Harsono and Minister for Immigration, Multicultural and Indigenous Affairs

[2005] AATA 906

Administrative
Appeals
Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 906

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No   W2004/408

GENERAL ADMINISTRATIVE DIVISION		)
Re		SUJANTO HARSONO

Applicant

And MINISTER FOR IMMIGRATION, MULTICULTURAL AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Ms Robin Hunt, Senior Member

Date19 September 2005

PlacePerth

Decision The Tribunal affirms the decision under review.

…………………………

Ms R Hunt
  Senior Member

CATCHWORDS

MIGRATION – Business skills visa subclass 127 – Cancellation of visa – No eligible business in Australia- Insufficient genuine effort to obtain a substantial ownership interest in an eligible business in Australia - No genuine effort to utilise skills in actively participating at a senior level in day-to-day management - No exercise of discretion not to cancel visa – Decision affirmed.

LEGISLATION

Migration Act 1958 s 134, 137

Migration Series Instructions No 133 (MSI 133)

CASES

Khan v Minister for Immigration and Multicultural Affairs (1987) 14 ALD 291

Drake v Minister for Immigration and Multicultural Affairs (No 2) (1979) 2 ALD 634

McDonald v Director-General of Social Security (1984) 6 ALD 6

Lau and Minister for Immigration and Multicultural Affairs [2002] AATA 703

Griffiths and Migration Agent Registration Authority [2001] AATA 240

In ReTang and Minister for Immigration and Multicultural Affairs [2002] AATA 997

Re Jo and Minister for Immigration and Multicultural Affairs [2004] AATA 77

Re Yam and Minister for Immigration and Multicultural Affairs [2004] AATA 283

Wong and Minister for Immigration and Multicultural Affairs [2002] AATA 54

Hope v Bathurst City Council (1980) 144 CLR 1

REASONS FOR DECISION

17 September 2005  Robin Hunt, Senior Member         

INTRODUCTION

1.      Mr Sujanto Harsono applied to the Tribunal for review of a decision to cancel his business skills visa.  I have decided that Mr Harsono does not satisfy the tests required for the holding of a business skills visa and have set out my reasons below. It follows that the decision to cancel his visa is affirmed.

THE ISSUES

2.      I have to decide whether Mr Harsono’s visa should be cancelled. Whether this should occur depends on tests related to the setting up of an eligible business in Australia and its day to day management at a senior level. If Mr Harsono has failed to satisfy either of these tests, I must determine whether Mr Harsono has made genuine efforts to set up such a business or to manage it day to day at a senior level. If I am not satisfied that Mr Harsono has done so, I have discretion nevertheless to find that the visa should not be cancelled. The legislation and policy summarised below explains these criteria in more detail.

GOVERNING LEGISLATION AND POLICY

3. Section 134 of the Migration Act 1958  (the Act) sets out the law as to when it is appropriate to cancel a business visa. In particular, cancellation may occur under subsection 134(1) where criteria are not met but must not occur where criteria under subsection 134(2) are met. Subsections 134 (1) and (2) give rise to the main issues before the Tribunal.  Firstly, under subsection 134(1), they are:

·     Whether Mr Harsono has acquired a substantial ownership interest in an eligible business in Australia; or

·     Whether he has utilised his skills in actively participating at a senior level in the day to day management of an eligible business

4.      If I am satisfied that Mr Harsono fails to meet one of these criteria, cancellation does not necessarily follow. I must then see whether he meets other criteria. Under subsection 134(2), I must determine:

·     Whether Mr Harsono has made a genuine effort to acquire a substantial interest in an eligible business in Australia and, if so, whether he intends to continue making genuine efforts; and

·     Whether he has made a genuine effort to utilise his skills in participating at a senior level in the day to day management of an eligible business in Australia and, if so, whether he intends to continue making genuine efforts.

5.      I must not cancel the visa if I am satisfied that Mr Harsono meets the above tests. If I am not satisfied that Mr Harsono has made suitable efforts to acquire the requisite interest, to utilise his skills, and intends to continue to do so, I will then determine whether I should exercise the discretion available under subsection 134(1) so as to find whether Mr Harsono’s visa should be reinstated.

