North Australian Contracting Pty Ltd and Commissioner of Taxation

[2022] AATA 223

North Australian Contracting Pty Ltd and Commissioner of Taxation [2022] AATA 223 (16 February 2022)

Division:TAXATION AND COMMERCIAL DIVISION

File Number:2021/4955          

Re:North Australian Contracting Pty Ltd  

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member R Olding

Date:16 February 2022

Place:Perth

The decision under review is affirmed.

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

Senior Member R Olding

CATCHWORDS

CORONAVIRUS ECONOMIC RESPONSE PACKAGE – JOBKEEPER SCHEME – where applicant carried out construction fit-out services for large building companies and an associated company carried out similar services for smaller building companies – where staff moved between an associated company and the applicant according to the nature of contracts undertaken – whether applicant and associated company carried on the same business – decision affirmed

LEGISLATION
Acts Interpretation Act 1901 (Cth) s 15AA
Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) ss 4, 4(1), 4(2), 6(1)(c), 9(1), 9(2), 9(3), 9(6), 9(6)(b), 9(6)(b)(ii)
Income Tax Assessment Act 1997 (Cth) ss 960-100 (definition of ‘entity’), 995-1(1) (definition of ‘business’)
Taxation Administration Act 1953 (Cth) s 14ZZK

CASES

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384

Eichmann v Federal Commissioner of Taxation [2020] FCAFC 155

Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622

Mills v Meeking (1990) 169 CLR 214

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355

Slatter Building Group Pty Ltd and Commissioner of Taxation [2021] AATA 456

REASONS FOR DECISION

Senior Member R Olding

16 February 2022

WHAT IS THIS CASE ABOUT?

1. This is a dispute about whether the applicant is entitled to Jobkeeper[1] payments for August 2020 in respect of nine employees.  These employees were referred to by the parties as the ‘additional employees’, a practice I have adopted in these reasons.

   [1] The Jobkeeper scheme formed part of the Australian Government’s economic support response to the COVID-19 pandemic. It provided employees with a temporary wage subsidy for eligible employees.

2. A condition of eligibility for the August 2020 Jobkeeper payments is that the additional employees were employed by the applicant on 1 July 2020.

3. The additional employees were not actually employed by the applicant on 1 July 2020, but rather by an associated company, North 23 Pty Ltd (‘North 23’). The outcome of the case turns upon whether s 9(6)(b) of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (‘the Rules’) applies to treat the applicant as having employed the additional employees on 1 July 2020.

4. The applicant suffered a substantial reduction in turnover. Thus, as the Commissioner agrees, it satisfies that fundamental Jobkeeper eligibility requirement. Aside from the

   
   

   s 9(6)(b) issue, there is no dispute as to the applicant’s eligibility. Nor is there any suggestion of double-dipping or other mischief involved in the application. It is simply a matter of whether the particular circumstances, outlined below, fall within the statutory requirements.

   BACKGROUND

5. The applicant and North 23 are engaged in the construction industry, specifically in providing fit-out services.

6. Mr Daniel Simpson, the applicant’s managing director, provided a witness statement. The Commissioner did not cross-examine Mr Simpson. I accept Mr Simpson’s evidence as set out in his witness statement.

7. Mr Simpson explained that the applicant and North 23 have contracts with several builders which they refer to as tier one and tier two builders. Tier one builders are large companies such as Lendlease and Multiplex. Tier two builders are smaller state or national builders.

8. The applicant is generally used for the tier one work because most of that work is ‘union work’. The applicant has an agreement with the relevant union. All work has to be in accordance with that agreement. North 23 can be more competitive on smaller projects because it does not have an agreement with the union and incurs a lower hourly rate for labour costs than the applicant. Nevertheless, both companies deal with the same union representative.

9. Staff move between employment by the applicant and North 23 as required. Management staff are employed by another associated entity. The financial accountant, office clerks, project managers, site managers and construction manager all look after jobs across the applicant and North 23.

10. External accountants prepare separate accounts and tax returns, but Mr Simpson has the internal accountant prepare a consolidated profit and loss statement. The applicant pays all expenses and treats payments made on North 23’s behalf as a loan to North 23. Another associated company holds all the plant and equipment and the applicant and North 23 have a joint bank guarantee facility with their bank.

    DECISION UNDER REVIEW AND BURDEN OF PROOF

11. The decision under review is the Commissioner’s objection decision dated 21 May 2021 disallowing the applicant’s objection against the Commissioner’s decision that the applicant is not entitled to Jobkeeper payments in respect of the additional employees.

