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Thiele v FCT [2022] AATA 2123 – Taxpayer denied CFB after taking over partnership business as sole trader
The AAT has held that an applicant who carried on a business in partnership that they then took over as a sole trader was ineligible for the cash flow boost (CFB) due to an amount not having been included in their assessable income for the 2018-19 income year that related to them carrying on a business, but not for the reasons advanced by the Commissioner.
The applicant carried on a business in partnership until he acquired his partner’s interest and began conducting the business as a sole trader from 1 February 2020. The partnership had lodged a tax return for the 2018-19 year disclosing a loss and the applicant’s share of the loss was reflected in his personal income tax return for the same year. The applicant applied for the CFB but the Commissioner rejected their application, stating they did not qualify for the CFB because they were not the same ‘entity’ as the partnership that had conducted the business until 31 January 2020. The applicant applied to the AAT for review.
The principal issue was whether section 5(5)(a) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth) was satisfied. The Commissioner contended the applicant did not satisfy the provision because he did not ‘come into existence’ until 10 January 2020, the date on which the applicant was registered on the ABR as a sole trader and allocated an ABN. The Commissioner also considered the applicant could not have included an amount relating to carrying on a business in his assessable income in the 2018-19 income year as it was the partnership, not the applicant, that had carried on the business in 2018-19. The applicant, on the other hand, submitted he qualified for the CFB as his share of the assessable income of the partnership in the 2018-19 income year related to the business he had carried on in partnership with his business partner.
The AAT rejected the Commissioner’s arguments but nevertheless still affirmed the objection decision under review. Firstly, in the absence of any legislative provision to the contrary, it was clear that the applicant (an adult natural person) did not first come into existence on 10 January 2020. Moreover, the AAT found the conclusion that an individual could not meet the section 5(5)(a) requirement through an amount being included in their assessable income in relation to their carrying on business as a partner in a business was not open, as section 92(1) of the ITAA 1936 expressly provides that the assessable income of a partner includes the partner’s individual interest in the partnership’s net income. However, where a partnership has incurred a ‘partnership loss’, section 92(2) provides there is an allowable deduction to each partner for their individual interest in the partnership’s loss. As such, given that the partnership had incurred a loss in 2018-19, there was no amount that could be included in the applicant’s assessable income from the partnership’s business. It therefore followed that the applicant did not satisfy the eligibility requirement in section 5(5)(a).
Chief Commissioner of State Revenue (NSW) v E Group Security Pty Ltd [2022] NSWSCA 115 – Employment agency contract test for NSW payroll tax purposes upheld
The NSW Court of Appeal has held that the Chief Commissioner of State Revenue for NSW advanced no compelling reason to depart from the ‘employment agency contract’ test set out in UNSW Global Pty Ltd v Chief Commissioner of State Revenue (NSW) [2016] NSWSC 1852 (UNSW Global).
The taxpayer was the main operating company in a group that provided security services to its clients. Following an audit, the Commissioner assessed the taxpayer for payroll tax (either (a) as an employment agent or (b) under the grouping provisions of the Payroll Tax Act 2007 NSW)) for the years ending 30 June 2016 to 30 June 2018 in relation to the wages of security guards whose services had been sub-contracted from third parties. The taxpayer sought review of the assessments.
The primary judge, Ward CJ, held that the arrangements through which the taxpayer provided security guard services to its clients did not constitute employment agency contracts and did not give rise to payroll tax liability. The payroll tax assessments were therefore revoked. It had been common ground before the primary judge that the meaning of the phrase ‘employment agency contract’ was to be construed in accordance with the reasoning in UNSW Global at [62]. Namely, that an employment agency contract was a contract under which ‘a person procures the services of another person in and for the conduct of the business of the employment agent’s client’. The Commissioner appealed against Ward CJ’s first instance decision and, upon the suggestion in Bonner v Chief Commissioner of State Revenue (NSW) [2022] NSWSC 441 that UNSW Global was erroneous and warranted appellate review, amended his notice of appeal to request that the Court of Appeal reconsider the existing case law.
The Court of Appeal ultimately rejected the Commissioner’s contention that the UNSW Global test should be reconsidered. The reasons for this were that:
- as the Commissioner originally proposed the test adopted in UNSW Global, had consistently propounded it, and had regularly commenced and defended litigation based on the employment agency contract deeming provisions, in circumstances where the legislation had been reviewed very regularly there was a powerful inference that the legislature should be taken to have endorsed the UNSW Global test;
- the construction in UNSW Global reflects a ‘not unnatural’ meaning of the statutory words ‘procures the services of another person for a client of the employment agent’ and accords with the purpose of the Act by capturing relationships that fall short of traditional employer/employee relationships and deeming them to be such; and
- accordingly, there was no compelling reason to depart from the UNSW Global test.
As such, the Court of Appeal dismissed grounds 1-3 of the Commissioner’s amended notice of appeal and ordered that the balance of the appeal be listed for directions before a Registrar.
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