Thiele and Commissioner of Taxation (Taxation)

[2022] AATA 2123

Thiele and Commissioner of Taxation (Taxation) [2022] AATA 2123 (1 July 2022)

Division:SMALL BUSINESS TAXATION DIVISION

File Number:2021/5813          

Re:Andreas Thiele  

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member R Olding

Date:1 July 2022

Place:Brisbane

The decision under review is affirmed.

.............................SGD...........................................

Senior Member R Olding

CATCHWORDS

TAXATION – CORONAVIRUS ECONOMIC RESPONSE PACKAGE – CASH FLOW BOOST – where applicant carried on business in partnership in 2018-19 but took over business as a sole trader from 1 February 2020 – whether an “amount was included in applicant’s assessable income for the 2018-19 income year in relation to it carrying on a business” – where partnership returned a loss – held no amount so included – decision affirmed

LEGISLATION

Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth), ss 5(1), 5(5)
Income Tax Assessment Act 1936 (Cth), ss 90, 92
Income Tax Assessment Act 1997 (Cth), s 960-100

CASES

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384
Slatter Building Group Pty Ltd and Commissioner of Taxation [2021] AATA 456

WELLINGTON CAPITAL LTD V AUSTRALIAN SECURITIES INVESTMENT COMMISSION (2014) 254 CLR 288

SECONDARY MATERIALS

Explanatory Memorandum to the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Bill 2020

REASONS FOR DECISION

Senior Member R Olding

1 July 2022

1. One of the Australian Government’s economic responses to the COVID-19 pandemic was the provision of cash flow boost (“CFB”) payments to eligible businesses. To prevent abuse by new businesses being established, or inactive businesses being revived, in order to obtain CFB payments, the relevant legislation – the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth) (“BCF Act”) - contained provisions designed to ensure that only active continuing businesses would be eligible for CFBs.[1]

   [1] Explanatory Memorandum to the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Bill 2020, [3.2], [3.20], [3.32].

2. The applicant, Mr Thiele, and his business partner conducted a business in partnership until Mr Thiele acquired his partner’s interest in the business, and conducted it as a sole trader, with effect from 1 February 2020. The Commissioner of Taxation says that Mr Thiele does not qualify for CFB because he is not the same “entity” as the partnership that conducted the business until 31 January 2020.

3. Although not accepting all of the Commissioner’s reasoning, I have concluded that Mr Thiele does not fall within the eligibility criteria specified in the BCF Act. My reasons follow.

   THE ISSUE FOR DETERMINATION

4. The CFB eligibility criteria are set out in s 5(1) of the BCF Act. The Commissioner accepts that Mr Thiele satisfies of all the eligibility CFB criteria other than the requirement in

   
   

   s 5(1)(f)(ii) that either the requirement in s 5(5) or the requirement in s 5(6) is satisfied. Mr Thiele accepts that he does not satisfy s 5(6).

5. That leaves in dispute whether s 5(5) is satisfied; in particular, s 5(5)(a), which is satisfied if:

   an amount was included in the entity’s assessable income for the 2018-19 income year in relation to it carrying on a business.

6. Because he did not take over the business as a sole trader until 1 February 2020, Mr Thiele did not disclose any business income derived in that capacity in his 2018-19 personal income tax return. However, the partnership lodged a tax return for that year, disclosing a loss. Mr Thiele’s share of the loss was reflected in his tax return for 2018-19.

   CONSIDERATION OF THE COMPETING SUBMISSIONS

7. The Commissioner says Mr Thiele does not satisfy s 5(5)(a) because “the applicant did not come into existence until 10 January 2020”, the date on which Mr Thiele was registered on the Australian Business Register (“ABR”) and allocated an Australian Business Number (“ABN”).[2] This was, the Commissioner submitted, consistent with the decision in Slatter Building Group Pty Ltd and Commissioner of Taxation.[3]

   [2] Respondent’s Outline of Submissions dated 23 June 2022, [40].

   [3] [2021] AATA 456.

8. I am, with respect, unable to accept this submission. Plainly, Mr Thiele, an adult natural person, did not first come into existence on 10 January 2020. The Commissioner did not point to any legislative provision that would deem an individual to come into existence only upon first appearing on the ABR or being allocated an ABN or, for that matter, upon commencing to carry on a business. The Slatter Building Group case concerned a materially different circumstance – a company which, on any view, did not exist before its incorporation in 2020.

