Cameron v Commissioner of Taxation

Federal Court of Australia|2011-12-08|Before: Edmonds J

Counsel for the Applicant: Mr DB McGovern SC with Mr A Sandbach

Solicitor for the Respondent: ATO Legal Services Branch

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1099 of 2011

JUDGE: EDMONDS J DATE OF ORDER: 8 DECEMBER 2011 WHERE MADE: SYDNEY

The application be remitted to the Administrative Appeals Tribunal differently constituted for the taking of further evidence, if necessary, on, and the making of further findings relevant to, the application of the business premises test in the 2004 year of income; otherwise the application be dismissed.
Each party pay its own costs of this application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1099 of 2011

JUDGE: EDMONDS J DATE: 8 DECEMBER 2011 PLACE: SYDNEY

Introduction 1 This is an appeal from a decision of the Administrative Appeals Tribunal ('the Tribunal') ([2011] AATA 386 ('Reasons')) affirming the objection decision of the respondent ('the Commissioner') disallowing objections lodged by the applicant against amended assessments of income tax for the years of income ended 30 June 2004 and 2005 and an assessment of income tax for the year of income ended 30 June 2006 (the three years of income being hereinafter referred to as 'the relevant years of income'), save for the rate of penalty referrable to travel expenses in the 2005 income year being reduced from 50% to 25%. 2 The assessments under challenge in each of the relevant years of income concern income which constitutes personal service income ('PSI') for the purpose of Pt 2-42 of the Income Tax Assessment Act 1997 (Cth) ('the 1997 Act'). So much is common ground. Specifically, the issue before the Tribunal was, and before the Court on appeal is, whether Div 86 of Pt 2-42 applies to treat the PSI as income of the applicant rather than income of a company, Aus-Phil Pacific Pty Ltd ('Aus-Phil'), owned and controlled by the applicant and his wife, or whether Div 87 of Pt 2-42 applies to deny that result. 3 Before the Tribunal, and before the Court on appeal, the applicant contended that Div 87 denied the application of Div 86 on the basis that - (1) the unrelated clients test in s 87-20 was met by Aus-Phil in each of the relevant years of income; and (2) the business premises test in s 87-30 was met by Aus-Phil in the year of income ended 30 June 2004.

Conclusion on Unrelated Clients Test: s 87-20 4 The Tribunal concluded (Reasons [35]) that the unrelated clients test was not satisfied in respect of any of the relevant years of income. Its reasons for doing so are set out at [12] - [34] of its Reasons and I will return to these below.

Conclusion on Business Premises Test: s 87-30 5 The Tribunal concluded (Reasons [54]) that the premises leased by Aus-Phil (initially 22B, then 18, Maitland Road, Islington, New South Wales) were not used for drafting purposes either predominantly or even to any significant extent in the 2004 year of income. Its reasons for doing so are set out at [38] - [54] of its Reasons and I will return to these below.

Legislative Context 6 Section 86-10 provides: 'The object of this Division is to ensure that individuals cannot reduce or defer their income tax (and other liabilities) by alienating their *personal services income through companies, partnerships or trusts that are not conducting *personal services businesses. Note: The general anti avoidance provisions of Part IVA of the Income Tax Assessment Act 1936 may still apply to cases of alienation of personal services income that fall outside this Division.' 7 Section 86-15 relevantly provides: '(1) Your assessable income includes an amount of *ordinary income or *statutory income of a *personal services entity that is your *personal services income. Example: Continuing example 1 in section 84-5: Assume that NewIT only provides services to one client. Ron's assessable income includes ordinary income of NewIT from providing the computer programming services, because the income is Ron's personal services income. Note: The amount included in your assessable income can be reduced by certain deductions to which the personal services entity is entitled: see section 86-20. (2) A personal services entity is a company, partnership or trust whose *ordinary income or *statutory income includes the *personal services income of one or more individuals. (3) This section does not apply if that amount is income from the *personal services entity conducting a *personal services business. Note: Even if the entity is conducting a personal services business, it is possible that some of its income is not income from conducting that business. 8 Section 87-10 provides: 'The object of this Division is to define *personal services businesses in a way that ensures that it covers genuine businesses but not situations that are merely arrangements for dealing with the *personal services income of individuals.' 9 Section 87-15 relevantly provides: '(1) An individual or *personal services entity conducts a personal services business if: (a) … (c) in any case - the individual or entity meets at least one of the 4 *personal services business tests in the income year for which the question whether the individual or entity is conducting a personal services business is in issue. Note 1: For personal services business determinations, see Subdivision 87-B. Note 2: Under subsection (3), the personal services business tests, apart from the results test under section 87-18, do not apply if 80% or more of your personal services income is from one source (but they can still be used in deciding whether to make a personal services business determination). (2) The 4 personal services business tests are: (a) the results test under section 87-18; and (b) the unrelated clients test under section 87-20; and (c) the employment test under section 87-25; and (d) the business premises test under section 87-30.' 10 Section 87-20 provides: (1) An individual or a *personal services entity meets the unrelated clients test in an income year if: (a) during the year, the individual or personal services entity gains or produces income from providing services to 2 or more entities that are not *associates of each other, and are not associates of the individual or of the personal services entity; and (b) the services are provided as a direct result of the individual or personal services entity making offers or invitations (for example, by advertising), to the public at large or to a section of the public, to provide the services. Note: Sections 87-35 and 87-40 affect the operation of paragraph (1)(a) in relation to Australian government agencies and certain agents. (2) The individual or *personal services entity is not treated, for the purposes of paragraph (1)(b), as having made offers or invitations to provide services merely by being available to provide the services through an entity that conducts a *business of arranging for persons to provide services directly for clients of the entity. 11 Section 87-30 provides: '(1) An individual or a *personal services entity meets the business premises test in an income year if, at all times during the income year, the individual or entity maintains and uses business premises: (a) at which the individual or entity mainly conducts activities from which *personal services income is gained or produced; and (b) of which the individual or entity has exclusive use; and (c) that are physically separate from any premises that the individual or entity, or any *associate of the individual or entity, uses for private purposes; and (d) that are physically separate from the premises of the entity to which the individual or entity provides services and from the premises of any associate of the entity to which the individual or entity provides services. (2) The individual or entity need not maintain and use the same business premises throughout the income year.'

