FEDERAL COURT OF AUSTRALIA TelePacific Pty Limited v Commissioner of Taxation [2005] FCA 158 INCOME TAX – deductions for losses incurred in prior taxation years – continuity of business test – change in beneficial ownership – whether change occurred before or after takeover of new business – same business test – involvement in same industry not sufficient – Income Tax Assessment Act 1936 (Cth) s 80E(1) ADMINISTRATIVE LAW – duty on Administrative Appeals Tribunal to state its findings of fact – whether duty complied with – consequences of non-compliance – Administrative Appeals Tribunal Act 1975 (Cth) s 43(2B) Administrative Appeals Tribunal Act 1975 (Cth) ss 43, 44 Income Tax Assessment Act 1936 (Cth) ss 80, 79E, 80E, 80G Migration Act 1958 (Cth) s 430 Goodman Fielder Wattie Ltd v Federal Commissioner of Taxation (1991) 29 FCR 376 cited J Hammond Investments Pty Ltd v Federal Commissioner of Taxation (1977) 31 FLR 349 cited BTR Plc v Westinghouse Brake and Signal Company (Australia) Ltd (1992) 34 FCR 246 cited Copperart Pty Ltd v Federal Commissioner of Taxation (1993) 93 ATC 4779 cited De Domenico v Marshall (1999) 94 FCR 97 cited Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 followed Beringer Blass Wine Estates Ltd v Geographical Indications Committee (2002) 125 FCR 155 cited Appellant V324 of 2004 v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 259 cited Comcare v Mathieson (2004) 79 ALD 518 cited Tate v Repatriation Commission [2003] FCA 1169 cited Bisley Investment Corporation Ltd v Australian Broadcasting Tribunal (1982) 59 FLR 132 cited Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 followed Minister for Immigration and Ethnic Affairs v Wu Shan Liang(1996) 185 CLR 259 followed Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97 followed Hope v Bathurst City Council (1981) 144 CLR 1 cited Fielder Downs (WA) Pty Ltd v Federal Commissioner of Taxation [1980] Qd R 283 cited TELEPACIFIC PTY LIMITED v COMMISSIONER OF TAXATION NSD 910 of 2004 SACKVILLE J SYDNEY 4 MARCH 2005 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 910 of 2004 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: TELEPACIFIC PTY LIMITED APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: SACKVILLE J DATE OF ORDER: 4 MARCH 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The applicant pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 910 of 2004 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: TELEPACIFIC PTY LIMITED APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: SACKVILLE J DATE: 4 MARCH 2005 PLACE: SYDNEY REASONS FOR JUDGMENT the proceedings 1 This is an 'appeal' pursuant to s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) ('AAT Act') on questions of law from a decision of the Administrative Appeals Tribunal ('AAT'), constituted by Deputy President Block, given on 10 May 2004: [2004] AATA 451; ATC 123; 55 ATR 1170. Subject to one minor exception concerning penalties, the AAT upheld the decision of the respondent ('the Commissioner') disallowing objections by the applicant ('the Taxpayer') to assessments in respect of four taxation years, namely those ending 31 December 1992 to 31 December 1995 ('the Relevant Years'). 2 The Taxpayer claimed to be entitled to deduct from its assessable income in each of the Relevant Years losses that had been incurred in prior taxation years. For the taxation years 1992 to 1994, the Taxpayer deducted losses that it had incurred in the 1990 and 1991 years. In the 1995 taxation year, the Taxpayer deducted a loss transferred from Tech Pacific Australia Pty Ltd ('TPA'), a company related to the Taxpayer, which TPA had incurred in the 1990 tax year. 3 The losses deducted in the 1992 to 1994 taxation years were claimed by the Taxpayer pursuant to s 79E(3) of the Income Tax Assessment Act 1936 (Cth) ('ITAA'). The loss years and the recoupment years for the losses incurred by the Taxpayer are shown in the following table: Loss Year Amount of loss incurred in loss year Recoupment year Amount of loss recouped in recoupment year 31/12/1990 $4,336,976 31/12/1992 $1,435,993 31/12/1993 $2,900,983 31/12/1991 $3,722,857 31/12/1993 $717,318 31/12/1994 $3,005,539 4 The Taxpayer claimed the transferred loss as a deduction pursuant to s 80G(6) of the ITAA. The transferred loss of $3,311,495 was incurred in the 1990 taxation year. The Taxpayer sought to recoup the transferred loss in the 1995 taxation year. 5 It was common ground before the AAT and in this Court that the Taxpayer could not claim deductions in the Relevant Years for the prior losses incurred by it, or the transferred loss, unless it satisfied the continuity of business test laid down in s 80E of the ITAA. Section 80E(1), as in force at all material times, provided as follows: 'Subject to subsection (2), where – (a) the whole or a part of a loss incurred by a taxpayer, being a company, in a year before the year of income would not, but for this section, by reason of a change that has taken place in the beneficial ownership of shares in the company or in any other company, be taken into account for the purposes of section 79E, 79F, 80, 80AAA or 80AA; (b) the first-mentioned company carried on at all times during the year of income the same business as it carried on immediately before the change referred to in paragraph (a) took place; and (c) the first-mentioned company did not, at any time during the year of income, derive income from a business of a kind that it did not carry on, or from a transaction of a kind that it had not entered into in the course of its business operations, before the change took place, sections 80A and 80DA do not prevent the whole of the loss being so taken into account.' Section 80E(2) of the ITAA is not relevant to the present case. 6 It will be seen that s 80E(1) of the ITAA imposes four requirements, each of which must be satisfied if the prior losses can be claimed in a later year by a taxpayer. The four requirements are as follows: (i) a change has taken place in the beneficial ownership of shares in the taxpayer or another company which, apart from s 80E, would disqualify the taxpayer from claiming a deduction for a prior year loss ('the disqualifying change'); (ii) the taxpayer carried on at all times during the recoupment year the same business as it carried on immediately before the disqualifying change took place ('same business test'); (iii) the taxpayer did not at any time during the recoupment year derive income from a business of a kind that it did not carry on before the disqualifying change took place ('new business test'); and (iv) the taxpayer did not at any time during the recoupment year derive income from a transaction of a kind that it had not entered into in the course of its business operations before the disqualifying change took place ('new transaction test'). 