Boston Sales and Marketing Pty Ltd v Chief Commissioner of State Revenue
[2014] NSWCATAD 139
•15 September 2014
NSW Civil and Administrative Tribunal
New South Wales
Medium Neutral Citation: Boston Sales and Marketing Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 139 Hearing dates: 3 March 2014 and 22 May 2014 Decision date: 15 September 2014 Jurisdiction: Administrative and Equal Opportunity Division Before: J Block, Senior Member Decision: The assessments as defined are remitted to the Chief Commissioner for amendment in accordance with these reasons
Catchwords: Grouping - degrouping- discretion in respect of degrouping - penalty - interest Legislation Cited: Payroll Tax Act 1971 (2007 year);
Taxation Administration Act as applicable for the 2007 year) and
Payroll Tax Act 2007Cases Cited: FCT v Dalco [1990] 168 CLR 614;
Liquid Rock Constructions Pty Ltd v Commissioner of State Revenue (Taxation) [2011] VCAT 2164;
Minister for Aboriginal Affairs & Anor v Peko-Wallsend Ltd & Ors (1986) 162 CLR 24;
Starr Partners Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 51;
Denham Constructions Pty Ltd v Chief Commissioner of State Revenue (1998) 40 ATR 416;
Commissioner of Stamps v Garrett F Hunter Pty Ltd, Meldrick House Pty Ltd and Geoffrey S Vercoe Pty Ltd (1997) 69 SASR 275;
GTS Industries Pty Ltd v Commissioner of State Revenue [2004] VCAT;
Tasty Chicks Pty Ltd & Ors v Chief Commissioner of State Revenue [2009] NSWSC 1007;
Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42 at [61]- [64];
Commissioner of Pay-roll Tax (Qld) v John French Pty Ltd & Ors 83 ATC 4117;
Mead Packaging (Aust.) Pty. Ltd. v Commissioner of Payroll Tax (NSW) 78 ATC 4164;
Crusher Holdings Pty Ltd v Commissioner of Taxes [1994] NTSC 82;
Burswood Management Ltd v The Attorney-General of the Commonwealth of Australia (1990) 23 FCR 144;
Collector of Customs v Pressure Tankers Pty Ltd and Pozzolanic Enterprises (1993) 43 FCR 280;
Clerk, Walker & Stops and Clerestory Pty Ltd v Commr of Pay-roll Tax (Tas) 83 ATC 4594;
Re Confidential and Commissioner of Taxation [2008] AATA 415;
Weyers v Commissioner of Taxation [2006] FCA 818;
AES Wiring Pty Limited and AKS Distributions Pty Limited v Chief Commissioner of State Revenue [2012] NSWADTCategory: Principal judgment Parties: Boston Sales and Marketing Pty Limited and Chief Commissioner for State Revenue Representation: A. Gerard (Respondent)
B Gower (Applicant)
Crown Solicitor (Respondent)
File Number(s): 126121
reasons for decision
PART A PRELIMINARY AND BACKGROUND
The Applicant, Boston Sales and Marketing Pty Ltd (which is sometimes referred to in these reasons as "Boston Sales") seeks the review of five (5) decisions of the Respondent (who is usually referred to in these reasons as "the Chief Commissioner") to issue Payroll Tax Notices of Assessment to the Applicant ("the assessments"), in accordance with the Pay-roll Tax Act 1971 ("the PTA 1971"), the Taxation Administration Act 1996 ("the TA Act") and the Payroll Tax Act 2007 ("the PTA 2007") for the payroll tax years ending 30 June 2007 to 30 June 2011, inclusive ("the relevant period" or "the relevant years").
The assessments were issued on the basis that the Applicant formed a payroll tax group with the following companies during the relevant period (or part of the relevant period) and on the basis that the group members paid wages during the relevant period: Boston Corporate Holdings Pty Limited ("Boston Corporate"); Boston Business Funding Pty Limited ("Boston Funding"); Boston Commercial Services Pty Limited ("Boston Commercial"); Insight Litigation & Legal Services Pty Limited ("Insight Litigation"); Dejure Commercial Lawyers Pty Ltd ("Dejure Lawyers"); Tomahawk Management Pty Limited ("Tomahawk"); Iconic Management Pty Limited ("Iconic"); Teltex Pty Limited atf Arc Unit Trust ("Teltex atf Arc Trust") ("the Group").
This application commenced in the Administrative Decisions Tribunal ("the ADT"). The ADT was merged into the Civil and Administrative Tribunal of New South Wales ("NCAT") on 1 January 2014 and in consequence of which I am authorised and required to determine the matter as a matter of NCAT; see clause 7(2) in Schedule 1 to the Civil and Administrative Tribunal Act 2014 ("NCAT Act"). Matters formerly dealt with in the Revenue Division of the ADT are dealt with in the Administrative and Equal Opportunity Division of NCAT; see section 96 of the Taxation Administration Act 1996 and clause 3(1) (b) in Schedule 3 to the NCAT Act.
The Tribunal had before it, apart from final submissions by the parties ("AS" and "RS" respectively and the documents lodged pursuant to section 58 of the Administrative Decisions Review Act 1997 (formerly the Administrative Decisions Tribunal Act 1997). These documents are referred to in these reasons as 'the section 58 documents"). The Tribunal also admitted a number of exhibitions which are detailed later in these reasons. I have drawn on RS in some detail because of the comprehensive manner in which it dealt with the evidence both written and oral.
It is convenient, by way of commencement, to include the content of RS under the head of "Background" and contained in clauses 4 to 13 (excluding footnotes although the footnoted references have been checked for correctness) as follows:
Boston Corporate
4. Boston Corporate was registered on 23 June 1999. Mr Derryn Harrison is the Chief Executive Officer of Boston Corporate. Mr Harrison is currently the sole director of Boston Corporate. During the period 1 July 2005 to 30 June 2009, Mr Bradford Gower was also a director of Boston Corporate. At all relevant times Mr Harrison has held 100% of the shares issued by Boston Corporate.
5. Boston Corporate is a holding company owning 100% of the shares in the following entities ("Boston Corporate Subsidiaries") through which the debt collection and associated services business are conducted: Boston Sales, Boston Commercial; Boston Funding; Dejure Lawyers; and Insight Litigation (until 2009).
6. Boston Corporate and the Boston Corporate Subsidiaries, through which the debt recovery and associated commercial services business is conducted, market themselves as "The Boston Group" , being "a wholly-owned group of companies providing professional services to the business community ... in business finance, legal services, debt recovery and outsourced accounts receivable management"
Boston Commercial
7. Boston Commercial is a Boston Corporate Subsidiary. Mr Harrison is the sole director of Boston Commercial. Boston Commercial "provides a full range of debt collection and outsourced accounts receivable management solutions for business of all sizes" Boston Commercial's principal place of business is 68 Alfred Street Milsons Point 2061.
Boston Sales
8. Boston Sales is the marketing arm of the Boston Group and provides marketing services to Boston Commercial and Boston Funding. Boston Sales (apparently) operates in accordance with a "commission agreement" with Boston Commercial, whereby Boston Commercial pays commission to Boston Sales for client "leads" provided by Boston Sales. Boston Sales provided its sales and marketing services through contractors. Those contractors are engaged specifically to promote the business of the Boston Group. Boston Sales' principal place of business is 68 Alfred Street, Milsons Point, 2061.
Boston Funding
9. Boston Funding carries on a business of providing business loans to the small and medium business sector. The funding activities include loans to external businesses and to members of the Boston Group.18 Boston Funding also apparently enters into arrangements with Boston Sales or with contractors directly contracted to Boston Sales and Marketing, for business referral services. Boston Funding's principal place of business is 68 Alfred Street, Milsons Point, 2061.
Dejure Lawyers
10. Dejure Lawyers is "the Boston Group's incorporated legal practice'" carrying on the business of a legal practice. Dejure Lawyers is "dedicated to conducting commercial litigation work, particularly in the areas of debt recovery, business finance and contract law, in support of the Boston Group clients in general Dejure Lawyers' principal place of business is 68 Alfred Street, Milsons Point, 2061.
Insight Litigation
11. Insight Litigation was an entity owned by Boston Corporate. Insight Litigation was established to provide legal services to clients of Boston Commercial and to external clients. Prior to its sale Insight Litigation's principal place of business was 68 Alfred Street, Milsons Point, 2061.