6.      To assist this determination, subsection 134(10) explains that business visa means a visa that includes a "Business Skills" visa. As well, the subsection provides that “eligible business” means a business that the Minister reasonably believes is resulting or will result in one or more of the following:

“

(a) the development of business links with the international market;

(b) the creation or maintenance of employment in Australia;

(c) the export of Australian goods or services;

(d) the production of goods or the provision of services that would otherwise be imported into Australia;

(e) the introduction of new or improved technology to Australia;

(f) an increase in commercial activity and competitiveness within sectors of the Australian economy.”

7.      Subsection 134(3) sets out some of the matters that the Tribunal may take into account in determining whether a person has made the “genuine effort” referred to in subsection (2). I may take into account any of the following matters, among other things:

“(a) business proposals that the person has developed;

(b) the existence of partners or joint venturers for the business proposals;

(c) research that the person has undertaken into the conduct of an eligible business in Australia;

(d) the period or periods during which the person has been present in Australia;

(e) the value of assets transferred to Australia by the person for use in obtaining an interest in an eligible business;

(f) the value of ownership interest in eligible businesses in Australia that are, or have been, held by the person;

(g) business activity that is, or has been, undertaken by the person..”

8.      In addition, in relation to subsection 134(3),  the Migration Series Instructions No 133 (MSI 133) at paragraph 4.5 lists policy factors to be considered in forming an opinion of whether a genuine effort has been made. These factors are similar to those set out in the section itself but expand upon it. Some of the indicators include:

“(a) business proposal which is considered genuine, realistic and achievable;

(b) formal contract with partners or joint venturers;

(c) written evidence of detailed consultations with at least three business advisers (accountant, lawyer, bank/financial institution, State/Territory government business development office, Austrade, business/trade association);

(d) physical presence in Australia for more than six months since first arrival as a Business Skills class migrant;

(e) transferred to, and retained in, Australia at least 50% of the funds indicated as available for transfer within two years (under Factor 4 of the Business Skills Points test);

(f) minimum A$100,000 or 10% ownership previously held by the person.  If the person is no longer in business, the reasons for loss of ownership are also relevant.

(g) minimum A$100,000 business activity as indicated by turnover.  This may include other business activity not considered “eligible business” but cannot include passive investment, eg, purchase of shares.

(h) failure to comply with a notice for information under s 137, ie mandatory monitoring of Australian address and return of survey forms.”

BACKGROUND

9. Mr Harsono was granted a sub-class 127 business skills visa on 8 June 2001. He and his wife and their two children entered Australia on 17 June 2001 as the holders of business skills visas. Mr Harsono is the primary visa holder and his family are secondary visa holders who have this class of visa depending on Mr Harsono’s status. Mr Harsono’s brother, Sutjipto Harsono, had already been granted the same class of visa and entered Australia on 18 November 2000. The brothers each own a 25% shareholding in an Australian company established in 1999, Merino Tannery Pty Ltd (Merino). Mr Harsono told the Tribunal he was the director of Merino together with his brother and two friends. Each director owns 25% of the business. Both Mr Harsono and his brother had their business visas cancelled and the Tribunal has previously reviewed the cancellation decision in respect of Mr Harsono’s brother. See [2005] AATA 550.

10.     One of the processes involved in monitoring a business visa is completion of a survey form for the Department. Mr Sujanto Harsono completed a standard “Survey of Business Skills Migrant – 24 months” form when he was asked to do so by the Department. Mr Harsono indicated in that form, which is before the Tribunal and dated 27 June 2003, that he had a 25% interest in Merino and that he usually spent 2 hours per week in the business. He declared the business carried out the export of hide and skins and machines.

