Kirtlan and Commissioner of Taxation [2025] ARTA 539

The Administrative Review Tribunal’s (ART’s) recent decision in Kirtlan and Commissioner of Taxation [2025] ARTA 539 provides valuable guidance on Australian tax residency, the importance of obtaining formal tax advice, and what constitutes tax evasion.

Overview

The applicant, Mr Kirtlan, was located partly in Australia and partly in the United Kingdom. He lodged his Australian income tax returns on the basis that he was not a resident of Australia, and his UK returns on the basis that he was not a UK resident. Consequently, significant UK sourced income derived by Mr Kirtlan (circa $8.3m) was not brought to account in either jurisdiction during the tax years 2006-2008.

The Commissioner of Taxation decided Mr Kirtlan was an Australian tax resident but would have been out of time to issue amended assessments unless of the opinion that there had been fraud or evasion. The Commissioner formed the opinion that there had been evasion.  On that footing, the Commissioner issued amended income tax assessments along with assessments of administrative penalties of 50%.

The ART set aside the decision under review and allowed the taxpayer’s objections in full.

As a final observation, the ART acknowledged that “this decision may result in significant income going untaxed in either jurisdiction. If that is so, it would be contrary to the spirit of the tax legislation. But the statutory time limits on amending returns were enacted by Parliament for good reason, to bring certainty to taxpayers’ affairs unless there is fraud or evasion.”

Background

The taxpayer, Robert Kirtlan was born in Western Australia, where he lived for most of his life and owned property. The taxpayer moved from Perth to London with his wife and daughter in April 2005 for business purposes. The family returned to Perth in November that year and moved into a property they owned (which had been rented out while they were in London). The taxpayer returned to London in February 2006 where he rented a flat. A more expensive property was purchased in Perth later that year for his family to move into. His daughter subsequently attended a school in Perth.

The taxpayer was in Australia for 173 days during the 2006 income year, 187 days in the 2007 income year and 249 days in the 2008 income year. When in Australia he stayed with his wife and daughter at their home in Perth. In April or May 2008, when the taxpayer’s services were no longer required in London, he surrendered the lease on his London flat and returned to Australia.

Australian income tax returns were lodged via an accountant for the 2006 to 2008 years on the basis that the taxpayer was not an Australian resident until April 2008 and lodged his UK returns for the same years on the basis he was not a UK resident.

The Commissioner disagreed with the Australian lodgements and considered the taxpayer was an Australian tax resident but was out of time to issue amended assessments unless of the opinion that there had been deliberate fraud or evasion. In 2018 the Commissioner issued amended income tax assessments and imposed administrative penalties at the rate of 50% of the shortfall on the basis that there had been tax evasion. After the taxpayer unsuccessfully objected to those assessments, he sought review at the ART.

Tests for Tax Evasion

The ART judgment noted that it is common ground that evasion requires more than mere avoidance of tax or withholding of information or provision of misleading information. Some blameworthy act or omission is required. However, ‘[an] intention to withhold information lest the Commissioner should consider the taxpayer is liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion’.  Intentionally omitting income without a credible explanation would constitute evasion.

The Residency Question

Because of the way the applicant’s case was brought before the ART, it was not necessary for the Tribunal to reach a view on whether Mr Kirtlan was a tax resident in the relevant periods. However, the ART noted that this “did not mean the question was irrelevant”. The tribunal noted that “the strength of the indicators for and against that proposition is relevant to whether there was a credible explanation for Mr Kirtlan lodging his returns on the basis that he was not a tax resident. That in turn is relevant to whether Mr Kirtlan stating he was not a resident constitutes a mere misstatement or was a blameworthy act indicative of evasion”.

Key Arguments and Tribunal’s Conclusions

ATO’s Arguments

The Commissioner submitted that Mr Spence’s advice did not support a finding that the taxpayer had a credible explanation for authorising the filing of his Australian returns on the basis that he was not an Australian resident in the relevant years.

Furthermore, apart from the initial advice, there was no evidence of Mr Spence communicating his continuing view that the taxpayer was not an Australian resident.

The Commissioner claimed the taxpayer could not have held a genuine belief that he was not an Australian resident. Particularly when considering some of the other facts, including:

• The retention of the family home in Perth.
  
• The considerable amount of time the taxpayer spent there.
  
• Their leaving their car and pets with family members in April 2005 then retrieving them on their return to Perth later that year.
  
• Continuing to maintain bank accounts in and derive income from Australia.