7 The AAT found that the Taxpayer did not satisfy the same business test specified in s 80E(1)(b) of the ITAA and thus upheld the Commissioner's decision disallowing the objections. 8 The Taxpayer contended in this Court that the AAT erred in law in reaching this conclusion. The Taxpayer said that if its contentions were accepted, the matter should be remitted to the AAT, differently constituted, to be determined according to law. Mr Edmonds SC, who appeared with Ms Collins for the Taxpayer, acknowledged that the Taxpayer will not be able to succeed in the remitted proceedings unless, in addition to satisfying the same business test (s 80E(1)(b)), it also satisfies the new business and the new transaction tests (s 80E(1)(c)). the facts 9 The AAT's reasons are lengthy and include substantial extracts from the submissions made by the parties. The reasons do not set out the material facts in chronological order. However, there was no dispute as to the major events. 10 The Taxpayer was incorporated on 5 September 1988. In March 1989, it changed its name to Imagineering Telecommunications Pty Ltd. At that time, it was a wholly owned subsidiary of Imagineering Technology Ltd ('Imagineering'). The Taxpayer acquired its present name (TelePacific Pty Ltd) on 25 June 1991. 11 In November 1989, First Pacific Company Ltd ('First Pacific'), a Hong Kong corporation, acquired through its Australian subsidiary, Cranhaven Pty Ltd ('Cranhaven'), 27.7 per cent of the issued share capital of Imagineering. 12 In early 1991, the Taxpayer operated from premises in Sydney, which it shared with Imagineering. The Taxpayer had a staff of approximately 26 people. At that time, the Taxpayer's business was primarily that of a wholesale distributor of telecommunications products, including mobile phones, most of which it imported as finished products or in the form of components. The Taxpayer sold mobile phones to dealers throughout Australia and did not sell directly to consumers or 'end-users'. The Taxpayer also provided a warranty service and gave advice and provided other support services to retailers. 13 On 26 February 1991, Cranhaven entered into an 'Election Agreement' with three companies associated with a Mr Jodee Rich. The companies, between them, held 21.5 percent of the issued capital of Imagineering. Under the agreement, the companies elected to receive bills of exchange as the consideration for their shares 'in the interests of securing a cash Offer for the remaining shareholders of Imagineering'. 14 On 28 February 1991, First Pacific, through Cranhaven, made a takeover offer for all the shares in Imagineering that it did not already hold. By the time of the takeover offer, Cranhaven held 45 percent of the issued capital of Imagineering and had appointed a majority of the board of directors of that company. 15 On 24 May 1991, Cranhaven declared its Part A offer unconditional. On 30 May 1991, Cranhaven extended the period for acceptances of the offer until 11 June 1991. On 31 May 1991, Cranhaven informed the shareholders of Imagineering that it had acquired 87 per cent of the shares in the company. 16 On 21 June 1991, Cranhaven issued bills of exchange, accepted by Chenread Pty Ltd, for a total sum of $472,200 as the consideration for the purchase of the Rich companies' shares in Imagineering. 17 On 3 May 1991, several weeks before Cranhaven's offer was declared unconditional, four companies within the Phillip Ross Communications Group, as sellers, and Tricom Pty Ltd ('Tricom'), as purchaser, entered into Heads of Agreement. The Heads of Agreement recited that the sellers were engaged in the conduct of two separate businesses. One was a dealership in mobile phones; the other consisted of the provision of paging and networking services. (I refer to these collectively as the 'Phillip Ross Business'). The Heads of Agreement recorded that, subject to the fulfilment of a number of conditions precedent, the parties had agreed that the sellers would sell to the purchaser certain assets in consideration of the purchaser assuming the liabilities of the sellers. 18 The AAT found (at [28]) that Imagineering had attempted to reserve the name 'Tricom', but in fact no company of that name had ever existed. The AAT proceeded on the basis that the Heads of Agreement had been entered into by the Taxpayer under a name which it had hoped to use. 19 On 27 August 1991, the sellers under the Heads of Agreement, and the Taxpayer executed what the AAT described as a 'lengthy and comprehensive agreement' (the 'Sale Contract'). Under the Sale Contract, the sellers agreed to sell the assets of 'the Business' carried on by the sellers including plant and equipment, goodwill, leases, licences, contracts, records, book debts and 'all other property and assets of the [sellers] connected with the Business'. The Sale Contract was expressed to take effect from 30 April 1991. 20 On 4 October 1991, the Taxpayer and Telecom entered into a 'MobileNet Dealership Agreement'. Under the agreement, the Taxpayer was appointed as an approved Telecom MobileNet Dealer. the aat's reasons 21 By reference to the Commissioner's written submissions (which the AAT said 'were not controversial'), the AAT identified (at [8]) five issues in the proceedings: '(a) the identification of the date in 1991 on which the disqualifying change in the beneficial ownership of shares in [Imagineering], the parent company of the [Taxpayer] occurred; (b) whether the [Taxpayer] carried on at all times in each of the [R]elevant [Y]ears the same business as it carried on immediately before the disqualifying change; (c) whether the [Taxpayer] at any time during the [R]elevant [Y]ears derived income from a business of a kind that it did not carry on before the disqualifying change occurred; (d) whether the [Taxpayer] at any time during the [R]elevant [Y]ears derived income from a transaction of a kind that it had not entered into in the course of its business operations before the disqualifying change occurred; (e) whether the penalties imposed by the [Commissioner] are excessive.' 