SNSV and Commissioner of Taxation (Taxation) [2022] AATA 4047 (29 November 2022)

Administrative Appeals Tribunal Act 1975 (Cth), ss 17A, 17B

Income Tax Assessment Act 1997 (Cth), s 328-110(4)

Taxation Administration Act 1953 (Cth), s 14ZR(1)

Treasury Laws Amendment (Enterprise Tax Plan) Act 2017 (Cth), Sch 3, items 1-18, 22

Administrative Appeals Tribunal Regulations 2015 (Cth), ss 5, 20(1A), 25A

President's Direction Review of Small Business Taxation Decisions, 7 January 2020 Guide to the Small Business Taxation Division, AAT, 1 July 2022

President's Direction Allocation of Business to Divisions of the AAT, 28 February 2019, [2.1]

1. These reasons concern whether this application for review should be allocated to the Tribunal's Small Business Taxation Division ("SBTD") or the Taxation and Commercial Division. Allocation of a review to the SBTD has certain benefits for the applicant. It also has consequences for the Tribunal's management of the review and the respondent's administrative practices.[1]
2. In his application for review, the applicant checked "Yes" against the question: "Does the decision relate to a small business entity?" However, perusal of the application suggested, as confirmed in an initial directions hearing, that the applicant denies he carried on any relevant business.
3. The application was initially allocated to the SBTD pending determination of whether it should remain in that Division or be allocated to the Taxation and Commercial Division where reviews of decisions of the respondent that are not a "small business taxation decision" are managed and decided.
4. I have decided the application for review must be allocated to the Taxation and Commercial Division. My reasons follow.

1. The Tribunal exercises its powers in Divisions: s 17A of the Administrative Appeals Tribunal Act 1975 (Cth) ("AAT Act").
2. Section 17B(1) of the AAT Act provides that:

The Tribunal's powers in relation to a proceeding before the Tribunal are to be exercised:

(a) in the Division prescribed for such a proceeding; or

(b) if no Division is prescribed for a proceeding in the Division that the President [of the Tribunal] directs.

1. No Division is prescribed for taxation proceedings. However, the President made a written direction on 28 February 2019 entitled Allocation of Business to Divisions of the AAT (the "President's Direction"). Paragraph 2.1 of that Direction provides that the Tribunal's powers in relation to a proceeding specified in the second column of the table that follows must be exercised in the Division specified in first column.
2. So far as relevant to this matter, the proceedings specified for the Taxation and Commercial Division are:

Any application in relation to a decision: > > . . . > > (c) of the Commissioner of Taxation made under a taxation law within the meaning of the Income Tax Assessment Act 1997 (other than a decision in relation to a small business entity within the meaning of that Act).

3. The proceedings specified in the table to the President's Direction for the SBTD are:

(a) in relation to a small business taxation decision (within the meaning of the Administrative Appeals Tribunal Regulations 2015);[2]

(b) made under a taxation law (within the meaning of the Income Tax Assessment Act 1997) that the Tribunal has decided to hear at the same time as a small business taxation decision.

1. Section 5 of the Administrative Appeals Tribunal Regulations 2015 (Cth) ("AAT Regulations") defines a "small business taxation decision" as:

(a) under a taxation law (within the meaning of the Income Tax Assessment Act 1997); and

(b) in relation to a small business entity (within the meaning of the Income Tax Assessment Act 1997).

1. A basis on which a person may be a "small business entity", relevant to this matter, is currently specified in s 328-110(4) of the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997") as follows:

You are also a small business entity for an income year (the current year) if:

(a) you carry on a *business in the current year; and

(b) your *aggregated turnover for the current year, worked out as at the end of that year, is less than $10 million.

