CREATON PTY LTD v FC of T

Members:
MJ Sassella SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2002] AATA 1121

Decision date: 1 November 2002

MJ Sassella (Senior Member)

The application

1. This is an application to the Administrative Appeals Tribunal (``the tribunal'') by Creaton Pty Ltd (``the applicant'') for review of a decision by a delegate of the Commissioner of Taxation (``the respondent'') dated 8 March 2002 (T8). The decision was to disallow an objection by the applicant dated 21 November 2001 (T5) challenging a decision of a delegate of the respondent dated 26 September 2001 (T4) refusing to grant the applicant a Personal Services Business Determination.

The hearing

2. The tribunal convened a hearing in this matter in Sydney on 7 August 2002. The applicant was representative by a company principal, Mr Claude Eaton. The respondent was represented by Ms Virginia Rands of the Australian Taxation Office (``the ATO''). The tribunal received oral evidence from Mr Eaton. The tribunal took into evidence the following documents:

Exhibit TD1 - Section 37 Statement and associated documents (exhibits T1 - T8) provided by the respondent.
Exhibit A1 - Submission by applicant, undated.
Exhibit A2 - Letter dated 24 May 2001 to ``client'' from Pickering Sayer, chartered accountants.
Exhibit R1 - Respondent's statement of facts and contentions, undated.
Exhibit R2 - Respondent's submissions, undated.

Legal principles^[1] The tribunal acknowledges the assistance gained in this matter from the Australian Tax Handbook 2002 published in Sydney by Australian Tax Practice.

3. This application relates to Divisions 84 to 87 of the Income Tax Assessment Act 1997 (``the Act'') which concern ``personal services income'' (``PSI''). These provisions were introduced by the New Business Tax System (Alienation of Personal Services Income) Act 2000 and applied from the financial year 2000-2001.

4. As background to these provisions it is noted that a person, an assignor, may wish to assign his or her income to an assignee whose marginal income tax rate is below that of the assignor. A variation on the theme may arise where an individual taxpayer ceases to carry on business and becomes an employee of a corporation, partnership or trust entity (``an entity'') which carries on business and is run by the taxpayer, with or without others. Without anything to prevent it, the result of such an arrangement is that the PSI of the taxpayer is treated as entity income and can be distributed as the entity determines.

5. The PSI rules in the Act limit the deductions available to an individual in receipt of PSI where the individual cannot satisfy the required ``personal service business tests''. The PSI rules in the Act also attribute the income derived by the interposed entity (minus a few deductions) to the individual providing services to the interposed entity. However, the individual and/or the interposed entity can escape these restrictive rules if they are carrying on a ``personal services business''.

6. PSI is defined in s 84-5 of the Act:

``84-5 Meaning of personal services income

(1) Your *ordinary income or *statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would mainly be such a reward if it was your income).
                


Example 1:  NewIT Pty. Ltd. provides computer programming services, but Ron
            does all the work involved in providing those services. Ron uses
            the clients' equipment and software to do the work. NewIT's
            ordinary income from providing the services is Ron's personal
            services income because it is a reward for his personal efforts or
            skills.

Example 2:  Trux Pty. Ltd. owns one semi-trailer, and Tom is the only person
            who drives it. Trux's ordinary income from transporting goods is
            not Tom's personal services income because it is produced mainly
            by use of the semi-trailer, and not mainly as a reward for Tom's
            personal efforts or skills.

Example 3:  Jim works as an accountant for a large accounting firm that
            employs many accountants. None of the firm's ordinary income or
            statutory income is Jim's personal services income because it is
            produced mainly by the firm's business structure, and not mainly
            as a reward for Jim's personal efforts or skills.
              
(2) Only individuals can have personal services income.

(3) This section applies whether the income is for doing work or is for producing a result.

(4) The fact that the income is payable under a contract does not stop the income being mainly a reward for your personal efforts or skills.''

7. Division 86 of the Act attempts to prevent an individual from reducing or deferring his or her income tax and other liabilities by diverting his or her personal services business to an entity not carrying on a personal services business:

`` 86-10 Object of this Division
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.''
              
