Kirtlan vs FCT: Evasion exception and Residency

The Commissioner generally has the power to amend an income tax assessment within a period of either 2 years (for most individuals and small business entities) or 4 years for other taxpayers who are not eligible for the 2-year amendment period. However, if the Commissioner forms an opinion that there has been fraud or evasion, an income tax assessment can be amended any time.

The recent case of Kirtlan and Commissioner of Taxation (Taxation) [2025] ARTA 539 (8 May 2025) illustrates a rare instance where a taxpayer successfully challenged the Commissioner’s opinion that there was evasion.

Key facts

The case concerns Mr. Kirtlan’s taxation liabilities for the 2006 to 2008 income years. During these years, Mr. Kirtlan split his time between Australia and the United Kingdom (UK), lodging income tax returns in each country on the basis that he was not a tax resident of that jurisdiction. As a result, substantial income sourced inside UK was not declared in either country’s tax return for the relevant years.

The Commissioner determined Mr. Kirtlan was an Australian resident and issued amended assessments for the relevant years in 2018 – outside the standard amendment period – on the basis that there had been evasion. These amended assessments resulted in total tax shortfall of $3.791 million and administrative penalties of $1.895 million.

The Tribunal noted that evasion requires more than mere avoidance of tax, withholding of information or provision of misleading information. It must involve some blameworthy act or omission such as intentionally omitting income without a credible explanation.

The residence question

The central issue was whether Mr. Kirtlan had a creditable explanation for lodging his Australian tax returns on the basis that he was not an Australian resident. The Tribunal found that various objective factors supported his claim, including:

• Kirtlan’s stated intention, when he left Australia in 2005, was to live indefinitely in and make his home in the UK. Evidence included the nature of his business interests, access to financial markets and proximity to other places to which Mr. Kirtlan travelled, contemporaneous correspondences referencing his earlier decisions to reside permanently in the UK;
• Leasing a home in London for 12 months that he considered to be suitable for himself as well as Mrs. Kirtlan and their daughter, Portia, including renewing the lease even after his family returned to Australia, and subsequently, in August 2007, taking out a lease on a different property;
• Enrollment of Portia in nursery school in the UK;
• Establishment of personal and financial ties to the UK (e.g., bank accounts, health insurance, sports club membership, registering for the National Health Service, purchasing a motor vehicle);
• Incoming passenger cards completed by Mr. Kirtlan during his visits to Australia identifying his country of residence as the UK rather than indicating he was a returning Australian resident;
• Plausible reasons (health and marital strain) for Mrs. Kirtlan and their daughter return to Australia after a relatively short period.

A crucial consideration was the evidence of Mr. Kirtlan’s accountant, of which Mr. Kirtlan had a close and longstanding relationship. The Tribunal noted that “[where] a properly informed accountant provides advice and/or prepares returns in a particular way … and there is no suggestion of collusion between the accountant and the taxpayer to defraud the Commonwealth, it is difficult to see how a taxpayer following that advice and lodging returns in that way could be said to have engaged in evasion”.

Importantly, the Tribunal clarified the scope of the inquiry, stating:

“If the question for the Tribunal were whether Mr. Kirtlan has proved that he was not an Australian resident at the relevant times, the factors raised by the Commissioner would be a considerable hurdle for Mr. Kirtlan to overcome. But that is not the question I must consider, which is whether Mr. Kirtlan has proved the Commissioner should not have been satisfied there was evasion.”

Conclusion

The Tribunal found that Mr. Kirtlan had discharged his burden of proof in showing that any misstatements were not a result of evasion. As there was no allegation of fraud, the Commissioner was out of time to amend the assessments. The amended assessments were therefore excessive.

Kirtlan serves as a reminder that the successful discharge of the burden of proving an amended assessment is excessive and what amount should have been assessed depends heavily on the quality and consistency of evidence presented. Strong objective documentation and reliance on competent professional advice were critical in securing a favorable outcome in this instance.

——-