Beaumont Constructions Pty Ltd v Commissioner of State Revenue
[2020] QCAT 52
•14 February 2020
QUEENSLAND CIVIL AND
ADMINISTRATIVE TRIBUNAL
CITATION:
Beaumont Constructions Pty Ltd & Ors v Commissioner of State Revenue [2020] QCAT 52
PARTIES:
BEAUMONT CONSTRUCTIONS PTY LTD
KATARZYNA GROUP PTY LTD
SOUTH BANK SURF CLUB PTY LTD AS TRUSTEE FOR SOUTH BANK SC TRUST
FAMILY QLD PTY LTD AS TRUSTEE FOR BEAUMONT ENTERTAINMENT TRUST
EMPIRE HOLDINGS (QLD) PTY LTD
BUNK (QLD) PTY LTD AS TRUSTEE FOR BUNK DISCRETIONARY TRUST
BEAUMONT CREATIONS PTY LTD
(applicants)v COMMISSIONER OF STATE REVENUE
(respondent)APPLICATION NO/S:
GAR138-16; GAR139-16; GAR140-16; GAR141-16; GAR142-16; GAR143-16; GAR 144-16
MATTER TYPE:
General administrative review matters
DELIVERED ON:
14 February 2020
HEARING DATE:
6 November 2017, 7 November 2017
HEARD AT:
Brisbane
DECISION OF:
Member Fitzpatrick
ORDERS:
GAR 141 – 16 Southbank Surf Club Pty Limited ATF South Bank SC Trust
1. The decision of the Commissioner of State Revenue refusing to make an Exclusion Order with respect to South Bank Surf Club Pty Ltd as Trustee for Southbank SC Trust made on 4 April 2015 is confirmed.
2. The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed.
GAR 138 – 16 Beaumont Construction Pty Ltd
The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed.
GAR 139-16 Family QLD Pty Ltd ATF Beaumont Entertainment Trust
The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed.
GAR 140-16 Empire Holdings (QLD) Pty Ltd
The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed.
GAR 142-16 Katarzyna Group Pty Ltd
The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed.
GAR 143-16 Bunk (QLD) Pty Ltd
The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed.
GAR 144-16 Beaumont Creations Pty Ltd
The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed.
CATCHWORDS:
TAXES AND DUTIES – PAYROLL TAX – LIABILITY TO TAXATION – GROUPING OF EMPLOYERS – REMISSION OF PENALTY TAX AND UNPAID TAX INTEREST – exercise of discretion to remit penalty tax and unpaid tax interest – whether penalty – whether intentionally misleading conduct – onus of proof – exercise of discretion to exclude member from a group – whether a connection with the group in a real and meaningful business sense – whether joint supply agreement showed connection
Payroll Tax Act 1971 (Qld), s 52, s 53, s 58, s 59, s 60,
s 68, s 69, s 70, s 71, s 72, s 73, s 74
Property Law Act 1974 (Qld), s 55
Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 19, s 20, s 21, s 24
Taxation Administration Act 2001 (Qld), s 11(2)(a),
s 13(1)(a), s 13(2), s 14(a), s 17, s 19(1), s 30, s 37, s 54, s 58, s 60, s 61, s 66, s 69, s 71, s 73, s 81Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] ATC 20-134
Boston Sales and Marketing Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 139
Briginshaw v Briginshaw (1938) 60 CLR 336
Case 10/2005 (2005) ATC 197
Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd (2012) ATR 880
John French Pty Ltd v Commissioner of Pay-roll Tax [1984] 1 Qd R 125
Commissioner of State Revenue (WA) v Artistic Pty Ltd [2008] ATC 20-004
Commissioner of State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd (1981) 12 ATR 406
Commissioner of Taxation (Cth) v Consolidated Media Holding Ltd (2012) 250 CLR 503
Conder Towers Pty Ltd v Commissioner of State Revenue [2012] VSC 107
Deane v Commissioner of Stamp Duties [1996] 2 Qd R 557
Denham Constructions Pty Ltd v Chief Commissioner of State Revenue (NSW) (1998) 40 ATR 416
Denver Chemical Manufacturing Co v Commissioner of Taxation (1949) 79 CLR 296
Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287
Grist v Commissioner of State Revenue [2014] QCAT 259
Hart v Commissioner of Taxation (2003) 131 FCR 203
Harvey v Commissioner of State Revenue [2014] QSC 183
Hay v Commissioner for ACT Revenue [2014] ACAT 23
Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42
Luxton v Vines (1952) 85 CLR 352
Mead Packaging (Aust) Pty Ltd Commissioner of Pay-roll Tax (NSW) (1978) 8 ATR 477
Minister for Immigration and Citizenship v Li [2013] 249 CLR 332
Muir Electrical Co Pty Ltd & Ors v Commissioner of State Revenue (Vic) (2001) 47 ATR 283
Neal v Chief Commissioner of State Revenue [2014] NSWCADAT 26
Orica IC Assets Pty Ltd & Anor v Commissioner of State Revenue [2011] QSC 1
Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50
Scott and Bird v Commissioner of State Revenue [2016] QSC 132
Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242
Shadforth Lythgo Pty Ltd ATF the BTL (Qld) Unit Trust v Commissioner of State Revenue [2016] QCAT 539
Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue [2019] QCAT 199
Theophilas v Chief Commissioner of State Revenue [2014] NSWCATAD 100
Toveety Maintenance Services Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 137
Trust Company of Australia v CCSR [2002] NSWADT 21
United Group Resources Pty Ltd v Calabro No 5 [2011] FCA 1408Re William Vazquez & Associates Pty Ltd and FCT [2005] 58 ATR 1357
APPEARANCES & REPRESENTATION:
Applicants:
B O’Brien, of Counsel, instructed by Cooper Grace Ward Lawyers
Respondent:
F Chen, of Counsel, instructed by Sparke Helmore Lawyers
REASONS FOR DECISION
Background
The applicants conduct the following businesses:
(a)Katarzyna Group Pty Ltd (‘Katarzyna’) – Accounting and administrative services provider;
(b)South Bank Surf Club Pty Ltd ATF South Bank SC Trust (‘SBSC’) – South Bank Surf Club restaurant;
(c)Family Qld Pty Ltd ATF Beaumont Entertainment Trust (‘Family’) – Family nightclub;
(d)Empire Holdings (Qld) Pty Ltd (‘Empire’) – Empire Hotel, Cloudland and Press Club;
(e)Bunk (Qld) Pty Ltd ATF Bunk Discretionary Trust (‘Bunk’) – Bunk Backpackers and Birdees bar;
(f)Beaumont Creations Pty Ltd (‘Beaumont Creations’) – Building; and
(g)Beaumont Constructions Pty Ltd (‘Beaumont Constructions’) – previously televised racing services. No longer trading.
The applicants are grouped for the purposes of payroll tax under the provisions in Part 4, Division 2 of the Payroll Tax Act 1971 (Qld) (‘PTA’). The applicants have been assessed for penalty tax and unpaid tax interest (‘UTI’) on payroll tax for certain periods.
The applicants seek a review of the Commissioner’s decision of 4 April 2016 disallowing their objections relating to assessments of penalty tax and UTI. SBSC also seeks a review of the decision refusing to grant it an exclusion order as a member of a group of Katarzyna entities.
I have referred to an agreed statement of facts filed by the parties as a chronology of events.[1] I have added information from the material before me. The relevant events are:
[1]Bundle of Key Documents – Tab 27.
(a)29 July 2013 – the respondent issued initial entry audit letters to Beaumont Constructions, Bunk, Empire, Family, Katarzyna and SBSC notifying it that the respondent would be commencing a payroll investigation. A Form AQ1 was sent requiring information about companies potentially within a group. The form was never completed.
(b)2013 to 2015 – the respondent conducted an investigation of over 30 companies and trust entities, including the applicants.
The investigation looked at whether the applicants were liable to pay for payroll tax as a group under s 71 of the PTA and if they were, whether the respondent should exercise her discretion under s 74 of the Act to exclude some members of the group.
(c)4 October 2013 – the applicants responded to the initial entry audit letters.
