TAXATION - capital gains - convertible redeemable preference shares issued by company in consideration of applicant entering into agreement for provision of consultancy services to company - whether capital gain arose upon transfer by applicant of ordinary shares following conversion of preference shares - whether the applicant had a cost base in the ordinary shares - decision affirmed

TAXATION - controlled foreign corporation (CFC) rules - services of applicant provided through Hong Kong company which was wholly owned by applicant - whether Hong Kong company was a CFC - whether service fees and other income of Hong Kong company attributable to applicant - decision varied

TAXATION - assessable income - dividends - whether dividend was non-assessable non- exempt income on basis that withholding tax would have been imposed on the dividend - loans made by CFC to applicant taken to be dividends paid to applicant - eligible benefits - distribution benefits - decision varied

TAXATION - administrative penalties - false or misleading statement - whether applicant took reasonable care - whether applicant liable for administrative penalties on basis of recklessness - whether penalty should be wholly or partly remitted - decision varied

TAXATION - whether shortfall interest charge should be remitted - decision varied

Income Tax Assessment Act 1936 (Cth): ss 6(1), 44(1), 47A, 170(1), Part X

Income Tax Assessment Act 1997 (Cth): ss 104-10, 110-25, 112-20, 130-60, 207-20(1), 328-110,

Taxation Administration Act 1953 (Cth), paragraph (b) of section 14ZZK; Schedule 1, subsection 6-5(2), sections 12-35, 284-75, 284-85, 284-90, 298-20

BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164

Commissioner of Taxation v Addy [2020] FCAFC 135

Commissioner of Taxation v Executors of the Estate of Subrahmanyam [ 2001] FCA 1836

Commissioner of Taxation v Miller [1946] HCA 23; (1946) 73 CLR 93

Dapper Coelho and Commissioner of Taxation [2020] AATA 2474

Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54

Elliott and Commissioner of Taxation [2012] AATA 428

Federal Commissioner of Taxation v Applegate (1979) 38 FLR 1

Gregory v Deputy Federal Commissioner of Taxation (WA) [1937] HCA 57; (1937) 57 CLR 774

Hafza v Director-General of Social Security [1985] FCA 164

Handsley and Commissioner of Taxation [2019] AATA 917

Harding v Commissioner of Taxation [2018] FCA 837

Harding v Commissioner of Taxation [2019] FCAFC 29

Iyengar and Commissioner of Taxation [2012] AATA 856

Levene v Inland Revenue Commissioners [1928] UKHL 1; [1928] AC 217

Lysaght v Inland Revenue Commissioners [1928] AC 234

Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483

Public Taxation Ruling TR2023/1: Income tax: residency tests for individuals

1. This matter involves a number of issues arising under Australian income taxation laws in relation to work or services performed by Mr Peter Abotomey (the Applicant), or provided by entities in which he held an interest, in the financial years ended 30 June 2014 and 30 June 2015 (the '2014 Year' and '2015 Year' or collectively the 'Relevant Years'). The Applicant held executive positions with a company which had business interests in China and at a very high level the dispute with the Commissioner of Taxation (the Respondent) arises in relation to work he performed with those businesses, including while located in China.
2. The Respondent has treated the Applicant as a resident of Australia for taxation purposes in both of the Relevant Years, and has therefore sought to include in the Applicant's assessable income certain amounts received by or from those entities. The Respondent also believes that a capital gain arises to the Applicant in relation to a transfer of shares in one of those entities. Further, the Respondent has imposed administrative penalties on the Applicant for making false or misleading statements in relation to these items, and assessed amounts of shortfall interest charge.
3. The Applicant does not agree that he was a resident of Australia for taxation purposes in the 2014 Year and says that he was a resident of Australia for only part of the 2015 Year. He disputes the inclusion of the amounts in his assessable income. He also disagrees that a capital gain arose to him in relation to the share transaction. Consequently, he does not believe that shortfall interest charge and penalties should have been imposed on him, or otherwise they should be remitted.

1. Following is a chronological overview of the key events forming the background to this proceeding. Greater detail on factual matters that are specific to particular issues is set out under the relevant topic heading below.

1. It is not disputed that the Applicant was born in Australia, is an Australian citizen and in the Relevant Years (and other years) held an Australian passport. The Applicant has worked as an employee of and consultant to various financial institutions and technology companies, with a focus on payment systems and other digital products and services.
2. From around September 1987 to September 2009 the Applicant lived with his wife, and later his two children, at a property in South Yarra in Melbourne (the 'South Yarra Property'). In the early 1990s the Applicant moved with his family to New Zealand for a work assignment with his then employer ANZ Bank Limited ('ANZ Bank'). In the mid-1990s the Applicant undertook work in Thailand, although his family lived in Australia for most of this period.
3. A company called Jensid Pty Ltd ('Jensid') was incorporated in Australia in March 1993 with the Applicant as director and shareholder. Jensid's registered place of business until March 2017 was the South Yarra Property. Jensid was the trustee for the Abotomey Family Trust, of which the Applicant is a beneficiary.
4. A company called DCS Technologies Ltd was incorporated in Australia around October 1998, with its name subsequently being changed to OnCard International Limited ('OnCard')[1]. OnCard was listed on the ASX. The Applicant held various senior leadership roles with OnCard between 2002 and 2014, including as a director, Chairman of the Board and CEO, and from early 2014 acted as a consultant to OnCard.
5. OnCard held interests in a number of entities in New Zealand, China, Hong Kong and other Asian countries which carried on businesses providing loyalty, rewards and payment solutions, including prepaid cards. In the Relevant Years and the years immediately prior the significant proportion of these business activities were in China.
6. On 1 July 2007 the Applicant, Jensid and OnCard entered into an Agreement for Consultancy Services ('2007 Consultancy Agreement')[2] which included the following terms:

(a) Jensid would provide consultancy services to OnCard and its subsidiaries, being the services of the Applicant in his capacity as CEO and Chairman of OnCard.[3] > > (b) OnCard would issue to the Applicant (or his nominee) redeemable preference shares to the value of AUD500,000. > > (c) OnCard would pay Jensid an annual amount in Australian dollars in respect of the Applicant's services as a director and monthly amounts in Australian dollars for his services as CEO.

7. Further details of the acquisition and disposal of shares in OnCard by the Applicant are set out below under the heading 'Did a capital gain arise in relation to shares in OnCard?' (paragraphs 65 to 66).
8. OnCard's businesses in Asia experienced significant and rapid growth between 2007 and 2009. The Applicant travelled between Australia and China to support the development of OnCard's Chinese businesses. Around September 2009 the Applicant said that a decision was made that he would relocate to China to focus on these businesses. An apartment in Shanghai was leased by OnCard from 1 May 2007 to 1 February 2015 for the use of the Applicant. The details of his living and working arrangements in China during this period are set out below under the heading 'Was the Applicant a resident of Australia in the Relevant Years?' (paragraphs 91 to 156).
9. A company called Giant Forever Ltd ('Giant Forever') was incorporated in Hong Kong in November 2009. The Applicant was the sole shareholder and director of Giant Forever. The Applicant said that this company was established for the purposes of providing services in relation to consulting work to be undertaken by him.
10. Around September 2009 it was decided that his services to OnCard would be provided through Giant Forever rather than JenSid. An apparently verbal agreement to amend the 2007 Consultancy Agreement was ratified by OnCard's Board in February 2010.[4]
11. The Applicant resigned as Chairman of the OnCard Board in November 2010.
12. Between 2011 and 2015 Giant Forever transferred amounts into the Australian bank accounts of the Applicant and his late wife which were described in the financial statements of Giant Forever as loans to the Applicant. Further details of these amounts are set out below under the heading 'Were loans from Giant Forever assessable to the Applicant as dividends?' (paragraphs 264 to 269).
13. At some time between 2011 and 2013 OnCard started to explore the sale of its businesses in China. In particular OnCard determined that it would sell its 50% shareholding in a Chinese company which owned a business for a product called SmartPASS. During 2013 there was discussion as to whether the Applicant would continue his involvement with the SmartPASS business in the hands of a new owner.
14. On 28 April 2014 the Applicant, Jensid, Giant Forever and OnCard entered into a Termination Agreement ('Termination Agreement') under which the 2007 Consultancy Agreement would be terminated on 29 May 2014.
15. OnCard, Giant Forever and the Applicant entered into a new Consultancy Agreement on 28 April 2014 ('2014 Consultancy Agreement') which provided that:

(d) Giant Forever would procure the services of the Applicant to assist OnCard in completing its sale of the SmartPASS business. > > (e) Giant Forever would procure other services of the Applicant in relation to the management and administration of the OnCard group. > > (f) OnCard would pay a monthly amount to Giant Forever, and potentially a bonus amount.

16. The Applicant retired from his position as CEO and a director of OnCard in May 2014.
17. In late 2014 the Applicant said that he was advised verbally by the new CEO of OnCard that it was likely that the 2014 Consultancy Agreement would end in January 2015, and this was subsequently confirmed to the Applicant. The Applicant departed Shanghai for Australia in early February 2015.
18. The Applicant described seeking taxation and legal advice at various times relating to the arrangements for and consequences of his working and living overseas. Advice was obtained from a tax partner at a large international firm about his tax residence and related issues when he worked in New Zealand in the early 1990s. He obtained further advice from Mr Peter Jess, an Australian taxation adviser based in Melbourne in relation to his working and living arrangements in China. The details of the advice he sought and received are set out below under the heading 'Imposition of Administrative Penalties' (paragraphs 285 to 289).

1. The Applicant lodged his Australian income tax return for the 2014 Year in February 2015, on the basis that he was not a resident of Australia for the 2014 Year.[5]
2. The Applicant lodged his income tax return for the 2015 Year in March 2016, stating that he was a resident of Australia for the 2015 Year.[6]
3. In August 2016 the Respondent commenced a review of the Applicant's tax returns for the years from 2012 to 2015. This was escalated to an audit for those years in June 2017, and in February 2018 the Respondent expanded its audit to cover the 2010 and 2011 years.
4. In December 2018 the Respondent concluded its audit and provided the Applicant with a statement of its audit position and Reasons for Decision for the period 1 July 2009 to 30 June 2015.[7] On 10 December 2018 the Respondent:

(a) Issued notices of amended assessments ('Amended Assessments') for the income years from 2010 to 2015 which included notice of shortfall interest charges.[8] > > (b) Issued notices of administrative penalty assessment ('Penalty Assessments') on the basis of the Applicant having made false or misleading statements, and having demonstrated recklessness in doing so.[9]

5. The Applicant lodged an objection ('Objection') against the Amended Assessments, Penalty Assessments and the evasion opinion on 8 February 2019.[10] The Applicant was represented by a tax partner of a national law firm during the objection process.
6. On 25 October 2021 the Respondent disallowed the Applicant's Objection ('Objection Decision').[11] In the Objection Decision the Respondent set out the following issues and findings:

(a) Issue 1 'Residency': the Respondent decided that the Applicant was a resident of Australia in each of the tax years ending from 30 June 2010 to 30 June 2015, and was therefore assessable on income derived from all sources. This appears to be on the basis of the 'residence according to ordinary concepts test' for each of the years,[12] as well as the 'domicile test' for each of the years based on the same factual reasons.[13] The '183 day test' does not appear to have been addressed in the Objection Decision, despite the factual background identifying the presence of the Applicant in Australia for 212 days in the 2015 Year.

Further, amounts were to be included in the assessable income of the Applicant under subsections 6-5(2) and 6-5(4) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997), on the basis that the Respondent did not accept that income derived as the Chairman and CEO of an Australian public company was not Australian sourced income and personal income of the Applicant.[14] The Respondent's position was that the consultancy income paid by OnCard was ordinary income of the Applicant, or at least, applied on his behalf or at his direction.

(b) Issue 2 'Commissioner may amend assessments at any time if there has been fraud or evasion': there was an evasion of tax by the Applicant such that the Respondent had 'unlimited time' to raise the Amended Assessments.

(c) Issue 3 'Capital gain': a net capital gain should have been included in the Applicant's assessable income for the 2015 Year. The Objection Decision was based on an analysis of the cost base for CGT purposes of the CRPS and a factual conclusion that the CRPS were issued to the Abotomey Superannuation Fund (and not to the Applicant). In the alternative, the Respondent said that the provisions of former Division 13A, Part III of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) (employee share schemes) would apply to include a basis for including an amount in the assessable income of the Applicant discount amount in the assessable income of the Applicant. This also involved an analysis by the Respondent as to why the CRPS might not be 'ordinary shares.' [15]

(d) Issue 4 'Shortfall penalties': the Respondent found that the Applicant had made false or misleading statements in his tax returns in the years from 2010 to 2015, this resulted from reckless behaviour which was not mitigated by his taking advice from his tax agent and there were no grounds for remission of the penalty.

(e) Issue 5 'Shortfall interest charges': the Respondent affirmed the conclusion reached in the audit that there was a shortfall of tax, and found no basis upon which remission of shortfall interest charge would be justified.

1. It is notable that the position of the Respondent as put to the Tribunal in 2024 and 2025 in the lead up to the hearing of this proceeding is markedly different in many respects to that set out in its Objection Decision in late 2021. As a general observation, despite the length of the Objection Decision, the bases for many findings in that document were not clearly explained.

1. On 4 November 2021 the Applicant applied to the Tribunal[16] for review of the Respondent's Objection Decision. At this time it appears that Mr Jess was again representing the Applicant.
2. In early 2022 the parties indicated to the Tribunal that they were seeking to narrow the issues in dispute and requested an adjournment of case management events to allow for further discussions between the parties.
3. The Applicant provided the Respondent with an AAT Appeal Discussion Paper dated 28 February 2022 which was subsequently filed with the Tribunal (the 'Appeal Statement'). This Appeal Statement extensively addressed the issues and contentions of the Respondent as set out in the Objection Decision.
4. In April 2023 the Tribunal wrote to the parties requesting an update on any progress made towards resolution of the proceeding. Directions were subsequently made for the filing of material by the parties to progress to a final hearing. The Applicant filed his Statement of Facts, Issues and Contentions on 1 September 2023 (ASFIC) in accordance with those directions. Again, the ASFIC addressed the issues and contentions as set out in the Objection Decision, although it appears by this time the Respondent had withdrawn the 'fraud or evasion' basis for amending earlier year assessments such that only the 2014 Year and 2015 Year remained in dispute. The '183 day test' of residence had been introduced in relation to the 2015 Year. The Applicant was now representing himself with the support of his son.
5. The Respondent had been directed by the Tribunal to file its materials by early November 2023 but requested extensions of time to do so. However in early December 2023, the Respondent wrote to the Tribunal to advise that while it was finalising its Statement of Facts, Issues and Contentions 'upon internal review, there is an issue and contention that has arisen that requires additional time to be explored.' The Respondent said that it was not sure exactly how much time this exploration might take, but requested a further 3 months to file. The Respondent identified the issue as the application of the Controlled Foreign Company (CFC) provisions of Part X of the ITAA 1936 which had been 'flagged at audit' and since 'escalated internally.'
6. In relation to the Respondent's statement that this matter had been flagged at audit, the Tribunal notes that after an extensive discussion of section 6-5 of the ITAA 1997 and the 'personal services income' provisions in Division 87 of the ITAA 1997, paragraph 363 of the Position Paper dated 7 May 2018 said:

'We reserve the right to consider application of the controlled foreign company provisions in accordance with section 361 and section 47A of the ITAA 1936, should information come to light that indicates that they may be applicable.'

7. This statement was repeated at paragraph 371 of the audit 'Reasons for Decision' report dated 4 December 2018. It is not clear to the Tribunal what further information had come to light between December 2018 and December 2023 to prompt the Respondent to proceed at such a late stage on the basis of a CFC analysis. This issue was not mentioned in the Objection Decision.
8. The Respondent filed its Statement of Facts, Issues and Contentions on 1 March 2024 (RSFIC). It appears that between the time that the Applicant had lodged his application for review in November 2021 and the date of the Respondent filing the RSFIC in March 2024, in addition to exploring the CFC provisions, the Respondent had also:

(a) withdrawn the allegations of fraud or evasion on the part of the Applicant (such that only the 2014 Year and 2015 Year remained in contention before the Tribunal). > > (b) provided an alternative analysis as to why the Respondent was within time to amend the Applicant's assessments for the 2014 Year and 2015 Year. > > (c) raised a contention that the Applicant should also be assessed on a dividend paid by Jensid to the Applicant in the 2014 Year. > > (d) raised a contention that loans from Giant Forever to the Applicant were deemed to be dividends and therefore assessable to the Applicant. > > (e) analysed the CGT position in relation to the CRPS by reference to the cost base of and capital proceeds arising from the disposal of the ordinary shares into which the CRPS converted.

9. The Applicant filed a Reply to the RSFIC on 31 May 2024 (Applicant's Reply).
10. On 7 January 2025[17] the Respondent wrote to the Applicant seeking clarification of the Applicant's position relating to consideration provided for the CRPS, as discussed in the Applicant's Reply. The Applicant responded on 10 January 2025.[18]
11. On 20 February 2025 the Respondent wrote to the Applicant asking whether he disputed his liability for a penalty, and if so, whether he wished to provide submissions on this matter as the ASFIC had not addressed this. On the same day the Applicant responded by email, drawing to the attention of the Respondent that these matters were covered in the ASFIC.[19]
12. The matter was listed for a hearing in March 2025. The Applicant represented himself at the hearing and advised the Tribunal that he relied on the submissions set out in Appeal Statement, as well as his ASFIC, witness statement and Applicant's Reply save for some oral submissions he wished to make at the hearing. The Respondent was represented by Counsel, who conducted a cross examination of the Applicant in relation to his evidence.

1. Division 4, Part IVC of the Taxation Administration Act 1953 ('TAA 1953') provides for review by the Tribunal of decisions made by the Respondent on taxation objections.
2. On a review of an objection decision relating to an assessment, the applicant has the burden of proving that the assessment is excessive or incorrect, and what the assessment should have been: subparagraph (b)(i) of section 14ZZK.
3. As noted above, the issues and analysis set out in the Objection Decision differ in many respects to the issues and analysis outlined by the Respondent in its RSFIC and submissions to the Tribunal. The summary of issues below reflects what was presented to the Tribunal for the purposes of the March 2025 substantive hearing.
4. The majority of materials filed with, and argument before, the Tribunal related to the issue of whether the Applicant was a resident of Australia for taxation purposes in either or both of the 2014 Year or 2015 Year. The parties agree that:

(a) In relation to the 2014 Year, the question of whether the Applicant was a resident of Australia was to be determined under the 'ordinary concepts' and 'domicile' tests. > > (b) In relation to the 2015 Year, the question of whether the Applicant was a resident of Australia was to be determined under the 'ordinary concepts', 'domicile' and '183 day' tests.

5. In relation to the other questions raised the parties agreed that:

(a) The issue of whether the Applicant made a capital gain (or a capital loss) upon the transfer of shares in OnCard to his wife in February 2015 was not dependent on the outcome of the residence dispute for the 2015 Year. > > (b) The issue of whether the Applicant was required to recognise dividend income in the 2014 Year under section 44 of the ITAA 1936 (and the associated franking credits under section 207-20 of the ITAA 1997) arising from franked dividends paid by Jensid to the Applicant was dependent on his residence status in that year. > > (c) The issue of whether the Applicant was required to recognise attributable income in either year under the CFC rules from his interest in Giant Forever was dependent on whether he was a resident of Australia in the relevant year. > > (d) The issue of whether the Applicant was required to recognise dividend income in either year under sections 44 and 47A arising from loans made by Giant Forever to the Applicant was dependent on whether he was a resident of Australia in the relevant year.

6. The Respondent put forward two alternative bases upon which it said it had the ability to amend the Applicant's assessments for the 2014 Year and 2015 Year beyond the 2 year time limit ordinarily applicable to individual taxpayers. One of those bases was not reliant on whether the Applicant was a resident of Australia in either year.
7. The issue of whether administrative penalties were correctly imposed in either of the 2014 Year or 2015 Year is in part dependent on the answers to the questions in paragraph 46.
8. Similarly, the issue of whether there is a basis for remitting any amount of shortfall interest charge for the 2014 Year depends on the findings made in relation to items in paragraph 46.

WERE THE AMENDED ASSESSMENTS FOR THE 2014 AND 2015 YEAR WITHIN TIME?

1. A threshold issue arises as to whether the Respondent was out of time to amend the assessments of the Applicant for either or both of the 2014 Year and 2015 Year. If the Respondent was out of time a consideration of whether the Amended Assessment in either year was incorrect might not be required.
2. It is not disputed that:

(a) The original notice of assessment for the Applicant for the 2014 Year was issued on 18 February 2015. > > (b) The original notice of assessment for the 2015 Year was issued on 30 March 2016. > > (c) The Respondent issued the Amended Assessments for each of the 2014 Year and 2015 Year on 10 December 2018. > > (d) The Applicant was a beneficiary of the Abotomey Family Trust in each of the 2014 Year and 2015 Year.

1. Under Item 1 of the Table in subsection 170(1) of the ITAA 1936, the Respondent may amend the assessment of an individual for a year of income within 2 years after the day on which Respondent gives notice of the assessment to the individual. However, a different time for amendment may apply if any of the qualifications in the second column of that Table are met. This includes circumstances prescribed by the Income Tax Regulations 1936 (Cth) (the Regulations): see Item 1(f) of the Table[20].
2. Initially the Respondent had relied on a finding of fraud or evasion[21] to support its ability to amend the Applicant's assessments for each of the years from 2010 to 2015. The Respondent subsequently withdrew its claim of fraud or evasion and instead relied upon the following two qualifications in support of its amendment of the 2014 Year and 2015 Year assessments after more than 2 years from their issue:

(a) Item 1(f) of the Table, in conjunction with Item 5 of Regulation 20 of the Regulations, which operates where the individual has not identified income from one or more foreign transactions for the purposes of, or in the course of, an assessment, and the income has not been received from a resident investment vehicle. > > (b) Item 1(d) of the Table, which operates where the individual is a beneficiary of a trust estate at any time in the relevant income year, unless the trust is a small business entity or medium business entity for that year or the trustee of the trust (in that capacity) is a full self-assessment taxpayer for that year.

3. If either of these qualifications operate, the Respondent would have 4 years to amend.
4. The term 'foreign transaction' is not separately defined. The Explanatory Statement[22] to the amendment to the Regulations stated:

The term 'foreign transaction' takes its common meaning. A taxpayer involved in a transaction which predominantly occurs outside of Australia is caught by this exclusion where the income has not been received through a resident investment vehicle and is not reported for tax purposes.

