• The impact of this case on ATO policy is discussed in Decision Impact Statement: VNBM and Commissioner of Taxation (2020/7690).

VNBM v FC of T

Members:
RJ Olding SM

Tribunal:
Administrative Appeals Tribunal, Brisbane

MEDIA NEUTRAL CITATION: [2021] AATA 1626

Decision date: 7 June 2021

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RJ Olding (Senior Member)

WHAT IS THIS CASE ABOUT?

1. One of the eligibility criteria for the first "cash flow boost" (" CFB ") payments made by the Australian Government in 2020 to assist employers during the COVID-19 crisis was that the claimant had paid wages subject to Pay As You Go Withholding (" PAYGW ") obligations in a period between 1 March 2020 and 30 June 2020. The amount of the CFB depended on the PAYGW required to be withheld up to a maximum CFB of $50,000.^[1] Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth), s7.

2. The applicant company had consistently reported wages paid to a director (" the Director ") of $1,300 per quarter (annually, $5,200) for over five years,^[2] Exhibit 1, Tribunal Book, TB1, T2, page 17. with no PAYGW payable due to the wages being below the tax-free threshold.^[3] With the exception of 2016-17 for which the applicant reported wages of $5,000. That pattern continued into the 2019/20 financial year, the applicant reporting wages of $1,300 for the first two quarters.^[4] Exhibit 1, TB1, T2, page 12. Then on 1 April 2020,^[5] Exhibit 1, TB2, Respondent’s Statement of Facts, Issues and Contentions, page 240. after the announcement of the cash flow boost criteria on 12 March 2020, the applicant reported in its March 2020 activity statement wages of $108,700 said to comprise 12 weekly wage amounts of $100^[6] Exhibit 1, TB5, Applicant’s Statement of Facts, Issues and Contentions, page 494. and one week's wage of $107,500 paid to the Director in respect of a week in March 2020, and a PAYGW withholding amount of $50,009. This, the applicant says, means it is entitled to the maximum first CFB of $50,000.

3. Not surprisingly, identification of that startling departure from the previous consistent pattern of minimal wage payments excited the attention of the Commissioner of Taxation. Upon investigation, the Commissioner's officers concluded the applicant had entered into a scheme with the sole or dominant purpose of obtaining a CFB. Accordingly, the Commissioner considered the applicant failed to satisfy the eligibility criteria for the first CFB. The Director is adamant the change in the pattern of wages was not driven by obtaining a CFB but rather to enhance the ability of himself and his wife to refinance certain loans.

4. The Commissioner also does not accept that the applicant paid the reported wages of $108,700 in March 2020. There was no actual payment of the wages in the form of a cash payment, cheque or bank transfer.^[7] Exhibit 1, TB2, Respondent’s Statement of Facts, Issues and Contentions. Page 241. The applicant does not maintain its own bank account. Its receipts are directed to a joint bank account held by the Director and his wife. The applicant says nevertheless the wages were "paid" when the applicant determined they should be paid, as reflected in the applicant's activity statement for the March 2020 quarter lodged on 1 April 2020 and included in a single journey entry for the annual wages made at the end of the financial year.

5. I have concluded the applicant is not entitled to the CFB. My reasons follow.

BACKGROUND

6. The following facts are not in dispute.

7. The Director is a chartered accountant and registered tax agent.^[8] Exhibit 1, TB3, ST11, page 290. He and his wife are the directors of the applicant, the shares in which are held by the trustee of a Trust (" the Trust ") of which the Director and others are beneficiaries. The Director is also a director and shareholder of the corporate trustee of the Trust.^[9] Exhibit 1, TB1, T22, page 120.

8. The Director is a director and employee of the applicant. The applicant provides accounting services to another entity, which I shall call " ABC ". The applicant invoices ABC for the services provided by the Director through the applicant.

9. The applicant pays a wage to the Director and distributes its profit by way of franked dividends to the Trust.

10. The applicant disclosed to the Australian Taxation Office (" ATO ") wages said to have been paid to the Director, and paid dividends, as follows:^[10] Exhibit 1, TB1, T2, page 17.

Income year	Wages paid to Director	PAYGW withheld	Dividends paid to Trust
2014-15	$5,200	Nil	Nil
2015-16	$5,200	Nil	$36,180
2016-17	$5,000	Nil	$63,000
2017-18	$5,200	Nil	$150,000
2018-19	$5,200	Nil	$103,500
2019-2020 September quarter	$1,300	Nil	N/A
2019-20 December quarter	$1,300	Nil	N/A
2019-20 March quarter	$108,700	$50,009	N/A

STATUTORY FRAMEWORK

Decision under review

11. The decision before the Tribunal for review is the Commissioner's decision of 30 October 2020 disallowing the applicant's objection to the Commissioner's decision that the applicant is not entitled to the CFB for the period ended 31 March 2020.^[11] Exhibit 1, TB1, T37, page 237.

