Income Tax Assessment Act 1936 ss.26AAA(5), (6), 160ZZO, 160ZZQ(12), (21), 185, 187, 190(b)

Police Act 1892 (WA) s.76F(1)

Town Planning and Development Act 1928 (WA)

Collector of Customs v Perkins Shipping Pty Ltd [1989] FCA 27; (1989) 24 FCR 520

Danmark Pty Ltd; Forestwood Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333

Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614

Federal Commissioner of Taxation v Elton 90 ATC 4078

Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81

Koitaki Para Rubber Estates Ltd v Federal Commissioner of Taxation [1941] HCA 13; (1941) 64 CLR 241

McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284

Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217

Storey v Wick [1977] WAR 47

Trautwein v Federal Commissioner of Taxation (No 1) [1936] HCA 77; (1936) 56 CLR 63

Decision : The Tribunal affirms the decision under review.

1. This is an application for review of a decision of the respondent pursuant to s.187 of the Income Tax Assessment Act 1936 ("the Act") not to allow an objection filed under s.185 of the Act against the inclusion in the applicant's taxable income, for the year of income ended 30 June 1989, of the sum of $90,434.00, being a capital gain assessed pursuant to s.160ZO of the Act.

2. The disputed sum was included as part of the applicant's taxable income in a notice of amended assessment issued by the respondent on 3 January 1992. The Tribunal accepts the applicant's letters to the respondent, dated 29 January 1992 and 10 February 1992, as providing sufficient grounds to direct the attention of the respondent, and therefore the Tribunal, to the applicant's contention. As such, the Tribunal accepts them as constituting a valid assessment objection. Those letters contend that the disputed sum - which represents the capital profit realised on the disposal of a property ("the property in contention") owned by the applicant - should, by virtue of s.160ZZQ(12) of the Act, be excised from the assessment because it relates to her then principal residence.

3. Subsection 160ZZQ(12) of the Act deems no capital gain to have accrued on disposal of a taxpayer's sole or principal residence. Even though the respondent assessed the applicant on the basis that the property in contention was not the applicant's principal residence at the relevant time, there is no dispute that the gain is assessable other than under Part IIIA of the Act.

4. The term, "sole or principal residence", is nowhere defined in the Act: s.160ZZQ itself is mainly concerned with establishing rules to govern the application of its provisions under varying circumstances which, apart from subsections (12) and (21), have no relevance to this case.

5. Subsection (21) of s.160ZZQ provides for apportionment of a capital gain between an accrued capital gain, which is assessable, and an excluded part where, during the whole or part of the period of ownership, the principal residence was also used for the purpose of gaining or producing assessable income. It is an agreed fact in this case that the property in contention was used at least partly for the purpose of gaining the applicant's assessable income during a substantial part of the period of ownership.

6. In determining whether the property in contention should be held to be applicant's sole or principal residence the Tribunal, as it sees its task, must address the following questions:

(2) If so, was it the sole or principal residence of the applicant throughout the relevant period?

7. Although the term "sole or principal residence" also appears in s.26AAA(5) and (6) of the Act the Tribunal is not aware of any reported case where that term has been interpreted in the context of the provisions of the Act.

8. As to whether a dwelling constitutes a "residence", guidance can be gleaned from the comments of Williams J in Koitaki Para Rubber Estates Ltd v Federal Commissioner of Taxation [1941] HCA 13; (1941) 64 CLR 241, at 249:

"The place of residence of an individual is determined, not by the situation of some business or property he is carrying on or owns, but by reference to where he eats and sleeps and has his settled abode."

9. The further question of whether a dwelling is a person's principal residence is essentially a matter of fact and degree (see Byrne v Rowbottom (1969) 210 Estates Gazette 823). In determining this question the decision-maker has to make a commonsense assessment taking into account a number of varying and even conflicting circumstances. The element of continuity of living arrangements is a factor in deciding where one lives (Collector of Customs v Perkins Shipping Pty Ltd [1989] FCA 27; (1989) 24 FCR 520 at 525). Where, however, a person resides at more than one place, the problem becomes more complex. That the factor of how one divides one's time between various residences is not the sole criterion was emphasised by Nourse J in Frost v Feltham [1981] STC 115, in relation to a cognate term in United Kingdom tax legislation, when he said (at 118):

"If someone lives in two houses the question which does he use as the principal or the more important one cannot be determined solely by reference to the way in which he divides his time between the two... In his Lives of the Lord Chancellors (1847 Vol VII), Lord Campbell tells how Lord Eldon was often prevented by the burdens of his office from visiting his estate at Encombe in Dorset for long periods at a time. Sometimes he was only able to get down there for three weeks or so in the year, for the partridge shooting in September. True it was that Lord Eldon also had a good house in Hamilton Place, but it could not really have been suggested that he did not use Encombe as his principal or more important residence. The question is essentially one of fact and degree for the Tribunal of first instance, in this case the General Commissioners."

10. As the Tribunal sees it, the term may be interpreted according to its ordinary, lexical meaning. "Principal", when used as an adjective, is relevantly defined in the Shorter Oxford Dictionary as "first in rank or importance; chief; leading" (with similar meanings given in the Macquarie Dictionary). "Residence" is defined in the Shorter Oxford Dictionary as "place where one resides; abode". In the absence of Australian authority directly in point, the Commissioner of Taxation has issued Tax Determination 51 [TD51] on 26 March 1992 setting out what he believes to be the factors to be taken into account in determining whether a dwelling is a taxpayer's sole or principal residence. That Determination reads, so far as relevant to this case:

"(1) Whether a dwelling is a taxpayer's sole or principal residence is an issue which depends on the facts in each case.

