SuHEPHARD v THE

SuHEPHARD v THE - [1937] HCA 32 - HCA 1937 case summary — Zoe

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six months in England. He contends that during his absence the source of his salary outside Australia and that, in respect of the amount for which |} claims exemption, he was chargeable with income tax under th laws of the United Kingdom. In fact he has made no ret the British assessors of income tax and has not been asses such tax. The amount of the salary payable to the t depended upon a resolution of the board of directors passed son years before under an article of association and he held office an appointment made pursuant to another article. It does n appear to me to be altogether clear that the source of his remunt tion, during his absence, was outside Australia, but for some reas it was admitted on behalf of the commissioner that in respect o income in question this condition of the Commonwealth exemp was satisfied. At the same time it was denied that any part o salary arose from the exercise in the United Kingdom of his emp ment of managing or governing director. If it did so arise, taxpayer to that extent would be chargeable with British income t The commissioner maintained that upon no ground was any p of the income taxable in Great Britain. So far as he was con it was not proved to his satisfaction that any of the income there chargeable. The decision of the board of review was aj the taxpayer and from that, the commissioner said, it followed h it was not proved to the board's satisfaction. The prov conferring the exemption makes it depend on his or the Boa satisfaction. The court cannot, it was said, examine the corre of the conclusion. Further, before an Australian court, English k is a matter of fact and so, it was contended, the decision of the boat could involve no question of law and there is no appeal to the from a decision of the board of review unless it does involv question of law. { For a proper understanding of the manner in which these conté tions apply, I think it is necessary to know what are the consid tions upon which, under the British Income Tax Acts, the ta

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Kingdom. If the language of the rule admitted of doubt on th point it would be removed by the circumstance that income a from stocks, shares or rent is excepted and the taxpayer is mi chargeable on the whole whether it has been brought to the Unit Kingdom or not, unless he satisfies the commissioners either th he has no domicil in the United Kingdom, or, if he isa British subjec that he is not ordinarily resident there. If he so satisfies them, th exception does not apply and he is taxed on so much of such ineon only as is remitted. It is apparent that a resident of the Unite Kingdom having a source of income abroad may find it much t his advantage to bring the source within case V., to have it classe as a "possession," and so pay tax not on the full amount which accrues from the source but upon so much only as is brought to United Kingdom. For instance, in the present case, if the appellar was resident in England, and his employment as a director, consid as a source of income, was a" possession out of the United Kingdom it is said that it would escape taxation in Great Britain becaus strictly none of the actual income was remitted to him. The advantage of assessment on actual remittances from forei sources of income was conceded to a much larger class of taxpay than those residents who fell within the first category enumerated in schedule D, namely, those deriving profits or gains from any kind of property. The word "possessions" in case V. was treated as far more extensive than " property." In the leading case of Colquhoun v. Brooks (1), Lord Macnaghten said that it was not a technical word. "Tt seems to me," he continued, " that it is the widest and mo comprehensive word that could be used. Why, for instance, s t 'possessions in Ireland' mean everything, every source of income that the person chargeable has in Ireland, whatsoever it ma y be." Lord Herschell said: - "1I cannot see why it may not fi be interpreted as relating to all that is possessed in Her Majesty dominions out of the United Kingdom or in foreign countries and which is a source of income. And if so I do not think any viole would be done to the language if it were held to include the int which a person in this country possesses in a business carried elsewhere" (2).

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character whatever,' or under case V., which charges foreign posses- sions. In 1922, by sec. 18 of the Finance Act of that year, profits or gains arising from employments chargeable under schedule D, 'other than the profits or gains chargeable under case V. of schedule D, were transferred from schedule D to schedule E. The exception effected by the words quoted is a clear indication that Parliament contemplated the possibility, at any rate, of profits and gains from some employments being chargeable under case V., but as to the circumstances in which they are to be so chargeable the Acts are silent. The case law on the subject is meagre. It is practically limited to the case of a single individual - Mr. Pickles. Mr. Pickles had entered, in England, into an agreement with an English company to take charge, in Africa, of the company's business there, and to devote the whole of his time to the business of the company. His salary and commission commenced as from the date of his sailing for Africa and terminated on the day upon which he gave up charge of the African business. Mr. Pickles had, at all material times, a home in England in which his wife and family lived and in which he was in the habit of residing when in England. Two attempts were made to charge Mr. Pickles - one for the years 1906-07 and 1907-08, the other for the year 1919-20. The only alteration in the circumstances which had occurred between the earlier years and the later year was that, in the earlier years, one half of Mr. Pickles' salary was paid to his wife in England, and the other half to Mr. Pickles either in Africa or England, whereas in the later year the whole remuneration was paid by the company into a banking account in England, on which his wife had the power of drawing. In the first case (Pickles v. Foster (1) ), it was sought to charge Mr. Pickles as the holder of a public office under schedule E of the Act of 1842 (for that Act was at the time still in force), but he was held not to be liable, on the ground that a public office the duties of which were performed abroad was not within secs. 146, 147 of the Act of 1842, unless the office was one which, though actually exercised abroad, was constructively exercised in the United Kingdom. In the second case (Pickles y. Foulsham (2) ) it was sought to charge Mr. Pickles in respect of a foreign possession under case V. of schedule D