The Unrelated Clients Test: s 87-20 12 Before the Tribunal, it was common ground that in each of the relevant years of income, the requirements of para (a) of s 87-20(1) were satisfied, and the only issue was whether the requirements of para (b) were satisfied. The applicant contended that the requirements of s 87-20(1)(b) were satisfied, because his drafting services were provided as a direct result of offers to the public at large or to a section of the public. 13 The Tribunal found (Reasons [13]) that the evidence before it indicated, in clear terms, that the drafting services were provided either - (1) in consequence of a phone call or an email message to a particular individual known to the applicant; or (2) in consequence of a recommendation by a particular individual who knew the applicant. 14 The Tribunal found (Reasons [14]) that so much was conceded by the applicant in his oral evidence before the Tribunal; that the applicant admitted that none of the relevant contacts arose from advertisements in any publication or on any website or through any other similar means; that there was a website in 2006 but the applicant conceded that none of the contacts which are relevant for the purposes of this matter arose from that website (Reasons [16]). 15 Before the Tribunal, the Commissioner contended and the Tribunal accepted, 'that one-off approaches to or from six individuals in a large industry cannot be construed as "offers or invitations to the public at large or a section of the public"' within s 87-20 (Reasons [17]). 16 Before the Tribunal, the applicant relied to a very considerable extent on the judgment of the Court (Jessup J) in Federal Commissioner of Taxation v Yalos Engineering Pty Ltd (2009) 77 ATR 542. 17 The Tribunal, at [31] and [32] of its Reasons, distinguished Yalos, as turning on its particular facts, in the following way: '[31] The extensive range of large industries for which the Applicant has performed work must be contrasted with the highly specific niche industry in Yalos. Yalos related to the offshore undersea gas pipeline industry. In that case, the Federal Court acknowledged the Tribunal's earlier finding that a niche industry may have a "limited number of players". In this matter, however, the Applicant can according to his evidence provide drafting services to companies within large industries in Australia and in particular mining, manufacturing, infrastructure and construction. The few individuals for whom the Applicant's services were obtained are not of course the only "players" in those large and diverse industries. [32] It is clear that Yalos turned on its own particular facts and being the "narrow area of industrial activity" involved in the offshore undersea gas pipeline industry. Neither the Tribunal nor the Federal Court in Yalos sought to determine any general proposition whereby a word-of-mouth referral will invariably satisfy the offer or the invitation to the public test in the relevant section.' 18 It followed, in the Tribunal's view, that the unrelated client test was not satisfied in respect of any of the relevant years of income (Reasons [35]).

The Business Premises Test: s 87-30 19 Before the Tribunal, the applicant sought to rely on the business premises test in s 87-30, but only in respect of the 2004 year. The applicant contended that in the 2004 year the premises leased by Aus-Phil were used mainly for the purposes of drafting. 20 The Tribunal found that the evidence before it indicated that in the 2004 year drafting services provided by the applicant were performed most usually at the premises of the clients. The Tribunal accepted that some drafting services may, in the 2004 year, have been provided at the premises, but considered that this would have occurred by way of exception and not as a rule. Moreover, the Tribunal found that another business (ship stevedoring and sales) was, in the 2004 year, conducted from the premises. The Tribunal found the evidence of the applicant as to the nature and extent of that latter business to be, in many respects, confused and contradictory (Reasons [38]). 21 The Tribunal agreed with a submission of the Commissioner that any drafting work which was performed at the premises in the 2004 year was ancillary in nature. It was not sufficient to convert the premises into 'business premises' for the purposes of s 87-30 (Reasons [42]). 22 As between floor space ratios of the premises devoted to drafting on the one hand, and the ship stevedoring business on the other, the Tribunal took the view that such a test was not determinative, but at most a relevant factor (Reasons [44]). The Tribunal observed that based on income and turnover, the stevedoring business was clearly predominant in the 2004 year (Reasons [45]). 23 Finally, at [54], the Tribunal reasoned and concluded in the following terms: '[T]he evidence before the Tribunal as to the stevedoring business (and including in respect of retail sales), and taking into account the fact that for the most part the drafting work in the 2004 year was performed outside the premises and at the premises of the clients, must give rise to a conclusion that the premises were not used for drafting purposes either predominantly or even to any significant extent in the 2004 year.' (Emphasis added.)

The Appeal TO this Court 24 The applicant's submissions in this Court were crafted around what were said to be seven questions of law, and one or more grounds of appeal in respect of each of these questions, although a number, if not all, of the questions were not pure questions of law, but questions of mixed fact and law. There was no suggestion that the appeal was not competent.

