Determination of tax residency
2011 case note - taxpayer working in Fiji for four years a tax resident of NZ - permanent home available, centre of vital interests, habitual abode.
The Taxation Review Authority (TRA) determined that the taxpayer who had been working in Fiji for about four years was a tax resident of New Zealand.
Impact of decision
The Commissioner considers that the result in this case turns largely on the facts found by his Honour Judge Barber and although correct on those facts, has little precedential application. Taxpayers and their agents are referred to the Commissioner's statements regarding the determination of tax residence in Public Information Bulletin No 180, June 1989, as well as the commentary to the Model Tax Convention on Income and on Capital.
Regarding the Judge's specific findings:
- The Commissioner does not, as a general rule, regard the leasing of the houses by the employer rather than the employee as of itself determinative of whether an individual has a permanent home, and
- the Commissioner will continue to base his analysis on whether a person has an "habitual abode" on the guidance found in the commentary to the Model Tax Convention on Income and on Capital.
For the income years ended 31 March 2002 to 2006, "W", a New Zealand citizen who had been working in a bank in New Zealand, was appointed the Managing Director and Chief Executive Officer of a bank in Fiji for an initial period of three years. It was then renewed for another two years. But W worked for another year and a half and then returned to New Zealand to retire from his career in the bank.
During his time in Fiji, W lived in houses provided to him by the bank in Fiji as part of his terms of appointment. He also maintained a family home at St Heliers, Auckland, and an apartment at Grey Lynn, Auckland.
W's wife spent most of her time in New Zealand for medical treatment and his two daughters were in New Zealand.
W was a taxpayer of Fiji according to the domestic law of Fiji. However, W also conceded that he was a taxpayer of New Zealand in accordance with the domestic law of New Zealand.
W did not return, in New Zealand, any of the Fiji income received for the income tax years ending 31 March 2002 to 31 March 2006. He claimed that all his income for those periods was taxable only in Fiji.
Inland Revenue disagreed and raised default assessments for those income years to a total amount of $1,056,108.63 (inclusive of shortfall penalties). The shortfall penalties were not disputed in W's Notice of Proposed Adjustment and Statement of Position and therefore were not addressed by the TRA.
W contended that he did not have a permanent home in New Zealand as he was undertaking renovations, which meant that his family home was uninhabitable. The Commissioner contended that W was deemed to be solely a resident of New Zealand because his centre of vital interests was in New Zealand. Renovations undertaken on the home in New Zealand during the period were evidence of the exercise of his control over that home.
The issue turns on the application of the facts to four tests in Article 4 of the Double Taxation Relief (Fiji) Order 1977, namely "permanent home available", "centre of vital interests", "habitual abode" and "nationality", to W's circumstances.
Judge Barber found that in all the tests, W was deemed a tax resident of New Zealand. Under the test of "permanent home available" the Judge found that W had a permanent home available in Auckland whilst the houses provided for him in Fiji were not. The houses in Fiji were leased by the employer and the taxpayer had no control over them. Accordingly, under the first test in Article 4(2)(a), W was deemed at all material times to be a resident solely of New Zealand.
Under "centre of vital interests" the Judge found that W's personal and economic ties were closest to New Zealand. This was for the reasons that:
- the wife remained in New Zealand for most of the time in the income years in issue;
- the daughters were in New Zealand and received financial support from him;
- W kept his finances in New Zealand;
- W had assets and businesses in New Zealand; and
- W's work in Fiji was also determined by a New Zealand entity to whom he reported.
Under "habitual abode" the Judge adopted a broad meaning and found that, upon the facts before him, W's habitual abode lay in New Zealand. The Judge determined that "habitual abode" is not restricted to counting the days in the years the taxpayer was away from New Zealand but what is the normal place of abode.
For the last test on "nationality" it was found W was clearly a New Zealand national.
The issue of shortfall penalties was reserved for leave to apply by the parties.
Double Taxation Relief (Fiji) Order 1977