22 By reference to the same submissions, the AAT stated that issues (c) and (d) would not arise if it found in the Commissioner's favour on issue (a). Issues (c) and (d) related to whether the Taxpayer satisfied, respectively, the new business and the new transaction tests stated in s 80E(1)(c) of the ITAA. Part B of the Reasons 23 The AAT addressed issue (a) (the date of the disqualifying change) in Part B of its reasons. The AAT identified the competing dates as 24 May 1991, the date the Part A offer for the shares in Imagineering became unconditional, and 21 June 1991, the date the Rich companies received payment for their shares in Imagineering. The Commissioner supported the earlier date; the Taxpayer the later date. 24 The AAT found (at [25]) that the disqualifying change took place on the earlier date, namely 24 May 1991. However, the AAT also stated that nothing turned on this question and that if the later date were correct, its decision would not have altered in consequence. Part C of the Reasons 25 In Part C of its Reasons, the AAT considered the arrangements by which the Taxpayer had acquired the Phillip Ross Business. The AAT observed (at [26]) that the precise date of the acquisition of the Phillip Ross Business 'was always going to be an important issue'. Later it said (at [37]) that the important issue was not so much the actual date of acquisition, but whether the business had been acquired before or after the date of the disqualifying change (on the AAT's findings, 24 May 1991). If the Phillip Ross Business had been acquired after the disqualifying change, it became 'difficult, if not impossible' for the Taxpayer to satisfy the same business test. 26 The Taxpayer had submitted that the AAT should find that the Phillip Ross Business had been acquired on 3 May 1991 (the date of execution of the Heads of Agreement), while the Commissioner had submitted that the appropriate date was 27 August 1991 (the date of execution of the Sale Contract). 27 The AAT found that the Heads of Agreement was no more than 'an agreement to agree'. Among other things, one of the conditions precedent required the transaction to be approved by First Pacific. In any event, as the AAT pointed out, the Heads of Agreement specifically recorded that the parties did not intend to create any legal obligations. 28 The AAT made the following additional findings (at [38]-[39]): * Although the Sale Contract recorded that the Taxpayer had operated the Phillip Ross Business under licence as from 30 April 1991, the Heads of Agreement contained no such provision and there was no evidence of any kind as to a licence arrangement being in force at the time of entry into the Heads of Agreement. * In late May 1991, Cranhaven conducted a due diligence inquiry into the Phillip Ross Business. Had the Taxpayer acquired the business on 3 May 1991, as it contended, there would have been no need to conduct a due diligence inquiry later in the month. * The Taxpayer did indeed take possession of the Phillip Ross Business as from 3 May 1991, but the basis upon which it did so was unclear. However it was clear that the Taxpayer was not bound to acquire the Phillip Ross Business during this period. * The Taxpayer, after taking possession of the Phillip Ross Business, acted in a manner which indicated that it had taken control. Nonetheless, there were a number of questions to which the evidence provided no answers: 'What would have occurred if the Sale Contract had never been executed[,] or having been executed its conditions not fulfilled? Who would have been entitled to the profits (if any) derived after 3 May 1991[,] or perhaps 30 April 1991, and who correspondingly would have been responsible for losses (and for that matter liabilities)?' * The most that could be said on the evidence was that the Taxpayer 'was engaged on some basis in the activities of the … Business prior to acquisition'. 29 The AAT recorded the Commissioner's submission that the Taxpayer had taken possession of the Business 'on an exploratory basis and in order to determine whether it wished to acquire the … Business'. The AAT referred to Goodman Fielder Wattie Ltd v Federal Commissioner of Taxation (1991) 29 FCR 376, at 387, where it was held, on the facts of that case, that the taxpayer had been engaging in activities 'of a provisional kind only'. 30 The AAT found that the disqualifying change had preceded the acquisition of the Phillip Ross Business. It continued as follows (at [41]): 'Insofar as the [Taxpayer] conducted the activities of the [Phillip Ross] Business before it acquired that business, it cannot be said that those activities were business activities in particular because the [Phillip Ross] Business did not at that stage belong to the [Taxpayer]. Section 80E(1) of the [ITAA] in specific terms refers to business activities.' (Emphasis added.) Part D of the Reasons 31 In Part D of its reasons, the AAT set out the law as to the same business test. Mr Edmonds did not suggest that the AAT misstated the law in any way. However, he pointed out that in the course of discussing the authorities, the AAT had referred to the judgment of Sheppard J in J Hammond Investments Pty Ltd v Federal Commissioner of Taxation (1977) 31 FLR 349. Hammond Investments was a case concerned not with the same business test, but with the new transaction test under legislation drafted in substantially the same terms as s 80E(1)(c) of the ITAA. 32 The AAT observed (at [51]) that the Taxpayer had consistently argued that it had been involved in the telecommunications business and that the Phillip Ross Business involved a similar business. The AAT held, however, that the decided cases made it clear this was not of itself sufficient to satisfy the same business test. It accepted (at [50]) the Commissioner's submission that the Taxpayer had made the error of singling out an aspect of its activities when it sought to characterise its business as being 'a distributor of telecommunications equipment and the provision of telecommunications services'. 