11. Subsequently, the Department sent Mr Harsono a notice of intention to cancel his visa on 2 June 2004, based on concerns about his time spent in Australia and other matters. Mr Harsono responded to the notice on 8 July 2004 and advised that he was spending most of his time in Indonesia because he needed to establish and develop a business network there to market Merino’s products in Indonesia. He also advised that he had incorporated a new Australian company, AMM Australia Pty Ltd (AMM), of which he was the only shareholder. AMM’s business involved the export of sandstone. Nevertheless, the Department cancelled Mr Harsono’s visa and on 28 September 2004 notified him that his visa had been cancelled under section 134 of the Act.

analysis

12.     Mr Harsono told the Tribunal that he had wanted to come to Australia because there was racial discrimination in Indonesia in 1980 to 1990 and he and his family were scared and had suffered some trauma. He gave evidence that he set up Merino in 1999 before he travelled to Australia in 2001. He and his accountant, Mr Ridolfo,  gave evidence about business dealings and projects Mr Harsono or entities associated with Mr Harsono carried out after he came to Australia.

Has Mr Harsono acquired a substantial ownership interest in an eligible business in Australia?

13.     In deciding whether Mr Harsono’s visa should be cancelled, I have first considered whether Mr Harsono has acquired a substantial interest in an eligible business for the purposes of subsection 134(1).

Ownership Interest

14.     Mr Harsono has 25% shareholding in Merino and 100% shareholding in AMM. This is substantiated in the section 37 documents and also evidence given by Mr Ridolfo, the accountant for Mr Harsono’s companies in Australia. The MSI 133 suggests 10% may be a sufficient alternative to investment of $100,000 therefore I find that Mr Harsono has a substantial ownership interest in both Merino and in AMM. However, there is a further question as to whether Merino and AMM amount to an eligible business.  

Eligible business

15. I have found that Merino and AMM are not eligible businesses for the reasons that follow. Section 134(10) provides that an “eligible business” means a business that the Tribunal reasonably believes is resulting or will result in one or more of a number of consequences. The first of these is the development of business links with the international market.

·business links with the international market

16.      To the extent that Merino has exported hides to Mr Harsono’s Indonesian company, Merino has developed an international market. However, it is a very inconsequential market in my view as Merino makes almost no profit. The sales have resulted in business for the vendors to Merino but the link has created an artificial business that results in no benefit to Merino and little benefit to the Indonesian company. In my view, the business done has not resulted in long term viable business links with any international market. The second company, AMM has effected only one transaction and I do not accept that this amounts to links with an international market, even if further overseas buyers are located in the future. Mr Harsono had not located more buyers at the time he gave evidence to the Tribunal.

·The creation or maintenance of employment in Australia

17.      Another test in subsection 134(10) concerns employment of Australians or persons in Australia. All four directors of Merino live in Indonesia, although Mr Harsono told the Tribunal that one of them had lived in Australia around the time Merino was established. Mr Harsono said he still was a director of several named companies or businesses in Indonesia. He continued his involvement in Indonesian businesses because his business in Australia hadn't been developed properly yet. He gave oral evidence that the Merino business in Australia was the export of animal skin to Indonesia. As well, the second company AMM,  exported sandstone from Australia. He said he was also planning to import timber from Indonesia. 

18.      There is no evidence before the Tribunal that these operations directly created or maintained any employment in Australia. Mr Harsono argued that Merino’s substantial export activity indirectly created and maintained employment in Australia for the suppliers, such as Starpac and Itel Pal, as well as employment of staff of other Australian businesses required for the packing, transport and shipping of the goods it exported. He suggested the same for the AMM activities. In my view, the same opportunities would arise whether or not Mr Harsono’s enterprises were located in or out of Australia. The indirect employment claimed occurs through Mr Harsono’s enterprise based in Indonesia only for so long as it chooses to sustain the small market to justify Mr Harsono’s business visa. No real employment security has been created or maintained in Australia. Even Mr Harsono plays his role in Indonesia rather than in Australia and receives no wage or salary. Merino does not meet the employment criterion and AMM’s contribution to employment of one purchase and export is too insignificant to contemplate under the definition.

