The impact of this case on ATO policy is discussed in Decision Impact Statement: Slatter Building Group Pty Ltd and Commissioner of Taxation (2020/6013 ).
Slatter Building Group Pty Ltd v FC of TMembers:
BJ McCabe DP
RJ Olding SM
Administrative Appeals Tribunal, Sydney
MEDIA NEUTRAL CITATION:
 AATA 456
BJ McCabe (Deputy President) and RJ Olding (Senior Member)
1. In 2020, the Australian Parliament enacted a range of measures in response to the COVID-19 pandemic. One measure, contained in the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth) (" BCF Act "), provided for two cash payments, called "cash flow boosts", to eligible employers.
2. Mr Jack Slatter operated a business in the construction industry as a sole trader from 2018. If Mr Slatter had continued as a sole trader, he likely would have qualified for cash flow boost payments. However, for reasons unrelated to the cash flow boost, Mr Slatter followed a course adopted by countless sole traders before him: he incorporated a company - the applicant company, Slatter Building Group Pty Ltd (" SBG ") - in January 2020 to take over the operation of his business.
3. The Commissioner of Taxation says SBG does not qualify for the first cash flow boost because, being a new entity, it could not satisfy the eligibility requirements in the statute. Those requirements confine entitlement to the cash flow boosts to existing active entities. The limits are apparently designed to prevent entities being established or revived solely for the purpose of accessing the cash flow boosts.
4. The applicant objected to the Commissioner's decision that it is not entitled to the first cash flow boost. The applicant subsequently applied to the Tribunal for review of the Commissioner's decision disallowing the objection.
5. On the face of the evidence, the applicant appears to have struggled with the impact of the pandemic and may be a worthy recipient of financial assistance. But there is no element of discretion in our decision-making. Our role is solely to determine whether the applicant is entitled to the cash flow boost as a matter of law, on a proper construction of the relevant legislative provisions.
6. Any legislative scheme that distributes large amounts of money must include clear criteria governing who may access the payments, and in what circumstances. The application of any criteria is likely to be controversial at the margin: there will always be hard cases where reasonable people can disagree over whether a particular applicant ought to be eligible. We have concluded the applicant in this case clearly falls outside the criteria notwithstanding the arguments of policy that were made on its behalf. Our reasons follow.
7. The following facts are not in dispute.
8. Mr Slatter commenced operating a business in building and construction as a sole trader from 2018, which continued until SBG took over the business following its incorporation on 17 January 2020.
9. SBG registered for GST on 28 January 2020, effective from 20 January 2020. SBG made taxable supplies in the period between its incorporation on 17 January 2020 and 12 March 2020 (a date that is significant in the rules for entitlement to cash flow boost, as explained below). It accounted for GST on a quarterly basis, lodging its first activity statement, for the quarter ended 31 March 2020, on 1 May 2020.
10. The rules regarding entitlement to the first cash flow boost are found in s 5 of BCF Act. There is no controversy regarding SBG's satisfaction of those requirements
ATC 9177other than that contained in s 5(1)(f)(ii) which requires that "the entity had an ABN on 12 March 2020 (or at a later time allowed by the Commissioner) and the requirement in sub-section (5) or (6) is satisfied" (emphasis added). The applicant had an ABN at the relevant time, so questions over the exercise of the Commissioner's discretion do not arise. The issue in this case relates to the requirements referred to in sub-sections (5) and (6). The entity must meet one of those requirements to qualify for the cash flow boost.
11. The requirement in s 5(5) includes that an amount was included in the entity's assessable income for the 2018-19 income year in relation to it carrying on a business. SBG cannot satisfy that requirement because the entity did not exist in 2018-19. That leaves s 5(6), which states:
(6) For the purposes of paragraph 1(f), the requirement in this subsection is satisfied if:
- (a) the entity made a taxable supply in a tax period that applied to it that:
- (i) started on or after 1 July 2018; and
- (ii) ended before12 March 2018; and
- (b) the Commissioner had notice on or before 12 March 2020 (or a later time allowed by the Commissioner) that the entity had made the taxable supply.
12. Under the definition in s 4(1) of the BCF Act, "taxable supply" has the meaning given by the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (" GST Act "). However, for the purposes of s 5(6), in determining whether a supply is a taxable supply, s 5(7) modifies the GST Act definition by requiring certain assumptions, including that the supply is neither GST-free nor input taxed. Thus, input taxed or GST-free supplies would count as taxable supplies for s 5(6) purposes, even though they are not taxable supplies under the GST Act.
