FEDERAL COURT OF AUSTRALIA

Transcription

1 FEDERAL COURT OF AUSTRALIA Shord v Commissioner of Taxation [2017] FCAFC 167 Appeal from: Shord v Commissioner of Taxation [2016] FCA 761 File number(s): WAD 332 of 2016 Judge(s): SIOPIS, LOGAN AND WHITE JJ Date of judgment: 26 October 2017 Catchwords: TAXATION the appellant worked on assignments overseas the appellant returned to Australia between assignments whether the appellant was engaged in foreign service within the meaning of s 23AG(7) of the Income Tax Assessment Act 1936 (Cth) and thereby exempt from income tax whether the appellant was entitled to tax offsets for foreign income tax paid pursuant to s (1) of the Income Tax Assessment Act 1997 (Cth) whether the appellant was an employee under s 23AG(7) of the Income Tax Assessment Act TAXATION onus of proof Taxation Administration Act 1953 (Cth), s 14ZZK(b) whether there was a duty upon the Commissioner of Taxation under s 33(1AA) of the Administrative Appeals Tribunal Act 1975 (Cth) to assist in obtaining evidence of the payment of tax by the appellant in foreign countries. ADMINISTRATIVE LAW - review by Administrative Appeals Tribunal of objection decision of the Commissioner of Taxation the Commissioner advised the Tribunal at the hearing that he no longer pursued a contention in the statement of facts and contentions the appellant s representative nevertheless adduced evidence and made submissions on that contention the Tribunal found against the appellant on that contention whether there was a denial of procedural fairness. Legislation: Income Tax Assessment Act 1936 (Cth) ss 6(1), 23AG, 23AG(1), 23AG(6), 23AG(6)(a), 23AG(6A), 23AG(7), 177F(1), 166 Income Tax Assessment Act 1997 (Cth) Div 770, ss , (1) Administrative Appeals Tribunal Act 1975 (Cth) ss 2A, 33, 33(1AA), 33(1AB), 37, 37(1), 37(1)(b), 44 Taxation Administration Act 1953 (Cth) ss 14ZZK,

2 14ZZK(b), 15 Crimes Act 1914 (Cth) s 43 Federal Court of Australia Act 1976 (Cth) ss 37M, 37N Judiciary Act 1903 (Cth) s 55ZF Federal Court Rules 2011 (Cth) r Cases cited: Shord v Commissioner of Taxation [2015] AATA 355 Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 442 Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315 Fard v Secretary, Department of Immigration and Border Protection [2016] FCA 417 Wei v Minister for Immigration and Border Protection (2015) 257 CLR 22 Binetter v Commissioner of Taxation (2016) 104 ATR 145 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 Federal Commissioner of Taxation v Ryan (2000) 201 CLR 109 Federal Commissioner of Taxation v Wade (1951) 84 CLR 105 Kelson v Forward (1995) 60 FCR 39 LVR (WA) Pty Ltd v Administrative Appeals Tribunal (2012) 203 FCR 166 Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 Minister for Immigration and Citizenship v Li (2013) 249 CLR 332 Minister for Immigration and Citizenship v SZIAI (2009) 83 ALR 1123 Pacific Exchange Corporation Pty Ltd v Federal Commissioner of Taxation (2009) 180 FCR 300 Palmer v Commissioner of Taxation (1999) 99 ATC 4514 Shell Co. of Australia Ltd v Federal Commissioner of Taxation (1930) 44 CLR 530 Shord and Commissioner of Taxation (2015) 101 ATR 392 SZLPO v Minister for Immigration and Citizenship (No 2) (2009) 177 FCR 29 Sullivan v Civil Aviation Safety Authority (2014) 226 FCR 555 Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63

3 Date of hearing: 14 February 2017 Registry: Division: National Practice Area: Category: Western Australia General Division Taxation Catchwords Number of paragraphs: 186 Counsel for the Appellant: Solicitor for the Appellant: Counsel for the First Respondent: Solicitor for the First Respondent: Counsel for the Second Respondent: Mr JW Fickling Hayes Poli Legal Ms F Vernon Minter Ellison The second respondent did not appear.

4 ORDERS WAD 332 of 2016 BETWEEN: AND: MICHAEL SHORD Appellant COMMISSIONER OF TAXATION First Respondent ADMINISTRATIVE APPEALS TRIBUNAL Second Respondent JUDGES: SIOPIS, LOGAN AND WHITE JJ DATE OF ORDER: 26 OCTOBER 2017 THE COURT ORDERS THAT: 1. The appeal be allowed on the basis that the Administrative Appeals Tribunal (the Tribunal) denied the Appellant procedural fairness in finding that he was not an employee. 2. The orders of the primary judge made on 29 June 2016 are set aside. 3. The matter is remitted to the primary judge for consideration of the Appellant s appeal insofar as it concerns the application of s 23AG(6) and s 23AG(6A) of the Income Tax Assessment Act 1936 (Cth) and whether, in the light of the determination of those questions, the order of the Tribunal of 21 May 2015 affirming the objection decision should also be set aside and the matter remitted to the Tribunal for further hearing. 4. By 4 pm on 3 November 2017, the appellant is to file and serve any affidavit and written submissions on the issue of costs. 5. By 4 pm on 10 November 2017, the first respondent is to file and serve any affidavit and written submissions on the issue of costs. 6. The costs submissions referred to at orders 4 and 5 above are not to exceed 4 pages in length (including any annexures). Note: Entry of orders is dealt with in Rule of the Federal Court Rules 2011.