·The export of Australian goods and services

19.      As discussed under (b) above, some exports of goods have taken place. Merino has made almost no profit from these transactions. No export of services has occurred. The exports that have occurred are for the benefit of the Indonesian company, if at all. Mr Harsono says even the Indonesian company has made no profit. The exports he has engendered through Merino are of limited benefit to Australia and the expansion of its exports. Again, AMM has done only one transaction.

20.      Mr Harsono argued that he sold Merino’s product via the family business in Indonesia. However, his oral evidence clarified that the true position was that the family business in Indonesia purchased and then treated the hides in Indonesia. He then sold the processed hides for the Indonesian family business. He explained that he bought hides in Australia for his Indonesian business, PT Usaha Loka, creating a market for grade 5 hides (heads with horns). He gave evidence to the effect that it was a new product so “we have to do a lot of meeting with the buyers in Indonesia …we have to visit them one by one”.  He said that there was a lot of time that “we have to spend thinking about the business”.  He explained the business in Indonesia was a family one and they could not do business in Indonesia by letter but in gatherings and meetings with the buyers.  The hides purchased from Merino were not for a public market in Indonesia but were saleable only after processing by Usaha Loka.  I do not consider the exports undertaken by Mr Harsono support a contention that either of his companies is an eligible business or that he carries on an eligible business.

·The introduction of new or improved technology to Australia

21.      It is true that Mr Harsono has valuable experience in the tanning industry. It is easy to see how he could make a useful contribution to this industry in Australia. However, he has not succeeded in setting up an operation in Australia with Australian employees. He has not used his funds put into Merino to this end. He has, instead, used his funds to make exports of untreated low grade hides that he has to convince people in Indonesia they might buy once the Indonesian company has treated them. The product does not attract any real profit in either Australia or Indonesia according to his own evidence. He has not introduced any new or improved technology to Australia but has applied his knowledge in Indonesia. He claims that he has been able to provide advice to suppliers such as Starpac and Ital Pel, as to the best way to brine cure the hides. However, neither organisation has given any significant evidence to the Tribunal to this effect.  Mr Harsono and his companies have not met this criterion.

·Other matters

22.      Mr Harsono did not contend and I do not find that he or his companies meet the other tests of eligible business, that is, that they produced goods or services that would otherwise be imported into Australia or that they resulted in an increase in commercial activity and competitiveness within sectors of the Australian economy. Further, cases such as Hope v Bathurst City Council (1980) 144 CLR 1 provide guidance about the term “business”. The case of Hope is authority that carrying on a business is an activity undertaken on a continuous and repetitive basis for the purpose of profit. AMM has not carried on any continuous business and has to date carried out only one transaction.

23.      The judgment in Hope noted that the business concerned does not have to reach a threshold of size or turnover to qualify as an eligible business, although size and turnover may be a pointer that a business is performing well.  Mr Harsono’s businesses in Australia have not engendered any worthwhile profit. Mr Harsono, under questioning, conceded that Merino profits were low and in some instances relied on refunds of GST to cross the line between a loss and a profit. Mr Harsono submitted that his injection of $40,000 into Merino was sufficient for the business to operate as an eligible business. Mr Ridolfo gave evidence to this effect as well. While I accept that these funds were sufficient for the company to carry out its business of purchasing stock and exporting it, I do not accept that this made it an eligible business. Therefore, on balance, and taking the evidence discussed above into account, I find that Merino does not amount to an eligible business. It follows that Mr Harsono does not have any eligible business in Australia. In addition, I find AMM does not amount to an eligible business.

Does Mr Harsono utilise his skills in actively participating at a senior level in the day to day management of an eligible business?

·day to day management at a senior level

24.      Mr Harsono gave evidence that it was hard to talk about how many hours he was doing for “his business” because he was also thinking about the business that he was running in Australia so that it was “running properly”.  When asked to tell the Tribunal how much time he spent running the Australian business of Merino he said he spent more than an hour a day working in the Australian business. He gave evidence that Merino did not have an office in Australia nor in Indonesia and did not directly employ anyone. Merino did not pay him any salary. Although he agreed that he had said on the survey form that he worked 2 hours per week in the business, he thought he probably worked more hours on Merino’s business, probably around an hour a day.

