Rive v Accident Rehabilitation and Compensation Insurance Corporation

IN THE DISTRICT COURT Decision No. 129 / 96 AT WELLINGTON UNDER THE Accident Rehabilitation and Compensation Insurance Act 1992 AND IN THE MATTER of an appeal pursuant to Section 91 of the Act BETWEEN LANCELOT MILES RIVE & FAYE ELAINE RIVE of Auckland APPELLANT (DCA NO. 17/95) AND ACCIDENT REHABILITATION AND COMPENSATION INSURANCE CORPORATION a body corporate duly constituted under the provisions of the said Act RESPONDENT Date of Hearing: 30 March 1995 and 18 May 1996 Date of Decision: 25 october 1996 Counsel for Appellant M. N. Tolich Counsel for Respondent: V. J. Hammond DECISION OF JUDGE J.H. LOVELL-SMITH The issue in this appeal is whether the appellants were "ordinarily residents in New Zealand" for the purposes of section 9 of the Accident Rehabilitation and Compensation Insurance Act 1992 ("the 1992 Act"), within the meaning of the 2 Accident Rehabilitation and Compensation Insurance (Ordinarily Residents' Definition) Regulations 1992. This appeal was adjourned part heard on 30 March 1995 to enable the appellants to file further Affidavit evidence as to their residence in New Zealand. A further affidavit dated 4 February 1996 was filed on behalf of the Appellants. The hearing of the appeal was resumed on 18 May 1996. I apologise for the delay in delivering my decision. BACKGROUND The appellants were injured in a motor vehicle accident on 13 July 1992 in Nigeria. Both suffered severe neck injuries. Mr Rive is now a tetraplegic. At the time of the accident they were both serving as missionaries for the Salvation Army. In June 1990, they had taken up positions as Chief Secretary and Territorial Home League Secretary, respectively, in Lagos, Nigeria, because they had previous experience in Africa. Both appellants are New Zealand citizens, born and educated in New Zealand. Mr Rive was a primary school teacher in Auckland for five years. The Appellant Mr Rive in his affidavit dated 14 February p 96 states: 3 2 My wife Faye Elaine Rive and myself entered the Salvation Army Training College for training as Salvation Army officers in February 1965. 3 Before our acceptance into the Training College we were required to answer a number of detailed questions regarding our background and suitability for service in the Army. I have been able to obtain a copy of my own Application from The Salvation Army Archives in Wellington and annex hereto a certified copy of the "Form of Application for Training and Service as an Officer in The Salvation Army" ("the Applications") signed by myself on 2 November 1964 marked "A". However on my application I have been informed by an officer from The Salvation Army National Headquarters that the "Form of Undertaking" section ("the Undertakings") is missing. Annexed hereto marked "B" is a letter from the Secretary for Personnel for the New Zealand Salvation Army confirming that although the Undertakings are missing I would have signed the document along with my wife. I confirm that I answered the Undertakings identical to those attached to my wife's signed application annexed hereto and marked "C". Husbands and wives who are Salvation Army Officers are treated equally, with each partner being trained on identical terms and each partner making the same promises. In Section II, under the heading "Form of Undertaking - Application for Service as an Officer in The Salvation Army" my wife and I answered "yes" to, amongst other things, the following questions: "1. D Are you willing, after Training, to go to any branch of Army Work - Corps, Social or other - for which your leaders think you are best suited? E Are you willing, after Training, to serve as an Officer of the Army in another Country?" 4 4. My wife and I signed the Applications in Auckland on 2 November 1964 and answered the undertakings which were part of the Applications and not required to be separately signed, after entering The Salvation Army Training College in Wellington in 1965. 5. After our period of training we entered full-time service after being "commissioned" as Salvation Army Officers in Wellington, New Zealand on 21 January 1967. Copies of the covenants signed by ourselves and the New Zealand territorial commander on 18 January 1967 just prior to our commissioning are attached hereto and marked "D" and "E" and signify that my wife and I "willingly bind [ourselves] in a solemn Covenant" and "will be true to The Salvation Army". Copies of my and my wife's commissioning certificates are annexed marked "F" and "G". The commissioning certificates confirm our promises made at commissioning to: "Proceed to appointments and faithfully discharge the duties thereof.." and our oaths to adhere to the principles and disciplines of The Salvation Army. In 1967, the Appellants were appointed by the Salvation Army to be missionary teachers and administrators in Zimbabwe. They spent two five year terms in Zimbabwe and returned to New Zealand with their three children in June 1977. The following ten years were spent in New Zealand while their children were educated. They worked in various positions for the Salvation Army in Rotorua, 5 Wellington, Upper Hutt and Auckland. The Salvation Army have always provided their accommodation. In 1987, the appellants were appointed to Fiji, returning to New Zealand in January 1990 to take up a joint appointment as Education Secretary and Special Effort Secretary in Wellington. The appointment to the Salvation Army in Nigerian territory was unexpected and was effective from 1 June 1990, for the period ending December 1992. Para 9 of the Appellant Mr Rive's affidavit dated 14 February 1996 states: 9 . Annexed hereto marked "H" is a true copy of an extract from my personal diary for the dates 4 and 5 April 1990 with my notes on the request and our acceptance of the appointment to Nigeria. A summary of what happened is set out below: (a) 8.10 am 4 April 1990. the TC (Territorial Commander - Leader of the New Zealand Salvation Army) called my wife and I to an interview telling us that he had had a request from the "Chief of Staff" at the International Headquarters of The Salvation Army in London ("IHQ") that we "go to Africa". At this point we were not told any details of the country or the nature of the appointment. My notes record that it was a "hard decision" as indeed it was. being asked to commit ourselves to an unknown appointment in an unknown country in Africa after having returned so recently from Fiji. I recall that the TC said if we went he would be sorry to lose us and asked us to let him know our decision the next day. (b) Day - 5 April 1990. The next day we returned to our office at The Salvation Army Headquarters in Wellington and conveyed our willingness to be appointed to the, at that time, unknown post. I was told that we would get a call later in the day advising us of the appointment. As is apparent from the Form of Undertaking (Exhibits "A" and "C"), and commissioning certificates ("F" and "G") Salvation Army Officers promise to "go to any branch of Army Work", and "proceed to appointments" as directed. While the practice for overseas appointments is that the Army will not appoint unwilling