33 The AAT also found (at [53]) that if, contrary to its view, the Phillip Ross Business had been acquired prior to the date of the disqualifying change: 'there were other changes in the years which followed which were fundamental and were indicative of far more than mere organic growth. The various Telstra agreements constituted the most important of those changes because in consequence of the Telstra contracts the [Taxpayer] became, to a large extent an agent for Telstra in relation to the sale of Telstra stock.' The AAT said that it would return to the Telstra agreements in Part I of its reasons. Parts E to H of the Reasons 34 In Parts E to H of its reasons, the AAT dealt with aspects of the oral and documentary evidence. It rejected certain evidence given by the former managing director of the Taxpayer, Mr Baillie, as inconsistent with contemporary records. The AAT also rejected some evidence given by the former financial controller of the group of which the Taxpayer formed part. 35 The findings recorded in Part E of the reasons include the following (at [54]-[59]): * In early 1991, the Taxpayer carried on business from its premises in Sydney as a wholesaler. It sold mobile phones, ordinary telephones and telephonic equipment, as well as providing services under warranty. * The Taxpayer made some sales outside New South Wales, but they were 'infrequent'. * The managing director's evidence that the retail operations of the Phillip Ross Business had been closed down within twelve weeks of the Taxpayer acquiring the business was incorrect. The business acquired by the Taxpayer was that of a retailer. * The Phillip Ross Business was in important respects very different from the business of the Taxpayer. In particular: '[i]ts customer base was different; its product was different; it was a retailer where the [Taxpayer] was a wholesaler and its area of operations was much wider. It had many more staff, and particularly sales staff, many of whom were absorbed into the [Taxpayer's] business. And perhaps most importantly of all, it was the key … to the Motorola rights and the evidence … was that Motorola products were more desirable than those of Technophone [previously distributed by the Taxpayer]'. 36 The AAT expressed its conclusions as follows (at [60], [62]): '60 Because the [disqualifying] change took place prior to the acquisition of the [Phillip Ross] Business, it cannot be said that the Taxpayer's business activities were the same as those carried on prior to the relevant change. The most that could be said in that event is that in a general way each of the two businesses had something in common and that is that each was involved in the telecommunications business, albeit at different economic levels. The [Taxpayer] has consistently throughout these proceedings adopted a "broad brush" approach and so as to contend that the fact that the two businesses had telecommunications in common was sufficient. 62. The [Commissioner] contends … that in taking possession of the [Phillip Ross] Business prior to the Sale Contract the [Taxpayer] was engaged in activities of a preliminary or investigatory nature and moreover that they did not form part of the [Taxpayer's] business at that time because the element of commitment was lacking. I agree with that contention.' Part I of the Reasons 37 In Part I of the AAT's reasons, it considered changes that had taken place in the Taxpayer's business during the period 1992 to 1995. The AAT made it clear that it was addressing this question on the assumption (contrary to its earlier findings) that the Phillip Ross Business had been acquired before the disqualifying change. That is, the AAT proceeded on the assumption that the Taxpayer, as it claimed, had acquired the Phillip Ross Business on 3 May 1991. 38 The AAT commenced this section of its reasoning by extracting the whole of Appendix C of the Commissioner's written submissions to the AAT. This extract was preceded by the observation (at [88]) that the contentions in Appendix C 'appear to me to be accurate'. 39 Appendix C of the Commissioner's submissions referred to some of the factual matters that had already been addressed by the AAT. For example, Appendix C invited the AAT to find that the Taxpayer had conducted retail sales for a considerably longer period than had been suggested by Mr Black. Appendix C also identified what the Commissioner said were the main differences between the business carried on by the Taxpayer in each of the Relevant Years, compared to the business it conducted immediately before 24 May 1991 (the date of the disqualifying change). 40 Appendix C considered at length the significance of the October 1991 Telstra Agreement, pursuant to which the Taxpayer had been appointed an approved Telecom MobileNet Dealer for the whole of Australia. Appendix C asserted that although the revenue derived from the Telstra Agreement had been low at first, it had increased significantly over the period 1992 to 1995. By 1995 (so Appendix C submitted), revenue derived from the Telstra Agreement was equivalent to, if not greater than, the Taxpayer's gross margins from the sale of mobile phones, notwithstanding that the gross revenue derived from the sale of mobile phones was very much greater. 41 The AAT said (at [89]) that the contractual arrangements with Telstra referred to in Appendix C 'were of particular importance'. The arrangements with Telstra had provided an important source of revenue which, as the Commissioner had contended, may have exceeded the Taxpayer's profit on the sale of mobile phones. Moreover, the Telstra Agreement was important because it allowed the Taxpayer to act as agent for the sale of Telstra stock, thereby relieving the Taxpayer, to that extent, of the cost of carrying its own stock. 