13. The expression "tax period" is defined in s 4(1) of the BCF Act as having the meaning given by the Income Tax Assessment Act 1997 (Cth) ("
tax period means a tax period applying to you under:
- (a) Division 27 (about quarterly and one month tax periods);
SBG’s adoption of quarterly tax periods, which followed because SBG did not elect, and the Commissioner did not require it, to account on monthly tax periods (GST Act, s 27-5), was confirmed in correspondence from the Commissioner’s office.or
- (b) section 48-73 (about GST groups with incapacitated entities); or
- (c) section 57-35 (about resident agents); or
- (d) section 58-35 (about representatives of incapacitated entities); or
- (e) section 151-40 (about annual tax periods); or
- (f) section 162-55 (about instalment tax periods).
14. The expression "entity" is also defined in s 4(1) of the BCF Act as having the meaning given by the ITAA 1997 which, in s 960-100(1), says:
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.
ON WHAT BASIS DOES THE APPLICANT SAY IT IS ENTITLED TO THE CASH FLOW BOOST?
15. SBG did not refer to taxable supplies in an activity statement lodged, or otherwise notify the Commissioner that it had made a taxable supply, by 12 March 2020. That is because it did not lodge its first activity statement until 1 May 2020. However, the Commissioner advised he would exercise the discretion in s 5(6)(b) to extend the notification period if the Tribunal were to decide SBG satisfied the requirement in s 5(6)(a).
ATC 9178The case was conducted on the basis that the sole issue to be resolved by the Tribunal is whether SBG satisfied s 5(6)(a). It is uncontroversial that SBG made one or more taxable supplies in the period between its incorporation and 12 March 2020. And it is self-evident that such supply or supplies must have been made in a tax period that started on or after 1 July 2018 because SBG was not incorporated until January 2020, and the longest tax period under the GST Act is one year.
17. Therefore, the issue to be resolved is whether this remaining requirement in s 5(6)(a) is satisfied:
- (a) the entity made a taxable supply in a tax period that applied to it that: ... ended before 12 March 2020.
The Applicant's primary argument in summary - meaning of "tax period that applied to it"
18. The applicant submits the word "it" in s 5(6(a) refers to the taxable supply and not to the entity making the supply. In other words, the applicant says the contested requirement should be read as "the entity made a taxable supply in a tax period that applied to [the taxable supply] that ... ended before 12 March 2020".
19. The Commissioner says "it" refers to the entity, so that the correct reading of s 5(6)(a) is "the entity made a taxable supply in a tax period that applied to [the entity] that ... ended before 12 March 2020".
Applicant's alternative argument - meaning of "entity"
20. Alternatively, the applicant says the defined term "entity", with its inclusion of individuals, companies and other entities and, in particular, groups of entities, is capable of embracing Mr Slatter as sole trader and his company SBG. On that basis, as we understand the submission, the applicant says a single "entity" - originally Mr Slatter but subsequently replaced by SBG - made taxable supplies included in returns for tax periods ending before 12 March 2020, being tax periods in which Mr Slatter brought GST to account on supplies he made as a sole trader.
21. The Commissioner disagrees. He says the BCF Act applies to particular entities which must be either an individual, a company or another of the listed classes of "entities" in the definition of that term for GST purposes including groups of entities such as partnerships. The Commissioner insists the law does not permit or require two entities that individually conducted the same business at different times to be treated as a single entity.
22. We examine each of these arguments below.
MEANING OF "TAX PERIOD THAT APPLIED TO IT"
23. Mr Thomas frankly acknowledged the applicant's proposed construction of the legislation is strained. However, he submitted the contested expression is ambiguous and the applicant's proposed construction should be favoured because it was more consistent with the policy embodied in the BCF Act.
24. The word "it" in the phrase "the entity made a taxable supply in a tax period that applied to it" is ambiguous if one considers that phrase in isolation. "It" is potentially capable of referring to either the entity making the taxable supply or to the taxable supply.
25. However, when considered in its statutory context, we have little doubt "it" must be construed as referring to the entity making the taxable supply and not to the taxable supply. Further, we do not think the underlying policy of the BCF Act or its particular provisions in s 5 delineating entitlement to the first cash flow boost clearly favours the applicant's preferred construction. We explain why we have reached these conclusions below.
Textual considerations and statutory context
26. The applicant's construction faces two significant textual hurdles.
27. First, it would leave the words "that applied to it" in s 5(6)(a) with no work to do. The outcome sought by the applicant - effectively that it is sufficient to identify a taxable supply made in a tax period between 1 July 2018 and 12 March 2020 which need not be a tax period applying to the taxpayer - would be achieved if the words "that applied to it" had been omitted altogether.