Tomahawk
12. Mr Harrison has been the sole director of Tomahawk since 20 February 1997. Mr Harrison owns 100% of the shares issued by Tomahawk. Tomahawk is the private company of Mr Harrison. It is described as a project venture/management company of Mr Harrison. Tomahawk received contract fees from Boston Corporate in the relevant period, discussed below. Interest free loans existed between Tomahawk and Iconic during the relevant period and Tomahawk played a role in securing and organising sponsorship for Iconic, discussed below.
Iconic
13. Mr Harrison was a director of Iconic, along with Mr Gower in the relevant period. Mr Harrison owned 100% of the shares issued by Iconic. Iconic is not marketed as part of the Boston Group. Iconic was originally established to carry on motor racing business activities. Subsequently, Iconic changed the focus of its operations in or around 2009 to 2010 to demurrage hire car services in conjunction with its motor racing activities.
In or around March 2011 the Chief Commissioner commenced payroll tax investigations in relation to the Applicant and related persons. Following those investigations the Chief Commissioner determined that the Applicant constituted a payroll tax group with the entities set out in clause 5 and the assessments were issued. The Applicant lodged an objection and subsequently some entities referred to made application for exclusion from the group so constituted.
Clause 19 of RS sets out that some matters have been resolved. That clause, and also clause 20 of RS headed "Matters for Consideration by the Tribunal," are included in this clause 7 as follows:
19. The Chief Commissioner is of the understanding that it is resolved that:
i. Boston Corporate; Boston Funding; Boston Commercial; Boston Sales; Dejure; and Insight, properly form a payroll tax group for which no "determination" under s.79 of the PTA 2007 or S.16B of the PTA 1971 is to be made. Accordingly, the taxable wages paid by those members of the Group are liable to payroll tax as group wages;
ii. Some payments were made by Boston Sales to third party contractors who provided sales and marketing services to Boston Sales pursuant to "relevant contracts" between Boston Sales and the contractors. The identification of the amounts paid pursuant to those relevant contracts though is not agreed.
iii. Payments from Boston Commercial to E-Nerds were not payments made under a relevant contract and thus are not taxable wages and payments by Boston Commercial to Boston Sales were not payments made under a relevant contract and thus are not taxable wages;
iv. The Chief Commissioner originally included Iconic in the Group for the 2011 year. The Chief Commissioner does not contend that Iconic forms part of the Group in that year due to its change in focus to demurrage hire care services. The Chief Commissioner originally included Teltex atf Arc Unit Trust but accepts it is not in the group;
v. Insight Litigation's wages and superannuation for the part of 2009 that it was a group member are $163,669.14;
vi. Wages paid to Dr Carrington by Tomahawk after December 2008, if taxable at all as group wages, are not taxable wages in NSW.
Matters For Consideration by Tribunal
20. Having regard to the matters outlined at paragraph [19] above, as the matter stands, the following matters require determination by the Tribunal, in respect of the assessments. The matters are:
i. Whether Tomahawk is properly to be included in the Group for the 2007 year or whether a determination can and should be made in respect of Tomahawk pursuant to S.16B of the PTA 1971;
ii. Whether Tomahawk is properly to be included in the Group for the 2008 to 2011 years or whether a determination can and should be made in respect of Tomahawk pursuant to s.79 of the PTA 2007;
iii. Whether Iconic is properly to be included in the Group for the 2007 year or whether a determination can and should be made in respect of Iconic pursuant to S.16B of the PTA 1971;
iv. Whether Iconic is properly to be included in the Group for the 2008 to 2010 years or whether a determination should be made in respect of Iconic pursuant to s.79 of the PTA 2007;
v. The identification of amounts paid pursuant to the relevant contracts between Boston Sales and its contractors in the 2007 to 2010 years;
vi. Whether penalty tax at 25% on unpaid tax was correctly assessed; and
vii. Whether market interest is payable on unpaid payroll tax.
The legislation applicable to the determination of this matter is contained in the PTA 1971 (for the 2007 year) and Part 10A of the TA Act (as it then applied for the 2007 year) and the PTA 2007 as it applied for the 2008 to 2011 years.
It is of course clear that the Applicant bears the onus of proof. (FCT v Dalco [1990] 168 CLR 614.
The Tribunal admitted into evidence exhibits as follows:
(1) Exhibit A1 is an affidavit by Dr. R. Carrington dated 25 July 2013; (Dr Carrington was not required for cross-examination)
(2) Exhibit A2 is an affidavit by Mr. D Harrison dated 23 July 2013;
(3) Exhibits R1 R2 R3 and R4 relate to the General Ledger [Detail] of Boston Corporate Holdings Pty Ltd in respect of the periods of 12 months ending June 2008, June 2009, June 2010 and June 2011 respectively;
(4) Exhibits R5 and R6 relate to the Chief Commissioner's Evidence Folder and Second Evidence Folder respectively.
Part B Documentary evidence before the Tribunal
The objective documentary material before the Tribunal includes the ASIC Current and Historical Extracts in relation to the relevant entities, and the Financial Reports and other business records of the relevant entities. RS sets out in clauses 29 to 42 a number of items of relevance in this context, which are included without footnotes, (although again on the basis that the references have been checked for accuracy) as follows:
29. As outlined above, the ASIC extract for Tomahawk indicates that Mr Harrison has been the sole director of Tomahawk since 20 February 1997 and Mr Harrison owns 100% of the shares issued by Tomahawk.
30. Relevant to the inclusion of Tomahawk in a group with Boston Corporate (and by extension the subsidiaries of Boston Corporate) the Financial Reports for Tomahawk0 identify that Tomahawk recorded the following relevant items of income, recorded as "Contract Fees", in the 2007 to 2011 financial years:
(i) $147,171 in 2007;
(ii) $129,808 in 2008;
(iii) $125,000 in 2009;
(iv) $139,375 in 2010;
(v) $139,496 in 2011.
31. Relevant to the inclusion of Tomahawk in a group with Iconic, the Financial Reports for Tomahawk46 identify that Tomahawk recorded the following relevant items of expenditure, recorded as "Racing Expenses" in the 2007 to 2010 financial years:
(i) $141,061 in 2007;
(ii) $95,604 in 2008;
(iii) $78,420 in 2009;
(iv) $71,734 in 2010.
32. The Financial Reports for Tomahawk identify that Tomahawk recorded loans to Iconic in the 2007 to 2010 years for the following amounts:
(i) $164,585 in 2007;
(ii) $169,087 in 2008;
(iii) $202,630 in 2009;
(iv) 253,458 in 2010.
Boston Corporate
33. As outlined above, the ASIC extract for Boston Corporate identifies that at all relevant times Mr Harrison has held 100% of the shares issued by Boston Corporate56 and Mr Harrison was a director of Boston Corporate.
34. Relevant to the inclusion of Boston Corporate in a group with Tomahawk (and by extension the subsidiaries of Boston Corporate) and relevant to the "Contract Fees" recorded in Tomahawk's financials, which are outlined above, the Financial Reports for Boston Corporate identify that Boston Corporate recorded the following relevant items of expenditure, recorded as "Management Fees", in the 2007 to 2011 financial years:
(i) $147216 in 2007
(ii) $125000 in 2008
(iii) $125000 in 2009
(iv) $140079 in 2010
(v) $222900 in 2011.
35. Exhibits Rl to R4, are copies of extracts from Boston Corporate's General Ledger for the 2008 to 2011 financial years, recording the payment, or accrual, of Management Fees from Boston Corporate to Tomahawk. The General Ledger's identify the following Management Fees from Boston Corporate to Tomahawk;
(i) $125,000.20 in 2008 (and, relevant to 2007, a "Beginning Balance" of $147,216.01): see Exhibit Rl;
(ii) $125,000.44 in 2009: see Exhibit R2;
(iii) $140,079.05 in 2010: see Exhibit R3;
(iv) $141,900.20 in 2011: see Exhibit R4.
Tomahawk & Iconic
36. As outlined above, the ASIC extract for Iconic identifies that Mr Harrison owned 100% of the shares issued by Iconic in the relevant period and Mr Harrison was a director of Iconic.