First Ground 25 The first ground of appeal was that the Tribunal erred in holding that 'one-off approaches to or from six individuals in a large industry' cannot be construed as 'offers or invitations to … a section of the public' within s 87-20 of the 1997 Act. 26 This alleged error was predicated on what was said to be facts as found and/or uncontroverted evidence before the Tribunal in respect of which no findings were made: (a) Aus-Phil's drafting services income was from the following sources: 2004 income year: $ Connect Personnel 24,673.30 Esp Personnel 40,617.70 Frank Soto & Associates 5,296.00 70,296.00 2005 income year: $ Esp Personnel 23,913.40 Workscan 72,559.00 Unknown 2,090.91 Hayes Personnel 25,694.50 124,257.81 2006 income year: Hays Personnel 19,558.50 CQPA 83,967.00 Swan 13,114.00 Designtech Dampier 2,550.00 Kelly Resources 33,516.00 152,705.50 (b) … (c) The applicant obtained clients by 'word of mouth referrals' and by directly approaching potential clients (Reasons [13]). (d) The applicant had expertise in four different areas which were 'structural drafting, mechanical drafting, civil drafting and a little bit of pipe drafting'. The applicant, on behalf of Aus-Phil, targeted specific people and companies because the applicant knew they had long contracts for which he could provide the drafting and, coincidentally, because there was a shortage of people with his skills, he could charge a better rate for services provided (Reasons [19]). (e) The drafting services were provided - (i) in consequence of a phone call or an email message to a particular individual known to the applicant; those communications were made to Frank Soto of Soto Group Pty Ltd, where the applicant arranged a meeting with Mr Soto to discuss the possible engagement with Aus-Phil and travelled to Wollongong to discuss and negotiate the engagement; later to Jason Williams at UGL Rail, (where the applicant knew Mr Williams having met and worked with him at Downer EDI Ltd in the period September 1999 to December 2003. Mr Williams had referred Aus-Phil for the work with UGL Rail in December 2003) in the 2004 year; to Mark Edmonds, mechanical engineer/project manager at the Comalco Group, Rio Tinto at the Weipa mine in Queensland in the 2005 year; and Taz Bhatti, Managing Director at Designtech, Port Headland as a result of which the applicant contacted Mr Steve Goralski at Designtech which resulted in Aus-Phil being engaged for its services (the applicant also knew of Mr Goralski through colleagues that he had worked with on other drafting contracts) in the 2006 year; (ii) in consequence of a recommendation by a particular individual who knew the applicant; those persons were Joe Fernandez of Rio Tinto, Brown Minefield Expansion (BME) in Tom Price, Perth, who recommended Aus-Phil to Rushton Pearce, Aker Solutions in the 2005 years and who recommended Aus-Phil to Steven Dredge at the CQPA having left to work there in the 2006 year; and Bill Perrie, lead mechanical designer for Calibre Projects who recommended Aus-Phil to Alex Lynas leading to Aus-Phil being engaged for its services by Calibre Projects in the 2005 year (Reasons [13(a) and (b)]. (f) There were up to seven individuals whom either the applicant, on behalf of Aus-Phil, contacted directly or who recommended the applicant, and as a result of those individuals Aus-Phil won the contracts in question (Reasons [15]). (g) Aus-Phil did not seek to obtain contracts by advertising services in any publication as this form of advertising attracted unwanted communications rather than any business (Reasons [33]). Aus-Phil did however advertise through an internet site in the 2006 income year, although this form of advertising was also not effective and was discontinued (Reasons [16]). (h) Further, given the remote location of some of the places of work that Aus-Phil was involved in and the industries targeted by it as well as the complexity and value of the projects, direct marketing of the type described was the most appropriate form of advertising. Given the clients and type of work targeted by Aus-Phil it was not appropriate or necessary for Aus-Phil to advertise in national formats, such as the Yellow Pages. (i) Aus-Phil obtained work as a direct result of its extensive efforts in promoting its services through word of mouth efforts and referrals. 27 On the back of these findings or uncontroverted evidence, in respect of which no findings were made, the applicant made the following submissions: (a) The Tribunal should have construed 'offers or invitations to .... a section of the public' within s 87-20 of the 1997 Act as satisfied by 'one-off approaches to or from six or seven individuals' and by means of 'word of mouth advertising and direct offers' (cf., Reasons [17], [21] and [30]). (b) The Tribunal should have found that neither the number of persons to whom offers and invitations were made, nor the manner of communication of offers or invitations is decisive of whether or not offers or invitations constitute 'offers or invitations to .... a section of the public' within s 87-20 of the 1997 Act; cf., Lee v Evans [1964] 112 CLR 276 at 287, 292; Re Income Tax Acts (No. l) [1930] VLR 211 at 216-217, 222-223; Douglas v Federal Commissioner of Taxation (1997) 77 FCR 112. (c) In particular, 'offers or invitations' are not limited to advertisements in trade publications or marketing to a group of potential clients as the Tribunal held (Reasons [17] and [33]). (d) Further, the Tribunal should have held that the fact that there exists a personal relationship or connection between the party making an offer or invitation and the party to whom the offer is made does not of itself, and without more, mean that there cannot be an offer or invitation to the public. (e) Taxation Ruling 2001/8: what is a personal services business ('TR 2001/8') acknowledges (at [70]) that: Making an offer or invitation to a 'section of the public' can include offering to provide services to one entity. TR 2001/8 also acknowledges that (at [164]) 'for the purposes of the unrelated clients test the meaning of the phrase "making offers or invitations" may include a wide variety of activities, including word of mouth attempts to attract general business' and that (at [168]) 'other types or activities or actions that are considered to be "making offers or invitations" in this context include: "word of mouth referrals".' (f) A purposive approach ought be taken to the construction of s 87-20. As noted in [163] of TR 2001/8, the test is directed to ascertaining the commerciality and independence of the enterprise conducted by the individual or the personal services entity. The question is whether a genuine business exists in contrast to arrangements contemplated to be within Pt 2-42 of the 1997 Act. This is precisely the approach that was adopted by Jessup J in Yalos where His Honour observed (at [24]) that 'it [is] unlikely that the legislature would have intended that s 87-20(1)(b) would be unavailable to an entity which had offered the services of its employee to the major corporations operating within the narrow area of industrial activity for which that employee's skills and experience were suited'. The Tribunal ought to have found that, on a proper construction of the requirement that 'offers or invitations [be made] to a section of the public', such offers were made. (g) The Tribunal should have construed that 'one-off approaches' to or from six or seven individuals in a large industry represented offers or invitations to a 'section of the public', namely, mining, infrastructure, manufacturing and construction companies that required or might require the drafting services of the applicant.