12. The Tribunal's task is to make a fresh decision on the merits on the evidence before the Tribunal.

Burden of proof

13. The applicant has the burden of proving the objection decision "should not have been made or should have been made differently".^[12] Taxation Administration Act 1953 (Cth), s14ZZK (b)(i). Thus, the Tribunal must determine whether VNBM has discharged the burden of proving the decision that it was not entitled to the CFB should not have been made.

14. In carrying out that task, I apply the following principles:

• (a) Facts may be found on the basis of oral evidence alone.
• (b) There is no barrier to a fact being found on the uncorroborated evidence of a witness. There is no requirement that direct evidence by oral testimony may only be accepted if corroborated, for example, by documentary evidence.
• (c) However, self-serving statements should be given close scrutiny.
• (d) Nevertheless, evidence of a taxpayer is not to be regarded as prima facie unacceptable.^[13] For this and the preceding propositions, see, for example: Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 148 , 155 ; and Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212 .
• (e) If the taxpayer succeeds in "weighing down [the] scales ever so slightly in his favour then he has discharged the burden he carries".^[14] Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212 , [88].

The contested CFB criteria

15. The Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Cth) (" BCF Act ") contains, in s 5, various requirements a claimant must satisfy to be entitled to the first CFB provided for by that Act. Only two criteria are in contention in this matter. In the order addressed at the hearing of the review, they are:

• (a) neither the entity nor any associate or agent of the entity has entered into or carried out a scheme or part of a scheme for the sole or dominant purpose of achieving any of the following:
  • (i) making the entity entitled to the cash flow boost for the period;
  • (ii) increasing the amount of the cash flow boost to which the entity is entitled (disregarding this paragraph) for the period.

    ( BCF Act, s 5(1)(g) )

• (b) the entity makes a payment in the period and must withhold an amount from the payment under Subdivision 12-B, 12-C or 12-D in Schedule 1 to the Taxation Administration Act 1953 (regardless of whether the entity withholds the amount);

  ( BCF Act, s 5(1)((a)(i) )

16. In these reasons, I refer to whether the applicant has proved, for the purposes of s 5(1)(g) of the BCF Act, that it or an associate or agent did not enter into a scheme for the sole or dominant purpose of making the applicant entitled to a CFB as the "Scheme" issue. I refer to whether the applicant has proved, for the purposes of s 5(1)(a)(i), that it paid wages in the relevant period as the "Payment" issue. Unless the applicant succeeds on both these issues the Tribunal must affirm the objection decision.

THE SCHEME ISSUE

Legal principles relating to the Scheme issue

17. The rule in s 5(1)(g) of the BCF Act, with its reference to a scheme with the sole or dominant purpose of, in effect, obtaining a CFB benefit, has echoes of the general anti-avoidance rule in Part IVA of the Income Tax Assessment Act 1936 (Cth) (" ITAA 1936 ") and its analogues in other taxation legislation, including Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (" GST Act ").

18. Indeed, the expression "scheme" in s 5(1)(g) of the BCF Act takes its meaning from the GST Act^[15] BCF Act, s 4(1) definition of “scheme”. where it is defined in s 165-10(2)(a) in this way:

A scheme is:

• (a) any arrangement, agreement, understanding, promise or undertaking:
  • (i) whether it is express or implied; or
  • (ii) whether or not it is, or is intended to be, enforceable by legal proceedings; or
• (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

19. Two observations about the definition of scheme are apposite in this matter.

20. First, it is plainly a broad definition. That probably explains why the applicant did not seek to argue that its or the Director's actions did not constitute a scheme, instead focussing upon the Director's purpose in causing the applicant to make the extraordinary wage payment. The Director did not deny that, subsequent to the announcement of the CFB eligibility criteria, he set out to increase the wages paid to him by the applicant by the amount of $107,500 for a single week in March 2020, nor that such action constituted a "scheme" as defined for the purposes of the BCF Act.