5 REASONS FOR JUDGMENT SIOPIS AND WHITE JJ: 1 This is an appeal from a judgment of a judge of this Court (Shord v Commissioner of Taxation [2016] FCA 761) dismissing an appeal from a decision of the Administrative Appeals Tribunal (the Tribunal) (Shord v Commissioner of Taxation [2015] AATA 355). 2 During the period 2006 to 2011, the appellant, Mr Michael Shord, worked as an oilfield diver or diving supervisor in the oil and gas industry for overseas entities. His practice was to travel from Australia to a nominated overseas location for a work assignment. After he had carried out the work assignment at an overseas location, Mr Shord would then typically return to Western Australia for a period before embarking upon one or more other overseas assignments. Mr Shord remitted the monies he earned from the work he carried out overseas to his Commonwealth Bank account in Australia. Mr Shord is, and was, during the relevant time, married; and with his wife, owned two properties in Western Australia. One of the properties was an investment property and the other was the house in which Mr Shord and Mrs Shord, when Mr Shord was present in Australia, resided. 3 Mr Shord was born in the United Kingdom and came to Australia as an adult after he had served in the United Kingdom armed forces. During the relevant period, Mr Shord held a British passport and an Australian passport. Mr Shord did not lodge tax returns during the period 2006 to 2011 because he said that he understood that he was during that period a non-resident of Australia for tax purposes. 4 After the Commissioner of Taxation (the Commissioner) carried out an audit into Mr Shord s tax affairs for the years ended 30 June 2006 to 30 June 2011, the Commissioner issued Mr Shord with an audit position paper which recorded the Commissioner s view that Mr Shord was a resident of Australia for those income tax years. 5 In November 2012, Mr Shord lodged his income tax returns for the years 2006 to 2011 which reported net rental income from his investment property in Western Australia but no assessable foreign sourced income. 6 On 15 May 2013, the Commissioner issued amended assessments which included within each assessment Mr Shord s foreign sourced income and a shortfall interest charge. Further, the Commissioner issued notices of assessment by which the Commissioner imposed a

6 - 2 - tax shortfall penalty of 50% of the shortfall amount. The increased amount of income tax payable by Mr Shord under the amended assessments was $149, The total in respect of the interest charges and penalty for the period amounted to approximately $134, Mr Shord objected to the amended assessments and imposition of the penalty. The objection was disallowed. 8 The notice of the objection decision was given on 23 December The Commissioner found that Mr Shord was an Australian resident for the 2006 to 2011 financial years. The reasons for the objection decision stated: During this period, you did not have any enduring relationship with or ties to other countries to which you visited. Your connection to other countries apart from the UK was based entirely on your work assignments. You have family and assets in Australia. You returned to Australia regularly. It is considered that you have retained a continuity of association with Australia. Therefore, you are considered to be a resident of Australia under the ordinary concepts for the period 1 July 2005 to 30 June The notice of reasons for the objection decision also referred to s 23AG of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936) and rejected Mr Shord s claims that his foreign sourced income for the years 2006 to 2009 was exempt from tax under s 23AG(1) of the ITAA The Commissioner did, however, accept that some of Mr Shord s foreign sourced income during those years was exempt under that subsection. 10 The relevant provisions of s 23AG, as applied at the relevant time, stated: (1) Where a resident, being a natural person, has been engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived by the person from that foreign service are exempt from tax. (2) An amount of foreign earnings derived in a foreign country is not exempt from tax under this section if the amount is exempt from income tax in the foreign country only because of any of the following: (c) provisions of a law of the foreign country under which income covered by any of the following categories is generally exempt from income tax: (i) (ii) income derived in the capacity of an employee; income from personal services;

7 - 3 - (iii) similar income; (d) the law of the foreign country does not provide for the imposition of income tax on one or more of the categories of income mentioned in paragraph (c); (6) For the purposes of this section, a period during which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service: (a) absent on recreation leave, other than: (iii) leave without pay or on reduced pay; or (b) absent from work because of accident or illness. (6A) 2 or more periods in which a person has been engaged in foreign service are together taken to constitute a continuous period of foreign service until: (a) (b) the end of the last of the 2 or more periods; or a time (if any), since the start of the first of the 2 or more periods, when the person s total period of absence exceeds 1/6 of the person s total period of foreign service; whichever happens sooner. (7) In this section: foreign service means service in a foreign country as the holder of an office or in the capacity of an employee. 11 The Commissioner s reasons for decision stated, relevantly: Based on the information you provided at the objection and to the auditor, we conclude that each time when you finished your job in one country and returned to Australia is one period of foreign service. When you left Australia to work in another country is the commencement of another period of foreign service. Therefore, whether your income earned overseas is assessable in Australia depends on if each of the foreign services satisfies the 91 days rule required in [s] 23AG. 12 The objection decision also rejected Mr Shord s claim in respect to being entitled to foreign tax credits or foreign income tax offsets by reason of having paid income tax in the foreign countries where he worked overseas. The Commissioner s reasons for decision stated:

8 - 4 - You claimed you paid local taxes in source countries for your foreign source income. You made reference to an from Craig Staggs of Technip stating Global Industries paid local taxes in source countries, including India and Thailand. However, you did not provide evidence to prove the amounts paid in each country and when the taxes were paid. Therefore, we cannot allow the foreign tax credit or foreign income tax offset. THE TRIBUNAL 13 Mr Shord commenced a proceeding in the Tribunal to review the Commissioner s objection decision. 14 Before the hearing in the Tribunal, each of the parties filed a statement of facts, issues and contentions. 15 The statement of facts, issues and contentions filed on behalf of Mr Shord was dated 9 February The issues were stated as: (a) (b) (c) (d) whether Mr Shord was a resident for tax purposes for the relevant years; if Mr Shord was deemed to be a resident, whether all or some income may be exempt pursuant to s 23AG of the ITAA 1936 for the years ended 30 June 2006 to 30 June 2009; whether, if Mr Shord has taxable foreign income, he is entitled to an amount of foreign tax offset pursuant to Division 770 of the Income Tax Assessment Act 1997 (Cth) (the ITAA 1997); whether the tax shortfall penalty should be remitted. 16 The statement of facts, issues and contentions filed by the Commissioner recognised, in essence, the same issues as identified by Mr Shord. The Commissioner also made a number of contentions. 17 First, the Commissioner contended that during each of the relevant years, Mr Shord was a resident of Australia, within the meaning of s 6(1) of the ITAA 1936, within the ordinary meaning of that term; alternatively, that Mr Shord s domicile was Australia and that he had no permanent place of abode outside of Australia. 18 As to the issue of the exemption from tax under s 23AG of the ITAA 1936, the Commissioner contended as follows:

9 The exemption of foreign earnings derived from foreign service ( foreign source income ), in subsection 23AG(1) of the ITAA 1936, does not apply in respect of the income earned in Brunei because the laws of Brunei do not provide for imposition of income tax. Such foreign source income, therefore, falls within the exception to the exemption in paragraphs 23AG(2)(c) and (d) of the ITAA In respect of foreign source income derived from foreign service in countries other than Brunei, where that foreign service is not apparently for a period of more than 91 days, the Applicant has not shown that he has been engaged in foreign service for a continuous period of more than 91 days within the extended meaning of the term engaged in foreign service in subsection 23AG(6) of the ITAA Whilst not disputed at the audit and objection stages, the Applicant s description of the terms of his engagement by the Overseas Entities indicates that, at all material times, he was not engaged in service as the holder of an office or in the capacity of an employee within the meaning of foreign service in subsection 23AG(7) of the ITAA (Original emphasis.) 19 As appears below, the Commissioner s contention made at para 4.10, has assumed some importance in this appeal proceeding. 20 At the hearing before the Tribunal on 9 April 2015, Mr Shord was represented by an accountant, Mr Richard Wytkin, and the Commissioner was represented by Ms Fiona Vernon, a barrister acting on the instructions of the Australian Government Solicitor. At the commencement of the hearing, the following exchange occurred: SENIOR MEMBER: Yes, Mr Wytkin, can we hear from you? MR WYTKIN: What would the Member like to hear from me to begin with? Is there any summary you need to have or would like to have? SENIOR MEMBER: Well, do you have any opening submissions or are you just relying on your statement of facts, issues and contentions? MY WYTKIN: I ve got a submission. Extensive. Fully written. I wasn t planning to labour through that and we have Mr Shord here to give evidence. SENIOR MEMBER: So you d prefer to wait to give closing submissions, is that what you re MR WYTKIN: Yes. SENIOR MEMBER: That s fine. Well, then, Ms Vernon, do you have opening submissions? MS VERNON: I m happy to proceed on the basis that we deal with submissions in closing. SENIOR MEMBER: Yes. And relying on your statement of - - -

10 - 6 - MS VERNON: And relying on the statement of facts, issues and contentions, although I should draw to your attention, Senior Member, that there is reference in the respondent s statement of facts, issues and contentions the matter that the respondent no longer pursues. Just find the paragraph. It s 4.10 sorry, the pages aren t numbered in this document but it s the second-last page which refers to the question of whether or not the applicant was engaged in the capacity of an employee. SENIOR MEMBER: So that s no longer an issue? MS VERNON: That s no longer pursued by the respondent. Should perhaps also confirm what you have before you, Senior Member, in terms of documents. There are two volumes of T documents. 21 Thereafter, Mr Wytkin called Mr Shord to give evidence. Mr Shord gave evidence and was cross-examined. 22 Mr Shord was the only witness. At the conclusion of the evidence, Mr Wytkin handed up his written submissions. Mr Wytkin then went on to make some short points orally. 23 A substantial portion of Mr Wytkin s closing written submissions was directed to the question of whether Mr Shord was ordinarily resident in Australia in the relevant years. 24 However, Mr Wytkin s submissions also addressed further questions. The first was the question of whether certain periods of Mr Shord s work away from Australia should be regarded as continuous with another period, so that the total period was more than 91 days thereby rendering the income earned during each of those separate periods of work exempt foreign income under s 23AG(1) of the ITAA In general terms, Mr Shord contended that the intervals between the non-continuous periods, were to be characterised as Mr Shord being on recreational leave so as to bring the absences within the purview of s 23AG(6)(a). Mr Wytkin contended that the Commissioner s contention that the continuity of service ceased every time Mr Shord returned to Australia was not supported by evidence and was not realistic. 26 Further, Mr Shord contended that there were six occasions during the relevant tax years (namely, 2006 to 2009) when the intervals between the periods were short enough to trigger the operation of s 23AG(6A). This section operated to treat two separate periods of work as a continuous period when the interval between the periods was less than one-sixth of the previous period.