Second Ground 28 The second ground of appeal was that the Tribunal applied the wrong legal test in relation to the construction or the effect of the phrase 'a direct result of ... offers or invitations to the public at large or to a section of the public' in s 87-20(1)(b) of the 1997 Act, by endorsing the respondent's submissions as contained in cll 20, 21 and 22, as referred to in [17] of the Reasons, namely: (cl 20) Obtaining work as a direct result of making one-off approaches to, or being approached by, a total of six or seven individual contacts in the industry does not involve making 'offers or invitations to the public at large or a section of the public' within the meaning of s 87-20. (cl 21) The 'section of the public' proviso in s 87-20 contemplates, for example, marketing to a group of potential clients or advertising in trade publication (which would not be read by 'the public at large'). (cl 22) To make an offer or invitation to the general public (or a section thereof) is to hold oneself out as ready, willing and able to perform services if any of those members of the public requests them. Any interested member of the public must be capable of accepting the offer. Making one-on-one offers is not the same as this. 29 In support of this alleged error, the applicant made the following submissions: (a) The Tribunal erred by determining that the manner in which an offer or invitation is made, in this case by 'one-on-one' approaches or direct offers, is enough to cause the applicant to fail the statutory test. According to the applicant, the Tribunal should have found that what is relevant to answering the statutory test is not the manner in which the offer or invitation is made, but the character of the person or entity to whom it is addressed and the essential character of the invitation, that is, whether the offeree or invitee is selected by reason of characteristics as a member of a particular section of the public and not by reason of some special relationship or connection with the offeree or invitee. (b) The Tribunal should have held that an offer or invitation to one person only, or one-off approaches to six or seven individual contacts is only one of a number of factors to be taken into account in determining the answer to the question posed by s 87-20(1)(b) in light of the factors mentioned in (a) above. (c) The Tribunal should have answered the statutory question by examining the true scope, nature and content of the respective offers or invitations and examining whether the fact that the persons approached knew the applicant had any affect on the nature or content of the offer or invitation or whether in fact the persons approached had no common characteristic or qualification except that of the need for particular drafting skills possessed by the applicant. (d) Accordingly, the Tribunal should have determined that the question whether the offers or invitations constituted offers or invitations to a 'section of the public', fell for determination by reference to the persons or entities comprising the group and the significance, if any, of any particular characteristic which identified members of the group. (e) The Tribunal erred in applying the wrong legal test by holding in [33] of its Reasons that it was mandatory for Aus-Phil to advertise to meet the unrelated clients test provisions (s 87-20(1)(b)) where the facts as found and the uncontroverted evidence before the Tribunal was that Aus-Phil did not advertise because advertisements would result in Aus-Phil receiving unwanted communications. (f) According to the decision of Yalos, it is unlikely that the legislature would have intended that s 87-20(1)(b) would be unavailable to an entity which had offered the services of its employee to the major corporations operating within the area of industrial activity for which its skills and experience are suited in the relevant period. In that case, advertising in a general sense of advertising in newspapers, brochures or other medium was considered to be clearly inappropriate. In the present case, Aus-Phil did not seek to obtain contracts by advertising services in any publication as this form of advertising attracted unwanted calls from drafters seeking employment. (g) In the decision in Yalos, the Commissioner contended that 'making offers or invitations (for example, by advertising)' requires more than speaking with current or former work colleagues seeking work - that it requires that there be a public element to the offer or invitation and that such a public element does not exist where the offers or invitations are only made to the private contacts of one person. It further contended that to meet the requirement of offers or invitations, Yalos Engineering Pty Ltd would have had to take some action designed to bring its services to public notice - but that it had not taken such action given that it had no internet site, no telephone listing, did not undertake advertising and had never responded to a public tender from a newspaper. Those contentions by the Commissioner, amongst others, were squarely rejected by the Federal Court. (h) The Tribunal ought to have applied the correct legal test that required the Tribunal to consider whether the elements or the requisite parts thereof of the statutory provision were met, namely: (i) the services are provided as a direct result of the individual or personal services entity; (ii) making offers or invitations (for example, by advertising); (iii) to the public at large; or (iv) to a section of the public; (v) to provide the services, having regard to the statutory text as well as the object or purpose of the statutory provisions of Div 87 of the 1997 Act set out in s 87-10. (i) Rather, the Tribunal applied an erroneous legal test that precludes satisfaction of the unrelated clients test, in relation to 'offers or invitations to the public at large or a section of the public' within the meaning of s 87-20, based on: (i) making one-off approaches to contacts in the industry; (ii) being approached by contacts in the industry; (iii) the number of individual contacts in the industry (i.e. six); (iv) disregarding offers or invitations unless they issued for example marketing to a group of potential clients or advertising in trade publication (which would not be read by 'the public at large'); (v) making one-on-one offers.