Taxpayer’s Arguments

The taxpayer was essentially arguing that they had taken reasonable steps to engage with external advisors to obtain advice regarding tax residency and assistance with the lodgement of the income tax returns.  On the basis the advice was that they were non-resident, and the returns were filed in that manner, then it should follow that there was no deliberate evasion.

In terms of their tax residency, it was the taxpayer’s evidence that, at the time the family moved to London in 2005, they intended to stay in the UK indefinitely. An affidavit from his long-time friend and accountant Kathal Spence deposed that he had given advice to the taxpayer in April 2005 that he was not a resident of Australia for tax purposes, which was the basis for the taxpayers’ lodgements.

Tribunal Decision and Reasoning

The ART set aside the decision under review and allowed the taxpayer’s objections in full.

The ART was clear that because of the way the applicant’s case was put (i.e. a question as to whether evasion had occurred), it was not necessary for the Tribunal to reach a view on whether Mr Kirtlan was in fact an Australian tax resident in the relevant periods. However, that did not mean the question was irrelevant.

The Tribunal noted that although the relatively high number of days the taxpayer spent in Australia in the relevant years weighed against a conclusion that he was not an Australian resident, there were various factors and documents that were consistent with him having an intention when he left Australia in 2005 to live indefinitely in the UK (including leasing rental premises, enrolling his daughter in a nursery school, opening bank accounts, taking out health insurance and purchasing a motor vehicle there).

The ART accepted that “the taxpayer provided a credible explanation for filing his returns on the basis he was not a tax resident of Australia”, noting specifically that whilst “the returns may have been inaccurate, they were prepared or approved by an accountant of long experience and in a very good position because of their business and personal relationship to understand Mr Kirtlan’s activities and intentions. Accordingly, the tribunal accepted the returns as lodged were “not attended by evasion”.

Key Takeaways for Taxpayers

1. Importance of Accurate Residency Determination

Mr. Kirtlan filed his Australian tax returns as a non-resident and his UK returns similarly, resulting in significant UK-sourced income not being taxed in either jurisdiction. The Tribunal emphasised that taxpayers must accurately determine and declare their tax residency status to ensure proper reporting of worldwide income.

2. Reliance on Professional Advice

The Tribunal acknowledged that Mr. Kirtlan relied on his accountant to prepare his tax returns. However, it was crucial that the accountant was adequately informed about all relevant facts, including the taxpayer’s residency status and income sources. Taxpayers should ensure that their advisors have complete and accurate information to provide sound tax advice.

3. Burden of Proof in Disputes

In tax disputes, the burden of proof lies with the taxpayer to demonstrate that assessments are excessive. In this case, Mr Kirtlan successfully discharged that burden by demonstrating that the Commissioner could not reasonably have been satisfied that the tax shortfalls were attributable to evasion.   Taxpayers should be prepared to substantiate their positions with appropriate documentation and evidence.

4. Evidence of Tax Accountant

A key item considered by the ART in this case was the unchallenged evidence of the taxpayer’s accountant. The AAT specifically noted that, if a properly informed accountant provided advice and/or prepared returns in a particular way, and there was no suggestion of collusion between the accountant and the taxpayer to defraud the Commonwealth, it was difficult to see how a taxpayer following that advice and lodging returns in that way could be said to have engaged in evasion.

5. Timeliness of Assessments and the Evasion Exception

The Commissioner issued amended assessments beyond the usual time limits, relying on the exception for cases involving fraud or evasion. The Tribunal found that the evidence did not support a conclusion of evasion, rendering the late assessments invalid. This underscores the importance of understanding the time limits for tax assessments and the conditions under which exceptions apply.

6. Consequences of non-disclosure

While the Tribunal ruled in favour of Mr. Kirtlan, the case highlights the risks associated with non-disclosure or misreporting of income. Even if unintentional, such actions can lead to significant tax liabilities and penalties. Taxpayers should proactively disclose all relevant income and seek clarification when in doubt.

7. Documentation and Record-Keeping

Maintaining thorough records of income, residency status, and communications with tax advisors is essential. Such documentation can be pivotal in resolving disputes and demonstrating compliance with tax obligations.

Conclusion

The Kirtlan case serves as a reminder of the complexities involved in international taxation and the critical importance of accurate reporting, informed professional advice, and diligent record-keeping. Taxpayers with cross-border activities should regularly review their tax positions and consult qualified professionals to navigate the intricacies of tax laws effectively.

Cross-Border Tax Confidence Starts Here

At Andersen Australia, we understand the complexities of international tax matters. Backed by our global network, we are well positioned to assist taxpayers with cross-border residency, reporting, and compliance queries. Whether you’re navigating dual residency, foreign income, or international tax obligations, our team can provide tailored advice and support every step of the way.

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