The AAT upheld a Commissioner’s decision that a taxpayer (formerly part of a large business group but became part of a smaller group with total revenue of less than $10 million ) was not eligible to receive cash flow enhancement payments because it was not a small or medium-sized business at the relevant time due to the way aggregate revenue was calculated .
The taxpayer was initially an Australian subsidiary of BPIH Pty Ltd, which was a large global entity. As the taxpayer and its Canadian parent company had different accounting periods, the taxpayer requested authorization to change its accounting period to a “substituted accounting period” (SAP) to synchronize it with its parent company. The commissioner agreed and the taxpayer began accounting from the beginning to the end of the calendar year like the other companies in his group.
In December 2019, BPIH transferred all of its shares in the taxpayer to 3 entities that had cumulative revenues of less than $10 million. On March 3, 2020, 2 of these 3 entities sold all or most of their stake to another entity. Subsequently, the taxpayer continued to have cumulative revenue (ie, revenue including that of its parent company) of less than $10 million. On March 20, 2020, the taxpayer requested again to modify his SAP in order to return to a closing date of June 30 to synchronize with the accounting period of his new parent company. The Commissioner granted the request, so the taxpayer’s 2020 income year began on January 1, 2019 and ended on June 30, 2020. Another request for a new PAS in March 2021 was denied by the Commissioner for insufficient reason.
The taxpayer requested to receive cash flow enhancement payments during the months of March, April, May and June 2020. The Commissioner found that the taxpayer did not meet the rules governing eligibility for the payments, namely those found in Section 5 of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth) (the BCF Act). In particular, the taxpayer failed to meet the requirement of subparagraph 5(1)(d)(ii), which required the Commissioner to be satisfied “on a reasonable basis” that the entity was a “small business or a “medium business”. business entity” for the “fiscal year” in which the period began.
The question of what constituted a “small business entity” or a “medium business entity” (as defined in section 328-110(1) of the Income Tax Assessment Act 1997 ( ITAA 1997)) was determined by reference to the aggregate revenue of that entity and related entities for the previous year and for the current year, one of which had to be less than $10 million. The question of what constituted the “year of income” was also determined by the definition of it in the 1997 ITAA, which assumed that the year of income was the fiscal year, with exceptions (including where the commissioner had authorized a PAS). In this case, the relevant income year in which all periods began was January 1, 2019 to June 30, 2020.
The taxpayer pointed out that subparagraph 5(1)(d)(ii) of the BCF Act refers to the Commissioner being satisfied “reasonably” that an applicant was a small business in the year of relevant income. The taxpayer said that the commissioner (and the reviewing AAT) should take into account the change in ownership of the taxpayer that occurred when it left the BPIH group at the end of 2019, and the new change in ownership that occurred in March 2020.
The AAT found that the taxpayer did not satisfy any of the sections of section 328-110(1)(b) and affirmed the decision in question. The preceding year referred to in paragraph (b)(i) ended on December 31, 2018, when the taxpayer was a member of the BPIH group of companies throughout the period. The taxpayer’s cumulative turnover in that year (which included the turnover of related or affiliated companies) was well over $10 million. The taxpayer’s current year for the purposes of paragraph (b)(ii) began on January 1, 2019 and ended on June 30, 2020. According to section 328-110(2), total income was calculated on the first day of this year. In addition, Section 328-110(3) disqualified an entity from being a small business in the current year if it had cumulative revenue greater than $10 million in the 2 years. previous ones, which applied here.
The AAT noted that the power to make a decision on a reasonable basis was only available when the commissioner did not have access to all of the information he or she would normally consider in assessing the likely turnover. That was not the challenge here. There was no doubt as to the taxpayer’s cumulative turnover in the relevant income year. Section 5(1)(d)(ii) of the BCF Act did not allow the Commissioner to ignore the application of sections 328 to 110 of the LITA 1997 in order to achieve a result that was reasonable having regard to the objectives of the BCF Act.
Source: Water West Pty Ltd v FC of T 2022 ATC ¶10-622;  AATA 427, March 8, 2022.