Third Ground 30 The third ground of appeal was that the Tribunal should have applied the decision of the Federal Court in Yalos to the facts as found concerning the construction or effect of the phrase 'a direct result of ... offers or invitations to the public at large or to a section of the public' instead of adopting, in preference, its own decisions in Re Metaskills Pty Ltd and Federal Commissioner of Taxation (2005) 60 ATR 1055, Re BRMJCQ Pty Ltd and Federal Commissioner of Taxation (2010) 79 ATR 220 and Re Engineering Co and Federal Commissioner of Taxation (2008) 74 ATR 272 in deciding whether Aus-Phil had satisfied s 87-20(l)(b) of the 1997 Act: reference was made to the observations of French J (as he then was) in Federal Commissioner of Taxation v Salenger (1988) 19 FCR 378 that the Tribunal should follow and apply the law as stated by judges of the Federal Court. 31 The applicant submitted that the Tribunal erred in the bases upon which it relied for not following Yalos, namely: (a) The Court in Yalos did not refer to any case law and in particular did not refer to any of the decisions of the Tribunal; (b) the Tribunal decision in BRMJCQ was handed down in point of time after the judgment in Yalos; and (c) the Tribunal in Yalos did not seek to determine any general proposition whereby a word-of-mouth referral will satisfy the 'offer' or the 'invitation to the public' test in the relevant section, because the decisions of the Tribunal would have been referred to by the Court and the Tribunal in Yalos, and the Court would have expressly overturned the decisions of the Tribunal. 32 It was submitted that the Tribunal also erred in failing to follow Yalos and wrongly distinguishing Yalos as follows: (a) Aus-Phil obtained the relevant work by relying on a small number of personal contacts and relationships in the industry; (b) the extensive range of large industries for which Aus-Phil has performed work must be contrasted with the highly specific niche industry in Yalos; (c) Yalos related to the offshore undersea gas pipeline industry; (d) Aus-Phil can provide drafting services to companies within large industries in Australia and in particular mining, manufacturing, infrastructure and construction; (e) the few individuals for whom Aus-Phil's services were obtained are not of course the only 'players' in those large and diverse industries; (f) Yalos turned on its own particular facts being the 'narrow area of industrial activity' involved in the offshore undersea gas pipeline industry.

Fourth Ground 33 The fourth ground of appeal was that the Commissioner (and the Tribunal standing in his shoes) is bound by his own Taxation Rulings; reference was made to BHP Billiton Direct Reduced Iron Pty Ltd v Deputy Commissioner of Taxation (2007) 67 ATR 578 per French J (as he then was). The applicant contended that the Tribunal should have found that the Commissioner was bound by TR 2001/8, in relation to the application and meaning of the unrelated clients test, specifically, concerning what constitutes 'a direct result of ... offers or invitations to the public at large or to a section of the public'. 34 The applicant submitted that the Tribunal failed to consider itself bound to follow the Public Ruling; it did not even consider the Public Ruling. Had the Tribunal considered and applied the Public Ruling it should have made the decision that Aus-Phil had satisfied the unrelated clients test set out in s 87-20 of the 1997 Act, in particular, s 87-20(1)(b) in conformity with TR 2001/8, on the facts as found and the uncontroverted evidence before the Tribunal. Relevantly, Aus-Phil engaged in the following activities: (a) made offers or invitations to a section of the public, which, in accordance with TR 2001/8 (at [163]), entailed an indication of Aus-Phil's willingness to perform services for 'anyone within a group or class of persons or to any member of the public' where the intention of Aus-Phil in undertaking its activities was to attract or solicit members of the public to enter into agreements for its services; (b) the activities by Aus-Phil included word of mouth attempts to attract business in accordance with TR 2001/8 (at [164]); (c) Aus-Phil made offers to the relevant clients by presenting for acceptance or rejection or putting forward for consideration its services in accordance with TR 2001/8 (at [165]); (d) Aus-Phil made invitations by holding out or informing a section of the public of the services that it was able to provide in accordance with TR 2001/8 (at [166]); (e) the types of activities or actions that are considered to be 'making offers or invitations' in accordance with TR 2001/8 include word of mouth referrals. Aus-Phil relied on word of mouth referrals in obtaining business in accordance with TR 2001/8 (at [168]), rather than relying on advertising, which is but another example of making an offer or invitation to the public (as set out in TR 2001/8 at [167]); (f) making an offer or invitation to a 'section of the public' can include offering to provide services to one entity according to TR 2001/8 (at [170]), whereas Aus-Phil offered to provide its services to a number of entities; (g) the 'one-off approaches to or from six individuals in a large industry' represented offers or invitations to a 'section of the public', namely, mining, infrastructure, manufacturing and construction companies amongst other industries that required the drafting services of the applicant in that section of the public.

Remaining Grounds 35 The remaining three grounds of appeal went to the Tribunal's application of the business premises test in s 87-30 in the 2004 year in relation to the premises leased by Aus-Phil. It was submitted that the sole issue in relation to the business premises test was whether the main activity conducted by Aus-Phil at the premises was drafting. The Tribunal decided this issue by comparing the income and turnover of the drafting business and the stevedoring business, regardless of the premises from which they were conducted. The key findings on the question are to be found at [45] of its Reasons where it is said: 'The stevedoring business (if the calculation is based on income and turnover) was clearly predominant. In the 2004 year the stevedoring business income was $109,926 (T9 at 61) and this amount is greatly in excess of the aggregate drafting income for the 2004 year of $70,296.88.' 36 The applicant submitted that nowhere in the Reasons is there to be found any attempt to compare the extent of the respective uses of the premises, save perhaps for the analysis of floor area in Reasons [44]. That analysis is entirely inadequate as the 'other activities' to which the Tribunal refers in contrasting use of the floor space with the extent of floor space used solely for the purposes of drafting included activities such as a bathroom and a garage both of which were utilised also in connection with drafting. 37 The applicant contended that the Tribunal dismissed respective use of floor space as 'at most a factor which is relevant' (Reasons [44]) before proceeding to consider income and turnover. The Tribunal made no further reference to floor space in its Reasons and made no attempt to assess the relative significance of that 'factor' by comparison with other factors. There is no analysis of the amount of time the premises were used for drafting purposes by comparison with stevedoring purposes. Such an analysis, it was submitted, would lead to the conclusion that the premises were overwhelmingly used for drafting purposes. There is no analysis of the amount of stevedoring income (or more accurately losses) which was referrable to activities conducted on the premises rather than at the Camerons' home, at the docks, at supermarkets or on the road. Such an analysis, it was submitted, would lead to the conclusion that a very small proportion of stevedoring income was referrable to use of the premises. The applicant submitted that the Tribunal erred in law in failing to determine the extent of the use of the premises for the drafting purposes and compare it with the extent of use of the premises for stevedoring purposes. 38 Finally, the applicant contended, the consideration which the Tribunal held to be decisive of the business premises test was the turnover of the stevedoring business (without regard to the places from which it was conducted). The Tribunal devoted [46] to [52] inclusive of its Reasons to consideration of the books and income of Aus-Phil relating to the stevedoring business. According to the applicant, it erred in failing to apply the correct legal test, in that it held that the business premises test was not satisfied by reference to the importance to the applicant of the stevedoring business and the size of that business by comparison with the drafting business rather than considering the use of the premises made by the applicant in relation to each business.