1. The aggregated turnover amount of $10 million was substituted with effect from the 2016/17 income year. Before then, it was $2 million.[3]

1. The application before the Tribunal seeks review of a decision of the respondent disallowing the applicant's objection against default assessments of income tax for the 2010-2014 income years.
2. Those assessments brought to account what the respondent considered to be income derived by the applicant in the form of commissions or other payments from Australian casinos through Junket Tour Operator ("JTO") activities conducted by the applicant, as follows:

1. The applicant denies he derived these amounts as income and "expressly denies that he was carrying on a business as a JTO during the Relevant Years".[4]
2. In written submissions, the applicant noted the respondent stated in his Reasons for Decision that:

You have not provided sufficient information to support the contention that you were not carrying on a business and therefore we cannot allow your objection on that basis.[5]

3. However, that statement was followed by this observation:

Further, you have not shown how such grounds are relevant to the question of the correctness of your default assessments, namely the correctness of your taxable income for the 2010 to 2014 income years.[6]

4. It appears from the Reasons for Decision that the respondent asserts the alleged commissions are ordinary income, which is not dependent upon the applicant having carried on a business.[7] Ms Lee, who appeared for the respondent in directions hearings in which the issue of the appropriate Division for the review was ventilated, pointed out the respondent's comments in relation to carrying on a business were in response to the applicant's assertion in his objection that he was not carrying on a business.
5. The applicant has not yet filed and served a Statement of Facts, Evidence and Contentions nor any evidence on which he intends to rely. Ms Lee advised the respondent has not decided, in advance of receiving those materials, whether he will submit the applicant carried on a business. In view of certain challenges explained to me by Ms Wang, who appeared for the applicant at the directions hearings, it is likely to be some time before those materials are available.

1. While denying he was carrying on a business, the applicant noted he bears the burden of proof and submitted that he had been "affected by a small business taxation decision".[8]
2. The applicant went on to submit:

As the income the Applicant allegedly earned carrying on a business as a JTO for each of the Relevant Years falls under the relevant $10m turnover threshold, we submit that is reasonable and appropriate for this matter to remain in the Small Business Taxation Division.[9]

3. Taking the position that allocation of cases to Divisions is a matter for the Tribunal, the respondent did not make any submissions regarding which is the appropriate Division for this review. However, Ms Lee helpfully drew the Tribunal's attention to relevant aspects of the legislative framework and the decision under review.

1. It is clear the objection decision under review is a "decision made . . . under a taxation law" for the purposes of s 5(a) of the AAT Regulations. The issue for determination is whether the objection decision is a "decision . . . made in relation to a small business entity".
2. As will be seen from the provision extracted above, the question of whether an entity is a small business entity is determined in relation to a year of income (called the "current year").
3. Two conditions must be satisfied for an entity to be a small business entity for an income year; the entity must:

(a) carry on a business in the current year; and > > (b) satisfy the turnover requirements.

4. The focus of the definition of "small business taxation decision" is upon a decision "in relation to a small business entity". The only relevant decisions are the decisions represented by the assessments and the objection decision, which all relate to the relevant income years. In my view, it must follow that the question of whether an entity is a small business entity for the purposes of the definition of "small business taxation decision" is to be resolved by reference to the income years the subject of the review that is before the Tribunal.[10]

