Taxpayers win 1 of 11 appeal grounds for contractual relationship claim

The Federal Court of Australia has set aside a decision of the Administrative Review Tribunal, siding with taxpayers who claimed that its findings regarding the contractual relationship between clients and the company contained an error of law.

Justice Sarah Derrington ruled in favour of three taxpayers in a case against the Commissioner of Taxation on their first issue of appeal, but stopped short of finding that the commissioner’s objection and penalty decision were incorrectly made.

The plaintiffs to the appeal, Oday Mahdi Hasan, his wife Coryn Frances Flood, and his sister Muna Mahdi Hassan were beneficiaries and operators to wound-up, former child care business, Kids First Family Day Care Services Pty Ltd (Kids First), as trustee of the Flood Hasan Family Trust (Trust), in which it asserted that the income of the business was not under the company’s name, but simply passed through the company to reach third-party contractors.

This appeal judgment dated 7 August 2026 followed a decision by the Administrative Review Tribunal on 27 June 2025, in which the tribunal reasoned that the Family Assistance Law (FAL) imposed liability or deemed a contract to exist between the child care business and the parents.

“[Kids First] engaged third parties, referred to as “Educators”, who used, or were required to use, their own home or some other approved premises to provide child care services to parents,” the court found.

“It appears that Kids First provided certain administrative services to the Educators, such as connecting them with parents, for which it charged a fee.”

The plaintiffs said that they were not entitled to the whole income of the business, but only to that to which they were entitled, namely the relevant fees paid to them by the educators.

The court found that the first assumption by the plaintiffs was that funds from the parents were seen as just passing through the company to go to the educators; hence, it was not recorded on the income of the trust.

“The Tribunal undertook an extensive fact-finding analysis, from which it concluded that the taxpayers’ case was not made out,” Justice Derrington noted.

The first issue on appeal dealt with the contention by the taxpayers that: “The Tribunal erred by (a) purporting to determine the existence of a contractual relationship between the parents and Kids First based on the operation of the FAL, and (b) in doing so, misconstruing the FAL as creating private rights and obligations between the parties.”

“It is apparent that they were engaged as independent contractors rather than employees,” Justice Derrington said.

The court found that, in its 27 June decision, the tribunal placed an erroneous construction on section 43, which governed when an individual was eligible for the childcare benefit.

“The mischaracterisation of s 43 of the Assistance Act constitutes a legal error, which was not immaterial to the Tribunal’s conclusion. It follows that the Tribunal’s decision should be set aside for this reason,” Justice Derrington said.

Upon consideration of all evidence and the taxpayer’s 11 grounds of appeal, Justice Derrington ruled that the matter be remitted to the Administrative Review Tribunal for determination according to law, ruling that the parties should be heard as to whether the case warrants some apportionment of costs.

The case citation: Hasan v Commissioner of Taxation [2026] FCA 1072