12. The applicant has the burden of proving the objection decision should not have been made or should have been made differently: Taxation Administration Act 1953 (Cth), s 14ZZK. That means the applicant bears the burden of proving it is eligible for the contested Jobkeeper payments.

13. Since the Commissioner has agreed to confine the issues in dispute, the applicant will discharge the burden of proof if it proves that s 9(6)(b) of the Rules operates to treat the additional employees as employees of the applicant on 1 July 2020.

    STATUTORY FRAMEWORK

14. Under s 6(1)(c) of the Rules, one of the requirements for an entity to be entitled to a Jobkeeper payment for an individual for a fortnight, is that the individual is an ‘eligible employee’ of the entity for the fortnight.

15. An individual is an eligible employee of an entity for a fortnight if the individual is employed by the entity at any time in the fortnight and the individual satisfies ss 9(2) and (3) of the Rules: s 9(1). The s 9(2) requirements include that the individual was an employee of the entity on 1 July 2020.

16. As set out earlier, the additional employees were employed by the applicant in August 2020. But they were not employed by the applicant on 1 July 2020; they were employed by North 23. However, they will be treated as employed by the applicant on 1 July 2020 if s 9(6) applies.

17. Section 9(6) provides:

    Businesses that change hands etc.

    (6) For the purposes of this section, treat an entity (the later entity) that employs an individual at a time (the later time) as having also employed the individual at the earlier time if:

    (a) the individual was employed at the earlier time by another entity in the same wholly-owned group as the later entity; or

    (b) both of the following apply:

    (i) at the later time, the individual is employed in a business carried on by the later entity or in a non-profit body the purposes of which are carried on by the later entity;

    (ii) at the earlier time, the individual was employed in the same business or non-profit body, but that business was, or the purposes of that non-profit body were, carried on by a different entity.

    Note 1:Paragraph (b) means that an individual can be an eligible employee of an entity even if the business or non-profit body in which the individual is employed changes hands.

    Note 2: Paragraph (b) also means that, in working out if an individual is a long term casual employee of an entity at a time, employment in a business or non-profit body during the period of 12 months that ended at that time can be counted even if the business or non-profit-body changed hands during that period.

18. Section 4(1) of the Rules is a definition section.  Section 4(2) provides that, subject to s 4(1), an expression used in the Rules that is defined in the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’) has the same meaning in the Rules.

19. The expression ‘business’ is defined in s 995-1(1) of the ITAA 1997 as follows:

    business includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

20. The expression ‘entity’ is defined in s 960-100 as follows:

    (1)  Entity means any of the following:

    (a) an individual;

    (b) a body corporate;

    (c) a body politic;

    (d) a partnership;

    (e) any other unincorporated association or body of persons;

    (f) a trust;

    (g) a *superannuation fund;

    (h) an *approved deposit fund.

    Note: The term entity is used in a number of different but related senses. It covers all kinds of legal person. It also covers groups of legal persons, and other things, that in practice are treated as having a separate identity in the same way as a legal person does.

    IS THE APPLICANT ENTITLED TO JOBKEEPER PAYMENTS FOR THE ADDITIONAL EMPLOYEES?

21. Substituting the names of the relevant entities for the statutory labels used in the provision, s 9(6) would treat the applicant as having employed the additional employees at 1 July 2020 if:

    (a)in August 2020, the additional employees were employed in a business carried on by the applicant; and

    (b)on 1 July 2020, the additional employees were employed ‘in the same business . . ., but that business was . . . carried on by [North 23]’.

    (Emphasis added.)

22. It is uncontroversial that (a) is satisfied: the additional employees were employed by the applicant in August 2020.

23. The applicant says that (b) is also satisfied. This is so, the applicant says, because the applicant and North 23, although separate entities, carried on the same business. If that is accepted, the applicant would satisfy s 9(6)(b).

24. The Commissioner says that s 9(6)(b) can only apply where an ‘event’ such as change of ownership of a business has occurred which is not the case in this matter. The applicant does not say that North 23 carried on the business on 1 July 2020 but that by August 2020 the ownership of the business had changed so that it had become the applicant that carried it on. Rather, the applicant asserts that each of the applicant and North 23 simultaneously carried on the same business.

25. The Commissioner responds with the submission that for the purposes of s 9(6) two entities cannot carry on the same business: the applicant and North 23, being separate entities, must be taken to have each carried on their own separate business. On that premise, the applicant could not be said to have been, in August 2020, carrying on the same business that North 23 was, on 1 July 2020, also carrying on.  The Commissioner also points to the differentiation in the activities carried on by the applicant and North 23 respectively – largely relating to the scale of projects undertaken – as indicating that the applicant and North 23 carried on separate businesses.

