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A taxpayer has managed to have an ATO objection decision varied in a case examining whether he was a resident of Australia for two income years.
Tribunal varies ATO decision in tax residency case
18 June 2025
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11 minute read
In the recent decision, Abotomey and Commissioner of Taxation (Taxation and business) [2025] ARTA 719, the Administrative Review Tribunal of Australia has varied an objection decision by the Commissioner of Taxation regarding whether a taxpayer was a resident of Australia within the definition of subsection 6(1) of the ITAA 1936.
The applicant in the case was working and living in China as an executive of an Australian company with Chinese businesses.
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The case looked at a number of issues arising under Australian income taxation laws in relation to services he performed as well as services provided by entities in which he held an interest in the financial years ended 30 June 2014 and 30 June 2015.
The applicant held executive positions with a company which had business interests in China. The dispute with the Commissioner of Taxation arose in relation to work performed with those businesses, including while he was located in China.
The ATO treated the applicant as a resident of Australia for taxation purposes in both the relevant years, and sought to include certain amounts received by or from the entities in his assessable income.
The Tax Office also believed that a capital gain applied in relation to a transfer of shares in one of the entities.
The ATO imposed administrative penalties on the Applicant for making false or misleading statements in relation to these items, and assessed amounts of shortfall interest charge.
The applicant disagreed that he was a resident of Australia for taxation purposes in the 2014 year and stated that he was a resident of Australia for only part of the 2015 year.
He also disputed the inclusion of the amounts in his assessable income. He also disagreed that a capital gain had arisen in relation to the share transaction.
Consequently, he did not believe that shortfall interest charge and penalties should be imposed on him or that they should otherwise be remitted.
In relation to the 2014 income year, the Tribunal said there were several matters identified by the ATO which would ordinarily suggest an ongoing connection with Australia.
One of these matters was the fact that the applicant and his wife did not change their banking arrangements. However, the Tribunal noted that 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," said Tribunal general member Catherine Willis.
The ATO also highlighted the fact that the family's Australian private health insurance policy, which also covered the applicant, was maintained.
The Tax Office also noted that the applicant held 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
The Tribunal found that 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.
While the applicant's ability to remain in China legally relied on his holding an APEC Card with a maximum limit of 60 days per single visit, the Tribunal noted that 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.
Although his ability to hold an APEC Card was essentially dependant on his work and business relationship with OnCard, an Australian company, the Tribunal noted that 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.
The Tribunal also said that while the applicant's 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.
Based on the overall circumstances of the applicant in the 2014 year, the Tribunal found 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," said Tribunal general member Willis.
It also ruled that the applicant was not liable to administrative penalties for making false or misleading statements to the Commissioner in relation to the 2014 year.
However, the Tribunal found that the applicant was a resident of Australia in the 2015 year for the purposes of the ordinary concepts test.
It noted that the applicant's circumstances underwent significant change in the early part of the 2015 year, and weeks immediately before the beginning of the 2015 year. It also ruled that he was not liable for shortfall interest charge in relation to that year.
A consultancy agreement established in 2007 was terminated in April 2014 and replaced by a new agreement which contemplated that the applicant providing a narrower range of services. This arrangement was described by OnCard as being for a ‘transition period.’
The Tribunal also noted that the applicant formally retired from all of his executive and leadership roles with OnCard with effect from 29 May 2014.
"These events had consequences for both his personal domestic arrangements as well as his ability to remain in China," it said.
The Tribunal also noted that had the applicant not been found to be a resident for the purposes of the ordinary concepts test for the 2015 year, the Tribunal would have found that the applicant to be a resident of Australia under the domicile test for the entirety of the 2015 year.
It also affirmed the ATIO's 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.
In relation to the 2015 year, the Tribunal also affirmed the ATO's decision to impose an administrative penalty for making a false or misleading statement to the Commissioner on the basis that the shortfall amount resulted from recklessness as to the operation of a tax law, and that there was no basis for remission of that penalty.
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