Artistic Pty Ltd and Commissioner Of State Revenue

[2006] WASAT 39

ARTISTIC PTY LTD and COMMISSIONER OF STATE REVENUE [2006] WASAT 39

Link to Appeal :

[2008] WASCA 24 [2008] WASCA 24(S)

Jurisdiction:	STATE ADMINISTRATIVE TRIBUNAL	Citation No:	[2006] WASAT 39
Act:	TAXATION ADMINISTRATION ACT 2003 (WA)
Case No:	CC:153/2005	Heard:	7 AND 8 DECEMBER 2005
Coram:	JUDGE J CHANEY (DEPUTY PRESIDENT)	Delivered:	17/02/06
No of pages:	31	Judgment Part:	1 of 1
Result:	Applicant excluded from group
Category:	B
PDF Version

Parties:	ARTISTIC PTY LTD COMMISSIONER OF STATE REVENUE
Catchwords:	Pay­roll tax ­ Grouping provisions ­ Exclusion from group ­ Whether businesses carried on substantially independently ­ Whether just and equitable to exclude from group ­ Ownership and control of business ­ Inter­entity financial transactions ­ Businesses of separate nature ­ Hairdressing business carried on by wife ­ Electrical contracting business carried on by husband ­ Investment business carried on by family trust
Legislation:	Pay­roll Tax Assessment Act 1971 (WA), s 16D, s 16D(2), s 16D(3)(b), s 16D(3)(d), s 16D(6), s 16D(9), s 16G Pay­roll Tax Assessment Act 2002 (WA), s 32(2), s 32(3), s 32(4), s 33(2), s 33(4), s 33(9), s 34(2)
Case References:	Commissioner of Pay-Roll Tax v R G Elsegood & Co Pty Ltd [1983] 1 NSWLR 223 Commissioner of Stamps (SA) v Rivington Farms Pty Ltd (1981) 28 SASR 169 Commissioner of State (WA) Taxation v Scotford Cameron & Middleton Pty Ltd (1981) 12 ATR 406 Crusher Holdings Pty Ltd v Commissioner of Taxes (NT) (1994) 117 FLR 485 Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) (1978) 8 ATR 477 Phil Winkless Pty Ltd v Commissioner of State Taxation (WA) (1986) 17 ATR 982 Baxter and Another v Chief Commissioner of Pay­roll Tax (1986) 7 NSWLR 122 Commissioner of Payroll Tax (Qld) v John French Pty Ltd (1983) 14 ATR 228 Finance Facilities Pty Ltd v FCT (1971) 127 CLR 106 Re Federal Capital Press of Aust Pty Ltd & Commissioner for ACT Revenue (1995) 30 ATR 1108
Orders	The Tribunal will make the following orders:,1. The application is allowed.,2. DBR Holdings Pty Ltd is excluded from a group with Artistic Pty Ltd for the period 1 July 1997 to 31 December 2003 for the purposes of the Pay-Roll Tax Assessment Act 1971 and the Pay-Roll Tax Assessment Act 2002.,3. Rowson Nominees Pty Ltd is excluded from a group with Artistic Pty Ltd for the period 1 July 1997 to 31 December 2003 for the purposes of the Pay-Roll Tax Assessment Act 1971 and the Pay-Roll Tax Assessment Act 2002.

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : COMMERCIAL & CIVIL ACT : TAXATION ADMINISTRATION ACT 2003 (WA) CITATION : ARTISTIC PTY LTD and COMMISSIONER OF STATE REVENUE [2006] WASAT 39 MEMBER : JUDGE J CHANEY (DEPUTY PRESIDENT) HEARD : 7 AND 8 DECEMBER 2005 DELIVERED : 17 FEBRUARY 2006 FILE NO/S : CC 153 of 2005 BETWEEN : ARTISTIC PTY LTD

Applicant

AND

COMMISSIONER OF STATE REVENUE
Respondent

Catchwords:

Pay­roll tax ­ Grouping provisions ­ Exclusion from group ­ Whether businesses carried on substantially independently ­ Whether just and equitable to exclude from group ­ Ownership and control of business ­ Inter­entity financial transactions ­ Businesses of separate nature ­ Hairdressing business carried on by wife ­ Electrical contracting business carried on by husband ­ Investment business carried on by family trust

Legislation:

Pay­roll Tax Assessment Act 1971 (WA), s 16D, s 16D(2), s 16D(3)(b), s 16D(3)(d), s 16D(6), s 16D(9), s 16G

(Page 2)

Pay­roll Tax Assessment Act 2002 (WA), s 32(2), s 32(3), s 32(4), s 33(2), s 33(4), s 33(9), s 34(2)

Result:

Applicant excluded from group

Category: B

Representation:

Counsel:

Applicant : Mr K Robson and Mr T Czislowski
Respondent : Ms R Panetta and Ms C Mannes

Solicitors:

Applicant : Wilson & Atkinson
Respondent : State Solicitor's Office

Case(s) referred to in decision(s):

Commissioner of Pay-Roll Tax v R G Elsegood & Co Pty Ltd [1983] 1 NSWLR 223
Commissioner of Stamps (SA) v Rivington Farms Pty Ltd (1981) 28 SASR 169
Commissioner of State (WA) Taxation v Scotford Cameron & Middleton Pty Ltd (1981) 12 ATR 406
Crusher Holdings Pty Ltd v Commissioner of Taxes (NT) (1994) 117 FLR 485
Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) (1978) 8 ATR 477
Phil Winkless Pty Ltd v Commissioner of State Taxation (WA) (1986) 17 ATR 982

Case(s) also cited:

(Page 3)

Baxter and Another v Chief Commissioner of Pay­roll Tax (1986) 7 NSWLR 122
Commissioner of Payroll Tax (Qld) v John French Pty Ltd (1983) 14 ATR 228
Finance Facilities Pty Ltd v FCT (1971) 127 CLR 106
Re Federal Capital Press of Aust Pty Ltd & Commissioner for ACT Revenue (1995) 30 ATR 1108

(Page 4)

REASONS FOR DECISION OF THE TRIBUNAL:

Summary of Tribunal's decision

1 Since some time before 1 July 1997, Artistic Pty Ltd (Artistic) has been included in a group with two other entities for the purposes of payroll tax assessment. The effect of grouping companies together for that purpose is that their total wage bills are aggregated in order to determine the payroll tax amount payable by the members of the group.

2 In December 2003, the Commissioner for State Revenue (the Commissioner) reviewed the grouping following an objection to an assessment that had been received by Artistic in March 2003. The Commissioner has a discretion under the pay-roll tax legislation to exclude members from a group where he is satisfied that the business carried on by the member is substantially independent of the business carried on by any other member of the group, and also that it is just and reasonable for the member to be excluded from the group. After reviewing the grouping in December 2003, the Commissioner declined to exclude Artistic from its group. An objection to that decision was disallowed in November 2004. Artistic applied to the State Administrative Tribunal to review the Commissioner's decision.

3 Artistic carries on business as a hairdresser. It has been grouped with two other companies, one is DBR Holdings Pty Ltd which carries on business as an electrical contractor. The other is a company called Rowson Nominees Pty Ltd which acts as trustee for a family trust known as P&J Rowson Family Trust. Rowson Nominees Pty Ltd has certain share and property investments in its capacity as trustee. The business of Artistic is run, on a day-to-day basis, by Mrs Jennifer Rowson. The electrical contractors business operated by DBR Holdings Pty Ltd is run, on a day-to-day basis, by Mr Peter Rowson, Jennifer Rowson's husband. During the relevant period, Mr and Mrs Rowson were directors of both companies. They contended that the hairdressing business of Artistic was substantially independent of the businesses of either DBR Holdings Pty Ltd or Rowson Nominees Pty Ltd, and that it was just unequitable that Artistic should be excluded from the group.