42 The AAT expressed its conclusions on this aspect of the case as follows: '91. It follows then that, on the basis assumed for the purposes of this Part I, the [Taxpayer] was at the date of the [disqualifying change] engaged primarily in the sale of mobile telephones, ordinary telephones and other telecommunications equipment. In relation to mobile telephones, it was engaged in sales by wholesale and also by retail. The retail arm was terminated, notwithstanding Mr Black's evidence to the contrary, only in June 1992 … when the [Taxpayer] became once again a pure wholesaler… 92. But there were other and very significant developments as set out in this Part which transformed the [Taxpayer's] business from that of only a seller of its own stock to, and to a considerable extent, that of an agent for Telstra. That shift alone was sufficiently fundamental to ensure that the [Taxpayer] could not in the succeeding [R]elevant [Y]ears pass the same business test. When considered in conjunction with all of the other developments set out in this Part I, a finding to this effect becomes all the more obvious.' the grounds of appeal 43 The amended notice of appeal identified five grounds, as follows: '(i) The Tribunal erred in concluding that the change in the beneficial ownership of the relevant shares in [Imagineering] took place on 24 May 1991 rather than on 21 June 1991… (ii) If it be relevant, the Tribunal erred in concluding that the [Taxpayer] was not carrying on the erstwhile businesses of the Phillip Ross companies before 27 August 1991 because until that date "it did not own it"… The Tribunal's error equates a business to a proprietary right capable of ownership when it is nothing more than a factual characterization of a course of activity or conduct. (iii) The Tribunal erred in construing "the same business" test in [s] 80E, by reference to decided cases, as requiring more than compliance with characterization of the [Taxpayer's] business as being "a distributor of telecommunications equipment and the provision of telecommunication services", having regard to the legislative purpose underlying the insertion of [s] 80E of the [ITAA]. (iv) The Tribunal erred in conflating the "new transaction test" in the second limb of [s] 80E(1)(c) in applying the "same business test" in [s] 80E(1)(b). (v) The Tribunal erred in failing to include in its reasons for decision sufficient or proper findings on material questions of fact and a reference to the evidence or other material on which those findings were based contrary to the requirements of [s] 43(2B) of the Administrative Appeals Tribunal Act 1975 [(Cth)].' 44 The Taxpayer did not press the first ground of appeal. Mr Edmonds accepted that even if the correct date of the disqualifying change was 21 June 1991 (as the Taxpayer contended), the AAT's other findings, unless set aside, would inevitably have caused the Taxpayer to fail. Accordingly, even if the AAT erred in law on this aspect of its reasoning, the error could not have affected the decision and was therefore immaterial for the purposes of s 44(1) of the AAT Act: see BTR Plc v Westinghouse Brake and Signal Company (Australia) Ltd (1992) 34 FCR 246, at 253-254, per Lockhart and Hill JJ. 45 The fourth and fifth grounds of appeal were directed principally to Part I of the AAT's reasons although the fourth ground may also have applied to the findings in Part E of the AAT's reasons. It will be recalled that the AAT there found that the changes to the Taxpayer's business that had occurred over the period 1992 to 1995 had transformed the nature of its business from that conducted immediately before the disqualifying change. The AAT therefore concluded that the Taxpayer was unable to satisfy the same business requirement laid down in s 80E(2)(b) of the ITAA. 46 Mr Edmonds ultimately did not dispute that if the Taxpayer's attack on the AAT's findings in Part I failed, the Taxpayer could not succeed in its appeal to this Court. This followed from the fact that the AAT's findings in Part I constituted an independent basis for its conclusion that the Taxpayer did not satisfy the same business test of s 80E(1)(b) of the ITAA. reasoning 47 I propose to address the remaining grounds of appeal in the order Mr Edmonds dealt with them in his oral argument on behalf of the Taxpayer. ground 5: LACK OF FINDINGS 48 The Taxpayer submitted that the AAT's conclusions in Part I of its reasons for decision were affected by an error of law, in that the AAT had failed to make sufficient or proper findings on material questions of fact and had failed to refer to the evidence or other material on which those findings were based. This failure was said to contravene the requirements of s 43(2B) of the AAT Act and to warrant setting aside the AAT's decision. Section 43(2B) of the AAT Act provides as follows: 'Where the Tribunal gives in writing the reasons for its decision, those reasons shall include its findings on material questions of fact and a reference to the evidence or other material on which those findings were based.' 49 The Taxpayer submitted that the AAT had simply extracted the whole of Appendix C of the Commissioner's submissions and had not made any findings of fact as to the matters referred to in Appendix C. Even if the AAT had adopted the Commissioner's submissions, it had not made findings on critical issues. In particular, according to Mr Edmonds, the AAT had made no findings as to: * the 'identity' of the Taxpayer's business immediately before 24 May 1991 or 21 June 1991 (being the alternative dates of the disqualifying change); * the 'identity' of the Taxpayer's business in each of the Relevant Years. 50 Mr Edmonds relied on authorities in this Court holding that s 43(2B) of the AAT requires the AAT not only to make specific findings of fact, but to explain what evidence it has accepted or rejected. For example, in Copperart Pty Ltd v Federal Commissioner of Taxation [1993] ATC 4779, cited by Mr Edmonds, Hill J said (at 4781): 'The failure of the Tribunal to make findings of material facts constitutes a breach of s 43(2B) of the Administrative Appeals Tribunal Act 1975 and an error of law, justifying the setting aside of the Tribunal's decision and the remission of the matter to the Tribunal for reconsideration … The obligation under s 43(2B) is not satisfied by a statement of the Tribunal's conclusion of fact. The parties are entitled to know what evidence the Tribunal accepted and what evidence it took into account. Likewise, the parties are entitled to know what evidence the Tribunal rejected. Without this knowledge the parties will have but an incomplete idea of the Tribunal's process of reasoning and a lessened respect for the Tribunal's decision-making process.' See also De Domenico v Marshall (1999) 94 FCR 97, at 117, per Madgwick J (with whom Spender and Dowsett JJ agreed) affirming Hill J's comments. 