Jassar & Manesh Pty Ltd as trustee for the Jassar Manesh Consultants Unit Trust and Commissioner of Taxation (Taxation)
[2023] AATA 3499
•30 October 2023
Jassar & Manesh Pty Ltd as trustee for the Jassar Manesh Consultants Unit Trust and Commissioner of Taxation (Taxation) [2023] AATA 3499 (30 October 2023)
Division: SMALL BUSINESS TAXATION DIVISION
File Number(s): 2021/8116-8117
Re:Jassar & Manesh Pty Ltd as trustee for the Jassar Manesh Consultants Unit Trust
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member R Olding
Date:30 October 2023
Place:Brisbane
The objection decision is set aside and remitted for reconsideration in accordance with the following directions:
(a)the applicant’s JobKeeper claims are accepted to the extent of the Commissioner’s concession in the proceeding, the total amount payable being $852,850.
(b)No determination under section 9(4) of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 that the applicant is not liable to repay any part of the overpaid amount of $688,600 is to be made.
..................................[SGD]..................................
Senior Member R Olding
CATCHWORDS
TAXATION – CORONAVIRUS ECONOMIC RESPONSE PACKAGE – JOBKEEPER – discretion to determine that an entity is not liable to repay an overpaid amount – considerations relevant to exercise of discretion – determination not made
LEGISLATION
Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth), ss 3, 7, 9.
Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth), ss 6, 7(1)(b), 9-10, 14(1), 15.
Taxation Administration Act 1953 (Cth), s 14ZZK(b)(ii).
CASES
Commissioner of Taxation v Apted [2021] FCAFC 45; 284 FCR 93
Lewski v Commissioner of Taxation [2017] FCAFC 145; 254 FCR 14
Minister For Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; 162 CLR 24Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50; 212 FCR 483
SECONDARY MATERIALS
Explanatory Memorandum, Coronavirus Economic Response Package (Payments and Benefits) Bill 2020 (Cth).
REASONS FOR DECISION
Senior Member R Olding
30 October 2023
WHAT IS THIS CASE ABOUT?
The Commissioner of Taxation disallowed JobKeeper payments claimed and received by the applicant in the total amount of $1,541,450. Following review of information produced in these proceedings, the Commissioner now accepts the applicant was entitled to receive a total of $852,850. The remaining amount in dispute is $688,600.
The applicant accepts it was not entitled to this amount. The sole issue to be decided is whether the Tribunal should exercise the statutory discretion, provided in the governing legislation, to determine that the applicant is not liable to repay all or part of the overpaid amounts.
This matter was managed together, and heard sequentially, with another application (2021/9831-9832) for review of JobKeeper decisions by the same applicant company in its capacity as trustee of a different trust, the Jassar & Manesh Unit Trust.
STATUTORY FRAMEWORK – THE JOBKEEPER SCHEME
Section 7 of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth) (“CERP Act”) provides for the making of rules governing schemes for payments to be made by the Australian Government in response to the Coronavirus pandemic.
The JobKeeper scheme established under rules made under the CERP Act provided for eligible employers to be paid a fortnightly subsidy for wages paid to eligible employees. Broadly speaking, the scheme provided for employers to be paid a fortnightly amount of $1,500 in respect of each eligible employee. It was a requirement that the employer had paid at least $1,500 to the employee, by way of wages including Pay As You Go (“PAYG”) deductions, for the fortnight.
The eligibility rules are contained in s 6 of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (“CERP Rules”). So far as relevant for this matter, the eligibility requirements included that:
(a)the employee was an “eligible employee” for the fortnight which relevantly required that the employee:
(i)was employed by the employer on 1 March 2020 or 1 July 2020, as applicable;
(ii)was employed by the employer at any time during the relevant fortnight;
(iii)was not a casual employee other than a long term casual employee (as defined);
(iv)was an Australian resident (as defined);
(v)satisfied the nomination requirement.
(collectively, the “employee eligibility conditions”).[1]
(b)the sum of the amounts paid in respect of the employee for the fortnight, by way of wages and PAYG deductions, equals or exceeds the JobKeeper payment of $1,500.
(the “wage condition”).[2]
[1] CERP Rules, s 9.
[2] CERP Rules, s 10.
The nomination requirement required the employee to have given a notice to the employer agreeing to be nominated as an eligible employee of the employer. Apparently to avoid double-dipping, a nomination notice generally could not be given to more than one employer.[3]
[3] CERP Rules, s 9(3).
There is also a requirement that the employer suffered a substantial decline in turnover.[4] It is accepted that the applicant satisfied this requirement.
DISCRETION TO DETERMINE AN ENTITY IS NOT LIABLE TO REPAY AN OVERPAID AMOUNT
[4] CERP Rules, s 7(1)(b).
The requirement to repay overpaid amounts
If JobKeeper payments were made in circumstances where the employer was not entitled to the payments, the employer is required to repay the overpaid amount. Subsections 9(1) and 9(2) of the CERP Act provide for this in the following terms:
(1)This section applies if:
(a)the Commissioner pays an amount by way of a Coronavirus economic response payment to an entity; and
(b)either:
(i) the entity was not entitled to the payment; or
(ii) the amount paid is more than the correct amount of the entity’s payment.
(2)The entity is liable to repay the following amount to the Commonwealth:
(a)if the entity was not entitled to the payment – the whole of the amount referred to in paragraph (1)(a);
(b)if the entity is paid more than the correct amount of the entity’s payment – the amount by which the amount paid exceeds the correct amount.
