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Beneficiary income, Beneficiary rights, Income Tax, Non-resident, permanent place of abode, Removal of trustees, Trustee income, Trustee retirement, Trustees, Trusts

Home is where the trust is?

The decision in Van Uden v CIR highlights the importance of recognising when a property owned by a trust can comprise a permanent place of abode.  The significance of a property being a permanent place of abode is that a person who is otherwise non-resident for tax purposes, will be treated as resident in New Zealand if the person has a permanent place of abode available to that person.

Mr Van Uden is a marine master, who spends 8 months a year working at sea.   The question for the High Court was whether the house owned by trustees of a trust settled by Mr Van Uden’s wife comprised a permanent place of abode for him in New Zealand between 31 March 2005 and 31 March 2009.

By way of background The TRA found that Mr Van Uden had regularly stayed at the property over a period of 12 years and, while Mr Van Uden was not a beneficial owner of the property, he was a trustee and discretionary beneficiary of the Trust that owned it, and the property was available to him for use as evidenced by his long-standing use of it when he was in New Zealand.

The relevant definition is in s OE 1(1) Income Tax Act 1994 (the Income Tax Act that applied at the time):

OE 1 Determination of residence of person other than company

(1) Notwithstanding any other provision of this section, a person, other than a company, is resident in New Zealand within the meaning of this Act if that person has a permanent place of abode in New Zealand, whether or not that person also has a permanent place of abode outside New Zealand.

As confirmed in CIR v Diamond the relevant consideration is that the words of the legislation are given their ordinary meaning.  Simply put, where is the taxpayer’s home? As noted by Fisher J in Federal Commissioner of Taxation v Applegate:

To my mind the proper construction to place upon the phrase “permanent place of abode” is that it is the taxpayer’s fixed and habitual place of abode. It is his home, but not his permanent home. It connotes a more enduring relationship with a particular place of abode than that of a person who is ordinarily resident there or who has there his usual place of abode. Material factors for consideration will be the continuity or otherwise of the taxpayer’s presence, the duration of his presence and the durability of his association with the particular place.

The factors to take into consideration, on a non-exhaustive basis, are listed at [39] in Van Uden as:

(a) The continuity or otherwise of the taxpayer’s presence in New Zealand and in the dwelling;

(b) The duration of that presence;

(c) The durability of the taxpayer’s association with the particular place;

(d) The closeness or otherwise of the taxpayer’s connection with the dwelling — the situation before and after a period or periods of absence from New Zealand should be considered.

(e) The requirement for permanency is to distinguish merely transient or temporary places of abode. Permanency refers to the continuing availability of a place on an indefinite (but not necessarily everlasting) basis.

(f) The existence of another permanent place of abode outside New Zealand does not preclude a finding that the taxpayer has a permanent place of abode in New Zealand.

The enquiries are very case dependent. See:

[60] In assessing a particular case the factual inquiry will be on the tax years in question. However, we consider 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.

[61] Importantly the focus is on whether the taxpayer, not members of the taxpayer’s family, have 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.

Some useful observations from Van Uden are that the enquiry is not as to motive but rather practical reality.  In Van Uden the taxpayer did not intend to settle long-term in New Zealand, rather it was convenient for him to spend his shore leave with his wife.  However, this did not mean that the Trust property was not his permanent place of abode.

In CIR v Diamond the Court of Appeal was clear the mere availability of a dwelling is not sufficient by itself. Rather the “Court is required to determine the nature and quality of the use that the taxpayer habitually makes of a particular place of abode. In this context, as the Court noted, “permanent” meaning continuing or designed to continue indefinitely without change, and “abode” meaning the habitual residence, house or home or place in which the person stays, remains or dwells are important concepts.”

A taxpayer can have more then one permanent place of abode, consequently the evidence of one is not determinative that there cannot be another.

Where a person returns regularly to a country, the habitual nature of that may be determinative.  As noted in Van Uden:

 

[47] As a seaman the appellant spent an average of at least eight months a year at sea. The reasons for returning to New Zealand and his connections with New Zealand may have changed over time but the consistent pattern when he was not on the ship and not holidaying or travelling was that he would return to New Zealand and spend time in New Zealand. When he did return to New Zealand over the relevant time period he lived at 27 Evelyn Road. As a seaman spending eight  months of the year at sea he was never going to be spending time continuously in New Zealand. What is important is that when not at sea and not otherwise holidaying or travelling he returned to New Zealand and based himself at 27 Evelyn Road.

[48] The appellant was born in New Zealand in 1957. Apart from the extended holiday with his family in The Netherlands followed by the period of approximately 18 months when his parents returned to The Netherlands and attempted to settle there and then later a period in the 1980’s where he based himself in the Philippines and met his first wife, he has had a continuous presence in New Zealand.

Between 2004 and 2009 Mr Van Uden spent between 6 weeks and five months a year in New Zealand.  From 1998 onwards there was a home available to Mr Van Uden notwithstanding that it was owned by a trust.  In latter years he was appointed a trustee and a beneficiary.    Arguments that the fact that the property was owned by a trust were not successful to deflect the proposition that the property was a permanent place of abode for Mr Van Uden.  While it was Mrs Van Uden that had the power of appointment of trustees (and could have him removed as a trustee and then as a beneficiary), arguments as to the transience of his rights of occupation were mitigated by the fact that Mr Van Uden had transferred his rental properties to a partnership of himself and Mrs Van Uden and then from that partnership to the Trust.

Mr Van Uden was also shown through credit card receipts to have made on-going contributions to maintenance costs.  he also used the address as his address for mail, car registrations and ultimately for his electoral roll address.  The existence of a Sky account was also considered a further indicia of permanence.

The decision is fact specific.  However, as society becomes increasingly global, and given the large number of trusts associated with New Zealand, Van Uden is a useful reminder that while we are not the trust of which we are a trustee or a beneficiary; the rights that can flow can support arguments that trust owned property is nevertheless a permanent place of abode for a person who occupies the property from time-to-time as a discretionary beneficiary.

References:

  • Van Uden v CIR [2017] NZHC 2554
  • CIR v Diamond [2015] NZCA 613, (2015) 27 NZTC 22-035
  • Federal Commissioner of Taxation v Applegate [1979] FCA 66 (FCAFC) at 128

 

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