51 On one view, the Taxpayer's submissions invited the Court to hold that the AAT breached s 43(2B) of the AAT Act by failing to make findings on material issues, whether or not those issues were critical to the reasoning of the AAT. If the submissions were intended to advance this contention, they did not take account of the High Court's decision in Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323. Yusuf concerned the construction of s 430(1) of the Migration Act 1958 (Cth) ('Migration Act'), the language of which is similar to that of s 43(2B) of the AAT Act. In particular, s 430(1)(c) and (d) of the Migration Act require the Refugee Review Tribunal to set out 'the findings on any material questions of fact' and to 'refer to the evidence or any other material on which the findings of fact were based'. 52 A majority of the High Court in Yusuf held that s 430(1)(c) of the Migration Act does not require the Tribunal to record findings on all questions of fact that might objectively be regarded as material. The provision merely obliges the Tribunal to set out its findings on those questions of fact which it considers to be material to the decision it has made and to the reasons it has for reaching that decision: at 346 [68], per McHugh, Gummow and Hayne JJ (with whom Gleeson CJ agreed). The joint judgment pointed out (at 346 [69]) that this construction gives s 430(1) sensible work to do: 'It ensures that a person who is dissatisfied with the result at which the Tribunal has arrived can identify with certainty what reasons the Tribunal had for reaching its conclusion and what facts it considered material to that conclusion. Similarly, a court which is asked to review the decision is able to identify the Tribunal's reasons and the findings it made in reaching that conclusion. The provision entitles a court to infer that any matter not mentioned in the s 430 statement was not considered by the Tribunal to be material. This may reveal some basis for judicial review… For example, it may reveal that the Tribunal made some error of law…' 53 Later decisions in this Court have held that the reasoning in Yusuf should be applied to the construction of s 43(2B) of the AAT Act: Beringer Blass Wine Estates Ltd v Geographical Indications Committee (2002) 125 FCR 155, at 182-183 [102], per curiam; Appellant V324 of 2004 v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 259, at [8], per Hill and Allsop JJ (Stone J agreeing); Comcare v Mathieson (2004) 79 ALD 518, at 531 [61]-[64], per Weinberg J; Tate v Repatriation Commission [2003] FCA 1169 at [38], per Cooper J. It follows that the Taxpayer's submissions, to the extent that they presuppose that the AAT is bound to do more than record the findings of fact it actually makes, are inconsistent with the holding in Yusuf. 54 However, I understood the Taxpayer also to argue that the AAT had failed to record the findings of fact it actually made. Such a failure would breach the AAT's obligations under s 43(2B) of the AAT Act: Comcare v Mathieson, at 531 [64]. Whether such a breach, of itself, is enough to constitute a material error of law for the purposes of s 44(1) of the AAT Act (as distinct from merely having the consequences identified to in Yusuf)does not appear to have been authoritatively decided. The better view, however, would seem to be that if the AAT does not record the findings of fact it has actually made and this failure makes it impossible to ascertain the AAT's reasoning processes, its decision would be materially affected by an error of law. This view is consistent with the reasoning in Yusuf: see at 348-350. 55 In determining whether the AAT complied with its obligations under s 43(2B) of the AAT Act it is necessary to read the reasons as a whole: Bisley Investment Corporation Ltd v Australian Broadcasting Tribunal (1982) 59 FLR 132, at 152, per Lockhart J (with whom Sheppard J agreed). The reasons are of course to be approached in a balanced way and not 'with an eye keenly attuned to the perception of error': Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280, at 286-287, per curiam; Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259, at 271-272, per Brennan CJ, Toohey, McHugh and Gummow JJ. 56 In my view, the AAT's reasons comply with the requirements of s 43(2B) of the AAT Act. There are no doubt dangers in a tribunal setting out extensive submissions made by a party and reasoning by reference to them, unless it is made clear precisely which submissions the AAT accepts and why. In this case, it is clear enough that the AAT intended to adopt as accurate the analysis in Appendix C of the Commissioner's submissions. The only sensible construction to give to the AAT's statement that the contentions 'appears to me to be accurate' is that the AAT member adopted as his own the proposed findings of fact contained in the submissions. This should be contrasted, for example, with the position in Copperart, where the AAT recorded submissions without making it clear which submissions were accepted: see at 4,789, per Hill J. 57 In any event, the AAT did not simply adopt the Commissioner's submissions. Contrary to the Taxpayer's contentions in this Court, the AAT made a finding as to the nature of the Taxpayer's business at the date of the disqualifying change. The AAT found that at that time the Taxpayer carried on business as a wholesaler of telecommunications equipment, including mobile phones, ordinary telephones and telephonic equipment (at [33], [54]). In Part I of its reasons, the AAT expressly found, on the assumption that the Phillip Ross Business has been acquired before the date of the disqualifying change, that the Taxpayer was engaged in the business of selling mobile phones, ordinary telephones and other telecommunications equipment and that it was engaged in sales of mobile phones both by retail and wholesale (at [91]). It is of no significance that in Part I the AAT did not expressly identify the precise date of the disqualifying change. Whether it was 24 May 1991 or 21 June 1991 was of no moment. 