Lam v Queensland Building and Construction Commission
[2014] QCAT 512
•14 October 2014
| CITATION: | Lam v Queensland Building and Construction Commission [2014] QCAT 512 |
| PARTIES: | John Cristopher Lam (Applicant) |
| v | |
| Queensland Building and Construction Commission (Respondent) |
| APPLICATION NUMBER: | OCR012-14 |
| MATTER TYPE: | Building matter |
| HEARING DATE: | 15 September 2014 |
| HEARD AT: | Brisbane |
| DECISION OF: | Member Gardiner |
| DELIVERED ON: | 14 October 2014 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. The decision of the Authority dated 19 November 2013 refusing to categorise Mr Lam a permitted individual is set aside. 2. John Christopher Lam be categorised as a permitted individual. |
| CATCHWORDS: | PERMITTED INDIVIDUAL – Where the applicant was a director of a building company – Where a vehicle had been garaged and not used – Where an unforseen potential FBT debt arose – Where company had not made provision for unforseen potential debt – Where no assessment for FBT ever issued – Whether all reasonable steps taken Queensland Building and Construction Commission Act 1991 ss 56AC, 56AD Younan v QBSA [2010] QDC 158 followed |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Mr J Crowther, Solicitor represented Mr Lam |
| RESPONDENT: | Ms K Joyce, Solicitor represented the Commission |
REASONS FOR DECISION
On 19 November 2013, the Queensland Building Services Authority (as it was then) refused an application by Mr John Christopher Lam to be categorised as a permitted individual under s 56AD(1) of the then Queensland Building Services Authority Act 1991.
Mr Lam is a licenced builder, holding a Queensland open licence and a low rise carpentry and joinery licence. Mr Lam was also a director of Outlook Projects Pty Limited.
On 2 November 2012, liquidators were appointed for Outlook Projects Pty Limited.
Under the current Queensland licensing system for builders, if a builder is a director or influential person in a company that has become insolvent, the builder is an excluded individual and the building licence is cancelled for 5 years[1].
[1]Queensland Building and Construction Commission Act 1991 s 56AC.
However an excluded builder can apply to be a permitted individual allowing him to retain his building licence if the builder can satisfy the that he took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event, here the liquidation of Outlook Projects Pty Limited [2].
[2]Ibid s 56AD.
The Queensland Building and Construction Commission Act 1991 (the Commission Act) also sets out the matters the Commission (and therefore this Tribunal) must have regard to when examining any action by the excluded builder to show that he took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event in this matter[3]. The Commission is also able to have regard to other matters when deciding if a builder took all reasonable steps[4].
[3]Ibid s 56AD(8A).
[4]Ibid s 56AD(8B).
The leading decision of Judge McGill in Younan v QBSA[5] identifies a four step process when determining a permitted individual. These steps are:
[5][2010] QDC 158.
a) identify the relevant event;
b) identify the circumstances the resulted in the happening of the relevant event;
c) determine if the applicant took all reasonable steps to avoid the coming into existence of those circumstances; and
d) if the threshold test is satisfied, should discretion be exercised to classify the applicant as a permitted individual.
His Honour then goes on to say
what were reasonable steps depended on what was reasonable for the individual concerned in the circumstances in which he found himself, with such information as he then had. It is not a question of whether he did everything possible to prevent these circumstances form arising, or whether they might not have arisen if he had acted differently. The reasonableness of his behaviour must be assessed by reference to what was known by him at the time, without benefit of hindsight [6] .
It is agreed that the relevant event in this case is the company liquidation on 2 November 2012 (step one).
Steps two, three and four (to identify the circumstances that resulted in the happening of the event; to determine of Mr Lam took all reasonable steps to avoid those circumstances; and to determine the exercise of any discretion) are the subject of these reasons.
[6]Ibid [26].
At the outset of the hearing, the parties agreed that the legal argument in this matter was limited to two subsections of section 56AD of the Commission Act. Firstly, whether Mr Lam sought appropriate financial or legal advice before entering into financial or business arrangements and secondly, whether Mr Lam made appropriate provision for State and Commonwealth taxation debts[7].