5. Both parties referred the Tribunal to two previous decisions of the Tribunal where Regulation 20 was considered. In Iyengar and Commissioner of Taxation[23] the Tribunal referred to the passage from the Explanatory Statement above, and indicated that Regulation 20 should be read subject to sections 6-5 and 6-10 of the ITAA 1997, such that a 4 year amendment period would apply to an Australian resident taxpayer, but not to a foreign resident.
6. In Elliott and Commissioner of Taxation[24] the Tribunal looked to the ordinary or dictionary meaning of the term 'foreign transaction' and found that a taxpayer who provided his services as an airline pilot outside Australia, in exchange for which he received remuneration that was paid outside Australia, had received income from foreign transactions. The Tribunal's view was that payment for services rendered could be described as a transaction.
7. The term 'resident investment vehicle' is defined in section 118-510 of the ITAA 1997.
8. Section 328-110 of the ITAA 1997 sets out a series of tests for determining whether an entity is a 'small business entity'. At a high level, two elements common to many of the provisions are whether the entity is carrying on a business and whether the entity's aggregated turnover for the relevant year and prior year is less than $10 million.

1. The Applicant's position was that the amended assessments for the 2014 Year and 2015 Year were out of time, having been issued more than 2 years after the date on which the original assessments were issued to him. In relation to the qualifications to the 2 year time limit:

(a) Re Item 1(f) and Regulation 20, the Applicant did not accept that he had failed to identify income from a foreign transaction. His position (discussed in more detail below) was that income received by Giant Forever should not be attributed to him under the CFC rules as he was not a Part X Australian resident in either of the relevant years (also discussed below). Further, the Applicant did not view the consultancy or service income received by Giant Forever as arising from foreign transactions as the relevant amounts were paid by an Australian company (OnCard) under the terms of the 2007 Consultancy Agreement and 2014 Consultancy Agreement. > > (b) Re Item 1(d), the Applicant said that the Abotomey Family Trust was a small business entity.

2. At the hearing the Applicant outlined a concern that these Items from the Table in subsection 170(1) had not been raised in the course of the audit and objection processes, and that the belated analysis of the CFC rules by the Respondent had been done with a purpose of bringing the amended assessments for the 2014 Year and 2015 Year within Item 1(f) and Regulation 20, after the Respondent conceded the fraud or evasion issue.
3. The Respondent contended that:

(a) Re Item 1(f) and Regulation 20, the Applicant had derived amounts of statutory income under section 456 of the ITAA 1936 (as a consequence of attribution of income of Giant Forever under the CFC rules) and under sections 47A and 44 in respect of loans made by Giant Forever to the Applicant. The attributable income of Giant Forever arose from services, interest and foreign exchange gains arising outside Australia. The loans were made by a foreign company from outside Australia. The statutory income derived by the Applicant therefore arose from 'foreign transactions'. > > (b) The Applicant did not identify these amounts in his income tax returns for either of the 2014 Year or 2015 Year and thus they were not identified in his assessments for those years. > > (c) The Tribunal observed in Elliott that identification of income from foreign transactions was likely to be 'complicated' and require more time to resolve, which was consistent with the application of Regulation 20 in the present circumstances to allow the Respondent additional time to amend the Applicant's assessments. > > (d) Re Item 1(d), the Applicant had not provided evidence in support of his statement that the Abotomey Family Trust was a small business entity. The Respondent said that by 2010 Jensid (the trustee) had ceased to provide services, and therefore queried whether it carried on a business in either the 2014 Year or 2015 Year. > > (e) The Applicant had not provided any evidence that would suggest that the Abotomey Family Trust was a medium business entity or that its trustee (Jensid) was a full self-assessment taxpayer.[25]

Findings: were the assessments for the Relevant Years amended within time?

1. The Applicant was a beneficiary of the Abotomey Family Trust in each of the 2014 Year and 2015 Year. The Tribunal is unable to make a finding that the Abotomey Family Trust met any of the tests for a 'small business entity' in section 328-110 in the absence of any evidence being provided in relation to the criteria set out in that provision. Similarly no evidence was provided in relation to the status of Jensid as a full self-assessment taxpayer. As the Applicant asserted that the Abotomey Family Trust was a small business entity, it is presumed that he does not contend that it was a medium business entity. On that basis the Tribunal finds that the qualification in Item 1(d) of the Table in subsection 170(1) operated in each year and the Respondent was able to issue amended assessments in 2018.
2. It is therefore not necessary to decide whether the qualification in Item 1(f) and Regulation 20 applied. However, the Tribunal observes that in relation to the 2014 Year the Tribunal has found below that the Applicant was not a resident of Australia,[26] and therefore it was not the case that he had not identified income from a foreign transaction in his assessment for that year. In relation to the 2015 Year the Tribunal has found that the Applicant was a resident of Australia and should have included amounts under sections 44 (together with section 47A) and 456 of the ITAA 1936 in his assessable income for that year, which he did not do.[27] The Tribunal agrees that the income of Giant Forever, which was to be attributed to the Applicant, arose from transactions which occurred outside Australia. Similarly the loans made by Giant Forever, a Hong Kong entity, to the Applicant as its director should be regarded as foreign transactions. Although the proceeds of those loans were transferred into the Australian bank accounts of the Applicant and his family for payment of expenses in Australia, the loan 'transactions' occurred outside Australia. Therefore the Respondent had a further basis for issuing the Amended Assessment in 2018 for the 2015 Year.

DID A CAPITAL GAIN ARISE IN RELATION TO SHARES IN ONCARD?

1. The question is whether a capital gain arose to the Applicant as a consequence of his transfer of shares in OnCard to his wife on 6 February 2015. The Applicant agreed that he was a resident of Australia at this time.[28]
2. The following factual matters are relevant:

(f) OnCard was an Australian incorporated public company. > > (g) OnCard issued 1,439,264 CRPS to the Applicant on 7 December 2007. Although public announcements made by OnCard at the time suggested that the CRPS were issued to the Abotomey Superannuation Fund, a statement subsequently provided by OnCard's Company Secretary[29] confirmed that they had been issued directly to the Applicant and the Respondent now accepts that this is correct. > > (h) There was no evidence of the Applicant paying any money or providing property for the issue of the CRPS. > > (i) The CRPS were issued to the Applicant in accordance with the 2007 Consultancy Agreement which provided that the Applicant would be issued with convertible redeemable preference shares to the value of AUD500,000 in consideration of him entering into that agreement.[30] > > (j) Under their terms of issue each CRPS was to automatically convert to one ordinary share in OnCard on 1 January 2010 unless redeemed prior to that date.[31] > > (k) Ordinary shares in OnCard were listed on the ASX, but the CRPS were unlisted. > > (l) A copy of a Notice of Annual General Meeting for OnCard dated November 2007 indicated that the issue price for each CRPS was taken to be $0.3474, determined on the basis of the Volume Weighted Average Price for ordinary shares in OnCard for the 10 days prior to the issue of the CRPS. > > (m) On 5 January 2010 OnCard announced that the CRPS had converted to ordinary shares in OnCard and the Applicant thereupon became the registered holder of 1,439,264 ordinary shares in OnCard. The Applicant did not pay any money or provide property for the conversion. > > (n) On 6 February 2015 the Applicant transferred the 1,439,264 ordinary shares in OnCard to his wife. The share price of an ordinary share in OnCard on that day was $0.29 and his wife paid $417,386.56 for the parcel of shares, reflecting that share price.[32]

1. A person's assessable income includes their 'statutory income.'[33] A net capital gain is one type of statutory income. This amount is determined by identifying any capital gains of the person, then applying relevant capital losses, discount percentages or other specific concessions.[34] A person can make a capital gain only where a 'CGT event' happens.[35] Division 104 of the ITAA 1997 sets out the CGT events and the rules for determining whether a person has made a capital gain (or capital loss) from a CGT event.
2. Section 104-10 provides that CGT event A1 happens if a person disposes of a CGT asset. Of particular relevance is subsection 104-10(2), which says:

You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

3. A share is a CGT asset.
4. A person will make a capital gain from CGT event A1 where the 'capital proceeds' from the disposal are more than the 'cost base' of the CGT asset: subsection 104-10(4).
5. The cost base of a CGT asset consists of five elements:[36]
   • First, the total of the money which the person paid (or was required to pay) in respect of acquiring the CGT asset and the market value of any other property the person gave (or was required to give) in respect of acquiring the CGT asset. This is worked out as at the time of the acquisition.
   • Second, the incidental costs incurred by the person (which may include giving property).
   • Third, certain costs of owning the CGT asset incurred by the person.
   • Fourth, capital expenditure which is intended to increase or preserve the CGT asset's value, or that relates to moving or installing the CGT asset.
   • Fifth, capital expenditure incurred to establish, preserve or defend title to or a right over the CGT asset (which may include giving property).
6. Division 112 of the ITAA 1997 sets out situations which may modify the general rules relating to cost base. Subsection 112-20(1) provides that the first element of the cost base of a CGT asset that is acquired from another entity is its 'market value' (as at the time of its acquisition) if:
   • The person did not incur expenditure to acquire it, except where the acquisition resulted from CGT event D1 happening or another entity doing something that did not constitute a CGT event happening; or
   • Some or all of the expenditure incurred by the person to acquire the CGT asset cannot be valued; or
   • The person did not deal at arm's length with the other entity in connection with the acquisition of the CGT asset.

For these purposes 'expenditure' can include giving property.[37]

1. However there are situations where this 'market value substitution' rule does not apply. This includes circumstances where a person acquires a CGT asset that is a share in a company, the share is issued or allotted to the person by the company and the person 'did not pay or give anything for it': see Item 5 of the Table in subsection 112-20(3).
2. There are further modifications to the cost base of a CGT asset where a person acquires shares by converting a 'convertible interest': section 130-60. Item 2 of the Table in subsection 130-60(1) modifies the first element of cost base where a person acquires shares by converting a convertible interest that is not a traditional security.

1. The Objection Decision indicated a view of the Respondent that the Applicant had not provided sufficient information to demonstrate that the CRPS were acquired by the Applicant directly rather than the Abotomey Superannuation Fund. The Applicant's Appeal Discussion Paper and ASFIC contained significant material rebutting this. As noted, the Respondent has since accepted that the CRPS were acquired by the Applicant and it is therefore not necessary for the Tribunal to canvass this matter.
2. The Respondent said that CGT event A1 happened to the Applicant when he disposed of the ordinary shares in OnCard to his wife on 6 February 2015, that the capital proceeds for that disposal were $417,386.56 and that the cost base of those shares was nil, such that the Applicant made a capital gain in the 2015 Year of $417,386.56. The Respondent contends that the cost base of the shares was nil because the Applicant did not pay any money or give other property for those shares. His promise to provide services under the 2007 Consultancy Agreement in consideration the issue of the CRPS was not something that could give rise to a cost base in the shares. The Respondent also contends that neither the 'market value substitution' rule in section 112-20 nor the 'convertible interest' modification in section 130-60 operated to give the Applicant a cost base in the shares.
3. The Applicant agrees that CGT event A1 happened to him when he disposed of the shares on 6 February 2015 and that the capital proceeds for that disposal were $417,386.56. However he contends that he has a cost base in those ordinary shares of $500,000. He says that each CRPS had an issue price or price on acquisition of $0.374 and he acquired the CRPS in consideration for the services which he had agreed to provide under the 2007 Consultancy Agreement. Further, the 'market value substitution' rule in section 112-20 did apply, for the same reason. Therefore, rather than making a capital gain in the 2015 Year the Applicant said he made a capital loss of $82,614.

Finding: what cost base was attributable to the OnCard shares upon their transfer?

1. On the basis that the parties agree that CGT event A1 happened when the Applicant transferred the ordinary shares in OnCard to his wife in February 2015 and that the capital proceeds from that CGT event are $417,386.56, the issue remaining is what (if any) cost base is attributable to those shares in relation to that CGT event.
2. The Applicant correctly described the contractual position under the 2007 Consultancy Agreement when he states that the CRPS were issued to him in consideration of his providing particular services to OnCard, albeit under a contract between OnCard and Jensid. It did not appear to be in dispute that those CRPS had been valued as between the Applicant and OnCard at $500,000 upon their issue, on the basis of an accepted methodology for valuing unlisted shares. The Applicant did provide services to OnCard in performance of these obligations.
3. However the provisions of Division 110 recognise a narrower range of matters as giving rise to a 'cost base' for CGT purposes. The Applicant did not pay, and was not required to pay, any money for the ordinary shares (or the CRPS from which they converted). The Applicant did not give (and was not required to give) any property for the ordinary shares. The provision of services does not constitute the giving of property. Therefore no amount was included in the cost base of the ordinary shares under the first element of section 110-25. No evidence was provided in relation to costs or amounts of expenditure incurred in relation to the other elements of cost base set out in section 110-25.
4. Where a person did not incur expenditure to acquire an asset, where expenditure was incurred but cannot be valued or where the person did not deal at arm's length in acquiring the asset, section 112-20 may deem the first element of cost base to be the market value of the asset.
5. However, where a person did not incur expenditure to acquire an asset they will not obtain a 'market value' cost base if their acquisition of the asset resulted from another entity doing something that did not constitute a CGT event happening: subparagraph 112-20(1)(a)(ii). In the present circumstances the Applicant acquired the asset in question (the ordinary shares in OnCard) as a result of those shares being issued by OnCard upon the conversion of the CRPS previously issued by OnCard. The issue of shares is not a CGT event described in Division 104.
6. Moreover, the market value substitution rule in section 112-20 will not apply where the asset is a 'share in a company' and the share was issued or allotted to the person by the company and the person 'did not pay or give anything for it': see Item 5 of the Table in subsection 112-20(3).
7. In the present circumstances the ordinary shares in OnCard were issued or allotted to the Applicant by OnCard. The Applicant did not pay for those shares. The Tribunal asked the Respondent whether they believed there was any significance in section 110-25 referring to the giving of property whereas section 112-20 refers to giving 'anything' in the context of the Applicant's provision of services under the 2007 Consultancy Agreement. The Respondent's view was that although the wording was slightly different as between the two provisions, they covered similar concepts. Further the Respondent said that the issue of the ordinary shares to the Applicant arose as a function of the mandatory conversion term of the CRPS and therefore the Applicant could not have given anything for the issue of the ordinary shares.
8. The Tribunal accepts the argument of the Respondent that in the circumstances of the mandatory conversion of the CRPS which required OnCard to issue ordinary shares to the Applicant, the Applicant did not pay or 'give anything' for those ordinary shares. The Applicant did not 'give' the CRPS. Therefore the Tribunal does not need to explore the boundaries of the phrase 'give anything' as used in subsection 112-20(3) further.
9. Section 130-60 may modify the cost base of shares acquired by converting a 'convertible interest.'[38] A 'convertible interest' is defined to include an interest in a company as a member that will or may convert into an equity interest in that company.[39] The CRPS would satisfy the definition of a convertible interest, being shares in OnCard which were convertible into other shares in OnCard. However any such cost base modification for the ordinary shares under section 130-60 would rely on finding a cost base for the CRPS 'at the time of conversion' together with any 'amount paid to convert the convertible interest.'
10. There was no evidence that the Applicant paid any amount to convert the CRPS. For the reasons given above, sections 110-25 and 112-20 do not operate to give the CRPS a cost base at the time of their conversion into ordinary shares. The Respondent also submitted that former subsection 130-80(2) did not apply to give the CRPS a cost base because there was no evidence of the market value of the CRPS worked out under former sections 139FA to 139FF of the ITAA 1936.[40] The Tribunal agrees that it was not provided with any such evidence, including the written valuation report required by section 139FB.
11. At the hearing the Applicant requested leave to give the Tribunal a one page outline of his analysis of why certain 'employee share scheme' provisions of former Division 13A of the ITAA 1936 gave rise to a loss (rather than a gain) to the Applicant when he transferred the shares to his wife. He noted that this analysis reflected the treatment previously applied by the Respondent in relation to earlier performance rights that had been issued to him by his employer. Unfortunately those particular provisions do not apply to the circumstances of the issue of the CRPS and the transfer of the ordinary shares into which they converted. The Applicant's outline described a market value calculated under section 139FC ('Unlisted rights - market value') which would likely have been applicable to the 'performance rights' that the Applicant had previously acquired. The CRPS constituted unlisted shares which would instead be subject to section 139FB ('Unlisted shares - market value'), giving rise to the requirements identified by the Respondent which had not been met.
12. It was unhelpful that the Respondent's Objection Decision set out an extensive discussion of the provisions of Division 13A[41] by way of an 'alternative analysis' for the inclusion of an amount in the assessable income of the Applicant arising from the CRPS or ordinary shares, even if that alternative analysis was (properly) abandoned by the Respondent after the Tribunal proceeding commenced. This may have contributed to a misunderstanding on the part of the Applicant about the correct treatment of the disposal of the ordinary shares.

WAS THE APPLICANT A RESIDENT OF AUSTRALIA IN THE RELEVANT YEARS?

1. The residence of the Applicant was the central issue in this dispute and the operation of various assessing provisions was dependent on resolution of this issue. A significant volume of evidence was provided in relation to the personal and professional circumstances of the Applicant during the Relevant Years and periods surrounding the Relevant Years. The parties disputed many factual matters, or the significance of particular facts, in the context of the Applicant's residence status.
2. As more than a decade has passed since the Relevant Years, evidence in the form of contemporaneous documentation was not available in relation to all factual matters and the Applicant gave extensive oral evidence over the course of the 2 day hearing. The Tribunal must consider what evidence was reliable and what assertions were plausible in the context of the Applicant having the burden of proving that the Amended Assessments were excessive or otherwise incorrect.
3. For convenience the evidence is summarised under headings broadly aligning to factors identified in case authority as relevant to the residence of an individual for Australian taxation purposes.

1. Records of each of the Applicant and the Respondent confirm that the Applicant travelled to Australia on 10 separate occasions in the 2014 Year and 9 times during the 2015 Year and was present in Australia for:

(a) 113 days in the 2014 Year, and > > (b) 212 days in the 2015 Year (of which 123 days occurred after the Applicant said that he became resident in Australia again).

2. The parties also provided information about the number of days the Applicant was in Australia in the years preceding the Relevant Years. For the years 2007 to 2009, the Applicant spent more time in Australia than overseas. For the years 2010 to 2013, the Applicant spent more than half of his time outside Australia.
3. The Applicant said that when he returned to Australia in the 2014 Year and in the first half of the 2015 Year (and in preceding years), this was as a visitor only, to attend business events for OnCard, and it was convenient to see family at the same time.
4. The Applicant agreed that when he returned to Australia during the Relevant Years he stayed at the South Yarra Property, where his family lived. He said that when he returned to Australia he only brought with him sufficient clothes for the duration of the trip as he no longer had possessions at the South Yarra Property.
5. The Applicant participated in meetings of the OnCard Board and Board committees in Australia. He also agreed that he may have done some work at the South Yarra Property when in Melbourne, but otherwise used the offices of OnCard in Melbourne. He confirmed that there was a desk at the South Yarra Property he could use. He said that before OnCard acquired suitable office space in Melbourne, he arranged meeting rooms at venues such as the Australian Club.
6. The Applicant's position was that he became a resident of Australia again in February 2015. It is not disputed that he returned to live at the South Yarra Property at that time (after a brief trip to Thailand).
7. The Applicant held an Australian passport in each of the Relevant Years and in the preceding years. He did not acquire a Chinese passport.

1. The Respondent's counsel asked a number of personal questions relating to the early years of the Applicant's marriage and his relationship with extended family. The relevance of some of these questions which related to events decades prior to the Relevant Years was not clear. It is sufficient for the Tribunal to accept that the Applicant's 'family unit' in the Relevant Years comprised his late wife and their children and that the Applicant apparently had very limited contact with other family members.
2. Certain historical matters provide context to the Applicant's family arrangements in the Relevant Years. In the early 1990s when the Applicant moved to New Zealand for work he was accompanied by his wife and young daughter. They lived as a family in Wellington and his son was born there. The Applicant said that he had subsequently investigated moving to Thailand and his wife and (then young) children had accompanied him to Bangkok, however the poor air quality in that city triggered asthma in his children. After temporarily relocating his wife and children to Phuket while he commuted to Bangkok, the Applicant and his wife decided that living in Thailand was not feasible and the family returned to Melbourne.
3. By the time that the Applicant's work with OnCard's Chinese businesses became more intensive, his children were much older. The children were completing their secondary education or commencing tertiary study in Melbourne. The Applicant said that it would not have been appropriate to disrupt his children's senior education, there being no suitable alternative in China. The Applicant therefore took the view that he should move to China on his own. The Applicant said that he had discussed his move to China in 2009 with his wife and she was not concerned. The Applicant said that his son visited him in China on some occasions and his wife had also visited once. Otherwise, he saw his family when he was in Melbourne.
4. The Applicant maintained a private health insurance policy in Australia during the Relevant Years, which covered himself, his wife and children. The Applicant said that the family health insurance policy was required for his wife and children who remained in Australia, and there was no financial advantage to removing him from the policy. The Tribunal was provided with a copy of a 'Claim Statement'[42] from the insurance provider summarising claims made by the Applicant and his family members across the period from 1 July 2009 to 30 June 2014. The Respondent noted that the Applicant (personally) made 19 claims[43] for medical services across that period. However it is not clear from the Claim Statement when the Applicant received those medical services during that 5 year period, and in particular whether any were received during the 2014 Year. The Claim Statement does not cover the 2015 Year.
5. The Respondent contended that the Applicant or his family members regularly claimed Australian Medicare benefits in the 2012, 2013, 2014 and 2015 years.[44] This appears to be based on amounts described as 'MCARE BENEFITS' being paid into an Australian bank account in those years.[45] It is noted that the bank account is shown as being in the joint names of the Applicant and his late wife, and the entries relating to Medicare benefits do not specify which member of the family received medical treatment in Australia.
6. The Applicant obtained his Chinese driver's licence which he renewed in 2011. The Chinese driver's licence indicated that his address was the Shanghai Apartment. He also retained a Victorian driver's licence. This had become renewed in February 2005 before he went to China and was then due for renewal again in February 2015 by which time he had returned to Australia. The Applicant said that it was useful for him to have an Australian driver's licence for those times when he visited Australia for business. He said there was no reason or need for him to take any action to cancel the Victorian licence in the intervening period. The Victorian driver's licence indicated that his address was the South Yarra Property.
7. The Applicant did not own a car in Australia during this period. He said that he would generally catch public transport for travel to the Melbourne CBD or otherwise borrow a friend's car if he needed to drive. His wife owned a vehicle which could be used by the family. During cross examination the Applicant referred to another vehicle which had been bought by Jensid, originally for business purposes, and which is still owned by Jensid. OnCard provided the Applicant with a car for his use in Shanghai, including for weekend travel. OnCard also had a company van and a fleet of other vehicles available to transport the Applicant to work commitments there.
8. Throughout the Relevant Years (and preceding years) the Applicant maintained his memberships with a number of social organisations based in Melbourne or Australia, including the RACV Club, Rotary Club, Melbourne Cricket Club, Australian Club and Athenaeum Club. He also continued his membership of the Wellington Club in New Zealand. The Applicant noted that he had been a member of some of these organisations for 20 to 30 years, and that the waiting lists for joining these organisations is often lengthy. He said that if he had cancelled his memberships he risked not being able to rejoin. Membership of some of these organisations also allowed him to nominate his son, who had remained in Australia, for membership.
9. Further, he said that he was able to use facilities at the clubs, such as meeting rooms, for business purposes when he came to Australia, although this was largely prior to 2010 when OnCard secured office space in Melbourne with better facilities. Some of these organisations also provided reciprocal rights to use facilities at associated clubs outside Australia, including in China. This meant that he did not separately apply for membership of those overseas clubs which might not be open to non-citizens, which had substantial joining fees and waitlists or where the application process might raise security concerns.
10. During the Relevant Years the Applicant had a GPO box in Melbourne to which mail was delivered. He said that he kept this GPO box because he believed that the Chinese mail system was potentially unreliable and insecure. The GPO box was not used often, and generally only for non-digital correspondence sent to him in Australia in relation to Jensid. A former colleague and friend would check the GPO Box periodically and send him a photograph of any correspondence.
11. The Applicant had his name removed from the Australian electoral roll in September 2009 and had it reinstated in March 2015.
12. The Applicant did not lodge tax returns in his personal capacity in Hong Kong or China in either of the Relevant Years. He lodged Australian income tax returns for the income years 2010 to 2014 on the basis that he was a non-resident of Australia and for the 2015 Year on the basis that he was a resident (at least for part of that year).