The discretion
However, under s 9(4) of the CERP Act, the Commissioner has a discretion not to require repayment of an overpaid amount. Section 9(4) provides for the discretion in these terms:
The Commissioner may make a written determination that the entity is not liable to repay an amount under subsection (2), in which case the entity is not liable to repay the amount.
Is a separate exercise of the discretion for each payment required?
The parties approached the case on a global basis; that is to say, whether a single exercise of discretion should occur in respect of the total of the overpaid amounts or some part of that total.
At the hearing, I raised whether this is the appropriate approach or whether a separate exercise of discretion is required in respect of each overpayment. The parties’ counsel took the question on notice but did not address it in their written closing submissions filed after the conclusion of the oral hearing.
For the reasons that follow, in my view a separate exercise of discretion is required in respect of each overpayment.
The expression “Coronavirus economic response payment” in s 9 of the CERP Act is “the collective name for all kinds of payments provided for by the rules”: CERP Act, s 6. As the Note to s 6 states:
Particular kinds of payments provided for by the rules may also have a particular name for that kind of payment.
The CERP Rules adopt the term “jobkeeper payment” which, in accordance with the definition in s 4 of the Rules, means “a jobkeeper payment payable to an entity under section 14”. Section 14(1) of the CERP Rules provides:
If the Commissioner is satisfied that an entity is entitled under section 6, 11 or 12A to a jobkeeper payment for a fortnight, the Commissioner must pay the entity that jobkeeper payment in accordance with this Division and the Act.
Section 6 of the CERP Rules relevantly provides:
Employer’s entitlement to a jobkeeper payment for an employee
(1) An entity (the employer) is entitled to a jobkeeper payment for an individual for a fortnight if:
The list of requirements that follows mainly refers to “the fortnight”. For example, s 6(1)(c) requires that “the individual is eligible employee of the employer for the fortnight”.
Section 15 of the CERP Rules, which deals with the time for payment of JobKeeper payments, provides:
When the Commissioner must pay jobkeeper payments
The Commissioner must pay the jobkeeper payment no later than the later of:
(a)14 days after the end of the calendar month in which the fortnight ends; and
(b)14 days after the requirements in section 14 for the Commissioner to make the payment are met.
Returning to s 9(4) of the CERP Act, an “amount under subsection (2)” which may be the subject of an exercise of the discretion in turn links back to the reference to a Coronavirus economic response payment in subsection (1). As has been illustrated, in the context of a payment under the CERP Rules that expression embraces a JobKeeper payment.
Each of these provisions uses the expression “payment” in the singular. In particular, s 9(4) of the CERP Act refers to “an amount” which can only mean a JobKeeper payment authorised by s 14 of the CERP Rules.
Against that context, I consider that s 9(4) requires a separate exercise of the discretion in respect of each payment rather than a global exercise of the discretion in respect of the total of all overpayments or categories of overpayments. It would be surprising if it were otherwise, since considerations relevant to one overpayment may differ from those relating to another overpayment even if in the same category.
Having provisionally come to the view that a separate exercise of the discretion is required for each overpayment, I considered whether I should offer the parties a further opportunity to make submissions in that regard. For several reasons, I decided that course was not necessary or appropriate. First, as noted, in the course of the hearing the parties had been offered the opportunity to make submissions on this issue. Secondly, the reasons for concluding a separate exercise of the discretion for each overpayment is required seemed to me to be compelling. Thirdly, it is implicit in the way both parties approached their submissions that they regarded the considerations attending each overpayment or at least each category of overpayment as applicable regardless of the fortnight to which the payment related and that no special factors should be taken into account for any particular fortnight or fortnights. Fourthly, to invite further submissions would delay finalisation of the review. Fifthly, in view of the conclusions I have reached as set out below, the outcome would be the same whether the discretion is required to be considered on a global basis or by reference to each payment.
Considerations relevant to the discretion
The discretion to determine that an entity is not liable to repay all or part of an overpaid amount is unconstrained in its terms. In those circumstances, whether a particular consideration is relevant or irrelevant to the exercise of the discretion is to be determined by reference to the subject matter, scope and purpose of the legislation.[5]
[5] Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24, 39-40.
The object of the CERP Act is stated in s 3, as follows:
The object of this Act is to provide financial support directly or indirectly to entities that are directly or indirectly affected by the Coronavirus known as COVID-19.
At that level of generality, the stated object of the CERP Act provides limited guidance, in itself, regarding the factors to be taken into account in determining whether the discretion should be exercised in respect of particular payments.
It is not disputed that the applicant was affected by the Coronavirus pandemic. However, it would be an inappropriate exercise of the discretion to not require repayment of the overpayments merely because retention of the payments would provide financial support to the applicant. That would not give sufficient regard to the subject matter and scope of the legislation.
The subject matter of the JobKeeper scheme is a subsidy for wages paid to employees during the relevant period. The scope of the subsidy is limited in various ways.
One such limitation is that JobKeeper payments were intended to subsidise wages that had been paid to the employee in the relevant fortnight. They were not generalised grants to be deployed as businesses saw fit. Thus, it is clear that employees were to receive the benefit of being paid at least an amount equivalent to the JobKeeper payment in each fortnight.
Further, the scheme was directed at retaining existing employees; hence the requirement for eligible employees to have been employed by the employer initially at 1 March, or 1 July 2020 in a later iteration of the rules, as applicable.