4 The Commissioner contended that, by reason of certain interparty financial transactions revealed in the accounts of the different companies, their common directorships, their common use of the same accountants, the nature of shareholdings, and the relationship of each of Mr and Mrs Rowson to the different companies, they were not substantially independent and Artistic should not be excluded from the group.

(Page 5)

5 The Tribunal examined the nature and degree of ownership and control of the businesses in the group and the nature of their businesses, together with the other matters raised by the Commissioner and concluded that the hairdressing business of Artistic is carried on substantially independently of the business carried on by any other member of the group, and concluded that it is just and reasonable for Artistic to be excluded from the group.

Introduction

6 This is an application for review of a decision by the Commissioner of State Revenue (the Commissioner) not to exclude Artistic Pty Ltd (Artistic) from a group for the purpose of payroll tax assessment. The other two members of the group are DBR Holdings Pty Ltd (DBR) as trustee for the DBR Electrical Contractors Unit Trust, and Rowson Nominees Pty Ltd (Rowson Nominees) as trustee for the P&J Rowson Family Trust.

7 Each of the three companies has an association with a husband and wife, Peter Lawford Rowson and Jennifer Elizabeth Rowson. Artistic carries on the business of hairdressing, and DBR carries on the business of electrical contracting. Rowson Nominees acts as trustee for the P&J Family Trust. It has no employees. It does however conduct investment activities in shares and property.

8 Artistic contends that it should be excluded from the group because its business is carried on substantially independently of the business carried on by any other member of the group, and it is just and reasonable for it to be excluded from the group. Those circumstances, it contends, lead to the conclusion that the Commissioner should exclude Artistic from the group under s 16D(9) of the Pay-roll Tax Assessment Act 1971 (WA) (the 1971 PTA Act) which was applicable until 30 June 2003, or under s 32(3) and (4) of the Pay-roll Tax Assessment Act 2002 (WA) (the 2002 PTA Act) which applied from 1 July 2003.

The Commissioner's adjournment application

9 At the commencement of the hearing on 7 December 2005, counsel for the respondent renewed an application which I had dealt with on 2 December 2005 for an adjournment of the proceedings. In substance, the application was based upon the contention that the respondent had not had sufficient opportunity to examine all the books and records of the companies in the group to enable it to identify and track all relevant inter-entity transactions. Counsel asserted that the Commissioner was

(Page 6)

prejudiced by his inability to obtain access to all information requested by its investigating officer and principal witness, Ms Terri Aase Vincent, and in the absence of that information, the Tribunal would not have all information necessary for it to make the correct and preferable decision in relation to the review. The application for an adjournment was opposed by the applicant. As I had done on 2 December, I declined the application for adjournment, and it is appropriate that I make some observations as to my reasons for doing so.

10 It is necessary to look at the application in the context of the proceedings as they progressed to hearing.

11 The Commissioner's determination of the applicant's objection was conveyed to the applicant by letter dated 10 November 2004. An application to this Tribunal for review of that decision was instituted by the applicant on 1 February 2005. The matter was subject to directions on 10 March 2005. Pursuant to those directions an amended application was filed on 24 March 2005, and the Commissioner provided additional reasons for his decision on 15 April 2005. Those reasons included an assertion that the business of Artistic is not carried on independently of the business carried on by the Rowson Family Trust by reason of three inter-entity transactions recorded in the accounts of either Artistic or the family trust. The reasons also included the assertion that the business of Artistic is not carried on independently of the business carried on by DBR because of the existence of an inter-company transaction between the two companies in the form of an unsecured loan from one to the other. In the alternative it was asserted that, if the business of Artistic is substantially independent of the business of DBR and the Rowson Family Trust, then by reason of certain shareholdings, directorships, various other transactions including loans and advances between members of the three entities, it was not just and reasonable to exclude Artistic from the group.

12 On 16 May 2005, further directions were made by the Tribunal in relation to discovery of documents. The parties were required to file a statement of agreed facts and agreed documents by 29 July 2005. Those orders were complied with.

13 The matter came on for further directions on 9 September 2005 when the Tribunal ordered that each party file and serve witness statements by 7 October 2005, and the matter was listed for hearing for two days on 31 October and 1 November 2005.

(Page 7)

14 At that point, between 4 and 6 October 2005, the Tribunal received several emails from counsel for the respondent concerning difficulties which were being encountered in the preparation of Ms Vincent's witness statements because a full set of ledger accounts for the three entities had not apparently been provided at that stage. In the light of those emails, Judge Eckert, who had the management of the file from its inception, reconvened a directions hearing on 18 October 2005. Her Honour made directions that the applicant file and serve certain documents relating to DBR. She also directed that the applicant's accountant, Mr Disley, and Ms Vincent confer with each other for the purpose of identifying all relevant inter-entity transactions for the relevant period, 1 July 1997 to 31 December 2003. Her Honour directed that if the experts considered that further work was required to be done following their conference then they must complete and sign a joint statement in relation to all other matters and identify what further work was required to be done and notify the Tribunal and the parties of that requirement and the estimated time required to complete the further work. The joint experts statement was required to be provided to the Tribunal and the parties by 25 October 2005, and the time for filing witness statements was extended to 27 October 2005. The matter remained listed for two days commencing 31 October.

15 On 21 October 2005, the solicitors for the applicant provided the annual general ledgers for DBR for the period 1 July 1998 to 30 June 2004, the annual general ledger of the Rowson Family Trust for the same period, and under separate cover provided the annual general ledgers for DBR and Artistic for the period 1 July 1997 to 30 June 1998.

16 On 26 October 2005, the solicitors for the Commissioner wrote to the Tribunal advising that they had received a call from Ms Vincent indicating that she did not believe that she and the applicant's accountant would be in a position to complete their joint experts statement as ordered. The letter preceded "the preliminary indication to me was that the statement may take one week to complete as she is still awaiting information to be sent to her and she has numerous queries that still need to be forwarded and followed up by the Applicant's expert". The letter foreshadowed a need for a further directions hearing to deal with developments. A facsimile of 25 October 2005 from the State Solicitor's Office then sought an urgent directions hearing for the following day.

17 The Tribunal was able to accommodate that request, and brought the matter on for directions on 26 October 2005. The matter came before me as the member allocated to constitute the Tribunal for the hearing. In

(Page 8)

view of the advice from the respondent's counsel that the experts had been unable to complete their work, and that it was anticipated that, if their work was not completed, the hearing may be unnecessarily extended, I agreed to vacate the hearing dates set to commence on 31 October. An order was made directing the joint statement of experts to be filed by 11 November 2005 and extending the time for filing and serving witness statements to 25 November 2005. A direction was also made for a supplementary bundle of documents to be filed by 16 November 2005. New hearing dates were given for two days commencing on 7 December 2005.