25.      For development of AMM’s business, the family were lobbying many companies in Indonesia so the sandstone from Australia could be sold in Indonesia.  Mr Harsono said he still had to spend a lot of time in Indonesia looking for buyers for the Australian goods he wanted to export. He was planning to move to Australia if the companies in Australia were running well. 

26.      From Mr Harsono’s evidence I have concluded that he was actively participating at a senior level in the business of his Australian companies. Other questions, nevertheless, disqualify Mr Harsono from satisfying the requirement of day to day management of an eligible business. The degree of activity falls short of day to day management in my view. Further, I have already found above that the businesses in question were not eligible businesses.

Has Mr Harsono made genuine efforts to acquire a substantial interest in an eligible business?

27.      In looking at whether Mr Harsono has made genuine efforts for the purposes of subsection 134(2), I have taken into account not only his efforts up to the date of the cancellation of his visa but also his activities since that time. I note that Mr Harsono claims to have continuously explored avenues of business and has carried out some export of Australian goods since the cancellation. He has submitted that these activities illustrate his intentions and efforts before the cancellation. I have borne this in mind. Nevertheless, I note that, in Re Griffiths and Migration Authority [2001] AATA 240, the Tribunal concerned itself with an entitlement decision at the time the decision under review was made. Later activity is relevant only so far as it illustrates Mr Harsono’s intentions in the lead up to the cancellation.

28.      I also may take into account the matters referred to in subsection 134(3) as well as other considerations. I note that the subsection states that it does not limit the generality of matters that the Minister may take into account. I have set out my reasoning as to Mr Harsono’s efforts below.

29.      Paragraph (a) of subsection 134(3) refers to “business proposals that the person has developed”. Mr Harsono has developed supply arrangements with Starpac and Intel Pel for the supply of low grade hide stock which he exports through Merino to his family company in Indonesia. This business does not show much promise in my view as it makes little profit for Merino and Mr Harsono gave evidence that his company in Indonesia did little more than cover its costs.

30.      Business proposals for AMM as to import of timber and as to export of sandstone and marble are not extensive and very preliminary. While I accept that subsequent actions may have some bearing on genuine intentions before the cancellation date, the evidence before me suggests that Mr Harsono’s timber import and stone export proposals were not in any sense underway before the cancellation. He may have been thinking about them before that time but his meetings with suppliers and potential buyers took place after the cancellation.

31.      Concerning questions about AMM, Mr Harsono gave evidence that there was no connection between the notice of intention to cancel his visa dated 2 June 2004 (T21, pg 353) and the registration of the company, AMM, on 24 June 2004 (T22, page 502).  Mr Harsono told the Tribunal that his motive was that he wanted to be independent and have his own business here.  AMM did not have an office in Australia nor in Indonesia, it did not employ anyone and Mr Harsono did not receive any salaries or payments from AMM as yet. He had set up the company to export sandstone and to import timber. The company was registered 22 days after the notice of cancellation, dated 2 June 2004. On 17 November 2004, he went to Brisbane to see Mr Patrick to see sandstone he had ordered. The order, one container, was exported in December. This was the only export that AMM had conducted. Mr Harsono gave evidence he exported the container to CV Lisoda Raya. The export took place after Mr Harsono’s visa had been cancelled

32.      Also before the Tribunal is a letter annexed to Mr Harsono’s written statement, which is from the general manager of Australian Sandstone Industries, and refers to Mr Harsono’s meeting with him on 18 June 2004. Mr Harsono was not sure whether his first meeting with Australian Sandstone took place on the 17^th or the 18^th. Either way, it took place after issue of the notice of cancellation.