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constitutes a separate issue, even though several years are included in one appeal, but I do not think any error of law is committed if the facts applicable to the whole of the time are found in one continuous story ' (1). On the whole, the commissioners seem now inclined to look at the course of the appellant's movements over a series of year For the assistance of visitors to the United Kingdom in ascertaini their position in relation to the question of residence, the Board of Inland Revenue have prepared a statement which is as follows ; - 'A visitor who maintains no place of abode in the United Kingdom and whose visits are not habitual but occasional only is not regarded as resident in the United Kingdom unless he has been in the United Kingdom for a period or periods equal in the whole to six months in the income tax year (beginning 6th April). If, however, he maintains a place of abode in the United Kingdom, available for his use, he is regarded as resident for any year in which he pays a visit, of whatever length, to the United Kingdom. _ Moreover, even though he does not maintain a place of abode in the United Kingdom available for his use, and does not stay for 4 six months in any one year, he is regarded as becoming resident if he visits the United Kingdom year after year (so that his visits become in effect part of his habit of life) and the annual visits are | for a substantial period or periods of time. The question of residence i in any particular case can only be determined by reference to the ' facts of the case. But it can be said that the Board of Inland a Revenue would normally regard an average annual period or periods - amounting to three months as "substantial" and the visits as having become "habitual" after four years. And, where the 4 visitor's arrangements indicated from the start that regular visits for substantial periods were to be made, he would be regarded as _ - resident in and from the first year.' " If I were the tribunal of fact whose duty it was to determine the question of residence in the present case, I should find that the taxpayer had not become a " person residing in the United Kingdom," although by reason of his spending in England an aggregate of six _ months in each of the two years of his absence from Australia he became chargeable in respect of profits or gains received in respect

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decide the matters of fact upon which the taxpayer's liability to British income tax depends, I should make findings inconsistent with his present contention. But, as the duty is reposed, not in the court, but in the board of review, the taxpayer is entitled to the exercise of their judgment upon the facts. Upon such questions as whether a stay in a country amounts to residence, activities amount to the exercise of an employment, a fund in one place "represents" income in another, questions vaguely defined and depending on matters of degree, the exercise of the board's judgment, as distinguished from the court's, may be of much importance to the taxpayer. It is true that the decision of the board of review was against the taxpayer. But he is at liberty to attack that decision upon the ground that the board misconceived the true issues which should be determined. If he could establish affirmatively that it had done so, it would be necessary to send the case back to the board for their reconsideration. The commissioner's contention that the taxpayer has no remedy, even if the board had completely misappre- hended the British income tax law, is based at least in part on the view that sec. 14 (1) (g) (i.) meant to leave everything to the conclusive judgment of the commissioner subject to a reference to the board. But, apart from this extreme view, it is, I think, clear according to the view taken in this court of analogous provisions that the court can only interfere when it is affirmatively established that the exercise of the judgment or discretion reposed in the commissioner or board of review has miscarried. On this question, the written decision of the board has caused me some misgiving and I have had some doubt whether enough does not appear to entitle the taxpayer to arehearing. But, after examining the record of proceedings as well as the decision of the board, I have come to the conclusion that upon the three crucial questions of residence, remittance of income and exercising in Great Britain the employment of a director, it is not shown that the board failed to consider and determine them. For these reasons I dismiss the appeal with costs.

At a glance

Court

Decision date

Before

Source

Judgment (106 paragraphs)

Parties