Ghasemipoor (Migration)

[2021] AATA 2495

Ghasemipoor (Migration) [2021] AATA 2495 (24 June 2021)

DECISION RECORD

DIVISION:Migration & Refugee Division

APPLICANTS:  

Mr Afshin Ghasemipoor

Mr Soheil Ghasemipoor

Mrs Maryam Kazemi

CASE NUMBER:  1932353

HOME AFFAIRS REFERENCE(S): BCC2017/4883108 BCC2017/4996843

MEMBER:Susan Hoffman

DATE:24 June 2021

PLACE OF DECISION:  Perth

DECISION:The Tribunal affirms the decision not to grant the visa applicants Business Skills (Residence) (Class DF) visas.

Statement made on 24 June 2021 at 11:04am

CATCHWORDS
MIGRATION – Business Skills (Residence) (Class DF) visa – Subclass 892 (State/Territory Sponsored Business Owner) – business and personal assets – assets in main business – value of net assets in the business – goodwill – Australian Accounting Standards Board (AASB) Standard 138 – internally generated goodwill – decision under review affirmed

LEGISLATION
Migration Act 1958 (Cth), s 65
Migration Regulations 1994 (Cth), Schedule 2, cl 892.212

CASES
Nguyen (Migration) [2017] AATA 866

STATEMENT OF DECISION AND REASONS

APPLICATION FOR REVIEW

1. This is an application for review of a decision made by a delegate of the Minister for Home Affairs on 25 October 2019 to refuse to grant the visa applicants Business Skills (Residence) (Class DF) visas under s.65 of the Migration Act 1958 (the Act).

2. The applicants applied for the visas on 19 December 2017. At the time of application, Class DF contained four subclasses: 890 (Business Owner), Subclass 891 (Investor), Subclass 892 (State/Territory Business Owner) and 893 (State/Territory Sponsored Investor). The applicants in this case are seeking to satisfy the criteria for the grant of Subclass 892 (State/Territory Business Owner) visas, as set out in Part 892 of Schedule 2 to the Migration Regulations 1994 (the Regulations). At least one member of the family unit must satisfy the primary criteria set out in Subdivision 892.2. The others need only to satisfy the secondary criteria set out in Subdivision 892.3.

3. The delegate in this case refused to grant the visas on the basis that the first named visa applicant did not satisfy the requirements of cl.892.212 of Schedule 2 to the Regulations for reasons set out below.

4. The primary applicant and his wife, Mrs Kazemi, appeared before the Tribunal on 17 June 2021 to give evidence and present arguments. The Tribunal hearing was conducted with the assistance of an interpreter in the Farsi (Persian) and English languages.

5. The applicants were represented in relation to the review by Ms Nasim Nazari Adli.  

6. Written submissions were made on 15 June 2021 and after the hearing on 21 June 2021.

7. For the following reasons, the Tribunal has decided that the decision under review should be affirmed.

   CONSIDERATION OF CLAIMS AND EVIDENCE

8. The main issue in this case is whether goodwill of AUD125,000 at 15 December 2016 and AUD172,000 at 15 December 2017 should be taken into account when ascertaining the value of business and personal assets.

   Requirements relating to applicant’s assets

9. Clause 892.212 (set out in full as an attachment to this statement) requires the applicant to meet certain requirements broadly relating to their assets. This provision does not need to be met if the appropriate regional authority has determined that there are exceptional circumstances. Otherwise, at least two of the following three criteria must be met:

   ·Australian employment (cl.892.212(a)): in the 12 months ending immediately before the visa application was made, the main business(es) in Australia of the applicant, the applicant’s spouse or de facto partner, or the applicant and spouse or de facto partner together employed at least one full time employee over that 12 month period (or employed a number of employees for a total number of hours equivalent to that which would have been worked by one full time employee) who is not the applicant or a member of their family unit and who is an Australian citizen, Australian permanent resident or New Zealand passport holder;

   ·Business & personal assets (cl.892.212(b)): at the time of visa application and throughout the period of 12 months immediately before the time of application, the net value of the business and personal assets in Australia of the applicant, or the applicant’s spouse or de facto partner or their assets combined had a net value of at least AUD250 000. Further, these assets must have been lawfully acquired;

   ·Assets in main business (cl.892.212(c)): at the time of visa application and in the 12 months immediately before the time of application, the total value of the net assets in the main business(es) in Australia of the applicant, or the applicant’s spouse or de facto partner, or the applicant and his spouse or de facto partner together have a net value of at least AUD75 000. Further, these assets must have been lawfully acquired.