21. Secondly, the GST Act definition of "scheme" is in turn practically identical to the definition of "scheme" for the purposes of Part IVA of the ITAA 1936. There was a time when the identification of a particular scheme was thought for Part IVA purposes to require a coherence in the steps in the alleged scheme. In rejecting such notions in Commissioner of Taxation v Hart, Gummow and Hayne JJ noted that in Part IVA:

There is no reference to a scheme having some commercial or other coherence. Far from the Part requiring reference only to the purpose of those who carry out all of whatever is identified as the scheme, s 177D(b) specifically refers to it being concluded 'that the person, or one of the persons, who entered into or carried out …any part of the scheme' did so for the purpose of enabling the relevant taxpayer (alone or with others) to obtain a tax benefit in connection with the scheme …^[16] (2004) 217 CLR 216 , 238 .

22. Similarly, and this assumes some significance in this matter, s 5(1)(g) of the BCF Act refers to the entry into or carrying out of a scheme "or part of a scheme" for the sole or dominant purpose of obtaining either of the stated benefits relating to a CFB.

23. Section 5(1)(g) of the BCF Act also makes explicit that a sole or dominant purpose, on the part of either the claimant entity or "any associate or agent of the entity", of obtaining or increasing a CFB is fatal to eligibility. Additionally, Part IVA jurisprudence establishes that the purpose of an entity's adviser may be attributed to the entity.^[17] Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235 , 264 [95]. To the extent the Director acted as tax agent to the applicant, his intention may also be attributed to the applicant on that basis.

24. The case was conducted by reference to whether the purpose of the Director in causing the applicant to implement the scheme offended this requirement. The Director chose, with respect appropriately in the circumstances, not to argue against this approach, instead focussing on seeking to persuade the Tribunal that his purpose in causing the applicant to make the extraordinary wage payment (assuming such a payment was in fact made, as addressed below) did not offend s 5(1)(g).^[18] Exhibit 1, TB5, Applicant’s Statement of Facts, Issues and Contentions page 469.

25. While, as mentioned, there are similarities between s 5(1)(g) of the BCF Act and Part IVA of the ITAA 1936 and Division 165 of the GST Act, there is also a significant difference. It is well established that for the purposes Part IVA the required inquiry into whether a scheme was entered into for the dominant purpose of obtaining a tax benefit is of an objective nature. This flows from s 177D(1) of the ITAA 1936 which provides that Part IVA applies "if it would be concluded" having regard to various factors that a person entered into a scheme for the purpose of obtaining a tax benefit. Evidence of the actual (subjective) intention of the taxpayer is therefore irrelevant for Part IVA purposes.^[19] Commissioner of Taxation v Hart (2004) 217 CLR 216 , 222 [3], 227[15], 243[65].

26. In contrast, s 5(1)(g) of the BCF Act states as a condition of eligibility that neither the entity nor any associate or agent of the entity has entered into or carried out a scheme for the sole or dominant purpose of making the entity entitled to a CFB or increasing the entity's entitlement. The language of "it would be concluded" found in Part IVA is not replicated in s 5(1)(g).

27. Thus, s 5(1)(g) requires an inquiry into whether the entity or any associate or agent of the entity entered into or carried out a scheme with the sole or dominant purpose of making the entity entitled to the CFB or increasing its entitlement. For that inquiry, evidence from, in this case the Director, as to his actual intention must be relevant. That is not to say other objective circumstances, such as the timing of the increase in wages, are irrelevant. Indeed, evidence of timing and other surrounding circumstances is likely to highly relevant and instructive to the extent it assists in determining the purpose of the entity or, in this case, the Director. Such factors may support the drawing of an inference regarding the applicant's or the Director's purpose in entering into and carrying out the scheme.

28. Finally, Part IVA of the ITAA 1936 and Division 165 of the GST Act, if the statutory prerequisites for exercise of the power are satisfied, empower the Commissioner, and the Tribunal in his place on review, to determine that liability to taxation is to be assessed as if the scheme had not been entered into. Section 5(1)(g) contains no such power. Rather, the absence of the disqualifying sole or dominant purpose is a condition of eligibility for the CFB. This means that failure to satisfy s 5(1)(g) will disqualify a claimant from eligibility for any CFB; there is no power to assess eligibility for CFB on reconstructed "facts".

29. Thus, if the applicant fails to satisfy s 5(1)(g) it is not eligible for any CFB. Neither the Commissioner nor the Tribunal has power to assess a lower level of CFB on the footing that the scheme had not been entered into.

Evidence relating to the Scheme issue

30. A number of issues raised in the course of this matter excited attention in cross-examination of the Director and in submissions. Ultimately, though, on the view I have reached below, their resolution is not determinative of the Scheme issue. That is to say, even if these matters were determined wholly in favour of the applicant, the Tribunal is still left without a rational explanation for the part of the Scheme comprising the payment, as maintained by the applicant, of the amount of $107,500 as wages for a single week which, if accepted, would result in entitlement to the maximum CFB of $50,000.