officers to positions outside of New Zealand, it is not a question of offer and acceptance of the post, rather a matter of appointment. As such there is no document where my wife and I confirmed our acceptance of the Nigeria posting in writing apart from our signatures on our "Form of Application for Training and Service as an Officer in The Salvation Army" (exhibits "A" and "C") and our covenants ("D" and "E"). (c) Evening - 5 April 1990. In the evening we received a phone call from Commissioner Harris (the New Zealand Territorial Commander) and Commissioner David Ramsey (London - International Secretary for Africa) telling us the appointment was for Nigeria as Chief Secretary, to take effect on 1 June 1990. The appellants were provided with quarters in a compound in Lagos. The appellants took only essential items to Nigeria. Their household effects were left in Wellington as they intended to return to New Zealand at the end of their appointment to Nigeria. Their New Zealand bank accounts were maintained during their time in Nigeria, as was their New Zealand Life Insurance policy, subscriptions to various periodicals and a standing order with the New Zealand Philatelic Bureau. The appellants also ensured they were entitled to vote in the 1992 New Zealand general election. In 1991 they spent four weeks on holiday in New Zealand and a further period in New Zealand in March 1992 to attend their daughter's wedding. Their service in Nigeria was interrupted by their accident on 13 July 1992. Since their return to New Zealand, the appellants' have filed income tax returns for the tax years ending 31 March 1991 and 31 March 1992 on the basis that they were New Zealand residents during those years. 8 On 16 September 1992, the respondent received a letter from the Salvation Army Territorial Headquarters in Wellington requesting that the appellants' entitlements be assessed. On 16 November 1992, the respondent advised the appellants that the respondent was unable to accept their claims as they did not meet the definition of the term "ordinary resident in New Zealand" as prescribed by Regulation 3(2) of the Accident Rehabilitation and Compensation Insurance (Ordinary Residence) Regulations 1992, as the appellants were not in New Zealand for 183 days in the twelve months prior to 17 May 1992 (the date they last became absent from New Zealand). A review was lodged against that decision and the matter proceeded to a hearing on 13 October 1994. At the hearing, the appellants' solicitor submitted that the principle issue was whether the appellants came within the definition of the term "ordinary resident in New Zealand" as prescribed by Regulation 3(5) of the Regulations. In his decision dated 13 October 1994, the review officer said: "....I cannot accept that the allowances paid to the Rives fall within the ambit of earnings as employees for New Zealand income tax purposes. Secondly, the lodgement of returns after the event without any evidence of source deduction payments made by the Salvation Army in New Zealand in respect of their income, must, I believe also exclude the Rives under those grounds. The reviews are therefore unsuccessful." 9 THE 1992 ACT Section 8 of the Accident Rehabilitation and Compensation Insurance Act 1992 (the Act) states, in part: "Cover for personal injury occurring in New Zealand - (1) This Act shall apply in respect of personal injury occurring in New Zealand on or after the 1st day of July 1992 in respect of which there is cover under this Act." Section 9 states, in part: "Cover for personal injury occurring outside New Zealand - (1) This Act also applies in respect of personal injury suffered, on or after the Ist day of July 1992, outside New Zealand by any persons who is ordinarily resident in New Zealand for which there would be cover under section 8 of this Act if the personal injury had occurred in New Zealand; and while the person is outside New Zealand, section 88 of this Act shall apply". (emphasis added) Section 3 provides, in part: "Interpretation - in this Act, unless the context otherwise requires, - "Employment" means work engaged in or carried out for the purposes of pecuniary gain or profit; and, in the case of an employee, includes any period of paid leave other than paid leave on the termination of employment: ......... "Ordinarily resident in New Zealand", in relation to any person, has the meaning assigned to it in regulations made under this Act": The Accident Rehabilitation and Compensation Insurance (Ordinary Residence Definition) Regulation 1992 provides, in part: 10 3 "Definition of term "ordinarily resident in New Zealand - (1) For the purposes of the Act, the term "ordinarily resident in New Zealand", in relation to any person, means - (a) Any person who is a New Zealand citizen and whose permanent place of abode is in New Zealand, whether or not that person also has a place of abode outside New Zealand; or . .. ....... (2) Subject to subclause (4) of this regulation, a person who is absent from New Zealand shall be deemed to have a permanent place of abode in New Zealand if that person has been personally present in New Zealand for a period or periods exceeding in the aggregate 183 days in the 12-month period immediately before last becoming absent from New Zealand. "......"... (4) Subject to subclause (5) of this regulation, a person shall be deemed not to have a permanent place of abode in New Zealand if that person has been and remains absent from New Zealand for more than 6 months or intends to be absent from New Zealand for more than 6 months. ( 5) A person shall not cease to have a permanent place of abode in New Zealand by reasons of absence from New Zealand primarily in connection with the duties of that person's employment, the remuneration for which is treated as income derived in New Zealand for New Zealand income tax purposes, or for 6 months following the completion of the period of employment outside New Zealand so long as the person intends to resume a place of abode in New Zealand" THE INCOME TAX ACT 1976 "Determination of Residence S241. Determination of place of residence - (1) Notwithstanding any other provision of this section, a person .... 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. 