37. Relevant to the inclusion of Iconic in a group with Tomahawk for the 2007 to 2010 years the Financial Reports for Iconic identify that Tomahawk recorded the following relevant items of income in the 2008 to 2010 financial years:
(i) $139,210 in Driver Race Income and $17,345 in Sponsorship Income in 2008 (out of $176,955 in total income);
(ii) $112,117 in Driver Race Income and $18,991 in Sponsorship Income in 2009 (out of $138,803 in total income);
(iii) $87,672 in Driver Race Income and $15,000 in Sponsorship Income in 2010 (out of $218,483 in total income).
38. The Financial Reports for Iconic, consistent with the Tomahawk financials, also record loans to Iconic from Tomahawk in the 2007 to 2010 for the following amounts:
(i) $169,087 in 200868;
(ii) $202,630 in 200969;
(iii) $253,458 in 201070.
Application to Exclude re Tomahawk and Iconic
39. Relevant to the documents identified above, in conjunction with the objection to the assessments which was lodged in January 2012 (which raised, amongst other objections to the assessments, a request to exclude Tomahawk and Iconic from the group72) Tomahawk and Iconic each lodged an application for exclusion from grouping.
40. In Tomahawk's application for exclusion it was outlined that Tomahawk derived consulting fees from Boston Corporate for consulting services provided to Boston Corporate.
41. In Iconic's application for exclusion it was outlined that funding was provided to Iconic by Tomahawk as "seed funding" for the racing vehicle business with no interest charge.
Mr Harrison's Affidavit Evidence re Tomahawk and Iconic
42. Mr Harrison, in Exhibit A2, gave evidence in respect of Tomahawk at paragraphs 69-109 and 115-120. The primary focus of the evidence in respect of Tomahawk is related to the activities of Dr Carrington with Biomed and, secondarily, the transfer of assets and resultant loan account between Tomahawk and Iconic. Mr Harrison gave evidence in respect of Iconic at paragraphs 115-137. The issue of payments by Boston Corporate to Tomahawk in the 2007 to 2011 years was not the subject of evidence in Exhibit A2.
Part C The evidence of Mr Harrison during the hearing
In this context also RS contains an admirable summary of relevant aspects of Mr Harrison's evidence during the hearing; it is contained in clauses 43 to 51 which are repeated in full as follows:
43. In evidence in chief Mr Harrison was asked some further questions about particular employees of Tomahawk.77 In re-examination and additional evidence in chief Mr Harrison was asked some questions regarding Maxim Asset Management Pty Ltd (not a member of the group) and Boston Sales.
44. The focus of the cross examination of Mr Harrison was:
i. primarily directed to the relationship between Boston Corporate and Tomahawk and the payments by Boston Corporate to Tomahawk in the 2007 to 2011 years, recorded in the respective Financial Reports and the Boston Corporate General Ledgers (Exhibit Rl to R4) as detailed above; and
ii. the loan between Tomahawk and Iconic and the payments of amounts by Tomahawk, recorded as "Racing Expenses" in Tomahawk's Financial Reports.
45. Mr Harrison was asked questions regarding the "Contract Fees" figures in the Tomahawk Financial Reports; the "Management Fees" expenses in the Boston Corporate Financial Reports and the "Management Fees" in the Boston Corporate General Ledgers (Exhibits Rl to R4) for the 2008 to 2011 years.
46. By reference to the references in the objection and exclusion application to Tomahawk providing consulting services to Boston Corporate it was suggested to Mr Harrison that:
i. the fees accounted for in the relevant Boston Corporate General Ledger as Management Fees in each of the 2008 to 2011 years (Exhibit Rl to R4) were paid to Tomahawk for consulting services provided by Tomahawk to Boston Corporate; and
ii. that fees received by Tomahawk from Boston Corporate for consulting services were recorded in the "Contact Fees" income column in Tomahawk's Financial Reports.
47. Mr Harrison disagreed with those suggestions. Mr Harrison's said that, as the description in Tomahawk's Financial Reports indicates, they were contract fees/retainer fees paid or owing by Boston Corporate to Tomahawk to hold Tomahawk available to incubate or develop projects outside the Boston corporate groups.
48. The main questions and answers appear at pages 80-89 of the transcript. Two relevant excerpts, though not all, on this issue include:
Q. Mr Harrison, I asked you a question regarding the 2008 financial year and Tomahawk's financial records specifically at page 391 of that folder, if you could turn back to that page? I suggested to you that the amount of $125,000 of the $129,808 recorded against contract fees" was income for consulting services Tomahawk provided to Boston Corporate in the 2008 year. Do you agree with that?
A. Yes, you suggested that. Yes.
Q. If I could ask you then to turn to tab 4 of that folder that it is now referring to, it is 4D, the 2008 financial year report for Boston Corporate Holdings?
A. D. Yes.
Q. If you could turn to page 174 do you see in the "Expenses" column about roughly halfway, a bit more than halfway down, the term "Management fees"?
A. Yes.
Q. Do you see the figure $125,000 recorded as a management fee expense for Boston Corporate?
A. Yes.
Q. I suggest to you that that expense recorded as management fees is fees paid by Boston Corporate Holdings to Tomahawk for consulting services provided by Tomahawk. Do you agree with that?
A. No, I don't agree with that. Tomahawk did not provide consulting services to Boston Corporate Holdings.
Q. I show you a document. Do you agree that that is a document entitled "Boston Corporate Holdings Pty Ltd general ledger"?
A. Correct.
Q. Do you agree that that document appears to record "Management fees" paid?
A. Yes.
Q. Do you agree that that document appears to record management fees paid to Tomahawk?
A. Correct.
Q. Do you agree, and I am specifically referring you to the bottom of that document and the word "Total" in the column "Debit", do you agree that that document records payments to Tomahawk in the amount of $125,000.20?
A. Yes.
Q. I suggest to you that that document records fees paid by Boston Corporate Holdings to Tomahawk for the consulting services Tomahawk provided to Boston Corporate Holdings. Do you agree with that?
A. No, I don't.
Q. Mr Harrison, just to complete that line of questioning in fairness I should put to you that I suggest to you that those management fees recorded in the document that I just showed you in the ledger of Boston Corporate Holdings recorded fees paid to Tomahawk for consulting services provided by you through Tomahawk to Boston Corporate?
A. Mr Gerard, that is not correct.
HIS HONOUR: I'm sorry, "I suggest that they reflect management fees paid to who", sorry, to Tomahawk for him -for the witness?
MR GERARD: Yes. I put to Mr Harrison that Tomahawk provided consulting services to Boston Corporate and it was Mr Harrison who provided those services; that was the question.
HIS HONOUR: Was that the question you asked him?
MR GERARD: Correct.
HIS HONOUR
Q. I suggest that they reflect management fees provided by you?
A. No, "consulting services" is the word that Mr Gerard used.
Q. That they reflect consulting fees provided by you, Mr Harrison, to Boston Corporate?
A. That was the question. Yes.
Q. The answer was, "No "?
A. No.
Q. What do you think in Rl you probably don't have it?
A. No, it's right I know what it says though.
Q. It says "Payment to Tomahawk for W/E"?
A. Week ending.
Q. For what?
A. That stands for "week ending".
Q. If Boston Corporate Holdings was purely a holding company what are all these red entries?
A. They were paid on a wait on - that was a management fee paid to Tomahawk on a weekly basis so as if it had the opportunity or was required to incubate or develop anything for Boston it would do so. It's not an unusual-
Q. But from what money was Boston Corporate making these payments?
A. Well, once we went to the group structure the profits from the remaining groups passed up into the corporate entity.
Q. They may have done for tax purposes but it doesn't follow that they did as a matter of- A. They did as a matter of course. They actually processed them on a regular basis.
Q. Mr Harrison, I show you a further document. Do you agree that that is a document entitled "Boston Corporate Holdings general ledger" for the 2010 financial year?
A. Yes.
Q. It records management fees paid to Tomahawk, management fees being the term used in the document?
A. Correct.
Q. It records an amount of $140,079.05. Do you see that?
A. Correct.
Q. I suggest to you that this document records fees paid to Tomahawk by Boston Corporate for consulting services provided by Tomahawk to Boston Corporate Holdings, do you agree with that?
A. No, that's incorrect.
Q. I suggest to you that
HIS HONOUR: Tomahawk to by Boston to Tomahawk for, you said, consulting fees?