These features are implicit in the conditions contained in the CERP Rules. The intended nature of the scheme as a wage subsidy and the objective of assisting employers to retain employees is confirmed in the Explanatory Memorandum to the Bill for the CERP Act, as follows:[6]
Under the JobKeeper Payment, businesses significantly impacted by the Coronavirus outbreak will be able to access a subsidy from the Government to continue paying their employees. This assistance will help businesses to keep people in their jobs and re-start when the crisis is over. For employees, this means they can keep their job and earn an income – even if their hours have been cut.
[6] Explanatory Memorandum, Coronavirus Economic Response Package (Payments and Benefits) Bill 2020 (Cth), [2.8].
It is also clear that not all employees were intended to benefit in this way. Non-residents were not intended to be covered by the scheme. Nor were casual employees unless they were long term casual employees.
Additionally, the scheme was intended to provide one subsidy per employee. Employees were not intended to be able to double dip, i.e. to receive wages subsidised by JobKeeper payments from more than one employer. The nomination process described above is relevant in that regard.
Having set out the object, subject matter and scope of the JobKeeper scheme, what do they reveal regarding factors the Tribunal should take into account in determining whether to exercise the discretion to not require repayment of overpaid amounts? The discretion has some echoes of the discretion to remit taxation penalties which is similarly unconstrained in its terms. That discretion has been held to require the decision-maker to ask whether, having regard to the taxpayer’s particular circumstances, full or partial remission is appropriate.[7] Accordingly, I propose to ask myself whether, having regard to the particular circumstances, determining that the applicant is not to be liable to repay all or part of each overpaid amount is appropriate.
[7] Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50, [249].
As already noted, examination of the subject matter and scope of the JobKeeper scheme reveals it is a subsidy for wages actually paid to employees. Having regard to that fundamental feature, although each case must be decided taking into account all relevant circumstances, in my view it would be a rare case in which it would be appropriate to not require repayment of a JobKeeper payment wrongly made to an entity that did not pay equivalent (or higher) wages to an employee.
To so decide could, consistent with the stated object of the CERP Act, provide financial assistance to an entity affected by the pandemic. But it would effectively give the employer a general grant unconnected to the objective of assisting the employer to retain employees during the pandemic. It would be contrary to a fundamental feature of the JobKeeper scheme as a wage subsidy. There would need to be, at the least, other compelling circumstances to make such a decision appropriate.
It is also, in my view, important to bear in mind the JobKeeper scheme was not a wage subsidy scheme designed encourage employers to take on new employees. Rather, it was designed to encourage employers to retain existing employees. That is implicit in the requirement that eligible employees had been employed by 1 March 2020 or 1 July 2020. If confirmation of that policy be necessary, it may be found in the Explanatory Memorandum to the CERP Act as extracted above.
More difficult considerations arise where wages at least equal to the amount of the JobKeeper payments were paid but the recipients were not eligible employees for other reasons. For example, that might arise because the employees had not provided a nomination form or were non-residents.
On the one hand, allowing an entity to retain amounts overpaid in such circumstances would be contrary to conditions prescribed by the Treasurer under the CERP Rules. But to so observe does not significantly advance consideration of the factors relevant to the exercise of the discretion because non-eligibility will always be present where the question of whether the discretion should be exercised arises.
However, the eligibility conditions must be taken to have been imposed by the Treasurer for good reason and with the expectation that the Commissioner, and the Tribunal on review, would generally require compliance. The discretion is somewhat, though only broadly, analogous to discretions to amend pleadings or, in the taxation context, to extend grounds of objection. In that context, it has been held the reason for the delay in raising an issue and the adequacy of the explanation given must be considered.[8]
[8] Lewski v Commissioner of Taxation [2017] FCAFC 145, [130].
In my view, the reason put forward for claiming JobKeeper payments when not entitled and its plausibility will be relevant factors for consideration. That is implicit in the reference to honest mistakes in the Explanatory Memorandum extracted below, since whether overpayment arose from an honest mistake can only be determined with an understanding of the circumstances in which the mistake is said to have occurred. More importantly, it is only with an understanding of the circumstances surrounding the overpayment that a decision-maker can determine whether not requiring repayment is appropriate.
The applicant referred to the concept that beneficial provisions should be given a broad, rather than unduly narrow, construction. I accept the JobKeeper provisions are beneficial in nature and generally should not be construed in a narrow or unduly restrictive fashion.
However, it is less clear that the discretion in s 9(4) should be given a broad construction. It is, after all, a provision that effectively allows the Commissioner to forgive what would otherwise be, in this case, a substantial debt to the Commonwealth. In any case, the authorities at the highest level are clear regarding the identification of factors relevant to the exercise of an otherwise unfettered discretion – they are, as already noted, to be derived from the subject matter, scope and purpose of the legislation. It is unclear to me how taking a broader or narrower view of s 9(4) would result in a construction that required the decision-maker to approach their task other than by asking whether, in all the circumstances, determining that an entity is not to be liable to repay an overpaid amount is appropriate.
For completeness, I note the applicant cited, in support of its contention that a broad beneficial approach is required, the following observation of Logan J in Commissioner of Taxation v Apted (“Apted”):[9]
This acceptance does, with respect, give pause for thought as to why Mr Apted has been put to so much bother in relation to his eligibility to receive a payment the object of which “is to provide financial support directly or indirectly to entities that are directly or indirectly affected by the Coronavirus known as COVID-19” (s 3, CERP Act).
