Cash flow boost denied – AAT ignores IGTO recommendations

In December 2020 the Inspector-General of Taxation and Taxation Ombudsman (IGTO) released the report on the aspects of the Australian Taxation Office’s (ATO) administration of the JobKeeper and Boosting Cash Flow (BCF) measure for new businesses. 

The IGTO’s report focused on an anomaly identified within the BCF legislation and JobKeeper rules that had the effect of discriminating between a new business that reported its goods and services tax (GST) obligations on a quarterly basis, and a similar business that reported GST obligations on a monthly basis. The issue arising from a basic eligibility requirement of the business being required to notify the Commissioner of Taxation (‘Commissioner’) of the making of relevant taxable supplies before 12 March 2020.

The recent Administrative Appeal Tribunal (AAT) decision of Slatter Building Group Pty Ltd and Commissioner of Taxation (Taxation) [2021] AATA 456 considered the issue of eligibility for cash flow boost in the context of a new business that commenced business in January 2020, but due to electing to report GST on a quarterly basis had not satisfied the requirement of ‘notifying’ the Commissioner of the making of taxable supplies during the relevant period by 12 March 2020.

The factual background to this case represents a common scenario faced by practitioners during the initial stages of the release of COVID-19 economic stimulus relief. 

It revolves around a scenario where a taxpayer, Mr Slatter, who was carrying on a business since 2018 however subsequently restructured in January 2020.  A common scenario where sole traders who have experienced business growth, or for commercial reasons require a more appropriate business structure. 

In this case, the taxpayer was denied eligibility for Cash flow Boost purely because of a choice by the new entity to lodge BAS on a quarterly basis combined with the lack of recognition within the relevant legislation or rules of the continuation of the ‘same business’ by a taxpayer. 

The AAT noted that the taxpayer would likely have qualified for cash flow boost had he continued to operate his business as a sole trader and that on the evidence, despite appearing to have struggled with the impact of the pandemic may have been a worthy recipient of financial assistance.  

Counsel for the taxpayer in their submissions drew attention to the IGTO report and the recommendations surrounding the interpretation of the legislative provisions, however, held that they were “unable to see how a report of a non-judicial statutory office holder, issued after the enactment of the [Cash flow Boost] Act, is a permissible consideration when construing the Act.” 

The AAT, applying what they considered proper statutory construction of the legislative provisions, that the taxpayer did not satisfy the legislative requirements and as such, was not eligible for the Cash flow Boost payment.

Unfortunately, as the AAT noted, it does not have discretion within its decision making, it is bound by law to determine issues before it based on a proper construction of the law. 

The comments by the AAT encapsulate the frustration experienced by business owners, practitioners and tax advocates around the anomalies impacting on new business, particularly knowing the issues were communicated to Treasury, but given the lack of rectification, appear to have fallen on deaf ears.

The AAT decision draws attention to the subjective interpretation of the government policy intent, the lack of action by Treasury to rectify the issues bought to their attention and the lack of discretion the administrative body has to give effect to what the professional and wider general public consider the policy intent to be.

The decision is a disappointing outcome for the taxpayer, however, on the face of it appears correct given the construction of the actual law.  The decision may signal bad news for other taxpayers waiting on objection decisions relating to Cash flow Boost and JobKeeper denials.

For more information

If you have any questions or require further information in relation to the cash flow boost, please contact your local RSM adviser today.