9. The Commissioner is perhaps on firmer ground in the way his advocate, Ms Christensen-Scott, put his position in oral submissions. Ms Christensen-Scott pointed out that the BCF Act draws a distinction between an individual person or persons and a partnership. While under the general law a partnership is not a separate legal entity to the partners, it is taken to be an “entity” under the BCF Act.[4] An “entity” is the party by which reference to which all questions of eligibility are tested under the BCF Act provisions.

   [4] BCF Act, s 4(1) adopts the definition of “entity” in the Income Tax Assessment Act 1997 (Cth), s 960-100, which includes “a partnership”.

10. Accordingly, so the submission went, the relevant “entity” for s5(5)(a) purposes is Mr Thiele, not the partnership. Testing s 5(5)(a) against Mr Thiele’s circumstances, the Commissioner submitted, an amount could not have been included in his assessable income for 2018-19 “in relation to it [that is, Mr Thiele] carrying on a business” because it was the partnership, not Mr Thiele, that was carrying on the business in 2018-19.

11. Mr Kern answered this contention by submitting that, testing eligibility under the plain, ordinary meaning of s 5(5)(a), Mr Thiele would qualify for the CFB. That is to say, Mr Kern submitted that “an amount was included in [Mr Thiele’s] assessable income for the 2018-19 year”, being his share of the assessable income of the partnership. That amount related, Mr Kern submitted, to the business Mr Thiele carried on in partnership with his business partner in 2018-19.

12. Although there is, in my view, much force in Mr Kern’s argument as far as it goes, neither submission leads so clearly to their conclusion as the parties respectively submitted.

13. The Commissioner’s submission that eligibility must be tested by reference only to the entity that is Mr Thiele as a sole trader, and not the partnership, invites attention to judicial warnings that care is required in construing deeming provisions. In particular, that deeming provisions are to be construed no more broadly than is required to achieve their purpose.[5]

    [5] For example, Wellington Capital Ltd v Australian Securities Investment Commission (2014) 254 CLR 288, [51].

14. Here, the legislative provisions deem a partnership to be an “entity”. The apparent purpose of such deeming is to allow for CFBs to be paid to partnerships carrying on a business at the relevant time where they otherwise meet the eligibility criteria. That includes criteria tied to the GST legislation which also treats a partnership as an entity and the partnership, rather than the individual partners, as making supplies in the course of the partnership business.[6]

    [6] BCF Act, s 4(1) (meaning of “taxable supply”), 5(6).

15. Is it necessary, or permissible, to leap from that to a conclusion that an individual could not meet the s 5(5)(a) requirement that an amount was included in his or her assessable income in relation to the individual carrying on business as a partner in a business? The accepted meaning of a partnership is, after all, a relationship between persons carrying on business in common with a view to profit. As Mr Kern submitted, Mr Thiele carried on business as a partner and his share of the net income from that business in the ordinary course would be brought to account as his assessable income.

16. On the other hand, the stated objective of confining CFBs to existing active businesses would not be achieved if eligibility of an individual were to be tested by reference to an entirely separate business carried on in the 2018-19 year by a partnership in which the individual was a partner, but which had ceased before 2020. However, the same could be said of a business conducted by an individual in 2018-19 which ceased before the individual commenced a new business in 2020. There is no explicit requirement that the business referred to in s 5(5)(a) be the same business conducted by the entity in 2020.

17. However, I do not need to resolve these matters because, even taking the approach urged by Mr Kern, on the plain meaning of s 5(5)(a), in the particular circumstances of this matter the argument stumbles at the final hurdle. That is because the partnership returned a loss in 2018-19. In those circumstances, there is no amount that could be included in Mr Thiele’s assessable income from the partnership business.

18. That a partnership may have been in a loss situation in 2018-19 would not be fatal to a CFB claim by a partnership. That is because the Commissioner, as Ms Christensen-Scott confirmed, would accept that the requirement that “an amount was included in the entity’s assessable income” would be satisfied by an amount of nil being included where an entity was carrying on a business but returned a loss. In any case, it would be an uncommon case for a partnership carrying on a business to have no assessable income even though it returned a loss after accounting for allowable deductions.