31. However, because of the attention directed to them at the hearing, it is appropriate that I make some comments on these aspects.

Whether the Director discussed the significance of wages vis-à-vis other forms of income with his bank.

32. The Director and his wife were indebted under loans from Adelaide Bank and a private lender. The Director gave evidence that he formed an intention to seek to refinance these liabilities with a single loan from St George Bank.^[20] Transcript, page 12, line 7.

33. A centrepiece of the applicant's case was that the Director had telephone conversations with the St George Bank in January 2020. In one of those conversations, the Director says he was advised the Bank's assessment of his and his wife's capacity to service a loan would be enhanced if the Director were paid a higher level of wages, in the order of $100,000 in additional wages. The Director says he was told wages are looked upon more favourably for loan serviceability purposes than dividends.^[21] Transcript, page 38, line 34.

34. The Director made much of his assertion that this conversation had taken place. He seemed to be under the impression that, had the conversation been recorded, or if he could recall the name of the bank employee to whom he spoke, evidence of the content of this conversation would determine the case in his favour.

35. Unable, he says, to produce evidence of this alleged conversation beyond his own assertion that it took place, the Director pointed to various other evidence of discussions with St George Bank. One piece of evidence was an email dated 7 April 2021 from an employee of St George Bank which stated:

I can confirm that I was the St George Bank Lending Manager at the [branch] in January 2020 and had assisted you and your wife with the interest rates and other general inquiries on your current St. George Bank home loans at that time. For any additional lending that you required in January 2020, including new business loans and refinanced home loans, I would have had to refer you to one of my colleagues as I was in the process of departing from that role. I am unable to locate who it was that would have called you due to staff changes in the region.^[22] Exhibit 1, TB8, Applicant’s Evidence, page 520.

36. That does not, of course, evidence a conversation about the benefit of the applicant increasing the wages paid to the Director, let alone an increase of over $100,000.

37. The Director also referenced email communications with a financier in 2016 and also an on-line loan calculator he accessed in November 2020, well after the relevant time, which he said showed the more favourable treatment of wages, compared to dividends, in assessing loan serviceability. St George Bank also provided email confirmation that it would not disclose its serviceability criteria but that wages are regarded differently to dividends for this purpose.^[23] Exhibit 1, TB5, Applicant’s Statement of Facts, Issues and Contentions, page 444.’

38. The Commissioner accepts the Director had some communications with St George Bank. However, the Commissioner points out there is no documentary evidence of any kind, not even a file note, that a conversation about needing to increase wages took place. Further, the Director was dealing with a mortgage broker but nor is there any evidence of mention of the conversation with the St George Bank in the discussions with the mortgage broker. The Commissioner says this uncorroborated, self-serving statement by the Director that he was advised to increase the wages the applicant paid to him should not be accepted.

39. I accept that wages may be considered more favourably than dividends by a bank assessing a potential borrower's ability to service a loan and therefore its preparedness to offer financing, and that the Director was aware of this at least by January 2020. That might potentially provide an explanation for the applicant deciding to increase wages paid to the Director relative to dividends.

40. On balance, I also accept that the Director discussed the significance of wage income in comparison to dividend income for loan serviceability purposes with St George Bank. In the absence of any corroborating evidence and having regard to the context of apparently initial telephone inquiries preliminary to making a loan application, and the absence of evidence of this being raised with the mortgage broker, I am not persuaded that conversation included a specific reference to increasing the Director's wages by $100,000, and certainly not doing so by way of a one-off payment for a single week.

41. However, I emphasise that even if I am wrong in this finding it would not change my conclusion in respect of the Scheme issue. The difficulty for the applicant is that, even if the Tribunal were to accept that the conversation with St George on this topic took place and included a specific reference to increasing wages by $100,000, as discussed further below this would not provide an explanation for the decision to temporarily increase the wages to $107,800 for a single week.

Intention to refinance loans

42. Similar considerations apply in respect of a controversy explored in cross-examination about the Director's intention to seek to refinance the loans and, if so, when that intention was abandoned.

43. The Director was in discussions with the lender of the private loan, which was due for repayment by 1 May 2020,^[24] Transcript, page 41, line 9. in the first few months of 2020 but ultimately it was extended for another year by agreement in early March 2020. The Director says, though, that he had not abandoned the prospect of refinancing both loans - the private loan was incurring 6% interest - until at least 20 April 2020 when he received advice of the reduced interest rate to be applied by Adelaide Bank.^[25] Transcript, page 15, line 34. As that rate was less than the rate on offer by St George Bank, the Director said it no longer made sense to seek to refinance the Adelaide Bank loan. As evidence that he had taken steps towards supporting a loan application, the Director also referred to cancellation of a credit card.^[26] Transcript, pages 11-19.