11 (2) Where a person ... is personally present in New Zealand for a period or periods exceeding in the aggregate 183 days in any period of 12 months, that person shall be deemed to be resident in New Zealand from the first day within that period of 12 months on which that person was personally present in New Zealand. (3) Where a person ... is resident in New Zealand and is personally absent from New Zealand for a period of periods exceeding in aggregate 325 days in any period of 12 months, that person shall be deemed not to be resident in New Zealand from the first day within that period of 12 months on which that person was personally absent from New Zealand and, subject to this section, thereafter. Source of Income S242. Liability of income derived from New Zealand and abroad - Subject to this Act, - (a) All income derived by any person who is resident in New Zealand at that time when he derives that income shall be assessable for income tax, whether it is derived from New Zealand or from elsewhere; (b) All income derived from New Zealand shall be assessable for income tax, whether the person deriving that income is resident in New Zealand or elsewhere; (c) No income which is neither derived from New Zealand nor derived by a person then resident in New Zealand shall be assessable for income tax. S243. Classes of income deemed to be derived from New Zealand:- (2) Subject to sections 244 and 245 of this Act, the following classes of income shall be deemed to be derived from New Zealand: 12 (c) All salaries, wages, allowances, and emoluments of any kind earned in New Zealand in the service of any employer or principle, whether resident in New Zealand or elsewhere: (0) Income derived from contracts made or wholly or partly performed in New Zealand. (r) Income derived directly or indirectly from any other source in New Zealand". SUBMISSIONS ON BEHALF OF THE APPELLANTS Counsel for the appellants submitted that the review officer did not apply the correct test as to whether the appellants were ordinarily resident in New Zealand at the time of the accident; the review officer took into account irrelevant considerations and, in particular he ignored section 243 Income Tax Act 1976. In his decision he concentrated on the fact that New Zealand PAYE tax had not been paid on the appellants' income during their period in Nigeria and incorrectly assumed that their income could not have been sourced in New Zealand. It was submitted on behalf of the appellants that: (i) At all relevant times the appellants retained their permanent place of abode in New Zealand. On the basis of the affidavit evidence establishes beyond doubt that a permanent place of abode in New Zealand was never lost. (ii) At the time of the accident the appellants' source of income was in New Zealand. The contract of service was made in New Zealand. Their appointment to Nigeria was made in New Zealand. The conditions set in respect of their posting to Nigeria was settled in New Zealand and the greater part of their income was paid in New Zealand. 13 It was submitted that on this basis the test of "ordinary residence" as set out in the Regulations is met. Section 243(2) of the Income Tax Act 1976 specifies when income has been derived in New Zealand. Employment income is generally derived from New Zealand if the income is earned in New Zealand (section 243(2)(c)). Income from services is generally considered to be earned in the country where it is performed. Counsel for the appellants referred to Case 345 (1982) TRNZ 301 at 304 (also reported as Case E46 (1982) 5 NZTC 59, 277). This case concerned the source of income of a New Zealand military army officer posted to Singapore. Although the officer's service was in Singapore, as the entitlement to that remuneration arose in New Zealand, the income was "earned" for the purposes of section 243(2)(c) in New Zealand. Barber DCJ held: "However I also consider that he is also caught by section 243(2)(c) and that his salary as an army officer was earned "in New Zealand in the service of any employer or principal ....". In this case, the employing authority is a Ministry of Defence in terms of the State Services Conditions of Employment Act 1977, Section II. The word "earned" is defined in the Concise Oxford Dictionary, 6th Ed as "obtain, or be entitled to, as a reward of labour or merit" and other dictionaries have similar definitions. Emphasis is on "entitlement" 14 so that paragraph (c) of subsection (2) of section 243 can, in my view, be said to cover all salaries, wages, allowances and emoluments, the entitlement to which arises in New Zealand. Although he performed the service or labour in Singapore, he obtained or was entitled to remuneration as a result of New Zealand legislation. In effect he is at his station for service completed and signed in New Zealand, his oath of allegiance and the said legislation means, in my view, that although he may have been serving for a particular time in Singapore, his salary, allowances and other emoluments as a result of that service are nevertheless "earned" in New Zealand". The relevant factors in that case included: (a) tax payer undertook as part of his contract to serve anywhere in the world; The appellants undertook to serve as officers in the Salvation Army in other countries. (b) he was ordered to go overseas, although he could have declined the posting; Appellants were given an opportunity to indicate their unwillingness to take up the Nigerian position but were appointed to the Nigeria posting. (c) he held a commission and had undertaken an oath of allegiance; The appellants' held commissions as majors in the Salvation Army, which commissions were promoted to Lieutenant Colonel on their appointment to Nigeria. The undertakings covenants and commissioning certificates form the 15 oath of allegiance to the Salvation Army in that they solemnly promise to abide by the principles, discipline and direction of their superiors in the army. (d) the conditions set in respect of the posting were settled in New Zealand; Just as the appellants' initial terms of service with the Salvation Army were set and accepted in New Zealand in 1965-1967, their specific conditions in respect of their Nigeria posting were settled in New Zealand in Wellington in 1990. Mr Rive recorded in his diary the difficulty he and his wife experienced in deciding whether to accept the overseas appointment to Nigeria after having returned so recently from Fiji. They were approached by the New Zealand Territorial Command in Wellington with the request that they consider a post in Africa and on 5 April 1990 they conveyed their willingness to be appointed overseas to the New Zealand Territorial Command at his office in the New Zealand Territorial Headquarters. At that stage the appointment was unknown but later that day on 5 April 1990 they were advised by telephone to their home in Kingston, Wellington of their appointment to Nigeria. It was submitted on behalf of the appellants that the evidence supports a finding that conditions set in respect of the posting were settled in New Zealand. (e) his remuneration was paid in New Zealand. 