Twin Rivers Developments Pty Limited and Commissioner of Taxation (Taxation)

[2022] AATA 887

Twin Rivers Developments Pty Limited and Commissioner of Taxation (Taxation) [2022] AATA 887 (28 April 2022)

Division:SMALL BUSINESS TAXATION DIVISION

File Number:2021/6007          

ReTwin Rivers Developments Pty Limited

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member R Olding

Date:28 April 2022

Place:Brisbane

The decision under review is set aside and substituted with a decision that the applicant is:

(a) entitled to the cash flow boost claimed in respect of the quarter ended 31 March 2020;

(b) not entitled to a cash flow boost in respect of the quarter ended 30 June 2020.

…………………....[SGD].........................

Senior Member R Olding

Catchwords

TAXATION – CORONAVIRUS ECONOMIC RESPONSE MEASURES – CASH FLOW BOOST – whether applicant paid wages in March and June 2020 quarterly tax periods – whether scheme for the dominant purpose of obtaining or increasing cash flow boost – decision that applicant entitled to cash flow boost for March 2020 quarter but not June 2020 quarter substituted

Legislation

Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth), s 5, s 7
Taxation Administration Act 1953 (Cth), s 14ZZK

Cases

BH Australia Constructions Pty Ltd v Kapeller (2019) 100 NSWLR 367
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1
VNBM and Commissioner of Taxation [2021] AATA 1626

REASONS FOR DECISION

Senior Member R Olding

28 April 2022

WHAT IS THIS CASE ABOUT?

1. As part of its response to the COVID-19 pandemic, in 2020 the Australian Government made ‘Cash Flow Boost’ (‘CFB’) payments to eligible employers. The eligibility requirements for CFBs are found in the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth) (‘BCF Act’). Those requirements tie eligibility for, and the amount of, CFBs to an entity’s obligation to deduct Pay As You Go Withholding (‘PAYGW’) amounts from wages paid in specified periods, in this case the March 2020 and June 2020 quarterly tax periods.

2. The applicant, Twin Rivers Developments Pty Limited (‘TRD’), is a private company engaged in the property development industry. Mr Gregory Cahill is the sole director. Mr Cahill and his wife, Ms Virginia Cahill, are equal shareholders.

3. For some five years, TRD had paid no wages to Mr or Mrs Cahill or any other employee. Then, after the announcement of the CFB measure, it disclosed wages said to have been paid to Mr and Mrs Cahill in the aggregate amounts of $130,000 for the March 2020 quarter and $54,000 for the June 2020 quarter and deducted and paid PAYGW. TRD did not disclose any wages in the periods following June 2020. If TRD paid the wages said to have been paid in the March and June 2020 quarters, it would, subject to the ‘scheme’ provision mentioned below, be entitled to CFBs.

4. Not surprisingly, the timing of the startling departure from the history of no wages being paid by TRD attracted the attention of the Commissioner of Taxation’s officers. The Commissioner took the view that, in fact, no wages were paid by TRD in the two tax periods. Alternatively, the Commissioner submitted that TRD was disqualified from entitlement to the CFBs because it entered into a scheme for the sole or dominant purpose of obtaining or increasing the CFBs.

5. Having regard to the relevant evidence as discussed below, I accept that wages were in fact paid in the March 2020 quarter. Despite its stark appearance at first glance, I also accept Mr Cahill’s explanation of the timing of the wages paid in the March 2020 quarter, mainly because they commenced well before the CFB measure was announced. However, I am not persuaded that the scheme provisions do not apply in respect of the June 2020 quarter in which the purported wages compromised a single payment of $27,000 to each of Mr Cahill and Mrs Cahill on 10 June 2020.

6. The upshot of these conclusions is that TRD is entitled to a CFB for March 2020 quarter but not for the June 2020 quarter.

7. My reasons for these conclusions follow.

   STATUTORY FRAMEWORK

   BCF Act – eligibility requirements

   PAYGW obligations

8. In broad terms, eligible entities accounting for GST quarterly were entitled to the CFBs provided for under the BCF Act if they were required to deduct PAYGW from wages paid to employees in the relevant quarterly tax period.[1]

   [1] There are other eligibility requirements but, apart from the ‘scheme’ provision in s 5(1)(g) of the BCF Act, they are not in contention in this case.

9. That eligibility requirement is found in s 5(1)(a)(i) of the BCF Act and is satisfied if:

   the entity makes a payment in the period and must withhold an amount from the payment under Subdivision 12-B, 12-C or 12-D in Schedule 1 to the Taxation Administration Act 1953 (regardless of whether the entity withholds the amount);

10. It is common ground that this provision would be satisfied if TRD paid wages in the amounts disclosed in its returns. The amount of the CFB is determined by the amounts deducted under the PAYGW provisions.[2]

    [2] BCF Act, s 7.

    Scheme provision

11. An additional eligibility requirement, found in s 5(1)(g), is that:

    neither the entity nor any associate or agent of the entity has entered into or carried out a scheme or part of a scheme for the sole or dominant purpose of achieving any of the following:

    (i)making the entity entitled to the cash flow boost for the period;

    (ii)increasing the amount of the cash flow boost to which the entity is entitled (disregarding this paragraph) for the period.

12. Several aspects s 5(1)(g) are significant to the resolution of whether TRD has proved that this provision does not apply:

    (a)Section 5(1)(g) refers to whether TRD or any associate or agent of TRD entered into a scheme or part of a scheme with the sole or dominant purpose of obtaining or increasing a CFB. The case was conducted on the basis that this required inquiry into the purpose of Mr Cahill as the sole director and controlling mind of TRD. There is no suggestion that the purpose of any other associate or agent of TRD is relevant.