(d)Applications for exclusion from grouping under s 74 of the PTA were lodged by the applicants at different stages during the ongoing investigation:
(i) on 19 December 2013, by Beaumont Constructions, Bunk, Empire and Family (‘the initial audited entities’);
(ii) on 5 June 2014, by SBSC; and
(iii) on 10 September 2014, by Beaumont Creations (‘the exclusion applications’).
(e)CBD Golf applied for an exclusion order on 27 February 2015.
(f)All of the entities, with the exception of SBSC, applied for an exclusion order from 1 July 2008. SBSC applied for an exclusion from 27 November 2009, being the date of its incorporation.
(g)All exclusion applications attached a Form OSR – PT1 which sets out a list of questions to be addressed in an exclusion application including: commonly controlled businesses (questions 1-4); whether any business in the group exists solely or predominantly to provide services or goods to the other group members (including the business or businesses seeking exclusion) (question 25); the nature and extent of any group purchasing or supply arrangements (question 28); any shared resources for example a website (question 31); and whether there are or have been any intra group loans or financing arrangements between members of the group (question 36). Each Form OSR – PT1 was signed by a Director of the relevant company seeking exclusion declaring that the information submitted is true and correct.
(h)On 7 January 2014, the respondent sent an email to PPM the applicants’ legal and tax advisor, identifying Beaumont Creations Pty Ltd as an employer in the 2010 financial year and payroll group member.
(i)30 January 2014 – the respondent sent an email to PPM progressing the investigation:
(j)7 February 2014 – PPM provided requested further information.
(k)12 February 2014 – the respondent emailed PPM requesting further information about specific entities and attaching a ‘draft’ grouping chart.
(l)7 March 2014 – the applicants provided responses to the respondent’s request for information on 12 February 2014 and provided the respondent with a draft document entitled ‘Katarzyna Group – Company Particulars’.
The Katarzyna Group – Company Particulars document disclosed 30 entities, being investment trusts or companies. Beaumont Creations and CBD Golf were included in that document. The document provided that CBD Golf was not a trustee company.
(m)Between March 2014 and July 2014 – the respondent requested further information to determine the exclusion applications and the applicants responded.
(n)7 July 2014 – the respondent requested information from the applicants, in particular whether Katarzyna organised the purchase of goods such as alcohol or beverages on behalf of the group and further asked about any group purchasing or supply arrangements.
(o)12 August 2014 – the applicants responded denying that Katarzyna organised the purchase of alcohol or that group purchasing agreements existed. It was asserted all alcohol was ordered separately and rebates were calculated separately without reference to other entities purchases.
(p)Between August 2014 and February 2015 – the applicants responded to various requests for information, including a request on 30 September 2014 for further information and documents in relation to CBD Golf, which the Commissioner had discovered at that time was a trustee company.
(q)6 February 2015 – the respondent sent correspondence to the applicants about supply agreements regarding CUB, Asahi and Schweppes signed by Katarzyna and invited a response. Copies of the supply agreements were provided to PPM.
(r)17 February 2015 – the applicants responded that answers given were partially incorrect, given the CUB Agreement. Its existence was said to be an oversight. Individual ordering, payment and rebates was re-iterated.
(s)Between 17 February 2015 and 25 March 2015 – the Commissioner determined the exclusion order applications.
(t)25 March 2015 – the respondent issued reassessment notices to Bunk, Empire, Family, Katarzyna and SBSC.
(u)26 March 2015 – the respondent issued default assessment notices to Beaumont Constructions, Beaumont Creations and SBSC and reassessment notices to SBSC.
(v)27 March 2015 – the respondent sent a letter (the exclusion decision) to the applicants refusing the exclusion applications and attaching the various default assessments and reassessments, except for Beaumont Constructions.
This decision determined that the respondent would not exercise her discretion under s 74 of the Act to exclude members of the group.
Relevant to SBSC, the Commissioner considered that:
(i) Family and SBSC constitute a group because the businesses are taken to be controlled by the same persons: sections 71(1), 71(2)(g) and 71(6) of the PTA;
(ii) SBSC is subsumed into a larger group because Family is common to both groups: s 73(1) of the PTA;
(iii) Section 74 of the PTA provides that an exclusion may be granted on certain grounds. Public Ruling 031.2 provides a number of factors that are taken into account. In summary, the following factors counted against the grant of an exclusion order:
A. SBSC received administrative services from Katarzyna Group Pty Ltd;
B. ad hoc building services were received from Beaumont Creations, not provided at market rates;
C. the degree of common ownership and control of the business by the Bickle family was 50% for the period up to 21 March 2013;
D. control under the grouping provisions includes a right to control whether or not a Director or owner exerts that right;
E. the Commissioner was not satisfied that Directors who did not possess managerial control were not also involved in managerial decisions and day to day administration of the business.
F. whilst in the period up to 21 March 2013 the Bickle family level of ownership and control of the business was not high, exclusion is not justified in light of the significant connection which exists as a result of the joint supplier agreements with CUB and Asahi/Schweppes during the relevant periods; and the commercial convenience of accessing Katarzyna’s administration services and related transactions upon start up.
G. After 21 March 2013 the nature and extent of ownership and control by the Bickle family is over the threshold, which increases the importance of this factor.[2] Associated entities controlled by the Bickle family hold more than 75% of the units in the trust. Louis, Bevan and Raphael Bickle collectively control the trustee corporation.
[2]John French Pty Ltd v Commissioner of Pay-roll Tax [1984] 1 Qd R 125.
H. Each of SBSC, Family, Empire, Bunk and CBD Golf are involved in the hospitality industry and each derives income from bars, restaurants and selling alcohol.
(w)27 March 2015 – by further letter (‘the penalty decision’) – the respondent sent a letter to the applicants implementing her decision by:
(i) registering the applicants as a group for payroll tax (some of the applicants were already registered to pay payroll tax);
(ii) appointing Katarzyna as the designated group employer;
(iii) registering Beaumont Constructions and Beaumont Creations for payroll tax (as these entities were not already registered);
(iv) advising that the standard rate of penalty tax is 75%. Total penalty tax payable is $732,376.59;
(v) advising of her decision not to remit the penalty tax (except in the case of Beaumont Constructions and CBD Golf) and the reasons for that decision.
The penalty decision recorded the Commissioner’s belief that up to the date of the investigation, the group did not take reasonable care in determining their taxation obligations under the PTA. The Commissioner also concluded that upon commencement of the investigation the group intentionally provided false or misleading information primarily in an attempt to receive a favourable outcome to their exclusion order request.
The areas of concern to the Commissioner were in relation to failure to disclose the composition of the group, a shared website, joint supplier agreements, the ongoing nature of building and maintenance service provided by Beaumont Creations to the group and falsely stating the services were provided at “arm’s length”
Penalty tax was remitted from 75% to 25% for Beaumont Constructions and CBD Golf, because the Commissioner did not think they had provided false and misleading information.
(vi) advising of UTI and periods where UTI has been remitted. At the date of the letter the UTI was $327,541.26.
(x)23 April 2015 – the respondent issued reassessment notices to SBSC.
(y)Between 20 June 2015 and 30 June 2015 – the applicants objected to the exclusion order decision and penalty decision and sought a reassessment.
(z)4 April 2016 – the respondent issued the applicants with her objection decision (‘the Decision’) rejecting the Objections and providing a Statement of Reasons. The Decision is the subject of this review.
(aa)All penalty tax and UTI has been paid.
Statutory basis for the Commissioner’s Decision
I have extracted the following explanation from the Decision:
(a)an employer who pays taxable (Queensland) wages, and whose total wages exceed $21,153.00 per week during a month (or $19,230.00 prior to 1 July 2012) or who is a group member, is required to register for payroll tax within 7 days after the end of the month: ss 52 and 53 of the PTA.
(b)An employer who is registered, or required to be registered, for payroll tax is required to lodge a periodic return with the Commissioner, and pay the applicable payroll tax, within 7 days after the end of each month (subject to any variations of these requirements by the Commissioner): ss 58, 59, 60 of the PTA and s 30 of the Taxation Administration Act 2001 (Qld) (‘TAA’).
(c)When an employer lodges a payroll tax return, a self-assessment is taken to have been made of the employer’s liability for payroll tax: s 14(a) of the TAA.
