On 16 February 2022, the AAT decided that a company was not entitled to JobKeeper payments, for 9 employees, for August 2020, as, on 1 July 2020, they were employed by a different, albeit associated, company which was not carrying on the same business as the applicant. The taxpayer’s position had, I think, more merit than might be evident, initially, and I think the ATO was a bit tough in disallowing the benefit.
The situation was as follows:
- The applicant and an associated company, North 23, provided fit-out services.
- The applicant generally did work for large construction companies and North 23 generally did work for smaller companies.
- Staff moved between employment by the applicant and North 23 as required.
- The applicant otherwise qualified for JobKeeper payments (including suffering a large reduction in turnover).
- However, the ATO disputed that 9 particular employees were “eligible employees” for August 2020.
- To qualify, they had to be employed by the applicant on 1 July 2020, but they were employed by North 23 on that date.
- This hurdle would be overcome by s 9(6) of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) if it could be said that they were employed in the same business, on 1 July 2020 and in August 2020, but on 1 July 2020 the business was being carried on by North 23.
The AAT agreed with the ATO that that was not the case. The AAT considered that, conceptually, it was not possible for 2 separate entities to carry on the same business unless they were in partnership which was not the case here. But, in any event, the 2 companies were not carrying on the same business. They had their own client base, incurred their own business expenses, contracted in their own right and maintained their own separate financial accounts.
I’ve set out the statutory provisions and more of the AAT’s decision below. It’s worth a read.
I am not sure that the Commissioner and the AAT, are right. If the businesses were carried on as divisions of the same entity, they are not so different, as to make one greater business. It seems to run the businesses in separate companies (instead of as divisions of the same company) ought not change the analysis – taken together, they are parts of a single business. Further, had the one been the subsidiary of the other, then the relief would have been available under s9(6)(a) (not s9(6)(b) – where the ‘same business’ problem arises. It seems to me that parallel ownership is no different, in substance, to a wholly owned group – not in substance, in any event. It seems that there was no mischief here, that needed to be guarded against. And some kind of ‘existential’ objection that two entities cannot carry on the same business, because they are different entities, seems a distinction looking for relevance, and not finding it here. There is the problem that the heading and Note 2 contemplate the business changing hands, but a court would overlook that, to give effect to the words of the provision.
(North Australian Contracting Pty Ltd v CofT [2022] AATA 223 (AAT, Olding SM, 16 February 2022.)
Tax Month – February 2022 – Previous 2022] 19.2.22 [LTN 31, 17/2/22]
STATUTORY FRAMEWORK
14. Under s 6(1)(c) of the Rules, one of the requirements for an entity to be entitled to a Jobkeeper payment for an individual for a fortnight, is that the individual is an ‘eligible employee’ of the entity for the fortnight.
15. An individual is an eligible employee of an entity for a fortnight if the individual is employed by the entity at any time in the fortnight and the individual satisfies ss 9(2) and (3) of the Rules: s 9(1). The s 9(2) requirements include that the individual was an employee of the entity on 1 July 2020.
16. As set out earlier, the additional employees were employed by the applicant in August 2020. But they were notemployed by the applicant on 1 July 2020; they were employed by North 23. However, they will be treated as employed by the applicant on 1 July 2020 if s 9(6) applies.
17. Section 9(6) provides:
Businesses that change hands etc.
(6) For the purposes of this section, treat an entity (the later entity) that employs an individual at a time (the later time) as having also employed the individual at the earlier time if:
(a) the individual was employed at the earlier time by another entity in the same wholly-owned group as the later entity; or
(b) both of the following apply:
(i) at the later time, the individual is employed in a business carried on by the later entity …;
(ii) at the earlier time, the individual was employed in the same business …, but that business was, … carried on by a different entity.
Note 1: Paragraph (b) means that an individual can be an eligible employee of an entity even if the business or non-profit body in which the individual is employed changes hands.
Note 2: Paragraph (b) also means that, in working out if an individual is a long term casual employee of an entity at a time, employment in a business or non-profit body during the period of 12 months that ended at that time can be counted even if the business or non-profit-body changed hands during that period.
IS THE APPLICANT ENTITLED TO JOBKEEPER PAYMENTS FOR THE ADDITIONAL EMPLOYEES?
21. Substituting the names of the relevant entities for the statutory labels used in the provision, s 9(6) would treat the applicant as having employed the additional employees at 1 July 2020 if:
(a) in August 2020, the additional employees were employed in a business carried on by the applicant; and
(b) on 1 July 2020, the additional employees were employed ‘in the same business . . ., but that business was . . . carried on by [North 23]’. (Emphasis added.)
22. It is uncontroversial that (a) is satisfied: the additional employees were employed by the applicant in August 2020.
23. The applicant says that (b) is also satisfied. This is so, the applicant says, because the applicant and North 23, although separate entities, carried on the same business. If that is accepted, the applicant would satisfy s 9(6)(b).
24. The Commissioner says that s9(6)(b) can only apply where an ‘event’ such as change of ownership of a business has occurred which is not the case in this matter. The applicant does not say that North 23 carried on the business on 1 July 2020 but that by August 2020 the ownership of the business had changed so that it had become the applicant that carried it on. Rather, the applicant asserts that each of the applicant and North 23 simultaneously carried on the same business.
25. The Commissioner responds with the submission that for the purposes of s 9(6) two entities cannot carry on the same business: the applicant and North 23, being separate entities, must be taken to have each carried on their own separate business. On that premise, the applicant could not be said to have been, in August 2020, carrying on the same business that North 23 was, on 1 July 2020, also carrying on. The Commissioner also points to the differentiation in the activities carried on by the applicant and North 23 respectively – largely relating to the scale of projects undertaken – as indicating that the applicant and North 23 carried on separate businesses.
26. The applicant put its case on the basis that there are two issues. The first is whether the Commissioner is correct in saying that s 9(6)(b) can only operate where there is an intervening ‘event’ such as change of ownership of the relevant business. The second is the factual question of whether the applicant and North 23 were each carrying on the same business.