Cessnock Holden Central Pty Ltd and Commissioner of Taxation (Taxation)

[2021] AATA 2576

Cessnock Holden Central Pty Ltd and Commissioner of Taxation (Taxation) [2021] AATA 2576 (29 July 2021)

Division:SMALL BUSINESS TAXATION DIVISION

File Number:2021/0068          

Re:Cessnock Holden Central Pty Ltd  

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member R Olding

Date:29 July 2021

Place:Sydney

The decision under review is affirmed.

...........................[SGD].............................................

Senior Member R Olding

CATCHWORDS

TAXATION – JOBKEEPER PAYMENTS – where applicant incorporated on 16 June 2020 – where applicant cannot satisfy requirement of carrying on a business on 1 March 2020 – decision affirmed

LEGISLATION

Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules 2020 (Cth), ss 6(1), 7(1), 9(1), 9(6)

CASES

Slatter Building Group Pty Ltd and Commissioner of Taxation [2021] AATA 456

REASONS FOR DECISION

Senior Member R Olding

29 JULY 2021

1. The applicant was incorporated on 16 June 2020 to acquire the Cessnock Holden business from Cessnock City Motor Group Pty Ltd (“Cessnock City”). The sale was completed on or about 1 August 2020.

2. Mr Jorge Lamas is the sole director and shareholder of the applicant. Before entering into an earlier initial agreement to acquire the business, Mr Lamas says that he and his advisers reviewed the Australian Taxation Office (“ATO”) website to check whether the applicant would be eligible for JobKeeper payments for former employees of Cessnock City’s Cessnock Holden business if they were to be employed by the applicant.

3. Upon finding a statement in these terms he says was on the ATO website, Mr Lamas was reassured the applicant would be eligible for these JobKeeper payments:

   We acquired a new business after March 1, 2020. Can we claim the JobKeeper Payment for the employees that we have taken on?

   An individual can be an eligible employee of an entity even if the business in which the individual is employed changes hands after 1 March 2020. Therefore, these employees can be regarded as eligible employees of their new employer and the new employer can claim JobKeeper payments from the ATO for them.[1]

   [1]Although recited in the ATO’s letter of 15 April 2021 to the applicant (ST 13), it is not altogether clear from the materials filed whether the ATO concedes that the entry appeared on its website in these terms at the relevant time. However, as noted below, it is the terms of the legislation and not guidance in website entries that govern eligibility for JobKeeper payments. It is no part of my role to make any observation regarding the appropriateness or otherwise of such an entry, especially when I have not considered the context in which it may have appeared. 

4. So reassured, Mr Lamas proceeded with the purchase of the business by the applicant which duly engaged former employees of Cessnock City and paid them wages in the expectation of receiving JobKeeper payments for them for August and September 2020.

5. That expectation was dashed when the ATO advised the applicant that it was not eligible for the JobKeeper payments it sought. The reason given by the ATO was that the applicant did not satisfy key JobKeeper eligibility requirements - that it carried on a business on 1 March 2020 and suffered a decline in turnover.

6. The applicant objected to that decision. The Commissioner disallowed the objection on 8 December 2020. It is that objection decision which is before the Tribunal for review. The Tribunal’s task is to decide the matter afresh based on the applicable legislation and the facts relevant to the requirements of the legislation.

   LEGISLATIVE FRAMEWORK

7. The eligibility requirements for JobKeeper payments are found in the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules 2020 (Cth). All legislative references in these reasons are to those rules.[2]

   [2] Mr Lamas referred to changes in the Rules and suggested the version applicable to the applicant’s circumstances may be more favourable than the current provisions. It is true that there have been various amendments to the Rules over time. I have decided this matter by reference to the Rules applicable at the relevant time. In any case, the fundamental provisions cited in these reasons have not relevantly changed.

8. Section 6(1) specifies when an employer is entitled to a JobKeeper payment for an individual for a fortnight. The requirements for eligibility include that:

   . . .

   (b) the employer qualifies for the jobkeeper scheme at or before the end of the fortnight (see section 7); and

   (c) the individual is an eligible employee of the employer for the fortnight (see section 9);

   . . .