(d)Where a self-assessment is not made, the Commissioner may make a default assessment for the amount the Commissioner reasonably believes to be the taxpayer’s liability: ss 13(1)(a) and 13(2) of the TAA. Alternatively, the Commissioner may make a Commissioner Assessment: s 11(2)(a) of the TAA.
(e)Further, the Commissioner may make a reassessment of a taxpayer’s liability: s 17 of the TAA.
(f)In assessing a taxpayer’s annual liability, the Commissioner may treat the taxpayer as if they had been exempt from lodging periodic returns during the year: s 81 of the TAA.
Basis of penalty tax
(g)Where the Commissioner makes a default assessment, penalty tax must be imposed at a rate of 75% of the payroll tax assessed: ss 58(1)(a) and (2)(a) of the TAA.
(h)The Commissioner may remit the whole or part of the penalty tax otherwise payable: s 60 of the TAA. Public Ruling TAA s 60.2 – Penalty Tax (PRTAA060.2) provides guidance on how penalty tax is imposed and the circumstances in which the discretion to remit penalty tax may be exercised.
Basis of UTI
(i)UTI is imposed on amounts of primary tax (payroll tax) payable by a taxpayer and unpaid from time to time: s 54 of the TAA.
(j)UTI accrues daily at a prescribed annual rate on unpaid primary tax for the period starting on a date determined under s 54(4) of the TAA (the start date) and ending when the primary tax is paid in full.
(k)The Commissioner may remit the whole or part of UTI: s 60 of the TAA. Public Ruling TAA 060.1 – Remission of Unpaid Tax Interest (PRTAA060.1) provides guidance on how UTI is imposed and states the discretion to remit UTI will only be exercised in exceptional circumstances.
No objection is taken by the applicants to these statements of the legal position.
Relief Sought
The applicants seek that the tribunal exercise its powers under s 24 of the Queensland Civil and Administrative Tribunal Act 2009 Qld (‘QCAT Act’) to set aside the Decision and to substitute its own Decision.
The applicants, other than SBSC, seek that the tribunal:
(a)decide that the applicants:
(i) took reasonable care to determine their liability for tax and meet their obligations under the tax laws and did not intentionally disregard or avoid the tax laws, and remit the whole of the penalty tax; and
(ii) alternatively, that the applicants either:
A.failed to comply with their obligations under the tax laws due to carelessness or recklessness; or
B. did not take reasonable care to determine their liability for tax and meet their obligations under the tax laws,
And remit penalty tax to the extent that the applicants are liable for 25% of the shortfall payroll tax amount in the assessments.
(b)decide that there were exceptional circumstances and remit the whole or part of the UTI for the relevant period;
(c)direct the respondent to give effect to this decision, by setting aside all of the assessments for the relevant period;
(d)direct the respondent, pursuant to s 19(1) of the TAA to issue reassessments of penalty tax and UTI for the relevant period, consistent with the tribunal’s order; and
(e)direct the respondent, pursuant to s 37 of the TAA to refund any overpaid penalty tax and UTI for the relevant period, consistent with the reassessments and the tribunal’s order.
Alternatively, the applicants seek that the tribunal exercise its powers under s 24 of the QCAT Act to set aside the decision and return the matter for reconsideration to the respondent, with directions that the respondent must:
(a)pursuant to s 19(1) of the TAA, issue reassessments for penalty tax and UTI for the relevant period; and
(b)pursuant to s 37 of the TAA, refund any overpaid penalty tax and UTI for the relevant period, consistent with the reassessments.
SBSC seeks that the tribunal:
(a)decide that SBSC should be issued with an exclusion order under s 74 of the PTA, excluding the applicant as a member of a group with the Katarzyna entities on and from 27 November 2009, or another relevant date, as permitted by s 74(6) of the PTA;
(b)direct the respondent to give effect to that exclusion order, by setting aside all of the assessments for the relevant period;
(c)direct the respondent, pursuant to s 19(1) of the TAA to issue reassessments of payroll tax for the relevant period, consistent with the exclusion order;
(d)direct the respondent, pursuant to s 37 of the TAA, to refund any overpaid payroll tax, penalty tax and UTI for the relevant period, consistent with the reassessments and the exclusion order; and
(e)direct the respondent, pursuant to s 61 of the TAA, to pay the applicant interest on the amounts of overpaid payroll tax.
Alternatively, SBSC seeks that the Tribunal exercise its powers under s 24(1)(c) of the QCAT Act to set aside the decision and return the matter for reconsideration to the respondent, with directions that the respondent must:
(a)issue an exclusion order under s 74(1) of the PTA, excluding SBSC from being a member of a group with the Katarzyna entities on and from 27 November 2009, or another relevant date, as permitted by s 74(6) of the Act;
(b)give effect to the exclusion order, by setting aside the assessments for the relevant period;
(c)pursuant to s 19(1) of the TAA, issue reassessments of payroll tax for the relevant period, consistent with the exclusion order;
(d)pursuant to s 37 of the TAA, refund any overpaid payroll tax, penalty tax and UTI for the relevant period, consistent with the reassessments and the exclusion order; and
(e)pursuant to s 61 of the TAA, pay SBSC interest on the amounts of overpaid payroll tax.
Material before the tribunal
The parties have filed an agreed bundle of key documents. This bundle contains some of the many documents filed as a result of disclosure pursuant to s21 of the QCAT Act. The s21 disclosed documents are also relied upon by the parties.
The applicants rely upon:
(a)statement of Philip Magoffin dated 14 October 2016 – Exhibit 1 in the proceedings;
(b)affidavit of Philip Magoffin dated 3 November 2017 – Exhibit 2 in the proceedings;
(c)affidavit of Bevan Bickle dated 12 July 2017 – Exhibit 3 in the proceedings;
(d)affidavit of Louis Bickle dated 7 April 2017 – Exhibit 4 in the proceedings;
(e)affidavit of Raphael Bickle dated 7 April 2017 – Exhibit 5 in the proceedings;
(f)affidavit of Raphael Bickle dated 2 November 2017 – Exhibit 6 in the proceedings.
The applicants rely upon amended submissions filed 29 May 2017 and supplementary and reply submissions dated 3 November 2017. The respondent relies upon its submissions dated 29 June 2017.
In relation to the affidavits and statement tendered by the applicants, the applicants submit that this tribunal must conduct its review on the basis of the evidence before the respondent at the time of the Decision, unless the tribunal considers it necessary in the interests of justice to allow new evidence. The applicants submit that the affidavits and statement in support of evidence before the respondent at the time of the Decision should be allowed in the interests of justice.
Counsel for the respondent did not object to the applicants’ affidavits and statement being admitted into evidence. Counsel for the respondent indicated that she would deal with the evidence in submissions.
At the hearing I accepted that the evidence is necessary in the interests of justice.
Witnesses
Evidence was given at the hearing by Philip Magoffin, legal and tax adviser of PPM Tax & Legal Pty Ltd, Bevan Bickle, Director of SBSC, Louis Bickle, Director of the Empire, Bunk, SBSC, Beaumont Constructions and Beaumont Creations and Raphael Bickle, Director of Katarzyna, Empire, Bunk and SBSC.
Applicants’ contention
SBSC
It is asserted that the respondent erred in deciding that:
(a)SBSC’s business was not carried out independently of the remaining applicants’ businesses; and
(b)that there is a real or meaningful connection in a commercial sense between SBSC’s business and the businesses of the remaining applicants.
All applicants
It is asserted that the respondent erred in deciding that the applicants committed a deliberate tax default or intentionally disregarded their obligations under the tax laws.
The applicants say that the respondent should have remitted the whole or part of the penalty tax and UTI under s 60(1) of the TAA.
Further, the respondent should have been satisfied in relation to the remission of penalty tax, that:
(a)the applicants took reasonable care to determine their liability for tax and meet their obligations under the tax laws and did not intentionally disregard or avoid the tax laws, and on this basis remitted the whole of the penalty tax; or
(b)the applicants either:
(i) failed to comply with their obligations under the tax laws due to carelessness or recklessness; or
(ii) did not take reasonable care to determine their liability for tax and meet their obligations under the tax laws; and
(iii) remitted penalty tax to the extent that the applicants were liable for 25% of the shortfall payroll tax amount in the assessments.