1. Again, historical matters were identified by both parties as providing context for the Relevant Years. It was not disputed that the Applicant and his late wife bought the South Yarra Property as joint owners in 1987 and that it had been the family home. He and his wife furnished the home together.
2. When the Applicant relocated to New Zealand for work in the early 1990s he and his family lived in a home provided by his employer ANZ Bank, and the South Yarra Property was leased to ANZ Bank for use by another ANZ bank executive who had temporarily relocated to Melbourne. The Applicant recalls that when they returned to Melbourne he and his family lived in a rented apartment for a few months until the lease on the South Yarra Property ended and they could move back in.
3. The Applicant subsequently explored a move to Thailand. For reasons related to his children's health they decided not to relocate as a family and returned to Melbourne. The Applicant said that he did not sell or lease out the South Yarra Property at that time as he wanted to confirm whether the family would settle in Thailand before making a decision about their Melbourne home. They decided to return to Melbourne and resume living at the South Yarra Property at that time.
4. At the hearing counsel for the Respondent provided the Tribunal with a copy of a floor plan of the South Yarra Property[46] and asked the Applicant about his recollection of the extent and nature of furnishings in each room during the Relevant Years. This took some considerable time, however counsel for the Respondent said that this extensive exploration of the home was necessary because having regard to the description of the South Yarra Property, the Respondent questioned the Applicant's assertion that he generally lived a 'minimalist' lifestyle. From the lengthy discussion the Tribunal can conclude that the South Yarra Property was a large home which contained valuable furnishings and other household goods from well-known brands, artworks, a collection of wines in the cellar and fitness equipment.
5. From May 2007 OnCard leased a furnished two bedroom apartment in Shanghai (the Shanghai Apartment) for use by the Applicant. He agreed that initially he stayed in the Shanghai Apartment when he travelled to China for business commitments, only taking from Australia sufficient clothes for the duration of the trip. However he said that this changed in late 2009 when a decision was made that he would spend more time in China to support the business activities of OnCard and its subsidiaries there.
6. The Applicant said that he inspected several properties before selecting the Shanghai Apartment. It is agreed that OnCard paid the rent and for utilities for the Shanghai Apartment. The Shanghai Apartment was leased on a renewable 12 month term. He said that he purchased various household goods in Shanghai, including kitchenware and electrical appliances, a television and DVD player, linen and bedding, stationery, cleaning products, and home maintenance tools and equipment. Although the Shanghai Apartment was leased on a 'furnished' basis, this was to done to reflect local styles which might differ from Western tastes.
7. The Applicant did not purchase a home in China. He said that it was not possible for a foreigner to buy residential property in China. Similarly the Applicant said that obtaining a long term lease was not practicable because residential properties in China were usually leased on a yearly basis. The Respondent noted that the Applicant did not provide evidence to support these assertions.
8. The Applicant said that around or after September 2009 he transferred his personal possessions, including clothes and personal legal documents, from the South Yarra Property to the Shanghai Apartment and otherwise donated to charity any personal belongings at the South Yarra Property that he did not wish to move to China. The Applicant confirmed that the furnishings and other household goods at the South Yarra Property (other than his personal belongings) remained at that location while he was living in China, stating that they were needed by his wife and children.
9. The Applicant described his lifestyle in Shanghai as follows:

(a) His secretary at OnCard had arranged for a maid who already worked at his apartment building to provide cleaning and housekeeping services, usually when he was away on work trips. > > (b) He generally ate out at local restaurants and did not need to cook meals at the Shanghai Apartment.[47] (He noted that in any event he was not responsible for meal preparation when staying with his family in Australia.) > > (c) He knew some basic words in the local language and English was relatively widely spoken in Shanghai which was sufficient for daily tasks such as shopping and engaging with other residents of his apartment building. He received assistance from OnCard colleagues, including his secretary and a local manager, with interpretation and translation in relation to business communications which required a higher level of proficiency. He also used online translation services such as Google Translate. > > (d) The second bedroom at the Shanghai Apartment was sometimes used by guests. As well as friends and family, from time to time he would invite OnCard colleagues who were visiting China to stay with him. > > (e) On weekends he would either stay at the Shanghai Apartment or take short trips to the countryside.[48] > > (f) He formed friendships in Shanghai and socialised at local restaurants and bars, reflective of an expatriate lifestyle in China.[49]

10. The Applicant vacated the Shanghai Apartment in early February 2015, having commenced moving or disposing of his belongings from late November 2014. He had given notice to the landlord of the Shanghai Apartment in December 2014. He said that on a couple of trips back to Australia he brought with him suitcases containing possessions such as clothing, a DVD player, an Apple TV and personal documents and mementoes. He gave away household goods such as bedding, as well as some of his clothes, to colleagues or local contacts in Shanghai. The Applicant said that he did not recall having returned to Shanghai since then.
11. The Applicant said he had not stayed in touch with former colleagues or associates from Shanghai, noting that his access to a local messaging app had apparently been blocked after his departure from China.
12. When the Applicant returned to Australia in February 2015 he resumed living at the South Yarra Property (after a 3 week trip to Thailand).

Maintenance of property, investments and other assets

1. The Applicant and his wife bought the South Yarra Property in their joint names in 1987. In February 2010 the Applicant transferred his 50% interest in the South Yarra Property to his wife. He cited asset protection and estate planning as the reason for making this transfer, following the receipt of legal advice. Evidence of advice relating to such estate planning was not provided by the Applicant.
2. His wife sold the South Yarra Property in 2016, with the proceeds going towards the purchase of another home in South Yarra and a contribution to his wife's superannuation fund. He then lived with his wife and children in that new home. After his wife's death the home was held in a testamentary trust and he continues to reside there with the permission of his children. He said that he was not a beneficiary of that testamentary trust.
3. It is not disputed that the Applicant held shares in two Australian companies, OnCard and Jensid.[50] It was also not disputed that the Abotomey Superannuation Fund, a self-managed superannuation fund of which the Applicant and his immediate family were members, was established[51] and maintained in Australia. At the hearing the Applicant stated that his contributions to that fund were not regular but 'lumpy', depending on what cash he had available and the operation of relevant superannuation rules. The Applicant's recollection was that he did not make any contributions during the years he lived in China, but OnCard had contributed shares at some point. No evidence was provided by the Applicant of the timing and amount of contributions to the superannuation fund during the Relevant Years or surrounding years. However he noted that by law he was not able to access superannuation benefits until after he turned 60.
4. The Respondent identified 9 Australian bank accounts held in the name of the Applicant jointly with his wife,[52] whereas the Applicant had not opened any bank accounts in China. The Applicant stated that these bank accounts were kept open because they were used by his wife and family who remained in Australia. His wife was not in paid employment by this time and he arranged for the transfer of money to those accounts to support his family. He said that he did not need to open a bank account in China because he could use prepaid charge cards (the provision of which was part of the OnCard group's business) for day to day expenses such as grocery shopping, as well as having access to Giant Forever's bank account. The Applicant had credit card accounts, including a credit card issued by HSBC in Hong Kong. The Applicant also retained a bank account in New Zealand.

1. OnCard (as it was then called) is an Australian incorporated public company, whose shares are listed on the ASX. OnCard held interests in a number of entities based in Asia and other locations outside Australia.
2. The Applicant was appointed to the Board of OnCard and then as Chairman and CEO of OnCard in August 2002. He was re-elected to the Board in 2003, 2007, 2009 and 2011. He ceased to be Chairman in November 2010, but remained the CEO and a director until he retired from those roles in May 2014.
3. The 2007 Consultancy Agreement stated that consultancy services were to be provided to OnCard 'and its subsidiaries.'[53] The Applicant said that he was appointed as Chairman of all of the subsidiary entities, except where otherwise required by local laws. He stated that he was also the principal signatory on more than 70 Chinese bank accounts held in the name of subsidiary entities of OnCard located in China and Hong Kong.
4. The Applicant described undertaking considerable travel between Australia and Asia during 2008 and 2009.[54] The Applicant stated that prior to 2008 he entered China on multi-year business visas. Subsequently he was able to enter China for stays of up to 60 days at a time with his Asia-Pacific Economic Co-operation (APEC) Business Travel Card (APEC Card) without seeking a visa, except for a brief period in 2012 when the recent renewal of his (Australian) passport created an issue with his existing APEC Card and he needed to obtain a Chinese business visa. He did not otherwise obtain a visa to enter China in the Relevant Years or seek Chinese permanent residency. The Applicant's explanation for this approach was that since his work commitments required him to travel frequently it was not difficult for him to remain under the 60 day limit. If necessary, he could simply do a day trip to Hong Kong which would start a new 60 day period.
5. The Applicant said that he obtained a China Resident Identity Card[55] in 2009 which was valid for the period from 2009 to 2029. He said that a Shanghai businessman had offered to arrange this for him and took the Applicant's passport for a short period to undertake the administrative process for the card. In the absence of a copy of the card or other evidence about its provenance, the Respondent queried whether this would have been a genuine or valid document. The Applicant agreed that he could not confirm its legal status, although based on his experience of business practice in the region and the incentives that were being provided to attract foreign investors at the time, he assumed that it was real. In any event, the Applicant said that he had never needed to use the card.
6. The Applicant referred to the minutes of a meeting held on 29 September 2009 of the OnCard Remuneration Committee, attended by the Applicant and another OnCard director Mr Dean Matthews, which recorded the Applicant as having advised the Remuneration Committee that during the previous 12 months he had spent more time overseas than in Australia and that he 'had committed to spend even more time in China in the coming years as the OnCard strategic plan had China as its base.'[56] He said that this reflected a realisation on the part of the Applicant and the OnCard Board from around mid-2009 that there was a need for more senior OnCard personnel to be physically present in China to support OnCard's emerging and rapidly expanding businesses in China. Although a written business plan was not published until early 2010, he said that the plan was being enacted prior to that time.
7. At the hearing the Respondent's counsel questioned the Applicant about who had initially suggested that the Applicant might relocate to China, who had made the decision that this would occur and when any decision was made. Other than the Remuneration Committee minutes of September 2009, there was no contemporaneous documentary evidence in relation to these matters and the Respondent pointed to apparent inconsistencies or lack of clarity in the Applicant's Appeal Statement on this matter. The Tribunal agrees that there is some uncertainty about the details of the decision making process. On the basis of the Remuneration Committee minutes and statements made in OnCard public documents, it may be accepted that around or from September 2009 the OnCard Board was at least aware that the Applicant would be 'spending more time' in or 'relocating' to China to support OnCard's businesses going forward.
8. The Applicant said that by agreement with OnCard's Board the 2007 Consultancy Agreement was modified in late 2009 to, amongst other things, recognise that the services could be provided by the Applicant in China. Giant Forever, a Hong Kong established entity,[57] was effectively substituted for Jensid, an Australian company. The Respondent contended that it was not possible for the 2007 Consultancy Agreement to be varied absent any amending documentation in writing. The Applicant argued that the modification or variation was legally effective and was recognised as such by OnCard which noted the changed arrangements in its 2010 Annual Report.[58] Regardless of the validity of the amendments, OnCard paid fees to Giant Forever rather than Jensid from 2010 and the Respondent's contentions as to derivation of income reflect this.
9. During cross examination the Respondent's counsel queried why there was a need to change the contracting entity under the 2007 Consultancy Agreement from Jensid to Giant Forever, and who had initiated or decided upon this change. The Applicant had difficulty recalling the details but suggested that the Board of OnCard had agreed that it was better for the Applicant to be transacting via a Chinese company, and that the structuring of the arrangements should reflect his living and working circumstances. He could not recall whether he or another director had originally proposed this approach.
10. The Applicant said that the 2007 Consultancy Agreement was further amended by consent after he resigned as Chairman of the Board of OnCard at its annual general meeting on 23 November 2010. His explanation for his resignation was that having moved to China there was a view that he was unable to spend enough time in Australia to carry out his duties as Chairman of an ASX listed company.
11. The Applicant said he was certified as the legal representative of OnCard in January 2014 such that he was authorised to act and sign legal documentation on behalf of OnCard in China. There was no evidence of this certification but it was not directly challenged by the Respondent.
12. OnCard paid amounts by way of salary and cash bonuses to the Applicant in the calendar year ended 31 December 2013, and by way of salary and termination benefits in the calendar year ended 31 December 2014.[59] Amounts of salary and cash bonuses also appear to have been paid in the 2010, 2011 and 2012 financial years.
13. The Applicant also told the Respondent that he did not receive remuneration from his directorships of OnCard's subsidiary entities.[60] OnCard reimbursed him for some travel incidentals in the 2012, 2013 and 2014 financial years.[61]
14. Giant Forever invoiced OnCard on a monthly basis for director and other services provided by the Applicant.[62] The Applicant told the Respondent that he did not receive any remuneration from Giant Forever for the services he provided to OnCard under the 2007 Consultancy Agreement. However funds were transferred from Giant Forever to the bank accounts of the Applicant and his wife[63] which were stated to be loans by Giant Forever to the Applicant.
15. The Applicant gave evidence that OnCard started to look for opportunities to sell its interest in SmartPASS from around early 2011 and he was given a specific role in relation to the sale.[64] He said that around April 2014 the Board of OnCard determined that the OnCard Chinese businesses would be sold, including its interest in SmartPASS[65] although public statements made by OnCard suggest that a potential purchaser had been identified in 2013 and due diligence for the sale of the business was well underway by late 2013 or early 2014.[66]
16. The 2007 Consultancy Agreement was terminated via a Termination Agreement entered into on 28 April 2014.
17. In May 2014 the Applicant entered into the 2014 Consultancy Agreement under which his services as a consultant would be provided to OnCard. This included his services in assisting OnCard to sell its interest in the SmartPASS business.[67] Under paragraph 3.5(a) of the 2014 Consultancy Agreement the services were 'required to be provided at [OnCard's] premises in Victoria and at other locations throughout Australia and elsewhere where [OnCard] may conduct its business or operations for the time being.' The Applicant said that because the services he was to provide were focussed on the sale of SmartPASS, a Chinese entity, he provided those services in China.
18. OnCard announced the Applicant's retirement as CEO and a director at its Annual General Meeting held on 29 May 2014. OnCard informed the meeting that the Applicant (and another retiring director) would stay on as consultants in a transition period to assist with the SmartPASS sale.[68]
19. The Applicant said that in November 2014 he had dinner in Shanghai with the then CEO of OnCard, and during that dinner the CEO indicated that the 2014 Consultancy Agreement might cease in January 2015. The Applicant said that this was confirmed to him via a telephone call in late January 2015 and he left China on 1 February 2015.

1. The Applicant identified a number of statements made by him and OnCard, including statements documented around the time of the Relevant Years, which he believed evidenced his intention as to his residence. In addition to making statements about his intention to 'relocate' to or 'spend more time in' China, the Applicant asserted, as a matter of fact, that he became a non-resident on 25 September 2009. The Applicant pointed to the extract of the minutes of the September 2009 meeting of the OnCard Remuneration Committee in support of his contention that he made a positive decision to cease being a resident of Australia and commence being a resident of China at that time. The minutes record that the Applicant advised the Remuneration Committee that 'effective for the 2010 year he would be a non-resident of Australia and a resident of China.'[69]
2. The Applicant said that he had formed the intention to move to China in 2009 and his presence in Australia in each of the Relevant Years should also be viewed in the context of the days he was present in Australia for the duration of his overall residence in China, being from September 2009 to January 2015. In each of the 2010, 2011, 2012 and 2013 financial years he was present in Australia for 102 to 161 days.
3. In November 2010 the Applicant completed a 'Registration Form of Temporary Residence' with the Shanghai municipal authority which designated his temporary residence as the Shanghai Apartment. The Applicant's Chinese driver's licence designated the Shanghai Apartment as his residence.
4. The Applicant made statements that he intended to move to China 'permanently' or 'indefinitely', and during cross examination he was asked to explain what he meant by this, for example whether his intention was to remain in China 'forever' or whether this was linked to the duration of his association with the OnCard businesses. The Applicant responded that he had anticipated staying in China forever, and even though OnCard had indicated in 2013 that it wished to sell its SmartPASS business his understanding was that he would continue on with the business, albeit under new ownership. He said that the termination of the 2007 Consultancy Agreement arose from his ceasing to be CEO of the OnCard entities. His expectation was that he would assist the incoming CEO and he held this view in April 2014 when he entered into the 2014 Consultancy Agreement.
5. The Applicant explained his understanding of the process that was undertaken for the sale of the OnCard Chinese businesses, including changes to Chinese regulatory requirements which blocked foreign entities from acquiring such businesses with the exception of a small number of companies (including OnCard) who were 'grandfathered' under previous rules. He said that potential bidders were advised that the Applicant was available to continue working with the business and he had been given clearance by OnCard to work with SmartPASS if it was acquired by a certain party. Ultimately SmartPASS was purchased by a different party and it was a matter for the purchaser to determine its leadership arrangements. A sale agreement for the businesses was signed in December 2014 or January 2015. The Applicant said that he was told around November 2014 that his consultancy arrangements would be finishing. At that time he was 60 years old and he said that he considered whether he should seek another role in Thailand or return to Australia to retire.
6. The Applicant left Shanghai in early February 2015. He initially returned to Australia. He said that in March 2015 he travelled to Thailand to explore potential work opportunities. He said that he did not consult his family about these matters. His family had remained in Australia and established their lives there.
7. Counsel for the Respondent asked the Applicant why he had not chosen to retire in China, particularly as he had said that he intended to live there 'forever.' The Applicant said that as his work opportunities there declined he had changed his mind. After living in China for 7 years, his circumstances had changed.
8. In addition than the contractual and corporate materials outlined above, the Respondent provided the Tribunal with copies of incoming and outgoing passenger cards completed by the Applicant when he travelled between Australia and Shanghai or Hong Kong in the Relevant Years (and previous years) which indicated that:

(a) In relation to the 2014 Year:[70] > > > (i) The Applicant answered 'no' to the question of whether he intended to live in Australia for the next 12 months. > > > > (ii) He said his country of residence was Hong Kong. > > > > (iii) He identified himself as a 'visitor or temporary entrant.' > > > > (iv) He said his main reason for returning to Australia was for 'business.' > > > > (v) He stated that his intended address in Australia was 550 Bourke Street, Melbourne (which was the office of OnCard). > > (b) Similar statements were made in relation to the income years ended 30 June 2012 and 30 June 2011, and for the period from late January 2010 to 30 June 2010[71] with the exception of a single incoming passenger card dated 18 October 2010 where the Applicant stated that he was an Australian resident who intended to live in Australia for the next 12 months at the South Yarra Property.[72] > > (c) In relation to the 2015 Year he also identified himself as a visitor or temporary entrant whose country of residence was Hong Kong and who did not intend to live in Australia for the next 12 months, until his incoming passenger card dated 31 March 2015. On that card he stated that he was a resident returning to Australia, he intended to live in Australia for the next 12 months and his intended address was the South Yarra Property.[73] > > (d) From mid-2009 until late January 2010 the Applicant stated that he was an Australian resident who intended to live in Australia for the next 12 months, with his intended address being the South Yarra Property.[74]

9. The Applicant said that he gave OnCard's Melbourne street address as his 'intended address' on the basis that his travel to Australia during this time was for business purposes, and the majority of his time in Australia was spent at the office location.
10. The Applicant held an APEC Card issued in 2008, 2011 and 2013. The Applicant described the purpose of the APEC Card as being to allow him to enter China periodically. The Respondent noted the following items in relation to the 2011 and 2013 APEC Card applications:

(a) In a 2011 police check application, the Applicant gave his current residential address as being in Hong Kong since July 2009, and his prior residential address was the South Yarra Property. > > (b) The Applicant completed the 2013 APEC Card application form[75] on the basis that he was a resident of Australia and his (then) current residential address was the South Yarra Property. He gave a Melbourne GPO Box as his address for correspondence. The police check form accompanying the application stated that his 'permanent residential address over the past 5 years' was the South Yarra Property.

11. The Applicant acknowledged that he had completed and signed the forms for the 2013 APEC Card applications in a manner that was inconsistent with his other statements as to his residence at the time. He said that he did so because he believed he would have difficulty obtaining (or renewing) the APEC Card if he said he was a resident of China, based on his understanding that only Chinese government officials could obtain APEC Cards issued from China. A limited number of APEC Cards were able to be issued at the time with the significant majority of them being issued in Australia. He believed it would be quicker to get an APEC Card in Australia. He acknowledged that with the benefit of hindsight he should not have taken this shortcut.
12. In his response to an audit questionnaire from the Respondent the Applicant said that he chose Hong Kong as his stated place of residence because it was an accepted entry point into China for Western business and English was spoken. He also provided a Hong Kong address to ASIC as his overseas address and on the police check form relating to his APEC Card application.[76] The Applicant also said that he believed that mail was more likely to reach him in Hong Kong than in mainland China. However he agreed that statements he made on his passenger cards and in ASIC and APEC forms that Hong Kong was his place of residence were not an accurate description of his living arrangements at the time.