Consideration and Analysis 39 Having regard to the issues before the Tribunal, namely - (1) in relation to the unrelated clients test in s 87-20 - whether the services are provided as a direct result of the individual or personal services entity making offers or invitations to the public at large or to a section of the public to provide the services (s 87-20(1) para (b)); and (2) in relation to the business premises test in s 87-30 - whether, at all times during the 2004 year of income, the individual or entity maintains and uses business premises at which the individual or entity mainly conducts activities from which PSI is gained or produced (s 87-30(1) para (a)), the Reasons of the Tribunal are notable for their absence of findings on what I would consider to be material questions of fact. Some of the absences are implicit in the applicant's grounds of appeal as particularised above, while others are detailed below. 40 This is not to suggest that the Tribunal was in breach of its obligations under s 43(2B) of the Administrative Appeals Tribunal Act 1975 (Cth) ('the AAT Act') by failing to make such findings. The decision of the High Court in Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323, while concerned with the construction of s 430(1) of the Migration Act 1958 (Cth), would suggest that the similar language of s 43(2B) of the AAT Act does not require the Tribunal to record findings on all questions of fact that might objectively be regarded as material. It merely obliges the Tribunal to set out its findings on those questions of fact which it considers to be material to the decision it has made and to the reasons it has for reaching that decision: at [68] per McHugh, Gummow and Hayne JJ (with whom Gleeson CJ agreed). The joint judgment pointed out (at [69]) that this construction gives s 430(1) sensible work to do: 'It ensures that a person who is dissatisfied with the result at which the Tribunal has arrived can identify with certainty what reasons the Tribunal had for reaching its conclusion and what facts it considered material to that conclusion. Similarly, a court which is asked to review the decision is able to identify the Tribunal's reasons and the findings it made in reaching that conclusion. The provision entitles a court to infer that any matter not mentioned in the s 430 statement was not considered by the Tribunal to be material. This may reveal some basis for judicial review … For example, it may reveal that the Tribunal made some error of law …' 41 Later decisions in this Court have held that the reasoning in Yusuf should be applied to the construction of s 43(2B) of the AAT Act: Beringer Blass Wine Estates Ltd v Geographical Indications Committee (2002) 125 FCR 155 at [102], per curiam; Appellant V324 of 2004 v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 259 at [8]; per Hill and Allsop JJ (Stone J agreeing); Comcare v Mathieson (2004) 79 ALD 518 at [61] - [64], per Weinberg J; Tate v Repatriation Commission [2003] FCA 1169 at [38], per Cooper J; Telepacific Pty Ltd v Federal Commissioner of Taxation (2005) 58 ATR 441 at [51] - [53] per Sackville J. 42 On the other hand, as indicated in the extract from the joint judgment in Yusuf reproduced in [40] above, the fact that the Tribunal did not make a finding on a material question of fact entitles me to infer that the Tribunal did not consider the matter to be material. This may reveal that the Tribunal made some error of law.