44. It might be thought to be surprising, if the Director was contemplating an application for refinancing, and understood that increasing wages relative to dividend income would be beneficial, that he did not pursue that course until late March 2020 and ultimately did not make a loan application at all.

45. Questioned on this, the Director said he was distracted by the disruption caused by the COVID-19 pandemic. I accept this evidence so far as it explains not advancing these matters in March 2020 by which time the magnitude of the COVID-19 crisis came to be appreciated and restrictive measures were introduced in Australia. It does not fully explain why the Director did not advance the refinancing earlier, beyond the initial discussions with St George Bank in January 2020, bearing in mind the Adelaide Bank fixed rate loan period was due to expire on 20 May 2020 and the private loan was due for repayment by 1 May 2020. But I accept that there may not have been a sense of urgency about these matters in January 2020 and by March 2020, as the Director said, he was, as with so many others, in "survival mode" as a consequence of the pandemic.

46. These factors might conceivably go some way to explaining why a decision to increase the level of wages paid to the Director did not occur earlier. But the difficulty for the applicant is that none of this evidence, even if accepted at its highest, would explain a decision to do that in the form of a one-off payment of an extra $107,500 in wages for a single week in late March 2020.

January 2020 minute

47. On 9 March 2021,^[27] Transcript, page 70 , line 35. more than seven months after his interactions with the ATO about eligibility for the CFB began, the applicant produced for the first time a copy of a document purporting to be a minute recording a decision to increase wages. The document is undated. The heading to the document and the relevant parts are in these terms:

MINUTES OF JANUARY 2020 DIRECTORS MEETING OF [THE APPLICANT] HELD AT [ADDRESS OMITTED]

PRESENT: [The Director and his wife]

…

RESOLUTIONS:	It was agreed and resolved that the wages be temporarily increased to facilitate loan serviceability.
	It was further agreed and resolved that the superannuation contribution be 9.5% thereon, which may be more than the maximum contribution base but not more than the concessional contribution cap.[28] Exhibit 1, TB6, Applicant’s Supporting Evidence filed with SFIC, page 478

48. It was put to the Director that the document is not a contemporaneous record and was created after the event to enhance the applicant's case before the Tribunal. The Director adamantly denied this and maintained the document is a copy of an original minute of a "discussion" with his wife that took place some time in January 2020 and, although undated other than with the reference to January 2020, would have followed his practice of preparing minutes at the end of each month.^[29] Transcript, pages 71-72.

49. It is certainly surprising that the Director did not produce a copy of the purported minute earlier when the central thrust of his case has always been that the timing of the increase in wages resulted from refinancing considerations. His explanation that he was not asked to do so by the ATO is also somewhat surprising. This document is directly relevant to the applicant's case that it paid the increased wages for the purpose of enhancing the bank's assessment of loan serviceability and not to obtain or increase a CFB. Accountants in public practice are well accustomed to preparing minutes of directors' meetings. I would have thought that company minutes would be an obvious, if not the first, place to look for documentary evidence of the applicant's intention.

50. The Director, although not a lawyer, is a registered tax agent and experienced chartered accountant. As such, it might be expected he would understand that the taxpayer bears the burden of proof in proceedings for review of a taxation objection decision and must produce the evidence on which the taxpayer intends to rely. However, he would not be the first tax agent to appear before the Tribunal with the mistaken understanding that an assertion that the ATO had not requested a document is an answer to why it was produced belatedly or not at all.

51. Further, against the proposition that the minute was fabricated is its minimal content. A fabricated document might be expected to contain useful information, at the least an indication of the order of increase in wages anticipated as a consequence of the conversation said to have taken place between St George Bank and the Director. The minimal content of the minute would, for the reasons mentioned below, provide little assistance to the applicant. Having regard to this and the Director's oral evidence under cross-examination, I accept that the minute is not a fabricated document and was brought into existence on or about 31 January 2020.

52. However, the minute does little to advance the applicant's case. It is expressed in the most general terms. It does not record the amount of the wages to be paid or when the wages are to be paid. Most significantly, it does not record, let alone provide any explanation for, a decision to pay additional wages of $107,500 for a single week. Nor does it offer any explanation for why a temporary increase in wages for one week would be thought to materially assist a financier's assessment of loan serviceability in comparison to, for example, an increased regular wage which would result in an annual increase of that order.