19. However, the Commissioner’s concession does not assist Mr Thiele. That is because where a partnership returns a loss no amount of assessable income, even a nil amount, is included in the partner’s assessable income. Rather, the statutory mechanism for effectively distributing the loss to the partners is that there is an allowable deduction to each partner for their individual interest in the partnership loss.

20. In that regard, s 92(1) of the Income Tax Assessment Act 1936 (Cth) provides that the assessable income of a partner in a partnership relevantly includes the individual interest of the partner in the net income of the partnership. The “net income” for this purpose is, relevantly, the assessable income of the partnership calculated as if the partnership were a resident taxpayer less allowable deductions: s 90.

21. However, where a partnership incurs a “partnership loss” – an excess of allowable deductions over assessable income calculated as if the partnership were a resident taxpayer[7] – s 92(2) provides that there is an allowable deduction to each partner for the individual interest of the partner in the partnership loss. Thus, no amount, even a nil amount, is treated as assessable income of the partner when the partnership incurs a partnership loss.

    [7] Income Tax Assessment Act 1936, s 90.

22. Although not addressed in submissions, I have considered whether, having regard to the objects of the BCF Act, a departure from the literal meaning of these provisions would be permissible[8] such that it could be said that an amount of assessable income was included in Mr Thiele’s assessable income on the basis that a share of net income necessarily includes an amount of assessable income - because “net income” is the difference between the assessable income and allowable deductions of the partnership. However, in my view, that would involve effectively re-writing provisions of the income tax law adopted by the BCF Act for the purpose of construing the latter. It is not clear to me that such an approach is permissible. In any case, my view is that such a construction is not reasonably open.[9] The “assessable income” referred to in the definition of “net income” is expressly stated to be assessable income of the partnership; it is not assessable income of the individual partners. It is the partners’ shares of the net income of the partnership that is treated as assessable income of the partners.

    [8] CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384.

    [9] Ibid [88].

23. I am conscious that permitting reference to the net income of a partnership in which the sole trader was previously a partner where the partnership achieved a profit in 2018-19, but not if it incurred a loss, would be an improbable object to attribute to Parliament. That may be an argument for the Commissioner’s approach of testing eligibility only by reference to whether the applicant returned assessable income in relation to a business. Ms Christensen-Scott did not engage with this aspect of the controversy. That is not surprising: it was not the basis on which the Commissioner put his case and was first raised by me in the course of submissions.

24. For completeness, I note that Ms Christensen-Scott also submitted that the Commissioner’s approach provided visibility for the necessary quick and efficient assessment of eligibility for CFBs through the existing income tax and activity statement lodgement processes. I accept that assessing eligibility only by reference to the applicant entity’s returns serves that end. However, as noted by the Tribunal in the Slatter Building Group case, eligibility may be determined outside the return lodgement processes.[10] Further, although sourced from the partnership return, distributions from the partnership are disclosed in Mr Thiele’s return.  Both were visible to the Commissioner. Accordingly, I did not find this submission particularly persuasive.

    [10] [2021] AATA 456, [49].

25. Ultimately, though, resolution of this matter comes down to this: I have not been able to identify any provision under which it could be said that, in the case of a partnership that incurs a loss, an amount is included in the assessable income of the partners. Nor did Mr Kern when I raised this with him during oral submissions.

26. Accordingly, even if it would be correct to reject the Commissioner’s approach to the CFB criteria, and adopt Mr Kern’s submission that the plain words of s 5(5)(a) should be applied, for the 2018-19 income year there was no amount included in Mr Thiele’s assessable income from the partnership business. It follows that Mr Thiele does not satisfy the eligibility requirement in s 5(5)(a). As Mr Thiele accepted that he could not satisfy s 5(6), he does not meet the CFB eligibility requirement in s 5(1)(f).

27. The BCF Act does not confer any discretion on the Commissioner, or the Tribunal standing in the shoes of the Commissioner in this review, to allow payment of CFBs to otherwise deserving applicants who do not satisfy the eligibility criteria. I must therefore affirm the Commissioner’s decision disallowing Mr Thiele’s objection to the Commissioner’s decision to deny payment of the CFB.

I certify that the preceding 27 (twenty-seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding

...............................SGD.........................................

Associate

Dated:  1 July 2022

Date of hearing:	24 June 2022
Advocate for the Applicant:	J Kern, Kern Accountants
Advocate for the Respondent:	A Christensen-Scott
Solicitors for the Respondent:	ATO Litigation and Legal Services