The respondent should have been satisfied that there were exceptional circumstances and remitted the whole or part of the UTI for the relevant period.
Nature of this review
By s 71 of the TAA, the grounds on which the application for review is made are limited to the grounds of the relevant objection, unless QCAT otherwise orders.
Under s 71 of the TAA, QCAT must:
(a)hear and decide the review of the decision by way of a reconsideration of the evidence before the Commissioner when the decision was made, unless QCAT considers it necessary in the interests of justice to allow new evidence; and
(b)decide the review of the decision in accordance with the same law that applied to the making of the original decision.
As noted earlier, I have allowed new evidence.
Onus of Proof
By s 73 of the TAA, on the review, the applicants have the onus of proving the applicants’ case.
With respect to the penalty tax and UTI review, the respondent submits that the onus is on the applicants to show that on the balance of probabilities, they did not knowingly mislead the Commissioner or cause the Commissioner to be misled.
The respondent submits that the decision of Neal v Chief Commissioner of State Revenue[3] is relevant and that:
...The taxpayer must positively satisfy the tribunal that the “state of mind circumstance” (as to whether the taxpayer intentionally disregarded a taxation law) circumstance did not exist. Otherwise the decision under review must be affirmed. That is because, unless the burden of proof is discharged, a decision consistent with the Chief Commissioner’s original decision is the only possible decision the tribunal can make and is therefore the “correct and preferable” decision.
[3][2014] NSWCADAT 26, [54].
The respondent referred to Orica IC Assets Pty Ltd & Anor v Commissioner of State Revenue,[4] where the Court considered ss 58 and 60 of the TAA. Relevantly, McMurdo J said:
[93] ... There are no expressed considerations for the exercise of the discretion under s 60...it is relevant and indeed necessary to consider the facts and circumstances which contributed to an assessment which had to be the subject of a reassessment. ... If the taxpayer was at fault, by misstating the facts or not stating all of the relevant facts...then the case for remission would be weaker...It would be relevant to consider whether that misstatement or nondisclosure was made knowingly or was instead inadvertent...whether it was made by the taxpayer in reasonable reliance upon professional advice. ...
[4][2011] QSC 1.
The respondent also referred to Re William Vazquez & Associates Pty Ltd and FCT[5] where the Tribunal said:
[14] … Apart from circumstances peculiar to the individual offending taxpayer the threefold purposes of punishment must be kept in line. Those purposes are retribution, deterrence and reformation…
[5][2005] 58 ATR 1357.
The applicants say that s 73 is not expressed to be an onus to disprove the taxpayer intentionally or knowingly misled the Commissioner. Unlike in Neal this case does not concern an express legislative discretion to impose additional penalty tax for ‘intentional disregard by the taxpayer’.
The applicant says that penalty tax is imposed automatically without the exercise of any discretion, the discretion to remit is a broad discretion, limited by purpose, subject matter and scope of the legislation and must be exercised reasonably, impartially and not capriciously.[6] A plainly unjust decision will constitute a failure to properly exercise the discretion[7] and a relevant question is whether the outcome is ‘harsh’ given the circumstances of the taxpayer.[8]
[6]Minister for Immigration and Citizenship v Li [2013] 249 CLR 332, 349, 351, 362, 364, 367, 371.
[7]Ibid 367, (Hayne, Kiefel and Bell JJ.)
[8]Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287; [2008] FCAFC 54, [17]; Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50, [249].
The applicants also refer to the decision of McMurdo J in Orica at [93] where his Honour observed that the facts and circumstances regarding the assessment including the conduct of the Commissioner and taxpayer will be relevant. Relevant conduct of the taxpayer can be any misstatement or omission made up to the time of assessment.
The applicants submit that in exercising the discretion in s 60(1) the Commissioner ordinarily applies public ruling TAA060.2.4 (Penalty Tax). That includes a consideration of Category 3 as to whether the taxpayer’s conduct has been ‘intentional’ or ‘deliberate’ and whether the taxpayer has ‘knowingly’ misled the Commissioner ‘about the taxpayer’s liability for tax’. The public ruling indicates that there must be some deliberate conduct in circumstances where the taxpayer understands and appreciates the effect of the legislation and how it applies to their circumstances.
In this regard, the gravity and seriousness of an allegation or conclusion of intentional, deliberate or knowingly misleading conduct must be borne in mind in considering whether the applicants’ onus has been discharged.
The applicants submit that the Briginshaw[9] principles are relevant. Further, while the onus is on the taxpayer, the degree of satisfaction for which the civil standard of proof calls may vary according to the gravity of the fact to be proved.[10]
[9]Briginshaw v Briginshaw (1938) 60 CLR 336, 361-2 (Dixon J.)
[10]Theophilas v Chief Commissioner of State Revenue [2014] NSWCATAD 100, [33].
I conclude that I must determine whether the grounds on which the application for review is made, are established on the balance of probabilities. The grounds on which this application for review is made are the grounds of the relevant objection to the penalty decision together with further admissible evidence.
I accept that the decision in Orica provides guidance as to appropriate considerations when, as part of this review, I exercise the discretion otherwise vested in the Commissioner under s 60 of the TAA.
I accept the applicants’ submission that s 73 of the TAA is not expressed as an onus to disprove the taxpayer intentionally or knowingly misled the Commissioner. Because of the different legislation, Neal’s case is of limited assistance. The applicants’ onus is to establish by reference to the grounds of objection that penalty tax and UTI should have been remitted.
Consistent with Orica, the facts and circumstances regarding the refusal to remit penalty tax and UTI, including the conduct of the Commissioner and taxpayer will be relevant. Relevant conduct also relates to any misstatement or omission by the taxpayer, up to the time of assessment.
I must be reasonably satisfied that the applicants have established their grounds of objection on the evidence. It will be necessary to make a finding as to whether, on the facts, the applicants knowingly misled the Commissioner. I accept given the seriousness of that issue, it is relevant to bear in mind the principle in Briginshaw[11] that:
… The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences.
[11]Briginshaw v Briginshaw (1938) 60 CLR 336, 362 (Dixon J.) See also the observations of Member Beacroft in Hay v Commissioner for ACT Revenue [2014] ACAT 23, 64-67.
As my role under s 24 of the QCAT Act is to reach the correct and preferable decision, that involves the exercise of my own discretion under s 60 of the TAA as to whether I would remit any of the penalty tax or UTI upon the grounds of objection and evidence advanced by the applicants.
In relation to the SBSC review, I must determine upon the grounds of objection advanced by SBSC whether it has satisfied me on the balance of probabilities, in the stead of the Commissioner, that the factors in s 74 of the PTA and PR031.2 have been met.
Questions for the tribunal
At the hearing, Counsel for the applicants submitted that the following are questions for determination.
SBSC
(a)is there a connection in a real and meaningful business sense between SBSC and the remaining group;
(b)should SBSC be excluded from the group; and
(c)should SBSC be excluded from the group at least from 1 October 2015 when it had its own arrangements with CUB?
Remission of penalty tax and UTI – all applicants
(d)should the exercise of the Commissioner’s discretion pursuant to s 60 be exercised in a different way with respect to remission of penalty tax;
(e)did the applicants intentionally and deliberately deceive the Commissioner;
(f)were the applicants careless rather than intentionally misleading of the Commissioner;
(g)if so, should penalty tax be remitted to 25% on the basis that the applicants were careless;
(h)how is the onus of proof to be met; and
(i)on the balance of probabilities, is the tribunal satisfied the taxpayers deliberately intended to mislead the Commissioner? In this regard, findings in relation to the credibility of the witnesses are necessary.
I agree that these are the relevant issues for determination.
Penalty tax and UTI – all applicants
Objections
An objection appears as a sample, given the commonality of objections, in the bundle of key documents at Tab 16. That is the document to which I have referred. It is the SBSC objection dated 29 June 2015.
The applicants’ objections are set out below.
Assessments excessive
The penalty tax assessments are excessive because, as part of the decision or conduct leading up to the penalty tax assessments, the Commissioner should have exercised the discretion under s 60 of the TAA to remit the whole or part of the penalty tax assessments imposed under the TAA.