11 27 Further, Mr Wytkin at para 65 of his written submissions, made a submission in support of a proposition that Mr Shord was an employee in respect of his foreign service and had a master servant relationship with his employer; the submissions went on to refer to incidents of the relationship as follows: The applicant s employment conditions are not that of an Australian employee, because he is in foreign service. The applicant is an employee, he and his employer have a master servant relationship. The employer provides all equipment, tools and materials for work, provides all travel and accommodation requirements, the applicant is not responsible for rectifying defects at his cost, the employer instructs the applicant on how to work, when and where, the employer pays regular reimbursement for labour only. The conditions of employment are not comparable to Australian employment awards or the like. The employee does not have employer superannuation support, not covered by Workers Compensation, does not have Australian descriptive type leave entitlements like, overtime rates, location or other allowances, special leave, bereavement leave, usual sickness leave, etc. The applicant s rate of pay are inclusive of any usual Australian employment expectation. The applicant does have annual leave, this is evidenced by his annual return to Australia / elsewhere. The applicant not being paid while on annual leave is part of his employment arrangements, it does not represent leave without pay nor absence without cause. 28 Ms Vernon also handed up to the Tribunal written submissions on behalf of the Commissioner which dealt with the questions of Mr Shord s residency for tax purposes and whether the contentious separate work periods were to be treated as continuous for the purpose of s 23AG(1). The Commissioner disputed Mr Shord s contention that the separate periods were to be treated as continuous by reason of the operation of s 23AG(6). The Commissioner s submissions did not address Mr Shord s argument as to the application of s 23AG(6A). 29 Significantly, consistent with the observations made in opening as to para 4.10 of the Commissioner s statement of facts, issues and contentions, the Commissioner s written submissions did not contend that Mr Shord did not qualify for the exemption under s 23AG of the ITAA 1936, on the basis that he had not satisfied the onus of proof in showing that he was an employee during the time of his foreign service. Commissioner make any such contention in her closing oral submissions. Nor did counsel for the 30 The Tribunal found that Mr Shord was ordinarily resident in Australia for the relevant period. 31 As to the operation of s 23AG(6), at [92]-[93] of its decision, the Tribunal observed: 92 The evidence does not support a finding that Mr Shord was ever absent from work on recreation leave for the purposes of s 23AG(6) of the ITAA 1936,

12 - 8 - other than leave without pay, between assignments during the Relevant Period. In particular, based on the evidence, Mr Shord: had no entitlement to paid leave, but made his own decisions about the time he took off work between assignments, subject to the agreement of his employer at the time; and was engaged on each assignment on an individual basis, with apparently individual requirements as to the required work and individual arrangements as to travel and pay 93 Further, there is no evidence that Mr Shord was ever absent from work by reason of accident or illness for the purposes of s 23AG(6) of the ITAA The Tribunal did not, however, address the argument made by Mr Shord that there were six occasions when the interval between the two periods of his work abroad was sufficiently brief to trigger the operation of the deeming provisions in s 23AG(6A). 33 Also, notwithstanding the statements made by counsel for the Commissioner at the commencement of the Tribunal hearing (see [20] above), and the absence of any contention to this effect in the Commissioner s closing submissions, the Tribunal went on to observe at [94] of its reasons for decision: Finally, Mr Shord s description of the terms of his engagement by the relevant foreign companies indicates that, at all material times, he was not engaged in service as the holder of an office or in the capacity of an employee within the meaning of foreign service in s 23AG(7) of the ITAA The Tribunal also found that Mr Shord had not produced evidence of having paid foreign income tax to support his claim for a tax offset under s (1) of the ITAA Further, the Tribunal found that Mr Shord had not demonstrated sufficient grounds for the Tribunal to exercise the discretion to remit either the shortfall interest charge or the administrative penalties. 36 It followed that the Tribunal upheld the objection decision of the Commissioner. 37 In light of the issues in this appeal, it is necessary to refer to the findings of the Tribunal at [94] of its reasons which, as we have said, were made, notwithstanding the fact that counsel for the Commissioner had advised the Tribunal that the Commissioner no longer pursued the question of whether Mr Shord was an employee during his foreign service.