PAYGW matters

53. A payment of $107,500 in wages for a single week inevitably would result in the applicant incurring a substantial liability for PAYGW. The Director must have known this and did not suggest otherwise. Rather, the Director sought to contextualise the large payment of wages for a single week and resulting PAYGW liability as providing a small cash flow benefit. The explanation went like this: While the applicant incurred, as a result of the payment of wages of $108,700, a PAYGW liability of $50,009, it would not pay that liability when it fell due on 26 May 2020. Rather, the applicant would enter into a payment plan with the ATO to pay off the liability in instalments over a 12-month period. And the Director would have, as he put it, a "timing benefit" - the benefit of a credit in his personal income tax return for the PAYGW before the applicant had paid off the PAYGW liability.

54. It seemed to me to be surprising for a chartered accountant and registered tax agent to deliberately put an entity in its control in a position of not paying a taxation liability when it fell due. The Director dismissed my question about whether he was concerned about deliberately breaching his statutory obligations as a tax agent to keep the taxation affairs of himself and entities under his control in order, stating he would in due course have paid off the PAYGW liability. Indeed, subsequent to the hearing and reserving of my decision the Director sent an email to the Tribunal's registry indicating that he had previously entered into payment arrangements with the ATO.

55. While I take into account the Director's evidence, any such timing benefit would on the Director's own evidence be of a relatively minor nature relative to the CFB of $50,000 that would be generated by the payment of wages of this order in a single week. It would also, as the Director acknowledged, incur interest for late payment.

56. The Director also argued that the reporting of $107,500 in wages for the single week did not result in "a grossly excessive amount" of PAYGW. He sought to illustrate this by pointing to the difference in the assessment of his personal tax liability based on his wages including the amount of $107,500 and the liability calculated when he revised his income tax return to exclude the disputed wages (later returned again in a further amended return). The Director noted the difference in his assessed annual tax liability was $11,860.70.^[30] Transcript, pages 51-52. The point of this seemed to be to illustrate the Director's submission that, even if he had been paid increased wages over a more extended period, rather than for a single week, the applicant would still have incurred a substantial PAYGW withholding liability. That may be so, although in context $11,860.70 is not an insignificant difference.

57. This followed an argument that if the funds available to the applicant in January, February and March 2020, demonstrated by deposits by ABC to the joint account in those months, had been paid out as wages, a comparable PAYGW liability would have been incurred. This was put on the basis that the deposits totalling around $60,000 would have permitted wages of around $100,000 to be paid net of PAYGW. The applicant would have been unable to pay the PAYGW from the deposits but, the Director says, could have sought ATO approval of a payment plan.^[31] Transcript, pages 50-52.

58. But this assumes that, had the applicant not paid wages of $107,500 for a single week, it would nevertheless have paid wages of that order only in the January to March 2020 period and not spread over the whole year or at least the period from a decision to pay higher wages to the end of the year. In any case, the fact is the applicant did not pay such wages. If it paid any increased wages at all, it was for a single week in March 2020 after the announcement of the CFB criteria.

Did the Director have the disqualifying sole or dominant purpose?

59. The difficulty for the applicant in respect of the Scheme issue is that, even if it were to be accepted that he set out to cause the applicant to drastically increase the wages paid to him for the purpose of enhancing his borrowing or refinancing capacity, the question would remain why the Director determined to cause himself to be paid $107,500 in additional wages for a single week.

60. It might be accepted that a decision to, for example, increase wages to around $2,000 per week with effect from the start of the March 2020 quarter, could conceivably have been motivated by the objective of providing evidence of more significant annual wages being paid to the Director and thus increasing the likelihood of a financier extending finance on favourable terms. That, of course, would have resulted in a lower CFB, as the calculation of the lower PAYGW obligation to which the quantum of CFB was tied would have led to a lower CFB.

61. But the notion that the Director considered a bank would look favourably upon a one-off payment of wages in excess of $100,000 for a single week, in substitution for an identical level of dividend income, as evidence of increased wage income and resulting in a more favourable financing offer is, in my view, simply not credible. It may be that the Director still intended to seek refinancing at the time the additional wage payment was said to have been made, as he asserted, or at least had not closed off that possibility. But it does not follow, as the Director seemed to suggest, that the increased wages in the form of a one-off payment for a single week was driven by or even mainly by that prospect.