58 The Taxpayer criticised the AAT for not making findings as to the 'identity of the [Taxpayer's] business at all times during each of the [Relevant Years]'. But as the Commissioner pointed out, it was not necessary for the AAT to make a finding as to the 'identity' of the Taxpayer's business during each of the Relevant Years. The question it had to address was whether in each of the Relevant Years the Taxpayer carried on the same business as it had immediately before the date of the disqualifying change. It did so in Part I of the its reasons on the assumption that the Phillip Ross Business had been acquired before that date. 59 As I have noted, the AAT found that the contractual arrangements with Telstra, which had been entered into in October 1991, were of 'particular importance' (at [89]). It found that after that date the nature of the Taxpayer's business had been 'transformed' from that of a seller of its own stock to that of an agent for Telstra (at [92]). Appendix C, which the AAT accepted as accurate, set out in some detail the consequences of the Telstra Agreement for the Taxpayer's business, and 'corporate strategy' by reference to documentary evidence. In the AAT's view, the shift in the Taxpayer's business, of itself, was sufficiently fundamental to ensure that the Taxpayer could not pass the same business test (at [92]). 60 The AAT's conclusions may have been right or wrong as a matter of fact. It cannot be said, however, that the AAT failed to include its findings on the material questions of fact or to refer to the evidence on which these findings were based. Much less can it be said that the AAT's reasoning on this issue cannot be followed. The reasons are sufficient to enable the Taxpayer to know why, on the assumption that the Phillip Ross Business was acquired before the disqualifying change, the AAT found that the Taxpayer did not satisfy the same business test in s 80E(1)(b) of the ITAA. It did so because it took the view that the contractual arrangements with Telstra, entered into after the disqualifying change, had transformed the nature of the Taxpayer's business. 61 I should add that the Taxpayer criticised the AAT's finding that the revenue derived from the Telstra Agreement was equivalent by 1995 to the Taxpayer's gross margins from the sale of mobile phones. However, the criticism appeared not to come to grips with the fact that the AAT was comparing gross profits from each source rather than gross revenue from each source. In any event, any error by the AAT was merely one of fact and did not amount to an error of law for the purpose of s 44(1) of the AAT Act. Ground 4: CONFLATION OF THE TESTS 62 The Taxpayer's written submissions did not specifically address the fourth ground of appeal, namely that the AAT had erroneously conflated the new transaction test (s 80E(1)(c)) with the same business test (s 80E(1)(b)). However, Mr Edmonds advanced this argument in the course of oral submissions. 63 In Part D of it reasons, the AAT cited the well-known observations of Gibbs J in Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97, at 105: 'The meaning of the phrase "same as", like that of any other ambiguous expression, depends on the context in which it appears. In my opinion in the context of the section the words "same as" import identity and not merely similarity and this is so even though the legislature might have expressed the same meaning by a different form of words. It seems to me natural to read the section as referring to the same business, in the sense of the identical business…' The AAT quoted from other authorities, including the discussion of the expression 'carrying on business' in Hope v Bathurst City Council (1981) 144 CLR 1, at 8-9, per Mason J (with whom the other members of the Court agreed). The AAT accepted (at [49]) that: 'the concept of a "business" relates to activities undertaken as a commercial enterprise and as a going concern and being activities for profit on a continuous basis. It is therefore necessary to examine all of the activities carried on in the course of that business. To single out any particular activity would be incorrect…' 64 Mr Edmonds made no criticism of this analysis. In essence, his argument rested on the fact that in Part D of the reasons, the AAT discussed at some length the different views expressed by Sheppard J and Campbell J as to the construction of s 80E(1)(c) of the ITAA: see Hammond Investments, at 355, 359, per Sheppard J; cf Fielder Downs (WA) Pty Ltd v Federal Commissioner of Taxation [1980] Qd R 283, at 292-293, per WB Campbell J. 65 It is, perhaps, a trifle odd that the AAT, under the heading of 'The Law as to the Same Business Test' discussed the construction of s 80E(1)(c) of the ITAA. The AAT appears to have done so because the Taxpayer had referred to the two cases in its submissions and the AAT felt it appropriate to analyse the cases even though it ultimately did not need to apply the same transaction test to the circumstances of the present case. 66 Be that as it may, there is nothing in the AAT's reasons to suggest that it failed to appreciate that Hammond Investments and Fielder Downs were concerned with the new transaction test, rather than the same business test. In Part I, the AAT concluded (at [92]) that the developments discussed there had 'transformed' the Taxpayer's business in a 'fundamental' way. The AAT referred to the Taxpayer's inability to satisfy the 'same business test', an expression it has previously said, by reference to the Commissioner's submissions, meant the test stated in s 80E(1)(b) of the ITAA. There is nothing in Part I of the AAT's reasons to suggest that it did anything other than apply the principles governing the construction of s 80E(1)(b) set out in Part D of the reasons. 67 It may have been clearer if the AAT had discussed Hammond Investments and Fielder Downs in a separate section of its reasons and expressly stated that it did not need to express a final view as to the construction of s 80E(1)(c) of the ITAA. But at worst the AAT's treatment by s 80E(1)(c) was not as well organised as perhaps it might have been. The submission that the AAT 'conflated' the same business and the new transaction tests therefore fails. The Appeal Must be Dismissed 68 As I have noted, the Taxpayer accepted that the AAT's findings recorded in Part I of its reasons, if immune from challenge, provide an independent basis for affirming the Commissioner's disallowance of the Taxpayer's objections. Since the Taxpayer's attacks on the AAT's findings recorded in Part I of its reasons have not succeeded, the appeal to this Court must be dismissed. Nonetheless, for the sake of completeness, I shall deal with the other grounds of appeal. ground 2: OWNERSHIP OF THE PHILLIP ROSS BUSINESS 69 It will be recalled that in Part E of its reasons, the AAT considered whether the Taxpayer satisfied the same business test on the basis that the disqualifying change had occurred before it acquired the Phillips Ross Business. The AAT found that the business activities carried on after the date of the disqualifying change were not the same as those carried on before that date, primarily because the Phillip Ross Business was in important respects different from the Taxpayer's previous business. 