MR GERARD: Consulting services.
HIS HONOUR: Consulting services.
Q. The answer was?
A. No, that's not correct.
Q. Even though it is in the account?
A. I think it important, Senior Member, to actually highlight the different between the consultancy fees and the contract fees. A contract fee is like a retainer whereby an organisation will hold you, if it is required. The consultancy fees are not as Mr Carrington would where he's actually providing the service.
Q. So you say, "No", that they are contract fees?
A. Correct, and that's how they're recorded in the accounts of Tomahawk.
Q. What do you think the words "Purchase" means; it says, "Purchase Tomahawk Management 2403"?
A. That is MYOB, that's document produced from an accounting software package that's arguably one of the top three in the world, so they use only "Purchase" as that's an American phrase. You can't actually remove it from the document.
Q. So contract fees not consulting fees?
A. Yes.
Q. So what you are saying is when Boston made all these payments to Tomahawk it was paying a contractual fee?
A. Correct.
Q. And not a consulting fee?
A. Correct.
Q. What was the contractual fee for?
A. Because when we the contract fee was to hold Tomahawk available to develop any of the projects so, for example, so when we put the group together you will see from we have already gone through the various parts of the company started out as different organisations prior to being brought into the group; that's Tomahawk's role. Tomahawk's role external to that is to do that for other parties.
Q. If I remember rightly I think your solicitor told us that one of Tomahawk's functions was to seek out opportunities?
A. Correct, that's right, not related to the group, so opportunities to obviously profit from that aren't related to Boston per se.
Q. It seems to have received these substantial payments on a weekly basis?
A. Correct.
Q. Why?
A. It's a retainer, that's not an unusual commercial transaction because if an opportunity
Q. But if you will forgive me putting it this way: Tomahawk was you, Boston Corporate Holdings was you? Why was it necessary to shift money from one company to another?
A. Because it wasn't always the case. I didn't always own 100% of the entire group.
Q. In the relevant years you did?
A. That's correct now but with hindsight we wouldn't be in this position if we'd, when I eventually got control of the group
Q. Yes, but may I point out something to you: this is for the year ended from 2009 to 2010 when you owned every single one of these companies 100%?
A. Absolutely.
Q. So why was Boston Corporate making all these payments to Tomahawk?
A. Because it was retaining Tomahawk to ensure that if there was an opportunity that it wanted to have developed outside of the group that it had a vehicle within which to do that.
Q. For that purpose it had to make payments on a weekly basis?
A. Correct. In our industry that's not at all unusual; that's not an unusual that type of retainer based agreement is not unusual in fact the law, you know, the legal fraternity is one that does it regularly.
...
49. Mr Harrison was also asked questions regarding the expense items labelled "Racing Expenses" in the Tomahawk Financial Reports and the loan account. Mr Harrison also gave evidence regarding the role played by Tomahawk in raising sponsorship for members of the Iconic driving team. The relevant questions and answers in respect of the Racing Expenses and loan account are located at pages 100-103 of the transcript. Some relevant excerpts of the cross-examination include the following:
Q. After Tomahawk transferred all assets held in connection with its car racing activities to Iconic, did Tomahawk cease being involved in car racing entirely?
A. No. It from time to time was called upon to raise sponsorship.
HIS HONOUR
Q. Sorry, after it transferred its car racing assets to who?
A. Iconic.
Q. Not entirely?
A. No. Not entirely. From time to time it was called upon to raise additional sponsorship for the team.
MR GERARD
Q. In terms of the raising of sponsorship, is that the case, that that was sponsorship raised for Iconic?
A. Well, you don't actually raise sponsorship for the company per se; you raise it for specific drivers and for a specific car.
Q. Were any of those drivers driving for the racing team carried on by Iconic?
A. Yes.
Q. Could I just ask you to turn to page 392 of that large folder in front of you.
HIS HONOUR: Were they driving for Iconic and the answer is, yes, they were...
[MR GERARD]
Q. Do you see that that is a profit and loss statement for Tomahawk for the 2008 year?
A. Yes.
Q. Just in the column for 2007 on the far right hand side, about two thirds of the way down there's racing expenses and do you see the number 141061?
A. Correct.
Q. Are you able to say what those amounts relate to?
A. In detail other than as they're described?
Q. I appreciate the time difference between now and 2007. Is it possible that some of those amounts or some part of that amount is expenses incurred in connection with Iconic's car racing activities?
A. Yes. I would think that is reasonably that would be reasonably expected to be the case.
Q. To short circuit it rather than go through each year, but I'm happy to if need be, looking at the 2008, does the same apply for that amount in 2008?
A. Yeah. I would have thought so, yeah.
Q. There are amounts in 2009 and 10 at page 365. Do you see there again in the 2009
A. 2009/2010, yes, correct.
Q. The same would apply for those years?
A. They would.
Q. If you could just then turn to page 311 of that folder.
A. Yes.
Q. That is notes to the Iconic financial statement for the 2009 year; is that right?
A. Correct.
Q. Do you see note 5, "Trade and other Payables"?
A. Yes.
Q. The figure in the 2008 column $169,087?
A. Being loans to Tomahawk?
Q. Loans from Tomahawk?
A. Tomahawk, yes.
Q. Do you see the figure in 2009 for 202,630?
A. Yes.
Q. Are you able to say why that amount increased from the end of the 2008 year to the 2009 year?
A. I presume that there was a that Tomahawk must have loaned Iconic further funds.
Q. That page then again records notes to the Iconic financial statement for the financial year ending June 2011; is that right?
A. Correct.
Q. Do you see in the note 6, "Trade and other Payables" in the "2010" column?
A. Yes.
Q. The figure $253,458?
A. Correct.
Q. Being a loan from Tomahawk? A. Yeah.
Q. Are you able to say why the amount increased from the end of the 2009 year from 202,630 to that figure recorded there?
A. Again, I can only presume that Tomahawk must have loaned money, additional money to Iconic during that period.
50. The issue of the Racing Expenses entries in the Tomahawk Financial Reports was further explored in re-examination in the context of Mr Harrison's personal racing activities87 and their contribution to the amounts recorded as Racing Expenses as was the relationship between Tomahawk and Iconic and the role of Tomahawk in securing/supplying sponsors88for Iconic (or perhaps members of the Iconic racing team). Relevant excerpts, though not all, in respect of the above, include the following:
HIS HONOUR
Q. Why does Tomahawk figure into this at all?
A. Because we were responsible for looking after the sponsorship arrangements. Sorry, Tomahawk was responsible for looking after the sponsorship arrangements. It's not an unusual in motor racing it's not an unusual process.
Q. But if Tomahawk was responsible for organising sponsorships Tomahawk this may be naive of me would be a creditor, not a debtor, because it's doing something for Iconic. Therefore, it's entitled to be remunerated, I would have thought?
A. Yes, and that would be adjusted. That would normally be adjusted in the price, right, that was a cross between the two, that was a charge between the two.
Q. Let me go back for a moment. Iconic is the company which gets the sponsorships? A. No. Tomahawk is the company that raised the sponsorships.
Q. Does what with them? A. Passes them to Tomahawk.
Q. Tomahawk got them.
A. Sorry, passes them to Iconic, correct. Sorry, now I'm confusing myself.
Q. But what does it pass to Iconic? The money?
A. Funds or in land support or events or programs. It runs programs for them for sponsors. So when sponsors come, they don't just put a name on a card. There are a series of events that are run around sponsorship arrangements. So, for example, you will have an open day in Martin Place, for example, where we put the case in, et cetera. The racing team does not organise that. That's organised by our organisation, by Tomahawk.
Q. Do you own the shares in Iconic as well? In. A. I do now, yes.
HIS HONOUR
Q. Then I'm going to leave it at that. I've got to confess to you that I don't. My understanding would be this: somebody has got to provide the money because motor racing is an expensive business. Now, assuming will that you've got a sponsorship from Commonwealth Bank, they would give you money, presumably, in order to have a car liberally labelled "Commonwealth Bank". How much would they pay for that, roughly?
A. There's no answer to that, Member, because it depends on the support from
Q. They pay, let's say, $1,000 to have their Aston Martin sports car or somebody's Aston Martin's sports car labelled "Commonwealth"?