28. It is a long-established principle that constructions involving superfluity should be avoided.
ATC 9179this but do not think this provides the Tribunal with a licence to depart from established principles of statutory interpretation. To be clear, we do not say the identified principle is an absolute barrier to the applicant's construction. However, we do not think it would be correct to ignore it altogether. Even with the haste required, the drafters must be taken to have prepared the Bill for the BCF Act with longstanding principles of statutory interpretation in mind, especially one that has been described as the most often applied of such principles.
29. A second significant problem with the applicant's construction is that it would require identification of a taxable supply in a period "that applied to" the taxable supply when, legislatively, taxable supplies are untethered to any particular tax period. There is nothing in the BCF Act or the GST Act that assists in determining how or when a tax period "applied to" a taxable supply.
30. Mr Thomas sought to meet this difficulty by submitting it is not necessary to identify a particular tax period. As we understood the submission, it would be sufficient if there are tax periods that could be said to apply to the taxable supply. In support of this submission, Mr Thomas noted various references in the Explanatory Memorandum to the Bill for the BCF Act (" EM ") in which "tax periods" appears in the plural form.
31. With respect, this seems to venture into construing the EM rather than the legislation. In any case, we do not see how the references in the EM to "tax period s " would advance the case for the applicant's construction. The various references to "tax periods" are consistent with the Commissioner's preferred construction under which it is sufficient to identify a taxable supply in any one of the tax periods (that applied to an entity) that started on or after 1 July 2018 and ended before 12 March 2020. The use of the indefinite article in the requirement for the entity to have "made a taxable supply in a tax period that applied to it" is also consistent with the Commissioner's preferred construction.
32. In contrast to the absence of any discernible means of determining how or when a tax period applies to a taxable supply, the concept of a tax period applying to an entity is clearly ascertainable under the GST Act. Indeed, the concept of a tax period only exists in the context of, and is defined as, a "tax period applying to you". As noted earlier, the expression "tax period" in the BCF Act ultimately takes its meaning from the GST Act. As reference to the definition reproduced earlier shows, a tax period is not a concept that exists at large in the GST Act but only as a period "applying to" an entity. In other words, the concept of a tax period has no application under the GST Act other than as a tax period applying to an entity.
33. Mr Thomas endeavoured to avoid this difficulty for the applicant by pointing out the GST Act in this context refers to a tax period applying to "you" whereas the BCF Act does not use the expression "you", instead referring to the "entity". That is a distinction without a difference.
34. The word "you" is defined in s 195-1 of the GST Act in this way:
you : if a provision of this Act uses the expression you , it applies to entities generally, unless the expression is expressly limited.
35. The direct adoption of the cognate term "entities" in the definition of "you" confirms it is (absent any express limitation) synonymous with "entity" and plainly no more than a drafting convenience to avoid repetition and to accommodate the casting of provisions in the second person, a feature of the GST Act not adopted in the BCF Act.
36. This aspect of the applicant's submissions is part of a broader theme in which it endeavoured to distance the BCF Act from GST Act concepts. In that context, the applicant's submissions drew attention to certain statements in a report of the Inspector-General of Taxation and Taxation Ombudsman ("
") released in December 2020.
ATC 9180It is true there is some departure from GST concepts, such as the expanded meaning of taxation supply mentioned earlier, but where that is intended it occurs by express provision in the BCF Act. We are unable to see why this provides any basis for departing from those GST concepts expressly adopted by the BCF Act.
38. Mr Thomas also submitted the GST Act itself exhibits instances where taxable supplies are not linked to particular tax periods applying to the taxpayer. On being pressed for examples, Mr Thomas referenced the Commissioner's power to make a determination under s 29-25 of the GST Act in respect of contractual cooling off periods. That power permits the Commissioner to determine tax periods to which GST is attributable on taxable supplies of a specified kind, by way of departure from the general attribution rules. It says nothing about taxable supplies applied to tax periods.
39. On the other hand, as Mr Livingston, who appeared for the Commissioner, pointed out, the BCF Act itself contains a provision which is consistent with the GST concept that a tax period applies to an entity. Section 11(4)(b) of the BCF Act contains an express reference to "an annual tax period that applies to the entity " (emphasis added). This is a further contextual indicator in favour of the Commissioner's interpretation and against the applicant's.
40. Mr Livingston also pointed out the eligibility rules in s 5 of the BCF Act are almost exclusively focussed upon required attributes of an entity. This is not surprising in the context of rules determining whether entities are eligible for assistance. That does not help us construe a particular requirement within those rules. Further, on either construction the focus remains on whether the entity made a taxable supply with a particular attribute.
