MacKinnon and the Commissioner of Taxation

Published July 2020

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Let me now move on to a residency case.

Now we've had a few residency cases in recent times over the last few months and year and they have involved to some extent backpackers, and this is another backpacker style case. So this issue was over whether a taxpayer was a resident of Australia for tax purposes. And it was before the AAT, and it was held that the taxpayer was not a resident, the taxpayer lost the case.

As with all of these sorts of cases the facts are absolutely essential to try to understand it. Now I should just mention here to start off with that we now have the so-called backpackers tax, or the working holiday maker regime. This particular case spanned the time at which that rule was introduced, so that rule was introduced on the 1st of January 2017. And this case involved the year ended 30 June 2017. The issue was over whether in the first half of the case, that is from the 1st of July 2016 to the 31st of December 2016, whether the taxpayer was a resident during that 6-month period.

And so here are the facts. So Megan MacKinnon was born in Scotland in 1991. She lived in Edinburgh with her parents for some years until 2009 when she moved to Glasgow where she studied at university and then later was employed in Glasgow. She however wanted to come to Australia, to visit Australia, and perhaps even had the idea that she might make Australia her home. So this is what happened between the 17th of February 2016 and the 13th of February 2017, she was in Australia or mostly in Australia. And then after that she returned to Scotland, and then shortly after, to England, she took a job there. So in looking at these cases, what we need to look at is where have people lived, what have they lived in, and what has been their employment situation, and how have they involved themselves with the particular country in which they're trying to be a resident. And so in this case this is Australia.

So what we see here in this first diagram, which is on page 14 of your notes, is that Megan MacKinnon applied for a working holiday temporary class visa. Now I should note that the slide and your notes should say that that is a subclass 417. 417 rather than 17 visa - working holiday visa. So she got that on the 2nd of October 2015, and then she came to Australia on the 17th of February 2016. And the first night she spent in a place where her cousin lived. She had some relations in Australia. But then the very next night both her and her cousin started to live in hostels. Any rate, she lived in Sydney for a period of a few months before moving to rural Queensland. Now the reason that she moved to rural Queensland was because she did have the intention of renewing her visa and getting a second year living in Australia. Now apparently there's a condition of these types of visas, that if you wish to do that, you must spend some time in an agricultural location somewhere in Australia. So she did that, she moved to Northern Queensland where she worked on a banana farm. So she was there for a few months and then she returned to Sydney again. Now for 10 days, in about November 2016, she did go to Indonesia for a holiday, possibly Bali, but that's not said. So she lived in Sydney, and then from around about the end of the year 31 December 2016, she began travelling around, she went to see some relations in Adelaide, she went to Melbourne, and then particularly from about midway through January 2017 she then was continually travelling, mostly up the eastern seaboard, right up the Queensland coast, to the 13th of February 2017, where she went to Sydney, and then departed Australia to go back home.

Now in her living situation, just look at this bottom graph here on this slide. So when she was in Sydney, she lived in hostels, first in Kings Cross and then in another hostel in Sydney. She then lived in a hostel in Mighell, Queensland, which is in Northern Queensland, and after that moved back to a backpackers hostel at Potts Point in Sydney. After a while she then lived in a house in Bondi, with a friend that she’d met in Queensland. And then when she began her travels that I mentioned before down to Melbourne and up to the east coast of Australia, she basically stayed in hostels in all of that time.

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Now as far as her work goes, up in the top table, you see that when she arrived in Australia, she became a waitress in a law firm café. I should add that her university qualification was a bachelor of arts in event management. So she obtained a job as a waitress and then later on she went for the Watsons Bay Boutique Hotel as a pass staff or a waitress. Then she went for her rural sojourn in Queensland as a banana sorter. And I should mention there that when she was there sorting bananas, she started a relationship with an english man, or someone from the UK, or at least a friendship at that point, and that becomes a little relevant later on. So after her time in Queensland, she came back to Sydney, and except for the time when she went over to Indonesia, she resumed work at the Watsons Bay Boutique Hotel, in what appears to be a more senior position. And so she continued to to work in that position until basically she started this holiday period where she ceased employment, and then just began to travel. So that's the situation of her sojourn in Australia.

Now what she argued was that when she returned from Queensland, that Sydney had now become her home. That was where she lived, and that indeed she intended to live in Australia, and the fact that she'd gone to Queensland and done the work there, was an indication that she wanted to extend her visa and that this was an indication that she in fact might want to finish up living in Australia. So that was really part of her key arguments. Now the Commissioner's arguments were simply well "We don't think that's right. We think that you've had a working holiday and that you've just been buzzing all over the place, and that your usual place of abode is in Scotland in your parent's house in Edinburgh". So you will recall that in the definition of residency there are, in this situation, two major parts of argument. The first is whether someone actually resides in Australia, that is, "do they live here?". The second thing is the 183 day test, if you've been here for more than 183 days, is your usual place of abode outside of Australia and do you intend to take up residence in Australia. These are the key issues.

So let’s look at what the Tribunal said. So as the Tribunal decided that she was not a resident, the nature of her work was transient, and she didn't have a settled base of accommodation around which she based her work and social life. She basically went from pillar to post, living in hostels. She did have maybe somewhat stable employment, although that changed a number of times. But also, so that was the conclusion with relation to the first part of the residency argument, that is, “did she live here?”, “was she residing in Australia?”. The answer was: no, you're going from pillar to post, you're going from here to there, and you don't have a permanent place where you're living, and you haven't permanently intertwined yourself with the life of the particular place in which you're living.

Now with regard to the 183 day test, she was clearly here in Australia for more than 183 days during the year of income. The tribunal however, held that her usual place of abode was not at her parents’ home in Edinburgh, as the tax office had argued, but rather her usual place of abode was Scotland. And so this follows from the decision in Harding's case, which you might recall is a person who went to the Middle East, and the tax office argued that that person's usual place of abode, or rather that he didn't have a usual place of abode, because he was in temporary style of accommodation, that is he didn't have a permanent place where he lived. But the court rejected that and said "no, you don't have to have a permanent actual location, it's more the locality in which you are living. And so here, the tribunal applied that in a sense, and said well, the place where you live is Scotland, and we won't say it's any particular place, but we say that that's where your home is but because her place of abode was outside of Australia, she could not pass the 183 day test. Now just mentioning here, we have had some residency cases in the past: Stockton, Addy, Pike. Stockton and Addy were both backpacker style cases. A couple of those cases are on appeal. The Addy case is interesting in relation the one I just mentioned because Addy was held to be a resident in a situation that wasn't all that dissimilar from MacKinnon. However, the difference with Addy was that she did have a far more permanent place of living than what MacKinnon did. Addy's home was in Sydney and she was held to be a resident. Now that case is on appeal for another reason to do with the double tax agreement between the United Kingdom and Australia. The Pike case was a person that was involved in the tobacco industry, and had sent a lot of time in Thailand, and that case is also on appeal. I should also mention that the Board of Taxation has proposed a change to the way in which residency is looked at and it will be interesting to see that perhaps that maybe in the budget on the 6th of October, whether the government might decide to adopt that as a test and for implementation at a later time.

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