13 38 The case of Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 442 (Fletcher) is an illustration of a case where the Tribunal had upheld a decision by the Commissioner to disallow the objections to 14 assessments for income tax on a basis which was not relied upon by the Commissioner at the time of the disallowance of the objections in his original decision, or by the Commissioner at the hearing before the Tribunal. 39 On review, the Tribunal decided that the taxpayers objections should be disallowed because the tax benefit which the taxpayers had obtained was in relation to a scheme to which Pt IVA of the ITAA 1936 applied. The Tribunal, therefore, exercised a discretion under s 177F(1) of the ITAA 1936 to disallow a deduction on a basis which had not been argued by any of the parties. 40 On appeal on a question of law to the Full Court of this Court, the taxpayers argued that the Tribunal had exceeded its jurisdiction in determining the review on a basis which was not relied upon by the Commissioner either at objection stage or before the Tribunal. The Full Court rejected that contention. 41 At 453 of Fletcher, the Full Court observed: Once it is understood that, in exercising his powers under s 186, the Commissioner would have been free to exercise a discretion under s 177F of the Income Tax Assessment Act, it follows that, in reviewing the Commissioner s decision under s 186, the Tribunal is free to exercise that same discretion if, upon the material then before it, it seems proper to take that course. 42 However, the Full Court then went on to find that although the Tribunal had power to make the decision which it had made, the Tribunal had denied the taxpayers procedural fairness in making a decision on the basis not argued by any party. THE APPEAL ON A QUESTION OF LAW TO THE FEDERAL COURT 43 On 17 June 2015, Mr Shord commenced an application in the Federal Court as an appeal on a question of law under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) from the decision of the Tribunal. 44 The originating application, as originally framed, alleged the following errors of law: (a) The Tribunal erred in failing to treat the separate contentious periods of Mr Shord s work abroad as continuous for the purpose of s 23AG(1). More specifically, it was

14 (b) (c) alleged that the Tribunal failed to have regard to s 23AG(6A) and also had erred in its findings relating to recreation leave and leave without pay in s 23AG(6). By reason of the errors in the application of s 23AG, the Tribunal erred with respect to the application of the law as to penalties and interest and also in relation to the remission of penalties and interest. The Tribunal erred in law in its application of the laws pertaining to individual tax residency in s 6(1) of the ITAA There was no reference to, or complaint about, the Tribunal s finding at [94] of its reasons, and, more specifically, no complaint that there had been a denial of procedural fairness by the Tribunal in making the finding at [94] of its reasons. 46 On 1 August 2015, Mr Shord filed an amended notice of appeal which introduced a ground of appeal which impugned the Tribunal s finding at [94] of its reasons. The amended grounds of appeal contended that the finding made at [94] of the Tribunal s reasons was not a finding of fact but only an indicia. This, alleged Mr Shord, was evident from the Tribunal s use of the word indicates in that paragraph. Thus, contended Mr Shord, the Tribunal s observations at [94] should be disregarded by the Court or treated as an error of law. Also, among the allegations introduced by the new ground of appeal, was an allegation that the Tribunal s indicia at [94] failed to consider documentary evidence tendered by Mr Shord at the Tribunal hearing in finding that Mr Shord was not engaged in foreign service in the capacity of an employee. Another allegation introduced at 1(d)(v) was that: The indicia is unsupported by reasoning that would be sufficient to sustain a finding of fact and is unsupported by and contrary to written submissions made by either the Applicant or the Respondent which both treated the Applicant as an employee which amount to the indicia being an error of law in and of itself or in the alternative as being indicative of an error of law. 47 It is to be observed that, although the amended notice of appeal complained about the finding at [94] of the Tribunal s reasons, no complaint was made that the finding at [94] occurred in circumstances where there was a denial of procedural fairness. 48 On 2 October 2015, the Commissioner filed an outline of submissions. Counsel for the Commissioner referred to the fact that she had informed the Tribunal at the outset of the Tribunal hearing that the respondent no longer pursued the issue in para 4.10 of the statement

15 of facts, issues and contentions, namely, whether Mr Shord was engaged, during his foreign service, in the capacity of an employee. Relevantly, the submissions stated: 12. Subject to affording the applicant procedural fairness the Tribunal may make a decision on the same basis that the original decision maker could make the decision. It was, accordingly, open to the Tribunal to determine that s 23AG did not apply because the applicant was not engaged in foreign service. Fletcher v Federal Commissioner of Taxation (1988) 84 ALR 295 at 305 to 306 [19 FCR 442 at 452 to 453] 13. The respondent raised the issue of whether the applicant had been engaged in the capacity of an employee in its statement of facts, issues and contentions (SFIC) at paragraph At the outset of the hearing, however, Counsel for the respondent informed the Tribunal that the respondent did not pursue the issue in paragraph 4.10 of the SFIC, that is whether the applicant was engaged in the capacity of an employee (T2 at 35). The respondent s written submissions in relation to s 23AG did not refer to that issue. 14. That said, however, the applicant made submissions on his status as an employee at paragraph 65 of the applicant s written submissions handed up to the Tribunal at the conclusion of the hearing on 9 April 2015 (T 49-50). The applicant also gave evidence, by way of his witness statement and orally, as to the terms of his service. 15. Accordingly, the Tribunal decided the issue after the applicant had been given the opportunity to be heard. 49 On 13 November 2015, which was three days before the hearing of the appeal, Mr Shord filed a further amended notice of appeal. This further amended notice of appeal reformulated some of the existing complaints into four questions of law. 50 The first question of law was whether the Tribunal had erred in the application of s 23AG(6A) of ITAA 1936 in relation to the continuity of some of the periods of work engaged in by Mr Shord. 51 The second question of law impugned the Tribunal s findings which rejected Mr Shord s claim that on the proper application of s 23AG(6), the contentious separate periods of Mr Shord s work overseas should have been treated as continuous so as to cause the monies earned during those separate periods to qualify for exemption from tax under s 23AG(1). 52 The third question of law impugned the Tribunal s finding at [94] of its reasons for decision. The question was stated in the following terms: Did the Tribunal find that the Applicant was not engaged in foreign service within the meaning of s 23 AG(7) of the ITAA 1936 because the applicant was not engaged in service as an employee, in circumstances where it was not open to the Tribunal to