The Unrelated Clients Test Issue: s 87-20(1) para (b) 43 The paragraph refers to making offers or invitations to the public at large on the one hand, or to a section of the public on the other. The Tribunal's Reasons, however, make no relevant distinction between the two, apart from endorsing the Commissioner's submissions at [17] of its Reasons, which submissions correctly record the applicant's position as being one of reliance only on the second requirement - an offer or invitation to a section of the public - having been met. The balance of the Tribunal's reasoning from [21] of its Reasons, seems to be predicated on the premise that there is no distinction between the two; hence its conclusion at [30]: 'The evidence before the Tribunal indicates that the Applicant obtained the relevant work by relying on a small number of personal contacts and relationships in the industry. The Tribunal does not accept that the contracts were obtained through offers or invitations to the public at large or to any section of the public within the meaning of section 87-20(1)(b) of ITAA 1997.' 44 That there is a distinction between an offer or invitation to the public at large on the one hand or to a section of the public on the other is supported by the authorities to which I shall shortly turn, but this failure on the part of the Tribunal to acknowledge and accept any distinction may well explain why the Tribunal's anterior fact-finding was so confined. The Tribunal confined its findings on this issue to the manner of communication of the offer or invitation - 'one-off approaches to or from six individuals in a large industry' - and made no findings as to the other matters referred to in the authorities as being relevant to the issue; on the contrary, by reference to the findings it made as to the manner of communication of the offer or invitation, it concluded the offers or invitations could not be construed as offers or invitations to the public at large or to a section of the public: Reasons [17]. 45 If I was to come to the view that the Tribunal's failure to undertake a consideration of these other aspects of the offers or invitations and to make findings in respect of them, potentially led it into error, then I would have no alternative but to remit the matter to the Tribunal to undertake further fact finding in that regard. On the other hand, if I was of the view that even if the Tribunal had undertaken these tasks, it would have nevertheless come to the same conclusion on the material before it, I would dismiss this part of the application: Austin v Deputy Secretary, Attorney-General's Department (1986) 12 FCR 22 at 26 - 27; McAuliffe v Secretary, Department of Social Security (1992) 28 ALD 609 at 618 - 619; State Rail Authority of New South Wales v Collector of Customs (1991) 33 FCR 211 at 217; Morales v Minister for Immigration and Ethnic Affairs (1995) 60 FCR 550 at 560 per Sackville J. 46 An invitation or offer to a section of the public may or may not constitute an invitation or offer to the public at large. As Barwick CJ said in Lee v Evans at 285 - 286: 'How large a section of the public must be addressed in a general invitation for it to be an invitation to the public in the relevant connexion must depend on the context of each particular enactment and the circumstances of each case.' 47 Lee v Evans concerned whether the appellant had made an invitation to the public, in contravention of Registration of Business Names legislation in South Australia, when he invited a father and son (the Broadbents) to invest money in a company to set up a timber business. The magistrate held that there had been no invitation to the public but this was reversed by the Full Court of the Supreme Court of South Australia, holding that the evidence left its members with no doubt that the invitation to the Broadbents was given to them as 'members of the public' and that it was therefore an invitation to the public within the meaning of the relevant statutory provision. 48 The High Court reversed the Full Court holding that the decision of the magistrate should not be disturbed. The observations of all members of the Court, including Windeyer J in dissent, are instructive to the issue at hand. 49 In Lee v Evans, Barwick CJ thought that 'whether the question is whether the invitation is ex facie an invitation to the public or whether an invitation has become an invitation to the public by reason of the nature or extent of its issue, the basic concept is that invitation, though maybe not universal, is general; that it is an invitation to all and sundry of some segment of the community at large' (at 285). On the other hand, his Honour was of the view '[t]hat those to whose hands such an invitation is intended to come, also stand in some special relationship to the invitor, will not prevent the invitation being an invitation to the public' (at 286). His Honour concluded (at 286): 'Here the invitation was made to the Broadbents alone. It was not made to anyone else, nor was it capable of being acted upon by anyone else. It was not general but particular to them. Though it would seem that the Broadbents may have been chosen as recipients of the invitation because of their supposed special interest in timber raising or timber selling activities, I find it unnecessary in this case to base any conclusion wholly or partly upon that circumstance. For the purposes of my judgment the Broadbents were merely individuals in the general mass of citizens.' 50 Kitto J was of the view that it was the nature or character of the invitation which determined whether it was an invitation to the public. And in saying this, he drew the distinction (at 287): '[B]etween the case of an invitation which itself is open to acceptance by any member of the public who may be interested and the case of an invitation which itself is open to acceptance by a specific individual only but, if declined by him, is likely to be followed by similar invitations to other specific individuals in succession until an acceptor is found. The first of these is a case of an invitation to the public; the second, in my opinion, is not.' 51 Taylor J made it clear (at 290) that, in his view, it was the nature or character of the invitation and not the manner of communication that was of 'critical importance'. As in this case, his Honour was of the view (at 290) that this question 'was not the subject of any real inquiry before the magistrate'. Likewise, Windeyer J said (at 292) that the 'essence of an invitation to the public is not in the manner of its communication or in the number of persons to whom it is communicated' but rather whether the recipients are 'chosen at random' as members of 'the public at large, all and sundry' or whether 'they are a select group to whom and to whom alone the invitation is addressed, so that if an outsider sought to respond to it he would be told that he was not one of those invited to come in'. 52 In Corporate Affairs Commissioner (S.A.) v Australian Central Credit Union (1985) 157 CLR 201 at 208, Mason ACJ, Wilson, Deane and Dawson JJ said: 'The question whether a particular group of persons constitutes a section of the public for the purposes of s. 5(4) of the Code cannot be answered in the abstract. For some purposes and in some circumstances, each citizen is a member of the public and any group of persons can constitute a section of the public. For other purposes and in other circumstances, the same person or the same group can be seen as identified by some special characteristic which isolates him or them in a private capacity and places him or them in a position of contrast with a member or section of the public. In a case where an offer is made by a stranger and there is no rational connexion between the characteristic which sets the members of a group apart and the nature of the offer made to them, the group will, at least ordinarily, constitute a section of the public for the purposes of the offer. If, however, there is some subsisting special relationship between offeror and members of a group or some rational connexion between the common characteristic of members of a group and the offer made to them, the question whether the group constitutes a section of the public for the purposes of the offer will fall to be determined by reference to a variety of factors of which the most important will ordinarily be: the number of persons comprising the group, the subsisting relationship between the offeror and the members of the group, the nature and content of the offer, the significance of any particular characteristic which identifies the members of the group and any connexion between that characteristic and the offer: cf., generally, Lee v. Evans.' 53 What was here said was said in the context of the Companies (South Australia) Code, in particular s 169 which prohibited the offer to the public for subscription or purchase of any prescribed interest and s 5(4) which included, within a reference to the making of an offer to the public, the making of an offer to any section of the public. 54 In the present case, the Tribunal did not address the nature or character of the applicant's or Aus-Phil's invitations or offers to provide drafting services; it merely had regard to the manner of their communication - 'one-off approaches to or from six individuals in a large industry'; 'a phone call or an email message to a particular individual known to the Applicant', or 'a recommendation by a particular individual who knew the Applicant'. There is no doubt that the Tribunal erred in failing to have regard to the nature or character of the applicant's or Aus-Phil's invitations or offers to provide drafting services in determining whether the services were provided as a direct result of offers or invitations to a section of the public, but on the basis of the material before the Tribunal, I am not convinced that had the Tribunal done so and made findings in this regard, those findings would have led the Tribunal to a different conclusion. 55 First, there was no material before the Tribunal which pointed to the offer or invitations being 'general' in the sense referred to by Barwick CJ in Lee v Evans at 285 - 286 and embraced by Taylor J at 290. On the contrary, that material suggests that the offers or invitations were particular to the persons to whom they were directed and, in at least six cases, accepted. 56 Second, the material before the Tribunal suggests that the offers or invitations fall within the second of the cases drawn by the distinction embraced by Kitto J in Lee v Evans at 287; between the case of an invitation which itself is open to acceptance by any member of the public who may be interested and the case of an invitation which itself is open to acceptance by a specific individual only but, if declined by him, is likely to be followed by similar invitations to other specific individuals in succession until an acceptor is found. 57 Third, the material before the Tribunal suggests that within the test embraced by Windeyer J in Lee v Evans at 292, the recipients of the offers or invitations are not persons chosen at random, members of the general public, the public at large, all and sundry, but are a select group to whom and to whom alone the invitation is addressed so that if an outsider sought to respond to it he would be told that he was not one of those invited to come in. 58 Further, the material before the Tribunal suggests that within the test embraced in the joint judgment in the Australian Central Credit Union Case at 208, this is not a case where an offer is made by a stranger and there is no rational connection between the characteristics which set the members of the group apart and the nature of the offer or invitation made to them. To the contrary, the material suggests that there is a rational connection between the common characteristic of the members of the group and the offer or invitation made to them. In those circumstances, the question whether the group constitutes a section of the public for the purposes of the offer or invitation will fall to be determined by reference to a variety of factors of which the most important will ordinarily be: (1) The number of persons comprising the group - here six; (2) The subsisting relationship between the offeror and the members of the group - here the members are known by the offeror or by persons recommending the offeror; (3) the nature and content of the offer - here the offer of drafting services to the particular client; (4) the significance of any particular characteristic which identifies the members of the group - here persons with long-term contracts requiring drafting services; and (5) any connection between that characteristic and the offer - here a direct connection with the offer. 59 For these reasons, I am of the view that on the basis of the material before the Tribunal, even if it had, as it should have, considered, and made findings of fact on, the nature or character of the offers or invitations in determining whether they were made to the public at large or to a section of the public, the Tribunal would nevertheless have come to the conclusion it did. This aspect of the appeal must be dismissed.