26. The applicant put its case on the basis that there are two issues. The first is whether the Commissioner is correct in saying that s 9(6)(b) can only operate where there is an intervening ‘event’ such as change of ownership of the relevant business. The second is the factual question of whether the applicant and North 23 were each carrying on the same business.

27. The applicant’s formulation of the first issue risks, in my view, approaching the matter from the wrong perspective of merely considering whether the Commissioner’s submission is correct, rather than considering whether the applicant has proved that the statutory provision is capable of applying in the circumstances of this case. I prefer to approach the legal question as being whether, for the purposes of s 9(6)(b), two entities may each separately carry on the same business. That formulation necessarily requires consideration of the Commissioner’s identified issue, but is truer to the words of the statute and the burden the applicant bears.

    Is s 9(6)(b) capable of applying if the applicant and North 23 each carried on the same business?

28. There is nothing explicit in s 9(6)(b) that mandates there must, as the Commissioner submits, be an event such as a change of ownership for the provision to apply.

29. That being so, and the objects of the Rules being clearly beneficial, the applicant says they should be construed broadly to include a situation in which two entities each separately carry on the same business. As there is nothing in the text of s 9(6)(b) to preclude such a construction of the provision and it would promote the beneficial object of the Jobkeeper scheme to assist employers in the pandemic, the applicant says its construction should be preferred to the Commissioner’s which requires reading in a restriction not found in s 9(6)(b).

30. In support of this submission, Mr Craig, who appeared for the applicant, cited the reasoning of the Full Federal Court in Eichmann v Federal Commissioner of Taxation[2] (Eichmann). This case concerned concessional provisions which allowed relief from capital gains tax for small business. The Court observed that:

    It follows that because [the relevant statutory provision] is beneficial in nature, “its language should be construed so as to give the most complete remedy which is consistent ‘with the actual language employed’ and to which its words “are fairly open””: Khoury v. Government Insurance Offıce of New South Wales [1984] HCA 55; (1984) 165 CLR 622 at 638 per Mason, Brennan, Deane and Dawson JJ. In that respect, a beneficial construction of legislation may, in our view, legitimately influence constructional choices in a given case which arise from the use of generalised language to describe a necessary connection between two things; here those two things are the use of an asset and the carrying on of a business.[3]

    [My emphasis.]

    [2] [2020] FCAFC 155.

    [3] [2020] FCAFC 155, [40].

31. It is clear that the Jobkeeper scheme is beneficial in nature. I need not clutter these reasons with extracts from extraneous material to validate that proposition which I understand the Commissioner does not dispute.

32. The passage from the Eichmann case highlights, though, the necessary limits of any principle that beneficial legislation should be construed broadly to give effect to its beneficial objects: the constructional choice must be ‘fairly open’ on the words employed in the provision under consideration.

33. Mr Craig also sought support from the following well-known passage in Project Blue Sky Inc v Australian Broadcasting Authority[4] regarding when, in the process of statutory interpretation, the literal meaning of a provision may be departed from:

    . . . the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning. In Statutory Interpretation (57), Mr Francis Bennion points out:

    "The distinction between literal and legal meaning lies at the heart of the problem of statutory interpretation. An enactment consists of a verbal formula. Unless defectively worded, this has a grammatical meaning in itself. The unwary reader of this formula (particularly if not a lawyer) may mistakenly conclude that the grammatical meaning is all that is of concern. If that were right, there would be little need for books on statutory interpretation. Indeed, so far as concerns law embodied in statute, there would scarcely be a need for law books of any kind. Unhappily this state of being able to rely on grammatical meaning does not prevail in the realm of statute law; nor is it likely to. In some cases the grammatical meaning, when applied to the facts of the instant case, is ambiguous. Furthermore there needs to be brought to the grammatical meaning of an enactment due consideration of the relevant matters drawn from the context (using that term in its widest sense). Consideration of the enactment in its context may raise factors that pull in different ways. For example the desirability of applying the clear literal meaning may conflict with the fact that this does not remedy the mischief that Parliament intended to deal with."[5]

    [Footnotes omitted.]

    [4] (1998) 194 CLR 355.

    [5] (1998) 194 CLR 355, 384.

34. But, of course, neither this judicial acknowledgement that the literal and legal meanings may diverge, nor the statutory command in s 15AA of the Acts Interpretation Act 1901 (Cth), that a construction that would promote the underlying purpose or object of a statute is to be preferred, mean a decision-maker is free to adopt any construction that is considered to be more consistent with the object of a provision. As the High Court instructed in the previous year, in another well-known passage, the proposed construction must be ‘reasonably open’.[6]

    [6] CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408. See also Mills v Meeking (1990) 169 CLR 214, 235.

