refer to, but cannot have properly applied) must have been caused by the Commissioner failing to take into account relevant considerations or taking into account irrelevant considerations.
[50] In particular, the Applicant contends that the exercise of that Respondent’s discretion not to remit administrative penalties and interest may have been improperly affected by the Respondent’s unfounded view that the Applicant was a promoter who marketed tax schemes. The Respondent also appears to be applying a view that there should only be remission in exceptional circumstances (a view that has been rejected by the Tribunal and by the Federal Court of Australia).
[51] Upon consideration of the Applicant’s evidence and the T-documents, the Tribunal standing in the shoes of the Respondent should remit the administrative penalties and interest in whole or alternatively in part in accordance with s 298-20 of Schedule 1 of the TAA and under s 163B(7) of the ITAA 1936 and or s 8AAG of the TAA and or s 280-160 of Schedule 1 of the TAA for each of the income years in the relevant period.
Those contentions look more like grounds for judicial review of the Commissioner’s remission decision rather than review of the decision on the merits.
Given that Mr Agius’ circumstances fall squarely within the legislative boundaries for the imposition of penalty, and given also Mr Agius’ failure to satisfy me (in the absence of any more specific submissions than those just set out) that there are grounds for remission, I decline to exercise the discretion to remit the penalty either in whole or in part.
DECISION
The objection decision in each case must be affirmed.
I certify that the preceding 119 (one hundred and nineteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President S E Frost ...............[sgd]...................................................
Associate
Dated 17 November 2014
Dates of hearing 17-21, 28 February, 6, 11-12 March, 28 April, 15 May 2014 Counsel for the Applicant Mr C Catt Solicitors for the Applicant Butlers Business Lawyers Counsel for the Respondent Mr D McGovern SC and Mr A O'Brien Solicitors for the Respondent Australian Government Solicitor
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