The Business Premises Test Issue: s 87-30(1) para(a) 60 Satisfaction of this test relevantly requires the applicant or Aus-Phil, at all times during the 2004 year of income, to have maintained and used business premises at which the applicant or Aus-Phil mainly conducted activities from which PSI was gained or produced. 61 It was common ground that at all times during the 2004 year of income, Aus-Phil maintained and used premises as business premises. The only issue before the Tribunal was whether these were premises at which the applicant or Aus-Phil mainly conducted activities from which PSI was gained or produced. 62 In my opinion, this required the Tribunal to focus upon and consider the use to which the premises had been put during the 2004 year of income to enable the Tribunal to determine whether that use involved mainly activities from which PSI was gained or produced. As the only activity from which PSI was gained or produced during the 2004 year of income was drafting, it required the Tribunal to determine whether the premises were mainly used for drafting during that year. 63 The way in which the Tribunal went about this task is difficult to understand. First, the Tribunal found (at [38]) that, on the evidence before the Tribunal, in the 2004 year of income drafting services provided by the applicant were performed most usually at the premises of clients. That finding does not shed any light on the use to which the premises were put, in particular whether they were used mainly for drafting activities. A barrister, in a particular year of income, may spend 60% of his working time in Court and 40% in chambers; that statistic sheds no light on the question of whether his chambers are used mainly for providing legal services. 64 Second, the Tribunal found (at [38]) that another business (ship stevedoring and sales) was, in the 2004 year of income conducted from the premises. Having made that finding, it was incumbent on the Tribunal to go on and find whether, during the 2004 year of income, the premises were used mainly for gaining or producing drafting income or stevedoring and sales income. This required the Tribunal to consider and make findings with respect to the following matters: (1) In physical terms, the area of the premises that has been used for providing drafting services and the area of the premises that has been used for the conduct of the stevedoring and sales business; and (2) in temporal terms, the time that the applicant had used the premises for providing drafting services and the time that the applicant had used the premises for the conduct of the stevedoring and sale business, during the 2004 year of income. 65 The Tribunal (at [44]) found that 48% of the floor space of the premises was utilised in respect of providing drafting services and the remainder in respect of 'other activities'. It is not clear the extent to which those 'other activities' encompassed only one activity, such as stevedoring and sales, requiring more than 48% of the floor space of the premises; the Tribunal simply made no finding in this regard, comforting itself in the statement (also at [44]) that it 'cannot perceive any basis on which it can be said that in accordance with the legislation such a test is in any way determinative. It can at most be a factor which is relevant'. 66 The Tribunal did not consider at all the temporal aspect of the issue, namely the time that the applicant had used the premises for providing drafting services as against the time that the applicant had used the premises for 'other activities' and, in particular, stevedoring and sales. 67 Rather, the Tribunal proceeded on some comparison of the income produced from drafting services and the income produced from stevedoring and sales in the 2004 year of income to a 'must conclusion' (at [54]) 'that the premises were not used for drafting purposes either predominantly or even to any significant extent in the 2004 year'. 68 With respect, the conclusion is flawed. An activity may produce more income than another activity where both are carried on from the same premises for any number of reasons; the difference is not necessarily sourced in the greater time spent on the former activity; on the other hand, it may be the reason or one of the reasons for the difference. With respect, the Tribunal has made a quantum leap in reaching its conclusion at [54] which is not supported by the findings of fact. 69 In my view, the Tribunal has failed to exercise jurisdiction with respect to this issue and the matter must go back; but to a differently constituted Tribunal. 70 Each party should pay its own costs of the application in this Court. I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

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