A. Correct.
Q. In a specific race?
A. Correct.
Q. The sports car belongs to who?
A. The race team.
Q. The who?
A. The race team. So whoever supplies the car, normally the car will be owned by a race team. So in our case Iconic.
Q. Commonwealth Bank pays $1,000 to Iconic or Tomahawk?
A. In a very simplistic world it would pay it to Iconic. If it was just putting a label on a car, it would pay it to Iconic.
Q. What did it do?
A. But it doesn't that's not how it works in motor racing circles because what happens is the value is the intrinsic value obtained. So it's the events that go around the labelling of the car that's important. Tomahawk provides the events and the management of the representative from Commonwealth. Some one Commonwealth Bank had to agree to sign a cheque, and in return they have to satisfy their themselves that the Commonwealth Bank is getting value for that, okay, so they have to do a costs they will say, "Ok, well, how do we get value from that? Do we get value from having a name on a", and I wish I had an Aston Martin, but anyway, "from a car running around a racetrack", and the answer is generally no, right, unless it's televised and you can actually what they get value from is being able to take clients bringing that Aston Martin, for example, to the Commonwealth Bank's offices here in Sydney and bringing clients so they can sit in it, they get photos taken with it, they get merchandise and all those bits and pieces. That's what Tomahawk does.
Q. Tomahawk receives the money from Commonwealth Bank and then Tomahawk pays it to Iconic. Why?
A. Well, a portion of it would go to Iconic to set up the signs and whatnot on the car, a portion of it would be maintained for the purposes of running those events that I've just described...
51. The nature of other projects undertaken by Tomahawk was also explored in re-examination as follows:
MR GOWER
Q. Tomahawk's overall business is described by yourself in your evidence as a consulting business; is that right?
A. That's right.
Q. Project management?
A. I was going to say, it's not a consulting business; it's a project management business.
Q. As a consequence of that could you give the Tribunal a brief rundown of the external entities for which
Tomahawk carries out projects?
A. Current ones or in the past?
Q. Let's say between 2009 and today?
A. And now? Right, okay. I would have to go back and look at all the records and whatnot, but there would be - so clients of Tomahawk would include Think Tank Group Pty Ltd on the wait through, Iconic, which we've discussed, on the way through. We've conducted Biomed North, which Russell Carrington is involved with.
There has been Mr Martin Keane in 2009 - or it might be 2008, I'm not a 100% sure. We did some mobile incubation work with him and one of his companies during that period of time. I'm struggling to - I'm sure there are others, but I'm struggling to actually, off the top of my head-
Part D Tomahawk and Iconic in the Group
The Applicant contends that a "determination" in accordance with S.16B of the PTA 1971 should be made in respect of Tomahawk and Iconic, such that Tomahawk and Iconic should be "de-grouped" from the rest of the group for the 2007 year. In respect of the 2007 year, S.16B and S.16C of the PTA 1971 are the relevant provisions. Section 16B of the PTA 1971 provides that the Chief Commissioner may, in some circumstances, determine that a person is not a member of a group.
Section 16B is subject to S.16C(1) of the PTA 1971. Section 16C(l)(a)-(c) of the PTA 1971 provides that a "determination" under S.16B may only be made in relation to persons who are members of a group pursuant to the operation of the provisions listed in s.l6C(l)(a)-(c). Tomahawk and Iconic are grouped with the other group members through the common control provisions in S.106I(2)(C) and (d) of the TA Act.
Section 106I(2)(c) and (d) are not provisions listed in s.l6C(l)(a)-(c) of the PTA 1971. It follows that no determination can be made in respect of Iconic or Tomahawk for the 2007 year. Tomahawk and Iconic form part of the group and the wages paid by Tomahawk and Iconic in 2007 must therefore by included in group wages. In any event, even if S.16C(1) did not preclude the making of a determination in the circumstances, for the reasons set out below in respect of s.79(2) of the PTA 2007, no determination should be made because S.16C(3) would not be satisfied.
In respect of the 2008-2011 tax years, s.79 of the PTA 2007 applies. So far as s.79 of the PTA 2007 is concerned, it is for the Applicant to establish that a "determination" should be made pursuant to s.79(l) of the PTA 2007. The exercise of the discretion in s.79(l) is subject to s.79(2).
The discretion contained in s.79 of the PTA 2007 becomes relevant only when the group provisions have been applied and a "group" has been found to exist. The question of the discretion in s.79 is a "final step" in the grouping process to be undertaken following the application of s.74 of the PTA 2007: see Liquid Rock Constructions Pty Ltd v Commissioner of State Revenue (Taxation) [2011] VCAT 2164 at [69]).
Whether a "determination" can be made under s.79(l) is largely determined, subject to the exercise of discretion, by reference to the criteria outlined in s.79(2) of the PTA 2007. Section 79(2) of the PTA 2007 relevantly provides:
"(2) The Chief Commissioner may only make such a determination if satisfied, having regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other matters the Chief Commissioner considers relevant, that a business carried on by the person, is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group."
By s.79(2) of the PTA 2007, the Chief Commissioner (and the Tribunal on review) may only make a determination under s.79(l) if satisfied, that a business is:
"carried on independently of and is not connected with the carrying of a business carried on by any other member of the group": s.79(2) PTA 2007.
It is important to note that the only statutory question which requires an answer is as to whether a business carried on by the person, is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group, the Chief Commissioner (or, Tribunal in this instance) is to have regard to:
(1) to the nature and degree of ownership and control;
(2) the nature of the businesses; and
(3) any other matter considered relevant.
The matters identified as matters that regard is to be had to are "relevant considerations", as that concept is understood, and identified in Minister for Aboriginal Affairs & Anor v Peko-Wallsend Ltd & Ors (1986) 162 CLR 24. In this connection, those matters rise no higher than relevant considerations that the decision maker must turn its mind to when applying the statutory test. Those matters are not themselves statutory questions.
This is relevant in the context of Tomahawk and Iconic, given that Tomahawk and Iconic carry on businesses different in nature from the other members of the group and, in turn, given the fact that Tomahawk and Iconic (and the other members of the group) are owned and controlled by Mr Harrison. These factors considered on their own do not satisfy the statutory test. For example, the fact that the same person owns and controls all of a group's members does not mean, a fortiori, that the relevant businesses are not carried on independently and are unconnected and therefore does not prevent a determination if that is so in fact. Equally, that the nature of businesses in the group are different does not answer the question whether the relevant businesses are not carried on independently and are unconnected.
The Tribunal refers to the recent decision in Starr Partners Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 51 ("Starr Partners") where the Tribunal refused to make a determination in respect of any member of the group in circumstances where the nature of the businesses of the group members were markedly different. In Starr Partners the main business operations of members of the Starr Group ranged from were a "lead franchisor for a number of real estate agencies" to a "horse racing, breeding and cattle breeding": see Starr Partners at [29]. In approaching s.79(2) and the exercise of the statutory test, attention must be paid so as not to substitute a relevant consideration for the statutory test itself or place undue weight on a particular single consideration.
In respect of s.79(2) and the statutory question of independence and connectedness, or lack of either, the Tribunal agrees with the contention of the Chief Commissioner that the question must be considered in respect of each and every member of the group vis-a-vis the others. For a determination to be made under s.79(l) of the PTA in respect of a business that business and each other business in the group vis-a vis the first mentioned business must satisfy the test in s 79(2) of the PTA Act.
Section 79(2) requires an analysis of whether the activities carried on by Tomahawk and Iconic are carried on independently of and are not connected, having regard to relevant matters, with the carrying on of the businesses of each and every other member of the group. An existent connectedness or lack of independence between the carrying on prevents a determination being made under s.79(l) of the PTA 2007.
Control of a corporation is to be determined by shareholdings in the corporation and control at directorial level: Crusher Holdings Pty Ltd v Commissioner of Taxes [1994] NTSC 82; see also Denham Constructions Pty Ltd v Chief Commissioner of State Revenue (1998) 40 ATR 416. The practical ability to control and influence is also a consideration: Commissioner of Stamps v Garrett F Hunter Pty Ltd, Meldrick House Pty Ltd and Geoffrey S Vercoe Pty Ltd (1997) 69 SASR 275.
Other relevant matters may include any relevant matter: see GTS Industries Pty Ltd v Commissioner of State Revenue [2004] VCAT at [19] Tasty Chicks Pty Ltd & Ors v Chief Commissioner of State Revenue [2009] NSWSC 1007; Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42 at [61]- [64].