16 Details of the appellants' income received while in Nigeria is set out in Mr Rive's affidavit. They received a local living allowance in Nigeria amounting to approximately NZ$70 per month. The greater part of their income was paid into their New Zealand bank account in Auckland, initially amounting to $473.93 per month and subsequently increased to $673.20 per month. It was the appellants' submission that there is ample evidence to establish that the income is sourced in New Zealand. Other relevant provisions of section 243(2) are section 243(2)(o) which deems income derived from contracts made wholly or partly performed in New Zealand to be sourced in New Zealand. Counsel for the appellants referred to the equivalent of section 243(2)(o) which was held to give a New Zealand source to employment income earned by various New Zealand government employees who were resident, working and paid in the Cook Islands (Ayson v C of T [1938] NZLR 282 and PIZ (1992) 14 NZTC 4, 115, to the same effect. The circumstances surrounding Mr Rive and his wife's engagement with the Salvation Army as full-time officers is set out in his second affidavit. As in the case of the New Zealand military army officers in Case 34 (supra), the Rive's terms of employment are unique except in the case of army officers. In their applications for officership in the Salvation Army the appellants answered yes to the questions contained in the form of undertaking: 17 "Are you willing. after training, to go to any branch of army work core or social or other - for which your leaders think you are best suited? Are you willing after training, to serve as an officer of the army in another country?" Covenants were made by both of the appellants prior to the commissioning. The commissioning certificates confirm their promises at commissioning to "proceed to appointments and faithfully discharge the duties thereof." Their oaths are to adhere to the principles and disciplines of the Salvation Army. It was submitted on behalf of the appellants, that their contract with the Salvation Army was made in New Zealand, their oaths of allegiance and acceptance of the terms and conditions of their service including the possibility of being posted overseas were made in New Zealand. Applying the reasoning in Ayson and P17 as well as the established principle of contract law that a contract is made wherever it is accepted, it was submitted that by virtue of section 243(2)(o) the income earned by the appellants should properly be considered as "derived in New Zealand". Section 243(2)(r) of the Act deems income to have a New Zealand source if it is derived "directly or indirectly" from any other source in New Zealand." The Appellant's submission is that this imports of common law rules and derivation of income, such as the place where the contract was formed, the place where the 18 services were performed and the place where the income was paid. Most of the appellants' income was paid by the Salvation Army in New Zealand between $500 and $700 per month. A lesser amount was paid by the Salvation Army in Nigeria, about $70 per month. PERMANENT PLACE OF ABODE It was submitted by the appellants that Regulations 3(1), 3(4) and 3(5) of the Accident Rehabilitation and Compensation Insurance (Ordinary Residence Definition) Regulations are relevant to this case. Regulation 3(1) would make the appellants ordinarily resident providing they have a permanent place of abode in New Zealand. Regulation 3(4) takes away that status due to the length of absence from New Zealand. Regulation 3(5) would over ride Regulation 3(4) provided that at the time of the accident: (a) they had a permanent place of abode in New Zealand; (b) the loss of their permanent place of abode under 3(4) was by reasons of absence which: i) was primarily in connection with employment duties; and (ii) remuneration from which was derived in New Zealand; and (c) they intended to resume a place of abode in New Zealand in the future. The Appellants submitted that the requirement of (b)(i) was clearly met. The appellants were in Nigeria for no other reason than in connection with employment duties. 19 A "permanent place of abode" is not defined in the Act. It is a phrase which frequently arises in the context of liability for income tax for it is also used as a test of residence. It also arises in the context of private international law and the concept of "domiciles" is useful as a background to consideration the meaning of "permanent place of abode" as the domicile issue forms the basis of discussion of the meaning of "permanent place of abode". Halsbury's Laws of England define "domicile" as "the legal relationship between an individual and a territory with a distinct legal system" (4th Ed. Vol. 8, p318). The question of domicile arises in a variety of context including the validity of a marriage, jurisdiction and divorce, intestacy and of course liability for tax. In Halsbury the commentator in paragraphs 425-429 states "(i) A domicile or origin is difficult to lose. (ii) To change of one domicile of origin to a domicile of choice one must [reside] in a country other than that of his domicile of origin with the intention of continuing to reside there indefinitely." It was submitted by the appellants that they had no intention of residing in Nigeria indefinitely. All evidence points to the appellants' strong ties with New Zealand and 20 always intention to return there on completion of their term. In their affidavit the Appellants stated: "throughout our stay we considered ourselves New Zealand residents temporarily absent from our home country and always returned at the completion of our appointments overseas." It was submitted on behalf of the appellants that their domicile of origin always remained New Zealand. It was further submitted that a person's permanent place of abode is the place where that person ordinarily lives, and with which the person has an enduring (as opposed to transitory or temporary) relationship. The "ordinary resident" definition in the regulations clearly contemplates that it is possible to have a place of abode in one country, and at the same time have a permanent place of abode in another. 1 appellants' place of abode is likely to have been Lagos, this does not mean that Lagos was their permanent place of abode. Factors considered by the Commissioner for Inland Revenue in the courts in order to determine whether a person has a permanent place of abode in New Zealand include the following: (i) Length of time spent in New Zealand: The appellants were born and educated in New Zealand. They resided in New Zealand until 1967 when they were appointed to Zimbabwe. From 1977 to 1987 during the time their children were being educated they lived in New 21 Zealand. From 1987 they spent a period of just over two years working for the Salvation Army in Fiji and returned to New Zealand in 1990. Their appointment to Nigeria was unexpected in June 1990. (if) Accommodation arrangements (whether rented or purchased and whether overseas home retained): Because of their position as full time Salvation Army Officers, the appellants have never owned their own accommodation. This was provided by the Salvation Army wherever they were appointment as long as they live. They have never needed to own their own home. Arrangements for storage of their home contents and personal effects it was submitted are significant. A list of items taken to Nigeria consisted only of essential items including teaching, administrative material and personal household items. The bulk of their home contents were stored in New Zealand awaiting their return. They considered their stay in Nigeria to be temporary. (iii) Employment history (whether the individual has a transient or permanent job): Since 1967 the appellants have considered themselves Officers belonging to the New Zealand Salvation Army. They have always returned to New Zealand after each overseas appointment and their employment service with the Army has been treated as an unbroken"period of service. I was referred to the "Officers Allowance Authority" which authorises salary for their six week home land furlow from September to October 1991. This