```

8. The ordinary income and statutory income of a personal services entity (``PSE'') that is the PSI of an individual is within the individual's assessable income:

`` 86-15 Effect of obtaining personal services income through a personal services entity
Amounts included in your assessable income

(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.''

9. A PSE is a company, partnership or trust whose ordinary or statutory income includes the PSI of more than one individual (s 86-15(2) of the Act). Where a PSE is conducting business as a personal services business, the rule in paragraph 8 above does not apply (s 86-15(3) of the Act). Section 86-15(4) states:

``Exception: amounts promptly paid to you as salary or wages
(4) This section does not apply to the extent that:
- (a) the *personal services entity pays that amount to you, as an employee, as salary or wages; and
- (b) the payment is made before the end of the 14th day after the *PAYG
  
  ATC 2219
  payment period during which the amount became *ordinary income or *statutory income of the entity.
```
Note:  The entity is obliged to withhold amounts from salary or wages paid
       before the end of that day: see section 12-35 in Schedule 1 to the
       Taxation Administration Act 1953.''
                  
```

10. Thus, it is useful for an entity to be carrying on a personal services business because it escapes the operation of the restrictive rules attributing PSI to the individual who seeks to shed that income. The individual providing personal services will often be the person wanting a certain entity to be recognised as a personal services business because that will bring about a potential tax advantage for that individual. Subdivision 87A of Division 87 of the Act regulates what can be taken to be a personal services business:

``87-10 Object of this Division

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.

87-15 What is a personal services business?

(1) An individual or *personal services entity conducts a personal services business if:

...

(b) for a personal services entity - a personal services business determination is in force relating to an individual whose personal services income is included in the entity's *ordinary income or *statutory income; or

(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.

(3) However, if 80% or more of an individual's *personal services income (not including income referred to in subsection (4)) during an income year is income from the same entity (or one entity and its *associates), and:

(a) the individual's personal services income is not included in a *personal services entity's *ordinary income or *statutory income during an income year, and the individual does not meet the results test under section 87-18 in that income year; or

(b) the individual's personal services income is included in a personal services entity's ordinary income or statutory income during an income year, and the entity does not, in relation to the individual, meet the results test under section 87-18 in that income year;

the individual's personal services income is not taken to be from conducting a *personal services business unless:

(c) when the personal services income is gained or produced, a *personal services business determination is in force relating to the individual's personal services income; and

(d) if the determination was made on the application of a personal services entity - the individual's personal services income is income from the entity

ATC 2220
conducting the personal services business.
Note:  Sections 87-35 and 87-40 affect the operation of subsection (3) in
       relation to Australian government agencies and certain agents.
              
(4) Subsection (3) does not apply to income:

(a) that the individual receives as an employee; or

(b) that the individual receives as an individual referred to in paragraph 12-45(1)(a), (b), (c), (d) or (e) (payments to office holders) in Schedule 1 to the Taxation Administration Act 1953; or

(c) to the extent that it is a payment referred to in section 12-47 (payments to *religious practitioners) in that Schedule.

87-18 The results test for a personal services business

...

(3) A *personal services entity meets the results test in an income year if, in relation to at least 75% of the *personal services income of one or more individuals that is included in the personal services entity's *ordinary income or *statutory income during the income year:

(a) the income is for producing a result; and

(b) the personal services entity is required to supply the *plant and equipment, or tools of trade, needed to perform the work from which the personal services entity produces the result; and

(c) the personal services entity is, or would be, liable for the cost of rectifying any defect in the work performed.

(4) For the purposes of paragraph (1)(a), (b) or (c) or (3)(a), (b) or (c), regard is to be had to whether it is the custom or practice, when work of the kind in question is performed by an entity other than an employee:

(a) for the *personal services income from the work to be for producing a result; and

(b) for the entity to be required to supply the *plant and equipment, or tools of trade, needed to perform the work; and

