Pidorenko (Migration)
[2021] AATA 5604
•28 May 2021
Pidorenko (Migration) [2021] AATA 5604 (28 May 2021)
DECISION RECORD
DIVISION:Migration & Refugee Division
APPLICANTS:
Mr Zbigniew Pidorenko
Mrs Agnieszka Pidorenko
Master Adrian Pidorenko
Miss Anna Pidorenko
Master Dorian Pidorenko
CASE NUMBER: 1835328
HOME AFFAIRS REFERENCE(S): BCC2017/1869541
MEMBER:Susan Hoffman
DATE:28 May 2021
PLACE OF DECISION: Perth
DECISION:The Tribunal affirms the decision not to grant the visa applicants Business Skills (Residence) (Class DF) visas.
Statement made on 28 May 2021 at 10:31am
CATCHWORDS
MIGRATION – Migration – Business Skills (Residence) (Class DF) visa – Subclass 892 – Net Assets requirement not met – annual turnover of the business was less than the threshold amount of AUD200,000 – decision under review affirmed
LEGISLATION
Migration Act 1958, s 65
Migration Regulations 1994, Schedule 2, cls 892.2, 892.213
statement of decision and reasons
application for review
This is an application for review of a decision made by a delegate of the Minister for Home Affairs on 15 November 2018 to refuse to grant the visa applicants Business Skills (Residence) (Class DF) visas under s.65 of the Migration Act 1958 (the Act).
The applicants applied for the visas on 24 May 2017. At the time of application, Class DF contained four subclasses: 890 (Business Owner), Subclass 891 (Investor), Subclass 892 (State/Territory Business Owner) and 893 (State/Territory Sponsored Investor). The applicants in this case are seeking to satisfy the criteria for the grant of Subclass 892 (State/Territory Business Owner) visas, as set out in Part 892 of Schedule 2 to the Migration Regulations 1994 (the Regulations). At least one member of the family unit must satisfy the primary criteria set out in Subdivision 892.2. The others need only to satisfy the secondary criteria set out in Subdivision 892.3.
The delegate in this case refused to grant the visas on the basis that the first named visa applicant did not satisfy the requirements of cl.892.213 of Schedule 2 to the Regulations because the annual turnover of the business was less than the threshold amount of AUD200,000, excluding goods and services tax (GST).
Prior to the hearing the Tribunal invited the applicant to comment on the issue and a submission dated 7 April 2021 was received, followed by a submission dated 13 April 2021 to clarify a point arising from the 7 April 2021 submission.
The primary applicant (henceforth the applicant) appeared before the Tribunal on 14 May 2021 to give evidence and present arguments. The Tribunal was assisted by an interpreter in the Polish and English languages. The applicants were represented in relation to the review by Ms Sarah Frankel from Estrin and Paul.
For the following reasons, the Tribunal has decided that the decision under review should be affirmed.
CONSIDERATION OF CLAIMS AND EVIDENCE
The issue in this case is whether the applicant’s business turnover should include or exclude GST when determining if the threshold amount of AUD200,000 was reached in the relevant period.
Clause 892.213 is as follows:
892.213
(1) The applicant meets the requirements of subclause (2) or (3).
(2) An applicant meets the requirements of this subclause if, in the 12 months immediately before the application is made, the applicant’s main business in Australia, or main businesses in Australia together, had an annual turnover of at least AUD200 000.
(3) An applicant meets the requirements of this subclause if:
(a) the applicant meets at least 2 of the requirements set out in paragraphs 892.212(a), (b) and (c);
and
(b) the applicant resides in, and operates the applicant’s main business or businesses in Australia in, an area specified in an instrument in writing made by the Minister for this paragraph; and
(c) the appropriate regional authority has determined that there are exceptional circumstances for this subclause.
For the purpose of his visa application, the applicant had nominated one business, A Pidorenko & Z Pidorenko, which is a family partnership. The main applicant and his spouse together own the business in its entirety. In the departmental Form 1217 Business Skills Profile, the business was described as ‘organising and coordination of sales and distribution of goods, mainly furniture of various types.’
10. The business operates from Malaga, a Perth suburb in Western Australia (WA). The appropriate regional authority is therefore the WA government. As set out in Form 949, the sponsoring state business development agency for WA, the Small Business Development Corporation (SBDC), did not determine that there were exceptional circumstances and did not decide to waive the turnover requirement. The Tribunal is satisfied that the applicant is required to meet the turnover requirement set out in cl.892.213.
11. Therefore, the applicant’s main business was required to have an annual turnover for the year before the visa application was lodged of at least AUD200,000.