    (b)Unlike general anti-avoidance provisions in other taxation laws, s 5(1)(g) requires an inquiry into whether the entity (or an associate or agent of the entity) had the sole or dominant purpose of obtaining or increasing a CFB entitlement rather than merely whether, on an objective inquiry, it would be concluded that an entity had the disqualifying purpose. Accordingly, the evidence of Mr Cahill as to his actual intention is relevant. However, evidence relating to the timing of the wage payments and other circumstances is also relevant to determination of whether TRD has proved the disqualifying sole or dominant purpose was not present.

    (c)Section 5(1)(g) refers to the entry into a scheme or part of a scheme. The definition of ‘scheme’ is broad. There was no real contention between the parties regarding the existence of a scheme. Rather, the focus was upon whether Mr Cahill proved that he did not have the sole or dominant purpose of obtaining or increasing a CFB.

    (d)Subject to the discussion that follows, if s 5(1)(g) applies there is no entitlement to any CFB for the period. Again, unlike general anti-avoidance provisions in other taxation laws, there is no power to reconstruct what would have been the position had the scheme not been entered into. Neither the Commissioner nor the Tribunal has any power or discretion to assess a lower level of CFB on the footing that the scheme had not been entered into.[3]

    [3] These principles are discussed in VNBM and Commissioner of Taxation [2021] AATA 1626, [17]-[29].

13. Although not a matter discussed specifically in written submissions or at the hearing, the scheme issue was generally approached by the parties in a global fashion; that is, in relation to the March 2020 and June 2020 tax periods considered together. However, I consider that it is necessary to consider each tax period separately. In many cases, the result may be the same, but in this matter, for the reasons outlined below, I have reached a different conclusion in respect of the March 2020 and June 2020 quarters.

14. In that regard, subparagraphs (i) and (ii) of s 5(1)(g) refer to a scheme with the sole or dominant purpose of making the entity entitled to a CFB or increasing an entitlement ‘for the period’. Reference to the broader context of s 5 indicates that these references to ‘the period’ are to the relevant tax period.

15. Section 5(1) opens with the statement that an entity is entitled to a CFB ‘for a period covered by subsection (2)’ if the stated conditions are satisfied. Those conditions are all specified by reference to ‘the period’. Additionally, paragraph 5(1)(c) requires that ‘the period applies to the entity under subsection (3)’.

16. Section 5(2) then states:

    The following periods are covered by this subsection:

    (a)  the months of March 2020, April 2020, May 2020 and June 2020;

    (b)  the quarters ending on 31 March 2020 and 30 June 2020.

17. Any ambiguity regarding whether the periods covered by s 5(1) are each of the periods specified in s 5(2) considered separately, or in each case the combination of the months or quarters specified in s 5(2)(a) and 5(2)(b) respectively, is resolved by s 5(3), which provides that:

    A period applies to an entity if:

    (a)  for a period that is a month – the entity is a large withholder or medium withholder for the month; or

    (b)  for a period that is a quarter – the entity is a small withholder for a month that starts in the quarter.

18. It is clear that the ‘period’ referred to is each monthly or quarterly tax period, as the case may be, and not the combination of those periods.

    Decision under review and burden of proof

19. On 23 February 2021, the Commissioner decided that TRD was not entitled to CFBs for the March 2020 and June 2020 tax periods. TRD objected to that decision on 21 April 2021.

20. It is the Commissioner’s objection decision of 29 June 2021, disallowing the objection in full, that is before the Tribunal for review.

21. TRD has the burden of proving that the objection decision should not have been made or should have been made differently: Taxation Administration Act 1953 (Cth), s 14ZZK.

22. Because the parties have confined the issues in dispute, TRD will discharge the burden of proof if it proves in respect of each tax period that:

    (a)wages in the amounts disclosed by TRD were paid to Mr and Mrs Cahill as employees; and

    (b)TRD/Mr Cahill did not enter into or carry out a scheme or part of a scheme for the sole or dominant purpose of making TRD entitled to a CFB or increasing its entitlement.

23. Implicit in first issue is whether TRD has proved that Mr and Mrs Cahill were employees of TRD, which the Commissioner disputes.

24. The principles I must apply in considering whether TRD has discharged the burden of proof include the following:

    (a)Facts may be found on the basis of oral evidence alone.

    (b)There is no requirement that direct evidence by oral testimony may only be accepted if corroborated, for example, by documentary evidence; a fact may be found on basis of the uncorroborated evidence of a witness.

    (c)However, self-serving statements should be given close scrutiny.

    (d)Nevertheless, evidence of a taxpayer is not to be regarded as prima facie unacceptable.[4]

    (e)If the taxpayer succeeds in ‘weighing down [the] scales ever so slightly in [the taxpayer’s] favour then [the taxpayer] has discharged the burden [the taxpayer] carries’.[5]

    [4] For this and the preceding propositions, see, for example: Imperial Bottleshops Pty Ltd v Commissioner of Taxation [1991] FCA 276; (1991) 22 ATR 148, 155; and Federal Commissioner of Taxation v Cassaniti[2018] FCAFC 212.

    [5] Federal Commissioner of Taxation v Cassaniti[2018] FCAFC 212, [88].

25. In view of submissions made by the Commissioner about evidence that was not adduced by TRD, and in the context of TRD not being legally represented, I am also mindful of the observation of Steward J, with whom Greenwood J and Logan J relevantly agreed, in Federal Commissioner of Taxation v Cassaniti, that:

    it is not obligatory for a taxpayer, in order to discharge [the] burden of proof, to call all material witnesses and to produce all material documents which support her or his or its position. [6]

    [6] [2018] FCAFC 212, [88].