The UTI assessments are excessive because, as part of the decision or conduct leading up to the UTI assessments, the Commissioner should have exercised the discretion under s 60 of the TAA to remit the whole or part of the penalty that is inherent in the uplift component included in the rate of UTI assessment imposed under the TAA.
The UTI assessments are excessive because, as part of the decision or conduct leading up to the UTI assessments, the Commissioner should have exercised the discretion under s 60 of the TAA to remit the whole or part of the UTI assessment imposed under the TAA.
Decision arrived at on a wrong basis
If, as the basis for justifying the reassessments, the Commissioner has purported to form any opinion adverse to the objector, then the Commissioner has made a decision:
(a)based upon a mistaken or inadequate understanding of the relevant facts or law;
(b)arrived at through taking into account and not giving proper weight to matters which she should not have taken into account;
(c)arrived at through not taking into account and not giving proper weight to matters which should have been taken into account;
(d)incorrect and unjustified;
(e)arbitrary, capricious, erroneous or unreasonable; and/or
(f)not made in good faith and not a bona fide exercise of any discretion or power and that decision should now be reviewed and corrected and substituted with an exercise favourable to the objector.
Further detailed grounds are set out in Schedule 1 to the Objection, being:
(a)Where the automatic imposition of penalty tax and UTI creates results that are not just and reasonable, the law compels the favourable exercise of the power to remit.
(b)The rate of UTI for the financial year 2014-15 is 10.69% which includes an 8% uplift. The uplift is clearly a penalty in character, if not in name. The UTI falls for regulation and remission in accordance with the common law rules that apply to other penalties, as prescribed by the Courts. The applicants rely upon observations made by Fryberg J in Deane v Commissioner of Stamp Duties[12] that the fact a statute refers to a ‘penalty’ suggests that the imposition of such an additional tax is intended to be penal, and that fault is the most important consideration.
(c)The applicants also rely upon Commissioner of State Revenue (WA) v Artistic Pty Ltd[13] in relation to factors to be taken into account to ensure that a discretion is exercised on a just and reasonable basis:
(a) … the fact that there was no suggestion that the taxpayer had engaged in a mechanism to avoid the imposition of payroll tax; and
(b) that the expression just and reasonably included considerations personal to the taxpayer…
(d)In relation to remission of UTI, the Commissioner’s self-imposed restriction that she will only reduce UTI in ‘exceptional circumstances’ is contrary to the legislation and contrary to the common law.[14]
[12][1996] 2 Qd R 557.
[13][2008] ATC 20-004.
[14]Conder Towers Pty Ltd v Commissioner of State Revenue [2012] VSC 107.
Supply agreements misunderstood
The Commissioner has misunderstood the form and substance of supplier agreements.
In this regard, Katarzyna entered into supply agreements with:
(a)Carlton and United Breweries (‘CUB’) relating to Bunk, CBD Golf, Empire, Family and SBSC for the period 1 September 2012 to 31 August 2015, for the period 1 July 2010 to 30 June 2015 for the same companies and for 1 January 2007 to 31 December 2011 for the same companies except SBSC;
(b)Asahi Premium Beverages Pty Ltd (‘Asahi’) relating to Bunk, Empire, Family and SBSC for the period 7 April 2014 to 6 April 2015 and for the period 1 December 2013 to 30 November 2016 for the same companies; and
(c)Schweppes Australia Pty Ltd (‘Schweppes’) relating to the same companies for the period 13 August 2010 to 13 August 2013.
The agreements provided for rebates based on volumes of alcohol and soft drink purchased, business support benefits and for a degree of exclusivity and minimum volume of purchases in favour of the supplier.
The objections relating to the supply agreements are:
(a)the third party supplier agreements are entirely irrelevant to the question whether the business of the objector is connected with or dependent on the business of any other entity;
(b)the Commissioner describes them as ‘joint’ supplier agreements, when in substance and in form they are agreements entered by the relevant third party supplier only with Katarzyna alone;
(c)the rules of privity of contract mean that no entity other than Katarzyna can enforce any right against the supplier;
(d)similarly, the rules of privity of contract means that a supplier cannot enforce any rights under the agreements against any entity other than Katarzyna;
(e)under the supplier agreements there is no binding obligation on Katarzyna or on any person to acquire a particular volume of product from the suppliers or in fact to acquire any product at all;
(f)the supplier agreements are essentially “on call arrangements”, where the suppliers stand ready to make their products available on the terms in the agreement;
(g)properly construed, it is the suppliers who seek and attain benefits under their agreements, comprising:
(i) exclusivity of display of their products;
(ii) exclusivity of sale of their products; and
(iii) collaborative promotion of their products;
(h)properly construed, the arrangement between the relevant supplier and Katarzyna does not include an agreement to confer any ‘discount’ as the Commissioner wrongly asserts. They only contemplate paying a rebate, and only to Katarzyna and not to any other entity;
(i)consequently, so far as any contractual relations might arise between a purchaser entity (apart from Katarzyna) and a supplier, they:
(i) do not arise under Katarzyna’s supplier agreements;
(ii) can only arise on the terms of the individual invoices issued between the supplier and each separate purchaser; and
(iii) have no ‘joint’ character whatsoever;
(j)consequently, the supplier agreements are not evidence of any connection or dependency between the business carried on by the objector and the business carried on by any other entity. The invoicing arrangements confirm the contrary – that the businesses are carried on independently and are not connected;
(k)it is the awkward wording in the Commissioner’s own requisition and the Commissioner’s pre-conceived conclusions that have led to the Commissioner’s own misunderstanding and confusion in respect of the Objector’s answers. As worded, the requisition contemplated members of the group offering to supply items to other members of the group at a discount. Clearly on the evidence of the supplier agreements and the invoices, purchases are made without a group member being offered assistance by way of a discount from other members of the group;
(l)in any event, no discount is obtained under the terms of a supplier agreement, and the Commissioner simply misunderstands the different character of a rebate, and the fact that the rebate is not paid to each member of the group but is due only to Katarzyna.;
(m)it is the Commissioner’s requisition that has given rise to the ambiguity and confusion. The requisition is essentially confined to purchasing arrangements and discounts. The purchasing arrangements are clearly separate for each entity, and there are no discounts available under the supplier agreements;
(n)the Commissioner seizes on a degree of particularity (which is absent in the requisition) to then accuse the Objector of being misleading, when the Objector in fact provides accurate responses to the questions posed so imprecisely. The Objector’s response to the Commissioner’s requisition is entirely correct and not misleading;
(o)the Commissioner has reached a conclusion that allegedly joint supplier agreements were entered into on a group basis for the purpose of obtaining benefits (including increased rebate) which would only be available to larger customers. There are no joint supplier agreements that operate in the terms alleged. The supplier agreements are only with Katarzyna and the Commissioner already acknowledges that the purchasers all order separately and pay separately;
(p)in relation to the Commissioner’s assertion that the cents per litre rebate is calculated on the overall group purchasing relationship with CUB, the Objectors say that properly construed, the CUB supplier agreement is only with Katarzyna Group Pty Ltd. It is only Katarzyna that is entitled to rebates under the terms of that agreement. On the other hand, if an entity other than Katarzyna creates a separate contract with CUB by placing orders and receiving invoices, and if it is conferred a rebate by CUB, then that outcome arises under that individual contract;
General factors set out in paragraph 7 of Public Ruling TAA060.2.4
Having regard to the general factors mentioned in paragraph 7 of the Ruling (what is reasonable in light of all relevant facts and circumstances), the Commissioner should be satisfied that:
(a)there is no culpability on the part of the Objector, in that there was never a deliberate intention or plan to avoid payroll tax;
(b)there is significant complexity in the Act generally and particularly the technical application of the grouping provisions as purported here;
(c)there is no history of any previous non-compliance with tax laws by the Objector; and
(d)the Objector has offered a high level of co-operation with the Commissioner.
The Commissioner should also be satisfied that:
(a)the Objector should not incur any penalties for an administrative interpretation, or oversight that was outside its particular knowledge;
(b)the Objector has taken reasonable care in the conduct of its tax affairs, including by engaging a tax advisor to oversee their compliance with taxes;
(c)the Objector has a good history of compliance with all other State and Federal taxation obligations;
(d)any underpayment of payroll tax has been a consequence of an unknown administrative interpretation, or an innocent mistake that was outside its particular knowledge in respect of the Commissioner’s administration of the grouping provisions, and the Objector has co-operated to clarify the situation; and
(e)the Objector has co-operated with the Commissioner and devoted extensive and scarce resources in meeting the Commissioner’s enquiries in relation to the matter.