16 make that finding? 53 The fourth question of law impugned the Tribunal s finding that Mr Shord was not entitled to a foreign income tax offset for the years ended 30 June 2006 to 30 June 2011, pursuant to s (1) of the ITAA Each of the parties then filed further written submissions which addressed the further amended notice of appeal and the questions of law as formulated in that document. 55 At paras of Mr Shord s supplementary written submissions, counsel for Mr Shord set out his argument in support of the third question of law. In summary, counsel for Mr Shord contended that: (a) (b) (c) (d) the Tribunal did not expose the test which it was applying in determining whether Mr Shord was an employee; that the Tribunal did not give sufficient reasons for the determination that Mr Shord was an employee and erred in determining that the term employee excluded a casual employee; the finding in para [94] of the Tribunal s reasoning that Mr Shord was not an employee was inconsistent with the language used by the Tribunal in other parts of its reasons for decision where it referred to Mr Shord as having been engaged in overseas employment, or as having worked overseas ; the Tribunal was wrong to find at para [51] that there was no evidence of any employment contract; such a finding being inconsistent with four documents which were part of the bundle of documents tendered by Mr Shord. 56 In para 32 of the same submissions, Mr Shord referred to the fact that counsel for the Commissioner had stated at the opening of the hearing before the Tribunal that the Commissioner no longer pursued the question of whether or not Mr Shord was an employee during his foreign service. That paragraph read: 32. Finally, it is noted, to the Respondent s credit the Respondent did not advance the conclusion at paragraph 94 that the Applicant was not an employee, wherein it was noted by Counsel for the Respondent in the Tribunal at page 6 of the Transcript, It s 4.10 which refers to the question of whether or not the applicant was engaged in the capacity of an employee That s no longer pursued by the respondent. (Original emphasis.)

17 It is to be observed that in neither the reformulated further amended notice of appeal, nor the supplementary submissions filed by Mr Shord, is there any criticism of the conduct of counsel for the Commissioner. Nor is there any allegation that the Tribunal s conduct in making the finding, notwithstanding the opening statement by counsel for the Commissioner, gave rise to a jurisdictional error comprising a denial of procedural fairness in relation to the finding by the Tribunal at [94] of its reasons for decision. 58 In the Commissioner s supplementary submissions, the Commissioner repeated the disclosure made in earlier submissions of the exchange between herself and the Tribunal member at the commencement of the Tribunal hearing, that the Commissioner no longer pursued the question of whether Mr Shord was engaged as an employee during his foreign service. 59 Further, in relation to the first question of law, the Commissioner s supplementary submissions accepted that the Tribunal had failed to address Mr Shord s argument as to the application of s 23AG(6A) of the ITAA 1936 to the facts of his case, and that the Tribunal erred in failing to do so. Accordingly, said the Commissioner, income totalling $12,537 in respect of the work carried out by Mr Shord in Thailand from 17 April 2006 to 13 May 2006 in the year ended 30 June 2006 should not have been included in Mr Shord s taxable income for that financial year. The Commissioner also conceded that the amount of $43,696 in the financial year ended 30 June 2009 should not have been included in Mr Shord s taxable income for the 2009 financial year. THE HEARING BEFORE THE PRIMARY JUDGE 60 It follows from the foregoing that by the time the appeal came on for hearing it was obvious to each of the parties, and to the primary judge, that: (a) (b) (c) the Tribunal had made the finding at [94] of its reasons, notwithstanding counsel s statement at the commencement of the Tribunal hearing, that the Commissioner no longer pursued the issue of whether Mr Shord had established that he was an employee for the purpose of s 23AG(7); Mr Shord did not contend that this circumstance gave rise to a denial of procedural fairness and, more particularly, did not raise as a question of law nor as a ground of appeal, whether the finding of the Tribunal at [94] was vitiated by reason of the denial of procedural fairness to Mr Shord; and Mr Shord made no criticism of the conduct of counsel for the Commissioner.

18 At the hearing before the primary judge, it was accepted that if question of law three (see [52] above) was answered adversely to Mr Shord, questions of law one and two of the further amended application fell away. 62 As it transpired, by reason of his Honour s finding in relation to question of law three, the primary judge addressed only that question and question of law four in his reasons for judgment. 63 As to question of law three, the primary judge answered that question in a manner adverse to Mr Shord. In brief, the primary judge made the following findings in relation to the contentions made by Mr Shord. 64 First, the primary judge found that, contrary to Mr Shord s contentions, the observations of the Tribunal at [94] of its reasons for decision amounted to findings and were not simply indicia. 65 Secondly, the primary judge found that there were a number of factors upon which the Tribunal had relied in concluding that Mr Shord had not relevantly been engaged in the capacity of an employee. The primary judge said that these factors included that Mr Shord: (a) (b) (c) (d) (e) was engaged on a job by job basis; had no written employment contract; was engaged only until the job was completed; had no entitlement to superannuation, sick leave, holiday leave or long service leave; and would after completion of a job wait until he was assigned another job. 66 The primary judge also referred to the fact that in Mr Shord s written statement before the Tribunal, he had stated that he did not get the benefit of public holidays and had described the time in between jobs as recreational leave. However, said the primary judge, Mr Shord had not explained what he meant by this, and the inference was that he was not paid other than when working on a job. Further, the primary judge pointed out that Mr Shord had stated that his terms of engagement were oral, and that he had been unable to obtain confirmation of the terms from the company which engaged him. 67 Thirdly, the primary judge found that none of the documents which Mr Shord had pointed to as having been before the Tribunal constituted an employment agreement. The primary judge