70 The Taxpayer submitted that these findings were flawed because they depended on the AAT's incorrect assumption that the Taxpayer could not be found to have carried on the Phillip Ross Business until it acquired ownership of the business in August 1991. Mr Edmonds contended that the AAT had wrongly focussed on the timing of the transfer of ownership of the Phillip Ross Business to the Taxpayer, instead of considering whether the Taxpayer had in fact carried on that business before the assets of the business had been acquired. Indeed, Mr Edmonds went further and contended that on the material before the AAT no conclusion was possible other than that the Taxpayer, as from early May 1991, had subsumed the activities of the Phillip Ross Business into its own business. 71 In my opinion, the AAT did not make the error attributed to it by the Taxpayer. It is true that the AAT regarded the date of acquisition of the Phillip Ross Business and, in particular, whether it preceded the date of the disqualifying change, as an important issue. But that was because the Taxpayer had argued that it had acquired the Phillip Ross Business before the date of the disqualifying change and, accordingly, by that date had effectively merged the two businesses into one. 72 Having dealt with that argument, the AAT then addressed the Taxpayer's alternative contention, namely that regardless of when the Phillip Ross Business had been acquired, the Taxpayer in fact carried on the activities of that business before the date of the disqualifying change. The AAT accepted that as a matter of fact the Taxpayer might have taken possession of the Phillip Ross Business before it legally acquired the assets. Indeed, the AAT found (at [39]) that the Taxpayer had taken possession of the Phillip Ross Business on 3 May 1991. However, the AAT considered that the difficulty facing the Taxpayer was that there were gaps in the evidence that made the basis upon which it had taken possession of the business unclear. In view of those gaps and the fact that the Taxpayer had not bound itself to acquire the Phillip Ross Business until 27 August 1991, the AAT found that the conduct of the business lacked the element of commitment required for the activities to form part of the Taxpayer's business. For that reason, the AAT concluded that the business carried on by the Taxpayer after the disqualifying change was not the same business as that carried on immediately before the change. 73 Given that the AAT did not make the error attributed to it, its finding was one of fact. It was open to the AAT to take account of the Taxpayer's lack of commitment to the Phillip Ross Business in reaching its conclusion: see Hope v Bathurst Council, at 8-9 per Mason J. Even if the facts of Goodman Fielder Wattie were distinguishable from those of the present case (as the Taxpayer contended) that would not demonstrate that the AAT had erred in law in making its finding. The AAT, having considered the facts, found that the Taxpayer's conduct of the Phillip Ross Business prior to the disqualifying change was preliminary or investigatory in character and lacked that degree of commitment necessary to change the nature of the Taxpayer's business. 74 The Taxpayer also argued that the AAT had erred in law in finding that the Sale Agreement of 27 August 1991 had effected a sale of the Phillip Ross Business, as distinct from a sale of the assets connected with the business. This error was said to have led the AAT to conclude that the Phillip Ross Business had subsisted until at least 27 August 1991, whereas in fact it had not continued beyond 30 April 1991. 75 It is not easy to see how any misapprehension by the AAT concerning the effect of the Sale Agreement could constitute an error of law vitiating the AAT's finding that the business carried on by the Taxpayer prior to the date of disqualifying change was not the same business as that conducted by it after that date. In any event, the distinction drawn by Mr Edmonds between the Phillip Ross Business and the assets of the business appears to be a distinction without a difference. When asked what other assets could have been transferred by the Sale Contract if the intent were to transfer the Phillip Ross Business, Mr Edmonds replied 'Nothing else'. In my opinion, that answer was correct. 76 Ground 2 must be rejected. GROUND 3: CHARACTERISATION OF THE TAXPAYER'S BUSINESS 77 Ground 3 was not specifically addressed in the Taxpayer's written submissions in chief. It was adverted to briefly in the Taxpayer's submissions in reply. It is not clear what, if anything, the submission added to the other grounds that have already been dealt with. The point was not developed further in oral submissions. 78 In these circumstances, there is no need to say anything more about Ground 3. conclusion 79 In order for the Taxpayer to succeed in this Court, it needed to demonstrate that the AAT's findings in both Part E and Part I of its reasons were vitiated by errors of law. The Taxpayer has not established any error of law on the part of the AAT. Accordingly, the proceedings must be dismissed. The Taxpayer must pay the Commissioner's costs of the proceedings. I certify that the preceding seventy-nine (79) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville. Associate: Dated: 4 March 2005 Counsel for the Applicant: RF Edmonds SC with E Collins Solicitor for the Applicant: Middletons Lawyers Counsel for the Respondent: BJ Sullivan SC with M Richmond Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 21 February 2005 Date of Judgment: 4 March 2005