33.      Mr Harsono gave further evidence he had bought more sandstone and was looking for buyers. As to timber, Mr Harsono said he wanted to use his Australian company to purchase goods produced by his Indonesian company. He was still waiting for the licence. He said he first thought of doing this when he met with Mr Thomas Wong of J.J. Woodlands. The Tribunal had before it a letter from Mr Wong saying he met with Mr Harsono on 5 November 2004.  Mr Harsono agreed the meeting was after his visa was cancelled and that he first approached Mr Wong on 5 November 2004. This was because the timber product he was thinking of importing, Merbau decking from Papua, was new. Mr Harsono gave evidence that he would not move to Australia unless his business interests improved. He needed money to be able to move.

34.      Timber import plans have not gone beyond the discussion stage and he has no permit from the Indonesian government. He did not provide to the Tribunal any independent confirmation of his attempts to obtain a permit to export timber. From the material before me I am unable to form a view that he had a realistic plan or intention to send timber to Australia before his visa was cancelled. His evidence was that he was looking for buyers of sandstone and marble. His one shipment of stone occurred after a meeting with his supplier that also took place after the cancellation. Taking the evidence of his plans before me into account, I do not accept that Mr Harsono had developed any business proposals for timber or the export of stone at the time his visa was cancelled. If he did have any plans, I am not convinced that at the date of cancellation they were realistic or achievable plans as required in the MSI 133 policy guidelines.

35.      Paragraph (b) of subsection 134(3) refers to the existence of partners or joint venturers for the business proposals. Mr Harsono has not told the Tribunal about any partners or joint venturers. He has produced no formal contract with partners or joint venturers.

36.      Paragraph (c) refers to research that the person has undertaken into the conduct of an eligible business in Australia. Mr Harsono has provided evidence that he had some meetings with suppliers of hides and sandstone and possible buyers for timber. In my view, this does not amount to a substantial effort to investigate possibilities for the conduct of an eligible business in Australia. His efforts benefit his overseas interests just as much or more than any business proposal in Australia. Having a business visa makes it easier for him to visit Australia to conduct his Indonesian imports and exports. On the other hand, Mr Harsono has used the services of Mr Ridolfo as an accountant. Mr Ridolfo is the only adviser Mr Harsono made known to the Tribunal, unless I consider his legal advisers acting for him on the present review. He has not presented written evidence of detailed consultations with any other business advisers such as a bank or financial institution, State or Territory government business development office, Austrade, nor any business or trade association.

37.      So far as Mr Harsono’s time spent in Australia for consideration under paragraph (d) is concerned, Mr Harsono has conceded that he has spent most of his time in Indonesia because that is where he makes the income to support himself and his family. He was not present in Australia for more than six months after his first arrival as envisaged in MSI 133 guidelines. I note that Mr Harsono has two children studying in an Australian University.  This was their first year. While this indicates that Mr Harsono has ties to Australia and supports his contention he means to settle here, I do not consider it overcomes the expectation that he spend more time in Australia to meet his visa requirement. In the case of Tang v Minister for Immigration and Multicultural Affairs [2000] AATA 997, the Tribunal noted that the Act is intended to benefit business owners who make the decision to settle in Australia and actively manage that business. The amount of time during which he has been present in Australia and managed his business here, being 47 days at the date of his visa cancellation, does not advance his case in my opinion.

38.      As well, in Huang v Minister for Immigration and Multicultural Affairs [2002] AATA 656, the Tribunal noted that an applicant was expected to manage the Australian business in Australia albeit with trips overseas from time to time. Mr Harsono has not made trips overseas from time to time. Rather, his conduct has been the reverse. He travels to Australia only occasionally. Although in Wong, the Tribunal found an applicant who had not visited Australia other than for a holiday was making a genuine effort of the kind required, I do not find, on balance, that Mr Harsono has put sufficient time into the management of the business to meet expectations for the visa when his case is compared with Huang and Tang. In addition, the second reading speech of the Minister for Immigration and Ethnic Affairs when introducing the Migration Amendment Bill (No. 2) 1992 indicates that the expectation was that migrants who arrived in Australia on a business skills visa would remain resident in Australia. Also see Ong v Minister for Immigration and Multicultural Affairs [2003] AATA 178. Further, in Ng v Minister for Immigration and Multicultural Affairs [2003] AATA 299, the Tribunal commented that the Act does not contemplate an absentee entrepreneur. Mr Harsono’s conduct is that of an absentee entrepreneur and he does not satisfy criterion (d).