18 On 28 November 2005, a facsimile was received from the State Solicitor's Office. Further to the directions made on 26 October 2005, the letter advised: "the Commissioner of State Revenue's expert, Ms Terri Vincent has indicated that there are a number of outstanding queries to be answered before the joint experts' statement can be finalised. Unfortunately, Ms Vincent is unable to estimate when these outstanding matters will be finalised but acknowledges that it may take some time". The letter requested a further directions hearing "to discuss how best to proceed".

19 In accordance with the request, the matter was included in the Deputy President's normal directions list which was held on 2 December 2005. Counsel for the Commissioner sought again to adjourn the hearing on the basis that Ms Vincent had not been able to obtain all information which she requested from the applicant's accountant. It was indicated that the materials that had been exchanged had identified approximately 26 transactions which Ms Vincent considered to be of significance, but some of which she was unable to fully track through the accounts. Ms Panetta, counsel for the Commissioner, advised that it was not considered that the ongoing process of conferral was likely to be productive. The parties were at odds as to whether or not full cooperation had been provided by the applicant's expert to Ms Vincent, and the experts had failed to comply with the direction to file a statement identifying the further work to be done.

20 I declined the application for an adjournment of the hearing on the basis that there was little purpose in pursuing the objective of a joint experts' statement, and on the basis that Ms Vincent should simply prepare a witness statement identifying those transactions which she asserts are significant, and for those transactions then to be examined during the course of the hearing by way of cross-examination of the applicants or their accountant as necessary. Given that the Commissioner

(Page 9)

had made the decision under review in November 2004, and provided supplementary reasons for that decision in April 2005, and then by a process of discovery and conferral with the applicant's accountants, identified further transactions upon which the Commissioner would argue that the businesses were not independent, I took the view that the Commissioner had had reasonable opportunity to prepare a case seeking to justify the decision he had taken 12 months earlier. I directed that the matter would proceed on the listed dates, but that if, during the course of the evidence, it became apparent that further information was required to enable the Tribunal to make the correct and preferable decision, the proceedings could then be adjourned.

21 Ms Vincent did, in accordance with the directions made on 2 December 2005, provide a detailed witness statement identifying some 34 inter-party transactions which she considered of significance. In respect of a number of those, she said that she had sought additional information to complete her review, but that information was not forthcoming.

22 When the matter came on for hearing and the application for adjournment was reviewed, I took the view that the preferable course was to follow the usual procedure in the Tribunal of calling experts to give evidence concurrently. Much of the evidence of both Ms Vincent and the applicant's accountant Mr Disley was not really in the nature of expert evidence but was rather simply a review of accounts. I took the view that by having both accountants deal with the individual transactions identified by Ms Vincent, Mr Disley would have the opportunity of explaining those transactions, and I would be in a position to assess whether any further information was required in order to properly appreciate the significance of particular transactions. That process was followed at hearing, and at the conclusion of the hearing I was satisfied that no further information was required in relation to the transactions, the matter could be determined on the basis of the evidence adduced at the hearing. There was, in my view, no prejudice to the Commissioner in the course.

Period of exclusion

23 The parties agreed that the period in respect of which exclusion of Artistic from the group for the purposes of the review is 1 July 1997 to 31 December 2003. As observed above, the 1971 PTA Act applied up until 30 June 2003, and thereafter the 2002 PTA Act applied.

(Page 10)

The relevant statutory provisions

24 It was common ground that the relevant provisions of the two Acts were in substance the same. Given that all but the final six months of the period of exclusion with which I am concerned in this matter were regulated by the provisions of the 1971 PTA Act, I will set out only the relevant sections of the 1971 PTA Act for the purpose of simplicity.

25 Sections 16D and 16G of the 1971 PTA Act read as follows:

"16D Grouping of commonly controlled businesses

(1) A reference in this section to 2 businesses does not include a reference to 2 businesses both of which are owned by the same person, not being a trustee or by the trustee or trustees of a trust.

(2) For the purposes of this Act, where the same person has, or the same persons have together, a controlling interest, as referred to in subsection (3), in each of 2 businesses, the persons who carry on those businesses constitute a group.

(3) For the purposes of subsection (2), the same person has, or the same persons have together, a controlling interest in each of 2 businesses if that person has, or those persons have together, a controlling interest under any of the following paragraphs in one of the businesses and a controlling interest under the same or another of the following paragraphs in the other business –


(a) a person has, or persons have together, a controlling interest in a business, being a business carried on by a corporation, if the directors, or a majority of the directors, or one or more of the directors, being a director or directors who is or are entitled to exercise a majority in voting power at meetings of the directors, of the corporation are or is accustomed or under an obligation, whether formal or informal, to act in accordance with the directions,

(Page 11)

instructions or wishes of that person or of those persons acting together;

(b) a person has, or persons have together, a controlling interest in a business, being a business carried on by a corporation that has a share capital, if that person or those persons acting together may (whether directly or indirectly) exercise, control the exercise of or substantially influence the exercise of, more than 50% of the voting power attached to voting shares issued by the corporation;

(c) a person has, or persons have together, a controlling interest in a business, being a business carried on by a partnership, if that person or those persons –


(i) owns, or own together (whether beneficially or not) more than 50% of the capital of the partnership; or

(ii) is, or are together, entitled (whether beneficially or not) to more than 50% of any profits of the partnership;


(d) a person has, or persons have together, a controlling interest in a business, being a business carried on under a trust, if that person (whether or not as a trustee of another trust) is the beneficiary, of those persons (whether or not as the trustees of another trust) are together the beneficiaries, in respect of more than 50% of the value of the interests in the trust firstmentioned in this paragraph;

(e) a person has a controlling interest in a business if, whether or not he is a trustee of a trust, he is the sole owner of the business or persons, being 2 or more trustees of a trust, have a controlling

(Page 12)

interest in a business if they are the owners of the business.

(4) Where a corporation has a controlling interest under subsection (3) in a business it shall, for the purposes of subsection (3), be deemed to have a controlling interest in any other business in which another corporation that is related to it within the meaning of section 50 of the Corporations Act has a controlling interest under subsection (3).

(5) Where –


(a) a person has, or persons have together, a controlling interest under subsection (3) in a business; and

(b) the person or persons who carries or carry on that business has or have such a controlling interest in another business,

the person or persons referred to in paragraph (a) shall, for the purposes of subsection (3), be deemed to have a controlling interest in the business referred to in paragraph (b).


(6) Where –

(a) a person is a beneficiary under a trust; or

(b) 2 or more persons together are beneficiaries under a trust,

in respect of more than 50% of the value of the interests in that trust and the trustee or trustees of that trust has or have under subsection (3) a controlling interest in a business, that beneficiary or those beneficiaries shall, for the purposes of subsection (3), be deemed to have a controlling interest in that business.


[(7) and (8) repealed]

(9) Where a member of a group is included in that group by reason of carrying on a business in

(Page 13)

which a person has, or persons have together, a controlling interest under subsection (3)(d) or subsection (6) as the beneficiary or beneficiaries under a discretionary trust, the Commissioner may, by order in writing served on the person or persons who is or are that member, exclude him or them from that group if after considering –

(a) the nature and degree of ownership and control of the businesses;

(b) the nature of the businesses; and

(c ) any other matter that the Commissioner considers relevant,

the Commissioner is satisfied that the business is carried on by him or them substantially independently of the business carried on by any other member of the group and that it is just and reasonable for him or them to be excluded from the group."