It is the substance of the relationships, which is the focus of s.79 of the PTA 2007: Commissioner of Pay-roll Tax (Qld) v John French Pty Ltd & Ors 83 ATC 4117.
In Mead Packaging (Aust.) Pty. Ltd. v Commissioner of Payroll Tax (NSW) 78 ATC 4164, Rath J. in the context of the former "de-grouping" discretion contained at the time in S.16H of the PTA 1971 (which was in similar, but different, terms to s.79 of the PTA 2007), said at page 4172 as follows:
"S.16H(1) requires two findings to be made, namely (1) that a business carried on by the plaintiff (as a member of a group) is carried on substantially independently of a business carried on by any other member of that group; and (2) that the business is not substantially connected with the carrying on of the business carried on by the other member of that group. The first limb appears to relate to the independence of the businesses, and requires an examination of the connection between the business activities. The second limb appears to relate to connection in management Section 79(2) requires an analysis of whether the activities carried on by Tomahawk and Iconic are carried on independently of and are not connected, having regard to relevant matters, with the carrying on of the businesses of each and every other member of the group. An existent connectedness or lack of independence between the carrying on prevents a determination being made under s.79(l) of the PTA 2007."
So far as the meaning of the word independent is concerned, as discussed by the Court of Appeal in Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181 at 51), "the ordinary meaning of independent includes not depending on the existence or actions of others and not being influenced by others in matters of conduct." So far as the word "connected" - in the context of the composite phrase "not connected with" - is concerned, the word is one of broad meaning and wide import and the meaning to be attributed to it depends on the context of the statute in which it appears: Burswood Management Ltd v The Attorney-General of the Commonwealth of Australia (1990) 23 FCR 144 at 146.7. Burswood was a case decided in the context of the phrase "in connection with". That is a phrase that has been consistently construed in a like manner to phrases such as "in relation to" and "in respect of. The phrase "connected with " has been described as a phrase capable of describing "a spectrum of relationships ranging from the direct and immediate to the tenuous and remote": Collector of Customs v Pressure Tankers Pty Ltd and Pozzolanic Enterprises (1993) 43 FCR 280. Ultimately, its meaning depends on the context of the statute in issue.
In Lombard Farms the Appeal Panel concluded that ultimately whether businesses are independent and not connected will be "a question of judgment based on facts objectively determined^: The Appeal Panel concluded that whilst it is not so that an inconsequential or insignificant connection will disentitle an applicant from de-grouping, a connection that affects the business(es) in some material or practical sense would: Lombard Farms at [50].The Appeal Panel in Lombard Farms at [51] also said:
"To disentitle the applicant to de-grouping, the connection must be meaningful in a commercial sense and not immaterial or inconsequential to the carrying on of the businesses."
Mr Harrison gave evidence that Tomahawk is a "my private project company" or "project management business" and that Tomahawk is not a consulting entity. As outlined Mr Harrison is a 100% shareholder in Tomahawk and its sole director. As Mr Harrison's private project company, Tomahawk has been variously used by Mr Harrison including, amongst other things, to operate Mr Harrison's racing car interests"; and to provide a "commercial platform" for developing and undertaking a number of projects. Some of the projects Tomahawk undertook are outlined at page 118 of the transcript. Importantly, during the relevant years, Tomahawk was paid contract fees or retainer fees by Boston Corporate. Tomahawk was paid weekly retaining fees by Boston Corporate (identified for instance in Rl to R4) to maintain it available as a vehicle to incubate or develop anything for Boston Corporate that Boston Corporate wanted developed outside the corporate group.
The contract fees amounts paid by, or owing from, Boston Corporate to Tomahawk and the income earned by Tomahawk from those contract fees and that commercial relationship are identified, as outlined above, in the Boston Corporate General Ledgers (Exhibits Rl to R4) and in the Boston Corporate Financial Reports under the item Management Fees and as part of the Contract Fees income recorded in Tomahawk's Financial Reports.
As noted previously, the contract fees payable or owing by Boston Corporate to Tomahawk in the 2007 to 2011 years from that business relationship were $147,216.01 in the 2007 Financial Year; $125,000.20 in the 2008 Financial Year; $125,000.44 in the 2009 Financial Year; $140,079.05 in the 2010 Financial Year and $141,900.20 in the 2011 Financial Year. Those payments represent approximately 44% to 53% of the recorded income earned by Tomahawk in the 2008 to 2011 years.
Tomahawk also apparently: shares a principal business address of 68 Alfred Street, Milsons Point, with Boston Corporate; Boston Funding; Boston Sales; Boston Commercial; and Dejure. The exclusion application for Tomahawk also noted it had common suppliers of legal and accounting services with other members of the Group; shares the services and, proportionally, the costs of a "bookkeeper" with Boston Corporate; Boston Funding; Boston Sales; Boston Commercial; and Dejure; and shares, proportionally, the rent on premises at North Sydney with Boston Corporate; Boston Funding; Boston Sales; Boston Commercial; and Dejure.
Having regard to the criteria in s.79(2) of the PTA 2007 the Tribunal finds no determination is available in respect of Tomahawk. The business carried on by Tomahawk is not carried on independently of and is connected with the carrying of a business carried on by another member of the group, being Boston Corporate: s.79(2) PTA 2007.
So far as the two mandatory matters in s.79 of the PTA 2007 are concerned, the nature and degree of ownership and control between Boston Corporate and Tomahawk is exactly the same but the nature of the businesses of Boston Corporate and Tomahawk were different.
Mr Harrison is the holder of 100% of the shares issued by Boston Corporate which is in turn a 100% shareholder in Boston Commercial, Boston Sales and Boston Funding. Mr Harrison is the holder of 100% of the shares issued by Tomahawk. Mr Harrison was also a director of Boston Corporate, Tomahawk, Boston Commercial, Boston Sales and Boston Funding.
In respect of the statutory question posed by s.79(2) of the PTA 2007, the Tribunal finds that there exists between Tomahawk and Boston Corporate a relevant and real connection that affects the business of Tomahawk in a material, commercial, practical and meaningful sense via the retention of Tomahawk by Boston Corporate and the payment of substantial contract fees by Boston Corporate to Tomahawk. Tomahawk is not independent of Boston Corporate in the sense required by s.79(2) of the PTA 2007.
Tomahawk and Boston Corporate (both owned by Mr Harrison) have a connected commercial relationship. In the context of Tomahawk, in the relevant period, the business/relationship Tomahawk has with Boston Corporate is commercially significant to Tomahawk. The substantial contract fees paid or payable by Boston Corporate to Tomahawk, in each relevant year for the purposes of s.79(2) (2008 to 2011), represented approximately between 44% and 53% of Tomahawk's total income for each year (38% for 2007): As to significance and relevance see GTS Industries; see also Lombard Farms at [50] -[51].
In that regard, in a financial sense there is substantial financial and practical connection and dependence, by Tomahawk, on Boston Corporate. Moreover, the Tribunal considers, that as sole owner and controller of both, Mr Harrison retained the unfettered ability to make decisions with respect to the business of each individual entity taking into account, if necessary, the needs of the other: Clerk, Walker & Stops and Clerestory Pty Ltd v Commr of Pay-roll Tax (Tas) 83 ATC 4594 at 4597-98; Commissioner of Stamps v Garrett F Hunter Pty Ltd, Meldrick House Pty Ltd and Geoffrey S Vercoe Pty Ltd (1997) 69 SASR 275.
The business of Tomahawk is evidently connected to the business of Boston Corporate in a direct and commercially meaningful way to Tomahawk. This is identified by the reasons for the commercial relationship and the significance, financially to Tomahawk, of the contract fees paid or owing to it by Boston Corporate. When one company earns almost half or more of its income from one other company that is a material connection in a material commercial sense and evidence of lack of independence. Applying the ratio and approach of the Appeal Panel in Lombard Farms, the identified connection between Tomahawk and Boston Corporate is a real connection in a commercially material, meaningful and practical sense and should not be characterised as immaterial or inconsequential: see Lombard Farms at [50].
Accordingly, no determination under s.79 of the PTA 2007 is available in relation to Tomahawk for any of the relevant years.