19 went on to state that, in any event, the documents relied upon by Mr Shord fell outside the relevant period, namely, 1 July 2005 to 30 June 2009, during which s 23AG operated. 68 Fourthly, the primary judge found that the fact that at other places in the Tribunal s reasons, it had used the word employee in relation to Mr Shord s position, did not undermine or affect the determination made by the Tribunal at [94] of its reasons that Mr Shord had failed to demonstrate that he was engaged as an employee. 69 The primary judge found that it was rationally open for the Tribunal to find, in circumstances where the ordinary incidents of an employer/employee relationship were absent that such a relationship did not exist. In support of this conclusion, the primary judge referred to Fletcher at We infer from the fact that the primary judge referred to Fletcher at , that the primary judge was cognisant of the fact that the Tribunal had, of its own accord, made the findings at [94] of its reasons for decision, notwithstanding that counsel for the Commissioner had advised the Tribunal that the Commissioner no longer pursued that issue. 71 This is because, as mentioned, in Fletcher, the Tribunal had upheld the objection decision made by the Commissioner, on a ground which had not been relied upon by the Commissioner in making the original objection decision, and had not been argued by the Commissioner before the Tribunal. considered by the Full Court at of that case. This circumstance is specifically referred to and 72 The primary judge also determined the fourth question of law. This related to whether the Tribunal had erred in determining that Mr Shord was not entitled to a foreign income tax offset under s (1) of the ITAA Section (1) of the ITAA 1997 relevantly stated as follows: You are entitled to a tax offset for an income year for foreign income tax. An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year. 74 The question of law before the primary judge was framed as follows: Did the Tribunal find that the applicant did not pay foreign taxes and as a consequence was not eligible for a foreign income tax credit where it was not open to the Tribunal to make that finding or the finding was not consistent with the

20 requirement to assess the facts before the Tribunal? 75 The Tribunal s finding which was impugned by Mr Shord by this question of law was at [96] of the Tribunal s reasons for decision and is to the following effect: Mr Shord has not produced evidence to support an entitlement to any foreign income tax offset, or the quantum of any such offset, during the years ended 30 June 2006 to 30 June Specifically there is no evidence that Mr Shord paid any foreign income tax on the foreign source income he derived whilst working overseas in the Relevant Period. Accordingly, Mr Shord has failed to positively establish what must be done to correct the Amended Assessments. 76 The primary judge rejected Mr Shord s contentions that the finding made by the Tribunal was not open to the Tribunal. 77 The primary judge also distinguished the case of Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315 at [230]-[234] (Haritos) which had been relied on by Mr Shord, finding at [32] that: Unlike the facts in that case, which involved inexact evidence, here there was no evidence whatsoever upon which the Tribunal could make an estimate. 78 The primary judge held that the s relied on by Mr Shord, being s from Mr Craig Staggs of Technip, one of the foreign entities, and Ms Marella Diding of Global Industries, another such foreign entity, did not show that any tax that either of the two entities concerned may have paid on behalf of Mr Shord, was income tax. 79 The primary judge went on to observe at [35]-[36] of his reasons for judgment: Second, even if it were otherwise, this evidence does not establish that income tax in a particular amount was paid by or on behalf of the appellant in any particular income year. Nor was any evidence tendered of any means or formula by which such amounts might be calculated by the Tribunal. The Tribunal had no obligation to make enquiries overseas to ascertain what, if any, income tax was paid by or on behalf of the appellant. Accordingly, there was no evidence capable of establishing this necessary fact of which the appellant had the burden of proving: s 14ZZK(b) of the Taxation Administration Act 1953 (Cth). 80 The primary judge also rejected Mr Shord s contention that the Commissioner had an obligation to obtain evidence of payment by Mr Shord, or on Mr Shord s behalf, of income