10. The main business nominated by the applicant is Darchin Pty Ltd trading as Shiraz Café. According to the records of the Australian Securities and Investment Commission (ASIC), the company was registered on 22 April 2013 and the business name of Shiraz Café was registered on 15 August 2013.

11. The relevant regional authority in this case is Victoria’s Department of Economic Development, Jobs, Transport and Resources (DEDJTR). That agency stamped Form 949 on 15 September 2017, according to which it did not determine that there were exceptional circumstances in this case. That being the case, none of the requirements set out in cl.892.212 were waived.

12. Accordingly, the Tribunal has considered whether the substantive requirements of this criterion are met.

13. In the visa application form dated 10 November 2017, the applicant completed the sections to do with net assets in the main business and to do with his and his spouse’s net assets. He did not provide information on the form to do with full-time equivalent (FTE) employees.

14. According to information provided to the Department, which was dated 20 December 2017, the business was a family business run by the applicant and his wife, with help from their son during the school holidays.

15. At the hearing the applicant confirmed that he was seeking to meet the requirements of cl. 892.212 based on business and personal assets, and not FTEs.

16. That being the case, the Tribunal will not consider FTE’s any further. This means the applicant must satisfy the two requirements to do with assets, and if he fails to meet one of those, he cannot meet the criteria for the grant of a subclass 892 visa.

17. Cl.892.212(b) requires that the business and personal assets owned by the applicant and his wife had a net value of at least AUD250,000 during the 12-month period prior to the visa application being lodged which was done on 19 December 2017. The applicant provided the Department with a Statement of Assets and Liabilities (the Statement), as follows:

30 April 2017 AUD	30 April 2016 AUD
Personal Assets
Persian carpets	18,500	18,500
Jewellery	34,880	34,880
Car	4,050	4,050
Household contents	24,815	24,815
Total value of personal assets	82,245	82,245
Value of net assets in business	216,451	148,821
Liabilities	0	0
Total	298,696	231,066

1. According to the Statement, the total of business and personal assets as at 30 April 2016 was AUD231,066 which is less than the threshold amount of AUD250,000.

2. The Tribunal asked for a post-hearing submission on this. It was submitted that the value of net assets in the business recorded in the table above, of AUD216,451 and AUD148,821, should be replaced with figures that applied on 15 December 2017 and 15 December 2016, rather than those that applied on 30 April 2016 and 2017.

3. A revised Statement, using the December figures of AUD202,111 and AUD172,808 respectively, is as follows:[1]

   [1] The Tribunal has drawn up the amended Statement, using figures included in the post-hearing submission.

15 Dec 2017 AUD	15 Dec 2016 AUD
Personal Assets
Persian carpets	18,500	18,500
Jewellery	34,880	34,880
Car	4,050	4,050
Household contents	24,815	24,815
Total value of personal assets	82,245	82,245
Value of net assets in business	202,111	172,808
Liabilities	0	0
Total	284,356	255,053

1. Both sets of figures - the April and December figures – for net assets in the business included amounts for goodwill. According to a balance sheet as at 15 December 2017, which included comparative figures as at 15 December 2016, goodwill was recorded as AUD172,000 and AUD125,000 respectively.

2. Generally, goodwill appears in a balance sheet where a company has purchased a business and part of the purchase cost is described as ‘goodwill’ – this could be to place a value on the customer base that the new owner will inherit when purchasing the business and/or the reputation of the business, that benefits the new owner.