26. Of course, if a taxpayer fails to adduce evidence that would be expected to be both probative and readily available, that may make their task more difficult. But as his Honour notes, it is not necessarily fatal and, I would respectfully add, the Tribunal’s assessment of the significance of the failure may depend upon the nature of the evidence that is not adduced and relevant evidence that before the Tribunal.

    SOME BACKGROUND REGARDING TRD

27. Examination of the amounts disclosed by TRD as wages over the period from 1 July 2014 to 30 June 2021 paints a stark picture. There is an almost entirely consistent pattern of no wages being paid by TRD throughout this period.

28. There are only two departures from that pattern – the wages of $130,000 and $54,000 disclosed in respect of the March and July 2020 quarters respectively. Those are the very quarters on which entitlement to CFBs is based by reference to PAYGW requirements.  Thereafter, the pattern of TRD paying no wages immediately resumes.

29. It is, as I have already observed, scarcely surprising that such a picture would excite the Commissioner’s attention. However, upon a closer examination of the disclosures a more complex picture emerges. The following table[7] will assist in illustrating this.

    [7] Extracted from Exhibit 5, Applicant’s Outline of Submissions, Table 15.1, in turn extracted from copies of tax returns.

Year	Total income $	Profit/Loss $	Wages paid $	Dividends paid $
2003	Not available	Not available	2,600	NIL
2004	Not available	Not available	8,527	5,845
2005	Not available	Not available	30,838	5,845
2006	Not available	Not available	19,206	19,600
2007	Not available	Not available	16,342	15,610
2008	Not available	Not available	10,760	17,500
2009	Not available	Not available	12,750	16,695
2010	Not available	Not available	14,400	19,961
2011	306	Not provided	15,870	NIL
2012	48,179	Not provided	14,400	NIL
2013	605,715	Not provided	50,694	110,838
2014	15,868	-186,737	59,003[8]	110,838
2015	780,188	-134,869	NIL	110,600
2016	3,571,512	126,928	NIL	25,200
2017	19,820	-139,385	NIL	25,200
2018	4,962,681	-521,773	NIL	NIL
2019	2,603,417	-1,372,116	NIL	NIL
2020	2,419,787	305,971	184,000	NIL
2021	1,563,819	Not provided	NIL	NIL

1. It is apparent from this table that this is not a case in which a private company had been consistently choosing to direct surplus funds to shareholders by way of dividends, rather than wages – and then departed from that pattern in the quarters relevant for CFB purposes. In that regard, it will be noted that TRD has paid wages in many of the years in which it has operated. It did so consistently in every income year from at least 2003 to 2014.

2. More significantly, while TRD paid dividends but not wages in the 2015 to 2017 income years, in 2018 and 2019 – the years immediately preceding the March and June 2020 quarters for which it claims CFB – it paid neither dividends nor wages. The pattern in those two years is more accurately, or at least with more completeness, described as a pattern of not releasing any funds to the shareholders whether by way of wages or dividends.  That is relevant context for consideration of the pattern of wages disclosed over the years and the departure from that pattern in the March and June 2020 quarters.

3. Examination of the pattern of the purported wage payments is also revealing. Mr Cahill produced a table[9] cross-referencing every purported wage payment to a payslip and an entry recorded in a bank statement. Assuming for the moment that the purported wage payments were made on or about the date of the payslips as Mr Cahill asserts, the following schedule of wage payments to Mr Cahill and Mrs Cahill, and PAYGW withheld and paid, may be constructed:

   [9] Exhibit 7, A-1.

Date wages paid (2020)	Wages paid $	PAYGW withheld $
20 January	Mr Cahill:   3,750 Mrs Cahill: 3,750	Mr Cahill:   750 Mrs Cahill:  750
28 January	Mr Cahill:   4,375 Mrs Cahill:  4,375	Mr Cahill:   765 Mrs Cahill:  765
3 February	Mr Cahill:   9,375 Mr Cahills:  9,375	Mr Cahill:   1,875 Mrs Cahill:  1,875
19 February	Mr Cahill:   6,250 Mrs Cahill: 6,250	Mr Cahill:   1,250 Mrs Cahill:  1,250
24 February	Mr Cahill:   7,500 Mrs Cahill: 7,500	Mr Cahill:   1,500 Mrs Cahill:  1,500
24 February	Mr Cahill:   8,125 Mrs Cahill:  8,125	Mr Cahill:   1,625 Mrs Cahill:  1,625
10 March	Mr Cahill:   1,250 Mrs Cahill:  1,250	Mr Cahill:   250 Mrs Cahill:  250
10 March	Mr Cahill:   9,375 Mrs Cahill:  9,375	Mr Cahill:   1,875 Mrs Cahill:  1,875
13 March	Mr Cahill:   6,250 Mrs Cahill:  6,250	Mr Cahill:   1,250 Mrs Cahill:  1,250
13 March	Mr Cahill:   8,750 Mrs Cahill: 8,750	Mr Cahill:   1,750 Mrs Cahill:  1,750
Total for March 2020:	Mr Cahill:   $65,000 Mrs Cahill:   65,000 Total:       $130,000	Mr Cahill:  $26,000 Mrs Cahill:  26,000 Total:        $52,000
10 June	Mr Cahill:   27,000 Mrs Cahill:  27,000	Mr Cahill:   13,000 Mrs Cahill:  13,000
Total for June 2020:	$54,000	$26,000

1. This table indicates that TRD purportedly commenced making payments of wages to Mr Cahill on 20 January 2020. This is well before the criteria for CFB were announced on 12 March 2020.