(c) for the entity to be liable for the cost of rectifying any defect in the work performed;

as the case requires.

87-20 The unrelated clients test for a personal services business

(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.

87-25 The employment test for a personal services business

...

(2) A *personal services entity meets the employment test in an income year if:

(a) the entity engages one or more other entities to perform work, other than:

(i) individuals whose *personal services income is included in the entity's *ordinary income or *statutory income; or

(ii) *associates of the entity that are not individuals; and

(b) that other entity performs, or those other entities together perform, at least

ATC 2221
20% (by market value) of the entity's principal work for that year.

(2A) If the *personal services entity is a partnership, work that a partner performs is taken, for the purposes of subsection (2), to be work that the personal services entity engages another entity to perform.

(3) An individual or a *personal services entity also meets the employment test in an income year if, for at least half the income year, the individual or entity has one or more apprentices.

87-30 The business premises test for a personal services business

(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.''

11. According to s 87-15(1), where a PSE cannot meet at least one of the tests in ss 87-18, 87-20, 87-25 or 87-30 it cannot be a personal services business unless a personal services business determination is in force. Personal service business determinations are provided for in Subdivision 87B of Division 87 of the Act:

``87-65 Personal services business determinations for personal services entities

Making etc. personal services business determinations

(1) The Commissioner may , by giving written notice to a *personal services entity whose *ordinary income or *statutory income includes some or all of an individual's *personal services income:

(a) make a personal services business determination relating to the individual's personal services income included in the entity's ordinary income or statutory income; or

(b) vary such a determination.

(2) The Commissioner may, in the notice, specify:

(a) the day on which the determination or variation takes effect, or took effect;

(b) the period for which the determination has effect;

(c) conditions to which the determination is subject.

Matters about which the Commissioner must be satisfied

(3) The Commissioner must not make the determination unless satisfied that, in the income year during which the determination first has effect, or is taken to have first had effect:

(a) the entity:

(i) could reasonably be expected to meet, or met, the results test under section 87-18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; or

(ii) but for unusual circumstances applying to the entity in that year, could reasonably have been expected to meet, or would have met, at least one of the 4 *personal services business tests ; and

(b) the individual's *personal services income included in the entity's *ordinary income or *statutory income could reasonably be expected to be, or was, from the entity conducting activities that met:

(i) if subparagraph (a)(i) applies - the results test under section 87-18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; or

ATC 2222

(ii) if subparagraph (a)(ii) applies - at least one of the 4 personal services business tests.

(c)...

(4) For the purposes of subparagraph (3)(a)(ii) but without limiting the scope of that subparagraph, unusual circum- stances include providing services to an insufficient number of entities to meet the unrelated clients test under section 87-20 if:

(a) the *personal services entity starts a *business during the income year, and can reasonably be expected to meet that test in subsequent income years; or

(b) the personal services entity provides services to only one entity during the income year, but met the test in one or more preceding income years and can reasonably be expected to meet the test in subsequent income years.

[Provisions in bold are relevant to the instant application.]''

Findings on material questions of fact with reference to the evidence and other material in support of those findings

12. In the present case Mr C Eaton, a principal in Creaton Pty Ltd, on 5 September 2001 applied on Creaton's behalf for a determination that:

(a) Creaton Pty Ltd is a legitimate PSE conducting a personal services business that under normal circumstances would be expected to meet the unrelated client test; and
(b) Since 1994, and specifically throughout taxation year 2001, unusual circumstances have existed that have prevented the company from meeting the unrelated client test; and
(c) The unusual circumstances have terminated on 31 August 2001 (T3).

13. In February 1987, at age 65, Mr Eaton retired under compulsory retirement provisions from the AMP Society's Property Division (T3). For the final 12 years he had been the AMP's chief engineer.

14. In July 1987 Mr Eaton, with his wife, established Creaton Pty Ltd to provide a contract consultancy service related to the management and administration of engineering assets in buildings (T3).

