Thinking | 9 April 2021

Talking Tax – Issue 196

In this issue, we consider Qantas’ recent Full Federal Court win in its JobKeeper stoush with the union, and the interpretation of who is entitled to the COVID-19 cash flow boosts following on from the AAT’s decision in Slatter Building Group Pty Ltd and Commissioner of Taxation (Taxation) [2021] AATA 456. We also provide an update on the latest appeals, ATO guidance and rulings.

Buckle up, Qantas’ fight over JobKeeper entitlements isn’t over yet

In Qantas Airways Limited v Flight Attendants’ Association of Australia [2020] FCAFC 227 a majority in the Full Federal Court has upheld an appeal by Qantas Airways Limited in deciding that arrears payments may be taken into account in determining whether fortnightly JobKeeper entitlements have been passed on in full to employees.

This dispute centres on the construction and interpretation of s 789GDA(2) of the Fair Work Act 2009, which forms part of the JobKeeper scheme, and provides a minimum payment guarantee. It states that an employer must ensure that, if a JobKeeper payment is payable to an employer for an employee for a fortnight, the total amount payable to the employee in respect of the fortnight is the greater of the JobKeeper payment amount ($1,500 initially and then subsequently reduced) or ‘the amounts payable to the employee in relation to the performance of work during the fortnight’.

Qantas contended that the second amount refers to the amount that would ordinarily be payable by the employer to the employee during the fortnight in relation to the performance of work (the ‘amounts payable construction’). On the other hand, the Australian Municipal, Administrative, Clerical and Services Union argued that the second amount means the amount that was earned by the employee in relation to the performance of work during the fortnight (the ‘amounts earned construction’).

The difference between the two positions is best illustrated with an example. Imagine a Qantas employee earns $1,300 in a fortnight and is also owed $300 in arrears payments for work performed in previous periods:

If we adopt the Union’s ‘amounts earned construction’, the amounts payable to the employee in relation to the performance of work during the fortnight total $1,300. Accordingly, Qantas would have to ‘top-up’ the employee’s earnings by $200, to equal the JobKeeper payment amount, plus pay the employee their $300 in arrears ($1,800 paid in total).

If we adopt Qantas’ ‘amounts payable construction’, the amounts payable to the employee in relation to the performance of work during the fortnight total $1,600 (comprising wages for work performed that week plus the $300 arrears payment). Accordingly, the amount payable during the fortnight is greater than the JobKeeper payment amount and no top-up payment must be made ($1,600 paid in total).

The Full Federal Court sided with Qantas (Justice Bromberg dissenting) holding that the ‘amount payable’ is the amount that the employer is liable to pay the employee during the fortnight.

The Union is currently seeking special leave from the High Court to appeal the decision, so stay tuned.

ATO not obliged to pay interest on refunded GST

The High Court in FCT v Travelex Limited [2021] HCA 8 held that the ATO is not liable to pay interest on refunded GST as the refund did not create a running balance account (RBA) surplus as the refunded GST was not an entitlement under taxation law.

Background

Travelex operates a foreign currency exchange business on the departures side of customs at various international airports in Australia. On 16 December 2009, Travelex notified the Commissioner, in a GST return, of a positive net amount of $37,751. Subsequently in 2010, the High Court in ‘Travelex [No 1]’ held that such supplies claimed in the 2009 GST return were GST-free and that Travelex was entitled to a refund of the excess GST liabilities paid.

In June 2012, following the High Court decision, Travelex wrote to the Commissioner requesting an amendment to its GST return for the November 2009 period, increasing the amount claimed for input tax credits for creditable acquisitions by $149,020. Both the Commissioner and Travelex proceeded on the assumption that it was permissible to amend a GST return, and accordingly the Commissioner complied with Travelex’s request.

The Commissioner did not initially dispute that they were obliged to pay interest on the amount under s 12AA of the Taxation (Interest on Overpayments and Early Payments) Act 1983 (Cth) (TIOEP Act), but disputed the date from which interest began to accrue.

This dispute reached the Full Federal Court.

Full Federal Court’s Decision

The Full Federal Court unanimously held that neither of the parties had statutory authority to amend Travelex’s GST returns, however, remained divided as to the consequences of this finding.

Justice Derrington held that because the Commissioner did not have the statutory power to amend the GST return, Travelex were not entitled to a refund of a new amount under the GST Act and thus the negative amount of $149,020 paid to Travelex was incapable of resulting in an RBA surplus. Justice Steward (Kenny J agreeing) held that because the Commissioner had amended the GST return (despite not having the authority), the allocation of the $149,020 ‘was enough to result in the amount having the legal status of an RBA surplus’.

High Court’s Decision

The High Court agreed with Derrington J in that:

the Commissioner did not have the power to amend the GST returns; and
Travelex was not entitled to interest.

In reaching this decision the High Court highlighted that ‘RBA deficit debt’ and ‘RBA surplus’ were based on entitlements under taxation law. As the ATO was not obliged under any taxation law to pay the GST refund, the allocation did not result in a RBA surplus and the ATO did not have to pay interest under the TIOEP Act.