12. Departmental policy sets out that the term “immediately before the application is made” is taken to be any date within the three-month period before the Department received the visa application. This is in relation to the provision of financial statements. The Tribunal considers this to be reasonable and appropriate in this particular case.
13. The applicant provided the Department with financial statements for the year ended 30 April 2017. As the visa application was made on 24 May 2017, the three-month period preceding that started on 24 February 2017. Clearly 30 April 2017 falls within the three-month period.
14. The financial statements recorded that sales for the year to 30 April 2017 were AUD188,165. The applicant also provided copies of monthly BAS returns. These show that to the twelve months to 30 April 2017, sales were AUD206,892 inclusive of GST and AUD188,165 excluding GST.
15. The Department found that turnover was less than the required AUD200,000 on the basis that GST cannot be included as turnover. It was submitted on behalf of the applicant that GST should be included in turnover and various arguments were made in support of that submission.
16. Ms Frankel said that they wanted to demonstrate that there are different definitions of turnover for different purposes, and migration is a different enough purpose (from say, accounting purposes) such that there could be a different definition of turnover.
17. It was submitted that in broad terms, turnover is understood to be the gross income of the business, but the exact definition of turnover, including what can and cannot be included, differs according to the particular scheme that the figure is required for. A footnote to the submission referenced s. 11 of the Insurance Contracts Act 1984, noting that it differed from the definition in s.328.120 of the Income Tax Assessment Act 1997.
18. The annual turnover definition in s.11 of the Insurance Contracts Act 1984 is as follows:
annual turnover, of a body corporate during a 12-month period, means the sum of the
values of all the supplies that the body corporate, and any body corporate related to the
body corporate, have made, or are likely to make, during the 12-month period, otherthan:
(a) supplies made from any of those bodies corporate to any other of those bodies corporate; or
(b) supplies that are input taxed; or
(c) supplies that are not for consideration (and are not taxable supplies under section 72-5 of the A New Tax System (Goods and Services Tax) Act 1999); or
(d) supplies that are not made in connection with an enterprise that the body corporate carries on; or
(e) supplies that are not connected with Australia.
19. The only other mention of annual turnover in the Insurance Contracts Act 1984 refers to a penalty that might be payable and if so, might be calculated as 10% of annual turnover. The definition of annual turnover in relation to body corporates excludes certain items such as supplies of residential rents (an input-taxed supply) and other supplies that would not be considered to be gross business income anyway. The Tribunal does not consider this to be inconsistent with other definitions; it simply clarifies and/or sets out what turnover means in the context of body corporates. It is consistent with tax legislation.
20. The Tribunal does not agree with the proposition that there are different definitions of turnover for different purposes. The specific definition used in relation to body corporates is not because there is a different purpose in relation to them but because the definition of turnover as widely used for accounting purposes needs clarification when applied to body corporates because of characteristics unique to those entities.
21. S.328-120(1) of the Income Tax Assessment Act 1997 is about annual turnover, and sets out a general rule as follows:
(1) An entity's annual turnover for an income year is the total ordinary income that the entity derives in the income year in the ordinary course of carrying on a business.
22. The term “ordinary income” is defined in s.6-5 and refers to assessable income. S.17-15 sets out that in calculating an amount that may be included in assessable income, an amount equal to GST payable is not to be included.
23. In its website, the Australian Taxation Office (ATO) gives instructions as to how a small business entity is to work out its annual turnover. It states:
Your annual turnover includes all ordinary income earned in the ordinary course of business for the income year. Turnover is your gross income or proceeds, rather than your net profit…
24. The instructions then specify what amounts should be included and what amounts should not be included as turnover. “GST you charged on a transaction” is listed as one of the amounts that are not be included.[1]
[1]ATO (2017) Small Business Entity Capital Gains Tax accessed 25 May 2021 at The Tribunal is satisfied based on the ATO definition that turnover should exclude GST. The Tribunal will now address some of the other points made in the submission.
26. The submission referred to Cheng[2] in which Driver FM quoted McNair J in the case of Aris-Bainbridge[3] as follows:
The ‘turnover of the company’s annual business’…must be taken to include all sums received and receivable in the year as the result of the defendant company’s trading, whether normal or abnormal.
[2] Cheng & Ors v Minister for Immigration and Anor [2012] FMCA 911
[3] Aris-Bainbridge v Turner Manufacturing Ltd [1950] 2 All ER 1178
27. Aris-Bainbridge was decided in 1950. The Tribunal does not consider a quote from a 1950 case to be particularly helpful as GST was introduced in 1986 and therefore would not have been considered in a decision made in 1950.