15. For seven years the company traded successfully, providing services to at least two unrelated clients (ex R1). However, in 1994, Mr Eaton was selected to undertake the responsibilities of business manager and national executive officer of the newly formed ``not for profit'' public company, Fire Code Reform Centre Limited (``FCRC''). He obtained the position by submitting an offer to undertake the role, continuing until terminated by either party subject to a month's notice (ex R1). Remuneration for the services was set at $450 a day worked, plus expenses and the provision of office facilities and related services. Mr Eaton said that he often worked late hours and weekends for no additional remuneration. FCRC was formed specifically to direct a predefined Australian program of fire code reform. FCRC co-ordinated research for national reform of building fire safety regulations (T3/13).

16. The FCRC was financed by contributions from a number of boards, authorities and research institutions (T3). Its finances were somewhat uncertain from time to time. The FCRC board adopted a policy of engagement by periodic contract only, precluding the direct employment of staff and the purchase of fixed assets. Mr Eaton's services were procured under contract through Creaton Pty Ltd and were subject to annual renewal at the first board meeting in each financial year. Renewal was based on consideration of the previous year's performance and FCRC's financial position of the time.

17. Creaton Pty Ltd was not covered by an insurance policy in respect of professional indemnity (ex R1). Mr Eaton was covered by a policy taken out by FCRC in relation to matters of corporate governance and business conduct only (T7).

18. Exemption from the ``80 percent income rule'' was sought specifically for the 2001 tax year (T3), the year in which these restrictions on the alienation of PSI were first introduced. The claim was on the basis that Mr Eaton's withdrawal from FCRC at a critical time near the end of the national reform effort would have been undesirable and disruptive.

19. FCRC's engagement of Creaton ended on 31 August 2001 (T3). FCRC had completed its work. The FCRC was in voluntary liquidation.

ATC 2223

The FCRC's intellectual property had been transferred to the Australian Building Codes Board, the regulatory authority.

20. Attached was a form of application for a determination of personal services business (T3/10-21). The form identified that Mr and Mrs Eaton were the individuals whose PSI was included in Creaton's income (T3/12). The services they provided were described as consultancy in relation to building services engineering management and administration, and corporate secretarial services. Creaton was required to provide office and secretarial and computing equipment as necessary to provide managerial and administrative services. The application form asked whether there was a reason why the services provided by Creaton could not be provided, to a level of at least 20%, by an entity other than Mr Eaton engaged by Creaton. Creaton responded that the FCRC directors saw Creaton as the most suitably experienced entity of those available to provide the contract services.

21. The respondent refused the application on 26 September 2001 (T4). It was said that Creaton did not satisfy the ``unrelated clients test'' in s 87-20 of the Act. Creaton had not provided services in 2000-2001 to two or more entities that were not related to each other or to Creaton. It had provided services only to FCRC. Additionally, it had not provided services as a direct result of Creaton making offers or invitations to the public at large, or to a section of the public, to provide the services.

22. It was possible under s 87-65(3)(a)(ii) of the Act for Creaton to be relieved from the consequences of failing to meet all of the personal service business tests if it, but for unusual circumstances applying to Creaton in 2000-2001, could have been expected to meet, or would have met, at least one of the four personal services business tests listed in s 87-15(2) of the Act. In his application and notice of objection Mr Eaton had identified the unrelated clients test as that unable to be met by Creaton in 2000-2001 because of unusual circumstances applying in that year.

23. In accordance with s 14ZZK of the Taxation Administration Act 1953, unless the tribunal orders otherwise, an application for review of a reviewable objection decision is limited to the grounds stated in the objection to which the decision relates. The tribunal was neither asked to, nor did it, order that the grounds before it were to be expanded.

24. It was the respondent's position that the exclusive relationship between FCRC and Creaton had compromised satisfaction of the unrelated clients test, that that situation had applied for seven years and that a seven-year situation had ceased to be unusual. On the contrary, it had become the usual situation for Creaton.

25. The respondent indicated also that s 87-65(4) of the Act prescribed particular rules where the particular personal service business test possibly affected by unusual circumstances was the unrelated client test. Section 87-65(4) provided that where s 87-65(3)(a)(ii) was in issue, as here, the provision, as here, of services to an insufficient number of entities could be unusual circumstances where any of the following scenarios applied:

(a) If the PSE started a business in the income year, ie 2000-2001, and could reasonably be expected to meet that test in subsequent income years. This was inapplicable in the present case because Creaton had commenced business in 1987, not 2000-2001.
(b) The PSE provided services to only one entity during the income year, but met the test in one or more preceding income years and can reasonably be expected to meet the test in subsequent income years. This was highly relevant. Creaton had met the unrelated client test between 1987 and 1994 and had succeeded in meeting it in 2001-2002.

26. There had been a s 87-65(5) of the Act enacted in 2000 which provided ``further grounds'' for the making of a determination. Mr Eaton had argued that Creaton might satisfy this provision. It required that four grounds must be satisfied. If they were satisfied, then the respondent could make a determination. This provision was repealed with effect from 1 July 2000 and it never operated. It was replaced by the results test in s 87-18(3) of the Act. The decision-maker addressed the results test in the reviewable decision merely to alert the applicant to its likely operation in his case and the applicant was invited to lodge another objection addressing that test if he wished to do so. The material on the results test is not before the tribunal as it was not strictly before the

ATC 2224

decision-maker. It is therefore unnecessary to address the arguments made in relation to it.

27. The applicant's notice of objection (T7) challenged the respondent's interpretation of s 87-65(4)(b) of the Act.^[2] Paragraph 25(b) of these reasons for decision reflects the terms of s 87-65(4)(b) of the Act. The applicant argued that the word ``preceding'' in s 87-65(4)(b) did not mean the year immediately preceding the income year, as the respondent appeared to think. It was said to be a sufficiently broad word to apply to the years from 1987 to 1994, which were years preceding the income year, 2000-2001, and in which years Creaton provided services for unrelated clients.

28. In dealing with the objection (T8) it is fair to say that the decision-maker concentrated on the overarching concept of unusual circumstances and could not accept that a state of affairs that had persisted for seven years could be described as unusual. He did not address the use by the legislature of the word, ``preceding''. He observed that the Macquarie Dictionary defines ``unusual'' as ``not usual, common, or ordinary; uncommon in amount or degree; of an exceptional kind''. He cited the tribunal decision on ``special circumstances'' in
Re Beadle and Director-General of Social Security (1984) 6 ALD 1 where Toohey J said at page 3:

``An expression such as `special circumstances' is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend on the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.''

29. He proceeded to state that the term ``unusual circumstances'' therefore refers to circumstances that are completely out of the ordinary and which should have suspended the capacity of Creaton to meet the unrelated clients test during the relevant period. He said that, further, the circumstances must only be temporary with the usual circumstances resuming in the short term. He said that a situation might arise where circumstances considered unusual in one income year might then become usual. An example might be where an individual, who normally entered into monthly contracts with clients, entered into a twelve-month contract with one client. At the conclusion of the contract, the contract might be rolled over for a further period of twelve months with the possibility of further rollovers. He considered that, while the first twelve months contract may give rise to unusual circumstances in the relevant income year, the subsequent rollover of that contract might result in the circumstances ceasing to be unusual.

30. In short, he said, the legislative benchmark required the change in circumstances to be temporary and unusual, rather than a new mode of operation. The more temporary the circumstances, and the greater likelihood that normal conditions will resume, the easier it would be to satisfy the unusual circumstances requirement. He concluded that, for Creaton, having only one client in 2001 was Creaton's usual mode of operation, which had been established since 1994 and was not the result of temporary circumstances.

31. At the tribunal hearing Mr Eaton argued:

(a) That there is nothing in the dictionary definition of ``unusual'' mandating a temporary element.
(b) That s 87-65(4)(b) refers to ``one or more preceding years'', not just the immediately preceding year. This would seem to refer to any year(s) prior to the income year.
(c) The FCRC was unique and was by its very nature a temporary body, albeit one that lasted seven years. It was unusual in itself.

32. Ms Rands, for the respondent, referred to paragraph 1.122 of the explanatory memorandum for three Bills, the New Business Tax system (Alienation of Personal Services Income) Bill 2000, the New Business Tax System (Alienated Personal Services Income) (Tax Imposition) Bill (No. 1) 2000 and the New Business Tax System (Alienated Personal Services Income) (Tax Imposition Bill (No. 2) 2000 which provided the following explanation for s 87-65(4)(b) of the Act:

``1.122 The rule in paragraph 87-65(3)(a) requires the Commissioner to apply the personal services business tests set out in Subdivision 87-A. However, it also allows the Commissioner to also take into account unusual circumstances the entity is

ATC 2225
experiencing which prevent it from satisfying those tests for the income year in question. If the Commissioner considers that, but for those unusual circumstances, the entity would satisfy at least one of the personal services business tests, paragraph 87-65(3)(a) will be satisfied. Examples of unusual circumstances include where:

• an entity who, for a number of years, has provided personal services to a range of different clients, decides to accept a one year full time contract with a single client; or

...''

33. The tribunal saw some force in Mr Eaton's submissions regarding the [proper interpretation of ``one or more preceding income years'' in s 87-65(4)(b) of the Act. The Macquarie Dictionary provides the pithy definition, ``that precedes; previous''. ``Precede'' in that dictionary means ``to go before, as in place, order, rank, importance, or time''. The Shorter Oxford English Dictionary defines ``preceding'' as ``That precedes in order, time or movement''. ``Precede'' has as one meaning, ``To come before in time; to happen, occur or exist before; to be earlier than''.

34. As the tribunal reads these definitions, none of them appears to import any requirement of immediately preceding or going before the relevant event. All that is required is that one event happened earlier than another event. The tribunal would make the obvious comment that, had the Parliament intended s 87-65(4)(b) to bear the restricted meaning contended for by the respondent, it could have used the word ``immediately'' in the provision so that it read ``... but met the test in one or more preceding income years including the immediately preceding income year''. Indeed, the reference to preceding income years in the plural would seem, in itself, to tell against the respondent's interpretation.

35. The tribunal did not regard the extract from the explanatory memorandum (see paragraph 32 above) as of any great use. While the author cited an example of the operation of the provision in that extract, the author did not suggest that the example was exclusive of any other possibilities.

36. The tribunal therefore finds that the correct interpretation of s 87-65(4)(b) permits account to be taken of an applicant meeting the test in one or more preceding income years, even if not in the immediately preceding income year.

37. However, the tribunal also sees some force in the respondent's argument that a state of affairs that persists for seven years might not be described as ``unusual'' once it has persisted for a significant length of time. The decision- maker cited the dictionary definition of ``unusual'' and then proceeded to cite case law on ``special circumstances''. While the two terms might not appear synonymous, the dictionary definitions are remarkably alike such that it was appropriate to consider the tribunal's remarks in Re Beadle (above).

38. The problem here for the respondent is that the legislation has provided a specific set of circumstances in which it can be established that the circumstances are unusual. In the tribunal's view, in meeting the literal terms of s 87-65(4)(b), Creaton has established that there were unusual circumstances.

Conclusion

39. The tribunal has found in Creaton's favour in relation the unusual circumstances criterion in s 87-65(4)(b) of the Act. This finding can lead to the making of a determination in Creaton's favour. The tribunal notes, however, that s 87-65(1) of the Act does not compel the respondent to provide determination even if an applicant satisfies the criteria. The Act says only that the Commissioner may make a personal services business determination. The tribunal has found that Creaton satisfied the criteria for the making of a determination. The tribunal is hesitant to take on the exercise of the Commissioner's discretion in the absence of any argument from the respondent on its attitude to the exercise of the discretion following a finding that Creaton has satisfied s 87-65(4)(b). The tribunal will therefore remit the matter to the respondent for it to consider whether the discretion in s 87-65(1)(a) should be exercised in Creaton's favour.

Decision

40. The tribunal sets aside the decision under review and remits the matter to the respondent for the respondent to consider whether to exercise the discretion to make a determination in accordance with s 87-65(1)(a) of the Act

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taking into account that the applicant has satisfied s 87-65(4)(b) of the Act.

Footnotes

^[1] The tribunal acknowledges the assistance gained in this matter from the Australian Tax Handbook 2002 published in Sydney by Australian Tax Practice.
^[2] Paragraph 25(b) of these reasons for decision reflects the terms of s 87-65(4)(b) of the Act.

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