3. In a statement provided to the Department, the applicant wrote that he established the business from scratch. That is, he did not purchase an ongoing business. Ms Heather Sparrow, the director of Krystal Accounting, provided a letter dated 11 October 2019. She wrote that the business premises were subject to a fire before the applicant took over so there was no purchase price for the business; everything had to be rebuilt from scratch.

4. In her letter, Ms Sparrow wrote about the goodwill recorded in the balance sheet. She referred to the Australian Accounting Standards Board (AASB) Standard 138 (AASB138) which addresses intangible assets and AASB3 – Goodwill acquired in a business combination. Goodwill is an intangible asset.

5. Ms Sparrow wrote that these accounting standards apply to reporting entities which are required to produce financial statements in accordance with Australian Accounting Standards. However non-reporting entities are not required to adhere to these standards.

6. Ms Sparrow contended, and the Tribunal accepts, that Darchin Pty Ltd is a non-reporting entity. She wrote that Darchin Pty Ltd produced a special purpose report for the 10 months ended 30 April 2017 that included a calculation of internally generated goodwill, and this was done for the purpose of the visa application.

7. Ms Sparrow stated the applicants had determined that goodwill should be included the financial statements for the purpose of the visa application for the following reasons:

   ·     The Department required visa applicants to show the market value of real estate and stocks and bonds. To show the business at cost (and not market value) would be inconsistent.

   ·     As the business premises were subject to a fire and everything had to be rebuilt from scratch, there was no purchase cost for the business.

   ·     Because of the location and reputation of the business, and the increase in turnover, there is no doubt goodwill exists and is a significant asset to the owners. They could sell the business quickly and easily for a good price. As a significant asset, it should be included in their statement of assets and liabilities.

   ·     In cases of divorce settlements, or business partners exiting a business, the value of goodwill is recognised. Therefore, there are circumstances, other than the sale of a business, where internally generated goodwill should be recognised.

   ·     The business premises needed to be completely fitted out when it was taken over so the asset value [of, for example, fixtures and fittings] was higher then, but over time have substantially depreciated, in part due to the government’s more generous depreciation rules. It is not equitable to allow a small business accelerated depreciation for tax purposes, and for that to penalise the business for a visa application.

   ·     The goodwill was calculated using methods for valuing a business that is to be sold. These take into account the profits over the previous three years, and adjusting for items specific to the owners and not the business, such as financing costs and then weighting the profits based on their age. The weighted average method provides a current Going Concern Asset Value; i.e. the market value of the business.

8. The Tribunal does not accept that internally generated goodwill is an asset owned by the applicants. They did not pay for this in the same way as another business-owner might pay for goodwill at the time the business was purchased; or in the same way that they purchased fixtures and fittings, the value of which depreciated over time.

9. Further, when comparing goodwill generated by the sale of a business compared with internally generated goodwill, the former can be measured more accurately; the accuracy of the valuation of goodwill is tested by the market.

10. A similar principle applies when goodwill is valued for the purposes of a divorce-related property settlement, in that two parties have to come to an agreement as to the value of any goodwill, and it is therefore tested.

11. Ms Sparrow also referred to the “more generous depreciation rules for small businesses”. She made the point that if not for these rules, the value of business assets would have been higher, and that “It is not equitable to allow a small business accelerated depreciation for tax purposes for that to penalize them for a visa application”.

12. The financial statements of a business are drawn up in accordance with recognised standards. Even though a person might be of the view that a particular aspect is unfair to a visa applicant, that is not a basis for dispensing with the recognised methods of measuring the assets of the business.

13. The Tribunal was referred to Nguyen (Migration) [2017] AATA 866 which included a discussion on goodwill in relation to cl.892.212. One of the issues in that case was whether goodwill of AUD80,000 could be ascribed to the business. The background to that is not analogous to this review for the following reason. In Nguyen, the applicant had purchased a business, and the contract price had included goodwill of AUD80,000. The financial statements suggested there had been a downturn in the business and the question was whether goodwill of AUD80,000 was still appropriate, or if a lesser amount should be used. A professional valuer concluded that the market value of the goodwill had remained at AUD80,000 or had increased. The significant difference between Nguyen and this case, is that goodwill was included in the purchase of Mr Nguyen’s business. In this case the applicant did not purchase an ongoing business and so no goodwill was purchased. 