The Decision
The Decision is set out in a letter from the Commissioner of State Revenue to Mr Magoffin, PPM Tax and Legal, advisor to the applicants, dated 4 April 2016. [15]
[15]Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 21; Disclosure documents – Folder 3 document 19, page 581-637.
The Commissioner remitted some or all of the penalty tax on some Assessments but did not consider that there were any grounds to remit penalty tax from the prescribed statutory rate of 75% on other Assessments. Annexure C to the Decision sets out for each Assessment whether penalty tax applied, whether it was remitted (that is, the rate imposed) and the reasons for the Decision.
The Decision records that the Commissioner exercised the discretion to assess annual liabilities as if periodic returns were not required. Therefore, UTI for the annual return Assessments accrued from after the end of each financial year. This resulted in less UTI than if monthly periods had been assessed separately, each accruing UTI from a start date after the end of the relevant month.
The Commissioner considered that the only circumstance warranting remission of UTI was the time taken by the Commissioner to process the applicants’ disclosures and exclusion applications. UTI was therefore remitted from the following dates in the Assessments dated 25 or 26 June 2015:
(a)19 December 2013 (exclusion applications) – Beaumont Constructions, Bunk, Empire and Family;
(b)19 December 2013 (disclosure of grouping) – Katarzyna and SBSC;
(c)4 June 2014 (disclosure of grouping) – Beaumont Creations;
(d)27 February 2015 (exclusion application) – CBD Golf.
The Commissioner also remitted the UTI which subsequently accrued due to late payment of the Assessments dated 25 or 26 March 2015.
All later Assessments, that is, all periodic returns for March 2015 onwards, were self-assessed and no UTI applied however, in the case of SBSC’s Assessments for January to March 2015, the Commissioner was prepared to remit UTI if the company lodged the returns by 21 April 2015. UTI was remitted in full by reassessment. Further, in the case of Beaumont Creations’ self-assessment for July to December 2014, the Commissioner was prepared to remit UTI in full if the company lodged the return by 21 April 2015. The company did not self-assess its liability for this period until 24 April 2015, so no UTI was remitted.
Commissioner’s findings and conclusions in relation to penalty tax
The Commissioner says in her Decision that she applied the principles in PRTAA060.2 which she considered to be consistent with general principles relating to penalty remission discussed by the Supreme Court of Queensland in obiter dicta under different legislation.[16]
[16]Deane v Commissioner of Stamp Duties (Qld) (No 2) [1996] 96 ATC 4382, 4390-4392.
The Commissioner accepted that whether a taxpayer intended to avoid payroll tax and other considerations personal to the taxpayer are relevant to the discretion to remit penalty tax as discussed in PRTAA060.2.4. The Commissioner agreed with the applicants that such circumstances must relate to fault and culpability as causes of the non-compliance.
TAA060.2.4 describes general remission categories which outline how the Commissioner will generally remit penalty tax in particular cases. The Commissioner considered by reference to the categories set out in the Ruling, whether the applicants had taken reasonable care, whether they had been careless or reckless and whether they had knowingly misled her.
Reasonable care – Category 1, Case B
The Commissioner had regard to the following in determining whether the applicants had taken reasonable care to determine their tax liability and meet their tax law obligations and did not intentionally disregard or avoid the tax laws, that is, whether they:
(a)kept complete and accurate records;
(b)made diligent efforts to understand and comply with the law;
(c)sought expert advice on uncertain or complex matters;
(d)were honest and open in their dealings with the Commissioner; and
(e)set in place appropriate processes to ensure compliance with the tax laws.
The Commissioner was satisfied in relation to all criteria except for the criteria of seeking expert advice and being honest and open in their dealings with the Commissioner.
In relation to seeking expert advice on uncertain or complex matters, the Commissioner referred to PRTAA060.2 which provides:
Where expert advice was sought, the remission under this category will only apply where the Commissioner is satisfied that all of the following conditions have been met:
(i) the taxpayer provided satisfactory documentary evidence such as the advisor’s written confirmation that advice or self-assessment services were sought on the matter in question. For example, a general request for advice on issues to be considered when establishing a business will not be specific enough to satisfy the Commissioner that advice was sought on State tax implications of such an establishment.
(ii) The taxpayer provided sufficient information, which was not misleading or incorrect, to the agent for the agent to accurately provide tax advice or self-assess the taxpayer’s liability for tax.
(iii) In the circumstances, it was reasonable for the taxpayer to believe that, in engaging the agent, the taxpayer had taken all necessary steps to comply with any relevant obligations under the tax laws.
(iv) The advice or service must not have involved the taxpayer entering into an arrangement to which Category 3, paragraph 11 of this public ruling applies.
The Commissioner could not find anything to suggest that the applicants sought specific advice from their accountant on payroll tax obligations during the relevant periods. The Commissioner said that merely relying on an accountant without specifically requesting or receiving advice on the particular matter is not sufficient to demonstrate reasonable care has been taken.[17]
[17]Boston Sales and Marketing Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 139, 68.
The Commissioner was not satisfied that the applicants’ failure to register for or accurately self-assess payroll tax was due to reliance on their accountant.
The Commissioner’s view is that the onus is on an employer to stay informed about its liability for State taxes and register for payroll tax when the liability arises. Not having known about the relevant tax law does not establish the applicants took reasonable care. The Commissioner accepted that the applicants were unaware of the Commissioner’s approach to the grouping provisions but concluded this does not mean the applicants took reasonable care.
The Commissioner noted its extensive information about payroll tax available through a variety of channels including its website and telephone service.
The Commissioner was satisfied that the applicants’ conduct did not fall within Category 1, Case B.
The Commissioner concluded that all but one of the companies knowingly provided misleading information to the Commissioner and that they therefore were not honest and open in their dealings with the Commissioner.
Carelessness or Recklessness – Category 2, Case B
In relation to Category 2, Case B, the Commissioner considers remitting penalty tax to 25% where:
The taxpayer either:
(i) failed to comply with their obligations under the tax laws due to carelessness or recklessness or
(ii) did not take reasonable care to determine their liability for tax and meet their obligations under the tax laws.
For this category to apply, it is not necessary to establish that the taxpayer acted dishonestly or with intentional disregard of their tax law obligations, as this is addressed in the next category. Ignorance of the tax law will suffice.
The Commissioner considered the conduct of CBD Golf fell within Category 2, Case B. I note that CBD Golf is not an applicant in these proceedings.
The Commissioner asserts that all companies, including CBD Golf and Beaumont Constructions did not take reasonable care.
Knowingly misleading the Commissioner – Category 3, Case A
Under Category 3, Case A, the Commissioner may decide not to remit any penalty tax where the taxpayer committed a deliberate tax default or intentionally disregarded their obligations under the tax laws. A deliberate tax default may take the form of fraud or evasion of tax or knowingly misleading the Commissioner, or causing the Commissioner to be misled about the taxpayer’s liability for tax. Knowingly misleading the Commissioner may include deliberately omitting information when providing information to the Commissioner.
The Commissioner considered that six of the applicants (apart from Beaumont Constructions and CBD Golf) knowingly mislead the Commissioner while seeking exclusion orders. Penalty tax was therefore not remitted.
The finding that six companies knowingly misled the Commissioner while seeking exclusion orders was based on information supplied, or not supplied, in the exclusion applications and other correspondence during the Commissioner’s investigation.