(2) Some relevant factors may include, but are not limited to:

(i) the length of time the taxpayer has lived in the dwelling;

(iii) whether the taxpayer has moved his or her personal belongings into the dwelling;

(iv) the address to which the taxpayer has his or her mail delivered;

(vi) the connection of services such as telephone, gas electricity;

(vii) the taxpayer's intention in occupying the dwelling.

The relevance and weight to be given to each of these or other factors will depend upon the circumstances of each particular case."

11. The Tribunal accepts as relevant, though not exhaustive, the considerations listed in the Determination. It would add that, in making its decision, it also sees as relevant the consideration whether the applicant freely chose, or was obliged, to spend time at one residence or another. This necessarily includes an element of subjectivity on her part.

12. Given that the parties agree that the property in contention was used by the applicant at least partly for income-producing activities, the task of the Tribunal in this case is to decide, on the evidence before it, whether she used that property as her residence and, if so, whether it was her principal residence throughout the relevant period, given that she owned other properties during that period.

13. The applicant was represented by Mr T Whittingham, solicitor. Mr W Martin QC and Ms Wyatt of counsel appeared for the respondent. The documents filed pursuant to s.37 of the Administrative Appeals Tribunal Act 1975, ("the T documents"), along with several exhibits, were taken into evidence. Where relevant, they will be referred to in these reasons.[1]

14. Since the respondent did not present any evidence it therefore falls to the Tribunal to decide, having regard to the provisions of s.190(b) of the Act, whether the applicant has discharged the required onus of proving that the property in contention was her principal residence throughout the relevant period. Section 190 of the Act, so far as relevant, states:

"190. In proceedings under this Part on a review before the Tribunal or on appeal to a court -

(b) the burden of proving that the assessment is excessive shall lie upon the taxpayer."

15. It is not for the respondent to prove that the assessment is correct. In Trautwein v Federal Commissioner of Taxation (No. 1) [1936] HCA 77; (1936) 56 CLR 63, Latham CJ said (at p.88) in reference to the predecessor provision:

"The application of s.39 is not, in my opinion, excluded as soon as it is shown that an element in the assessment is a guess and that it is therefore very probably wrong. It is prima facie right - and remains right until the appellant shows that it is wrong. If it were necessary to decide the point I would, as at present advised, be prepared to hold that the taxpayer must, at least as a general rule, go further and show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right."

16. In Danmark Pty Ltd v Federal Commissioner of Taxation; Forestwood Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333, Latham CJ said (at p.337):

"I agree that upon an appeal the onus rests upon the taxpayer of establishing the facts upon which he relies and if it is necessary for him to establish a particular fact in order to displace the assessment he must satisfy the court with respect to that fact."

17. In Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81 Mason J said (at p.89):

"The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s.190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail."

18. These views have been cited by the High Court with approval in McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284, Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217 (by majority), and Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614.

19. In Federal Commissioner of Taxation v Elton 90 ATC 4078 the Federal Court held that there is no presumption that an assessment made by the Commissioner is correct; nor does the statutory burden of proof raise presumptions of fact upon which an assessment is based.

20. It is clear that the applicant must satisfy the Tribunal that her actual taxable income for the year of income under review was less than the amount assessed, and particularly in relation to the amount included in assessable income pursuant to s.160ZO of the Act upon the disposal of the property in contention.

21. Whilst counsel for the applicant satisfied the Tribunal that much of what the respondent stated in its Statement of Findings on Material Questions of Fact (T2) was rebutted, or was inadmissible, or could not be substantiated, that does not, of itself, establish that the assessment is wrong. This may be assisted by showing that some of the several so called facts upon which the respondent formed its conclusion were not established. The standard of proof to be applied is the ordinary civil standard of proof on the balance of probabilities - it is not proof beyond reasonable doubt. The Tribunal therefore need only be satisfied that it is more likely than not that the property in contention was the applicant's principal residence throughout the relevant period for the applicant to succeed in overturning the assessment.

22. The evidence does not show to an extent that satisfies the Tribunal which of the various properties, and in particular, whether the property in contention, was the applicant's principal residence. Even though the Tribunal accepts the evidence of the applicant that she lived at the property in contention for significant periods, the Tribunal is unable to conclude that that property was, more likely than not, her principal residence. This is not a matter where the Tribunal has to satisfy itself which one, other than the property in contention, fits the description, in order to exclude the latter property. If in the end the matter is left indeterminate, the applicant must fail. Having regard to the foregoing, the Tribunal is unable to find, on the balance of probabilities, that the property in contention was the applicant's principal residence during the relevant period. It accordingly decides that the applicant has not sufficiently discharged her onus of proof in this respect.

&#[1] 1 The Tribunal has made an Order pursuant to s.35(2) of the Administrative Appeals Tribunal Act 1975 restricting disclosure of the rest of this paragraph, and paragraphs 14 to 50 and 59 to 65 (inclusive) of these reasons, to the parties, their representatives and members and staff of the Tribunal necessarily concerned in the matter.