62. The Director is not an unsophisticated man. He is a practising chartered accountant of some years standing. It would defy common sense to accept that he caused the applicant to make an extraordinary one-off payment of this order, as wages for a single week, mainly for the purpose of encouraging a bank to extend finance on the basis that the Director was in receipt of significant wages. It is in my view far more likely, given the limited utility in doing so for financing purposes and the timing, that the large one-off payment of wages was mainly for the purpose of obtaining the maximum CFB. It certainly would have had that effect, if indeed the wages were in fact paid. And the Director admitted he was aware that reporting the greatly increased wages would have that effect.^[32] Transcript, page 44, lines 44-45.

63. This impression is only confirmed when one considers that, if the increased wages had been spread over a longer period, the Director would not have caused the applicant to incur a PAYGW obligation of $50,009. He gave evidence that he intended that obligation would be left outstanding, to be repaid over a 12-month period under a payment plan to be negotiated by the Director with the ATO. In other words, the Director, a registered tax agent with statutory obligations to keep his tax affairs in order, would have the Tribunal accept he deliberately put an entity under his control in default of its tax obligations in order to make a favourable impression upon a prospective financier.

64. The Director sought to meet this difficulty by stating that the increased amount was returned as wages for a single week because the applicant reported wages weekly.^[33] Exhibit 1, TB2, T3, page 21. But that is not so. The applicant reported wages quarterly. For the March 2020 quarter, the Director stated the wages were reported on the basis of 12 payments of $100 per week plus the amount of $107,500. The implication seemed to be that because the applicant was making weekly payments of $100 it followed that the additional payment of $107,500 would be for the single week in or for which it was said to be paid.

65. But the evidence does not indicate that weekly payments of $100 were made. There was an annual journal entry indicating wages equivalent to 52 payments of $100, and quarterly activity statements reporting wages for each quarter, but there is nothing in evidence to indicate whether wages were paid weekly or at some other interval, such as fortnightly or monthly, noting that the applicant invoices ABC monthly. The Director gave evidence that some time after the applicant's incorporation in 2014 there was an agreement to pay the Director $100 per week. No such agreement was put in evidence. Even if that were to be accepted, an agreement articulated only in those terms would establish the basis for calculating the wage but not the payment cycle. In any case, that wages of $100 per week may have been payable does not provide a rational explanation for an increase in wages of over $100,000 to be paid for a single week.

66. As the earlier discussion indicates, it is sufficient to offend s 5(1)(g) of the BCF Act if a person or their associate or agent carries out part of a scheme for the sole or dominant purpose of obtaining or increasing a CFB. The Director entered into a scheme encompassing the decision to increase the amount paid by the applicant to him as wages for a week in March 2020. It is not necessary for me to decide whether that entire scheme offended s 5(1)(g). It is sufficient to focus upon the particular part of the scheme involving the payment of an additional $107,500 as wages for a single week, which would generate a PAYGW obligation of $50,009 and a CFB of $50,000. I am not persuaded that the dominant purpose of the payment of the amount of additional amount of $107,500 as wages for a single week, if it occurred, was other than mainly to obtain a CFB. It is not rationally explicable on any other basis.

67. For completeness, I note the Director asserted that early in his discussions with the ATO he indicated he would accept the minimum CFB and that this was inconsistent with an artificial scheme to manipulate the CFB requirements. I do not understand how any such conversation, well after the implementation of the scheme, could support the Director's case that the applicant did not enter into the Scheme with the dominant purpose of obtaining or increasing the CFB. As already noted, the legislative scheme does not permit the calculation of a CFB entitlement on the basis of reconstructed events postulating the non-existence of the scheme. That the Director, upon the matter coming under scrutiny, might offer to accept the minimum CFB is not in my view inconsistent with the dominant purpose of the Scheme being to obtain a CFB. Aside from reflecting a failure to fully understand the eligibility criteria, in particular s 5(1)(1)(g) of the BCF Act, it would be a perfectly rational response to ATO scrutiny of a scheme entered into for the dominant purpose of obtaining a CFB.

68. Indeed, the only aspect of this matter that causes me any pause in reaching the conclusion that s 5(1)(g) of the BCF Act is not satisfied is the extraordinarily blatant nature of the scheme and the near certainty it would come under scrutiny. That might be thought to make it an unlikely course of action for an experienced chartered accountant and tax agent.

69. The long-established previous pattern of reported wages, the timing of the extraordinary payment said to have been made, and that it would give rise to a PAYGW obligation of a mere $9 over the amount required to qualify for the maximum CFB, point to the scheme being for the dominant purpose of obtaining the CFB. It was almost inevitable this would lead to ATO scrutiny. And yet, the Director was not able to offer a credible alternative explanation for the decision to depart from his established pattern of minimal wage payments and, in particular, have the applicant pay him over $100,000 in wages for a single week shortly after the announcement of the CFB criteria.