[9] [2021] FCAFC 45, [5].
Once considered in context, in my view that remark is of little assistance in the current case. The “acceptance” to which his Honour referred was the Commissioner’s acceptance that the applicant was carrying on an enterprise before 12 March 2020. The context of the Apted case – whether a discretion to allow a later time for the applicant to obtain an ABN (Australian Business Number) should be exercised – is a far cry from the current matter involving whether to require repayment of almost $700,000 in JobKeeper payments to which the applicant was not otherwise entitled, a significant proportion because it had not satisfied the fundamental wages condition.
However, it is notable that the Full Court in Apted found no error on the part of the Tribunal in taking into account, in relation to whether to exercise the discretion regarding the time for obtaining an ABN, the following considerations:
(a)the applicant’s failure to re-activate his ABN was “an oversight”; and
(b)the applicant was “the kind of person intended to benefit from the JobKeeper scheme”.[10]
[10] [2021] FCAFC 45, [111].
Consideration (a) is consistent with the view that the reason for an applicant claiming JobKeeper payments to which it was not entitled is relevant to the s 9(4) discretion. That view is also consistent with the following comment in the Explanatory Memorandum for the Bill for the CERP Act:[11]
However, the requirement to repay overpayments does not apply if the Commissioner makes a written determination to this effect. This ensures that the Commissioner has flexibility to address issues that might otherwise arise where entities have made an honest mistake and not retained any personal benefit from a payment they have received.
[11] Explanatory Memorandum, Coronavirus Economic Response Package (Payments and Benefits) Bill 2020 (Cth), [2.30].
I accept that if the reason for overclaiming JobKeeper was an honest mistake that is a relevant factor in relation to the exercise of the discretion. So, too, would be the circumstance that a recipient had “not retained any personal benefit” although that is easier to state than to determine as a matter of fact.
In respect of consideration (b), at a high level, it could also be said the applicant, being in business and having suffered a significant downturn in business, is the kind of person the JobKeeper scheme was intended to benefit. However, as indicated earlier the scope of the JobKeeper scheme suggests its benefit was intended for entities paying wages equivalent at least to the JobKeeper amounts to eligible employees – features not in issue in Apted, but central to many of the overpayments in the current matter.
In summary, in my view the Tribunal must decide whether, having regard to all relevant circumstances, it is appropriate to exercise the discretion not to require repayment of the overpaid amounts. Relevant circumstances will include:
(a)the applicant’s explanation for claiming amounts to which it was not entitled and the plausibility of the stated reason;
(b)whether the applicant retaining the overpaid amounts would be consistent with the fundamental nature of the JobKeeper scheme as a wage subsidy designed to encourage employers to retain existing employees; and, where it is able to be established:
(c)whether the applicant retained any personal benefit as a result of over-claiming JobKeeper payments.
THE OVERPAYMENTS IN SUMMARY
The amounts which the applicant concedes were overpaid arise out of the following circumstances:[12]
[12] Applicant’s amended Statement of Facts, Issues and Contentions dated 20 February 2023, [13]. Hearing transcript, P-5, lines 27-34.
No. of employees
Reason for overpayment
Amount
overpaid
$Category 2 employees[13]
Eligibility or wage condition met for some but not all fortnights
3
Not employed by 1 March 2020 – only eligible from fortnight 10
50,900
3
Nomination form not completed until fortnight 18 but received JobKeeper in earlier fortnights.
23,100
15
Wage condition not fully satisfied.
120,700
Category 3 employees
Eligibility or wage condition not met for any fortnight
4
Nomination forms not produced.
90,400
22
Not employed by 1 July 2020.
236,200
2
Not Australian resident.
63,800
5
Did not meet wage condition for any fortnight.
97,500
1
Casual, but not long term casual, employee.
6,000
TOTAL OF OVERPAYMENTS:
$688,600
[13] The expressions “Category 2 employees” and “Category 3 employees” are adopted for consistency with the parties’ submissions. “Category 1 employees” relates to JobKeeper payments which the Commissioner now accepts were properly paid to the applicant.
APPLICANT’S ALTERNATIVE SUBMISSIONS REGARDING AMOUNTS THE APPLICANT WOULD NOT BE LIABLE TO REPAY
The applicant put forward cascading alternative amounts it submits should not be required to be repaid, as follows:
(a)$688,600 i.e. the applicant would not be liable to repay any part of the overpaid amount.
(b)$591,100 i.e. the applicant would only be liable to repay $97,500. This amount relates to five employees for whom JobKeeper payments were made but who had left the business and did not receive wages equivalent to these payments.
(c)$493,080.78 i.e. the applicant would only be liable to repay $195,519.22. This amount is said to be derived by reference to the total wages and JobKeeper paid on a per employee basis over the relevant period. The excess of total JobKeeper payments over total wages paid, calculated on a per employee basis but for the whole of the relevant period, is $195,519.22.
(d)$387,359.69 i.e. the applicant would only be liable to repay $301,240.31. This calculation is similar to (c) except that it is made on a per employee and per fortnight basis. The amount of $301,240.31 is the excess of JobKeeper received over wages paid each fortnight to each employee.
SHOULD THE DISCRETION BE EXERCISED TO NOT REQUIRE REPAYMENT OF THE WHOLE OR PART OF THE OVERPAID AMOUNTS?
