Tax insight: There’s no place like home, but not for the reasons you might think

23 April 2024

A recent decision by the Administrative Appeals Tribunal (Tribunal) in Quy v Federal Commissioner of Taxation [2024] AATA 245 (Quy’s Case) reaffirms the need for vigilance when in dispute with the Australian Taxation Office (ATO) about tax residency. But not for the reasons you might think.

Quy’s case

Very simply, the Tribunal affirmed the ATO’s decision that Mr Quy, an Aussie expatriate, was an Australian tax resident and therefore liable to Australian tax on his world-wide income. This was despite Mr Quy moving to Dubai for work and not being present in Australia for well over 10 months of each of the years in dispute, except for one of the years when Mr Q was not present in Australia for 8 months.

The result of the case – Mr Quy lost – was not unexpected in our view. Overall, Mr Quy maintained substantial ties to Australia during the years in dispute. For instance, his wife and children lived in Australia, he owned property in Australia including land, cars and other assets, and he also maintained Australian insurances and registrations. He had also gained Australian citizenship in 1978 and lived in Australia, it appears as his home, from at least 1986. Whereas his connection to Dubai (or any other country for that matter) was comparatively limited and temporary.

The bigger picture and the need for vigilance

Quy’s Case is illustrative of at least three key procedural issues when in dispute against the ATO about tax residency. Arguably, these principles apply more generally too.

First, self-objections

There was no audit involved in Quy’s Case leading to the tax assessments that were in dispute. Instead, Mr Quy lodged what is called a “self-objection”. In other words, he disputed his own tax lodgements on the basis they were incorrect and/or excessive. Mr Quy did this in an attempt to obtain a refund of the Pay-As-You-Go Withholding tax remitted to the ATO by his employer.

The self-objection process is a powerful tool to dispute the ATO’s tax assessments, usually without exposing clients to any penalties or interest. These penalties and interest can otherwise be very significant and costly.

Clients and their advisors ought to consider the self-objection process. In particular, when clients are under intrusive or extensive audits of their tax affairs, or where there are otherwise uncertain tax issues that need to be resolved in full.

Second, the ATO’s tax residency questionnaire

The ATO will usually use a “tax residency questionnaire” as part of its analysis of a client’s tax residency. The questionnaire oversimplifies the law of tax residency and can be misconstrued by¬†clients and their advisors who complete it.

The nuances of tax residency, including when residency changes in any given financial year, simply cannot be distilled or expressed via such streamlined processes.

Unfortunately, that is precisely what occurred in Quy’s Case. Mr Quy completed the ATO’s questionnaire. As the dispute progressed in the Administrative Appeals Tribunal, the ATO used Mr Quy’s responses to the questionnaire to undermine his subsequent evidence. Inconsistent statements make any case against the ATO very difficult.

Similar questionnaires are used by the ATO in the superannuation and other contexts.

Clients and their advisors must consider providing the ATO with a fulsome and complete explanation of their circumstances, in addition to responding to the questionnaire. This should reduce the risk of any adverse tax outcomes provided that the response to the ATO takes account of all of the laws of tax residency. It is simply not enough, and may in fact disadvantage a client, to respond to the questionnaire without providing the full context.

Third, not knowing the Tribunal’s procedural rules

Mr Quy was self-represented during part of the Tribunal proceedings. The problem for him was that, after the close of the hearing, he tried to introduce new evidence. This was problematic for at least a couple of reasons and ultimately caused the Tribunal not to accept such evidence. First, the ATO did not have the opportunity to cross-examine him on it.

Second, the new evidence was either entirely new in that it has never been mentioned before, or in so far as it has previously been mentioned, it contradicted other evidence.

Clients and their advisors must ensure that they put their best foot forward in the Tribunal, including by knowing the rules so that the Tribunal can consider all of the evidence before it. Otherwise, some or all of the client’s story could be misunderstood or missed altogether.

How can we help?

If you are under audit or in dispute with the ATO, HWL Ebsworth’s tax team is available to assist. Please contact us if you would like more information about the services we provide.

This article was written by Vincent Licciardi, Partner and Isabelle Smith, Senior Associate. 

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