35. Looking, then, at s 9(6)(b) in its context, in the broadest sense, is a construction that contemplates two entities each carrying on the same business at the same time reasonably open on the words employed in the provision? Consideration of that question must start with the words of s 9(6)(b) in their statutory context.

36. In my view, the natural reading of ‘but that business was . . . carried on by a different entity’ in s 9(6)(b)(ii) is that the ‘different entity’ that carried on the business at the earlier time is different to the entity that carried on the business at the later time. The linking expression ‘but’ itself suggests a difference between the entity carrying on the business at the earlier time and the entity carrying it on at the later time. Here, though, even accepting for present purposes the applicant’s assertion that the applicant and North 23 each carried on the same business at the same time, there would be no difference between the entities that carried on the business at the earlier and later times.

37. It is true, as the applicant submitted, that there is nothing in the inclusive definition of ‘business’ that precludes that possibility. But nor does that definition, or the uncontroversial concept of a business being a commercial enterprise in the nature of a going concern, in terms contemplate more than one entity conducting the same business at the same time other than in partnership.

38. The adoption of the ITAA 1997 meaning of ‘entity’ in the Rules does not sit comfortably with the applicant’s construction. That expression is used in taxation legislation in the context of an entity carrying on a business or enterprise. Where more than one entity carries on the same business, they will ordinarily do so jointly with a view to profit; that is, in partnership.

39. The definition of entity recognises this by defining an entity to include a partnership, which would not otherwise be a legal entity. The applicant was not able to point to any case in which two or more entities not in partnership were held to be carrying on the same business at the same time. That is not surprising since it would be outside the usual concept and experience of how a business is carried on.

40. The Treasurer, in adopting the taxation definition of ‘entity’ in the Rules, should be taken to have done so against the context of the usual application of that expression in taxation laws and the way business is conducted. It does not seem to me to be appropriate to adopt a strained reading of s 9(6)(b) that would require the concept of an entity carrying on a business to be approached in a way that is contrary to the usual and accepted application of such concepts and contrary to ordinary experience under which either a single entity carries on a business or two or more do so in partnership.

1. The applicant’s construction implies that the Treasurer should be taken to have contemplated the conduct of business in a third way – multiple entities carrying on the same business, but not doing so jointly with a view to profit - which is outside the normal conception of how a business is carried on. Indeed, it is difficult to conceptualise how a business could be simultaneously carried on by multiple enterprises each pursuing their own separate objectives, rather than jointly with a view to profit.

2. Having regard to these factors, I am not persuaded that the applicant’s construction is reasonably open. On the highest authority already noted, that conclusion means that, although payment of Jobkeeper to the applicant for the additional employees may be consistent with the broad policy objective of supporting businesses that suffered a substantial decline in turnover during the pandemic, it is not open to the Tribunal to adopt the applicant’s construction.

   Did the applicant and North 23 carry on the same business?

3. While the preceding discussion is sufficient to decide this matter, in case I am wrong regarding the construction of s 9(6)(b), I have considered whether the applicant and North 23 could be said to have each carried on an overall fit-out business at the same time.

4. I acknowledge that there is a good deal of commonality in the conduct of the companies both internally and in their client-facing activities. I am, though, with respect, quite unable to see how each entity, each with their own client base, incurring their own business expenses, contracting in their own right and maintaining their own separate financial accounts, and accounting to their shareholders, could be said to be carrying on the same business.

   CONCLUDING REMARKS

5. As the Tribunal observed in Slatter Building Group Pty Ltd and Commissioner of Taxation,[7] it would exceed the Tribunal’s constitutional status as an administrative body forming part of the executive government if it were to endeavour to fill perceived gaps in legislation through strained interpretations that are not reasonably open on the statutory language. Any view that an entity in the applicant’s situation should be eligible for Jobkeeper payments is a matter for the Treasurer. The Tribunal has no discretion to authorise Jobkeeper payments in circumstances that do not fall within the statutory criteria.

   [7] [2021] AATA 456, [65].

6. It follows that the objection decision must be affirmed.

I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding

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

Associate

Dated: 16 February 2022

Date of hearing:	10 February 2022
Counsel for the Applicant:	Mr A Craig
Solicitors for the Applicant:	Smailes Krawitz
Advocate for the Respondent:	Mr S Roewal
Representatives for the Respondent:	Australian Taxation Office Tax Counsel Network and Legal Services