Matthews and Director, Employer Support Payments Scheme

[2006] AATA 221

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 221

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q2005/361

GENERAL ADMINISTRATIVE DIVISION		)
Re		KARL MATTHEWS

Applicant

And DIRECTOR, EMPLOYER SUPPORT PAYMENTS SCHEME

Respondent

DECISION

Tribunal Senior Member B J McCabe

Date10 March 2006

PlaceBrisbane

Decision The decision under review is affirmed.

..........[Sgd].........

BJ McCabe

SENIOR MEMBER

CATCHWORDS

COMPENSATION – reserve service personnel compensation – applicant is self employed – principle source of income test – legitimate business test – applicant unable to satisfy either test

REASONS FOR DECISION

10 March 2006 Senior Member B J McCabe

1.      The Commonwealth operates a scheme under which employers of reserve defence personnel can seek compensation for the time those individuals are absent from their jobs doing reserve work. Self employed individuals are also entitled to payments in some circumstances.

2.      The applicant transferred from the permanent air force (PAF) to the RAAF Reserves on 3 January 2003. He established his own management consultancy in civilian life but took time off work to carry out reserve duties. He has asked the Tribunal to reconsider a decision to reject a claim for employer support payments between 18 August 2003 and 17 November 2003.

3.      This case turns on whether the applicant can satisfy one of two tests of eligibility set out in the Defence Determination 2002 (Employment Support Payments) (the determination). One of the tests is known as the Principal Source of Income (PSI) test. That test is set out in s 3B of the determination. The other test may apply if the applicant is unable to satisfy the PSI test. The second test is known as the legitimate business test. It is set out in s 3C of the determination. Each test requires the decision-maker to have regard to what occurred during a period of at least six months before the claim.

the material before the tribunal

4. The Tribunal was provided with the documents required under s 37 of the Administrative Appeals Tribunal Act 1975. The respondent also provided a calendar showing the dates of the applicant’s service in the reserves. The applicant tendered several bundles of documents evidencing some of his business activities. He gave oral evidence and presented his own case. Ms Ferry acted on behalf of the respondent.

the facts

5.      The applicant has a background in electrical engineering. He graduated from university and attended the officer training course at Point Cook before taking a commission in the RAAF. He worked on a number of projects. He says he began to have ideas about how he might use his talents in the private sector. He completed an MBA while he was still a member of the defence forces. He subsequently decided to leave the PAF and start his own management consulting business.

6.      Mr Matthews did not resign from the RAAF. He transferred to the reserves. The transfer took effect on 4 January 2003. He was then free to set up his consultancy. He had already registered the business name “Continuous Business Development Consultancy” (CBD) and acquired an ABN from the Australian Tax Office. He said he started work in his consultancy business immediately. He explained he wanted to develop a number of different business lines or products. One area of speciality was called knowledge management. He was also interested in providing strategic advice for businesses.

7.      The applicant moved to Kangaroo Island, off the South Australian coast. He did not set up an office; he could work from home or from any other location. His most important tool was a laptop, which was portable. Mr Matthews said he was aware the local Economic Development Board was keen to promote business opportunities on Kangaroo Island. He says he undertook several trials with local businesses, including a small business producing organic honey. He says it was difficult to break into the market and secure work.

8.      Mr Matthews told the hearing he was also working on a number of ideas that might be of interest to commercial organisations. He described one idea that might have led to a patentable invention. He said he had a number of meetings with people from the Defence Science and Technology Organisation (DSTO), which sometimes partners with private individuals to develop products of interest to the defence force. He says he also met with people from the University of Adelaide and another commercial organisation to discuss other proposals. The discussions were accompanied by email correspondence and telephone contacts. Details of those discussions were not made available to the Director when the original application was made; Mr Matthews has not kept diary notes of the discussions and meetings, but I accept his evidence that they did occur and that he might have been reticent about revealing the discussions in light of their confidential nature.

9.      At the same time, the RAAF required assistance. Mr Matthews agreed to attend reserve duty. His first period of service as a reservist commenced on 1 February 2003. He worked at RAAF Edinburgh, near Adelaide. He spent 7 whole days and 3 part days on reserve work in February 2003. In March, he spent five days on reserve work and seven days in April. In May, he spent 21 days as a reservist, and 21 days in June. He spent 18.5 days on reserve work in July and 21.5 days in August.

10.     Mr Matthews agreed he had few clients in the period between January to mid-August 2003. He was not deriving much income from the business; he explained he was living off savings. His tax return for the year ending 30 June 2003 suggests he had taxable income from his consultancy of just $1 while he derived $68,297 from the RAAF. But he insisted he was working hard on marketing himself, and he was refining business ideas throughout this period. He says he continued to work on his business after business hours on the days he was on reserve service. He said he took meetings on a number of the half days he was in Adelaide. He subsequently conceded during cross-examination that his own business activities were more or less on hold during the period May-July 2003, when he was doing a great deal of reserve service.

11.     Mr Matthews did not dispute the respondent’s calculation of days he spent on reserve service. He argued that reserve service only accounted for around 30% of the number of days during this period; he said the balance of the time (including weekends and public holidays) was devoted exclusively to business development. He explained he did not have diary notes or other records that would help him substantiate all of the time he claimed he was working on CBD’s business. I note in Annexure A to exhibit five the applicant suggests:

Time spent “on” and “in” the business were variable between 8am and 8pm, averaging about 30 hours a week.

12.     I do not doubt the applicant worked extensively on his business throughout the six month period in question. He pointed out he had a great deal to learn about operating a small business on his own. He has produced a good deal of evidence to this effect. But I note his concession that his consultancy was effectively on hold during the period May-July 2003. While I accept he worked hard to make his fledgling business a success during the balance of the period, it is difficult to see how he could have worked more hours in a consultancy without any paying clients than he devoted to his reserve work.

applying the determination

13.     I have already noted the determination provides for two tests. The reviewable decision focused on the first of these: whether the private enterprise was the principal source of the applicant’s income during the period under review. The applicant appeared to accept (and I find) he could not satisfy the test given the figures disclosed in his tax return and the other pay records relating to his work in the PAF. He clearly made more money out of his work for the PAF than he did out of his consultancy.

14.     Much of the discussion at the hearing focused on whether the applicant could satisfy the legitimate business test in s 3C of the determination. Section 3C(6) says the Director may consider a claim where:

·     the applicant does not satisfy the PSI test but is involved in or engaged by a legitimate business that is the applicant’s principal source of employment for a continuous period of at least six months; and

·     it would be unfair not to treat the applicant as being a self-employed person who receives his or her principal source of income from that business.

15.     It seems to me the applicant cannot satisfy the requirements of the determination in circumstances where he agrees his work with the reserves in the May-July period was his principal source of employment during that period. He is unable to claim his consultancy took up the majority of his time over a continuous six month period at any time during 2003. Even if one ignored the fact reserve work was his principal source of employment in the period between May and July 2003 and simply compared the number of days he worked in the reserves in the six months following 3 January 2003 with the number of days available for other work, I am unconvinced he devoted a majority of his time to the consultancy given the absence of clients.

conclusion

16.     The decision under review is affirmed.

I certify that the 16 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member B J McCabe.

Signed:         Associate      Adam Ryan

Date of Hearing  22 February 2006
Date of Decision  20 March 2006
The applicant appeared in person.
The respondent was represented by Ms Ferry.