41. Each counsel sought to attack the other party's construction on the basis that, had Parliament intended to achieve an outcome that would follow from that construction, the legislation could have been drafted in a particular way. For example, the applicant's submissions asserted that if it were intended to exclude companies incorporated after 31 December 2019 that do not account for GST monthly, the legislation could have provided so expressly. Submissions of this kind, which point to what the legislation might have said, are rarely helpful in construing what the statute actually says. We have not found them to be helpful in the current context.
42. The applicant says: "the purpose of the CFB [BCF] Act is to provide businesses with access to emergency funding in the wake of the Coronavirus Pandemic."
Carr v The State of Western Australia:
Legislation rarely pursues a single purpose at all costs. Where the problem is one of doubt about the extent to which the legislation pursues a purpose, stating the purpose is unlikely to solve the problem. For a court to construe legislation as though it pursued the purpose to the fullest possible extent may be contrary to the manifest intention of the legislation and a purported exercise of judicial power for a legislative purpose.
. (1997) 187 CLR 384, 408
43. By way of analogy, his Honour noted that in construing income tax legislation the overall purpose of raising revenue is of no assistance in determining the scope of individual provisions. Likewise, to acknowledge the purpose of the BCF Act is to provide emergency funding to businesses is of no assistance in determining the proper construction of provisions governing the scope of eligibility for such funding.
44. It is clear the statutory command in s 15AA of the Acts Interpretation Act 1901 (Cth) that an interpretation that would best achieve the purpose or object of an Act is to be preferred to each other interpretation must be applied with the understanding of the role of policy underlined by his Honour's comments in Carr. It is also clear the principle that beneficial legislation is to be construed beneficially does not mean the most expansive view must be taken whenever a constructional choice arises in the application of such legislation.
ATC 9181The object of the BCF Act is stated with more specificity in the EM:
The Cash Flow Boost Bill is a key part of the Commonwealth's response to the spread of the Coronavirus. It provides for payments to support employers by boosting their cash flow and encourages the retention of employees through any downturn.
46. However, even that more specific expression of legislative intent provides no guidance in construing provisions whose purpose is to set the bounds of eligibility for cash flow boost payments.
47. The EM specifically addresses the requirement for an entity to have assessable income from business activity in the 2018-19 income year or to have made a taxable supply (as that term is modified for BCF Act purposes) in a tax period that applied to it that started on or after 1 July 2018 and ended before 12 March 2020. In that regard, the EM states:
3.32 This is an integrity rule that prevents new or inactive entities being established or revived solely to obtain the first cash flow boost. It sets a low threshold, only requiring a single supply or amount of business income to have been reported to the Commissioner on or before 12 March 2020. It can be satisfied if an entity has provided a single activity statement for any month or quarter since 1 July 2018 or an income tax return in relation to the 2018-19.
48. The evident policy of these provisions is to prevent cash flow boosts being paid to entities that might be established or revived solely for the purpose of accessing cash boost payments. We accept the applicant was not established for that purpose.
49. It is also apparent the objective was for entities' eligibility for cash flow boosts, at least in the usual case, to be visible to the Commissioner through the existing income tax return and activity statement lodgement processes. It may be inferred this was considered necessary to achieve the breadth of coverage in the short timeframes mandated by the BCF Act. However, we accept the applicant's submission that this need not prevent eligibility being determined outside the lodgement processes. The notification requirement, including the provision for the Commissioner to accept late notification, is not expressly tied to the statutory requirements for lodgement of returns.
50. The applicant also points to a number of outcomes on the Commissioner's construction which are said to be unfair or unlikely to conform with legislative intent. It referred to the example of companies (such as SBG) that incorporated in January 2020 but which did not account for GST monthly. The applicant says those companies would be excluded on the Commissioner's approach even though their shareholders may have actively carried on the relevant business until incorporation. Another is that new entities accounting for GST on an annual basis which commenced carrying on business from July 2019 would be excluded because the only tax period that applies to them - a financial year - would end after 12 March 2020.
51. In contrast, entities like SBG incorporated after 31 December 2019, but which account for GST on monthly tax periods, would not to be precluded from eligibility if they made a taxable supply not later than the end of February 2020. Mr Thomas submitted this is both discriminatory and counterintuitive as it favours large businesses or those that have been delinquent in the past in lodging their activity statements. These submissions reference provisions in the GST Act that require taxpayers whose annual turnover exceeds a specified threshold, or those with a turnover below that threshold but whose compliance record has attracted an exercise of the Commissioner's power, to lodge monthly GST returns.