39.      As to paragraph (e), the value of assets transferred to Australia by Mr Harsono for use in obtaining an interest in an eligible business, is $40,000, which was expended in the purchase of hides for Merino, and an amount of money expended in the purchase of sandstone for AMM. These monies were not strictly spent to obtain “an interest in an eligible business”. They simply were spent on goods that were exported. While Mr Ridolfo says $40,000 was enough to do the business of Merino, its expenditure went nowhere towards the structure of any business but was entirely on stock. There is nothing before me to suggest that he has transferred any other funds to Australia. He does not therefore meet criterion (e).

40.      As to paragraph (f) and the value of ownership interest in eligible businesses in Australia that are or have been held by Mr Harsono, I consider that, as neither Merino nor AMM has any assets or permanent investment funds, the value of any ownership interest is negligible. As well, neither company has engendered any profit sufficient to pay the shareholders, directors or employees. In addition, there is no business establishment in Australia by way of an office or Australian manager. 

41.      As the profit for Merino was low, Mr Harsono explained to the Tribunal that he had started up the second company, AMM, and looked for more products to export. He explained the profit was low because the exchange rate from the Indonesian currency was high. It had been 5000 for 1 Australian dollar but now it was 7500 for one Australian dollar.  It was quite high. His aim for AMM was to deal in marble and also in timber. Documents before the Tribunal show that AMM became a registered company on 24 June 2004 after he received the cancellation notice. I note he has 100% ownership interest but as the company has no capital, this is immaterial in establishing a value of assets.

42.      Mr Charles Ridolfo gave sworn oral evidence to the effect that he was the principal of Charles Ridolfo and Company, the accountants for Mr Harsono's companies in Australia, Merino and AMM. He told the Tribunal that he was aware that Mr Harsono had invested about $40,000 in Merino. In his opinion, that amount would cover the level of the dollar value for the purchases “they conduct” looking at the ledger of purchases.  He gave examples and concluded that:

“when you review the ledgers for the money put into the company, expended on purchases and then money coming through on sales, there's sufficient money in the company to sustain the level of commercial activity it's undertaking.”

Mr Ridolfo went on to give evidence that, looking at all the activity financial statements, in his opinion, Merino was being operated as a commercial enterprise.

43.      Taking the accounts for the financial year ended 30 June 2004, and comparing the financial accounts of the year ended 2003, Mr Ridolfo observed there had been an increase in gross sales from $133,600 to $213,588 in the 2004 year and a corresponding increase in the cost of purchases from $125,590 to $205,823.  He suggested that indicated a good level of activity and reflected in turnover and cost of sales. He added that the relatively large turnover was an indicator of an active business although the profit had been relatively low. Generally, he observed, businesses may have different gross profit margins. This could be a case where the profit margin is small. A business may have a reasonably high turnover but the actual gross profit may be not as high as in other business activities.  So, Merino was a classic case of high turnover and low margins, resulting in a low gross profit.