New Company not entitled to COVID-19 cash flow boost

The AAT in Slatter Building Group Pty Ltd and Commissioner of Taxation (Taxation) [2021] AATA 456 (10 March 2021) has held that a company incorporated by a sole trader in January 2020 is not entitled to the first cash flow boost, as no taxable supply was made in the tax period before 12 March 2020.

Background

In 2020 the Australian Parliament passed the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth) (BCF Act) which provided two cash payments to eligible employers.

Mr Slatter operated a business in the construction industry as a sole trader and on January 2020 he incorporated a company, Slatter Building Group Pty Ltd (the Company) to take over the operations of the business. The Company subsequently made taxable supplies between 17 January 2020 and 12 March 2020. Importantly, the Company was registered for GST on a quarterly basis and lodged its first activity statement on 1 May 2020.

BCF Act

Section 5(6) of the BCF Act relevantly requires:

(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 before 12 March 2020.

The Applicant argued that the word 'it' referred to the taxable supply resulting in the Act reading: ‘the entity made a taxable supply in a tax period that applied to [the taxable supply]. The Commissioner conversely argued that 'it' referred to the entity.

AAT’s Decision

The AAT held that the 'it' referred to the entity making the taxable supply on the basis that the Applicant’s construction:

‘would leave the words “that applied to it” in s 5(6)(a) with no work to do’;
required an identification of a taxable supply period that applied to the taxable supply, where such a period does not exist in statute; and
the overall purpose of providing business with access to emergency funding is of no assistance in determining the scope of individual provisions.

Following from this reasoning, the AAT held that the Company was not entitled to the first cash flow boost payment as the Company’s first tax period did not end before 12 March 2020 (it ended on 31 March 2020).

Queensland Supreme Court finds that companies with the same sole director are a group for payroll tax purposes

The Queensland Supreme Court in Salemade Pty Ltd & Ors v Commissioner of State Revenue (Qld) [2021] QSC 19 (18 February 2021) held that companies with the same sole director are a group for payroll tax purposes as the sole director has a ‘controlling interest’ in the companies, pursuant to s 71 of the Payroll Tax Act 1971 (Qld).

Background

Oakdale Qld (Oakdale) (eighth appellant) was incorporated in 2006 and carried out construction works. Its directors were Kayne Anne Crane and Douglas Charles Crane. From April 2007 onwards Douglas Charles Crane was the sole director of Oakdale Qld and all the other appellants (nine in total) were in some way related to the two directors and their associated family members.

Oakdale employed people and paid payroll tax in Queensland on the basis that it was not part of a group. In 2014, Oakdale applied to be excluded from a grouping which was denied by the delegate for the Commissioner after investigations. Subsequently, numerous correspondences and objections were exchanged between Oakdale and the Commissioner, leaving the grouping issue unresolved. It was noted in the judgment that Oakdale failed to cooperate throughout much of this process.

Issue in dispute

The central issue in dispute is the statutory construction of s 71(2)(c)(i) of the Payroll Tax Act 1971 (Qld) which sets out that a person has controlling interest in business where the person is a director of the corporation, and has the power to exercise more than 50% of the voting power at meetings of the directors.

The Appellants argued that the section did not apply as there could be no meeting of directors in single director companies. The Appellants advanced this argument on a literal reading of the text.

Supreme Court’s decision

The Supreme Court rejected the Appellants' arguments and held that the Commissioner did not make an appealable error in finding that the Appellants constitute a group for payroll tax purposes under s 71.

The Court, consistent with the Commissioner’s interpretation, held that: ‘despite its [s 71(2)(c)(i)] literal terms, it applies when there is a corporation with a single director who by use of the facilitative provisions of s 248B of the Corporations Act is able to pass resolutions of the company without holding a meeting’. Further, the Court went onto to state that the provision should be read consistently with the purpose (set out in the provision’s explanatory notes) which is to combat ‘the mischief of splitting businesses so as to avoid payroll tax'.

Appeals updates

Clough Limited v FCT [2021] FCA 108

The taxpayer has filed an appeal with the Full Federal Court in this matter. For a comprehensive overview of the issues in this case and the Federal Court’s decision, please see our Talking Tax - Issue 195.

FCT v Healius Ltd [2020] FCAFC 173

The High Court has dismissed the taxpayer’s application to appeal the Full Federal Court’s decision, which held that: lump sum payments made by doctors to transfer their practices to medical centres were not deductible under s 8-1 ITAA 1997.

ATO rulings and guidelines

Draft Taxation Ruling on personal services income (PSI) rules – TR 2021/D2

The draft ruling consolidates and updates existing guidance with no significant changes. It covers:

the meaning of PSI and what is, and is not a PSI;
how the 'owner' of the PSI is determined;
the effect of the PSI rules’;
the four personal service business tests (PSB) and how to apply for a PSB determination; and
how part IVA of the ITAA 1936 operates where the PSI rules do not apply and a PSB is being conducted.

This article was written with the assistance of Kevin Dorostkar, Law Graduate.