28. It was submitted that when a customer pays a business an amount to buy an item or service, the full amount inclusive of GST is paid directly to the business. The business then takes ownership of the money in its business account, and that money may be used towards whatever purpose the business sees fit to use it for.
29. The Tribunal disagrees that a business can use GST collected for whatever purpose it likes. The business is required to pay GST collected to the ATO even though the GST collected will sit in a bank account until it is time to pay it to the ATO. There is, of course, nothing stopping the business from using all the money in its bank account and not having enough left to pay across any GST it owes, but that does not remove the obligation for the GST liability to be paid to the ATO. This information from the ATO is relevant:[4]
As a GST-registered business, you need to issue tax invoices to your customers, collect GST and send it to us with your business activity statement (BAS). There are a few ways you can make this easier to manage:
ouse business accounting software to produce tax invoices and automatically generate reports of your GST liabilities and credits at BAS time
oput the GST you collect in a separate bank account
otake advantage of the cash accounting option to better align your GST liabilities with your business cash flow.
[4] ATO (2019) Accounting for GST in your business accessed 25 May 2021 at Generally, businesses do not put the GST they collect in a separate bank account from their usual business bank account. They do however, through their accounting systems, keep a record of GST collected and GST paid so that at any point in time, they can quickly ascertain how much GST they owe or are owed.
31. It was submitted that GST paid to the government by a business should be correctly categorised as a cost of doing business rather than a tax collected by a business on behalf of the government, and that the business must be able to cover this liability when it becomes due. It was further submitted that GST “is comparable to other taxes and predictable expenses which are not excluded from a business’s turnover figure.”
32. A business’s turnover does not include other taxes or expenses. Turnover is equivalent to income generated from sales, excluding GST. There is no component of turnover which is an expense or a tax. The claim made suggesting the opposite is simply incorrect.
33. The suggestion that GST paid to the government is a cost of doing business in the same way that general expenses are a cost of doing business mischaracterises the GST. The costs of doing business could include the purchase of goods that are on-sold, or staff costs or other costs that are incurred in order that the product or service offered by the business can be made available to their customer. If GST was a cost of doing business, then it would be recorded as such in the profit and loss account, as an expense in the same way as other costs are recorded in the profit and loss account, but that is not the case. The accounting systems and standards put it beyond doubt that GST is not a cost of doing business, further explained as follows.
34. When a sale is made, the sale price net of GST is credited to the profit and loss account and the 10% GST component is debited to a GST account in the balance sheet.
35. That is, from the point in time that a sale is made, the GST element is separated out. It is recorded in the balance sheet as a liability – money owed to the government – and not into the profit and loss account as an income or expense item would be.
36. It was also submitted that generally businesses do not pay back the full amount of their GST liability for any given period as they are able to claim back a portion of GST as a credit.
37. A business will collect GST from its sales and will pay GST on its purchases. The two GST figures are netted off and either the balance is paid to the ATO or a refund is due from the ATO. While a business may not pay across all of the GST it has collected to the ATO, it is required to pay any balance due and it is that which is the business’ GST liability, not the GST that the business has collected.
38. Returning to the suggestion that there could be a different definition of turnover for the purpose of migration law, than is the case for accounting purposes, the Tribunal notes that various criteria have to be met for the grant of a business visa, which may include the value of an applicant’s personal and business assets.
39. Financial statements are produced according to accounting principles and standards, and are used for various purposes: to ascertain profit and therefore tax payable on that profit; so that the business owner or other interested party can understand how well or otherwise the business is performing; to ascertain the value of the business pending a sale of the business; and are used in determining whether or not certain business visa criteria to do with business assets are met. It would not make sense if those accounting principles and standards were acceptable when it comes to determining the value of business assets but not so with regard to turnover.
40. The accounting interpretation of turnover is well-understood as excluding GST. Unless explicitly stated in the Migration Act 1958 that a different interpretation is to be used for migration purposes, the Tribunal rejects the suggestion that a different definition or interpretation of turnover should be used for the purposes of a business visa application. It does not make sense. It is not logical or reasonable to suggest a different interpretation of turnover should be used for migration purposes to that used in other circumstances.
41. The Tribunal finds that the turnover of the main business was AUD188,165 excluding GST for the 12-month period to 30 April 2017. That means the threshold amount of AUD200,000, as set out in cl.892.213, was not met.
42. Given the findings above, the decision under review must be affirmed.
decision
43. The Tribunal affirms the decision not to grant the applicants Business Skills (Residence) (Class DF) visas.
Susan Hoffman
Member
Key Legal Topics
Areas of Law
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Immigration
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Administrative Law
Legal Concepts
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Judicial Review
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Statutory Construction
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Procedural Fairness
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