As the evidence of Mr Harrison demonstrates, prior to the relevant period, Tomahawk operated car racing activities. During the relevant period the car racing activities were primarily operated by Iconic.
So far as the decision to transfer the motor racing operations of Tomahawk to Iconic is concerned, Mr Harrison gave evidence:
"In early 2005 I was approached by a large Australian company to assist it in a national promotional campaign. For the purposes of that activity I arranged for Tomahawk to purchase a fourth racing car and negotiated a contract for Tomahawk to provide that car to a promising young driver.
I formed the view at the time that it was appropriate to separate the racing activities from the other projects and activities carried on by Tomahawk. Icon Motorsport Pty Ltd [Icon] was the result...
On its formation all assets held in connection with car racing activities were transferred from Tomahawk to Icon Motorsport Pty Ltd. From an accounting perspective that was done by way of a loan account."
More detail in respect of that transaction is provided in Tomahawk's de-grouping application. In respect of the loan account between Tomahawk and Iconic and in respect of inter-group financial transactions and dependencies. Intergroup loans represent sundry or seed funding for early developed companies. These are provided on an interest free, at call basis to allow these entities to establish themselves before seeking external commercial finance where necessary.
As outlined Iconic and Tomahawk record an outstanding loan from Tomahawk to Iconic in their respective Financial Reports. The loan has been recorded at a value of $164,585 in 2007; $169,087 in 2008; $202,630 in 2009; and $253,458 in 2010. As identified in the cross-examination excerpts set out previously in these reasons, in respect of the increases in the loan amount Mr Harrison could only presume this was because Tomahawk must have loaned additional money to Iconic during that period. In addition, as highlighted in the relevant excerpts above, Tomahawk, throughout the relevant period, continued to record "Racing Expenses" in its Financial Reports. Tomahawk recorded: $141,061 in 2007; $95,604 in 2008; $78,420 in 2009; and $71,734 in 2010. Mr Harrison agreed that it was possible that some of those amounts were expenses incurred in connection with Iconic's car racing activities.
Further, and in addition, and as set out in the transcript excerpts, Tomahawk also played a significant role raising the sponsorships for Iconic. Tomahawk plays a role in securing, organising and running programs for the sponsors of Iconic team drivers. This is significant in respect of s.79(2) of the PTA 2007 and the statutory question in respect of Tomahawk and Iconic and makes it clear that no determination can be made in respect of Tomahawk and Iconic under s.79(l) by operation of the statutory test in s.79(2). As set out previously, for a determination to be made under s.79(l) of the PTA in respect of Iconic, the business activity of Iconic and each other respective person in the group, vis-a-vis Iconic, must satisfy the test in s.79(2) of the PTA: see Liquid Rock: see ss.67, 69 and 74 of the PTA 2007. The Tribunal refers in particular in this context to the payment by Tomahawk of some racing expenses in connection with Iconic's car racing activities and the integrated role played by Tomahawk in securing sponsorship for Iconic or Iconic drivers and organising and running programs for sponsors of Iconic.
The assets (plant and equipment) transferred from Tomahawk to Iconic on non-commercial terms appear to represent the majority of Iconic's assets in the 2007 to 2010 period. Measured against Iconic's income and net asset position throughout 2007 to 2010, the loan from Tomahawk, the decision to not call in the loan and the payment of some racing expenses by Tomahawk was significant so far as Iconic's activities were concerned. Fairly described, Iconic's existence depended on ongoing goodwill from Tomahawk. The Tribunal must conclude that such a circumstance would not have transpired, or been able to subsist, had Mr Harrison not had ownership and control of each of Tomahawk and Iconic. This is particularly so in circumstances where Tomahawk had its own substantial debt to Mr Harrison. Moreover, it was from the use of these assets which Iconic derived the majority of its income during the 2007 to 2009 years and a significant proportion in 2010. It was from the leasing of those assets (transferred by Tomahawk) to drivers from which Iconic derived its driver race income. Moreover again, as demonstrated, Tomahawk also played a key role in Iconic's securing of sponsorship income. Thus, important to the statutory question in s.79(2) of the PTA 2007, in the 2007 to 2010 period, is the evidence that Tomahawk was crucial to each of Iconic's main income earning activities by way of its provision of assets and its role in Iconic receiving sponsorship income.
The preceding provisions demonstrate that a consideration of the nature of the businesses carried on, whilst a relevant consideration in s.79(2), does not dictate the outcome of the statutory test in s.79(2), which is concerned with independence and connectedness as a matter of fact and degree. Whilst the nature of Tomahawk's business activities and Iconic's business activities in the 2007 to 2010 years were different (and whilst Iconic's business activities were different from the other members of the s.50 corporate group) there was demonstrable connectedness and dependence, such that the fact the nature of the businesses were different does not point to a conclusion of lack of connection and independence in this instance.
Having regard to the inter-relation of the activities of Iconic and the continuing role that Tomahawk played in that activity, the correct conclusion to draw is that the business activities of Iconic were not independent of and were connected with Tomahawk. Iconic was clearly reliant on Tomahawk. Demonstrably, Mr Harrison had the ability, and evidently exercised his ability, to make decisions with respect to the activity of Tomahawk having regard to the needs of Iconic and vice versa: as to relevance see John French; see Garrett F Hunter; Clerks, Walkers & Stops at 4597-98. Further, in respect of the non-arms-length loan and payment of some expenses, so far as connectedness is concerned, the authorities recognise that the existence of a non-arms-length loan, particularly a significant loan in the context of the operation of the recipient, is a key (if not self-executing) consideration so far as the question of connectedness and s.79(2) of the PTA 2007 is concerned. In Crusher Holdings v COT in respect of the relevance of a significant loan/debt at Martin CJ, at [35], concludes:
"The debt owed by the appellant to the other company, is of considerable importance. Although said to be historical, it is nevertheless a debt which if called in would, on the material available, put the appellant into financial difficulty. It is not shown that its existence as a business enterprise is not dependent upon the continuing goodwill of SG Kennon and Co Pty Ltd." (my emphasis)
The Applicant (in AS) relied in particular on the decision of the Appeal Panel in Lombard Farms in which it determined that the matter referred to in clause 51 should be reheard. As to whether the second Tribunal decision will result in a different decision in Lombard Farms is not known. However it is the view of the Tribunal that Lombard Farms is in respect of its known facts altogether distinguishable. In particular Lombard Farms does not include a counterpart to the Tomahawk-Iconic relationship. There was moreover no evidence before the Tribunal as to many relevant factors. Where did Iconic conduct its business; what staff were employed? Evidence by accounting staff or other employees might have been relevant but no such evidence was tendered. Putting it at best for the Applicant it could not discharge the onus.
PART E. AMOUNTS PAID BY BOSTON SALES TO CONTRACTORS
The Chief Commissioner, in raising the assessments, included as taxable wages, payments made by Boston Sales to contractors who provided providing sales and marketing services to Boston Sales pursuant to contracts between Boston Sales and the contractors. The Chief Commissioner assessed those payments as taxable wages pursuant to the operation of ss.32-35 of the PTA 2007 and s.3A of the PTA 1971, on the basis that a "relevant contract"114 existed between Boston Sales and its contractors.
The amounts identified and assessed by the Chief Commissioner as relevant contract payments were described in the expense column of the Financial Reports of Boston Sales as "Commissions Payments" and "Contractors" in each year as follows:
i. for the 2007 year the Financial Reports recorded $91,243 and $45,270 in "Contractors" and "Commission Payments" respectively (p.42, s.58 documents or p.230 Exhibit R6);
ii. for the 2008 year the Financial Reports recorded $66,719 and $67,928 in "Contractors" and "Commission Payments" respectively (page 42, s.58 documents or p.230 Exhibit R6);
iii. for the 2009 year the Financial Reports recorded $97,190 and $67,466 in "Contractors" and "Commission Payments" respectively (page 48, s.58 documents or p.214 Exhibit R6); and
iv. for the 2010 year the Financial Reports recorded $36,439 and $4,295 in "Contractors" and "Commission Payments" respectively (p.48, s.58 documents or p.214 Exhibit R6).
Those amounts, almost exactly in most cases, were identified to the Chief Commissioner, by the Applicant's accountant Walker Wayland, as contractor and commission payments made through Boston Sales (see Tab 17, pages 305 and 306, s.58 documents).