1. Income tax is payable by an individual for each financial year and is worked out by reference to the 'taxable income' of the individual for the relevant income year. 'Taxable income' is the difference between the assessable income of the individual and deductions (or there may be a tax loss if deductions exceed assessable income): see generally sections 4-1, 4-10 and 4-15 of the ITAA 1997.
2. The inclusion of amounts in assessable income may depend on whether the individual is an Australian resident. The assessable income of an Australian resident includes the ordinary income and statutory income they derived from all sources, whether in or out of Australia, during the income year: subsections 6-5(2), 6-10(4). The assessable income of a foreign resident includes ordinary income and statutory income derived from Australian sources, together with ordinary income that any other provision of the taxation legislation includes in assessable income on some basis other than having an Australian source: subsections 6-5(3), 6-10(5).
3. The Dictionary of definitions contained in section 995-1 of the ITAA 1997 provides that 'foreign resident' means a person who is not resident in Australia for the purposes of the ITAA 1936. An 'Australian resident' is a person who is a resident of Australia for the purposes of the ITAA 1936.
4. In relation to an individual subsection 6(1) of the ITAA 1936 provides that a '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) who is: > > > (A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or > > > > (B) an eligible employee for the purposes of the Superannuation Act 1976; or > > > > (C) the spouse, or a child under 16, of a person covered by sub‑subparagraph (A) or (B)

5. The parties agree that the Applicant is not, and he and his late wife had never been, Commonwealth employees or members of Commonwealth superannuation funds. Nor were they under the age of 16.[77] Therefore subparagraph (a)(iii) of the definition does not apply to either of the Relevant Years.
6. Neither the ITAA 1936 nor the ITAA 1997 provides any further statutory definition of concepts of 'residence', 'permanent place of abode' or 'usual place of abode.' There is a significant body of case authority from both Australian and foreign courts which have considered these concepts, although the application of these principles is heavily reliant on the particular circumstances of the taxpayer.
7. Although the question of residence must be considered in relation to a particular year of income rather than across a broader period of time, events which occurred in surrounding periods 'may be considered as throwing light on and disclosing the significance of habits and conduct within the period.'[78]
8. Nevertheless a person may be a resident of Australia for only part of an income year. The Full Court of the Federal Court in Commissioner of Taxation v Addy[79] (Addy) said that 'a person who is a resident of Australia by reason of an application of the 183 day test is eligible to be a person who is capable of 'ceasing to be a resident' part-way through a year of income' and 'there is nothing in the text of the 183 day test to suggest that it operated to deem a person to be a resident for the whole year.'[80]
9. The Respondent accepts that a person may not necessarily be a resident of Australia for an entire income year, under any of the ordinary concepts, domicile or 183 day tests. When residency commences and ceases will depend on the facts and circumstances.[81]

1. The definition of a 'resident' or 'resident of Australia' in paragraph 6(1)(a) of the ITAA 1936 refers to a person who 'resides' in Australia. There is no further statutory definition of the term 'resides', although a number of case authorities describe a well-established ordinary meaning that a person resided where they 'lived'[82] or 'keep house and do business', where they 'dwell permanently or for a considerable time', have their 'settled or usual abode' or 'live in or at a particular place.'[83]
2. The intention of the person, as well as their physical presence, may be relevant to the determination of residence. In Hafza v Director-General of Social Security (Hafza), Wilcox J said:[84]

Physical presence and intention will co-incide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248 and Keil v Keil [1947] VR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] UKHL 1; [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains "home": see Norman v Norman (No 3) (1969) 16 FLR 231 at 236. It is important to observe, firstly, that a person may simultaneously be a resident in more than one place ... and secondly, that the application of the general concept of residence to any particular case must depend upon the wording, and underlying purposes, of the particular statute in relation to which the question arises. But, where the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as "home", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

3. Evidence of a person's physical presence in a particular place may provide a straightforward indication of 'presence' for these purposes. Where a person spends significant time in different locations or potentially has more than one residence, it is necessary to consider the 'connecting factors' or 'continuity of association' between the person and the particular location.[85] Such factors might include where the person has a home, their family unit or their possessions, or maintains relationships with people and institutions in a location.
4. In considering whether a person who is not physically present in Australia can still be regarded as residing in Australia, the intention of the person to return to that place and treat it as their home is relevant. The subjective intention of the person, whether based on their contemporaneous statements or otherwise may assist in this inquiry, but an examination of objective facts and circumstances is likely to provide a more accurate indication of their intention as to their presence.[86]
5. In its public guidance,[87] the Respondent acknowledges these authorities, and suggests a series of factors that would commonly be taken into account in determining whether a person has the relevant 'continuity of association'[88] with Australia such that they should be regarded as a resident. Broadly, these are the factors that the Respondent considered in its Objection Decision. The Respondent also acknowledges that no single factor is decisive and the weight given to each factor varies depending on individual circumstances.[89]
6. As noted in Hafza, a person may be a resident of more than one place at the same time.[90] This may be relevant to the circumstances of the Applicant, as the Respondent accepts that the Applicant may be regarded as having a home[91] in China in each of the Relevant Years, but contends that he resided in Australia in those years. The focus of the following discussion, aligned to the statutory question, is therefore whether the Applicant resided in Australia in those years.

Domicile test: permanent place of abode outside Australia

1. Where a person is not a resident of Australia according to ordinary concepts, they may nevertheless be regarded as a resident under subparagraph (a)(i) of the definition which includes as a resident a person whose domicile is in Australia, unless the Respondent is satisfied that the person's permanent place of abode is outside Australia. The domicile test operates to extend the definition of a resident beyond the 'ordinary concepts' test.[92]
2. Residence and domicile are different concepts, and although a person may be resident in more than one place, they can only have one 'domicile' at a time.[93] A person's domicile of origin is the domicile of their father at the time of the person's birth. Section 7 of the Domicile Act 1982 (Cth) ('Domicile Act') has the effect that a person's domicile of origin continues until they acquire a different domicile. Section 10 of the Domicile Act provides that 'the intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his or her home indefinitely in that country.' In addition, there must be 'physical and lawful presence in the country concerned.'[94]
3. Subparagraph (a)(i) turns upon the Respondent's 'state of satisfaction' that a person had a permanent place of abode outside Australia. The Full Court in Harding said:[95]

Where a provision reserves to the Commissioner the task of fact finding, on a Part IVC appeal in the [Tribunal], which exercises administrative, not judicial, power, the Tribunal can re-examine for itself on the evidence before it whether it is satisfied that a taxpayer has a permanent place of abode outside Australia...

4. A number of principles were set out by the Full Court in relation to the concept of a permanent place of abode:
   • The exception in subparagraph (a)(i) assumes that the person is not physically present in Australia during the relevant year of income, but is still domiciled in Australia.[96]
   • What has to be abandoned for the purposes of subparagraph (a)(i) is not 'Australia' but 'residence' in Australia.[97]
   • The phrase 'place of abode' is not limited to a specific house, flat or other dwelling but could include a town, country or state in which a person is physically residing 'permanently.'[98]
   • In considering the meaning of the word 'permanent' 'what is of importance is whether the taxpayer has abandoned any residence or place of abode he may have had in Australia.' It must be shown that the person has 'definitely abandoned' their Australian residence. It is to be contrasted with a 'temporary' or 'transitory' place of abode outside Australia.[99]
5. The word 'permanent' in this context has also been described as indicating something less than a place where a person intends to live for the rest of his life and not necessarily 'everlasting'.[100]

1. As with the domicile test, where a person is not a resident of Australia according to ordinary concepts they may be treated as a resident under subparagraph (a)(ii) of the section 6(1) definition which includes a person who has 'actually been in Australia, continuously or intermittently' during more than one half of the year of income[101] unless the Respondent 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.
2. The test was described by the Court in Addy as follows:[102]

'... the 183 day test juxtaposes two criteria. The first is an inquiry into the actual presence of the taxpayer in Australia, and the length of that presence. It is open to a Court to consider that criterion on its merits. The second is a 'carve out' which may or may not be engaged if the first test is satisfied. The carve out is a power or discretion or ability ... which the Commissioner may use to defeat, in defined circumstances, the conclusion about residency which would follow from a person being actually in Australia for at least 183 days..

3. In Commissioner of Taxation v Executors of the Estate of Santha Levy Subrahmanyam[103] Hill J described the role of the Tribunal in addressing the statutory test:

'30. The structure of the second statutory test is to treat a person as prima facie a resident where that person has in a year of income been actually in Australia for more than one-half of the year of income. The prima facie position will be displaced, however, where the person satisfies the Commissioner (or in the event of a review, the Tribunal) that his or her usual place of abode is outside Australia and that the person has not the intention of taking up residence in Australia. > > 31. Accordingly, in a case such as the present the task for the Commissioner (or, on a review, the Tribunal) will be to determine where the taxpayer's usual place of abode is. If that usual place of abode is in Australia or if the Commissioner (or, on review, the Tribunal) is unable to be satisfied that the usual place of abode is outside Australia the consequence will be that the prima facie position has not been displaced and that accordingly the person will be a resident of Australia... > > Logically, the fact that a taxpayer does not have a usual place of abode within Australia does not mean that the taxpayer necessarily has a usual place of abode somewhere else. To use the language of an English authority, the taxpayer might be a 'bird of passage' moving from place to place with no usual place of abode anywhere: Levene v Commissioners of Inland Revenue [1928] UKHL 1... Prima facie if such a person were in Australia more than one-half of the relevant year of income, but had not established a usual place of abode here, that person would still be a resident of Australia. The prima facie position would not have been displaced because the Commissioner could not be satisfied that such a person had a usual place of abode outside Australia. Accordingly, the person would be a resident of Australia as a consequence of the second statutory test.'

4. In applying the test the Tribunal must consider the Applicant's 'usual' place of abode and not merely whether they had a place of abode at a relevant time.[104]
5. The Full Court in Harding discussed the meaning of the phrase 'place of abode' in the context of the domicile test, observing that this would cover a town or country rather than a particular house, flat or other dwelling. In Dapper Coelho and Commissioner of Taxation[105] the Tribunal considered the concept of a 'usual' place of abode for the purposes of the 183 day test. Senior Member Hespe (as she then was) said[106]:

'... following the decision of the Full Court in Harding, properly construed, a "place of abode", in the context of the definition of resident in s6(1), does not refer to an identified house or flat or other dwelling but town or country where the person resides. A usual place of abode is determined by identifying the place, being the town or country, which is a person's home or residential base. It is the place where ordinarily they may be expected to dwell "in the ordinary course of events" or habit of life, having regard to the totality of a person's life and circumstances. The word 'usual' in this context stands in contrast to a place of abode that is casual or temporary.'

'It is not the attributes of the accommodation that a person chooses to stay in that is relevant to determining a person's usual place of abode but the person's relationship with the place. That relationship is not determined solely by identifying a dwelling where, for a time, a person ate, slept, cooked a meal, did their laundry or performed their daily activities.'

1. Senior Member Hespe also addressed the criteria that the person not intend to take up residence in Australia:

'whether a person intends to take up residence in Australia is not determined by the attributes of the accommodation in which they choose to stay; whether their accommodation has a laundry, kitchen or lounge is not relevant. What is relevant is their intention to make Australia their settled home.'

2. Although the question of residence of a person under the 183 day test (as with the other tests of residence) is to be determined in relation to a particular year of income, events occurring before or after that year of income may be relevant to the person's intention in that year of income and provide context as to a person's 'usual' place of abode.[108]

1. The Applicant said that he was not a resident of Australia under any of the three tests for the entirety of the 2014 Year:

(a) For the purposes of the 'ordinary concepts' test he had formed an intention to cease being a resident of Australia in September 2009. He had made clear statements to this effect and the evidence of his actions in severing his Australian connections was consistent with this. When he returned to Australia it was as a visitor only and for work or business purposes, not for the purpose of maintaining his family unit. It was merely convenient for him to stay at the South Yarra Property when in Melbourne. He lived and kept his worldly possessions in Shanghai in the 2014 Year and several preceding years, only leaving to travel for business or leisure. His clear intention was to make his home in China 'indefinitely' and this intention was recorded contemporaneously in business records of OnCard. > > (b) For the purposes of the 'domicile' test he ceased to be domiciled in Australia after September 2009 and had established a permanent place of abode in China by the 2014 Year. His intention was to live in China indefinitely and he relinquished other rights of persons domiciled in Australia, including the right to vote. Again, these matters were reflected in the statements he made which were also noted in business records of OnCard. He abandoned his residence in Australia and took all personal property with him to China.

2. In relation to the 2015 Year, the Applicant's position was that he became a resident of Australia again from 2 February 2015 which was the date he departed Shanghai and returned to Australia following the cessation of his work and business relationship with OnCard. On that basis he was a resident of Australia for only part of the 2015 Year. Prior to his resumption of Australian residency, he was not a resident of Australia for the same reasons as expressed in relation to the 2014 Year.
3. The Respondent contended that the Applicant was a resident of Australia for the entirety of both of the Relevant Years.
4. The Respondent said[109] that the Applicant 'resided' in Australia (and therefore satisfied the 'ordinary concepts' test) having regard to the following matters:

(a) Although the Applicant spent more time outside Australia than in Australia during the period from September 2009 to February 2015, his absences from Australia were for the purposes of business only. > > (b) The Applicant maintained family associations with Australia. He continued to financially support his wife and children who remained in Australia at the South Yarra Property. After the Applicant left Shanghai in February 2015 he returned to live at the South Yarra Property with his family. > > (c) The Applicant continued to hold other personal associations with Australia, including membership of various clubs based in Australia. The Applicant had no personal associations with China. > > (d) The Applicant retained assets in Australia including a self-managed superannuation fund and bank accounts held jointly with family. He did not open any bank accounts in China, purchase major assets in China or lodge personal tax returns in China. > > (e) The Applicant continued to hold a Victorian driver's licence. > > (f) The Applicant retained a private health insurance policy in Australia, on which he made claims in the 2014 Year. Members of the Applicant's family claimed Medicare benefits in the years from 2012 to 2015. > > (g) From 2002 to 2014 the Applicant held executive positions with OnCard which is an Australian incorporated company listed on the ASX with registered business addresses in Melbourne. Meetings of OnCard's Board and various executive committees were held in Australia. > > (h) The Applicant provided services to OnCard through JenSid, which was an Australian company of which he was sole director and shareholder. > > (i) The Shanghai Apartment was rented by OnCard for the use of the Applicant. In addition to paying the rent, OnCard paid for utilities and for a maid to do cleaning. The apartment was rented on a 'furnished' basis, and was minimally furnished in comparison with the manner in which the South Yarra Property was furnished. The Applicant did not attempt to purchase or obtain a long-term lease of a property in China. > > (j) The Applicant relied on his APEC card to allow him to stay in China, and this only allowed stays of up to 60 days per single entry visit. In the Applicant's 2013 application for the APEC card, he stated that he was an Australian resident and that his address was, and had been for the past 5 years, the South Yarra Property. > > (k) The Applicant retired from his executive positions with OnCard in May 2014. In late 2014 the Applicant was advised that the consultancy arrangements might end in early 2015, and this is what happened. From around November 2014 the Applicant started disposing of his possessions in Shanghai, or sent them to Australia. > > (l) The contemporaneous statements made by the Applicant about his intention to cease being an Australian resident, including on his passenger cards and in discussions with the OnCard Board, should be viewed in the context of the circumstances surrounding and reasons for making those statements. The Respondent's view was that the Applicant wanted to achieve a particular tax outcome and took steps to document an intention to cease being an Australian resident. The 'objective facts' were better evidence of the Applicant's intention as to where he resided. > > (m) The Tribunal should not attach much significance to actions taken by the Applicant such as transferring his share of the South Yarra Property to his wife and removing his name from the electoral roll as they do not outweigh the objective facts indicating he never intended to cease living with his family in Australia. > > (n) The Applicant agreed that he was a resident of Australia from 2 February 2015.

5. Alternatively, the Applicant satisfied the 'domicile' test in both of the Relevant Years because his domicile was in Australia and the Tribunal should not be satisfied that he had a 'permanent place of abode' outside Australia.
6. The Applicant had not produced evidence to discharge his burden of proving that he did not have an Australian domicile. The Applicant's domicile was in Australia, based on his having been born in Australia, the permanent residence of his father being in Australia at the time of the Applicant's birth and there being no evidence in support of the Applicant having acquired a domicile of choice in another country.[110]
7. Although the Respondent accepted that the Applicant had a place of abode in China, that place of abode was not a 'permanent' one. In particular:

(a) The Shanghai Apartment was provided to him by OnCard and was only available to him for the duration of his work and business relationship with OnCard. OnCard paid for the rent, utilities and maid service. The Shanghai Apartment came furnished, such that the Applicant only had to provide minimal personal items. The Applicant did not seek a long term lease of, or try to purchase, a property in China. > > (b) By June 2013 there was a proposal for the sale of OnCard's SmartPASS business in China and the Applicant had discussed the possibility of working with a purchaser of that business. In May 2014 the Applicant's longstanding consultancy agreement with OnCard came to an end, and he retired as a director and CEO of OnCard. He entered into a new arrangement to provide consultancy services to OnCard during a transitional period to assist with completion of the sale of OnCard's SmartPASS business. > > (c) As he relied on his APEC Card and did not have a separate visa or residence permit, the Applicant was only permitted to stay in China for a maximum of 60 days per single entry visit. > > (d) There was no intention for his wife and children to join him in China. They remained in the South Yarra Property and he returned there when he was not required elsewhere for work.

8. Alternatively in relation to the 2015 Year, the Applicant satisfied the 183 day test because the Applicant was actually in Australia for more than one-half of that income year and the Tribunal should not be satisfied that the Applicant's usual place of abode was outside Australia and that the Applicant did not intend to take up residence in Australia, having regard to the following matters:

(a) The Applicant was in Australia for 212 days in the 2015 Year. > > (b) The Applicant's usual place of abode was in Australia, where his family and family home were located. The same objective facts identified by the Respondent in relation to the application of the 'ordinary concepts' and 'domicile' tests were relevant in this context. > > (c) He always maintained an intention to reside with his family in Australia and his absence from his home due to work commitments did not change this. He was never purely a 'visitor' to Australia.

Analysis and findings relating to the 2014 Year

1. Although it is necessary to consider whether a person is a resident of Australia on a year by year basis, rather than in relation to an extended or multi-year period, the facts and circumstances in surrounding years may inform matters arising in a particular year. In the present case the the Tribunal believes it is relevant that the Applicant had established certain patterns in his domestic and professional life in the years leading up to the 2014 Year which continued into that year.

Finding: 2014 Year and ordinary concepts test

1. The Tribunal acknowledges the statements made by the Applicant of his intention to cease to be a resident of Australia as of September 2009, and that those statements align to some extent with contemporaneous statements found in the corporate records of OnCard. However the Tribunal agrees with the Respondent, as per the observations of Derrington J in Harding at first instance, that the evidentiary value of those statements may be affected by the Applicant's reason for making them and that the 'objective facts' reflecting the Applicant's intention may be more reliable. The Tribunal places limited weight on the statements of the Applicant that he ceased to be a resident of Australia in September 2009, particularly where those statements are presented as 'fact.'
2. The parties agreed that the Applicant spent 113 days in Australia during the 2014 Year, across 10 separate trips. This was in the context of the Applicant having also spent more than half of the preceding 4 years outside Australia. The duration of physical presence in and frequency of visits to Australia is one indication of whether a person resides in Australia. The Applicant was clearly absent from Australia for longer than he was in Australia in the 2014 Year and for some years prior, but this matter is not determinative. The Applicant spent significant time in both China and Australia, so it is necessary to explore further the nature of his presence in Australia and otherwise whether he retained a 'continuity of association' with Australia.
3. The Applicant and Respondent characterised the nature of his visits to Australia very differently. The Applicant said that his presence in Australia was for business meetings and it was convenient to stay at the South Yarra Property and see his family. The Respondent said that his absences from Australia were for business purposes only and that otherwise his home was in Australia at the South Yarra Property. Statements made by the Applicant in passenger cards as he travelled between Australia and China are consistent with his visiting Australia for business purposes and not otherwise intending to reside in Australia during the 2014 Year. People travelling to and from Australia are advised that legal consequences may follow from making inaccurate statements in passenger cards, and there is authority to suggest that such statements carry some evidentiary weight.[111] However the Tribunal also notes that these cards are completed on a 'self reporting' basis and the Applicant stated in the same documents that his country of residence was Hong Kong. This raises a question as to how much reliance can be placed on his statements in those passenger cards.[112]
4. The Respondent correctly submitted that a person's family connections, particularly the maintenance of a person's family unit in Australia will be a significant matter in favour of finding that the person is a resident of Australia. However there are authorities which indicate that there may be circumstances, albeit 'unusual' or 'exceptional' where the location of family in Australia is not determinative.[113] Families may differ as to their priorities in relation to family life. The Applicant said that he and his wife had previously abandoned an idea to live in Thailand due to concerns about their (then young) children's health. As the children grew older, he and his wife placed more importance on completion of their senior and tertiary education. The Applicant did not appear to have significant contact with other family. The Applicant's work history supports his contention that he placed personal priority on his professional life, and this can be viewed in the context of holding CEO and Board Chair roles. The Tribunal accepts that in the circumstances of this Applicant and his family, although some weight may be attached to his family remaining in Australia it may not be the most significant factor in determining his intention in relation to remaining a resident of Australia.
5. The following actions undertaken by the Applicant to sever his connections with Australia carry some weight, particularly in the context of a way of living he adopted over a number of years. Without placing over emphasis on hindsight the following matters existed in fact over an extended period of time:

(a) He had removed his personal belongings from the South Yarra Property to Shanghai. > > (b) He did not own real estate or a car in Australia. He had disposed of his interest in the South Yarra Property to his wife (although the Tribunal acknowledges that there is a lack of evidence to support his claim that this was purely for asset protection and estate planning reasons. His only other significant asset was the parcel of shares in OnCard issued to him under the 2007 Consultancy Agreement. > > (c) His name was removed from the electoral roll in September 2009.