Some observations regarding the conduct and context of the case
Mr Yadwinder Singh and Mr Deepinder Jassar are directors of the applicant company. Mr Yadwinder Singh is primarily responsible for the business conducted by the company in its capacity as trustee of the Jassar Manesh Consultants Unit Trust and gave evidence in the current matter. Mr Jassar did not.
In accordance with usual Tribunal practice, the parties exchanged Statements of Facts, Issues and Contentions before the hearing. The applicant did not respond to criticisms of alleged deficiencies in the applicant’s evidence set out in the Commissioner’s Statement of Facts, Issues and Contentions by filing further evidence.
At the hearing, after opening submissions and the close of evidence, and at the request of the parties, I made directions for the filing of written submissions. I also indicated to the parties that, if they so desired, the Tribunal would return for further oral closing submissions.
The directions provided for the applicant to file its closing submissions first, followed by the respondent. Although again the respondent’s submissions made various criticisms of alleged deficiencies in the applicant’s case, the applicant expressly elected not to take up the opportunity, provided in the directions, to file submissions in reply and did not take up the opportunity offered by the Tribunal to supplement written submissions with further oral submissions.
So far as the issues remaining in dispute are concerned, the relevant decision under review is the Commissioner’s objection decision confirming the decision not to determine that the applicant would not be liable to repay all or part of the overpaid amount. The applicant bears the burden of proving that decision should not have been made or should have been made differently: Taxation Administration Act 1953 (Cth), s 14ZZK(b)(ii).
The context in which that burden falls upon the applicant is that the applicant company seeks a decision not to require repayment of $688,600 which it wrongly claimed and received from the Commonwealth. As will be seen below, the overpayments included JobKeeper payments relating to numerous employees over numerous fortnights who were no longer employed by the applicant and therefore did not receive wages equivalent to the JobKeeper payments or indeed any wages at all for those fortnights.
The amounts which the applicant wrongly claimed and received and seeks to retain are, on any view, substantial. The total amount for which such a decision is sought is $688,600. Even the least favourable of the alternative decisions put forward by the applicant would have the applicant retaining $387,359.69 which it wrongly claimed contrary to the CERP Rules.
The decision sought is a departure from the usual position that overpayments must be repaid. Given the substantial amounts involved and the burden the applicant bears in the proceeding, the relative dearth of evidence supporting the applicant’s case was surprising.
For instance, the applicant’s case significantly hinges on a submission that the overpayments resulted from innocent errors and that retention of the overpaid amounts would be consistent with the objects of the JobKeeper scheme. In that regard, the applicant specifically relies on an assertion that it employed an internal bookkeeper and an external accountant to assist in the conduct of its affairs.
It seems the applicant relied upon internal staff in maintaining relevant records and assembling JobKeeper claims. The bookkeeper did not give evidence, nor was any explanation for his absence offered.
Similarly, submissions regarding the financial impact of the applicant being required to repay the overpaid amounts were unsupported by authoritative financial data or testimony. Not surprisingly, such material as was filed by the applicant, such as unsigned draft financial statements, could not be explained by Mr Singh. Again, the external accountant was not called to give evidence.
I do not draw particular inferences from the absence of these witnesses as to the evidence they may have given. However, the applicant’s task of persuading the Tribunal the overpayments resulted from innocent errors, as it asserts, is more challenging when the circumstances in which they arose have not been fully explained.
I elaborate on these issues in the discussion of the applicant’s submissions below.
Consideration of the applicant’s submitted reasons for exercise of the discretion
The applicant put forward seven reasons why it submitted the Tribunal should exercise the discretion in its favour.
The seven reasons are:[14]
[14] Applicant’s outline of submissions dated 15 June 2023, [16].
(a)the Taxpayer’s use of the JobKeeper payments was consistent with the JobKeeper program’s objectives in that any employees who left during the period did so of their own volition or, in limited circumstances, for cause;
(b)other than for limited employees who left before final payments could be made to them, the Taxpayer passed on the amounts received to the Taxpayer’s employees;
(c)the Taxpayer’s passing on the Jobkeeper payments was both:
(i)in advance of its receipt of payments from the Commissioner; and
(ii)in excess of amounts received from the Commissioner,
such that the Taxpayer was out of pocket, to the employees’ collective benefit, both in actual funds expended in and the time value of funds expended;
(d)the Taxpayer’s financial position is that it would not have survived the pandemic period without the Jobkeeper payments and it will not now survive if obliged to repay the Relevant Amount, with obvious consequences for the 44 staff, businesses engaged with the Taxpayer and the regional economy of Cairns;
(e)although misunderstood, the Taxpayer’s understanding of the application process was that the Commissioner applied an audit procedure (via the single touch payroll) before paying amounts such that any ineligibility would have been detected and prevented the payments being made;
(f)the Taxpayer used internal bookkeepers (Daurav Batra) (sic) and an external accountant to properly assist in the conduct of its affairs; and
(g)any errors were unintentional.
The task of considering the parties’ submissions is made more difficult than it might otherwise have been because the parties did not fully engage with one another’s submissions. As already noted, the applicant did not respond to alleged deficiencies identified by the Commissioner. The Commissioner’s submissions responded to the applicant’s seven reasons for submitting a favourable exercise of the discretion is required, but did not directly respond to each of the applicant’s alternative proposed decisions.
I address the applicant’s seven submissions below before turning to evaluate, against the background of my responses to the seven submissions, each of the alternative decisions proposed by the applicant. It is convenient to consider submissions (a), (b) and (c), and submissions (e), (f) and (g) together.