"16G Beneficiaries under discretionary trusts

A person who, as the result of the exercise of a power or discretion by the trustee of a discretionary trust or by any other person or by that trustee and other person, may benefit under that trust shall be deemed, for the purposes of section 16D, to be a beneficiary in respect of more than 50% of the value of the interests in that trust."

26 In order to understand the application of the grouping provisions to the three entities in the group, it is necessary to examine each entity. The parties agreed a number of facts in respect to each of the three companies.

Artistic

27 Artistic was incorporated on 25 June 1992. Between 29 June 1992 and 1 June 2001, Peter Rowson and Jennifer Rowson were both directors of Artistic. Jennifer Rowson provided some background to Artistic's business operation. I accept her evidence on those matters. Artistic has carried on a hairdressing business since 1994. It operated two salons during the period from 1 July 1998 to 31 December 2003. The first traded as "Salon Select" and was located at the Kannis Centre, Smart Street Mall

(Page 14)

in Mandurah. The shop was leased, and was sold in November 2001. The second salon was located at the Warnbro Fair Shopping Centre trading as "Finishing Touch", and has operated since March 1998 throughout the period of review.

28 When Peter Rowson ceased as a director of Artistic on 1 June 2001, Shiree Nicholas, Mr and Mrs Rowson's daughter, became a director with Jennifer Rowson. Jennifer Rowson has been the sole director of Artistic since 23 April 2002.

29 Mrs Rowson said, and I accept, that the only reason why her daughter, and before that her husband, were directors of Artistic was due to advice from Artistic's previous accountants, Roper Hoey, that legislation required companies to have at least two directors. That was the position prior to amendments to the corporations law in 1996. It is conceivable that Artistic's accountant was unaware of the change in position thus explaining the appointment of Shiree Nicholas as a second director for some 11 months from mid 2001.

30 Ms Nicholas gave evidence. She is a qualified real estate representative. She lived in New South Wales from 4 November 1999 to February 2002 and then in Queensland until 11 March 2003. She was thus interstate during the whole period that she held her directorship in Artistic. She said, and I accept, she has never been involved in or participated in the carrying out of the business of the company, nor has she had any involvement in what she described as her "father's electrical contractors business" in anyway whatsoever.

31 Mrs Jennifer Rowson has carried out the day-to-day management of both of Artistic's salons since 1994. She said she generally attends each salon three to four days per week and when she is not present, one of her appointed staff members at the salon attends to management in her absence. She said that neither her husband nor her daughter have ever been involved in or participated in the carrying out of the hairdressing business of Artistic. Mr Peter Rowson gave evidence to the same effect.

32 Mrs Rowson said that Artistic does not have clients who are also clients of the electrical contractors business carried on by DBR or of the business carried on by the family trust. She said, and I accept, that Artistic does not purchase any goods or services from or sell any goods or services to DBR or to the family trust nor does it purchase from suppliers in association with DBR or the family trust.

(Page 15)

33 Artistic does not share banking facilities with DBR or the family trust and each of the entities have separate bank accounts. The employees of Artistic do not perform and have never performed any services for, nor have they been employed by, the electrical contractors business nor any business carried on by the family trust. Artistic rents premises from parties who are not in any way related to DBR, Artistic itself, or the family trust.

34 Between 29 June 1992 and 1 June 2001, Peter Rowson was the secretary of Artistic, but thereafter Jennifer Rowson fulfilled that role.

35 Roper Hoey was Artistic's accountant for the period 1 July 1997 until 1 July 1999. Thereafter Disley & Co have acted as Artistic's accountants throughout the balance of the period of review and since.

36 At all relevant times, Artistic had five classes of shares comprising two ordinary shares, one C class share, one D class share, one E class share, and one F class share. Throughout the relevant period, Jennifer Rowson and Shiree Nicholas owned the two ordinary shares in Artistic. Pursuant to cl 101(1) of the articles of association of Artistic, those shares carry the right to cast votes in person or by proxy at any general meeting of Artistic. Ordinary shareholders are entitled to payment of such dividends as the directors of Artistic may from time to time recommend and as Artistic may declare. The C, D, E and F class shares are held respectively by Warren Lawford Rowson, Glenn Aaron Rowson, Shiree Nicholas and Shannon Jade Rowson, all children of Mr and Mrs Rowson. Pursuant to cl 102(1) of the articles of association, C, D, E and F class shareholders are not entitled to receive notice of or attend any general meeting of Artistic and do not have any right to vote at any general meeting of Artistic. Those shareholders are entitled to payment of such dividends as the directors of Artistic may from time to time recommend and as Artistic may declare.

37 It can be seen that Peter Rowson was not entitled to share in any dividends from Artistic.

Rowson Family Trust

38 Rowson Nominees is the trustee of the P&J Rowson Family Trust, which was established as a discretionary trust by deed stamped on 20 March 1978. Rowson Nominees was incorporated on 17 March 1978. The shareholders of Rowson Nominees are Jennifer Rowson and Peter Rowson.

(Page 16)

39 During the relevant period, Jennifer Rowson and Peter Rowson were both directors of Rowson Nominees up until 15 August 2003 when Peter Rowson became the sole director of Rowson Nominees. According to both Peter Rowson and Jennifer Rowson, Jennifer Rowson was nominated as a director of Rowson Nominees because of advice from her accountants, Roper Hoey, that companies must have at least two directors. Mrs Rowson said, and I accept, that she had not been involved in any activities carried on by Rowson Nominees, nor had she been responsible for the management or executive decisions of any business carried out by that company. Her involvement with the company has been limited to signing guarantees for bank loans to acquire real estate investments. Peter Rowson said, and I accept, that he has been the only person authorised to instruct share brokers who buy and sell shares on behalf of the family trust, and that any business carried on by the family trust is managed completely independently of the hairdressing business conducted by Artistic and the business carried out by DBR. The family trust does not employ anybody in its business.

40 Roper Hoey were the family trust's accountants for the period 1 July 1997 until 1 July 1999 when Disley& Co became its accountants. Peter Rowson is the guardian and appointor of the family trust.

41 The general beneficiaries of the family trust include Peter Rowson and Jennifer Rowson, and Warren Lawford Rowson, Shiree Nicholas, Glen Aaron Rowson and all other children of Peter Rowson.

DBR

42 DBR is the trustee of the DBR Electrical Contractors Unit Trust. The unit trust was established by deed dated 17 March 1978. Rowson Nominees as trustee for the Rowson Family Trust held all of the 50 units on issue in the unit trust. DBR was incorporated on 17 March 1978 and until 23 April 2002, both Peter Rowson and Jennifer Rowson were its two directors. Peter Rowson has been the sole director of DBR since 23 April 2002. Again, both Jennifer Rowson and Peter Rowson gave evidence, which I accept, that the reason that Jennifer Rowson was named as a director of DBR was because of advice received from Roper Hoey that it was necessary to have two directors of a proprietary company.

43 Jennifer Rowson and Peter Rowson were, at all material times, shareholders of DBR. DBR carries on the business of electrical contractors.

(Page 17)

44 Roper Hoey were DBR's accountants from 1 July 1997 to 1 July 1999. Disley & Co were DBR's accountants from 1 July 1999.

The application of the grouping provisions

45 The parties agree that the operation of s 16D of the 1971 PTA Act, and its equivalent provisions of the 2002 PTA Act, operate so as to constitute Artistic and DBR as a group, and also to constitute Artistic and Rowson Nominees as a group. The way in which the provisions operate was helpfully set out as two "scenarios" in the respondent's submissions. It is convenient to set out those scenarios to explain how the grouping provisions apply to Artistic.