6. The Tribunal acknowledges the concern of the Respondent that some actions may have been taken by the Applicant with the purpose of creating the appearance of disassociation with Australia. These concerns may have been particularly relevant in the context of the evasion issues that had previously been raised by the Respondent. The Tribunal has also taken this concern into account when considering the weight to be given to the Applicant's statements as to his intention.
7. There are several matters identified by the Respondent which would ordinarily suggest an ongoing connection with Australia. On balance the Tribunal believes that in the particular circumstances of the Applicant they do not weigh significantly in favour of a finding of ongoing connection with Australia for the reasons given below:

(a) The Applicant had Australian joint bank accounts with his wife. His family clearly would have required Australian bank accounts for their daily life in Melbourne and it is agreed that by the Relevant Years the family's sole source of income came from the Applicant's work with OnCard. The Applicant and his wife ostensibly could have changed their banking arrangements, but there was no apparent need for them to do so. In the perhaps unusual circumstances that the Applicant was the CEO of a company that conducted a business of providing prepaid charge cards in China, the Tribunal accepts the Applicant's evidence that he did not need to open bank accounts in China but could use his company's products. He did have a credit card issued by a bank in Hong Kong. > > (b) The family's Australian private health insurance policy which also covered the Applicant was maintained. The Tribunal accepts that the Applicant's late wife and children would have required private health insurance cover. The Respondent queried whether such a policy would have been cheaper had the Applicant not been covered, but was not able to demonstrate that this was correct. The statements of claims made under the private health insurance policy indicate that the value of claims made by the Applicant's wife and children was substantially greater than amounts claimed by the Applicant in the 5 year period from 1 July 2009 to 30 June 2014. It is not clear whether any of the amounts claimed by the Applicant were for medical services provided prior to his relocation to China in September 2009.[114] > > (c) He had an existing Victorian driver's licence when he went to China in September 2009 which only came up for renewal after he returned to Australia in February 2015. There was no apparent need for him to hand back his Victorian licence whilst in China, and it was useful if he needed to drive on visits to Australia. During the same period the Applicant had a Chinese driver's licence and access to vehicles in Shanghai. > > (d) He had a GPO box in Melbourne which he retained due to a concern about the reliability and security of mail sent via the Chinese mail system. A friend in Melbourne would access the mailbox and send him a photograph of the contents to him in China. > > (e) Although his ability to remain in China legally relied on his holding an APEC Card with a maximum limit of 60 days per single visit, practically he was able to manage the technical requirements such that he was present and lived in China for the majority of the period from September 2009 to January 2015. His ability to hold an APEC Card was essentially dependent on his work and business relationship with OnCard (including via Giant Forever), however he was not working under an employment contract or assignment of fixed duration, but held senior executive positions with both OnCard and its Chinese subsidiary entities, with responsibility for implementation of longer term strategic aims. > > (f) Although it is correct that the Applicant's services to OnCard had been provided through Jensid, an Australian company, this arrangement had ceased from late 2009 and ongoing services were provided through Giant Forever, a Hong Kong entity. The Respondent queried whether the apparently verbal variation to the 2007 Consultancy Agreement was legally binding, however the evidence supports the fact that the parties acted on the basis that OnCard paid Giant Forever (and not Jensid) for these services from late 2009.

8. The Tribunal is perhaps less persuaded by the Applicant's basis for retaining his memberships of clubs and associations based in Australia. His concern about being unable to rejoin if he gave up his membership is potentially consistent with an intention to have a social or community presence in Australia. He did not provide evidence to support his claims of reciprocal benefits being provided by the organisations outside Australia, including in China so the Tribunal was unable to assess the likelihood and value of these benefits.
9. The Tribunal also does not believe the China Resident Identity Card which the Applicant said was issued to him in 2009 carries any evidentiary weight. There is no documentation to confirm whether a legally valid card existed and the Applicant acknowledges that he never used it.
10. There is documentary evidence relating to the Applicant's business and professional circumstances, including the contracts he entered into in 2007 and 2014, and corporate documentation of OnCard and Giant Forever which is consistent with the Applicant's statements relating to his work arrangements in the Relevant Years and the few years preceding. There is more limited corroborating evidence in relation to his personal and domestic circumstances, such as the detail of his daily routine in Shanghai or his activities when he returned to Melbourne, however as set out above the Tribunal believes that the Applicant has provided sufficient explanation of several matters that were otherwise suggested by the Respondent as being implausible or doubtful. Although the burden of proof rests with the Applicant, the Tribunal notes that some contentions raised by the Respondent, such as the Shanghai Apartment being used as lodgings for OnCard employees generally or meal preparation by the Applicant, did not appear to be based on any particular evidence.
11. Having regard to the overall circumstances of the Applicant in the 2014 Year, the Tribunal finds that the Applicant did not 'reside' in Australia during the 2014 Year. In addition to his significant physical absence from Australia, he had practically removed many connections with Australia which was consistent with Australia no longer being his home, even though some arrangements remained in place for the benefit of his family who continued to live here. By the 2014 Year these arrangements had existed for several years and reflected the mode of living he had established over an extended period of time. This was a more reliable reflection of his intention in relation to the 2014 Year than statements he might have made in 2009.

1. Having found that the Applicant did not 'reside' in Australia under the ordinary meaning of that word, it is necessary to consider the extended or inclusive tests of residence in subsection 6(1).
2. The Applicant accepted that prior to September 2009 his domicile was in Australia. He points to the statements he made as to his intention to relocate to China (as noted in the corporate records of OnCard) together with actions he took such as removing himself from the electoral roll as evidence that he ceased to have an Australia domicile with effect from September 2009, having the requisite intention for the purposes of section 10 of the Domicile Act to acquire a domicile of choice in China.
3. The Tribunal is not satisfied that these statements either of themselves or together with removal from the Australian electoral roll adequately evidence an intention by the Applicant to make his home in China indefinitely. Other than noting that the Applicant had told OnCard that he would cease to be a resident of Australia from the 2010 year of income, OnCard's records use more general phrases such as 'committed to spend even more time in China.'[115] The Tribunal acknowledges the Applicant's statement during cross examination that at some time he may have intended to live in China for the rest of his life, however he did not provide evidence to corroborate this assertion. The Tribunal finds that the Applicant did not acquire a domicile in China around or after September 2009 and therefore his domicile was in Australia in the 2014 Year.
4. The Respondent accepts that the Applicant had 'a' place of abode in China.[116] The issue in dispute is therefore whether the Tribunal can be satisfied that the Applicant had a 'permanent' place of abode outside Australia in the 2014 Year.
5. The Shanghai Apartment was leased in the name of OnCard and OnCard met the cost of rent, utilities and maid service. Therefore the Applicant could only have expected to live at the Shanghai Apartment while he had an employment or other business association with OnCard. These matters might tend against a finding that the Applicant had a permanent place of abode in Shanghai.
6. The Shanghai Apartment was leased by OnCard for many years, from May 2007 to February 2015. The Applicant said it was leased for his exclusive use and in the absence of any evidence of use by others, the Tribunal accepts this. The Respondent suggested that the Shanghai Apartment might have been a place for OnCard employees to lodge when they were in China on business, rather than being the Applicant's true home. The Applicant disputed this, saying that any person who stayed at the Shanghai Apartment other than him was as his personal guest, such as his son when he visited for a university event. This was consistent with his senior executive position. The Tribunal prefers the evidence of the Applicant in this regard. The Respondent did not provide any basis for its suggestion and it appears to be at odds with the Respondent's acceptance of the Shanghai Apartment as a 'place of abode' of the Applicant.
7. The fact that the Applicant did not purchase a property in China or secure a longer term lease, but lived there on annual lease terms does not preclude the Applicant from having a permanent place of abode in that location.[117]
8. The Shanghai Apartment was clearly not as large or as extensively or expensively furnished as the South Yarra Property. However the Tribunal believes that this does not carry significant weight in determining the residence of the Applicant. The South Yarra Property reflected its situation in suburban Melbourne and its occupation by multiple adults. The Shanghai Apartment reflected the living conditions of its location in a major Chinese city and its use by a single occupant. Although the Shanghai Apartment may have been leased with some furnishings, the Tribunal accepts the evidence of the Applicant that in addition to relocating his personal possessions to the Shanghai Apartment he acquired a range of household goods, including maintenance tools, suited to his lifestyle in Shanghai which had been established over a period of several years.
9. The Applicant does not dispute that he was unable to stay in China for more than 60 days per single visit due to the conditions attached to the APEC Card. However in practice the Applicant was able to manage these conditions such that as a matter of fact he remained in China for significant periods over several years. The Tribunal accepts that he did not need to apply for an alternative visa or residence permit to maintain his presence in Shanghai.
10. It is correct that the Applicant's access to the APEC Card was dependent on his ongoing business and professional obligations with OnCard's businesses in China. However there is evidence of the Applicant holding the most senior executive roles with OnCard and its Chinese subsidiaries over many years which required his involvement in strategic matters. He was not employed on a limited term employment contract. He was the authorised legal representative in China for OnCard's businesses.
11. The Applicant provided his consultancy services through an entity, Giant Forever, established in Hong Kong.
12. Even though he did not own a car in China, the Applicant had access to vehicles in Shanghai for work and leisure purposes as a consequence of his executive positions with OnCard. He had a Chinese driver's licence. He did not set up a bank account in China, but as a senior executive of a company which provided prepaid cards he had ready access to an alternative to bank accounts. He also held a credit card issued by HSBC.
13. The Applicant had completed a registration form of 'temporary residence' as required by the Shanghai municipal authority. It is noted that this was lodged in 2010, such that by 2014 the term 'temporary' may have been relative.
14. The evidence suggests that the Applicant had only limited connections with Australia in the 2014 Year. He did not own real estate or a vehicle in Australia. His only significant investment was a parcel of shares in OnCard which had been issued to him under the terms of the 2007 Consultancy Agreement. The circumstances surrounding the family health insurance policy, Australian bank accounts held jointly with his wife and his membership of various organisations in Australia have been considered at paragraph 201 above.
15. The Tribunal is satisfied that the Applicant had a permanent place of abode outside Australia, being his place of abode in Shanghai, in the 2014 Year. The Tribunal does not regard the Applicant's place of abode in China, whether that is viewed as the Shanghai Apartment or the city of Shanghai as having been 'temporary' or 'transitory' at that time. The Tribunal accepts that in the 2014 Year there was a reasonable basis for the Applicant to assume that his established pattern of living in Shanghai would continue. Cumulatively the matters set out above indicate that the Applicant had by that time abandoned his residence in Australia and established a home in Shanghai which was not temporary or transitory.

Analysis and findings relating to the 2015 Year

1. However the Applicant's circumstances underwent significant change in the early part of the 2015 Year (and the weeks immediately to the beginning of the 2015 Year). The 2007 Consultancy Agreement was terminated in April 2014, to be replaced by the 2014 Consultancy Agreement which contemplated the Applicant through Giant Forever providing a narrower range of services, being to assist with 'procuring and completing' the sale of the SmartPASS business under any contract of sale entered into by 29 May 2014.[118] This arrangement was described by OnCard as being for a 'transition period.'[119] The Applicant formally retired from all of his executive and leadership roles with OnCard with effect from 29 May 2014.[120] These events had consequences for both his personal domestic arrangements as well as his ability to remain in China.

1. The Applicant stated that he had resumed his Australian residence on 1 February 2015 when he officially departed Shanghai. This statement of his intention as to his residence must be viewed subject to a number of objective facts which suggest an alternative interpretation. Although it is correct that in certain circumstances a person may be a resident of Australia for only part of an income year, it is not as simple as saying that the Applicant switched from being a non-resident to a resident when he took his final flight from China to Australia and put his name on the Australian electoral roll again. The changing circumstances of the Applicant were prevailing well before his 1 February 2015 departure date and even prior to the verbal advice in November 2014 about the termination of the consultancy arrangements with OnCard.
2. There had been proposals for the sale of the SmartPASS business and by mid-2013 prospective purchasers had been identified. The Applicant said he had sought permission from the Board of OnCard to continue to work with any new owner of the SmartPASS business, but acknowledged that this was subject to the purchaser wishing to retain his services. By November 2013 a sale of SmartPASS to a particular purchaser had been announced, however as at 29 May 2014 the OnCard Board advised its shareholders that due diligence was ongoing and conditions precedent were still outstanding.[121]
3. Regardless of whether the Applicant might have wished to continue living in Shanghai, by late June 2014 he would have been aware that in addition to no longer holding his executive positions with OnCard he was not going to be commencing work with the new owner of the SmartPASS business. The 2014 Consultancy Agreement was clearly expressed in terms of being a transitional arrangement, focussed on completing the transfer of the SmartPASS business to the new owner. Further, clause 3.5 of the 2014 Consultancy Agreement ('Workplace and travel') specifically contemplated that the services would be provided at OnCard's premises in Victoria, albeit also potentially at 'other locations' where OnCard might conduct its business.
4. Although the lease of the Shanghai Apartment was extended until 1 February 2015, OnCard had given notice to the landlord previously and the Applicant stated that he had started arrangements for the transfer of his personal belongings to Australia and disposal of unwanted household goods in Shanghai by late 2014, the Applicant would have been aware by mid-2014 that his living arrangements would need to change. In the absence of an employment offer from the purchaser of the SmartPASS business the Applicant could not provide any plan for his future other than a return to Australia with a view to exploring other opportunities overseas in due course.
5. Similarly absent alternative employment or business arrangements in China there was no evidence that the Applicant could have retained his APEC Card, thus removing the basis for him remaining in China legally. On the basis of his Australian citizenship and passport the only place where he could have legally resided would be Australia, and he made preparations to return there accordingly.
6. Against this backdrop of changed circumstances affecting his intention in relation to where he wished to (or could) live or make his home, the factors identified by the Respondent as indicating ongoing connections to Australia were maintained and become more significant. That is, his family were in Australia, there was no suggestion of family breakdown and he was able to return to live at the South Yarra Property with his family. He had access to Australian bank accounts and a Victorian driver's licence, as well as memberships of clubs and associations he could use in Australia. He could utilise the family private health insurance policy. He had started moving personal belongings back to Australia. His 'official' return to Australia in February 2015 was the culmination of a longer process.
7. Further, as a matter of objective fact the Applicant spent more time in Australia during the 2015 Year than outside Australia and the nature of his presence in Australia reflected resuming home life with his family at the South Yarra Property. Other than in relation to the transitional services under the 2014 Consultancy Agreement he no longer had business commitments to attend to in Australia with OnCard.
8. In the context of the matters described above, the Tribunal does not place particular weight on any statements made by the Applicant on passenger cards prior to March 2015 that he did not intend to live in Australia for the next 12 months.
9. The Tribunal must therefore find that the Applicant resided in Australia for the entirety of the 2015 Year and therefore satisfied the 'ordinary concepts' test of a resident for that year.

1. On the basis of finding that the Applicant was a resident of Australia in the 2015 Year for the purposes of the ordinary concepts test, it is not necessary to making a finding under the domicile test. However the Tribunal observes that:

(a) For the reasons given in relation to the 2014 Year, the Applicant's domicile was in Australia. > > (b) Although the Respondent might accept that the Applicant had established 'a' place of abode in China for a part of the 2015 Year, the Tribunal would not have been satisfied that the Applicant's 'permanent' place of abode was outside Australia in that year or even part of that year. Although the Applicant did not vacate the Shanghai Apartment and leave China until 1 February 2015, he started to make arrangements for the removal of his personal possessions from the Shanghai Apartment from November 2014. The cessation of his consulting role may not have been confirmed until January 2015 but he acknowledged he was made aware of its likely cessation in November 2014. > > (c) More importantly, by the beginning of the 2015 Year (that is, after late May 2014) he had retired from his executive roles with OnCard and the agreement under which his services had been provided to the OnCard group for many years had been replaced with a narrower consultancy arrangement described by OnCard as for a 'transition period.' As the Applicant relied on the APEC Card and did not have other rights to remain in China he would have been aware by at least the beginning of the 2015 Year that absent employment with another entity in China he would not be able to remain in China. In these circumstances, practically, as well as legally, the Applicant's residence in China was now temporary or transitory. Although the Applicant firmly reiterated his intention was to remain in China indefinitely (or even permanently), he did not explain how he could have done so at this point. By its nature the 2014 Consultancy Agreement could only be of limited duration. The agreement also contained provisions restricting the Applicant from being 'concerned with or interested in any business' in China the same as or substantially similar to that carried on by OnCard (and its group entities) with which the Applicant had been involved during the year prior to the termination of the agreement.[122]

2. If the Tribunal had not found that the Applicant was a resident in the 2015 Year under the ordinary concepts test, the Tribunal would have found that the Applicant was a resident of Australia under the domicile test for the entirety of the 2015 Year.

1. Again, on the basis of the finding that the Applicant was a resident of Australia in the 2015 Year under the ordinary concepts test, it was not necessary for the Tribunal to make a finding under the 183 day test. However the Tribunal observes that:

(a) It was not disputed that the Applicant had actually been in Australia, at least intermittently, for periods totalling more than one-half of the 2015 Year. > > (b) Although the Applicant might have established a place of abode in China, the Tribunal would not have been satisfied that the Applicant's 'usual' place of abode was outside Australia for the 2015 Year. As set out above, his changed professional circumstances had a direct consequence on his living arrangements in China. Further, based on his retirement from his executive roles at OnCard, the termination of the 2007 Consultancy Agreement, its replacement with the 2014 Consultancy Agreement for a transitional arrangement and the absence of an offer of work with the purchaser of SmartPASS, the Applicant should have been aware that he could not remain in China. For that reason the Tribunal would not have been satisfied that the Applicant did not intend to take up residence (again) in Australia.

2. Therefore, if the Tribunal had not found that the Applicant was a resident in the 2015 Year under the ordinary concepts test, the Tribunal would have found that the Applicant was a resident of Australia under the 183 day test for the entirety of the 2015 Year.

1. It is not disputed that in the 2014 Year Jensid paid the Applicant a dividend of $10,000 to which franking credits of $4,286 attached and that the Applicant did not return any amount of assessable income in relation to this dividend.[123]
2. Jensid is an Australian established and resident company. There was no evidence that Jensid derived profits from outside Australia.

1. Subsection 44(1) of the ITAA 1936 provides that the assessable income of a shareholder in a company (whether the company is a resident or a non-resident) includes (insofar as is relevant):

(a) If the shareholder is a resident: > > > (i) Dividends (other than non-share dividends) that are paid to the shareholder by the company out of profits derived by it from any source; > > > > (ii) ... > > (b) If the shareholder is a non-resident: > > > (i) Dividends (other than non-share dividends) paid to the shareholder by the company to the extent to which they are paid out of profits derived by it from sources in Australia; ...

2. However subsection 44(1) does not apply to a dividend to the extent to which another provision that expressly deals with dividends includes in, or excludes from, the shareholder's assessable income some or all of the dividend.
3. Section 128D of the ITAA 1936 provides that certain types of dividend income will not be assessable income, nor exempt income. This includes 'income other than income ... upon which withholding tax would, but for paragraph 128B(3)(ga) ... be payable.'
4. Income that consists of a dividend paid to a non-resident by a company that is a resident will be liable to withholding tax, subject to exceptions set out in subsections 128B(3):[124] subsection 128B(1). Dividend income will not be liable to withholding tax under subsection 128B where it consists of 'the franked part of a dividend': paragraph 128B(3)(ga).
5. Subsection 207-20(1) sets out a 'general rule' that the recipient of a franked distribution must include in their assessable income the amount of the franking credit on the distribution.

1. The Respondent contends that in relation to the 2014 Year:

(a) The Applicant should have included in his assessable income the $10,000 amount of the dividend from Jensid under subparagraph 44(1)(a)(i). > > (b) The dividend was not non-assessable non-exempt income for the purposes of section 128D because the Applicant was not a non-resident of Australia in that year to which dividend withholding tax could apply under subsection 128B(1). > > (c) Under subsection 207-20(1) the $4,286 of franking credits were also assessable to the Applicant.

2. The Applicant said that based on his contention that he was not a resident of Australia in the 2014 Year and the fact that the dividend from Jensid was fully franked:

(a) The dividend was not assessable income under subparagraph 44(1)(a)(i). > > (b) Further, the dividend was non-assessable non-exempt income to him under section 128D. This was because it was paid to him by a resident company such that subsection 128B(1) would impose withholding tax on the dividend but for the operation of paragraph 128B(3)(ga).

3. It is therefore common territory between the parties that the answer to the question of whether the Applicant should include the dividend from Jensid in his assessable income essentially turns on the outcome of the analysis of his residency status for the 2014 Year.

1. For the reasons given above the Tribunal has found that the Applicant was not a resident of Australia in the 2014 Year. On that basis:

(a) The $10,000 dividend paid by Jensid (an Australian resident company) to the Applicant (an Australian resident shareholder) would have been liable to withholding tax under subsection 128B(1), subject to any of the exceptions in subsection 128B(3). > > (b) As the dividend was fully franked paragraph 128B(3)(ga) applied, invoking the operation of section 128D. > > (c) The dividend should not have been included in his assessable income in the 2014 Year under paragraph 44(1)(a). > > (d) The related franking credits should not have been included in his assessable income under subsection 207-20(1) in that year.

DID THE APPLICANT DERIVE INCOME ATTRIBUTED FROM GIANT FOREVER?

1. The issue here is whether the Applicant is required to include in his assessable income for either or both of the Relevant Years amounts that are attributable to income of Giant Forever under the 'controlled foreign companies' (CFC) rules contained in Part X of the ITAA 1936.
2. The following matters are relevant:

(a) The Applicant was the sole shareholder in (and director of) Giant Forever. > > (b) Giant Forever is a company that was incorporated in Hong Kong. > > (c) OnCard was a resident of Australia for Australian income tax law purposes in each of the Relevant Years.[125] > > (d) In accordance with the terms of the 2007 Consultancy Agreement and 2014 Consultancy Agreement, Giant Forever received from OnCard: > > > (ii) Amounts invoiced on a monthly basis for procuring the services of the Applicant to OnCard. > > > > (iii) An amount in respect of the termination of the 2007 Consultancy Agreement. > > (e) The financial statements of Giant Forever reported bank interest income of $40 for the financial year ended 31 March 2014[126] and $27 for the financial year ended 31 March 2015.[127] > > (f) The financial statements of Giant Forever reported foreign exchange gains of $9,599 for the financial year ended 31 March 2015.[128] > > (g) Other than the amounts received from OnCard, bank interest and foreign exchange gains, Giant Forever did not earn any other income or make any other gains in the Relevant Years. It did not carry on any business or activities other than the provision of the Applicant's services. > > (h) The financial statements of Giant Forever indicate that Giant Forever incurred certain expenses in each of the Relevant Years.

3. For the reasons given above, the Tribunal has found that the Applicant was not a resident of Australia in 2014 Year, but was a resident of Australia in the 2015 Year.