2. The table also highlights the absence of a regular pattern in the purported payments. For example, there is just over a week between the first purported payment on 20 January and the second payment on 28 January and less than a week between the second and third payments on 28 January and 3 February, but over a fortnight before the fourth on 19 February. And there are two purported payments on 24 February and 10 and 13 March but only a single payment indicated for the whole of the June quarter.

   THE MARCH 2020 QUARTER

   Has TRD discharged the burden of proving that it made the purported payments of wages?

   
   
   

   Payments are not dividends

3. There are two common ways in which owners of private companies receive income from their companies: by causing the company to pay either dividends, on the one hand, or wages or directors’ fees, on the other (or a combination of each). 

4. Mr Cahill’s evidence was that due to the long-term nature of TRD’s development projects, commonly spanning three or more years, TRD had ‘irregular lumpy cash flow’.[10]  Accordingly, TRD does not pay regular amounts to Mr and Mrs Cahill even though they work on average at least 30 hours per week each in the business and sometimes many more hours.[11]  Rather, as the sole director of TRD, Mr Cahill said he determines the amounts to be paid as wages or dividends from time to time according to the funds available and the financial needs of Mr and Mrs Cahill, with dividends being preferred if the company is in a position to pay franked dividends.

   [10] Transcript of Proceedings, P-31, line 9.

   [11] Exhibit 6, Applicant’s Statement of Facts, Issues and Contentions, page 13, [34b]; Exhibit 2, ST 21, page 176.

5. The Commissioner noted that TRD has not put in evidence its financial statements to verify the periods when the company would have or not have had funds available to pay wages or franked dividends. There is in evidence a table prepared by Mr Cahill from TRD’s tax returns over the years, but this does not contain the detail that would be expected to be found in financial statements. The absence of such evidence is more relevant to the scheme issue where specific issues of timing arise. The ‘lumpy’ nature of cash flows is, as matter of common sense, an expected feature arising out of the nature of the property development industry and consistent with common experience of businesses engaged in the industry. I have no reason to doubt Mr Cahill’s evidence in this regard which is to an extent corroborated by the information extracted from TRD’s tax returns. I accept that TRD’s cash flows were irregular and ‘lumpy’.

1. The Commissioner submitted that: ‘in the most recent income years, the Applicant has made dividend distributions to Mr and Mrs Cahill and no payment of salary and wages.’[12]

   
   

   I do not accept that this is an accurate description of the history of payments to Mr and Mrs Cahill by TRD. While TRD did pay dividends in the years leading up to and including the 2017 financial year, it did not pay either wages or dividends in 2018 or 2019, the years immediately preceding the year in which the contested payments were made.

   [12] Respondent’s Outline of Submissions, [54e].

2. The non-payment of dividends in 2020 was, therefore, in fact consistent with the pattern of non-payment of dividends in the previous two years. Seen in that context, the payment of dividends in the earlier years does not, in my view, support a contention that the subject payments were more likely dividends than wages.

3. It is implicit in Mr Cahill’s evidence that TRD had not resolved to pay the contested amounts as dividends. That is consistent with Mr Cahill’s evidence that TRD did not have retained earnings that would have permitted payment of dividends in the 2020 financial year.[13] I have no reason to doubt that evidence – the financial data extracted from TRD’s returns does not suggest otherwise. It is also consistent with the payslips and other evidence referred to below. I accept Mr Cahill’s evidence in this regard.

   [13] Exhibit 6, Applicant’s Statement of Facts, Issues and Contentions, page 22.

4. Accordingly, I accept that the contested payments were not dividends. However, that is not sufficient to discharge TRD’s burden of proof. TRD must positively prove that the payments were wages (or in the case of the payments to Mr Cahill – director’s fees). 

   Determination of the character of the payments

5. As noted, Mr Cahill gave evidence that the payments were wages. It is, however, both well-established and recently confirmed by highest authority that the label adopted by the parties is not determinative of the character of a contractual relationship. Rather, it is the nature of the legal rights and duties that, as a matter of law, determine its character.[14]

   [14] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1, [44], [58], [127], [172],

6. Therefore, the fact that Mr Cahill says he and Mrs Cahill were employees, even if there were no contrary indicators, would not be determinative. The inquiry must be into the existence of, and the nature of any legal rights and obligations attached to, any contractual relationship, not Mr Cahill’s description of the character of the relationship established by any such rights and obligations.

7. However, it is important to bear in mind that this is not an example of the common case from which that principle emerges, where the contest is whether a stated set of legal rights and obligations amounts to an employment relationship or an independent contractor relationship. Rather, it is concerned with whether informal, undocumented arrangements involving a married couple amount to an employment relationship with the company they own.

8. As the findings regarding hours of work referred to earlier in these reasons establish, it is clear that Mr and Mrs Cahill carried out substantial work for TRD. That is also consistent with the fact that TRD has no other employees; as Mr Cahill noted, someone must carry out the work to keep TRD functioning. It is also clear that they received amounts of money from time to time from TRD. The question is whether those amounts constituted wages paid to them as employees.

9. There is nothing in the evidence to suggest that this work was carried out as independent contractors. Mr and Mrs Cahill have a joint bank account. They do not have separate individual accounts.[15] There is nothing to suggest they are carrying on business in partnership. They did not lodge a partnership income tax return or treat the amounts received as business income or claim deductions related to the derivation of the amounts.

   [15] Transcript of Proceedings, P-11, lines 16-19.