14. The Tribunal is of the view that it should follow the standards set out by the AASB with regard to goodwill, which is also consistent with departmental policy. AASB 138 states as follows:

    48. Internally generated goodwill shall not be recognised as an asset…

    49. Internally generated goodwill is not recognised as an asset because it is not an identifiable resource (ie it is not separable nor does it arise from contractual or other legal rights) controlled by the entity that can be measured reliably at cost.

15. That being the case, the Tribunal determines that goodwill is not to be included as part of the assets of the business.

16. Without goodwill included, as at 15 Dec 2017, the applicant’s and spouse’s net assets in the business were AUD30,111 (AUD202,111 – AUD172,000). A director’s loan of AUD7,488 can be added back, giving a total of AUD37,599.

17. The total of their personal and business assets amounted to AUD119,844 as at 15 December 2017 (AUD37,599 + AUD82,245).

18. Without goodwill included, as at 15 December 2016, the applicant’s and spouse’s net assets in the business were AUD47,808 (AUD172,808 – AUD125,000). A director’s loan of AUD12,709 can be added back, giving a total of AUD60,517.

19. The total of their personal and business assets amounted to AUD142,762 as at 15 December 2016 (AUD60,517 + AUD82,245).

20. In other words, excluding goodwill results in the value of the applicant’s and his spouse’s net assets in the business being AUD37,599 as at 15 December 2017 and AUD60,517 as at 15 December 2016. This means the threshold amount of AUD75,000 is not reached, as required by cl.892.212(c).

21. Excluding goodwill results in the total of business and personal assets being AUD119,844 and AUD142,762 at the relevant dates and therefore below the AUD250,000 threshold required by cl.892.212(b).

    CONCLUDING FINDING

22. Given the findings above, the Tribunal is not satisfied that cl.892.212 is met. As one of the essential requirements for the visa is not met, the decision under review must be affirmed.

    DECISION

23. The Tribunal affirms the decision not to grant the applicants Business Skills (Residence) (Class DF) visas.

    Susan Hoffman
    Member

    
    

    ATTACHMENT - LEGISLATION

    Migration Regulations 1994

    Cl. 892.212
    Unless the appropriate regional authority has determined that there are exceptional circumstances, the applicant meets at least 2 of the following requirements:
    (a) in the period of 12 months ending immediately before the application is made, the main business in Australia, or main businesses in Australia, of the applicant, the applicant’s spouse or de facto partner, or the applicant and his or her spouse or de facto partner together:

    (i) provided an employee, or employees, with a total number of hours of employment at least equivalent to the total number of hours that would have been worked by 1 full-time employee over that period of 12 months; and

    (ii) provided those hours of employment to an employee, or employees, who:

    (A) were not the applicant or a member of the family unit of the applicant; and

    (B) were Australian citizens, Australian permanent residents or New Zealand passport holders;

    (b) the business and personal assets in Australia of the applicant, the applicant’s spouse or de facto partner, or the applicant and his or her spouse or de facto partner together:

    (i) have a net value of at least AUD250 000; and

    (ii) had a net value of at least AUD250 000 throughout the period of 12 months ending immediately before the application is made; and
    (iii) have been lawfully acquired by the applicant, the applicant’s spouse or de facto partner, or the applicant and his or her spouse or de facto partner together;

    (c) the assets owned by the applicant, the applicant’s spouse or de facto partner, or the applicant and his or her spouse or de facto partner together, in the main business or main businesses in Australia:

    (i) have a net value of at least AUD75 000; and

    (ii) had a net value of at least AUD75 000 throughout the period of 12 months ending immediately before the application is made; and
    (iii) have been lawfully acquired by the applicant, the applicant’s spouse or de facto partner, or the applicant and his or her spouse or de facto partner together.