Authority refers to their "basic salary scale for 27 years". This illustrates that the New Zealand 22 Salvation Army regards them as employees of the New Zealand Salvation Army notwithstanding their temporary posting overseas. (iv) Length of residence in New Zealand or elsewhere: This has been covered in (i). ( v ) Financial ties with New Zealand and overseas countries (including overseas bank accounts, investment or superannuateon arrangements overseas and the nature of such arrangements in New Zealand): The Appellants maintained their financial links with New Zealand whilst in Nigeria continuing to operate their ASB Bank Account from Nigeria and receiving updates on their term investment forwarded to them in Nigeria. They operated and were forwarded statements in Nigeria for their visa account with Trustbank. Mr Rive also maintained his life insurance policy with National Mutual New Zealand making the yearly premium payments from Nigeria. The appellants continued to operate an account with Countrywide during their term in Nigeria. (vi) Their overseas ties - sporting/professional/cultural ties with New Zealand: The appellants maintained cultural ties with New Zealand taken steps in Nigeria to confirm their registration as parliamentary electors in the Eden electorate and were sent confirmation of their registration as electors in Nigeria. On arrival in Nigeria they notified the New Zealand High Commission in London as to their status of "New Zealand citizens temporarily 23 residing in Nigeria". Mr Rive maintained a standing order of new stamps with the New Zealand Post Philatelic Bureau whilst in Nigeria and subscribed to a magazine published by the Bible College in New Zealand. He also arranged for his subscription to New Zealand News Link while in Nigeria - a news service for New Zealanders overseas. (vii) Domestic arrangements (including where family resides): The appellants' children were educated in New Zealand. Whilst in Nigeria the appellants' son and daughter remained in New Zealand although the appellants made a special trip to New Zealand at their own expense for their daughter's wedding. (viii) Holidays taken in New Zealand: While in Nigeria the appellants returned to New Zealand on two occasions; for their daughter's wedding in April 1992 and for four weeks between September and October 1991. Counsel for the appellants submitted that the evidence the appellants had a permanent place of abode in New Zealand. The question of permanent place of abode was considered in FTC -v- Applegate (1979) 79 ATC 4307. In that case an Australian citizen who was sent to the New Hebrides for an indefinite period and in fact stayed for two years was found to have a permanent place of abode outside Australia for that period. In FTC -v- Jenkins (1982) 24 82 ATC 4098, an Australian bank officer posted to the New Hebrides for a three year term was found to have a permanent place of abode outside Australia for that period, despite the temporary nature of the postings. In New Zealand however it is clear that a posting overseas for only one year will not give a person a permanent place of abode outside the country (Case J98 (1987) 9 NZTC 1555 and Case Q55 (1993) 15 NZTC 5313). It was submitted on behalf of the appellants that their situation was significantly different from that in Applegate and similar cases where a relatively shorter period of residence has been held to give rise to a permanent place of abode. In this case the length of their stay was definite for two and a half years, and that fell short of being sufficiently long to preclude them from having a permanent abode in New Zealand. One of the considerations in Applegate was finding the tax payer did have a permanent place of abode in the New Hebrides was that he had a permanent position there. In the Jenkins decision the fixed term was for three years. In the present case no attempt was made to set up a home in Nigeria, and the Appellants lived in semi communal accommodation which they neither owned nor, leased. They had no children with them and the majority of their household effects were left in New Zealand. Fisher J in Applegate said that it was necessary to consider the quality and use which a tax payer makes of a particular place of abode for the purposes of determining whether or not it is permanent. Finally the appellants retained significant financial and other ties with New Zealand. 25 Counsel for the appellants concluded that the review officer had made a number of legal errors in his decision, ignoring completely section 243 of the Income Tax Act in favour of discussion of the PAYE Provisions. This appears to have been on the basis that since no PAYE was paid on their salary, it could not have been sourced in New Zealand. While that is true, he argued if their salary is sourced in New Zealand PAYE should have been deducted, the review officer's logic amounts to letting the tail i.e. whether PAYE deductions were made, wag the dog i.e. whether the income is New Zealand source. The Revenue Acts provide for penalties that may be imposed for the filing of late returns and that is the matter for the Inland Revenue Department to address if it sees fit. The deduction or non deduction of PAYE tax is not decisive of the question of the source of the income. That is a question to be decided having regard to the contract of service, the circumstances surrounding the contract of service and the posting from New Zealand to Nigeria and where their remuneration was paid while overseas. The Appellants submitted the foregoing has shown that as a matter of fact all the appellants' income was sourced in New Zealand for New Zealand income tax purposes. The Inland Revenue has accepted the appellants' returns and there is no reason to question that acceptance. Having established that the appellants' retained a permanent place of abode in New Zealand; that their income was sourced in New Zealand and 26 that they always intended to resume a place of abode in New Zealand, the test of ordinary residence was satisfied and the appellants entitled to cover. SUBMISSIONS ON BEHALF OF THE RESPONDENT It was submitted on behalf of the respondent that on all the evidence in this case, the appellants' mission in Nigeria was expected to continue indefinitely for at least six months from their previous short period in New Zealand which ended on 17 May 1992. It was argued therefore that pursuant to Regulation 3(4) of the Ordinary Residence Regulations the appellants were deemed not to have a permanent place of abode in New Zealand. Regulation 3(4) is subject to Regulation 3(5). Regulation 3(5) states: "A person shall not cease to have a permanent place of abode in New Zealand by reason of absence from New Zealand primarily in connection with the duties of that person's employment, the remuneration from which is treated as income derived in New Zealand for New Zealand Income Tax purposes, or for six months following the completion of the period of employment outside New Zealand, so long as the person intends to resume a place of abode in New Zealand " . It is clear that the key phrase in 13(5) is whether income is "derived in New Zealand for New Zealand Income Tax purposes". Income "derived" in New Zealand is different from income "assessed" in New Zealand for tax purposes. 