Court of Appeal provides guidance on “permanent place of abode”
In a decision reported as C of IR v Diamond (2015) 27 NZTC ¶22-035, the Court of Appeal has provided guidance in establishing whether a taxpayer has a “permanent place of abode” in New Zealand for tax purposes.
The Court of Appeal rejected the Commissioner’s interpretation that the mere availability to a taxpayer of a dwelling in New Zealand was sufficient to ground an assessment of factual connections to the dwelling even it had not been used by the taxpayer as a dwelling at any time.
The taxpayer was a former soldier who worked as a security consultant in Papua New Guinea, Queensland and Iraq after retiring from the Army in 2003. The taxpayer and his wife had separated almost a decade before he shifted overseas. Although they later divorced, they still owned several properties together. It was not disputed that the taxpayer beneficially owned a property at Waikato Esplanade. The taxpayer returned to New Zealand every five or six months to see his children. The taxpayer rented the Waikato Esplanade property to tenants on a periodic tenancy basis and viewed it as an investment property.
The Commissioner accepted that in each of the relevant tax years, the taxpayer was absent from New Zealand for a period or periods exceeding in aggregate 325 days. On that basis, the taxpayer was, in terms of s OE 1(3) of the Income Tax Act, deemed not to be resident in New Zealand for tax purposes. The Commissioner considered, however, that throughout each of those tax years, the taxpayer had a permanent place of abode in New Zealand and was, therefore, in terms of the overriding effect of s OE 1(1), resident in New Zealand for tax purposes in those years.
Taxation Review Authority
In a decision reported as Case 10/2013 (2013) 26 NZTC ¶2-009, the Taxation Review Authority (TRA) upheld the Commissioner’s approach and found that the taxpayer had a permanent place of abode in New Zealand during the relevant tax years and was therefore a New Zealand tax resident in those years. The TRA relied on Case Q55 (1993) 15 NZTC 5,313 and approached the “permanent abode” question on the basis that two steps were involved in the analysis.
In a decision reported as Diamond v C of IR (2014) 25 NZTC ¶21-093, the High Court allowed the taxpayer’s appeal and held that the taxpayer did not have a permanent place of abode in New Zealand for the relevant tax years. The High Court found that Case Q55 was not authority for the approach taken by the Commissioner in the taxpayer’s case. The High Court found that the Waikato Esplanade property had never been the taxpayer’s home. It had never been lived in by him and beyond owning it, he had no connection to it. The property had been consistently used for investment purposes and that use had continued for nearly 20 years.
Court of Appeal
The Court of Appeal dismissed the Commissioner’s appeal and upheld the High Court’s findings on the facts. The Court refused to accept that a place in which the taxpayer had never lived could constitute a dwelling with which he had enduring and permanent ties. The Court considered that the plain meaning of the words “permanent place of abode in New Zealand” coupled with the statutory context, demonstrated that the phrase meant something more than mere availability of a place to stay and implied actual usage of the property by the taxpayer for residential purposes. A summary of what the Court of Appeal considered to be the appropriate interpretation of s OE 1 is as follows:
- Whether an individual has a permanent place of abode is a question of fact.
- What is required is an overall assessment as to whether the taxpayer has a permanent place of abode in New Zealand. This will be highly contextual and will turn on the circumstances of each case.
- The determination cannot be separated into discrete questions. Rather, the approach calls for an integrated factual assessment directed to determining the nature and quality of the use the taxpayer habitually makes of a particular place of abode.
- Mere availability to the taxpayer of a dwelling is not sufficient by itself. Nor as Case Q55 demonstrated, will the mere unavailability of the dwelling necessarily result in loss of status as a resident taxpayer.
- In assessing a particular case the factual inquiry will be on the tax years in question. However, evidence of the relevant circumstances both before and after those tax years may be taken into account to the extent they bear upon the question whether the taxpayer had a permanent place of abode in New Zealand in the tax years in question.
- The focus is on whether the taxpayer, not members of the taxpayer’s family, has a permanent place of abode in New Zealand. Accordingly, the fact that a taxpayer may provide a home for his family in circumstances where the taxpayer lives elsewhere would not necessarily be sufficient to establish that the taxpayer had a permanent place of abode in New Zealand.
Marilyn Hay, Consultant Editor