Scenario 1

46 Section 16D(3)(b) of the 1971 PTA Act provides that "… persons have together, a controlling interest in a business, being a business carried on by a corporation that has a share capital, if … those persons acting together may (whether directly or indirectly) exercise, control the exercise of or substantially influence the exercise of, more than 50% of the voting power attached to voting shares issued by the corporation". Section 33(2) of the 2002 PTA Act is similarly worded.

47 Shiree Nicholas and Jennifer Rowson, as the sole shareholders in Artistic, have a controlling interest in the business carried on by Artistic by virtue of s 16D(3)(b) of the 1971 PTA Act and s 33(2) of the 2002 PTA Act.

48 Section 16G of the 1971 PTA Act states:

"A person who, as the result of the exercise of a power or discretion by the trustee of a discretionary trust or by any other person or by that trustee and other person, may benefit under that trust shall be deemed, for the purposes of section 16D, to be a beneficiary in respect of more than 50% of the value of the interests in that trust."

Section 34(2) of the 2002 PTA Act is similar to s 16G of the 1971 PTA Act.

49 Shiree Nicholas and Jennifer Rowson may benefit under the Rowson Family Trust which is a discretionary trust as a result of the exercise of a power or discretion by the trustee of the trust. Consequently, Shiree Nicholas and Jennifer Rowson are deemed to be beneficiaries in respect of more than 50% of the value of the interests in the Rowson Family Trust.

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50 Section 16D(3)(d) of the 1971 PTA Act provides:

"a person has, or persons have together, a controlling interest in a business, being a business carried on under a trust, if that person (whether or not as the trustee of another trust) is the beneficiary, or those persons (whether or not as the trustees of another trust) are together the beneficiaries, in respect of more than 50% of the value of the interests in the trust firstmentioned in this paragraph."

Section 33(4) of the 2002 PTA Act (WA) is similar to section 16D(3)(d) of the 1971 PTA Act.

51 Rowson Nominees is the sole beneficiary under the DBR Unit Trust, and consequently, has more than 50% of the value of the interests in the trust. By virtue of s 16D(3)(d) of the 1971 PTA Act and s 33(4) of the 2002 PTA Act, Rowson Nominees is said to have a controlling interest in the business carried on under the DBR Unit Trust.

52 Section 16D(6) of the 1971 PTA Act provides:

"Where-

(a) a person is a beneficiary under a trust; or

(b) 2 or more persons together are beneficiaries under a trust,

in respect of more than 50% of the value of the interests in that trust and the trustee or trustees of that trust has or have under subsection (3) a controlling interest in a business, that beneficiary or those beneficiaries shall, for the purposes of subsection (3), be deemed to have a controlling interest in that business."

Section 33(9) of the 2002 PTA Act is similar to section 16D(6) of the 1971 PTA Act.

53 Shiree Nicholas and Jennifer Rowson are both beneficiaries under the Rowson Family Trust. Rowson Nominees is the trustee of the Rowson Family Trust. Rowson Nominees has a controlling interest in the business carried on by DBR Unit Trust by virtue of s 16D(3)(d) of the 1971 PTA Act and s 33(4) of the 2002 PTA Act. Accordingly, by virtue of s 16D(6) of the 1971 PTA Act and s 33(9) of the 2002 PTA Act, Shiree Nicholas and Jennifer Rowson are deemed to have a controlling interest in the business carried on by the DBR Unit Trust.

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54 Section 16D(2) of the 1971 PTA Act provides that:

"For the purposes of this Act, where the same person has, or the same persons have together, a controlling interest, as referred to in subsection (3), in each of 2 businesses, the persons who carry on those businesses constitute a group."

Section 32(2) of the 2002 PTA Act is similar to s 16D(2) of the 1971 PTA Act.

55 Accordingly, as Shiree Nicholas and Jennifer Rowson have controlling interests in the businesses carried on by Artistic and DBR Unit Trust, the persons who carry on those businesses constitute a group. Consequently, Artistic and DBR Holdings Pty Ltd constitute a group under s 16D(2) of the 1971 PTA Act.

Scenario 2

56 Shiree Nicholas and Jennifer Rowson, as the sole shareholders in Artistic, have a controlling interest in the business carried on by Artistic Pty Ltd by virtue of s 16D(3)(b) of the 1971 PTA Act and s 33(2) of the 2002 PTA Act.

57 Further, Shiree Nicholas and Jennifer Rowson may benefit under the Rowson Family Trust which is a discretionary trust as a result of the exercise of a power or discretion by the trustee of the trust. Consequently, under s 16G of the 1971 PTA Act (and s 34(2) of the 2002 PTA Act) Shiree Nicholas and Jennifer Rowson are deemed to be beneficiaries in respect of more than 50% of the value of the interests in the Rowson Family Trust.

58 Shiree Nicholas and Jennifer Rowson have a controlling interest in the business carried on by the Rowson Family Trust as they are beneficiaries who have more than 50% of the value of the interests in the trust under s 16D(3)(d) of the 1971 PTA Act (and s 33(4) of the 2002 PTA Act).

59 Accordingly, as Shiree Nicholas and Jennifer Rowson have controlling interests in the businesses carried on by Artistic and Rowson Family Trust, the persons who carry on those businesses constitute a group. Consequently, Artistic and Rowson Nominees constitute a group under s 16D(2) of the 1971 PTA Act (and s 32(2) of the 2002 PTA Act).

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The exclusionary provisions

60 The analysis of the two scenarios outlined above makes it clear that, in either case, the grouping arises because of the deeming provision of s 16G of the 1971 PTA Act, or s 34(2) of the 2002 PTA Act. Because they are beneficiaries under a discretionary trust, Shiree Nicholas and Jennifer Rowson are deemed to be beneficiaries in respect of more than 50% of the value of the interests in that trust, and accordingly, by virtue of s 16D(3)(d) of the 1971 PTA Act, and s 33(4) of the 2002 PTA Act, in the business of DBR.

61 Putting to one side the significance of inter-entity entries in the financial accounts of the various companies, a matter dealt with below, it is clear that, in terms of the day-to-day carrying on of the electrical contractors business by DBR, the statutory deeming provisions far from reflects the reality of the position.

62 The Commissioner's power to exclude from a group arises where, as in this case, the controlling interest of Shiree Nicholas and Jennifer Rowson in the business of either DBR or Rowson Nominees arises by reason of their status as beneficiaries under a discretionary trust. Pursuant to s 16D(9) of the 1971 PTA Act, and s 32(3) and (4) of the 2002 PTA Act, the Commissioner may, after considering:

(a) the nature and degree of ownership and control of the businesses;

(b) the nature of the businesses; and

(c) any other matter that the Commissioner considers relevant,

exclude that member from the group if the Commissioner is satisfied that the business is carried on by it substantially independently of the business carried on by any other member of the group, and it is just and reasonable for it to be excluded from the group.

Who may be excluded?

63 Under s 16D(9) of the 1971 PTA Act, and s 32(3) of the 2002 PTA Act, the member of the group who may be excluded is the member who is included by reason of the fact that a beneficiary has more than 50% of the value of the interests of the trust. In scenario 1, the company which is included by virtue of the status of Jennifer Rowson and Shiree Nicholas as beneficiaries is DBR. In scenario 2, the member included because of that status is Rowson Nominees. It is thus slightly inaccurate to speak of Artistic being excluded from a group, but given that the exclusion of DBR

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under scenario 1 and Rowson Nominees under scenario 2 would be to leave Artistic in each case ungrouped, the practical effect of excluding DBR and Rowson Nominees from any grouping with Artistic is the same as excluding Artistic from either group.