1. In respect of the requirement that the applicant carried on a business, a difficulty for this matter is that the question of whether a business has been carried on may be in issue in the proceedings and cannot be conclusively determined for the purposes of the proceeding at this stage. That must await the hearing of the evidence and determination of the review.
2. I have considered whether determination of the Division to which the matter is to be allocated could also await determination of the review. Then, if the Tribunal determines whether the applicant carried on a business in any of the income years, that determination could inform a decision on the Division to which the matter is to be allocated.
3. However, that approach would seem to be inconsistent with s 17B of the AAT Act which requires the Tribunal's powers to be exercised in a Division that is prescribed or directed by the President. That seems to envisage the allocation occurring at the commencement, not the conclusion, of the Tribunal's functions, so that any exercise of the Tribunal's powers occurs in the prescribed or directed Division. Additionally, as already noted, allocation of a matter to the SBTD has consequences for the parties (beyond the amount the filing fee for the application for review) relating to the conduct of the review.
4. In any case, as already noted the applicant, who is legally represented, expressly denies he carried on a business and at this stage the respondent makes no submission that the applicant did or did not carry on a business. It is plainly inconsistent for the applicant to, on the one hand, expressly deny he carried on a business but, on the other, submit the decision relates to a small business entity which can only be an entity that carried on a business. In those circumstances, in my view it is not appropriate for the Tribunal to take the view that the applicant carried on a business for the purpose of determining the Division to which this matter should be allocated. To put it colloquially, the applicant cannot have it both ways.
5. Accordingly, I conclude the applicant does not satisfy the carrying on a business requirement. That is sufficient to require the matter be allocated to the Taxation and Commercial Division. However, I make the following observations regarding the turnover requirement.

1. The applicant's submissions referred to satisfaction of the requirement that the applicant's aggregated turnover not exceed $10 million pa. As noted above, the $10 million amount was substituted for the previously legislated amount of $2 million with effect from 1 July 2016. The income years under review in the current matter are earlier years in which the $2 million threshold applied.
2. As the table above indicates, other than for the 2012 income year the applicant's alleged turnover would have exceeded the then applicable limit of $2 million. However, that may not be fatal to a conclusion that the objection decision is a small business taxation decision for all of the income years under review. That is because the President's Direction includes as a small business taxation decision an application under a taxation law "that the Tribunal has decided to hear at the same time as a small business taxation decision."
3. Strictly, there may a "deemed single objection decision" relating to the assessments for all the income years before the Tribunal.[11] But the Tribunal is required to review the decision so far as it relates to five income years, including 2012 for which, even on the basis of income the respondent alleges he derived, the applicant's turnover would have been under the $2 million limit, and the reviews will be heard together.
4. Having regard to the object of the provisions, that may have been sufficient for the decision in respect of all of the income years to be allocated to the SBTD if the applicant had carried on a business at least in 2012. However, it is not necessary for me to finally decide whether that would be so, and since I have not had the benefit of submissions on the issue, I shall not do so.

1. As the applicant denies he carried on a business, and there is no contrary evidence before the Tribunal, it cannot be concluded the applicant was a small business entity at the relevant times and therefore entitled to have these reviews allocated to the SBTD.
2. It follows the reviews must be allocated to the Taxation and Commercial Division. The applicant, having paid the reduced fee for applications for review of small business taxation decisions, must pay the balance of the standard application fee within six weeks of the orders accompanying these reasons.[12]

I certify that the preceding 37 (thirty-seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding

.................................[SGD].......................................

[1] See President's Direction Review of Small Business Taxation Decisions, 7 January 2020 and the resources referred to in that Direction; Guide to the Small Business Taxation Division, AAT, 1 July 2022.

[2] Other than certain applications relating to tax agents that are not relevant for current purposes.

[3] Treasury Laws Amendment (Enterprise Tax Plan) Act 2017, Sch 3, items 15-18, 22.

[4] Applicant's Submissions, 14 October 2022, [5.1].

[5] Applicant's Submissions, 14 October 2022, [4.4].

[6] Respondent's Reasons for Decision, 6 April 2022, [7].

[7] Respondent's Reasons for Decision, 6 April 2022, [162].

[8] That phrase is drawn from the Tribunal's Guide to the Small Business Taxation Division, 1 July 2022. Although little may turn on the matter, I note it is to the legislation and delegated instruments that I must turn to resolve this matter, rather than guidance materials.

[9] Applicant's Submissions, 14 October 2022, [5.2].

[10] Some refinement may be required for taxation decisions that are not referable to income years, such as most GST and excise matters. I need not consider that further in respect of the current matter which is concerned only with income tax decisions.

[11] Taxation Administration Act 1953, s 14ZR(1).