Applicant’s submissions (a)-(c)
The applicant submits that:
(a)the Taxpayer’s use of the JobKeeper payments was consistent with the JobKeeper program’s objectives in that any employees who left during the period did so of their own volition or, in limited circumstances, for cause;
(b)other than for limited employees who left before final payments could be made to them, the Taxpayer passed on the amounts received to the Taxpayer’s employees;a
(c)the Taxpayer’s passing on the Jobkeeper payments was both:
(i) in advance of its receipt of payments from the Commissioner; and
(ii) in excess of amounts received from the Commissioner,
such that the Taxpayer was out of pocket, to the employees’ collective benefit, both in actual funds expended in and the time value of funds expended;
Mr Singh gave unchallenged evidence that, of the applicant’s 44 employees when it applied for JobKeeper payments, the applicant terminated the employment of only four. Others who left did so to pursue other employment.[15]
[15] Affidavit of Yadwinder Singh dated 23 January 2023, [19].
Accepting this evidence at its highest, and considered at a high level, it may be seen that an objective of the JobKeeper scheme was achieved – employees were retained.
However, this submission (submission (a)), and submission (b)’s assertion that JobKeeper payments were “passed on” other than in respect of a “limited number” of employees, tends to obscure the fact that the applicant:
(a)continued to claim and receive JobKeeper payments for some 17 employees after their employment by the applicant had ended;
(b)for periods ranging from three fortnights to 13 fortnights i.e. for up to six months in one case;
(c)with the overpaid amounts ranging from $3000 to $19,500 per employee;
(d)in addition to the $97,500 received in respect of the five employees for whom the wage condition was never satisfied.
If the applicant’s reference to a “limited number” of employees includes these 22 employees, in the context of a total workforce of 44, that descriptor would be inapt. If it refers to the five employees in respect of whom the wage condition was never satisfied, that would create a misleading impression when the wage condition was not satisfied in respect of 17 other employees. To the extent the applicant is referring to JobKeeper being “passed on” in the sense that total wages paid exceeded total JobKeeper payments received, I address this in considering the applicant’s alternative proposed decisions below.
It was not an objective of the JobKeeper scheme that employers would be subsidised in excess of the wages paid to an employee for a fortnight, let alone for employees who had long since left their employment. It may be that the applicant’s receipt of overpaid amounts for these employees assisted it in retaining other employees. However, it could not be said that receiving amounts greater than $1,500 per employee per fortnight for employees is consistent with the objective of the JobKeeper scheme. The applicant’s conduct effectively cross-subsidised wages of other employees and other business expenses by over-claiming for persons no longer employed by the applicant and who ceased to be employed up to six months earlier.
Applicant’s submission (d)
The applicant submits that:
(d)the Taxpayer’s financial position is that it would not have survived the pandemic period without the Jobkeeper payments and it will not now survive if obliged to repay the Relevant Amount, with obvious consequences for the 44 staff, businesses engaged with the Taxpayer and the regional economy of Cairns;
Mr Singh asserted in his affidavit filed in the proceedings that if the applicant “is required to repay any JobKeeper payments, it will not likely be able to do so”.
A number of observations should be made regarding that assertion:
(a)It is imprecise: it merely asserts that the applicant will “likely” not be able to repay “any” of the overpaid amount, although in cross-examination Mr Singh stated that the applicant “would definitely close down the business”[16] if required to repay overpaid JobKeeper payments.
(b)If the applicant is unable to repay any of the overpaid amount, it must follow that it would be insolvent unless the Tribunal determined that no part of the overpayment need be repaid. Even if the next most favourable decision sought by the applicant – that is, repayment being limited to the amount of $97,500 – were to be made, the applicant would, on this evidence, be insolvent. Not requiring the lesser amount to be repaid would have no benefit for the continued employment of the applicant’s employees in that event.
(c)There is no evidence in support of Mr Singh’s contention regarding the impact closing down the business would have on businesses engaged with the applicant or the regional economy of Cairns. There is, for example, nothing in the evidence to suggest that other competitors would not fill any service gaps caused by the applicant closing down business.
(d)There is no evidence on which an accurate assessment of the applicant’s current ability to repay any or all of the overpaid amounts could be made beyond the applicant’s assertion. The applicant produced only copies of bank statements and draft financial statements for the 2021/22 financial year which are unsigned and uncertified by the applicant or its accountant.
(e)Further, there are aspects of the draft accounts which, even if included in the finals, would call for an explanation Mr Singh was unable or unwilling to provide. For example, the comparatives indicate a substantial third-party loan of $909,195, presumably to a related entity, was able to be made by the applicant in the 2021/22 financial year; Mr Singh was unable to cast any light on this.
(f)In any case, the draft accounts even if finalised in their current form do not provide a current picture of the applicant’s financial position. It is surprising that an applicant seeking to have a debt of almost $700,000 waived and that apparently considers its financial position to be relevant to that decision, would not put on evidence upon which the Tribunal could make a realistic assessment of the true financial position.
[16] Hearing transcript, P-34, line 1.
Applicant’s submissions (e)-(g)
The applicant submits that:
(e)although misunderstood, the Taxpayer’s understanding of the application process was that the Commissioner applied an audit procedure (via the single touch payroll) before paying amounts such that any ineligibility would have been detected and prevented the payments being made;
(f)the Taxpayer used internal bookkeepers (Daurav Batra) (sic) and an external accountant to properly assist in the conduct of its affairs; and
(g)any errors were unintentional.