44.      Despite its turnover, the business activity that is, or has been, undertaken by Mr Harsono does not, in my view, reflect a genuine effort to obtain a substantial ownership interest in an eligible business. Turnover alone, without any permanent establishment or investment in Australia, does not signal an effort to obtain a substantial ownership interest in an eligible business. I acknowledge that Mr Harsono has experienced setbacks and difficulties in trying to establish an eligible business in Australia. I have taken into account his evidence on these matters. I note and accept that Merino had raw hides which had to be processed by the company, Usaha Loka, in Indonesia. To process in Australia was impossible because they were buying grade 5 hides, the cheapest. These were hides still on the head, along with the horns. Mr Harsono said it was impossible to process in Australia.  It was also impossible to process in Indonesia as it was a new thing in Indonesia and they did not have a licence from the Indonesian government to process this hide.  It was quite expensive to get a new licence in Indonesia and they had to deal with concerns about pollution. The hides were processed at Usaha Loka because Usaha Loka already had the permit.  Once the hides had been processed, they distributed them. Mr Harsono claimed that he researched starting a tannery business in Australia but Australian rules for pollution were quite strict and this hide was quite smelly. He concluded that he could not process the hides in Australia.  Then, when they started marketing the export from Merino, he did try to market the raw unprocessed material but there were no willing purchasers. While potential purchasers in Indonesia also could not get permission to process the hides, Usaha Loka was able to process hides because his grandparents had started the business and it had operated since 1934. Usaha Loka already had the facility for curing and processing hides. Usaha Loka did not make a profit from processing this material for Merino. Usaha Loka was a successful company only because it had profitable business from hides imported from China and Thailand. It also traded profitably in timber and furniture in Indonesia.  The company made shoes and jackets and other leather goods from the good quality hides it imported from Thailand and China.  It handled local timber products such as flooring and furniture. Mr Harsono said he spent between 70% and 80% of his time on Usaha Loka’s business. The business employed 600 people and he ran the business with his brother, Sujito Harsono. He owned 20% of then business and his siblings were the other owners. If he could earn enough income in Australia, Mr Harsono said he would be selling his share.  At the same time, he conceded that it might be difficult to sell because it was “a bit hard” to sell a family business. He said only experienced people would buy it.

45.      I also note that Merino bought its hides from Australian companies such as Intal Pel International Pty Ltd and Starpac Corporation. Mr Harsono left this activity mainly to his brother because he was not in Perth very often. He said that the business of Merino and Usaha Loka was much the same. He agreed that Merino’s export sales figures in 2001 were $62,485; in 2002 they were $47,700; in 2003 sales increased to $133,599; and in 2004 sales amounted to $213,582. I accept that the Merino turnover was fairly high and that this is a factor to be taken into account in assessing whether the business involved was an eligible business or involved a genuine effort to acquire an ownership interest in an eligible business.

46.      On the other hand, Mr Harsono agreed that it was true that the profit from Merino sales was low. In 2004, Merino’s sales revenue quite substantially increased yet profit marginally decreased. This was due the value of the dollar being quite high. When counsel for the Department went through a number of invoices before the Tribunal showing very small profit margins between the purchase price from Ital Pel and Starpac and the sales price to Usaha Loka, Mr Harsono said that Usaha Loka made little profit. Mr Harsono agreed that one particular set of invoices showed that Merino sold to Usaha Loka for $5250 (T19, page 313) and had purchased these goods at a cost of $5500, which included GST of $500 (T19, page 314). Mr Harsono said Merino obtained a GST credit of $250. Mr Harsono said the point of these transactions was to help Merino sell the hide and “we get the labour pay - or labour costs”.

47.      On balance, and taking all these matters into account and acknowledging the difficulties of setting up a new business while maintaining a living and income, I am not persuaded that Mr Harsono has made a sufficient effort to acquire a substantial ownership interest in an eligible business to qualify under subsection 134(2). It is not necessary to consider the remaining criteria under the subsection as they are cumulative.

CONCLUSION

48.      As already stated, I am not satisfied on the basis of the evidence before me that Mr Harsono has acquired an interest in an “eligible business in Australia”.  Nor am I satisfied that Mr Harsono has utilised his skills in “actively participating at a senior level in the day to day management of an eligible business”. Further, I am not persuaded that he has made “genuine efforts” to do those things and intends to continue to make such genuine efforts.

DECISION

49.      The Tribunal affirms the decision under review.

I certify that the 49 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Robin Hunt

Signed:         .....................................................................................
Zoe McDonald
Associate

Date of Hearing: 1 July 2005   
Date of Decision: 19 September 2005      
Solicitor for the Applicant: Friedman Lurie Singh and D’Angelo
Solicitor for the Respondent: Australian Government Solicitor