70. In those circumstances, even if refinancing considerations also played a part as the Director asserts, I am not persuaded that the one-off large wage payment for a single week, if indeed it was made, was other than for the dominant - in the sense of the "most influential"^[34] Commissioner of Taxation v Spotless Services Pty Ltd (1996) 186 CLR 404 , 416, 423 . - purpose of the applicant becoming entitled to the CFB.

THE PAYMENT ISSUE - WERE THE WAGES PAID?

The statutory question

71. Subdivision 12-B of the Taxation Administration Act 1953 (" TAA ") provides, in s 12-35, as follows:

SECTION 12-35 PAYMENT TO EMPLOYEE

12-35 An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

72. Hence, the issue to be determined for the purposes of s 5(1)(a)(i) of the BCF Act (set out above) is whether there were wages that included the amount of $107,500 which the applicant paid to the Director in the March 2020 period.^[35] This is the basis on which the applicant put its case. It did not submit in the alternative that the wages were paid in any other period.

Evidence relevant to Payment issue

73. On the applicant's own evidence, it did not pay wages to the Director in cash or by way of a cheque or bank transfer. All funds received by the applicant were banked to the joint account. No payslips or other evidence of payment were created contemporaneously with the time when the wages were said to be paid.

74. Although not clearly articulated in this way, it must be the applicant's case that part of the funds held in the joint account in the name of the Director and his wife had been held by them on behalf of, or as a debt due, to the applicant. Therefore, on the applicant's case, at some point in March 2020 the funds in joint account, to the extent of the wages said to have been paid or at least the wages net of the PAYGW withholding obligation, ceased to be held for the applicant and came to be held for or owed to the Director.

75. The evidence, such as it is, in respect of the decision said to have been made to pay the wages in the March 2020 quarter is unsatisfactory. There is no contemporaneous documentary evidence created in that quarter recording either the "payment" or a decision to make a payment of wages of $107,500 for a particular week in March. Although the Director apparently considered it necessary to record in general terms the decision that wages be "temporarily increased" in the January 2020 minute discussed above, there is no minute or other documentary evidence recording how the amount said to have been paid was arrived at or that it should be paid to the Director on a particular date, for a particular week or for nominated services. Nor is there is any evidence of any change in the Director's duties as employee in return for the thousandfold increase in his wages for the subject week.

76. The funds remained held in the joint bank account in the name of the Director and his wife. There is no evidence of any kind by the Director's wife, either contemporaneously or since, acknowledging that an amount equal to the wages or the wages net of PAYGW, although held in an account in the name of herself and her husband, ceased at some point in the March 2020 quarter to be held on behalf of or owed to the applicant and came to be held on behalf of or owed to the Director alone. Nor is there any evidence of this kind on behalf of the applicant aside from the Director's subsequent assertions to that effect and reflection of that assertion in the March 2020 quarter activity statement, the year-end journal entry and annual tax returns - all of which occurred after the end of the March 2020 quarter.

77. Inclusion of wages in these documents could scarcely be regarded as strong evidence of what actually occurred in circumstances where the Director twice revised his personal tax return, once to remove the additional wages following discussions with the ATO and then again to reinstate them. This contributes to the impression that the Director regarded the quantification of the wages to be included in returns as a means of achieving a desired end rather than necessarily reflecting wages actually paid during March 2020. That journal entries may be accepted as evidencing payments between related parties for tax purposes in particular cases does not mean they suffice for CFB purposes where payment of wages subject to PAYGW in the specified periods is a condition of eligibility.

78. I am satisfied that, at the time the Director caused the applicant to lodge its activity statement for the March 2020 quarter on 1 April 2020, he had determined that the applicant should be treated as paying additional wages of $107,500 to the Director. For the reasons given, I am not persuaded the applicant actually paid those wages in the March 2020 quarter as the applicant asserts. There is no contemporaneous evidence that the applicant actually did so. In the circumstances outlined above, the Director's assertion that the applicant did so, without evidence of any concrete step taken in March 2020 to pay the wages or earmark funds in the joint account as such wages, is in my view insufficient to discharge the burden of proving the increased amount was paid.

79. In any case, even if the payment was in fact made, the conclusion in respect of the Scheme issue would be fatal to the applicant's case.

CONCLUSION

80. Accordingly, I am not persuaded the applicant satisfies either s 5(1)(g) or s 5(1)(a)(i) of the BCF Act. The applicant has therefore not discharged the burden of proving the decision to deny payment of the first CFB should not have been made or should have been made differently.

81. It follows that the objection decision must be affirmed.