9. Subject to exceptions that are not relevant for the current matter, s 7(1) relevantly provides that:

   . . . an entity qualifies for the jobkeeper scheme at a time if:

   (a) on 1 March 2020, the entity:

   (i) carried on a business in Australia; . . .; and

   (b) the entity has satisfied the decline in turnover test at or before the time (see sections 8 and 8A).

10. There are other eligibility requirements but as these are not in dispute it is not necessary to set them out.

11. Section 9(1) provides, again subject to exceptions and qualifications that are not relevant for the current matter, that an individual is an eligible employee for a fortnight if the individual is employed by the entity at any time in the fortnight.

12. Section 9(6) states:

    Businesses that change hands etc.

    (6)  For the purposes of this section, treat an entity (the later entity) that employs an individual at a time (the later time) as having also employed the individual at an earlier time if:

    (a)  the individual was employed at the earlier time by another entity in the same wholly‑owned group as the later entity; or

    (b)  both of the following apply:

    (i)  at the later time, the individual is employed in a business carried on by the later entity or in a non‑profit body the purposes of which are carried on by the later entity;

    (ii)  at the earlier time, the individual was employed in the same business or non‑profit body, but that business was, or the purposes of that non‑profit body were, carried on by a different entity.

    Note 1:       Paragraph (b) means that an individual can be an eligible employee of an entity even if the business or non‑profit body in which the individual is employed changes hands after 1 March 2020.

    Note 2:       Paragraph (b) also means that, in working out if an individual is a long term casual employee of an entity at a time, employment in a business or non‑profit body during the period of 12 months that ended at that time can be counted even if the business or non‑profit body changed hands during that period.

    IS THE APPLICANT ELIGIBLE FOR JOBKEEPER PAYMENTS?

13. It is apparent from the extracted provisions that the JobKeeper eligibility requirements apply in respect of the employer entity.[3] The applicant cannot satisfy the requirement under s 7(1)(a)(i) that it carried on a business in Australia on 1 March 2020 because it did not exist on that day. That being so, it is unnecessary to consider whether for related reasons it is also, as the Commissioner submits, unable to satisfy the decline in turnover test in s 7(1)(b).

    [3] For similar reasons to those set out in Slatter Building Group Pty Ltd and Commissioner of Taxation [2021] AATA 456 in respect of the cash flow boost legislation, which it is not necessary to repeat here, it is not possible to give the expression “entity” in s 7 a meaning that would embrace both the applicant and Cessnock City, such that the applicant could be regarded for the purposes of that section as an entity carrying on a business at 1 March 2020.

14. The applicant’s relevant employees fall within the category specified in s 9(6)(b): they were employed by the applicant in August and September 2020 and at an earlier time were employed by Cessnock City in the same business. However, that does not assist the applicant. As the opening words of the subsection confirm, s 9(6) only applies for the purposes of s 9, which defines “eligible employees”. It does not overcome the applicant’s fundamental difficulty in this matter that it did not exist on 1 March 2020 and therefore cannot satisfy the requirement that it carried on business on that date.[4]

    [4] I have considered whether this application of s 9(6) would leave it with no work to do and thus suggest an alternative to its literal interpretation should be considered. However, s 9(6) would apply in its terms where, for example, an entity in existence and carrying on a business in Australia at 1 March 2020 later acquired another business and took over the employment of the former employees of the other business.

15. As there is no other basis on which eligibility for JobKeeper payments might be considered, the applicant does not meet the eligibility requirements.

16. This may seem harsh to applicant. It is unfortunate if Mr Lamas was misled by or misunderstood the commentary on the ATO website although, notably, the extract provided did not refer to the applicant’s situation; that is, a company not in existence at 1 March 2020. The Tribunal can only decide the review by applying the relevant legislation. Commentary that may have appeared on the ATO website is irrelevant to that task. There is no discretion available to the Tribunal if the legislative requirements are not satisfied.

17. It follows that I must affirm the objection decision.

I certify that the preceding 17 (seventeen) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding

................................[SGD]........................................

Associate

Dated: 29 July 2021

Date of hearing:	Decided on the papers without an oral hearing.
Advocate for the Applicant:	J Lamas
Advocate for the Respondent:	A Meo
Solicitors for the Respondent:	ATO Review & Dispute Resolution