The assertion in paragraph (e) is supported by Mr Singh’s affidavit evidence. The difficulty with that evidence is that, even if accepted, it does not explain why the applicant came to make the errors it made. It does not, for example, explain why very significant amounts were claimed by the applicant in respect of persons who were no longer employed by the applicant, and who in some cases had not been employed by the applicant for months.
Mr Singh sought to overcome this difficulty by stating that his understanding was that the main eligibility criteria for JobKeeper was a 30% downturn in turnover. He drew this understanding, he said, from media reports and discussions with people around Cairns.
But the applicant must have known eligibility for JobKeeper was tied to wages paid to employees. On Mr Singh’s own evidence, he understood claims were associated with the single touch payroll system. Again, even accepting Mr Singh’s evidence that his understanding was that the main eligibility criterion was the 30% drop in turnover, this does not explain how the applicant came to claim JobKeeper for persons it no longer employed and had not employed for some months. There had to be some basis for calculation of the amounts claimed.
Overall, this issue suffers from the dearth of evidence alluded to earlier. It may be that the internal bookkeeper could have cast light on how the applicant came to claim very substantial amounts to which, on the most rudimentary understanding of the JobKeeper scheme as a wage subsidy, it was plainly not entitled. But the Tribunal did not have the benefit of such an explanation. Nor are there facts on which any relevant favourable inference could be drawn.
The applicant’s assertion that “any errors were unintentional” no doubt seeks to align the case with the Treasurer’s statement, extracted above, that the discretion is aimed at cases where the applicant has “made an honest mistake and not retained any personal benefit from a payment they have received”. However, an honest mistake in relation to a particular payment is a far cry from this case.
This is not a case where an isolated error was made in one claim or even a case where a misunderstanding of a particular requirement led to a recurring error. The “mistakes” are for multiple reasons across multiple fortnights involving multiple employees and some hundreds of thousands of dollars. As already noted, those “mistakes” included claiming JobKeeper payments in respect of many employees to whom wages were not paid and who had left the applicant’s employment or otherwise failed to eligibility requirements. It is an improbable intention to attribute to the Treasurer that the discretion would relieve an applicant from all liability to repay overpaid amounts in these circumstances.
Although not supported by medical evidence, Mr Singh referred to the stress and his deteriorating mental health as a consequence of the pandemic crisis. I accept the crisis gave rise to extraordinary levels of stress and that businesses were, as Mr Singh indicated, in survival mode.
But even giving full weight to those circumstances, in the absence of a proper explanation of the circumstances, the extent and categories of overpayments in this case invite an inference that the applicant was at the least grossly negligent or indifferent to whether it was entitled to receive the very substantial amounts it wrongly claimed and received. At the least, on the available evidence I am not persuaded the applicant did not approach the claims in this way.
The applicant also submitted the following consideration “weighs heavily in favour of exercising the discretion”:[17]
Contextually it is also relevant that the Relevant Amount is 44.67% of the amount paid, showing that the Taxpayer did not claim Jobkeeper when ineligible to do so, but that a minority of the claimed (sic) – in complex systems with details (sic) rules - are subject to dispute.
[17] Applicant’s outline of submissions dated 15 June 2023, [17].
I am, with respect, unable to accept that this consideration “weighs heavily” in favour of exercising the discretion.
Self-evidently, the assertion that “the Taxpayer did not claim JobKeeper when ineligible to do so” is incorrect. Nor is it true that a “minority” of the amount claimed – 44.67% – is “subject to dispute”. The amount overclaimed is not disputed by the applicant at all.
The submission seems to impliedly invite the Tribunal to draw a favourable inference from only a “minority” of the amount claimed being claimed when the applicant had no entitlement to the payments. But the amount wrongly claimed, while less than half the total amount, is nevertheless significant, both as a percentage – 44.67% – of the total amount claimed, and as a dollar amount – $688,600. Looked at another way, the applicant claimed almost 81% more than the amount to which it was entitled. I find this submission unpersuasive.
I accept that there was a degree of complexity in the eligibility rules. However, Mr Singh’s evidence does not suggest that he was confused by the rules. Rather, Mr Singh indicated he thought the main focus was the requirement for a 30% drop in turnover. There is no evidence that Mr Singh read the rules or engaged with them in any way. It is to be expected that the applicant’s external accountant and bookkeeper would have been across the rules and advised Mr Singh, but there is no way of knowing in the absence of evidence from either of those gentlemen.
I turn now to consider the applicant’s alternative proposed decisions outlined above.
Consideration of the applicant’s alternative submissions regarding amounts to not be required to be repaid
Proposition (a): Applicant not liable to pay $688,600
Under this proposition, no part of the overpaid amount would be required to be repaid. The applicant submitted this is appropriate on the basis that the total wages paid to all employees during the relevant period exceeded the total amount of JobKeeper payments received.
Acceptance of this proposition would, in my view, be inconsistent with the subject matter and scope of the JobKeeper scheme which, as noted, was a scheme to subsidise the wages of existing employees to encourage their retention by employers until the pandemic crisis passed.
Nor do I see this as a case where the applicant could be said to have not benefitted from the overpayments. The amounts received were not set aside for payment to employees but rather formed part of the applicant’s operating funds. The applicant self-evidently benefitted, relative to other businesses, to the extent of some $688,600. That its funding was enhanced by the wrongful claiming and receipt of these amounts, and that expenditure made from the applicant’s funds included wages paid from its operating funds, does not detract from that conclusion.