10. Ordinarily, conduct subsequent to the formation of a contract is irrelevant to the legal character of the relationship so formed. However, in a case such as this, where the very existence of employment relationships between TRD and Mr and Mrs Cahill is in contest, and there are no written agreements setting out relevant legal rights and obligations, it is established that subsequent conduct may be the best evidence of what, if anything, the parties have agreed orally.[16]

    [16] BH Australia Constructions Pty Ltd v Kapeller (2019) 100 NSWLR 367. [68]-[70]; Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1, [177].

11. The informality and absence of documentation of what is essentially a family arrangement further complicates the matter in this respect: There is no evidence of any specific terms of an oral agreement relating to the payments by reference to which the character of any relationship may be determined.  Again, considered in context, that is scarcely surprising, particularly in relation to Mr Cahill. There is no legal impediment to a sole director of a company being employed by the company. But it would plainly be unrealistic and artificial to expect that Mr Cahill could give evidence of orally agreeing with himself as director that he would be employed by the company and the terms of such employment.

12. In those circumstances, it seems to me that it must be possible to determine, one way or the other, whether conduct of the parties is sufficient for terms of an agreement that would constitute an employment relationship to be inferred. If it were otherwise, countless informal arrangements of this kind that have long been treated as employment arrangements would fall outside the PAYGW provisions and be of indeterminate character.

13. Turning, then, to the conduct of the parties, there are indicators for and against the existence of employment relationships between TRD and Mr Cahill and Mrs Cahill respectively.

    Absence of ‘onboarding documentation’ and regular working hours

14. In written submissions, the Commissioner highlighted:

    the absence of any typical contemporaneous employee onboarding documentation, such as employment agreements, TFN declaration, statement of duties and regular working hours.[17]

    [17] Respondent’s Outline of Submissions, [54a].

15. ‘Onboarding documentation’ including employment agreements may be typical in many entities. However, I doubt they are typical for a family business of this kind where the sole shareholders are husband and wife, and the husband is the sole director. I take into account, but do not give significant weight to, the absence of such documentation. As for TFN (Tax File Number) declarations, Mr Cahill had earlier explained that TRD had been deducting PAYGW when required for over 20 years and that TFN declarations, although not able to be located, would have been provided many years ago.[18]  Again, considered in context, the absence of TFN declarations, in my view, is not surprising.

    [18] ST21-195, [33(5)].

16. Nevertheless, the absence of any documentation recording an employment relationship, even a company minute, while not making TRD’s task in discharging its burden of proof impossible, certainly makes it challenging.

17. The absence of regular working hours and payments for work, far from being out of the usual, is in fact a common feature of employment arrangements for relatives in small, family businesses. While I take the absence of regular working hours and payments into account, I consider it is not fatal to the contention that Mr and Mrs Cahill were employees.

18. Similarly, the absence of a written statement of duties is not uncommon in small businesses employing family members who own and control the business entity. I do not consider that it weighs heavily against the existence of an employment relationship.

    Issue of payslips

19. In his written outline, the Commissioner submitted that:

    [w]hilst the Applicant has provided payslips, the date[s] that these were issued to Mr and Mrs Cahill are unknown.[19]

    [19] Respondent’s Outline of Submissions, [54c].

20. The dates of issue of the payslips are no longer unknown. Mr Cahill gave evidence that he caused them to be issued out of TRD’s accounting system on or about the dates appearing on the payslips.[20] That evidence was not challenged in cross-examination. Accordingly, I find that the payslips were issued on or about the dates set out in the first table above.

    [20] Transcript of Proceedings, P-17, line 46.

21. The issue of payslips is an ordinary incident of employment. TRD’s issue of the payslips implicitly supports the view that TRD intended the contested payments to be in return for duties performed subject to the basic terms and conditions that are found in an employment relationship. It is consistent with the payments being for services rendered and not inconsistent with the element of continuity found in an employment relationship even one of a casual nature that may be terminated on short notice or without a firm advance commitment.[21] Here, the work, although not performed in a regular pattern of hours or for regular remuneration, was carried out on an ongoing basis over an extended period.

    [21] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1, [104]-[111].

22. Against these considerations, the content of the payslips is curious.  Although they identify the employee, the amount paid, PAYG deducted and year-to-date totals of those amounts, they do not contain other information commonly found in employment arrangements, even informal, casual arrangements. That the payslips do not reveal a consistent pattern of payments is consistent with the evidence of TRD’s irregular cash flows. But these payslips also do not state an hourly rate or the dates, times or hours worked.  Again, though, that must be considered in the context in which TRD operates and is managed by Mr Cahill.

    Disclosure of the payments in income tax returns

23. The inclusion of the payments as wages in the income tax returns of Mr and Mrs Cahill is consistent with an inference that they considered themselves to be in a relationship with TRD governed by the basic legal rights and obligations found in an employment contract.

24. Although it is well-established that the taxation treatment adopted by parties is not determinative of the character of a receipt or outgoing,[22] nor is it irrelevant. While not treating it as strongly probative, I take into account that both Mr Cahill and Mrs Cahill treated the payments as wages in their returns. This provides some, though not strong, support for an inference that the payments were made under an arrangement characterised by the basic legal rights and obligations of an employee. 

    [22] Greig v Commissioner of Taxation (2020) 275 FCA $$5, [242].

25. On the other hand, the payments were not disclosed as wages in TRD’s income tax return. Mr Cahill described this as ‘an omission’,[23] which I take to mean a mistaken omission. They were included in annual payment summaries and the PAYGW deducted credited against the tax liabilities of Mr and Mrs Cahill.[24]

    [23] Transcript of Proceedings, P-26, lines 44-45.

    [24] Applicant’s Outline of Submissions, [24].