[7]The Commission Act s 56AD(8A)(f).
It was to these two matters only that the evidence and the legal argument were addressed.
At the hearing, after the evidence was concluded, the Commission abandoned its objection under section 56AD(b) saying it was satisfied Mr Lam sought appropriate legal and financial advice.
The argument was then restricted to subsection 56AD(f) – the making of appropriate provision for State and Commonwealth taxation debts.
Mr Lam says a potential Fringe Benefits Tax debt arose after an Australian Taxation Office audit in 2012. This potential debt arose concerning work vehicles and in particular, the characterisation of one vehicle that had been garaged on a long term basis and not used by Mr Lam either for work or privately during that time. Mr Lam had used another vehicle for work purposes.
Mr Lam’s evidence was that as he did not use the garaged work vehicle at all. When asked by his accountant what percentage of the vehicle was work related, he honestly said 100% as he had not used it privately during the period and he classified it, in his mind, as a work vehicle – just not the one he was at that time using.
The ATO took another possible view, suggesting that FBT was payable.
Mr Lam’s accountant did the figures on a potential FBT liability and informed Mr Lam that he might be liable for up to $107,500.00.
Mr Lam says this potential debt was unforseen and unbudgeted for in his financial planning. Mr Lam said that FBT was an issue not within his usual sphere of knowledge and that he trusted his accountant to raise any issues of concern. FBT had never been raised with him.
After the FBT issue arose, Mr Lam says he took further advice on a referral from his accountant to a liquidation specialist.
Mr Lam co-incidentally had just privately settled a family law property matter with his then wife and he had no further assets that could be sold against or borrowed against to pay out this unforseen potential claim, should an assessment be issued against him.
The advice Mr Lam received from the liquidation specialist was that a “legal battle” with the ATO would cost more than Mr Lam had available to him and that his advice to Mr Lam was to put the company into liquidation.
Mr Lam says at no time was he told that this would affect his Queensland building licence by either his accountant or the liquidation specialist. Indeed, he says in New South Wales this action does not have any effect on building licences.
At the time of liquidation, Mr Lam says the company did not have many creditors and that he paid these creditors out in full. The ATO audit had found the company owed its only employee (Mr Lam) superannuation and this had also been paid by Mr Lam at the time of the audit.
Mr Lam says he was simply following the advice of the experts, in particular the liquidation specialist as the most practical course of action at the time. All other taxation debts were up to date, all reporting lodged in the proper time frames (for example, BAS statements) and all assessments paid by the due date. No payment arrangement had ever been entered into with the ATO.
No FBT assessment was ever issued by the ATO although the reason for this remains unclear.
Mr Lam submits:
· The potential FBT debt was unforseen and unbudgeted for and it was this debt that caused the liquidation on the background of the property settlement with his ex-wife which meant he had no financial reserves;
· No notice of assessment was ever issued, even in the liquidation;
· Other creditors were settled by Mr Lam;
· He trusted his accountant to raise any taxation issues with him;
· FBT was never raised with him and this tax was not within his usual sphere of knowledge as , for example, payroll tax was;
· He was never told of the impact on his Queensland builder’s licence of the liquidation in New South Wales (where the same consequence does not arise);
· Mr Lam relies on the decision of the QCAT appeal tribunal in QBCC v Jensen[8] where the appeal tribunal concluded that there was inappropriate provision for a taxation debt and therefore the appeal must fail. Here , Mr Lam says, it is the opposite, as apart from a potential unrealised FBT debt, all other tax debts were paid in full, on time;
· Mr Lam also relies on QBCC v Vadasz[9] to explain the meaning of “provision” within the terms of the legislation, where it is given its ordinary meaning.
[8][2014] QCATA 028 (Jensen) at [39].
[9][2014] QCATA 001 at [32] onwards.