The nature and degree of ownership and control of the business

64 I accept the evidence of each of Jennifer Rowson and Peter Rowson that Jennifer Rowson has nothing to do with the conduct of the electrical contractors business of DBR, and Peter Rowson has nothing to with the conduct of the hairdressing business conducted by Artistic.

65 Because, under the legislation, grouping is based upon control, and control is based upon ownership, there must always be established a "degree of ownership" before the power under s 16D(9) falls to be exercised. As was observed by Rath J in Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) (1978) 8 ATR 477 at 487, a degree of ownership is "the minimum to constitute a controlling interest". It was said by Martin J in Crusher Holdings Pty Ltd v Commissioner of Taxes (NT) (1994) 117 FLR 485 at 495 that where businesses are conducted by corporations, the nature and control of the business is best considered in the light of the shareholding and directorship of the companies. It was clear from the evidence of both Peter Rowson and his accountant, Scott Robert Disley, that the affairs of the family trust are in fact administered and controlled by Peter Rowson in consultation with Mr Disley. In relation to DBR, there can be no doubt that the actual control of the electrical contracting business is entirely in the hands of Peter Rowson. For differing parts of the period of exclusion Jennifer Rowson was a director of each of DBR and Rowson Nominees. In that sense she possessed a degree of legal control of the business carried on by each of them. Her degree of control was in fact either non existent or negligible.

66 The nature and degree of ownership of Artistic's business by Jennifer Rowson and Shiree Rowson is different from the nature and degree of their ownership of the business of Rowson Nominees or Jennifer Rowson's ownership or control of the business DBR. In relation to Artistic they are directors and shareholders with an entitlement to the profits of the hairdressing business by way of dividends, although in fact Shiree Rowson has never exercised control as either director or shareholder. Jennifer Rowson has exercised effective control of the business of Artistic in quite a different sense from any control that she may be said to have over either of the other businesses.

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The nature of the business

67 It is clear, and it is accepted by the respondent, that the nature of the businesses of Artistic and either DBR or Rowson Nominees have no similarity.

Other relevant matters

68 The Commissioner relies upon a number of inter-entity transactions revealed by the accounts of each company. These transactions are said to demonstrate a lack of independence of the businesses and a degree of control of Artistic's business by either DBR or the family trust. It is necessary to examine those transactions to assess their significance. In undertaking that examination, the focus must be on the extent to which the transactions indicate whether or not the businesses are carried on substantially independently of each other. Ms Vincent identified each transaction by a number which, for convenience, I will adopt in these reasons.

69 It was clear from the evidence of both Jennifer Rowson and Peter Rowson, and the evidence of Mr Disley, that the preparation of the accounts is left largely to Mr Disley's firm based upon information provided from the books and records of each of the entities. In the case of Artistic, prior to late 2003, Mr Disley would enter transactions onto the accounting software package on the basis of information gleaned from chequebooks and bank statements provided to him by Jennifer Rowson or her employees in the hairdressing salons. From October 2003, Artistic employed a bookkeeper who used MYOB software and then supplied information to the accountants who entered it on their software programme.

70 DBR had a bookkeeper for the whole period that Mr Disley prepared its accounts. A bookkeeper employed in the electrical contracting business utilised MYOB before providing information on disk to the accountants. Mr Disley's firm would then make changes to the MYOB entry as they saw necessary, and transfer the balances to their own software package. In consultation with Peter Rowson, Mr Disley would then advise in relation to trust distributions and provisions for taxation. In relation to Rowson Nominees, the accountants entered information on their software package using bank statements, chequebooks and records of the company's share trading.

71 I accept that Peter Rowson generally liaised with the accountants in relation to the affairs of DBR and Rowson Nominees. I also accept that

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Mr Rowson relies significantly on his accountants to advise on and determine the manner in which entries are treated in the accounts. I accept that the financial details for the preparation of the accounts of Artistic are provided by Jennifer Rowson or her employees, and that Jennifer Rowson has a limited understanding of the company's accounts and the treatment of particular entries for taxation or other purposes within those accounts. I also accept that on occasions Mr Disley has discussed taxation issues with Peter Rowson that may involve book entries by or in relation to Artistic, and that Mr Rowson has probably been the source of instructions to Mr Disley on these matters. They are matters of little significance to the business carried on by Artistic.

Inter-entity transactions between Rowson Nominees as trustee of the family trust and Artistic

72 Transactions 2, 4 and 7 each record a distribution of profit by Rowson family trust to Artistic Pty Ltd. Transaction 4 relates to a distribution of profit for the year ending 1997, and falls outside the exclusionary period. I accept Mr Disley's evidence that the distributions were not made in cash, but were recorded in loan accounts of the beneficiaries. Although the transactions result in the accumulation of an asset by Artistic, the distributions did not represent funds utilised in any businesses carried on by Artistic. Transaction 7, which was a distribution of $74 197 to Artistic in the year ended 30 June 1999 was an undertaking to utilise tax losses available from previous years and to take advantage of the corporate tax rate paid by Artistic.

73 Transaction 5 recorded in the general ledger accounts of the Rowson Family Trust appears to be an entry consequent upon the distribution of profit to Artistic recorded in transaction 4 which falls outside the exclusion period.

74 Transaction 10 records a payment of administration fees by Artistic to the family trust in the amount of $60 000. The transaction is dated 30 June 2000. Transaction 11, also dated 30 June 2000, records in the books of the family trust a payment of administration fees by the family trust to Artistic of $87 500. Apparently, when Ms Vincent first queried these transactions, Mr Disley's response to her was that the entries were "normal accounting practice in the industry". When questioned about these transactions at the hearing, Mr Disley indicated that the transactions were designed to achieve the best taxation result by effectively reducing the profit of Rowson Family Trust by an expense represented by the net difference between the two payments. Mr Disley said that he would have

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suggested the entries to Peter Rowson, although Mr Rowson, in his evidence, was completely unable to explain the entries in the books.

75 Whatever the genesis of the transactions, it is clear that they do not represent actual payments. It is equally clear that neither entity in fact provided administration services to the other. Why the entries were made in the manner that they were, was not satisfactorily explained. Mr Disley suggested that the entries were simply a manner of distributing profit from the family trust to Artistic, and the same end could have been achieved by a simple distribution.

76 Transaction 12 records a payment of company tax by the family trust which is shown as a loan to Artistic. Entries are dated 30 June 2000. According to Mr Disley, the tax liability would have arisen as a result of income distributions from the trust to Artistic which were not paid in cash, but recorded as loans. He said that the tax liability had not arisen as a result of income from the hairdressing business conducted by Artistic, but solely as a result of the book entries recording profit distributions by the trust. The transaction is thus independent of the conduct of the hairdressing business by Artistic.

77 The transactions recorded in the accounts of the family trust relate to the first half of the exclusionary period. None of the entries reflects actual payments made by or to Artistic in connection with the conduct of its business.