    Superannuation and workers compensation

26. TRD paid superannuation contributions in previous years in which it paid wages but did not make such contributions in respect of the contested payments.  Mr Cahill said he acknowledged this is an outstanding liability but otherwise offered no explanation for the non-payment of superannuation contributions.[25] This factor weighs against a conclusion that the payments were wages.

    [25] ST20, page 175.

27. However, TRD did maintain workers compensation insurance over the relevant period[26] which is consistent with the work of Mr and Mrs Cahill being provided as employees.

    Bank statement annotations

    [26] ST20, page 176.

28. The Commissioner noted in oral submissions that none of the contested payments are annotated as wages in TRD’s bank statements. This is surprising and weighs against a conclusion that the payments are wages.

    Recording of payments in TRD’s wage expense account

29. Mr Cahill gave evidence that the payments were recorded in a wage expense account in TRD’s accounting records. The Commissioner noted that Mr Cahill did not put a copy of the entries into evidence but did not put to Mr Cahill that his evidence in this regard was untruthful or submit that it would be unfair to accept this late evidence. [27]

    [27] Transcript of Proceedings, P-28, lines 6-10.

30. I have no reason to doubt the accuracy of Mr Cahill’s evidence in this regard. Accordingly, I find that the payments were recorded in a wage expense account which is conduct consistent with a conclusion that Mr and Mrs Cahill were engaged by TRD as employees.

    Payments in November and December 2019

31. The Commissioner noted that TRD made payments to Mr and Mrs Cahill in November and December 2019 that were not disclosed as wages in TRD’s activity statements. Why should similar payments in the March 2020 quarter be treated as wages?  The short answer is that the evidence in respect of the March payments is different – payslips were issued and, as I have found, the payments were included in a wage expense account. The different treatment of these payments is not irrelevant, and I take it into account, but I do not consider that it weighs heavily against TRD’s contention that the March quarter payments were wages. That must depend upon whether the particular payments were made in accordance with an employment relationship.

    Conclusion – the March 2020 payments were wages

32. The absence of any documentation of the arrangements under which TRD made the contested payments provides a singular challenge for TRD’s ability to discharge its burden of proving the payments were wages paid to Mr and Mrs Cahill as employees. However, I am mindful of recent judicial reminders that s 14ZZK of the Taxation Administration Act 1953 imposes a burden of proof but does not impose a special standard of proof.[28] As already noted, it is sufficient if the taxpayer tips the scales ‘ever so slightly’ in its favour.

    [28] Federal Commissioner of Taxation v Cassaniti[2018] FCAFC 212, [88].

33. In this case, weighing up the factors referred to above, particularly the issue of the payslips, the recording of the payments in TRD’s wages expense account and the consistent treatment by Mr and Mrs Cahill in their returns, I accept on balance that the payments are wages. The amounts and irregularity of the amounts paid may not satisfy industrial relations requirements or be evidenced by the documentation ordinarily found in  more sophisticated employment arrangements with arm’s length employees, but I am satisfied for the reasons given that they were paid to Mr and Mrs Cahill as employees.

34. The Commissioner accepted that TRD had a history of intermittent payment of wages.[29] It is not clear to me why the Commissioner accepted that past payments, designated by TRD as wages, are wages, but put TRD to proof in respect of the contested payments. But there is no doubt he was entitled to do so. My conclusion should not be regarded as implicitly critical of the Commissioner for maintaining TRD had not established that the payments were wages. That was not an unreasonable position to adopt on the evidence that TRD presented.[30] I consider this to be a borderline case: the tipping of the scales in favour of TRD is indeed ever so slight.  But that is sufficient for TRD to succeed on this issue.

    [29] Respondent’s Outline of Submissions, [64].

    [30] Nor should my conclusion encourage taxpayers, even small family businesses, or their representatives, in a view that they will be able to discharge the burden of proof in taxation reviews without documenting their arrangements or putting all relevant evidence before the Tribunal. It will usually be prudent to do so, and may be fatal not to.

    A scheme with the sole or dominant purpose of obtaining or increasing CFB?

35. I have taken into account the various submissions of the Commissioner with regard to this issue, including the stark departure from the previous history in which wages had not been paid by TRD for five years; the quantum of wages paid and PAYGW deductions required; and the consequent impact upon TRD’s entitlement to CFB assuming s 5(1)(g) of the BCF Act does not apply.

36. However, once the finding referred to above – that the payslips were issued and the payments made on or about the dates referred to in the payslips – is made, it is in my view clear that TRD could not have entered into a scheme with the sole or dominant purpose of obtaining or increasing a CFB entitlement. The wage payments commenced, and the bulk of the payments in both number and quantum were made, well before the announcement of the CFB eligibility requirements. There is no suggestion that Mr Cahill anticipated those requirements and acted accordingly. Nor could there be: the early wage payments in this period were made before the significance of the pandemic and its potential economic effect had emerged.

37. It is true that the wages were, as the Commissioner noted, the highest amounts paid in TRD’s history. However, that is not particularly surprising in a context in which no wages had been paid in the previous five years for reasons Mr Cahill explained relating to the long-term nature of TRD’s business projects and its irregular cash flows. The evidence establishes that, before the hiatus that commenced in the 2015 year, TRD had paid wages in every year from 2003 to 2014.  Seen in that context, the quantum of wages paid in the March 2020 quarter is not, in my view, supportive of a contention that TRD or Mr Cahill entered into a scheme or part of a scheme for the sole or dominant purpose of obtaining or, in particular, increasing a CFB entitlement.

38. In those circumstances, based on the factual findings I have made, I am satisfied that
    s 5(1)(g) does not apply in respect of the March 2020 quarter.