The exact amounts in the Financial Reports were included in the assessments of taxable wages (see pages 457 - which is the reconciliation specific to Boston Sales - and 469, s.58 documents).
Those amounts were amounts different to and in addition to the amounts recorded as "Wages & Salaries" and "Superannuation" in the Boston Sales Financial Reports. This is demonstrated by cross-referencing the Financial Reports of Boston Sales with pages 457 and 469.
The inclusion of these exact amounts were objected to (see page 611, s.58 documents). Some amounts were allowed on objection based on the services for 90 days or less exemption (see page 835, s.58 documents). As identified on page 835 and 836 of the s.58 documents, the Commissioner reduced on objection: $13,200 in the 2007 year; $7,423 in the 2008 year; $9,306 in the 2009 year; and $25,775 in the 2010 year. The balance remained assessed.
As outlined above, the amounts assessed as payments made by Boston Sales under a relevant contract were different to the amounts recorded as "Wages & Salaries" and "Superannuation" in the Boston Sales Financial Reports.
The amounts included as "Wages" and "Superannuation" in DH-061 to DH-063 (page 648 to 657 Exhibit A2) correspond (in some instances directly, such was wages for 2008 and 2010), though not always, with the amounts recorded as "Wages" and "Superannuation" in the Boston Sales Financial Reports. DH-061-DH-064 do not appear to make reference to the "Contractors" and "Commission Payments", which the Commissioner assessed. As an example, in 2008 the Boston Sales Financial Report recorded $10,197 in "Salaries and Wages" and $673 in "Superannuation. The reconciliation for 2008 in DH-061 records wages of $10,219.21 and superannuation of $672.93. DH-061 does not appear to include the payments the $67,928 recorded as "Commission Payments" and the $66,719 recorded as "Contractors" for that year.
PART F PENALTY TAX AND MARKET INTEREST
The assessments include assessed penalty tax in the amount of 25%. By s.26(l) of the TA Act, if a tax default occurs, the taxpayer is liable to pay penalty tax in addition to the amount of tax unpaid. Penalty tax is imposed in addition to interest: s.26(2) TA Act.
"Tax default" is defined in s.3 of the TA Act as "a failure by a taxpayer to pay, in accordance with a taxation law, the whole or part of tax that the taxpayer is liable to pay".
By s.87(l)(a) and (b) of the PTA 2007 every employer who is registered or required to be must within 7 days after the end of each month except June, lodge with the Chief Commissioner a return relating to that month and within 21 days after the end of June in each year, lodge a return relating to June and to the financial year ending on the close of that month. In the case of a group if the group has a "designated group employer" the designated group employer for a group may lodge a joint return for the group: s.87(2) PTA 2007.
In turn, by s.9(l)(a) and (b) of the PTA 2007 a person who is liable to pay payroll tax on taxable wages must pay the tax within 7 days after the end of the month in which those wages were paid or payable, other than the month of June, in the case of which payment is required within 21 days after the end of the month of June.
The relevant tax default in this instance is each failure to pay payroll tax within 7 days after the end of each month in which those wages were paid or payable and within 21 days of June, going back in this case to the commencement of the 2007 financial year.
By s.27(l) of the TA Act the default amount of penalty tax payable in respect of a tax default is 25% of the amount of tax unpaid. Section 27(3) of the TA Act provides for the circumstances in which the Chief Commissioner (or, the Tribunal) may determine that no penalty tax is payable. In order to determine that no penalty tax is payable the Chief Commissioner must be satisfied that the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law, or the tax default occurred solely because of circumstances beyond the taxpayer's control but not amounting to financial incapacity. In turn, s.33 of the TA Act empowers the Chief Commissioner to remit penalty tax in such circumstances as the Chief Commissioner considers appropriate.
It is for the Applicant to satisfy the Tribunal, with evidence, of the matters that must be satisfied under s.27(3). The Tribunal finds there is no evidence that the group took "reasonable care" to comply (s.27(3)(a)) or that the tax default occurred due to something "solely out of the taxpayer's control" (s.27(3)(b)). As to the concept of reasonable care see, generally, Re Confidential and Commissioner of Taxation [2008] AATA 415; Weyers v Commissioner of Taxation [2006] FCA 818; AES Wiring Pty Limited and AKS Distributions Pty Limited v Chief Commissioner of State Revenue [2012] NSWADT.
In each case, it is essentially a question of fact whether the taxpayer has taken reasonable care in attending to its tax obligations. Regard must be had to the nature of the obligation requiring the exercise of reasonable care and the particular circumstances in which the person under that obligation finds him or herself. Merely retaining an outside advisor or accountant does not, by itself, establish reasonable care: AES Wiring at [32].
The material before the Tribunal establishes that, prior to the investigation commenced by the Chief Commissioner in early 2011, none of the members of the group, which as outlined in the evidence primarily included members of a group of related corporations within the meaning of s.50 of the Corporations Act 2001, had, for the 5 years covered by the assessments, paid payroll tax in accordance with s.9 of the PTA 2007. There is no material which establishes that care was taken by any member of the group to comply with the PTA 2007 or PTA 1971 or that the identified tax defaults occurred solely because of circumstances beyond the taxpayer's control. Applying penalty tax on unpaid tax at the rate of 25% is the correct conclusion.
In respect of market interest, s.21(l) of the TA Act provides that if a "tax default" occurs, the taxpayer is liable to pay interest on the amount of tax unpaid. The relevant tax defaults have been identified above. The market rate component fluctuates and is connected to the Reserve Bank's Bill rate: see s.22(2) TA Act.
The relevant principles governing the imposition and remission of market interest were considered in Chief Commissioner of State Revenue v Incise technologies Pty Ltd & Anor [2004] NSWADTAP 19 at [60] as follows:
"[60] In our view the primary interest rate (the market rate component) is intended to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due. So a rate is set which fluctuates, and is connected to an external rate, the Reserve Bank's Accepted Bill rate. This, as we see it, is a component that could rarely, if ever, be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time. The Tribunal made the observation at [50] that to justify any remission of the market rate component of interest, it would be necessary to show that in some way the Commissioner contributed to the default. We agree with this observation."
There is no basis for the remission of market interest. The identified tax defaults, occurring 7 days after the end of each month and 21 days after the end of June, going back to the start of the 2007 financial year, were not in any way whatsoever caused or contributed to by the Chief Commissioner.
PART G MISCELLANEOUS AND CONCLUSION
The Chief Commissioner previously made an application for costs thrown away by the Summons process and costs related to the filing of the Chief Commissioner's first submissions. That application is no longer pressed.
The evidence of Mr Harrison was not in all respects satisfactory. It was at times evasive and in the area of certain transactions open to doubt. It is not necessary to go into greater detail on these excerpts: it is clear though that the onus has not been discharged.
The Chief Commissioner submits and the Tribunal agrees that the assessments should, by consent, be set aside pursuant to s.l01(l)(b) of the TA Act and s.63(l)(b) of the ADT Act. This arises from clause 19 above.
In all the circumstances the Tribunal remits the matter to the Chief Commissioner and to direct him to raise assessments in accordance with the following findings:
(1) Boston Sales; Boston Corporate; Boston Business; Boston Commercial; Insight; Dejure; and Tomahawk constitute a payroll tax group for all the relevant payroll tax period and Iconic constitutes a payroll tax group with those persons for the 2007 to 2010 period and no determination pursuant to s.79 of the PTA 2007 is available in respect of Tomahawk and Iconic (except for 2011 in respect of Iconic);
(2) The payments by Boston Commercial to E-Nerds during the relevant period are not wages paid under the "relevant contract" and are not wages to be included in the assessment of payroll tax and the payments by Boston Commercial to Boston Sales during the relevant period were not wages paid under "relevant contract" and are not deemed wages to be included in the assessment of payroll-tax;
(3) Insight Litigation's wages and superannuation for the part of 2009 that it was a group member are $163,669.14;
(4) Wages paid by Tomahawk to Dr Carrington after December 2008 are not taxable wages in NSW;
(5) Penalty tax at the rate of 25% was correctly assessed in respect of unpaid payroll tax;
(6) Market interest was correctly assessed;
(7) Save as set out above, the assessments (as already amended following the objection process) are otherwise affirmed.
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
Decision last updated: 15 September 2014
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