Inter-entity transactions between DBR and Artistic

78 In March 1998, Jennifer Rowson established the second hairdressing salon known as "Finishing Touch", in the Warnbro Fair Shopping Centre. Artistic borrowed $81 175 from DBR for the set up costs of Finishing Touch. According to Jennifer Rowson, she expected Artistic to ultimately repay that loan from the sale of the business. She said that the funds could have been borrowed from the bank but, because "we had the money", the available funds were used to set up the business. She described the payment for set up costs as "virtually a gift" and although she accepted that the transaction may have been recorded as a loan, she did not consider it to be a loan that had to be paid back. The advance was recorded as an unsecured loan in the books of Artistic.

79 Transaction 7 records a debit entry against the loan account of DBR unit trust in the books of Artistic, reducing the balance of that account to $81 175, being the amount of the set up costs advanced by DBR to Artistic for the Finishing Touch salon. A corresponding entry was made

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in the books of Artistic crediting a loan account of "J&P Rowson" with the amount of $36 034.03. Mr Disley expressed the view that the purpose of those transactions was to bring the DBR loan account back to the level that represented the loan for the set up of Finishing Touch. How the balance of $36 034.03 had accrued, neither Mr Disley nor Ms Vincent could identify. Mr Disley suggested that figure of $36 034.03 represented funds put into Artistic's business by Jennifer Rowson from time to time.

80 Transactions 19 and 20 record reductions in the DBR loan account in the books of Artistic of $10 000 and $71 175 respectively, both on 30 June 2000, thus extinguishing the DBR loan account in Artistic's books. Corresponding entries were made crediting the loan account of J&P Rowson in Artistic's books in corresponding amounts. According to Mr Disley, he had a discussion with Peter Rowson as to whether he expected the debt to be repaid, and that Mr Rowson thought it would not. Accordingly, it was removed as a debt due to DBR and instead shown as a debt due to J&P Rowson.

81 These transactions demonstrate that Artistic did benefit by an advance of funds, originally out of DBR's funds in order to establish Artistic's second salon. Jennifer Rowson characterised what occurred as, in effect, utilising funds available within her family to meet her new business venture, rather than borrowing funds at commercial rates from a lending institution. As the respondent contends, it is correct that, in that way, the hairdressing business of Artistic has benefited from the profits earned by DBR through the electrical contracting business. In that sense, the hairdressing business operated by Artistic can be shown to be not wholly independent of the electrical contracting business.

82 On the other hand, there is attraction to the characterisation of the transactions as merely accounting entries for what is essentially a husband providing funds to his wife to expand her business. Whether that transaction leads to a conclusion that the businesses are not "substantially independent" requires consideration of the transaction in the light of other transactions and other surrounding circumstances.

83 Transaction 13 shows an entry in the books of DBR and the family trust which reflects a payment by DBR to Artistic, which appears to have been processed through the books of the family trust for an amount of $29 000. According to Mr Disley, that amount was paid by DBR by way of loan to Artistic to assist Artistic to meet superannuation payments in 1999. According to Mr Disley, the amount was subsequently repaid by Artistic to DBR. Transactions 14 and 15, which show payments of $6 000

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and $10 000 respectively are noted in Artistic's books as "repay DBR for super", although the entries were made to a loan account of Peter Rowson. Ms Vincent expressed doubts that the entries truly reflected a repayment of the funds advanced for superannuation because they were not shown as a credit entry against the loan account through which the advances were made. Although it does appear the entries were posted to the wrong loan account, I am satisfied that they do represent partial repayments of the funds advanced to assist Artistic to meet its superannuation liability.

Transactions between DBR and the family trust

84 The respondent has identified eight transactions, being 1, 6, 9, 21, 25, 26, 27 and 31 which represent distribution of profits by the DBR unit trust to the family trust. In each case, the Commissioner contends that the transactions are relevant because they demonstrate that the family trust profited from the business of the DBR unit trust. Given that Rowson Nominees as trustee of the family trust holds all the units in the unit trust, that proposition is hardly surprising. To the extent that Rowson Nominees and DBR should be grouped together for payroll tax purposes, the transactions are relevant. None of them, however, suggests anything about the extent to which the hairdressing business is carried on by Artistic substantially independently of the business of DBR. There is nothing in the materials provided that suggests that any benefit received by Jennifer Rowson as a beneficiary of the family trust was utilised to carry on the business of hairdressing. In my view, those transactions are not relevant to the question of whether or not the businesses of the various entities are carried on substantially independently of each other.

Other transactions identified

85 Transaction 16 records a payment drawn against the beneficiary current accounts in the Rowson Family Trust to purchase a property in Renou Street by the Rowson Family Trust. This transaction was said to be relevant because it demonstrates an interest that Jennifer Rowson has in the "beneficiary current account" in the books of the Rowson Family Trust. While that may be so, the mere fact that Jennifer Rowson derives a benefit from being a beneficiary under the family trust does not suggest a lack of independence between Artistic's hairdressing business and any business carried on by Rowson Nominees. There is no suggestion that any of the funds used by the family trust for the purchase of the commercial units in Renou Street was derived using the capital or profits of the businesses conducted by Artistic. In my view, transaction 16 casts no light on the question of whether the businesses carried on by the different entities are substantially independent of each other. The same

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can be said in relation to transactions 17 and 18 which demonstrate that the DBR unit trusts provided funds for the purchase of a property in Alton Street, Kewdale in the name of Jennifer Rowson. That property has absolutely nothing to do with the business conducted by Artistic. The receipt of income, or the accumulation of an asset, by Jennifer Rowson independently of anything to do with the hairdressing business she conducts does not lead to the conclusion that the hairdressing business is not substantially independent of the businesses which give rise to that separate benefit.

86 Transactions 28 and 29 relate to payments of expenses relating to Alton Street, and are similarly not relevant to the issues for consideration.

87 Transaction 30 records a purchase by the Rowson Family Trust of a Renou Street property, and was acknowledged by Mr Disley to be an error in the accounts. In any event, the transaction falls into the same categories as the other payments for investment properties by the trust and are not relevant to the issue before me.

88 Transaction 34 records entries in relation to rental from an investment property. The accounting treatment of the payments appears to have given rise to some confusion as to the source of the funds, but in the absence of any suggestion that the payments have anything to do with business of Artistic, the entries are of no relevance.

89 Transaction 33 falls outside the exclusion period, and need not be considered. The same is true of transaction 34.

90 Transaction 32 records, in the books of the family trust, a distribution of $1 475 897.22 to Rowson Nominees. It is not clear how a distribution to a trustee itself could have been made, but putting that to one side, the Commissioner's contention is that "as Rowson Nominees is owned by Peter Rowson and Jennifer Rowson equally, these journal entries could suggest that the distribution to Rowson Nominees was a means of distributing money to Jennifer Rowson and Peter Rowson effectively and that this money could then be given or lent for any purposes, including for use of the businesses they manage." It is thus said that the transaction is relevant because it demonstrates that Jennifer Rowson could have benefited from the operations of DBR unit trust and the Rowson Family Trust. What is clear enough is that the recorded transaction does not represent any actual cash payment. Again, however, the mere fact that Jennifer Rowson benefits from her position as a beneficiary of the family trust does not, in the absence of any suggestion that that benefit is utilised

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in the hairdressing business conducted by Artistic, suggest a lack of substantial independence between the businesses.