The Commissioner referred to her letter to the applicants’ advisor PPM Tax and Legal Pty Ltd, dated 27 March 2015 (‘the penalty decision’). That decision records the Commissioner’s view that she had been misled by:
(a)the applicants not disclosing all employers in the group in their exclusion applications dated 19 December 2013, namely Beaumont Creations Pty Ltd and CBD Golf Pty Ltd;
(b)the false statement in the Katarzyna Group – company particulars that the CBD Golf was not a trustee of a trust and therefore not an employer in the group;
(c)the applicants omitting to note in the Katarzyna Group – company particulars, the entities that CBD Golf was/is grouped with, being CBD Discretionary Golf Trust and CBD Academy Unit Trust;
(d)in a submission/letter from PPM Tax and Legal to the Commissioner dated 4 June 2014, the applicants again did not disclose that CBD Golf was an employer in the group;
(e)not disclosing in the exclusion applications dated 19 December 2013 the fact the applicants share a common website;
(f)not disclosing in the original exclusion application dated 10 September 2014 that services were provided by Beaumont Creations Pty Ltd to SBSC. Further, the statement that Beaumont Creations charged arm’s length commercial rates to its customer group members, when the rates were based on actual costs; and
(g)statements in the exclusion applications dated 19 December 2013 and in the provision of further information about supply agreements.
Supply agreements
The Commissioner found that the applicants misled her by making the following false or misleading statements in relation to the existence of CUB, Asahi and Schweppes supply agreements:
(a)in the exclusion order applications dated 19 December 2013, Empire, Family, Bunk and Katarzyna stated that:
There are no common purchases or sales of goods and services by each entity and members of the Katarzyna Group...as such, we submit that this factor should strongly favour the granting of an exclusion order...
(b)The Commissioner requested on 7 July 2014:
Does Katarzyna organise the purchase of goods on behalf of other members in the group (for example alcohol, beverages, glassware etc).
(c)In response to the request, the applicants stated on 12 August 2014:
Apart from one transaction (refer item 2.3), Katarzyna does not organise the purchase of any goods on behalf of client entities. Each client entity has its own requirements for the purchase of goods such as tobacco, alcohol and glassware. Furthermore, each client entity conducts its own periodical stocktakes and has its own purchasing personnel.
(d)In the Commissioner’s request for information dated 7 July 2014, the Commissioner requested:
The nature the extent of any group purchasing or supply arrangement. For example, purchase of alcohol, beverages, food and glassware.
If no group purchasing arrangements exist, to avoid doubt, confirm each business purchases their own alcohol, beverages and glassware directly, without the assistance (including any type of discount) of other members in the group.
(e)In response on 12 August 2014, the applicants provided separate invoices issued to each applicant and stated:
Apart from the isolated transaction mentioned in item 2.3, each client entity purchases its own alcohol, beverages and glassware directly, without the assistance (including any type of discount) of other members in the group. All goods are ordered and paid for separately, with separate invoices being issued to different members of the group.
In addition, rebates are calculated separately for each client entity without any reference to other entities’ purchases.
With regard to Period 2, the Commissioner considered the nature and extent of ownership and control the Bickle family collectively possess to be significantly over the threshold with increases the importance of the factor so that it may outweigh other relevant matters.
In this regard, SBSC challenged the Commissioner’s reliance on John French Pty Ltd v Commissioner of Payroll Tax.[51]
[51]83 ATC 4283, 4293-4294.
It is submitted that although there is a common ownership connection between SBSC and the Katarzyna applicants, this does not have the effect that the management of SBSC business is dependent on any of the Katarzyna applicants or the management of the SBSC’s business is connected with any of the Katarzyna applicants’ businesses – or vice versa.
The nature of the connection that resulted in the grouping in the first instance as beneficiaries of a discretionary trust is tenuous at best as to the question of actual ownership and control under s 74(3)(a), as opposed to the deemed control under s 71(6).
B. The Commissioner’s submissions
In relation to the shareholding, directorship, voting power and beneficial interest of SBSC held by Louis, Raphael and Bevan Bickle, the Commissioner notes that they are closely related family members.[52] They have a history of working together in various ventures and investments. SBSC has significant common directors, shareholders and beneficiaries (indirectly) with Bunk, Family and Katarzyna shareholders.
[52]Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42, 75.
The Commissioner says that where the percentage commonality of directors, shareholders and beneficiaries exceeds the minimum threshold requirement for common ownership and control, the importance of the factor may outweigh other relevant matters.[53]
[53]John French Pty Ltd v Commissioner of Pay-roll Tax [1984] 1 Qd R 125.
Insofar as SBSC has submitted that its control was independent of and not connected to other members of the group because it has separate management, daily management, does not share the group website and has a separate accountant – it is not correct to equate day to day management of a business with control.[54] SBSC’s constitution states that the business is managed by its directors.[55]
[54]Denham Constructions Pty Ltd & Anor v Chief Commissioner of State Revenue (1998) 40 ATR 416.
[55]South Bank Surf Club Pty Ltd Constitution, clause 5.
Further, although there was a day to day manager, the Bickle family and other members of the group did control aspects of the business, the most obvious example being the joint supply agreements, sources of funding from other members of the group and Raphael and Bevan also being managers and directors of hospitality businesses in the group – Bunk, Family and Empire. The significance of supply agreements is more than merely ‘casual, irregular or occasional’.[56]
[56]Denham Constructions Pty Ltd v Chief Commissioner of State Revenue (1998) 40 ATR 416.
The Commissioner submits that on balance, a consideration of the nature and degree of ownership and control of SBSC favours a finding that SBSC was dependent and connected to other members of the group.
C. Discussion
I accept SBSC’s submission that the relevant enquiry should not rely on deemed controlling interests. The Member in Shadforth Lythgo addressed this argument and I agree that actual control rather than a deemed ‘controlling interest’ should form the basis of the enquiry under s 74(2). The Member said:
I accept that section 74(2) as submitted by the applicants, talks of carrying on the business, which indicates that consideration is to be given to the factual nexus in regard to the businesses. Importantly, s74(3)(a) talks of the nature and degree of ownership and control of the businesses and the actual relationship if any between the various persons who may own and control the business and not simply a reconsideration of the deemed controlling interests. This will include both statutory considerations such as who the directors are but also how the business is operated on a day-to-day basis. It will not include any deemed considerations from the grouping provisions.[57]
[57]Shadforth Lythgo Pty Ltd ATF the BTL (Qld) Unit Trust v Commissioner of State Revenue [2016] QCAT 539, [33].
The objection decision sets out tables and commentary describing the common shareholding, beneficiaries and appointors, and directors and managers in the group.[58] Those facts are not contested.
[58]Decision of the Commissioner of State Revenue dated 4 April 2016 at paras 67, 68
There is no direct ownership of SBSC by any other company in the group, nor by SBSC of any other company in the group.
Until 21 March 2013 shares were held as to one sixth each by entities associated with Louis, Raphael and Bevan and one quarter each by entities associated with Philip Rhodes and Ben O’Donoghue. That gave the Bickle family members an interest of 50%. When Ben O’Donoghue withdrew his quarter interest from 21 March 2013, the Bickle family members’ interest adjusted to 75%.
Louis, Raphael and Bevan Bickle were until 21 March 2013 beneficiaries in the SBSC unit trust, via investment trusts, holding units aligned with shareholding and the shareholder agreement as to one sixth each. That gave the Bickle family members an interest of 50%. When Ben O’Donoghue withdrew his quarter interest from 21 March 2013 the Bickle family members interest adjusted to a controlling interest of 75%.
As to Directorships, Louis, Raphael and Bevan Bickle hold common Directorships across the group. Under the shareholders’ agreement, voting power of Directors was aligned with shareholding. Until 21 March 2013 Louis, Raphael and Bevan held 50% of the voting power and Ben O’Donoghue and Philip Rhodes held 25% each. Philip Rhodes was and remains the Chairman. He does not have a casting vote.
It has been previously noted that the Commissioner assessed a high level of directorships and underlying shareholdings and beneficiaries (50% until 21 March 2013 then 75%) in common with: Bunk directorships, shareholding and beneficiaries (75%); Family shareholdings and beneficiaries (83.3%) and Katarzyna shareholding (indirectly 100%).
Bevan Bickle’s evidence at the hearing was that the day to day management of the business of SBSC was conducted by a venue manager. Philip Rhodes was appointed the Manager.
The constitutions of each of the companies which carry on the relevant businesses provided that the businesses are managed by the directors.
Consistent with the observations in Shadforth Lythgo set out above, the relevant consideration is the nature and degree of ownership and control of the businesses, and not of entities. That is also consistent with Commissioner of State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd.[59]
[59][1981] 12 ATR 406, [411], [412].