27 The phrase "income derived in New Zealand" is not defined in the 1992 Act or in regulations under it, however the phrase has a specialised meaning in tax law. Following reflection on the correct focus of the enquiry under 13(5), counsel for the respondent's legal services wrote to the appellants' then solicitor on 27 October 1995 (after the first part of the hearing of this appeal) to set out the position. The Income Tax Act 1976 is legislation relevant to this appeal since that was the applicable tax law at the time of the respondent's initial decision. Section 241 of the 1976 Income Tax Act determines a person's "place of residence" for the purposes of the tax legislation. It was submitted by the respondent that while cases relating to section 241 may assist with the application of Regulation 3(1)(a) of the Ordinary Residence Regulations section 241 does not otherwise have direct relevance to the Ordinary Residence Regulations. Section 242 of Income Tax 1976 establishes two principles: (i) All income derived by any person who is resident in New Zealand is assessable for income tax in New Zealand, wherever the income is derived. (ii) Only income derived from New Zealand shall be assessable for income tax in New Zealand, if the person deriving that income is not resident in New Zealand. 28 Section 243 of the 1976 Act specifies the classes of income which are to be treated as having been "derived from New Zealand". The Ordinary Residence Regulations refer to income derived "in New Zealand" while the Income Tax legislation refers to income derived "from" New Zealand. It must be assumed that the difference in wording is deliberate in the Accident Compensation legislation. It arguably imports a subtle difference of meaning. It was submitted that at most, s 243 is a guide to the interpretation of r 3(5). The Respondent submitted that the relevant subsection is s 243(2) of the Income Tax Act. The appellants seek to rely on the following subparagraphs: "(c) All salaries, wages, allowances and emoluments of any kind earned in New Zealand in the service of any employer or principal whether resident in New Zealand or elsewhere; (0) Income derived from contracts made or wholly or partly performed in New Zealand; (r) Income derived directly or indirectly from any other source in New Zealand". Counsel for the Respondent referred to the commentary in the CCH Ltd volume, New Zealand Income Tax Law and Practice and in particular paragraph 37-185 as a useful starting point on the interpretation of section 243(2) of the Income Tax Act 1976. 29 Section 242(2)(c) requires that all "salaries, wages, allowances and emoluments of any kind" must be earned in New Zealand in the service of an employer or principal. The authors of the CCH publication state at page 38,222 that: "There is an absence of any authoritative exposition on the meaning of this test of whether the income is earned in New Zealand. Some of the possibilities are that personal services income may be earned in the place where - . the contract of employment was made; . payment for the services took place; or . the services were actually performed. " Taking those three possibilities in the present case: it is submitted that there is no contract of employment; the payment for the services took place in New Zealand; and the services were actually performed in Nigeria. TAX CASES ON DERIVATION OF INCOME Australian case law on the derivation or source of income developed earlier than that in New Zealand. The High Court of Australia in Nathan -v- FC of T (1918) 25 CLR 183 recognised that the source of income is not a legal concept, but a question of fact. This was approved by the New Zealand Court of Appeal in C of IR -v- Phillips' Gloeilampenfabrieken [1955] NZLR 868, one of the first New Zealand cases on point. The Australian Courts have tended to favour an approach where the source of income is usually the place where the services are performed, although there are exceptions. 30 In C of T (NSW) -v- Cam and Sons Limited (1936) 3 ATD 32, the Full Court of the Supreme Court of New South Wales considered the source of wages paid to fisherman who went on fish trawling voyages. It was held that the all-important factor was the doing of the work, and that the contract of employment and the payment are relatively insignificant and formal elements. The Court held that the wages earned should be apportioned in proportion with the time spent in and out of the territorial waters. In FC of T -v- French (1957) 98 CLR 398 the High Court of Australia considered income earned by an employee who went to New Zealand each year as an inspecting engineer. The High Court held by a majority of 3 to 2 that the source of income was where the employee performed his work, thereby earning his salary. It was said that the real source of the income in any practical sense is the place where the personal exertion takes place. The Full Court of the High Court of Australia again considered the issue in FC of T -V- Mitchum (1965) 113 CER 401, cautioning against assumptions and rules of law. It was reiterated by the Court that the source of income for tax purposes is an issue of fact. There are four New Zealand decisions of the Taxation Review Authority on point. In Case E46 (1982) 5 NZTC 59, 277 the Taxation Review Authority referred to the decisions of the High Court of Australia in the French and Mitchum cases. The facts of Case E46 were that an army officer was posted overseas for two years, 31 accompanied by his wife and family. He continued to be paid through the Defence Department in New Zealand, receiving his net pay once converted into foreign currency. The Authority held that a source of his income was New Zealand, weight being placed on the fact that the army officer's remuneration stems from a New Zealand statute, and his salary did not change upon his posting, only the actual paying office changed. By contrast, in the present case, the very nature of an "overseas allowance" is that it only arises by virtue of the overseas posting. In Case E46 the Authority went on to state (at p 59,280) that the emphasis must be on where the entitlement arises. In this case the entitlement to the overseas allowance necessarily arises outside New Zealand. Further distinguishing features between the current situation and Case E46 are that army officer's family home had been rented out in New Zealand, and he had definite plans to return to New Zealand. There are three principal New Zealand cases relating to study leave. In two of the decisions, Case H6 (1986) 8 NZTC 147 and Case F150 (1984) 6 NZTC 60,309, the Taxation Review Authority held that the source of income was New Zealand, essentially because the reason for the overseas study leave was work already performed in New Zealand, and the study entitlement arose out of the New Zealand employment. 