1. Subsection 456(1) of the ITAA 1936 provides that where a 'CFC' has 'attributable income' for a 'statutory accounting period' in respect of an 'attributable taxpayer', that attributable taxpayer must include in their assessable income their 'attribution percentage' of the attributable income.
2. Under section 319 the 'statutory accounting period' of an entity usually reflects the financial year, being the 12 months ending on 30 June.[129]
3. Under section 340 of the ITAA 1936 a company is a CFC at a particular time if at that time it is a resident of a listed country or of an unlisted country and any of the following applies:

(a) There is a group of 5 or fewer Australian 1% entities, the aggregate of whose associate-inclusive control interests in the company is not less than 50%; > > (b) There is a single Australian entity whose associate-inclusive control interest in the company is not less than 40%, and at the time the company is not controlled by entities other than the Australian entity or its associates; > > (c) The company is controlled by a group of 5 or fewer Australian entities, either alone or together with associates.

4. Section 320, together with the Income Tax Regulations 1936 in force in the Relevant Years[130] (Regulations), identified and defined 'listed countries' and 'unlisted countries.' A listed country is a country (or part of a country) that is declared by the Regulations to be a listed country, and an unlisted country includes a foreign country that does not consist of a listed country (or listed countries): subsection 320(1). For present purposes, because Giant Forever was established in Hong Kong it is necessary to consider the designation of China and Hong Kong.
5. An 'Australian 1% entity' in relation to a company means an 'Australian entity' whose associate-inclusive control interest in the company is at least 1%: section 317. An 'Australian entity' includes an entity (other than a partnership or trust) that is a Part X Australian resident: paragraph (c) of section 336.
6. A 'Part X Australian resident' is defined in section 317 to mean a resident within the meaning of section 6 (except where a double tax agreement ascribes residence of the person to a foreign country).
7. 'Associate-inclusive control interest' has the meaning given by section 349. This includes the 'direct control interests' held by the entity in the CFC, such as the percentage of the total of paid-up share capital held by the entity in the company: paragraphs 350(1)(a), 349(1)(a).[131]
8. The attributable income of a CFC is determined in accordance with Division 7 of Part X. The attributable income is the amount that would be the CFC's taxable income for the period if certain assumptions were made: subsection 382(1). The basic assumptions are set out in section 383, including an assumption that the CFC is a taxpayer and a resident during the period, that the relevant period is a year of income and that the application of taxation laws are modified in accordance with Division 7. That is, although the CFC is not actually an Australian resident entity, Division 7 operates on the basis of using 'notional' assessable income, 'notional' deductions and other modified concepts to calculate the attributable income.
9. Additional assumptions apply depending on whether the CFC is taken to be a resident of a listed country or unlisted country. Section 384 sets out assumptions for an unlisted country CFC. There is an assumption that the notional assessable income of the CFC is limited to amounts set out in subsection 384(2). This includes, where the CFC does not pass the 'active income test' for the period, amounts of 'adjusted tainted income.'
10. 'Adjusted tainted income' has the meaning given by section 386. Subject to certain modifications, this includes amounts that would be 'passive income' or 'tainted services income:' subsection 386(1).
11. Passive income has the meaning given by section 446. This includes:

(a) 'tainted interest income:' paragraph 446(1)(d). Tainted interest income is defined in section 317 to include, in relation to a company, interest or a payment in the nature of interest (subject to certain exclusions not relevant in the present circumstances). > > (b) 'net tainted currency exchange gains:' paragraph 446(1)(n). Net tainted currency exchange gains accrue to a company where the sum of tainted currency exchange gains exceeds the sum of tainted currency exchange losses: section 444. Section 317 defines a tainted currency exchange gain to be a currency exchange gain realised by the company, except where it related to an 'active income transaction.'[132]

12. Tainted services income has the meaning given by section 448. Insofar as is relevant to payments of amounts by OnCard to Giant Forever, subsection 448(1) includes as tainted services income:

(a) income (other than premium income) from the provision of services by the company to an entity if:

(i) the entity was a Part X Australian resident at the time that the income was derived; and

(ii) the services were not provided in connection with a business carried on by the entity at that time at or through a permanent establishment of the entity in a listed or unlisted country.

1. The tainted services income of a company for a statutory accounting period does not include the passive income of the company for that period: subsection 448(5).[133]
2. The 'active income test' is set out in section 432. A company will only pass the active income test for a statutory accounting period where it meets each of the criteria in subsection 432(1). This includes its 'tainted income ratio' for the statutory accounting period being less than 0.05: paragraph 432(1)(f). Sections 433 to 436 set out the elements for calculating the tainted income ratio.
3. The term 'attributable taxpayer' is defined in section 361. An entity is an attributable taxpayer in relation to a CFC if they are an Australian entity whose associate-inclusive control interest in the CFC is at least 10%: paragraph 361(1)(a).[134]
4. 'Attribution percentage' has the meaning given by section 362. This takes account of direct attribution interests and indirect attribution interests held by the entity in the CFC: subsection 362(1). An entity's direct attribution interests include the percentage of the total paid up share capital of the CFC that it holds: paragraph 356(1)(a).

(a) Giant Forever was a CFC in each of the 2014 Year and 2015 Year because: > > > (i) It had been incorporated in Hong Kong and therefore was treated as a resident of an unlisted country. > > > > (ii) The Applicant was a Part X Australian resident in each year, being an Australian resident in each year, and therefore also an Australian entity. > > > > (iii) As the Applicant was the sole shareholder of Giant Forever, 5 or fewer Australian 1% entities held associate-inclusive interests in Giant Forever of at least 50%. > > (b) As the Applicant held all of the shares in Giant Forever directly he was an attributable taxpayer in relation to Giant Forever with an attribution percentage of 100%. > > (c) Giant Forever had attributable income in each of the 2014 Year and 2015 Year on the following basis: > > > (i) Giant Forever did not pass the active income test in either year. > > > > (ii) Amounts derived by Giant Forever from OnCard under the 2007 Consultancy Agreement and 2014 Consultancy Agreement in respect of the provision of services by the Applicant in each year comprised tainted services income, and thus adjusted tainted income. > > > > (iii) Amounts of interest disclosed in Giant Forever's financial statements for each year comprised tainted interest income, passive income and thus adjusted tainted income. > > > > (iv) There was no evidence to demonstrate that the foreign exchange gains disclosed in Giant Forever's financial statements for the 2015 Year were not tainted currency exchange gains. Therefore they were also passive income and adjusted tainted income. > > (d) In relation to expenses disclosed in Giant Forever's financial statements, the 'evidence does not show that the expenses were not incurred.'[135]

2. The Applicant said that no amount should be attributed to him under section 456 in either of the 2014 Year or the 2015 Year on the basis that he was not a resident of Australia in either year and therefore not a Part X Australian resident or attributable taxpayer in relation to Giant Forever. The Applicant did not otherwise make submissions on the operation of the CFC rules, and said that if the Tribunal found that he was a Part X Australian resident he accepted that the provisions of Part X would apply in a mechanical fashion such that amounts would be attributable to him.
3. The Tribunal observes that the Respondent did not set out its analysis of the CFC rules until after the Applicant had provided his Appeal Statement in this proceeding. The RSFIC dated March 2024 appears to be the first clear explanation of the position taken by the Respondent. The provisions of Part X are complex and by the time the RSFIC was filed the Applicant was no longer represented in this proceeding by an adviser with taxation law experience. However the Tribunal is obliged to make its decision based on an application of the statutory provisions to the relevant facts.

1. In relation to whether Giant Forever was a CFC at a particular time:

(a) It was a company. > > (b) It would be treated as a resident of an 'unlisted country.' It was incorporated in Hong Kong. Neither Hong Kong nor China was described as a 'listed country' in Schedule 10 of the Regulations in either of the Relevant Years. For the purposes of subsection 320(4), the operation of the Double Tax Agreement between Australia and China is treated as not extending to the Hong Kong SAR,[136] and therefore Hong Kong is treated as a separate foreign country for the purposes of Part X. As it was not a resident of a listed country in either of those years, Giant Forever is taken to be a resident of an unlisted country in those years for the purposes of subsection 320(1). It was not suggested by either party that Giant Forever was a resident of Australia. > > (c) As all of the shares (or practically, 100% of the control interests) in Giant Forever were held by the Applicant and there is no suggestion that another entity or entities had any other type of controlling interest in Giant Forever, the question of whether Giant Forever was a CFC at a particular time depends on whether the Applicant was an Australian 1% entity[137] or an Australian entity[138] at the time. > > (d) For the reasons given above, the Tribunal has concluded that the Applicant was not a resident of Australia in the 2014 Year. He was therefore not a Part X Australian resident, an Australian entity nor an Australian 1% entity in that year. Giant Forever was not a CFC at any particular time during the 2014 Year. > > (e) For the reasons given above, the Tribunal has concluded that the Applicant was a resident of Australia in the 2015 Year. Giant Forever therefore was a CFC during the 2015 Year.

2. For the purposes of the CFC rules in Part X, the consequence of Giant Forever not being a CFC in the 2014 Year is that income derived by Giant Forever in the statutory accounting period reflecting the 2014 Year is not attributed to the Applicant. The Applicant is not an attributable taxpayer in relation to a CFC. This means that the amounts of $1,059,281 referable to service fees received by Giant Forever from OnCard and $40 of bank interest identified by the Respondent[139] are not included in the Applicant's assessable income under subsection 456(1) in the 2014 Year.[140]
3. However as Giant Forever was a CFC in the 2015 Year:

(a) As the Applicant was a resident of Australia he was a Part X Australian resident and therefore an Australian entity. He held all of the shares in Giant Forever and there was no suggestion of another entity having any control interest in Giant Forever, therefore his 'associate-inclusive control interest' in Giant Forever was 100%. As an Australian entity holding an associate-inclusive control interest greater than 10%, he was an 'attributable taxpayer' in relation to Giant Forever. > > (b) Again, as the Applicant held all of the shares in Giant Forever he had 'direct attribution interests' in that CFC of 100% and thus an 'attribution percentage' of 100% in relation to its attributable income. > > (c) Giant Forever had 'attributable income' on the following basis: > > > (i) Interest of $27 reported in the financial statements of Giant Forever for the year ended 31 March 2015[141] was 'tainted interest income'[142] and thus 'passive income' and 'adjusted tainted income.' > > > > (ii) The $175,000 of fees paid by OnCard to Giant Forever for services of the Applicant was 'tainted services income' being income (other than premium income) from the provision of services by Giant Forever (the company, which was the party contracted to provide the services) to an entity (OnCard) where OnCard was an Australian resident at the time that income was derived, and the services were not provided in connection with a business carried on by OnCard through a permanent establishment in a listed or unlisted country. Although OnCard may have held interests in other entities operating in China there was no evidence put to the Tribunal to suggest that the OnCard itself had a permanent establishment in China or Hong Kong. The fact that the Applicant provided services under the 2007 Consultancy Agreement and 2014 Consultancy Agreement in relation to OnCard businesses, and had been a director and employee of OnCard did not give rise to a permanent establishment of OnCard in China or Hong Kong.[143] > > > > (iii) Giant Forever did not pass the 'active income test' in this year. To pass the active income test a company must satisfy each of paragraphs (a) to (f) in subsection 432(1). In relation to paragraph 432(1)(f), section 433 calculates the 'tainted income ratio' for a statutory accounting period on the basis of the company's 'gross tainted turnover' divided by its 'gross turnover' for that period. 'Gross turnover' reflects amongst other things the gross revenue in the company's accounts for the period.[144] Gross tainted turnover[145] comprises so much of the gross turnover as is passive income, tainted sales income and tainted services income. According to the financial statements of Giant Forever, its interest income and exchange gains (both passive income) and service fee income (tainted services income) comprised the entirety of its revenue. Therefore the tainted income ratio for Giant Forever was such that paragraph 432(1)(f) of the active income test was not passed. > > (d) The financial statements of Giant Forever for the year ended 31 March 2015 reported expenses of $12,676. There was no evidence to suggest that those expenses were not incurred in the statutory accounting period reflecting the 2015 Year. The Respondent did not challenge their incurrence in that period. Therefore those expenses would be treated as notional allowable deductions in determining the attributable income of Giant Forever.[146]

4. The Respondent noted that the financial year of Giant Forever for reporting purposes ended on 31 March, which does not align with the 30 June date for the end of a statutory accounting period. The Respondent prepared tables[147] summarising the service fees received by Giant Forever in each of the Relevant Years based on copies of invoices included with the Supplementary T Documents, and identified amounts of tainted services income for the statutory accounting period reflecting the 2015 Year on that basis. The Applicant did not challenge the accuracy of these tables.
5. The Tribunal finds that the attributable income of Giant Forever in the statutory accounting period reflecting the 2015 Year was $171,950 and this amount should have been included in the assessable income of the Applicant for the 2015 Year under subsection 456(1).

WERE LOANS FROM GIANT FOREVER ASSESSABLE TO THE APPLICANT AS DIVIDENDS?

1. Amounts totalling $1,070,000 in the 2014 Year and $148,500 in the 2015 Year were transferred by Giant Forever to the Australian bank accounts of the Applicant and his wife.
2. These amounts were reported in the financial statements of Giant Forever as 'an amount due from a director' and were described in those reports as 'unsecured, interest free and repayable on demand.' [148] There was no separate documentation provided to the Tribunal setting out the nature or terms of these loans.
3. The evidence provided to the Tribunal indicates that the revenue or income of Giant Forever, at least in the Relevant Years, came solely from the fees for services paid to it by OnCard together with small amounts of bank interest and foreign exchange gains.
4. The funds transferred to the bank accounts of the Applicant and his wife were used to pay for living and education expenses of the Applicant's family, to pay amounts owing on the Applicant's credit card and to repay a loan from ANZ Bank secured against the South Yarra Property.
5. The evidence did not indicate whether the Australian bank accounts were held in particular proportions by the Applicant and his wife. In the absence of such evidence the Tribunal has assumed that where bank accounts were held in the joint names of the Applicant and his wife, the Applicant and his wife had an equal share in the ownership of those accounts.[149]
6. It is also noted that in the Relevant Years the South Yarra Property was owned solely by his wife. However the Applicant said that the funds borrowed from ANZ Bank were applied to pay previous tax liabilities of the Applicant owed to the Respondent.

(a) A company has profits immediately before the 'distribution time' for a 'distribution benefit' in relation to the company, and > > (b) The distribution time occurred after 3 June 1990, and > > (c) The company was a CFC and a resident of an unlisted country at the distribution time,

then so much of the 'distribution payment' in relation to the distribution time as would not otherwise be a dividend and does not exceed the amount of the profits is treated as a dividend paid by the company to the recipient of the benefit as a shareholder in the company, out of the profits of the company, at the distribution time.

1. Subsection 47A(3) defines a 'distribution benefit' to include an 'eligible benefit' provided by the company to an associated entity.[150] A shareholder in a company is an 'associated entity' of that company: subsection 47A(21).
2. Subsection 47A(7) provides that an 'eligible benefit' arises where an entity makes a loan to another entity and the parties to the loan are not at arm's length with each other in relation to the loan. The making of the loan constitutes the eligible benefit.[151] A loan is defined for these purposes to include an advance of money, the provision of credit or any other form of financial accommodation and a transaction (whatever its terms or form) which in substance effects a loan of money: subsection 47A(21).
3. Where the eligible benefit is a distribution benefit in relation to the company:

(a) The distribution time is the time of the provision of the benefit: subparagraph 47A(7)(e)(i). > > (b) The distribution payment is the amount of the loan: subparagraph 47A(7)(f)(i).

4. In determining whether a company has profits at a particular time, it is to be assumed that the accounts of the company had been drawn up immediately before that time: subsection 47A(15).
5. An amount treated as a dividend paid by a company to its shareholder out of profits of the company will be assessable to that shareholder under subsection 44(1).
6. Section 23AI provides that where certain attribution account payments are made to a taxpayer and an attribution debit arises in relation to the taxpayer under the CFC rules in Part X, the payment is not assessable income and is not exempt income of the taxpayer. A dividend paid by a company to a shareholder is one such attribution account payment: paragraph 365(1)(a). However subsection 47A(2) provides that if:

(a) a distribution payment is included in the assessable income of a taxpayer under section 44 in a year of income because of subsection 47A(1); and > > (b) the taxpayer's tax return for that year of income was not prepared on the basis that the distribution payment was assessable under section 44, and the taxpayer has not notified the Respondent within 12 months after the end of the year of income that the distribution payment was so assessable,

then subsection 47A(1) takes effect in relation to the distribution payment and the taxpayer disregarding section 365.

1. The Respondent contended that the amounts transferred by Giant Forever in each of the Relevant Years were deemed to be dividends paid by Giant Forever to the Applicant for the purposes of section 47A, such that they were assessable income of the Applicant under paragraph 44(1)(a). This is on the basis that:

(a) Giant Forever was a CFC and a resident of an unlisted country in each of the Relevant Years. > > (b) The funds transferred from Giant Forever to the Applicant and his wife in those years represented loans made by Giant Forever to the Applicant. The financial statements of Giant Forever described these amounts as unsecured, interest free amounts due from the Applicant, repayable on demand. > > (c) The Applicant and Giant Forever were not at arm's length with each other in relation to these loans as the terms of the loans did not reflect those that would have been agreed between independent parties acting at arm's length. Therefore the loans were 'eligible benefits.' > > (d) As a shareholder of Giant Forever the Applicant was an associate entity of that company, such that eligible benefits provided by Giant Forever to the Applicant were distribution benefits. > > (e) Each time Giant Forever made a loan to the Applicant, there was a distribution time when a distribution payment was made in the amount of the loan. > > (f) Based on Giant Forever's financial statements for each of the Relevant Years, it had profits immediately before each of these distribution times for those distribution benefits. > > (g) Subsection 47A(2) had effect such that the dividends could not be treated as non-assessable non-exempt income for the purposes of section 23AI. The Applicant did not disclose the loans as assessable income (dividends) in his tax returns in either of the Relevant Years and did not make the notification to the Respondent within the 12 months prescribed by subparagraph 47A(2)(b)(ii).

2. In its RSFIC the Respondent contended as an alternative to section 47A that the amounts were treated as a dividend under section 109D, and thus assessable under subparagraph 44(1)(a)(i).
3. The Applicant's position in relation to this proceeding was that he was not a resident of Australia in either of the Relevant Years, such that Giant Forever was not a CFC in either of those years. Although the Applicant did not make specific submissions in relation to the operation of section 47A, the Tribunal had regard to his submissions in relation to his residence and the treatment of Giant Forever as a CFC in this context.
4. The Tribunal also observes that the application of section 47A was not raised in the Objection Decision, and does not appear to have been articulated by the Respondent to the Tribunal as an issue until the filing of the RSFIC in March 2024.

1. For the reasons given above, the Tribunal has found that Giant Forever was not a CFC in the 2014 Year. Therefore section 47A does not apply to advances or loans made by Giant Forever to the Applicant in the 2014 Year and such amounts were not dividends assessable to the Applicant in that year.
2. Also for the reasons given above, the Tribunal has found that Giant Forever was a CFC in the 2015 Year and a resident of an unlisted country in that year. The Respondent identified three transfers made by Giant Forever to the Applicant and his wife between September 2014 and February 2015. The Tribunal finds that:

(a) Each advance or loan made by Giant Forever to the Applicant in the 2015 Year was an 'eligible benefit' provided by Giant Forever to the Applicant. The amounts were described in the financial statements of Giant Forever (and acknowledged by the Applicant) as interest free amounts repayable on demand by the Applicant to Giant Forever, and thus are advances of money or other forms of financial accommodation within the definition of a 'loan'. The Applicant was the sole shareholder and director of Giant Forever. Having regard to the nature and terms of these loans (no evidence of separate documentation of the loans, interest free, repayable on demand, unsecured) it would be difficult to conclude that the parties were 'at arm's length with each other' in relation to those loans. Independent parties acting at arm's length are unlikely to have agreed to such terms.[152] > > (b) As the Applicant was a shareholder and therefore an associated entity of Giant Forever, these eligible benefits also comprised distribution benefits. The distribution payment in relation to each of those distribution benefits was the amount of the relevant advance or loan. > > (c) The financial statements of Giant Forever for the years ended 31 March 2014 and 31 March 2015 indicate that the company had made a current year profit in each year and had retained profits which were greater than the aggregate $148,000 of amounts identified by the Respondent as having been transferred from Giant Forever to the Applicant and his wife between September 2014 and February 2015. Giant Forever therefore had the required profits immediately before the distribution time for each of those distribution benefits. > > (d) The amounts totalling $148,500 transferred or lent by Giant Forever to the Applicant are to be treated as dividends paid by Giant Forever to the Applicant in his capacity as a shareholder in that company, out of the profits of the company, in the 2015 Year. They should be included in the Applicant's assessable income for the 2015 Year.

3. Although the transfers of funds were made by Giant Forever to Australian bank accounts held in the joint names of the Applicant and his late wife and the funds appear to have been used to meet family expenses, the financial statements of the company describe the amounts as due by the Applicant only, and not by the Applicant and his wife. Paragraph 47A(7)(a) defines an eligible benefit by reference to the loan made by one entity to another entity, and does not look to where or how the loan funds might have been banked or applied. In this instance the only evidence of the relevant loan indicates that it was made from Giant Forever to the Applicant.
4. Section 23AI provides a mechanism for excluding from the assessable income of a taxpayer dividends which comprise a distribution of profits or income of the company that have already been attributed to the taxpayer under Part X. However if, as in the present circumstances, the taxpayer did not disclose those dividends in their Australian tax return for the relevant year, they will be assessed on both the amount of the dividends taken to be paid by the CFC and the attributable income referable to the CFC, unless the taxpayer has notified the Respondent within 12 months after the end of the year of income: see subparagraph 47A(2)(b)(ii). The Applicant acknowledges that he did not provide any such notification to the Respondent, on the basis that he did not realise he was assessable on those amounts. The Respondent acknowledges that this may result in the Applicant effectively being taxed twice on the same amount. There is no element of discretion for the Respondent to retrospectively adjust amounts assessable under these provisions.