On the facts in this case, I find that up until 21 March 2013 there is significant common ownership between SBSC and other group members. Despite the threshold for control not being met up to this date, there is a real opportunity for the common Directors Louis, Raphael and Bevan Bickle to exercise their management control of SBSC and other group members. The circumstances are such that a proper enquiry is enlivened as to whether any common control has been exercised which results in a connection between the businesses in the conduct of their businesses.
After 21 March 2013 with the increase in ownership to 75% I find that the Bickle family have a controlling interest in SBSC, there is significant common ownership as well as the opportunity for the common Directors to exercise management control.
Has common control been exercised – what is the extent and nature of the dealings between members of the group?
SBSC’s submissions are:
(a)with regard to Period 1, the Commissioner refused to exclude SBSC from being grouped because of:
(i) the significant connection as a result of the joint supply agreements with CUB and Asahi/Schweppes;
(ii) the commercial convenience (albeit involving small values) enjoyed by SBSC accessing Katarzyna’s administration services and other related transactions upon commencement of the business.
(b)In relation to shared resources, SBSC did not share the same accountant as other members of the group and did not share staff, a common website or branding with other members of the group. The Commissioner did not make any conclusions specific to SBSC but noted the factor favoured denial of the exclusion application for Katarzyna, Family, Empire and Bunk. The factor carried no weight with the Commissioner to allow an exclusion order for SBSC.
(c)In relation to financial interdependencies, the Commissioner acknowledged that there was no history of interrelated loans between SBSC and the other entities. She noted that the unpaid present entitlements appeared to be in proportion with the unit holdings of the ultimate owners of SBSC.
(d)In relation to Katarzyna’s supply agreements, SBSC relies on the matters previously considered. That is, the Commissioner has misconstrued the agreements. The agreements are not joint because in substance and form they are agreements entered by the relevant third party supplier with Katarzyna alone, no entity other than Katarzyna can enforce any right against the supplier, the supplier cannot enforce rights against any entity other than Katarzyna; there is no obligation on Katarzyna or any person to acquire a particular volume of product or to acquire product at all; the agreements are essentially on call arrangements; it is the suppliers who seek and obtain benefits under their agreements; the arrangement between the relevant supplier and Katarzyna does not include an agreement to confer any discount. The agreements only contemplate paying a rebate and only to Katarzyna, not to any other entity. Any contractual relations arise on the terms of individual invoices. The supplier agreements are not evidence of any connection or dependency between the business carried on by SBSC and the business carried on by any other entity. The invoicing arrangements confirm that the businesses are carried on independently and are not connected.
It is concluded that applying the reasoning of Meagher JA in Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd,[60] SBSC’s business is carried on independently. Any connections between SBSC’s business and the businesses operated by the Katarzyna applicants are immaterial and inconsequential. This is because, on the evidence:
(a)the loans provided to SBSC during its start-up phase were not real and meaningful connections. The Commissioner acknowledges that the loans were small and in the start-up phase;
(b)the services provided by Katarzyna were relatively small. The Commissioner acknowledges this;
(c)the supply agreements did not have any impact on the day to day operation of SBSC’s business. SBSC completed its own ordering, received separate invoices and paid those invoices separately; and
(d)the common shareholders and beneficiaries are not a real and meaningful connection in the management of the business. The relevant consideration is that the businesses were managed by third parties (who also had investment interests).
[60][2012] NSWCA 181.
Discussion
Evidence of connections between the businesses includes:
(a)Between November 2009 to June 2010 during SBSC’s start, SBSC borrowed:
(i) $13,636.00 from Beaumont Creations;
(ii) $53,261.00 from Empire; and
(iii) $12,260.00 from Katarzyna.
The loans have been repaid.
(b)Between November 2009 and June 2010, SBSC also received administrative and accounting services to a value of $8,650.00 from Katarzyna.
(c)From 1 July 2010 onwards, benefitting from Katarzyna’s agreements involving Schweppes Australia Pty Ltd, CUB and Asahi, in common with Bunk, CBD Golf, Empire and Family. From 1 October 2015, SBSC has contracted separately with CUB.
I do not consider the start-up loans and administrative assistance to be so material and significant that on their own they justify a finding the businesses are not independent and not connected.
Of all the connections I consider participation in the supply agreements to be material and significant.
I agree with the Commissioner in relation to the relevance of the Shadforth Lythgo case,[61] which similarly involved companies that the Commissioner grouped for the purpose of payroll tax where there were supply agreements with beverage companies such as CUB which covered a number of businesses. It was held in that case, that a decision had been made at a strategic level which meant that hotels were bound to sell a large proportion of one type of alcohol product. While there may be separate ordering, invoicing and payment, there was a particular rebate arrangement in place, which the businesses were bound to as a result of the agreement. The member concluded a material connection was established between the businesses which could have only been created at the level of common ownership or control.
[61][2016] QCAT 539.
I find that the supply agreements entered into by Raphael Bickle as a Director of Katarzyna, as agent for SBSC and the other businesses, demonstrates decision making at a strategic level and a material connection between the businesses created by a common ownership and control.
I agree with the Commissioner’s decision that the supply agreements are a significant factor as the terms go to the degree of connection between SBSC and other members of the group in the purchase of goods and services. The supply agreements provided rebates, exclusivity and volume purchase targets which on the evidence would not have been negotiable if the members of the group contracted separately. Katarzyna signed and become jointly and severally liable under the agreements with and on behalf of other members of the group.
Alcohol is a significant income generator and expense for licenced premises and the joint supply agreements negotiated by Katarzyna over several years show there was dependence and material, commercial connection between SBSC and other members of the group.
SBSC has not provided the terms and conditions of any new agreement entered into after 1 October 2015.
Nature of the businesses
I agree with the Commissioner that the businesses of SBSC, Family, Empire, Bunk and CBD Golf have strong common elements.
SBSC carries on the business of a restaurant and bar at South Bank. The Katarzyna applicants operate nightclubs, hotels and a backpacker and bar establishment in Fortitude Valley. The businesses are all in the hospitality industry. The sale of food and alcohol is common to all businesses and is a very significant part of the conduct of all the businesses.
The nature of the businesses is not required to be the same across all businesses to make a finding of dependence or connectedness.[62] Several of the businesses have taken the benefit of joint alcohol and beverage supply agreements. The businesses are similar enough that members of the Bickle family are able to make strategic decisions for other businesses in the group.
[62]Toveety Maintenance Services Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 137, 149.
Conclusion
I conclude that the common ownership and control of SBSC, the joint supply agreements and the nature of the businesses in the group demonstrate that SBSC is not independent of and is connected with the businesses carried on by the other members of the group.
I consider that these factors outweigh the fact that SBSC does not share offices, accountancy services or a website with other members of the group.
Accordingly, I am not prepared to exercise my discretion to exclude SBSC from the group as determined by the Commissioner or to make orders setting aside all of the assessments for the relevant period.
The onus is on SBSC to establish that it carried on its business independently and not connected with the carrying on of business by other members of the group. I do not consider SBSC has discharged its onus.
It was submitted by the Commissioner at the hearing that SBSC may wish to apply to the Commissioner for a decision in relation to exclusion relating to the period after it ceased to be bound by the joint supply agreement with CUB and entered into its own arrangement from 1 October 2015. Alternatively it was submitted that this Tribunal may remit the issue to the Commissioner. In the absence of any information about the new agreement or its context I decline to remit the matter to the Commissioner. It is a matter for SBSC if it wishes to make the application.
Orders
In relation to GAR 141-16 South Bank Surf Club Pty Limited ATF South Bank SC Trust:
(a)the decision of the Commissioner of State Revenue refusing to make an Exclusion Order with respect to South Bank Surf Club Pty Ltd as Trustee for Southbank SC Trust made on 4 April 2015 is confirmed.
(b)The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed.
In relation to GAR 138-16 Beaumont Construction Pty Ltd; GAR 139-16 Family QLD Pty Ltd ATF Beaumont Entertainment Trust; GAR 140-16 Empire Holdings (QLD) Pty Ltd; GAR 142-16 Katarzyna Group Pty Ltd; GAR 143-16 Bunk (QLD) Pty Ltd ATF Bunk Discretionary Trust and GAR 144-16 Beaumont Creations Pty Ltd:
The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed.
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