52. The submission that the Commissioner's construction favours large businesses incorporated after 31 December 2019 is valid as a broad generalisation, though not quite as starkly as the submission would have it. Small businesses, with a turnover below the threshold requiring monthly GST returns, may choose to account for GST monthly,
ATC 9182uncommon choice for businesses making predominantly GST-free supplies so that they are regularly in a net GST refund position after claiming input tax credits on their eligible acquisitions.
53. The applicant argues these outcomes suggest the need for a different, more liberal construction. That submission calls to mind the High Court's well-known statement of the "modern approach" to statutory interpretation in
CIC Insurance Ltd v Bankstown Football Club Ltd.
Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms with the legislative intent.
54. But we must also be mindful of the High Court's regular reminders that statutory interpretation begins and ends with the text of the legislation considered in light of its context and purpose.
55. In any case, the Commissioner's construction is consistent with the apparent legislative policy of ensuring cash flow boosts were not paid to entities established for the purpose of accessing the payments. That the mechanism employed to achieve that policy outcome also, on the Commissioner's construction, excludes others does not mean the provision as so construed is contrary to the policy.
Conclusion - "it" refers to the entity making the taxable supply
56. In summary, we think the legislative context of the definition of "tax period" expressly adopted from the GST Act - which defines "tax period" as a period "applying to you", an entity, and exhibits no legislative concept of tax periods applying to taxable supplies - leads to the inescapable conclusion that the words "tax period that applied to it" in s 5(6) of the BCF Act must be construed as "tax period that applied to [the entity]".
57. There is nothing in the policy of the BCF Act, so far as it may be ascertained by permissible means, that indicates otherwise. On the contrary, this conclusion is consistent with the evident purpose of the BCF Act. We acknowledge s 5(6) may create hard cases at the margins. Some entities might miss out as an inevitable consequence of how Parliament has chosen to draw the line between eligible and ineligible entities. But that does not mean the criteria as we have interpreted them are inconsistent with the legislative purpose.
58. In the end, the case is one where policy stated at a high level of generality cannot support a constructional choice that is not coherent with the statutory context in the face of an available construction which is consistent with the words and obvious purpose of the statute.
MEANING OF "ENTITY"
59. We are unable to accept Mr Thomas' submission that the defined term "entity" is capable of a kind of ambulatory meaning that would, for BCF Act purposes, treat Mr Slatter (a sole trader) and SBG (a corporation), as a single coherent entity which carried on the building and construction business throughout the relevant period when each of them operated the business independently at different times.
60. Plainly, the combination of an individual and company operating successively could not fall into any of the categories in paragraphs (a) to (e), (g) or (h) of the definition. To describe two separate entities operating at different times as "a body of persons" thus covered by paragraph (f) is not a construction that is reasonably open. Although the Note to s 184-1 forms part of the GST Act,
ATC 9183Further, we understood Mr Thomas to submit the applicant's proposed construction of the definition of "entity" would only apply for the purposes of the BCF Act and would not disrupt the accepted application of the GST Act in respect of entities. We do not understand how that could be so. This is not a case where one statute merely uses similar terms to another. In such a case, it might be argued that, in their respective contexts and having regard to the underlying policies of the enactments, the terms may take different meanings. Here, the BCF Act has expressly adopted the GST definition of "entity".
62. To construe that definition in a way that is contrary to its accepted
63. In any case, for the reasons we have already indicated, we are not persuaded the policy of the BCF Act favours the outcome the applicant seeks.
64. As we have rejected the applicant's proposed construction of s 5(6)(a) of the BCF Act, it follows we must affirm the objection decision.
65. No amount of appeal to perceived policy objectives can make it permissible to give provisions a construction that is not reasonably open on the text chosen by Parliament when considered in its context. The Tribunal must seek to ascertain and apply the intention of Parliament as manifested in the words of the legislation, read in their context and informed by an understanding of the underlying policy determined by permissible means. The Tribunal does not apply the policy itself, still less perceptions of policy detail that are neither stated nor necessarily to be inferred from the legislation.
66. The Tribunal would exceed its constitutional status as an administrative body forming part of the executive government if it were to endeavour to fill perceived gaps in legislation through the strained interpretations urged upon us by the applicant. Any view that SBG or entities in analogous circumstances should qualify for cash flow boosts is a matter for the Parliament.
67. We conclude by recording our appreciation of the helpful oral and written submissions of counsel for both parties.