32 Similarly, in a third decision, Case P17 (1992) 14 NZTC 4,115, a Telecom employee entered into a contract in New Zealand whereby he was required to serve Telecom for three years in New Zealand on his return from study leave in the United Kingdom, or pay a bond. The Taxation Review Authority held that the payments received while he was in the United Kingdom were derived from New Zealand. SUBMISSIONS OF THE RESPONDENT ON DERIVATION OF INCOME In the present case the appellants received a "local allowance" in Nigeria, topped up by an "overseas allowance" paid to their New Zealand bank account. It is a distinguishing feature of this case that the overseas allowance was payable by virtue of the appellants being appointed to Nigeria. If the Rives had returned to New Zealand they would not have continued receiving an overseas allowance. That factor clearly distinguishes the case from others. The Rives had taken an oath offallegiance of a religious nature to the Salvation Army. In it they undertook to perform voluntary work, and they undertook to serve overseas if required. The appellants acknowledge in their affidavits that they were under an obligation to go to Nigeria. The appellants were prohibited from receiving "wages" by their undertakings. They were not required to perform any particular specified duties, and they were subject to Salvation Army law and discipline. The appellants were certainly not employees in the normal sense. 33 The payment of an allowance by the Salvation Army was not particular to New Zealand, nor was it ultimately governed in New Zealand. It was an international arrangement. There was no contractual commitment by the appellants to an employer or principal in New Zealand, thereby negating the category in section 243(2)(c) of the Income Tax Act 1976. In terms of C of T (NSW) -v- Cam and Sons Lid, (supra) the "all-important factor" was the doing of the work and the posting in Nigeria. The commitment and the allowance were relatively insignificant elements. In summary, it is submitted that the receipt of income by the appellants in their New Zealand bank account was not "income derived in New Zealand" within the meaning of r 3(5) of the Ordinary Residence Regulations. Therefore, r 3(5) cannot assist the appellants to show that they had a permanent place of abode in New Zealand. INTENTION TO RESUME RESIDENCE IN NZ It is a further condition of r 3(5) that the person must intend to "resume a place of abode in New Zealand. It is again submitted for the respondent that the appellants expected their mission in Nigeria to continue indefinitely for at least six months from their previous period in 34 New Zealand, ending on 17 May 1992. The nature of a Salvation Army posting is that it was not known when or if it would terminate. Nor did the appellants know whether they would be required to go on a further posting soon after they returned to New Zealand. They had of course been posted to Nigeria just a short time after their returning from a two year posting in Fiji. For this reason also, r 3(5) cannot assist the appellants to show that they had a permanent place of abode in New Zealand. THE LAW Under s9 of the Accident Rehabilitation and Compensation Insurance Act 1992 (the Act), if personal injury is suffered outside New Zealand by any person who is ordinarily resident in New Zealand for which there would have been cover under s8 of the Act had the personal injury occurred in New Zealand (which would have been covered in this case), the Act will apply in respect of that personal injury. Section 3 provides that "Employment" is defined as work engaged in or carried out for the purpose of pecuniary gain or profit and that "Ordinarily resident in New Zealand" has the meaning assigned to it in the regulations made under the Act. PERMANENT PLACE OF ABODE The relevant portion of that regulation, r3(1) of The Accident Rehabilitation and Compensation Insurance (Ordinary Residence Definition) Regulation 1992 provides 35 that a person who is ordinarily resident in New Zealand means any person who is a New Zealand citizen and whose permanent place of abode is in New Zealand, whether or not that person has a place of abode outside New Zealand. Regulation 3(5) provides that a person shall not cease to have a permanent place of abode in New Zealand by reasons of absence from New Zealand primarily in connection with duties of that person's employment, the remuneration which for which is treated as income derived in New Zealand for New Zealand tax purposes, or for 6 months following the completion of the period of employment outside New Zealand so long as that person intends to resume a place of abode in New Zealand. I consider this is the appropriate provision to use in determining whether the appellants were ordinarily resident in New Zealand. It therefore is necessary to determine: (1) Whether the appellants were employed; and (2)If so, whether such employment income is derived in New Zealand; and (3) Whether the appellant intended to resume a place of abode in New Zealand. Counsel for the respondent (at para 5.1 of submissions) accepted that the Income Tax Act 1976 is the legislation relevant to determining this appeal since that was the applicable tax law at the time of the Corporation's initial decision. Counsel for the respondent submitted that $241 of the Income Tax Act was of no direct relevance to the Ordinary Residence Definition Regulations other than to r3(1)(a). I do not consider this of importance in the present context as the issue to be determined in the 36 context of the Income Tax legislation is the derivation of income as provided for in 13(5), which is dealt with under $243 of the Income Tax Act. Section 243 of the Income Tax Act 1976 describes the classes of income deemed to be derived "from" New Zealand. Counsel for the respondent noted that the Ordinary Residence Definition Regulation refers to income derived "in" New Zealand and that there is significance that different words were used and that, at most, $243 is only a guide to the interpretation of r3(5). I do not accept this. The relevant part of r3(5) states: "...the remuneration for which is treated as income derived in New Zealand for New Zealand income tax purposes..." I consider that this part of the Regulation imports the income tax tests of derivation of income for use in the Ordinary Residence Regulation. Section 243(2) of the Income Tax Act specifies when income has been derived from New Zealand. The appellants sought to rely on s$243(2)(c); (0) and (r). Section 243(2)(c) includes all salaries, wages, allowances, and emoluments of any kind earned in New Zealand in the service of any employer or principal, whether resident in New Zealand or elsewhere: 37 Counsel for the respondent cited page 38,222 of New Zealand Income Tax Law and Practice which stated that there was an absence of authoritative exposition on the meaning of this test of whether the income is earned in New Zealand and that some of the possibilities are that personal services income may be earned in the place where; . the contract of employment was made; payment for the services took place; or . the services were actually performed. APPELLANTS EMPLOYMENT The respondent submitted that there was no contract of employment (para 5.9 of submissions). In "Working for God: Contract or Calling" Buckingham 1994 VUWLR 209, this very issue was discussed. The author stated (at pp209 - 210) "Obviously, the