91 Transaction 34 is an entry in the consolidated accounts of Artistic for the year ending 2001 which records, on 30 June 2001, "wages paid in cash" $29 360 in the loan account of J & P Rowson. The Commissioner suggests that that entry indicates that both Peter and Jennifer Rowson were involved with that payment. Mr Disley suggested that the entry represented a balancing amount to cover wages taken from the cash float. I am satisfied that the entry does not represent funds advanced to the business by Peter Rowson or the Rowson Family Trust.

Summary of the significance of the book entries

92 In my view, the only entries which suggest an absence of complete independence of the business are those concerning the advance of funds by DBR to Artistic to establish the Finishing Touch salon, and the temporary assistance by DBR to Artistic to assist with superannuation payments in 1999. Many of the other transactions do demonstrate that the Rowson Nominees as trustee of the family trust has benefited from the business of DBR, and Jennifer Rowson has benefited in her personal capacity as a beneficiary of the family trust. Those transactions do not, however, in my view suggest a lack of independence between the carrying on of hairdressing business and either the carrying on of the electrical contracting business of DBR or the investment business of Rowson Nominees.

Other matters relied upon by the Commissioner

93 The Commissioner relies on the fact that the registered office of both Artistic and DBR was, for some of the exclusion period, the office of Roper Hoey, the then accountants for each company. He also relies on the fact that the registered principal place of business was the same for both Artistic and DBR Holdings from January 1998 until 9 July 2001. It should be observed that whilst the registered particulars reflect the same principal place of business for that period, Artistic's actual principal place of business was in fact different from the registered address.

94 The Commissioner relies on the fact that Peter Rowson was the company secretary for both Artistic and DBR Holdings between 1 July 1997 and 1 June 2001. Thereafter Jennifer Rowson was company secretary of Artistic, but the Commissioner relies on the fact that "a nuclear family member of the Rowson Family was company secretary of Artistic and DBR" for the entire period 1 July 1997 to 31 December 2003.

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95 The Commissioner relies on the observation of Burt CJ in Phil Winkless Pty Ltd v Commissioner of State Taxation (WA) (1986) 17 ATR 982 at 984-985, where His Honour said that a common registered office and company secretary were "not in my opinion irrelevant or extraneous to the justice or reasonableness of what the subsection speaks". Similarly, the Commissioner relies on the fact that the three entities share accountants. That was a matter mentioned by Martin J in Crusher Holdings Pty Ltd v Commissioner of Taxes (NT), although the weight given to that observation does not emerge in that decision. The Commissioner also relies on Commissioner of Stamps (SA) v Rivington Farms Pty Ltd (1981) 28 SASR 169 at 176 where Mitchell J accepted that the performance of accountancy services by the parent company for the company seeking to be excluded was a matter which showed a connection between the businesses. That is of course a somewhat greater connection that merely sharing a common accountant as in this case. Notwithstanding that connection, and findings as to common directorships, common company secretaries and shareholding and family relationships between shareholders, Mitchell J upheld the decision of the Pay-Roll Tax Tribunal which had found the businesses concerned to be carried on substantially independently of and not substantially connected to each other.

Is Artistic's business substantially independent of the other businesses?

96 In Commissioner of Stamps (SA) v RivingtonFarms Pty Ltd (at 175) it was said that "one could substitute for the words 'substantially independently of' the words 'substantially without regard to' and give the words the same meaning". As Burt CJ said in Commissioner of State (WA) Taxation v Scotford Cameron & Middleton Pty Ltd (1981) 12 ATR 406 at 411, "the question to be answered with reference to that business is whether it is carried on substantially independent of a business carried on by any other member of that group". In this case, it is clear that the hairdressing business, a business of completely different nature from either the electrical contracting business of DBR, or the investment business of Rowson Nominees, is carried on quite independently and without regard to those other businesses. The fact that the businesses are all carried on by members of the same family is, by itself, of little significance.

97 The respondent sought to characterise the three companies as part of a single family enterprise. From that premise, the Commissioner sought to identify relationships between the different entities. Much emphasis was placed on the inter-entity transactions apparent in the books of each

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entity. Not surprisingly in a family context, some payments from one to another, and some book entries undoubtedly designed to minimise the tax position of family members, were identified. In my view, the existence of relatively isolated inter-entity transactions, while suggesting that the entities carrying on the businesses may not be completely independent of each other does not displace the conclusion that the hairdressing business of Artistic is carried on substantially independently of the businesses carried on by either DBR or Rowson Nominees. The other factors identified by the Commissioner, such as common registered office, common accountants and common registered place of business similarly do not establish that Artistic's business is not carried on substantially independent of the other businesses.

Is it just and reasonable to exclude Artistic from the group?

98 The respondent contends that it is not just and reasonable to exclude Artistic. That contention appears to be based on the proposition that the common directorships, and the fact that Jennifer Rowson has obtained benefits as a beneficiary of the discretionary trust, puts these groups outside those cases caught as an unintended consequence of the deeming provisions of s 16D(6) of the 1971 PTA Act or s 33(9) of the 2002 PTA Act. The grouping provisions of the legislation are undoubtedly enacted as an anti-avoidance mechanism. The rationale for the provisions was summarised in an argument by the appellant in Commissioner of Pay-Roll Tax v R G Elsegood & Co Pty Ltd [1983] 1 NSWLR 223, which was accepted by Mahoney JA (at 229-230). The argument was summarised as follows:

"Tax relief was given by the Act to businesses employing less than a specified number of employees. Attempts have been, or could be, made by larger businesses to obtain that relief by splitting their businesses into a number of smaller or separate businesses, employing no more than the specified number of employees. The remedy adopted by the statute to avoid that mischief was: to deny such relief to members of a 'group'; to provide for the employees of 'commonly controlled' businesses to be deemed to constitute a 'group'; to define 'group' for this purpose in wide terms so as hopefully to include all who might be involved in the avoidance of the purpose of the legislation; and to deal with such anomalies as might arise because of the wide terms of the definition of 'group' partly by specific provisions: s 16E is perhaps directed to this, at least in part; and partly by committing to the Commissioner a discretion which he

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may exercise so as to remove such anomalies. Section 16H was seen as giving such a discretion."

99 In this case, there is no suggestion of splitting a business into separate entities. The nature of the businesses is entirely separate. In the case of Artistic, its turnover is such that it would not, by itself, exceed the payroll threshold which would render it liable to payroll tax. To apply the grouping provision to Artistic is to impose a burden on a small business not imposed upon competitors of a similar size. The scheme of the payroll tax is to avoid the imposition of payroll tax on small businesses by providing for a threshold below which liability for payroll tax does not arise. To deprive Artistic's hairdressing business of that benefit would not be just and reasonable. In my view, it is just and reasonable that Artistic not be grouped with either DBR or Rowson Nominees, and the exclusion should be granted in respect of the period sought.

Orders

100 The Tribunal will make the following orders:

1. The application is allowed.

2. DBR Holdings Pty Ltd is excluded from a group with Artistic Pty Ltd for the period 1 July 1997 to 31 December 2003 for the purposes of the Pay-Roll Tax Assessment Act 1971 and the Pay-Roll Tax Assessment Act 2002.

3. Rowson Nominees Pty Ltd is excluded from a group with Artistic Pty Ltd for the period 1 July 1997 to 31 December 2003 for the purposes of the Pay-Roll Tax Assessment Act 1971 and the Pay-Roll Tax Assessment Act 2002.

I certify that this and the preceding [100] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

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JUDGE J CHANEY, DEPUTY PRESIDENT