21 tax overseas, in circumstances where Mr Shord had claimed that he did not have the resources to do so, to assist him in satisfying the requirements of s 14ZZK(b) of the Taxation Administration Act 1953 (Cth) (the TAA). THE APPEAL 81 On 20 July 2016, Mr Shord filed a notice of appeal to commence this proceeding. 82 The grounds of appeal in that notice of appeal complained that the primary judge had erred in finding that the third question of law, and consequently, the first and second questions of law, should be resolved against Mr Shord. Likewise, it was contended that the primary judge erred in finding that the fourth question of law should be resolved against Mr Shord. 83 On 17 August 2016, Mr Shord filed an amended notice of appeal. The amendments added almost six pages of verbiage to the original notice of appeal. Ground one 84 Ground one of the amended notice of appeal impugned the primary judge s finding in respect of question of law three; and ground two impugned the primary judge s findings in respect of question of law four. However, in neither the original notice of appeal nor the amended notice of appeal was there a ground of appeal pleaded that the primary judge had erred in failing to find that there had been a denial of procedural fairness to Mr Shord relating to the Tribunal s finding at [94] of its reasons. 85 As Mr Shord had not, before the primary judge, raised denial of procedural fairness as a question of law, a ground of appeal or otherwise, it is not surprising that such complaint did not find its way into the grounds of appeal in either the notice of appeal to the Full Court, or the amended notice of appeal to the Full Court. 86 However, by an sent at 5:18 pm on 23 January 2017, Mr Shord s solicitors provided a proposed interlocutory application to the Commissioner s solicitors. That proposed interlocutory application indicated that leave would be sought to file a further amended notice of appeal in the form provided. The proposed further amended notice of appeal sought to introduce, inter alia, a ground of appeal in the following terms: 1(c) The Court ought to have found that the Tribunal s finding that the Appellant was not an employee being made after the Respondent had stated that he did not pursue the finding was an actual or objective failure to provide procedural fairness to the Appellant and in that respect symbiotic of a failure to exercise jurisdiction and or was not open having regard to the operation of

22 s 14ZZK. Particulars i. The Respondent s Counsel stated and the Senior Member replied at page 2 of the Tribunal transcript: MS VERNON: And relying on the statement of facts, issues and contentions, although I should draw to your attention, Senior Member, that there is reference in the respondent s statement of facts, issues and contentions the matter that the respondent no longer pursues. Just find the paragraph. It s 4.10 sorry, the pages aren t numbered in this document but it s the second-last page which refers to the question of whether or not the applicant was engaged in the capacity of an employee. SENIOR MEMBER: So that s no longer an issue? MS VERNON: That s no longer pursued by the respondent. [Emphasis added.] ii. iii. iv. Notwithstanding that the Respondent had abandoned the argument that the Appellant was not an employee, the Tribunal so found at paragraph [94] of its reasons that the Appellant was not an employee. The Tribunal did not reference in its decision that in finding that the Appellant was not an employee that the Tribunal was making a finding contrary to the contentions of all parties. The Tribunal did not take into account the operation of s 14ZZK of the Taxation Administration Act 1953 and reconcile or weigh up the evidence that the Appellant had provided evidence that the Appellant was an employee (including oral evidence) but the Respondent had not sought to counter that evidence. 87 Further, on 24 January 2017, Mr Shord filed submissions which, notwithstanding that no leave had been given to amend further the amended notice of appeal, contended that there had been a denial of procedural fairness by the Tribunal in making the finding at [94] of its reasons for decision. 88 The Commissioner s solicitors by a letter, dated 27 January 2017, objected to the proposed amendment to the amended notice of appeal and to Mr Shord s submissions raising the procedural fairness contention on the grounds that the proposed new ground of appeal 1(c) had not been raised in the notice of appeal, the amended notice of appeal nor before the primary judge. The solicitors for the Commissioner also observed that the proposed interlocutory application seeking leave to amend further the amended notice of appeal, would have to be supported by an affidavit which deposed to:

23 (a) (b) the reason(s) for the delay in the further amendments to the Notice of Appeal; and why the Appellant is raising grounds not previously raised in the Notice of Appeal and not previously raised before [the primary judge]. 89 The Commissioner s solicitors called for an urgent response from the solicitors for Mr Shord. 90 In response, Mr Shord s solicitors sent a letter which sought to argue that the ground of procedural fairness had been raised as an allegation of jurisdictional error on the part of the Tribunal before the primary judge, and was also embraced by the existing amended notice of appeal. This letter is disingenuous in the extreme. 91 Nevertheless, presumably arising from the embarrassment of not being able to provide a satisfactory explanation as to why the ground of denial of procedural fairness had not been raised before the primary judge, and had not previously formed part of the notice of appeal and the amended notice of appeal, the solicitors and counsel for Mr Shord sought to recast the proposed amendment to the amended notice of appeal to raise the procedural fairness argument in oblique terms. On 1 February 2017, they filed an interlocutory application which sought, inter alia, the following relief: 2. That leave be given by the Full Court to append the Amended Notice of Appeal (filed 17 August 2016) as follows: Before the beginning of Ground 1(b) Ground 1(ba) Further to Ground 1(a) [which is a complaint of jurisdictional error of the Court Below ( CB ) upholding Tribunal Reasons ( TR ) [94]], and contrary to the CB [13] and [18], the CB ought to have found the finding or indicia of the Tribunal that the Appellant was not an employee (at TR [94]) was also jurisdictional error and an error of law because the Tribunal failed to exercise jurisdiction in copying Respondent s SFIC [4.10] as paragraph [94] (without attribution or explanation), where the Respondent had specifically repudiated Respondent s SFIC [4.10] at hearing. Before Orders Sought (after Ground 2(b)) Ground 2(c) Further to Ground 1(b) [which is specifically a complaint of jurisdictional error (including specifically at Ground 1(b), jurisdictional error that arises under s 75(v) of the Constitution) of CB upholding TR [96]] and contrary to CB [37], the CB ought to have found that the Commissioner of Taxation s failure to use his best endeavours to assist the Tribunal as to the quantum of Foreign Income Tax Offsets particularised in Ground 1(b) (particular at (ix) (xii)) was also jurisdictional error and an error of law. (Original emphasis.)