    THE JUNE 2020 QUARTER

39. The considerations in respect of the June 2020 quarter are quite different.

40. In this quarter, TRD paid the contested amounts on only one occasion – 10 June 2020 – in the substantial amounts of $27,000 to each of Mr and Mrs Cahill. No other wage payments had occurred since the last payment in the March quarter on 13 March 2020. No further wage payments occurred after June 2020. In other words, the contested payments are each a single, isolated payment in a substantial amount.

41. So far as the evidence reveals, the circumstances surrounding those payments are somewhat opaque in respect of two issues in particular.

42. The first is the reason for the timing and quantum of the payments. Apart from saying that funds unexpectedly became available, Mr Cahill did not give any specific evidence regarding how it was determined that these two substantial payments should be made at that time, and in those amounts, but a few weeks before the end of the quarter which would determine TRD’s entitlement to CFB. Nor did he put in evidence any specific financial information to support the decision to make these payments at that time, or their amounts, which would have a substantial impact on TRD’s CFB entitlements.

43. There is also the question of the cash movements on 10 June 2020 that put TRD in a position to be able to make the payments. The Commissioner maintained that these constituted a ‘round robin’. That is to say, that funds were transferred from Mr and Mrs Cahill’s joint bank account to the TRD’s account only to be transferred back to them on the same day.

44. Mr Cahill consistently maintained that the transfers could not have occurred in that order because the closing balance of the joint account on the previous day, 9 June 2020, was a mere $70.79. So, Mr Cahill said, funds could not possibly have been transferred from the joint account to TRD’s account. But that does not present the full picture.

45. The contested payments were said to be part of two larger payments of $52,000 each from TRD to Mr and Mrs Cahill’s joint account. It is true that the closing balance of the joint account on 9 June 2020 was only $70.79 and therefore, without more, funds could not have been transferred from the joint account to TRD’s account and back to the joint account.

1. However, the bank statements indicate that there were on the same day various other transfers.[31] These included substantial transfers from associated companies to the joint account. It is true that without those transfers no significant amounts could have been transferred from the joint account to TRD’s account. But that does not change the fact that on 10 June 2020 Mr and Mrs Cahill transferred to TRD funds in excess of the two amounts of $52,000 that TRD transferred back to them on the same day.

   [31] Exhibit 7, A2-15.

2. In other words, there was (in excess of) $104,000 transferred from the joint account to TRD on 10 June 2020 and on the same day TRD transferred $104,000 to Mr and Mrs Cahill. Whether or not one adopts the perhaps pejorative expression ‘round robin’, there is an undeniable circularity in these transfers which, to the extent of the combined $104,000 transferred to the joint account, were of no substantive net effect.

3. In his oral evidence, Mr Cahill stated:

   The point I am making in the submission is that the tax office has consistently claimed that my wife and I took the money from our joint account, put it into Twin Rivers' account, and then Twin Rivers gave it back to us as wages.  That's the round-robin that you have consistently claimed.  What I have said is that it could not have happened in that sequence because we did not have the money in our account; on the evening prior to that we had $70, so we could not have paid $170,000 to the tax office on the morning of 10 June, so to speak, because we didn't have it.  The only reason we had funds on 10 June is because we had loan repayments back from Jubilee projects.  Those funds and then we secondly – then we got wages from Twin Rivers, so we ended up with $163,000 or thereabouts in our bank account, which we did not need.  We then sent it all back to Twin Rivers as we always do.  Twin Rivers is effectively the quasi-treasury. So what I'm probably trying to clarify is the key elements is – I think it is element 4 of the alleged scheme, is that it was a round robin of checks whereby I pay Twin Rivers the money and that Twin Rivers pays me back as wages; I'm saying it couldn't happen like that.[32]

   [32] Transcript of Proceedings, P-22, line 38 to P-23, line 7.

4. This confirms, as the bank statement entries indicate, that the purported wage payments were matched by an identical amount paid back to TRD on the same day. In relation to the explanation of funds flowing to the joint account as a loan repayment from Jubilee Projects, this was inconsistent with the annotation ‘Jubilee Projects fee’ in the bank statements. When this was pointed out in cross-examination, Mr Cahill responded that it was accounted for as a loan repayment. He went on to say:

   I do not believe that I have to necessarily have to demonstrate to the tribunal, with respect, but this is what I am thinking.  I do not believe that I need to demonstrate that money came from Jubilee Project by way of loan.  In bringing this up, what I am responding to is the assertion by the Commissioner which is one of the four elements of this scheme, and I repeat; the Commissioner has said the cash flow happened in this basis and the documents I presented to the tribunal clearly demonstrate that it didn't.  So my document, the bank statement, document A3-10 which is the same document, it shows that the balance in the bank account was $70.  Therefore what I am saying is that the Commissioner's assertion – this document demonstrates the Commissioner's assertion is incorrect.  It didn't happen.  Should I then be required to show what actually did happen?[33]

   [33] Transcript of Proceedings, P-23, lines 34-46.

5. In closing submissions, Mr Cahill addressed the issue as follows:

   And the fourth element is, the Commissioner says, well, okay, there was a round robin.  You took some money out of your account, put it into the company's account and then you paid yourself back.  Well I'd respond to that two ways.  The first is, it didn't happen because the balance in the account the day before was $70.  I don't know where I got $100,000 from.  I got the $100,000 because somebody paid it to me first, then I gave it back to the company.  The company that gave it to me were my other companies.[34]

   [34] Transcript of Proceedings, P-36, lines 1-7.

6. That explanation is in very general terms. It really does not go very far to explaining a substantial number of entries on the same day indicating a circular flow of funds.