Additionally, for the reasons already given, I do not see this case as one involving a simple honest error. Rather, it involved ongoing substantial unexplained over-claiming of JobKeeper payments, including to a substantial extent in respect of persons not even employed by the applicant at the time the claims were made.
In those circumstances, I am not persuaded that the applicant should be relieved from the obligation to repay the whole of the amount of $688,600 which it claimed contrary to the JobKeeper rules.
Proposition (b): Applicant not liable to pay $591,100
Under this proposition, the applicant would only be liable to pay the amount of $97,500, relating to five employees for whom JobKeeper payments were made but who had left the business and did not receive any wages in JobKeeper fortnights. The balance would not be repaid, apparently for the reason put forward for proposition (a) above.
The reasons set out in relation to the applicant’s proposition (a) apply in relation to this proposition.
Proposition (c): Applicant not liable to pay $493,080.78
Under this proposition, only $195,519.22 would be required to be repaid.
Rather than, as in proposition (a) above, calculating wages and JobKeeper paid on a global basis for all employees over the relevant period, this calculation is said to be derived by reference to the total wages and JobKeeper paid on a per employee basis over the relevant period. The excess of total JobKeeper payments over total wages paid, calculated on a per employee basis but for the whole of the relevant period, is $195,519.22.
Consistent with the applicant’s submission that “in most cases the failure of the wage condition was a timing issue”,[18] this submission fails to engage with other aspects of the JobKeeper scheme. It is not only because of failure of the wage condition that the applicant received overpayments. The over-payments arose substantially for other reasons, including that it was claimed in respect of employees who were not existing employees at 1 July 2020, contrary to the scheme’s objective of encouraging retention of existing employees.
[18] Applicant’s Amended SFIC dated 20 February 2023, [21].
Additionally, as the applicant’s own submissions note, employees were paid more than the JobKeeper amount of $1,500 per fortnight. The applicant’s proposition (c) would effectively result in wages paid to individual employees being subsidised to a greater extent than $1,500 per fortnight, in contrast to the limited support available to other businesses that complied with the JobKeeper rules.
For these reasons, and those indicated in respect of proposition (a), I am not persuaded that a decision to not require repayment of $493,080.78 is appropriate.
Proposition (d): Applicant not liable to pay $387,359.69
Under this proposition, $301,240.31 would be required to be repaid by the applicant.
The calculation of this amount is similar to the calculation under proposition (c) except that it is made on a per employee and per fortnight basis. The amount of $301,240.31 is the excess of JobKeeper received over wages paid each fortnight to each employee.
I acknowledge the case for this proposition is stronger since it would not have the applicant retaining amounts where the employees had not received an equivalent amount in the relevant fortnight. However, this proposition suffers from the same difficulties as proposition (c) in that is founded only on the wages paid to the employees in these fortnights but does not address the other reasons for the non-eligibility, including in respect of those employees who were not existing employees of the applicant.
Further, and more particularly, as with all of the propositions, on the evidence before the Tribunal I am unable to make a proper assessment of the circumstances leading to the overpayment. Even under this proposition, the applicant asks to be relieved from repayment of hundreds of thousands of dollars, but has not provided an explanation of how the wrongful claims came to be made. Mr Singh could not explain how JobKeeper payments were claimed for many months after employees were no longer receiving wages or for employees who on any view were not eligible under the scheme rules. The internal bookkeeper and the external accountant, who may have been able to cast light on this, did not give evidence.
I consider it would not be an appropriate exercise of the s 9(4) power to determine that hundreds of thousands of overclaimed amounts need not be repaid in the absence of a proper explanation for how the overpayments occurred. For this and the other reasons outlined above, on the evidence before me I am not persuaded that applicant has discharged the burden of proving a decision that any part of the overpaid amount should not be required to be repaid.
DISPOSITION OF THIS MATTER
As indicated above, the Commissioner disallowed the total amount of $1,541,450 claimed by the applicant and disallowed in full the applicant’s objection against that decision.
Based on evidence produced in the review, the Commissioner now concedes that JobKeeper payments totalling $852,850 were properly payable. Accordingly, it will be necessary to set aside the objection decision to reflect the Commissioner’s concession.
If I am correct in concluding that a per fortnight determination of each individual JobKeeper amount claimed is required, the decision the Tribunal should substitute for the objection decision would need to include a decision in respect of each fortnight reflecting the extent of the Commissioner’s concession for that fortnight. However, the materials before the Tribunal do not appear to include a per fortnight breakdown of the amount of $852,850.
In the circumstances, the appropriate course appears to be to set aside the objection decision and remit the matter for reconsideration in accordance with a direction that the applicant’s JobKeeper claims are to be allowed in accordance with Commissioner’s concession in the proceedings.
I certify that the preceding 113 (one hundred and thirteen) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding
..................................[SGD]..................................
Associate
Dated: 30 October 2023
Dates of hearing: 22-23 May 2023 Date final submissions received: 29 June 2023 Counsel for the Applicant: Mr M Bennett Solicitors for the Applicant: CharterLaw Legal Counsel for the Respondent: Mr V Brennan Solicitors for the Respondent: ATO Litigation & Legal Services
Key Legal Topics
Areas of Law
-
Tax Law
-
Administrative Law
-
Statutory Interpretation
Legal Concepts
-
Judicial Review
-
Statutory Construction
-
Remedies
-
Jurisdiction
-
Procedural Fairness
1
4
0