1. The Respondent issued a Penalty Assessment to the Applicant in each of the 2014 Year[153] and 2015 Year,[154] in each case based on the Applicant having made statements in his tax returns that were false or misleading, in circumstances where the Applicant did not take reasonable care in making those statements and the resulting shortfall of tax arose from recklessness on his part (or by his adviser). The question is whether those penalties were correctly imposed and if so, whether there are grounds for remission of any of the amount of those penalties.
2. The Objection Decision identified the false or misleading statements as 'the claim that you were a non-resident for Australian tax purposes and the omission of your income from all sources for all the years.'[155] In its written submissions to the Tribunal the Respondent indicated that 'omitting the income from Giant Forever from his tax returns'[156] and 'the residency position taken by him'[157] gave rise to the relevant false or misleading statements. At the hearing I asked the Respondent's counsel to clarify the claimed false or misleading statements and he confirmed that this comprised the filing of tax returns that did not include income assessable under sections 44 and 47A and the CFC provisions.[158]
3. The Applicant described to the Tribunal the legal and taxation advice that he had sought in relation to his affairs. In the 1990s he had received professional advice about his circumstances which he applied when he undertook work assignments in New Zealand and Thailand. He said that he also undertook his own research on some matters. His observation was that it was relatively straightforward to get Australian domestic taxation advice, but it was more difficult to get advice that took account of multiple jurisdictions.
4. As discussed above, the Applicant had previously worked and lived in Wellington in the early 1990s when his then employer (ANZ Bank) transferred him to New Zealand. The Applicant explained that his employer arranged for him to receive taxation advice from a well-known international accounting firm about the implications of his overseas work assignment, including in relation to his tax residency. The Applicant said that this advice was provided by a partner of the firm who was promoted as an international tax expert (and who subsequently became a senior executive of the Respondent). The advice was provided verbally in a meeting with the partner, and the Applicant said he was also given a booklet prepared by the firm on the topic of expatriate tax residency. Based on the advice he received from the firm he lodged his 1992 Australian tax return on the basis of being a non-resident of Australia, and he lodged a tax return in New Zealand in the same year as a resident of that country. The Applicant said that he also had regard to the advice from the firm when considering his tax residency status for the Relevant Years.
5. The Applicant said that when he undertook a further work assignment in Thailand in the mid-1990s for another employer, he applied the same factors as provided in the earlier advice in determining that he was a non-resident of Australia for taxation purposes.
6. Reference was made to an audit (the 'Prior Audit') conducted by the Respondent in relation to the Applicant, prior to the audit giving rise to this proceeding. The Prior Audit covered years before the years covered by the Objection Decision.[159] Although the particular assessments or other outcomes of the Prior Audit are not the subject of this proceeding, the Respondent raised aspects of the Prior Audit in the context of the imposition of administrative penalties in this matter, including whether the Applicant had demonstrated recklessness or a lack of reasonable care in relation to his taxation affairs in the Relevant Years. The Applicant acknowledged the existence of the Prior Audit but said that he had not disputed the outcomes of the Prior Audit and the issues covered by that audit were different to those before the Tribunal in this proceeding.
7. In relation to the Prior Audit it appears that amounts were assessed to the Applicant:

(e) Under the former 'employee share scheme' provisions in relation to shares issued to him by OnCard between 2005 and 2007. > > (f) Under the 'personal services income' (PSI) provisions in relation to amounts received by Jensid for services provided by the Applicant.

8. In July 2009 the Applicant said that he spoke with his then accountant and tax agent, Mr Peter Jess, about his taxation residency status. The Applicant took from that meeting that the factors that would be taken into account were similar to those contained in the previous advice from the accounting form retained by his former employer.
9. The Prior Audit appears to have been on foot when the Applicant had these discussions with Mr Jess.
10. The Applicant said that when his circumstances changed in September 2009 (that is, when he said the decision was made for him to relocate to China) he reconsidered the previous advices he had received and also consulted guidance material published by the Respondent. He said that he consulted Mr Jess again when preparing his income tax return for the 2010 year and that Mr Jess agreed that the Applicant's changed circumstances were such that he would be a non-resident of Australia in that income year.[160]
11. Mr Jess was not called to give evidence in this matter, and the Respondent noted that copies of Mr Jess' advice to the Applicant or other contemporaneous documentation about that advice were not put to the Tribunal. In the Objection Decision the Respondent had queried whether the Applicant had provided Mr Jess with a full understanding of his circumstances at the time.[161] The Applicant said that he had been a client of Mr Jess since 1993 and Mr Jess was made aware of his business affairs and circumstances.[162] Mr Jess lodged his income tax returns for the Relevant Years.
12. There is material before the Tribunal confirming that Mr Jess was engaging with the Respondent on the Applicant's behalf, during at least part of the Respondent's audit[163] and in the initial stages of this proceeding. Although the details of the instructions provided by the Applicant to Mr Jess and the advice provided by Mr Jess to the Applicant are not known, the correspondence from Mr Jess to the Respondent at audit is not inconsistent with the Applicant's summary of the advice he said he received from Mr Jess in 2009 and 2010.[164]
13. The Applicant confirmed that Mr Jess remains his tax agent. However due to financial constraints the Applicant was unable to retain Mr Jess or another adviser to represent him during this proceeding.

1. Division 284 of Schedule 1 to the TAA 1953 contains provisions about the imposition of penalties for false or misleading statements. A person will be liable to an administrative penalty if they make a statement to the Respondent that is false or misleading in a material particular because of things in it or omitted from it: subsection 284-75(1). However the person will not be liable for a penalty if they took 'reasonable care' in connection with the making of the statement: subsection 284-75(5).
2. The Explanatory Memorandum to the Bill which introduced these provisions indicated that:[165]

Reasonable care requires a taxpayer to make a reasonable attempt to comply with the provisions of the ITAA and regulations. The effort required is one commensurate with all the taxpayer's circumstances, including the taxpayer's knowledge, education, experience and skill.

3. Subsection 284-75(6) provides that a person is not liable to an administrative penalty where:

(a) They engaged a registered tax agent or BAS agent and gave the agent all relevant taxation information; > > (b) The registered tax agent or BAS agent made the false or misleading statement; and > > (c) The false or misleading nature of the statement did not result from intentional disregard by the agent of a taxation law or recklessness by the agent as to the operation of a taxation law.

The taxpayer (Applicant) has the burden of proving that this exception applies.[166]

1. The amount of the penalty is based on the 'base penalty amount', which is determined by applying a percentage to a 'shortfall amount': sections 284-85 and 284-90. A shortfall amount will arise if a tax-related liability as worked out on the basis of a false or misleading statement is less than it would be if the statement were not false or misleading.
2. The percentage applied depends on the type of behaviour that resulted in the shortfall amount. The percentage is 50% of the shortfall amount if it resulted from 'recklessness' by the taxpayer or their agent as to the operation of a taxation law. The percentage may be higher (75%) if the shortfall amount resulted from an 'intentional disregard of a taxation law' or lower (25%) if it resulted from a 'failure to take reasonable care': see items 2, 1 and 3 in the Table in subsection 284-90(1).
3. The Federal Court has described the concept of 'recklessness' as follows:[167]

Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to fanciful, risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to a gross carelessness.

4. In approving this description, the Full Court of the Federal Court has also stated that 'the context makes it clear that recklessness means something more than failure to exercise reasonable care ... but less than an intentional disregard of the Act.'[168]
5. Section 284-220 provides scope for the increase by 20% of a base penalty amountin certain circumstances, including where a base penalty amount has previously been worked out for the taxpayer in relation to the making of a false or misleading statement: subsection 284-220(1)(c).
6. Where an administrative penalty has been imposed, the Respondent may remit all or part of it: section 298-20 of Schedule 1 to the TAA 1953. The TAA 1953 does not set out specific matters to be considered in exercising this discretion. However courts and tribunals have said they will look to whether it is appropriate in 'all the circumstances' to remit the penalty.[169] The power to remit must be exercised for a proper purpose, in accordance with the objects of the TAA 1953.[170]

(a) The Applicant made statements to the Respondent which were 'false or misleading' in the sense of filing income tax returns that did not include all amounts of income upon which he was assessable. > > (b) The Applicant and his adviser Mr Jess did not take 'reasonable care' in connection with the making of those statements. > > (c) The Applicant had a shortfall amount in each of the 2014 Year and 2015 Year as a result of the false or misleading statements.

2. Further, the Respondent said that the shortfall amounts resulted from 'recklessness' by the Applicant and/or Mr Jess as to the operation of the taxation law. More particularly:

(a) The Applicant and Mr Jess should be held to a high standard of care, the positions taken by the Applicant in his tax returns being based on the advice of his tax agent and the standard expected of a tax agent being higher than that expected of a client or other lay person. > > (b) There was a 'real and not fanciful' risk that the position taken by the Applicant in relation to his residency was wrong, based on the Respondent's view of the strength of its contentions in relation to the Applicant's residency. The risk that the Applicant remained an Australian resident was foreseeable by a person in the Applicant's position (and that of Mr Jess). > > (c) The Applicant was subjectively aware of the risk associated with the position he took on his residency, based on his previous experiences with considering his tax residency whilst working overseas, his personal research and his seeking advice including having multiple discussions with Mr Jess. The Respondent submitted that the Applicant should have sought a private ruling, and failing to do so fell short of the conduct required where the Applicant was aware of doubts as to the arrangements. > > (d) Related to his subjective awareness of risk, the Applicant had previously been audited by the Respondent, resulting in penalty assessments being issued for false or misleading statements. The substance of the dispute in the Prior Audit was the non-recognition by the Applicant of income relating to his provision of services. Mr Jess was the Applicant's tax agent at that time. Following the issue of a position paper in the Prior Audit, the Applicant incorporated Giant Forever. The Respondent viewed this as indicating an intention secure the outcome that income from the Applicant's work with OnCard would not be subject to Australian tax. In this context it was reckless for the Applicant (and Mr Jess) not to seek confirmation from the Respondent about whether the changed arrangements were effective. > > (e) In relation to the CGT issue, the statutory question was one of cost base under the relevant provisions and it was not sufficient for the Applicant to assert the proposition that value was provided under the 2007 Consultancy Agreement. The Applicant had not provided a proper explanation for this position and there was no evidence of any advice from Mr Jess on this question (or what he might have looked at). > > (f) The Applicant could have sought a private ruling about his changed circumstances, and the failure to do was significant, particularly in the circumstances of an experienced businessman. Further, since the Applicant was under audit by the Respondent in 2009, he could have engaged with the Respondent's audit team for their view on his arrangements. He already had a line of communication at the Respondent without needing to make inquiries via a 'general' line. Failing to engage with the Respondent fell short of a reasonable standard of conduct. > > (g) The amount of income omitted from the Applicant's tax returns for the Relevant Years was significant. The Respondent said that 'all of the Applicant's taxable income' was omitted from his return for the 2014 Year and only $20,000 was disclosed in relation to the 2015 Year. The amount involved was almost the entirety of the amounts received by the Applicant from what the Respondent viewed as his primary income earning activity.

3. The Respondent argued that the Applicant was not relieved from liability for the penalty by subsection 284-75(6) because Mr Jess was reckless as to the operation of the taxation law and/or the Applicant did not provide Mr Jess with all relevant taxation information. The Applicant did not provide evidence of what information he did provide to Mr Jess, and has not discharged his burden of proof in relation to providing all taxation information. For the reasons set out above Mr Jess' conduct was reckless. The Respondent submitted that for the Applicant to discharge his burden of proof, he must provide evidence of what Mr Jess considered such that the Tribunal could conclude that Mr Jess was not reckless.
4. The Respondent determined that the base penalty amount should be increased by 20% in each of the 2014 Year and 2015 Year because the Applicant had previously been liable for penalties for making false or misleading statements for the 2005 to 2007 income years in relation to the alienation of personal services income through Jensid.
5. The Respondent did not believe there was any basis for remission of the penalties imposed in either of the Relevant Years.
6. The Applicant said that:[171]

(a) For the reasons given in relation to his position on residency and CGT matters, he did not make any false or misleading statement. > > (b) However if he had made a false or misleading statement, he and Mr Jess took reasonable care in making that statement, and were not reckless in making that statement. The Applicant sought advice from Mr Jess relating to his changed circumstances in 2009, Mr Jess provided his professional opinion which took into account case law and guidance published by the Respondent and he formed the conclusion that Mr Jess' advice was similar to the advice that he had received from other advisers previously. Their behaviour was not 'speculative.' The fact that he had taken advice on residency matters in relation to earlier income years demonstrated responsible behaviour on his part, rather than something to be regarded negatively. The Prior Audit related to the application of the 'personal services income' provisions in the 2005 to 2007 year and was therefore not relevant to the question of whether the Applicant was reckless in the preparation of his tax returns for the Relevant Years. > > (c) He had a reasonably arguable position or positions. The positions he adopted on all of the issues in contention were 'about as likely to be correct as incorrect' or 'more likely to be correct than incorrect.' The question of the Applicant's residency was reliant on 'numerous factual matters.' He did not show disregard or indifference to the issue of residency but had regard to relevant law and the Respondent's guidance. > > (d) It was reasonable for him not to include the consultancy income received by Giant Forever and the dividend income from Jensid in his assessable income because he had formed the view that he was not an Australian resident in the Relevant Years. This view, in turn, was formed after a consideration of his personal circumstances including his intention to cease to be a tax resident of Australia (which was recorded in OnCard's records and publicly announced by OnCard), his intention to move into the Shanghai Apartment indefinitely and the fact that he provided the services under the 2007 Consultancy Agreement while physically in China. He emphasised that he genuinely held this view, and that in this context he had demonstrated that he had taken reasonable care when making the statements in his tax returns for the Relevant Years. > > (e) Similarly, the Applicant pointed to the calculation process he had undertaken in relation to determining any capital gain or loss arising in relation to the share transfer in 2015, based on ascertaining the value of those shares and the acquisition value of the CRPS, as demonstrating that he had taken reasonable care in relation to his tax return for the 2015 Year. > > (f) Under a self-assessment regime, there was no need or reason for him to ask the Respondent's audit team for approval or advice on what he should do.

Findings: Did the Applicant make a false or misleading statement such that he is liable to an administrative penalty?

1. In relation to the 2014 Year, for the reasons given above the Tribunal has found that the Applicant was not a resident of Australia, and therefore was not required to include in his assessable income amounts attributed from Giant Forever under the CFC rules, the amount of loans made by Giant Forever to him in that year or the divided paid to him by Jensid. The Applicant therefore cannot be said to have made a false or misleading statement to the Respondent through his tax return for that year.
2. In relation to the 2015 Year, for the reasons given above the Tribunal has found that the Applicant was a resident of Australia, and therefore was required to include in his assessable income amounts attributed from Giant Forever under the CFC rules and the amount of loans from Giant Forever which were treated as dividends. The Applicant also made a capital gain in that year which would result in an amount being included in his assessable income. The Applicant's tax return for that year was lodged without these amounts being included in his assessable income, such that he made a statement to the Respondent that was false or misleading by omission of assessable amounts from his tax return.
3. The Tribunal cannot be satisfied that the Applicant has demonstrated that he took 'reasonable care' in the connection with the statements in his return for the 2015 Year. The Applicant's own evidence and statements are generally consistent with the Respondent's position that the Applicant was an experienced businessman who appreciated the complexity of taxation issues and who had previously sought professional advice on these topics.
4. The Applicant's professional circumstances changed significantly from mid to late 2014, which also had consequences for the basis upon which he lived and worked in China. There is no evidence that he sought advice on the impact of those changes to his residence status. He appears to have assumed that the issue was resolved by deciding that his Australian residence simply resumed when he took his final flight from Shanghai back to Australia. This was not correct and the limited analysis provided for this assumption was not adequate.
5. There is no evidence that the Applicant sought advice on the taxation consequences of the transfer in February 2015 of the OnCard ordinary shares which addressed the specific issue of the cost base of those shares. The Applicant appears to have assumed that the CGT provisions would align with his understanding of the value he had provided to OnCard through his services. The Tribunal acknowledges that as a result of the Prior Audit the Applicant had previously been assessed under the former 'employee share scheme' provisions in relation to other shares issued to him by OnCard and that he may have assumed this approach also applied upon the transfer of shares to his wife in 2015. However there were important distinctions between the circumstances in 2005 to 2007 and those in 2015 which he should not have overlooked, and upon which he should have taken advice if unsure of the implications. These distinctions include the fact that the Prior Audit related to performance rights rather than convertible shares and those rights were issued under a different arrangement to the terms contained in the 2007 Consultancy Agreement.

Findings: Was the Applicant or his tax agent reckless in relation to the operation of a tax law?

1. On the basis that the Applicant did not make a false or misleading statement in the 2014 Year and was not required to include in his assessable income any further amounts, there will be no 'shortfall amount' for the purposes of sections 284-80 and 284-90 in that year.
2. However if the Tribunal had found that the Applicant had made a statement that was false or misleading, it would likely have found that any resulting shortfall amount did not result from 'recklessness' by the Applicant (or his tax agent). The Tribunal accepts that the Applicant was experienced in business and financial matters, including in relation to issues specific to expatriates and therefore could be expected to have a greater awareness of the possible risk that a position taken on residency could be incorrect. Mr Jess was a registered tax agent. However there is potential tension between the Respondent's suggestion that the Applicant should have obtained further or better advice, while suggesting that the fact of his having spoken with professional advisers on multiple occasions over a period of time implied an element of contrivance about his tax affairs. The Tribunal acknowledges the concern of the Respondent that Mr Jess was not called to give evidence and there was no contemporaneous documentation of the detail of advice he might have given the Applicant, but correspondence from Mr Jess to the Respondent during the audit process and included with the T documents is consistent with the general description given by the Applicant.
3. It is difficult to fully reconcile the Respondent's contention that the Applicant (or his adviser Mr Jess) should have been aware of the application of particular aspects of taxation law when the Respondent's own position on or explanation of many of these matters changed significantly during the years from audit through objection to this Tribunal hearing the matter.[172] Significant Australian case authority on the application of the section 6(1) definition of a resident was decided from 2018 to 2020, often favourably to the taxpayer.[173] The Tribunal observes that some of the discussion between the parties about Mr Jess' advice occurred in the context of the previous 'fraud or evasion' findings of the Respondent which were withdrawn prior to the hearing of this proceeding.
4. The Tribunal does not agree with the Respondent that the outcomes of the Prior Audit created an awareness of risk that was especially relevant to the question of whether the Applicant was reckless in the 2014 Year. The Prior Audit dealt with different bases of assessment, albeit in the overall context of the Applicant providing services through a corporate entity.
5. The Tribunal also queries the Respondent's contention that the Applicant should have asked officers from the Respondent's audit team for advice on their view of the Applicant's new arrangements on the basis that his engagement with the Respondent during the Prior Audit gave him a direct line of communication to these officers. It is not clear to the Tribunal what level of authority the audit team officers would have had to provide the Applicant with such advice or whether it would have been appropriate for them to do so. A separate question is whether the Applicant should have applied for a private ruling under Division 359 of Schedule 1 to the TAA 1953 which is the statutory process for obtaining an opinion from the Respondent. This is noted below.
6. For these reasons the Tribunal would not agree that the Applicant would have known of a real risk that the position he took in relation to his residency for the 2014 Year was incorrect, or that he was grossly indifferent as to whether his position was incorrect or that a 'reasonable' person in the Applicant's circumstances would have seen such a risk. The same considerations apply to Mr Jess as his adviser during this period.
7. However the circumstances of the 2015 Year are different. In the 2015 Year the Tribunal agrees with the Respondent that the Applicant did make a statement (or statements) to the Respondent that was false or misleading, which gave rise to a shortfall amount.
8. The Applicant's work and professional circumstances changed significantly from mid-2014. There is no evidence that the Applicant sought professional advice on the consequences of those changes on his residency status. He appears to have made assumptions about his continuing non-residence based on previous advice given in different circumstances (and possibly from personal research he conducted).
9. Similarly in relation to the CGT treatment of his disposal of OnCard shares to his wife in February 2015 there is no evidence that the Applicant sought professional advice on the taxation consequences of the issue of the CRPS to him or the disposal of the ordinary shares into which they converted. The Applicant's submissions to the Tribunal were to the effect that he should have obtained a cost base in those shares because he had provided valuable services via Jensid to OnCard for the issue of the CRPS to him. Unfortunately the relevant provisions of the ITAA 1997 do not apply in the way he believed that they operated or should have operated. For a person with significant business experience who had previously engaged with the Respondent and who at that time had access to professional advisers it would have been reasonable for the Applicant to seek a private ruling under Division 359, or at least obtain independent expert advice on the correct taxation treatment.
10. The Tribunal accepts that the Applicant may have believed that a cost base would arise under the employee share scheme provisions because of matters raised during the Prior Audit. However there were a number of factual matters which were objectively different as between the rights that he had previously been issued and the CRPS issued in accordance with the 2007 Consultancy Agreement.
11. The amounts incorrectly omitted from the Applicant's tax return for the 2015 Year comprised the substantial majority of income for that year. There was no suggestion that the Applicant was being deliberately dishonest but his actions (or inaction) in relation to seeking appropriate advice and guidance on both his changed professional and living arrangements from 2014 and the CGT treatment of the OnCard shares meet the description of gross carelessness and thus recklessness. The Tribunal finds that the Applicant has therefore not discharged his burden of proving that the Penalty Assessment for the 2015 Year was excessive or otherwise incorrect.
12. In finding that the Applicant's tax shortfall in the 2015 Year resulted from recklessness on his part the Tribunal is mindful that the Respondent was unable to settle on a consistent analysis of some issues and shifted its position, withdrawing certain arguments and introducing new grounds for supporting the Amended Assessments. However the Tribunal's finding in relation to recklessness in the 2015 Year is centred on objective factual matters of which the Applicant should have been aware.
13. The Applicant did not dispute the Respondent's statement that the Applicant had been liable for penalties arising from false or misleading statements in prior years, albeit years before the Relevant Years. The Applicant has therefore not demonstrated a basis for not increasing the base penalty amount in the 2015 Year by 20% within subsection 284-220(1).

Was there otherwise a basis for remitting any of the penalty amount?