7. For completeness, I note that Mr Cahill also submitted:

   The second comment I'd put to that is – and I don't hang my hat on this, but I'd certainly put it to you as a thought – what does it matter where I got the money from to pay myself wages?  How you fund a wage is irrelevant.  For instance, I could have got it from an overdraft; I could have got it from a bank loan; or, forgive me, I could have got it from robbing a bank, and then I could have paid it as wages.  It doesn't change the character of the payment as wages.  So even if I did fund it by a payment from myself, it was no more than the provision of a working capital loan to the company which the company then paid my wages.[35]

   [35] Transcript of Proceedings, P-36, lines 7-16.

8. I respectfully agree that the source of funds for a payment may be irrelevant to the character of the payment. However, when the funds for a payment include undoubtedly circular transactions, that may be relevant to whether the payment formed part of a scheme to obtain or increase the CFB. The earlier extracts indicate that Mr Cahill was unwilling or unable to provide a full explanation of the background to these entries. Whatever the explanation, on the material and explanations before me, I am not able to be satisfied these transactions were not part of such a scheme and indicative of a dominant purpose of obtaining or increasing a CFB entitlement.

9. It may be that in deciding to make the contested payments, Mr Cahill was not solely motivated by CFB considerations. But common-sense dictates that he must have been aware of the effect they would have on TRD’s CFB entitlement. Mr Cahill was aware of the CFB eligibility criteria.[36] He prepares his and TRD’s own tax returns and activity statements. His evidence demonstrated a comfortable familiarity with basic income tax and PAYGW withholding principles.

   [36] Transcript of Proceedings, P-25, lines 35-36.

10. The question therefore becomes whether TRD has discharged the burden of proving that, in making the contested June 2020 payments in the amounts and at the time they were made, Mr Cahill did not have a dominant purpose of obtaining or increasing TRD’s entitlement to CFB for the June 2020 quarter.

11. In considering that question, I am left with this:

    (a)Mr Cahill’s evidence that the payments were not prompted by the potential for a further CFB payment, which I take into account but must, as the authorities indicate, treat with caution as it is necessarily self-serving.

    (b)Isolated payments that would have a significant effect on TRD’s CFB entitlement without any specific explanation of the basis on which the amounts or their timing were determined.

    (c)No contemporaneous record, by way of company minutes or otherwise, of the reasons for the particular amounts being paid and the timing of the payments.

    (d)No detailed explanation of the steps taken on 10 June 2020, that had the result of TRD being put in funds that enabled the payments to be made to Mr and Mrs Cahill, or why those steps were taken at that time.

12. The Commissioner also pointed to upwards variations in the PAYGW withholding rates lodged by Mr and Mrs Cahill, resulting in a withholding rate of approximately 48% for these payments, compared with the 20% rate adopted for the March quarter PAYGW deductions. However, Mr Cahill pointed out that as result of these variations he and Mrs Cahill were ultimately assessed to a minimal amount of additional tax payable for 2020. That suggests that, although the higher PAYGW rate would increase the CFB entitlement, the variations were not unreasonable.

13. I am aware of the limited utility of considering the demeanour of a witness giving evidence in determining the truthfulness of their evidence. Nevertheless, I observe that Mr Cahill presented as a straightforward witness and nothing in the way he delivered his evidence suggested he was other than truthful in his responses.

14. However, having regard to the limitations in the objective evidence, and in Mr Cahill’s own explanations as set out above, I am not able to be satisfied that his dominant purpose was not to obtain a CFB for the June 2020 quarter. A person must be taken to have an intention or expectation that the known outcomes of their actions would occur. Here, the known outcome of making these payments was an entitlement to CFB. That is not the same as a dominant purpose, but it does provide context for determination of whether TRD has discharged the burden of proving Mr Cahill did not have the disqualifying dominant purpose. In that context, evidence that amounts to little more than a conclusory assertion is not, in my view, sufficient to discharge the burden of proof.

15. It may be that if TRD had been more thorough in documenting its decision-making, or legally represented in these proceedings, other oral or documentary evidence could have been adduced. However, I can only deal with the evidence before the Tribunal.[37] On that evidence, for the reasons given, I am not satisfied that TRD has discharged the burden of proving that Mr Cahill did not, in making these payments in the amounts and at the time they were made, have a dominant purpose of TRD obtaining or increasing a CFB for the June 2020 quarter.

    [37] The Commissioner on at least two occasions asked Mr Cahill for TRD’s general ledger entries for 2019/2020 which he twice declined to provide, other than TRD’s loan account entries: T30-140, T28-41, ST19-173, ST20-175.

16. The factual matrix for the contested payments on 10 June 2020 differs from the March quarter payments. Unlike the March quarter payments, the wages purportedly paid on 10 June 2020 were said to be part of larger amounts transferred to Mr and Mrs Cahill on that day, in each case by way of a transfer of a single sum in excess of the amount of the purported wages. Because I am not satisfied that s 5(1)(g) does not apply in relation to the June 2020 payments, it is not necessary for me to decide whether I am satisfied that those payments are wages.

    DISPOSITION OF THE REVIEW

17. In view of the conclusions set out above, the appropriate decision is to set aside the objection decision and substitute a decision that TRD is entitled to CFB for the March 2020 quarter but not for the June 2020 quarter.

I certify that the preceding 99 (ninety-nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding

.................................[SGD]..................................

Associate

Dated: 28 April 2022

Date of hearing:	31 March 2022
Representative for the Applicant:	Mr G Cahill, Director of Twin Rivers Developments Pty Limited
Advocate for the Respondent:	Ms N Dubey
Solicitors for the Respondent:	ATO Litigation & Legal Services