The Commission also relies on QBCC v Vadasz[10] but for a different passage submitting:
· that it was accepted by that appeal tribunal that even though the tax debt was not the direct cause of the relevant event, it was a significant debt and the applicant in that matter had no financial means to clear the debt.
[10]Ibid [36].
The Commission further submits:
· Mr Lam did not take all reasonable financial steps in relation to the potential of an FBT debt; and
· The company was not in a sound financial position prior to the potential FBT liability in any event. The 2011 – 12 years were showing increasing losses and the company position had deteriorated to a negative asset base;
· The financial planning was to pay debts from future income;
· By the end of the financial year 2012, the company could not withstand any potential liability or pay any outstanding liability unless it sold the assets (e.g. a motor vehicle) which was used to run the business;
· Mr Lam’s knowledge of the business prior to the potential FBT liability arose should have given him cause for concern.
In the Commission’s submission, Mr Lam’s actions were not reasonable at the time as, with or without the FBT liability, the company was in a precarious financial state and Mr Lam should have known that.
The Commission relied on the decision in Armstrong v QBSA[11] saying that the company was allowed to fall into liquidation as it had no capacity to pay any debt and because of this, there was no provision for taxation debts. The fact that the debt was disputed does not mean the company was not required to provide for it, in case any final decision goes against the company.
[11][2010] QCAT 486 at [32].
Relying on the Jensen decision[12], the Commission further submitted that the company was relying on future income to pay past debts including taxation debts and that the company was never capitalised sufficiently and not in a position to pay creditors in any given year. There were never sufficient assets to pay debts.
[12]See [25], [28].
I accept that Mr Lam had no financial means to clear the debt if a liability for FBT arose. However, in this matter, the threat of an FBT liability appears to be the driving force in the liquidation and was the circumstance that led to the relevant event.
While it would have been Mr Lam’s obligation under s 56AD(f) to show he took reasonable steps to make proper provision for tax, looking at the circumstances of that period now, I accept that for Mr Lam the potential liability for FBT was unforseen and therefore unplanned for by him. I also accept the potential liability was outside Mr Lam’s sphere of knowledge and that he was reliant on his professional advisers in this area.
The company figures show that the company was sailing close to the wind from at least 2011. Any exceptional circumstance would have tipped it over and things had gotten worst by 2012 leading to a negative assets base. The potential FBT debt to the ATO was an unforseen circumstance for Mr Lam and not allowed for, as trading continued with no provision able to be made for it from assets and reliance on future cash flow to pay for it if it arose.
However, ‘the reasonableness of his behaviour must be assessed by reference to what was known by him at the time, without benefit of hindsight”’[13]. The element which, in my view, tips this matter in Mr Lam’s favour is the unforseen nature of the potential FBT debt. Without the spectre of this debt this company may have traded sufficiently to turn around its then position. That will never be known.
[13]Younan v QBSA at [26].
The unplanned nature of this debt meant that Mr Lam – in the financial circumstances in which he found himself – took the only option presented to him in circumstances where he was not advised by those he relied upon as to the impact of this liquidation step on his Queensland licence. There were no other reasonable steps he could have taken as he was not aware nor was he advised of the potential FBT liability until the ATO took a different view to him on the taxation implications of garaging of a motor vehicle.
It is also pertinent that the ATO never did issue an assessment, even to prove a debt in the company liquidation.
Sub-section 56AD(8B) of the Commission Act allows me to have regard to other matters when deciding whether Mr Lam took all reasonable steps to avoid the coming into existence of the circumstances that resulted in the happening of the relevant event.
As the FBT debt was never realised, I am satisfied within the terms of the legislation that in these unusual circumstances, Mr Lam as director, took all reasonable steps to avoid the coming into existence of the circumstances which led to the ultimate liquidation of Outlook Projects Pty Limited.
I am satisfied that my discretion should be exercised to classify Mr Lam as a permitted individual.
The decision of the Commission dated 19 November 2013 refusing to categorise Mr Lam as a permitted individual in relation to the liquidation of Outlook Projects Pty Limited is set aside. Mr Lam will be categorised as a permitted individual.
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