common law will only protect the relationship between minister and Church if the minister is an employee at common law. New Zealand also has a comprehensive web of legislation regulating the terms and conditions of employment. Eligibility for statutory protection depends on their defined scope. The definitions in the Income Tax Act 1976 and the Accident Rehabilitation and Compensation Insurance Act 1992 appear to encompass the relationship between minister and church." The author supports this proposition in footnote 3 which states: "Section 2 of the Income Tax Act 1976 defines an employee as "a person who receives or is entitled to receive a source deduction payment". A source 38 deduction payment under so means a payment by way of salary or wages, and "salary or wages" in s2 includes "remuneration of any kind, in respect of or in relation to the employment of that person". The sole criterion in this broad, albeit circular, definition appears to be the receipt of remuneration. In Salvation Army, Canada East -v- Ontario (A-G) (1992) 88 DLR (4th) 238, Henry J applied the Pension Benefits Act 1987 (Ont Canada), which defined "employee" in terms of the receipt of remuneration, to officers of the Salvation Army. In the Accident Rehabilitation and Compensation Insurance Act 1992, "employee" means any person receiving remuneration for tax purposes within the definitions of the Income Tax Act. However, "employment" is defined as "work engaged in or carried out for the purposes of pecuniary gain or profit". It is arguable this excludes purely voluntary, non- profit, charitable institutions such as churches. However, the Court in Salvation Army v Canterbury Hotel Employees Union [1985] 2 NZLR 366 adopted a wide interpretation of the phrase: non-profit motives of the employer were irrelevant, and it was not necessary to show an overall profit. It was enough that services were performed and the employer intended to acquire gain from the services. Fees from patients were received by the Army and contributed to the expenses of the home. It is arguable that the work of ministers, which results in donations and collections which help finance the work and operation of the church, is work carried out for pecuniary gain or profit." I consider that the arrangement which the appellants had entered into with the Salvation Army is within the scope of employment as contemplated in $243(2)(c) of the Income Tax Act and r3(5) of the Ordinary Residence Definition Regulation. The appellants were paid an overseas allowance and furlough allowance in the 1991/92 financial year and an overseas allowance and end of term allowance in the 1992/93 39 financial year by the Territorial Head Quarters of the Salvation Army in Wellington. The Salvation Army's aims were being furthered by the appellants overseas service. DERIVATION OF INCOME It is clear that payment for the services took place in New Zealand (see Mr Rive's second affidavit para 12 where he states that the overseas living allowance paid by Territorial HQ was paid into the appellant's New Zealand bank account). Counsel for the respondent cited a number of authorities on the issue and submitted that the income of the appellants was not derived in New Zealand. These include TRA Case E46 (supra), which dealt with a very similar fact situation to the present case, in that the tax payer was an army officer posted overseas for 2 years and was paid by the Defence Department in New Zealand. Barber DCJ held that the tax payer's income was derived in New Zealand. Counsel for the respondent sought to distinguish this decision on the basis that the tax payer in that case gained his remuneration from a New Zealand statute and that his salary did not change upon posting and that by contrast the very nature of an overseas allowance for the appellants is that it arises only by virtue of the overseas posting. I do not consider these differences to be of significance. Firstly, the fact that the tax payer in Case E 46 was paid under a New Zealand statute is no different in principle to the payment of the appellants in the present case for these purposes, as in both cases the employers were under an obligation pursuant to an undertaking, to pay the tax payers for their services performed whilst abroad. The appellants would still have 40 received an income from the Salvation Army if working in New Zealand, just as the tax payer in Case E 46. Counsel for the respondent also submitted that in Case E 46 the army officer's family home had been rented out in New Zealand and that he had definite plans to return to New Zealand and that these facts were to be distinguished from the present case. It was however stated in Mr Rive's first affidavit (at paras 13 to 17) of their intention to return to New Zealand following their overseas appointment. With respect to their home contents, there is evidence that the majority of these were stored in New Zealand and that the only items which the Rive's took with them were the essential items they required when they were overseas. I do not consider the fact that the appellants did not own a home in New Zealand to be of a significant distinction to Case E 46, as there was no need for the appellants to own their own home as the Salvation Army provided them with accommodation. Furthermore, the appellants desire to remain Parliamentary Electors and the fact that they were filing tax returns indicated an acceptance that New Zealand was their permanent place of abode. I accept that the appellants have shown a definite intention to return to New Zealand following their posting. I also accept other factors noted in the appellant's submissions (and noted in this judgment) regarding the areas of similarity between the present situation and case E 46. I have considered the other authorities cited by counsel for the respondent on the issue of derivation of income, however I do not consider that they advance the respondent's case. 41 In view of my above findings it is not necessary for me to deal with whether $243(2)(r) applies, however for the same reasons as I consider $243(2)(c) applies, I consider that the payments would be within the scope of $243(2)(r). The Review Officer did not consider the implications of $243 of the Income Tax Act which I consider as crucial in determining residence for the purposes of r3(5) of the Ordinary Residence Definition Regulation- In the context of the Income Tax Act he only discussed the issue of source deduction payments and the reciprocal double taxation agreements (of which he found no evidence of an agreement between New Zealand and Nigeria). CONCLUSION The appellants fall within the criteria of ordinarily resident in New Zealand as described in s9 of the Accident Rehabilitation and Compensation Insurance Act 1992, by virtue of satisfying 13(5) of the Accident Rehabilitation and Compensation Insurance (Ordinary Residence Definition) Regulation 1992 in accordance with the income derivation tests of $243 of the Income Tax Act 1976. The appeal is allowed The Appellants are entitled to costs. If these cannot be agreed then leave is granted to either party to apply. -................ .... Jane H. Lovell-Smith District Court Judge