1. In relation to the 2014 Year the Tribunal has found that the Applicant did not make a statement to the Respondent that was false or misleading such that no shortfall amount arose, and that if there had been a shortfall amount it would not have resulted from recklessness. If the Tribunal had not made such findings it would have had to consider whether it was appropriate in all the circumstances to remit all or part of a penalty for that year. Although a decision as to whether to remit is not required the Tribunal makes the following observations.
2. The Tribunal would not want to discourage parties from seeking to narrow or resolve the issues to be argued at a final hearing for a review of a decision. Nevertheless a Tribunal proceeding should not be treated as a process for the Respondent to address flaws in the analysis of taxation law contained in an audit position and expressed in amended assessments. The objection process is the appropriate forum for these matters to be addressed. The Tribunal has outlined above several areas where the Respondent's grounds and contentions changed from the time of the audit through to the time of filing of submissions in preparation for the final hearing of this matter.
3. Although the Objection Decision referred to the Respondent reserving its rights in relation to raising an analysis of the CFC provisions and section 47A, the Tribunal is concerned that the Respondent only articulated its CFC position at a time when the matter had been before the Tribunal for over 2 years. This is particularly so in circumstances where the underlying events and transactions occurred several years prior and the Applicant no longer had the financial resources to retain specialist taxation advisers. The CFC rules are arguably significantly more complex than the ordinary income and assessment provisions.
4. The Tribunal's findings in relation to the 2015 Year, both in relation to substantive matters such as the residence of the Applicant and on the imposition of a penalty, largely centre on changes in the Applicant's circumstances from mid-2014 as well as objectively different facts relating to his share investments which he did not adequately address when providing his tax return.
5. The Tribunal reiterates its concern that the Respondent's position in relation to the CFC rules and section 47A was not properly articulated until the Tribunal proceedings were well underway, which was some time after the issue of the Penalty Assessments. At the hearing the Applicant, representing the Tribunal, told the Tribunal that he was able to make submissions in relation to the matters in his Appeal Statement, which had been prepared prior to receiving the Respondent's 2024 RSFIC and Submissions. Other than to state his contention that he was not a resident of Australia in the 2015 Year such that he did not fall within any of the concepts in Part X reliant on his Australian residence,[174] he was not able to provide a further reply to the Respondent's contentions. Similarly the detail of the Respondent's ultimate CGT cost base analysis was not apparent to the Tribunal until it filed its RSFIC and Submissions.
6. The purposes of the penalty provisions of the TAA 1953 (Division 284 of Schedule 1 and its predecessor provisions) include encouraging taxpayers to take care in their compliance with tax laws and to promote consistency of treatment as between taxpayers in like circumstances. Although the Tribunal is uncomfortable with aspects of the process taken by the Respondent including the late explanation of key elements of its position, the Applicant's residence status underpins the application of the CFC rules to him. In the 2015 Year the Tribunal has found that the tax shortfall resulted from his recklessness as to the application of laws relating to his residence and the operation of the CGT provisions. In such circumstances the Tribunal does not believe it is appropriate to remit any part of the penalty for the 2015 Year.

1. The Respondent gave notice to the Applicant of shortfall interest charges:

(a) On 10 December 2018, in the amount of $13,462 for the 2015 Year.[175] > > (b) On 7 January 2019, in the amount of $96,207.89 for the 2014 Year.[176]

2. The Applicant objected against the Amended Assessments and Penalty Assessments for the Relevant Years on 8 February 2019.[177] The shortfall interest charge amounts were included in the Amended Assessments for those years. The Respondent treated the Applicant as having objected against the imposition of shortfall interest charges for the 2014 Year only. The Respondent included with its Objection Decision a separate 'Attachment A'[178] which it said did not form part of its Objection Decision, explaining why it would not remit any of the shortfall interest charge for the 2015 Year and the reason for not accepting the objection against the 2015 Year shortfall interest charges as a valid objection. The Attachment A document also indicated that the Applicant would not have a right to seek review by the Tribunal in relation to the 2015 Year shortfall interest charges.

1. Subsection 280-100(1) of Schedule 1 to the TAA 1953 provides that a person will be liable to shortfall interest charge on an additional amount of income tax that they must pay because the Respondent has amended their assessment for an income year.
2. Subsection 280-160(1) provides that the Respondent may remit all or part of an amount of shortfall interest charge that a person is liable to pay 'if the [Respondent] considers it fair and reasonable to do so.' Subsection 280-160(2) sets out two matters to which the Respondent must have regard.
3. A person may object against a decision of the Respondent not to remit shortfall interest charge they are liable to pay on an amount of additional income tax only if the amount of the shortfall interest charge that was not remitted is more than 20% of the additional amount.

1. The Applicant said that based on the facts and circumstances arising in relation to the other taxation issues he should not have been subject to any shortfall interest charges in either of the Relevant Years.
2. The Respondent submitted that:

(a) In relation to the 2014 Year the evidence did not disclose any basis for remission of the shortfall interest charge liability. > > (b) The Tribunal has no jurisdiction to review the Respondent's remission decision for the 2015 Year because the amount of shortfall interest charge not remitted was not more than 20% of the additional income tax.

1. In relation to the 2014 Year, on the basis of the previous findings of the Tribunal that the Applicant was not a resident of Australia, was not required to include additional amounts in his assessable income and was therefore not liable to additional income tax referable to those amounts, shortfall interest charge should not have been imposed in relation to that additional income tax. As shortfall interest charge should not have been imposed under section 280-100, it is not necessary to consider whether it would be fair and reasonable to remit any part of the charge.
2. In relation to the 2015 Year the Tribunal has found that the Applicant was a resident of Australia and was required to include additional amounts in his assessable income, such that he would become liable to additional income tax in that year and shortfall interest charge was validly imposed. On the basis that the amount of shortfall interest charge not remitted by the Respondent was not more than 20% of the additional income tax,[179] the Applicant was unable to object against any remission decision of the Respondent and the Tribunal has no jurisdiction to review that decision.

1. The Tribunal has found that the Respondent was within time to issue the Amended Assessments on 10 December 2018 for each of the Relevant Years.

1. The Tribunal has found that for the 2014 Year the Applicant was not a resident of Australia within the definition of that term in subsection 6(1) of the ITAA 1936. As the issues put by the Respondent to the Tribunal were not completely aligned with the issues set out in the Objection Decision, for the avoidance of doubt the Tribunal confirms that its finding means:

(a) No amount of the income of Giant Forever will be included in the assessable income whether under section 456 of the ITAA 1936 or otherwise. > > (b) The dividend paid by Jensid to the Applicant will not be included in the Applicant's assessable income under section 44. > > (c) The amount of any loans made by Giant Forever to the Applicant will not be included in the assessable income of the Applicant, whether under sections 44 and 47A or otherwise. > > (d) The Applicant will not be liable to an administrative penalty for making a false or misleading statement to the Respondent. > > (e) The Applicant will not be liable for shortfall interest charge.

1. The Tribunal has found that the Applicant was a resident of Australia for the entirety of the 2015 Year.
2. The Tribunal affirms the decision that upon the transfer of ordinary shares in OnCard to his wife in February 2015 the Applicant made a capital gain under subsection 104-10(1) of the ITAA 1997 equal to his capital proceeds of $417,386.56.
3. The Tribunal has set out its findings in relation to the basis upon which income of Giant Forever and the amount of any loans from Giant Forever to the Applicant would be included in the assessable income of the Applicant. These findings reflect the contentions put by the Respondent to the Tribunal at hearing which may not be identical to the grounds given by the Respondent in the Objection Decision.
4. The Tribunal affirms the decision to impose an administrative penalty for making a false or misleading statement to the Respondent on the basis that the shortfall amount resulted from recklessness as to the operation of a tax law, and that there is no basis for remission of that penalty.
5. The Tribunal has no jurisdiction to review any shortfall interest charge remission decision of the Respondent for the 2015 Year.

I certify that the preceding 361 (three hundred and sixty-one) paragraphs are a true copy of the reasons for the decision herein of General Member C. Willis

........................[sgd]............................

[3] The Applicant said that he was appointed as Chairman of all of the OnCard businesses unless this was prohibited by local laws.

[4] The Respondent questioned whether this amendment was legally effective, referring to clause 8 of the 2007 Consultancy Agreement which provides that any amendment or supplementation must be in writing signed by the parties and verbal agreements would not be enforceable.

[6] T19, although the position of the Applicant is that he was a resident for only part of the 2015 Year.

[8] T51 to T55 and T61. On the basis of a finding of evasion the Respondent's position was that it could amend assessments beyond the usual 2 year period applicable to individuals.

[12] See paragraph 135 of the Objection Decision at T2.

[14]Paragraph 69 of Objection Decision.

[15] Paragraph 262 of Objection Decision.

[20] References are to the Regulations in force during the Relevant Years.

[21] See Item 5 of the Table in subsection 170(1) of the ITAA 1936.

[22] Explanatory Statement to the Income Tax Amendment Regulations 2006 (No. 2) (Cth).

[23] Iyengar and Commissioner of Taxation [2012] AATA 856 ('Iyengar') at [131] to [134] per Senior Member Walsh.

[24] Elliott and Commissioner of Taxation [2012] AATA 428 ('Elliott') at [25] to [26] per Senior Member Fice.

[25] See the definition of 'full self-assessment taxpayer' in section 6 of the ITAA 1936 which draws on concepts in Division 6C of that Act.

[26] See findings at paragraphs 191 to 211 below.

[28] In his Appeal Statement the Applicant confirmed that he only disputed his residence status up to February 2015.

[29] Statement of Mr Ian Riley dated 25 July 2019.

[30] See clause 3(b), Appendix A to the 2007 Consultancy Agreement. The agreement provided for the Applicant to be issued with the shares on 31 July 2007, although they were not actually issued until December 2007.

[31] See clause 11, Appendix A to the 2007 Consultancy Agreement.

[32] Also on 6 February 2015 his wife transferred those shares to an Australian company, Ten Luxton Pty Ltd, which was then the trustee of the Abotomey Superannuation Fund. As at 6 March 2015 the Applicant and Ten Luxton Pty Ltd were shown as holding 6.47% of the shares in OnCard.

[34] Sections 10-5 and 102-5 of the ITAA 1997.

[38] See items 1 and 2 of the Table in subsection 130-60(1).

[39] Item 4 in the Table in subsection 974-75(1).

[40] Paragraph 183(c) of Respondent's Submissions.

[41] See paragraphs 240 to 268 of the Objection Decision.

[43] The Claim Statement identifies number of 'services' or 'days'.

[45] ST36, see various entries in bank statements at pages 807 to 870.

[46] It is noted that the Respondent had not included this document with the T Documents, Supplementary T Documents or other materials filed with the Tribunal, nor had the Respondent provided it to the Applicant prior to the hearing. On the basis that the Applicant could confirm that it was an accurate representation of the home's floor plan and he was familiar with the home, the Tribunal allowed the Respondent to use it as an illustrative document to assist the Tribunal and Applicant with his oral evidence. The document was not tendered as evidence itself of any matter.

[47] It is noted at page 33 of his Appeal Statement, the Applicant said that he did prepare and eat his evening meal at the Shanghai Apartment.

[48] Applicant's Appeal Statement at page 33.

[49] See Applicant's Appeal Statement at page 51.

[50] The Applicant also appears to have held shares in Ten Luxton Pty Ltd which is the trustee of the Abotomey Superannuation Fund.

[51] The Applicant said that the Abotomey Superannuation Fund was established around March 1993 after he had left the ANZ Bank. Jensid was incorporated around the same time.

[52] One of the bank accounts identified which was in the sole name of the Applicant was closed in early 2013.

[53] See clause 1 of the 2007 Consultancy Agreement.

[54] This is consistent with passenger records as identified at paragraph 25 of the Respondent's Submissions.

[55] The Applicant provided a card reference number 310104196601164312 at paragraph 55 of his Appeal Statement, although did not provide a copy of the card itself.

[56] See ST37 at page 872, also extracted in correspondence from the Applicant's legal representative to the Respondent at T43, page 458.

[57] Giant Forever was incorporated on 5 November 2009 and the Applicant was appointed its sole director on 17 December 2009.

[58] 2010 Annual Report of OnCard dated 27 August 2010.

[59] These amounts were disclosed in the OnCard Directors' Report dated 27 March 2015, ST29 at page 630.

[63] See the letter from the Applicant's then representative (Mr Jess) dated 8 September 2016 to the Respondent, ST32 at pages 702 and 704.

[64] Applicant's Appeal Statement at page 8.

[65] Applicant's Appeal Statement at page 15.

[67] See the definition of 'Services' in the Schedule to the 2014 Consultancy Agreement.

[68] See transcript of speech to the Annual General Meeting, ST24 at page 602.

[70] ST 12 contains passenger cards for the 2014 calendar year, which covers part of the 2015 Year and part of the 2014 Year. ST 11 contains passenger cards for the 2013 calendar year which covers part of the 2014 Year.

[71] See ST10, ST9 and ST8 which contain passenger cards covering this period.

[77] See T2, Objection Decision at paragraph 2 and the Applicant's affidavit dated 30 October 2024, at paragraph 104. References to T Documents and Supplementary T Documents are to documents that were required to be provided by the Respondent to the Tribunal in accordance with section 14ZZF of the TAA 1953.

[78] Gregory v Deputy Federal Commissioner of Taxation (WA) [1937] HCA 57; (1937) 57 CLR 774 ('Gregory').

[79] Commissioner of Taxation v Addy [2020] FCAFC 135. The taxpayer appealed to the High Court on a different point.

[80] Ibid, at [322] per Steward J and [243] per Derrington J.

[81] Taxation Ruling TR2023/1 at paragraph 106.

[82] Commissioner of Taxation v Miller [1946] HCA 23; (1946) 73 CLR 93 ('Miller') at 99-101 per Latham CJ

[83] Harding (Full Court) at [57], citing Miller and Levene v Inland Revenue Commissioners [1928] UKHL 1; [1928] AC 217.

[84] Hafza v Director-General of Social Security (1985) 6 FCR 444 at 449-450 per Wilcox J. As noted by the Full Court in Harding, although Hafza involved social security legislation, that legislation incorporated the ITAA 1936 definition of 'resident.'

[85] Harding (Full Court) at [61] per Davies and Steward JJ confirming the principles expressed at first instance. See also the Full Court of the Federal Court in Addy at [76] summarising these principles.

[86] See Harding (at first instance) at [43] to [46] per Derrington J, Comcare Australia (Defence) v O'Dea (1998) 87 FCR 451.

[88] See also the summary of case authority by Derrington J in Commissioner of Taxation v Addy [2020] FCAFC 135 ('Addy') at [76] referring to the concept of 'continuity of association.' The High Court allowed the taxpayer's appeal on another point.

[89] See Taxation Ruling TR 2023/1 at paragraphs [20] and [21].

[90] See also Miller, Gregory v Deputy Federal Commissioner of Taxation (WA) [1937] HCA 57; (1937) 57 CLR 774.

[91] At paragraph 88 of its submissions the Respondent says that the Applicant had a 'place of abode' in China, albeit not a permanent one.

[92] Stockton v Commissioner of Taxation [2019] FCA 1679 at [18] per Logan J.

[93] Radich v Bank of New Zealand [1993] FCA 450 ('Radich').

[94] See for example Ah Yin v Christie [1907] HCA 25, Radich.

[95] Harding (Full Court) at [17] to [18] per Davies and Steward JJ.

[99] Ibid at [36] and also [45], agreeing with the observations of Northrop J in Federal Commissioner of Taxation v Applegate [1979] FCA 37 at [17].

[100] Applegate per Franki J at [10] and Northrop J at [18].

[101] From an administrative perspective, the Respondent treats presence in Australia for part of a day as counting as a whole day. The 183 day period is tested on the basis of an income year rather than a calendar year: see TR2023/1 at paragraphs 86 and 87.

[102] Addy at [293] per Steward J.

[103] Commissioner of Taxation v Executors of the Estate of Santha Levy Subrahmanyam [2001] FCA 1836 ('Subrahmanyam') at [30] to [31] per Hill J, with whom Tamberlin J agreed.

[104] See for example Subrahmanyam at [78] per Emmett J.

[105] Dapper Coelho and Commissioner of Taxation [2020] AATA 2474 ('Dapper Coelho').

[108] Ibid at [126], citing Stockton and Levene.

[109] These contentions are drawn from the Respondent's RSFIC, written submissions and submissions made to the Tribunal during the hearing.

[110] See section 10 of Domicile Act 1982 (Cth) and Handsley and Commissioner of Taxation [2019] AATA 917.

[111] Harding at first instance at [63] per Derrington J citing an unreported decision of the Full Court of the Federal Court in Taylor v Natwest Australia Bank Limited, 16 October 1992.

[112] The Applicant also conceded that he had made inaccurate statements on other regulatory documentation such as the APEC Card application and police check forms.

[113] See for example Harding per the Full Court of the Federal Court at [51] to [53] affirmed the finding at first instance. In Miller Latham CJ also queried whether a husband must be held to have a home wherever his wife happened to be.

[114] The Claim Statement does disclose that across the 5 year period the Applicant received benefits under the policy of $2913.97 for medical fees incurred of $3342.77. This may be compared to benefits of $25,359.21 received by his late wife (for 122 services or days claimed) and $36,607.10 received by his son (for 47 claims), which suggests that the Applicant's wife and children were more frequent users of medical services (and the health insurance policy) in Australia than the Applicant in that period.

[115] See Minutes of Remuneration Committee Meeting dated 29 September 2009, ST37 at p872.

[116] Paragraph 88 of Applicant's submissions.

[117] See the factual circumstances in Harding at [55] per Davies and Steward and Davies JJ.

[118] See the Schedule to the 2014 Consultancy Agreement at ST57.

[119] See address given at OnCard's AGM on 29 May 2014 as per ASX announcement at ST24, where the Board also acknowledged the Applicant in saying farewell to him after 12 years with the company.

[120] See clause 3.2 of Termination Deed made on 28 April 2014, ST5.

[121] See address given at AGM of OnCard on 29 May 2014 per ASX announcement at ST24.

[122] See clauses 9.1 and 9.2 of the 2014 Consultancy Agreement at ST57.

[123] The Applicant notes that he also received a dividend from Jensid in the 2015 Year but included that in his assessable income for that year on the basis that he had become a resident of Australia again at the time that dividend was paid: see page 40 of the Applicant's Appeal Statement.

[124] There are other exceptions to subsection 128B(1) set out in section 128B, which are not relevant to this matter.

[125] OnCard was incorporated in Australia and its shares were listed on the ASX. No evidence was provided suggesting it was other than an Australian resident for tax purposes.

[129] This is subject to any election made by the entity for an alternative statutory accounting period: see subsection 319(2).

[130] These Regulations were replaced with effect from the 2016 income year. References to the Regulations are therefore to the Income Tax Regulations 1936 unless otherwise stated.

[131] Sections 349 and 350 contain a number of tests for determining different control interests, including those held indirectly in the CFC and/or held by associates of the entity. As this matter involves a 100% direct shareholding by the Applicant in Giant Forever it is not necessary to set out all of these tests.

[133] Subsection 448(6) contains further exclusions from tainted services income.

[134] An entity may also be an attributable taxpayer if they meet the requirements of paragraph 361(1)(b) but this alternative was not raised in this proceeding.

[135] See paragraphs 126(c) and 128(c) of the Respondent's Submissions. The Tribunal has interpreted these statements as indicating that the Respondent does not challenge the incurrence of those expenses.

[136] See the analysis set out in Taxation Ruling 97/19, based on the definition of 'China' under that DTA only extending to territories to which Chinese tax laws apply. Hong Kong was not such a territory.

[138] Paragraphs (b) and (c) of section 340.

[139] See paragraphs 126 and 127 of the Respondent's Submissions.

[140] For the sake of completeness, it is noted that expenses incurred by Giant Forever in that period are not taken into account in determining the Applicant's taxable income.

[141] The Applicant did not dispute the accuracy of the financial statements. It is noted that this nominal amount of interest was allocated in its entirety to the 2015 Year and corresponding statutory accounting period although it related to a financial year ending on 31 March 2015.

[142] Being 'interest or a payment in the nature of interest' and not subject to any of the exclusions in the section 317 definition of 'tainted interest income.'

[143] See definition of 'permanent establishment' in section 6(1) of the ITAA 1936.

[146] See section 382 and the assumptions in sections 383 and 384.

[147] See paragraphs 69 and 70 of the Respondent's submissions, which provide the relevant ST references.

[148]ST54 at page 1336 for the year ended 31 March 2014, ST55 at page 1351 for the year ended 31 March 2015.

[149] See Tanumihardjo v FCT (1997) 36 ATR 400 referred to by the Respondent in its Taxation Determination TD2017/11.

[150] See subparagraphs 47A(3)(a)(i) and (b)(i). It is noted that subsection 47A(3) defines a distribution benefit to include an eligible benefit provided by and to a wider range of entities, not relevant for present purposes.

[151] Paragraphs 47A(7)(a) and (d). Again, section 47A provides that eligible benefits will be taken to arise in a wider range of circumstances, not relevant to the present circumstances.

[152] See the Explanatory Memorandum to the Taxation Laws Amendment (Foreign Income) Bill 1990 which introduced section 47A at page 41 describing the legislative intention behind the 'arm's length' concept in paragraph 47A(7)(a). There can be a distinction between the parties being 'at' arm's length and parties dealing at arm's length in relation to a particular transaction: see Commissioner of Taxation v AXA Asia Pacific Holdings Limited [2010] FCAFC 134 at paragraphs 103 to 107 per Edmonds and Gordon JJ.

[153] The penalty imposed was $281,716.90, see T62.

[154] The penalty imposed was $67,050.50, see T60.

[155] Paragraph 270 of the Objection Decision, at T2.

[156] See paragraph 201 of the Respondent's Submissions.

[157] See paragraphs 205 and 204 of the Respondent's Submissions.

[158] The Respondent's submissions did not expressly refer to the failure to include the amount of any capital gain upon the disposal of shares by the Applicant.

[159] The Prior Audit covered the 2005 to 2007 income years: see paragraphs 148 to 150 of the Objection Decision at T2.

[160] See Applicant's Appeal Statement at pages 52 to 53 for example.

[161] See paragraph 202 of the Objection Decision at T2.

[162] See Applicant's Appeal Statement at page 76.

[163] See for example the Applicant's response to the Respondent's audit questionnaire which was prepared by Mr Jess at ST32.

[164] The Applicant also retained a tax partner from a major Australian law firm to advise him and engage with the Respondent during the objection process.

[165] See paragraph 1.69 of the Revised Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (No.2) 2000. See also Re Arnett and Federal Commissioner of Taxation (1998) 39 ATR 1095 at [8] per Senior Member Pascoe.

[167] BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164 at [77] per Cooper J.

[168] Hart v Commissioner of Taxation [2003] FCAFC 105 at [44] per Hill and Hely JJ.

[169] See, eg, Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 at [15] and [17] per Spender, Ryan and Emmett JJ; Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483 at [157] per Greenwood J ('Sanctuary Lakes Pty Ltd').

[170] Sanctuary Lakes Pty Ltd at [193] and [209] per Greenwood J.

[171] See pages 94, 95 and 100 of Applicant's Appeal Statement.

[172] The points of difference between the Objection Decision which formed the 'reviewable decision' in this proceeding and the Respondent's case before the Tribunal have been outlined above at paragraphs 28 and 37.

[173] For example, the decisions of the Federal Court in Harding at first instance and in the Full Court.

[174] For example, whether he was an Australia entity or Australian 1% entity such that Giant Forever was a CFC depended on his residence status.

[177] T63. The objections collectively covered the years 2010 to 2015.

[179] $13,462 of shortfall interest charge for additional income tax of $113,986 per Notice of Amended Assessment at T61.