Commissioner of State Revenue v Artistic Pty Ltd
[2008] WASCA 24
•8 FEBRUARY 2008
COMMISSIONER OF STATE REVENUE -v- ARTISTIC PTY LTD [2008] WASCA 24
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2008] WASCA 24 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:32/2006 | 7 DECEMBER 2007 | |
| Coram: | MARTIN CJ BUSS JA NEWNES AJA | 7/02/08 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed | ||
| B | |||
| PDF Version |
| Parties: | COMMISSIONER OF STATE REVENUE ARTISTIC PTY LTD |
Catchwords: | Appeal Pay-roll tax Pay-roll Tax Assessment Act Grouping provisions Whether businesses carried on substantially independently Whether just and reasonable to exclude from group Natural justice Appellant fails to renew application to Tribunal for production of documents Appellant subsequently contends that the Tribunal was deprived of relevant documents Words and phrases 'just and reasonable' 'carrying on business' |
Legislation: | Pay-roll Tax Assessment Act 1971 (WA), s 16D, s 16D(3)(d), s 16D(6), s 16D(9), s 16G Pay-roll Tax Assessment Act 2002 (WA), s 33(9) State Administrative Tribunal Act 2004 (WA), s 9, s 43, s 105 Taxation Administration Act 2003 (WA), s 43A |
Case References: | Artistic Pty Ltd v Commissioner of State Revenue [2006] WASAT 39 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : COMMISSIONER OF STATE REVENUE -v- ARTISTIC PTY LTD [2008] WASCA 24 CORAM : MARTIN CJ
- BUSS JA
NEWNES AJA
- Appellant
AND
ARTISTIC PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : STATE ADMINISTRATIVE TRIBUNAL OF WESTERN AUSTRALIA
Coram : JUDGE J CHANEY (DEPUTY PRESIDENT)
Citation : ARTISTIC PTY LTD and COMMISSIONER OF STATE REVENUE [2006] WASAT 39
File No : CC 153 of 2005
(Page 2)
Catchwords:
Appeal - Pay-roll tax - Pay-roll Tax Assessment Act - Grouping provisions - Whether businesses carried on substantially independently - Whether just and reasonable to exclude from group
Natural justice - Appellant fails to renew application to Tribunal for production of documents - Appellant subsequently contends that the Tribunal was deprived of relevant documents
Words and phrases - 'just and reasonable' - 'carrying on business'
Legislation:
Pay-roll Tax Assessment Act 1971 (WA), s 16D, s 16D(3)(d), s 16D(6), s 16D(9), s 16G
Pay-roll Tax Assessment Act 2002 (WA), s 33(9)
State Administrative Tribunal Act 2004 (WA), s 9, s 43, s 105
Taxation Administration Act 2003 (WA), s 43A
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
Appellant : Mr G T W Tannin SC & Ms C A Ide
Respondent : Mr T D Czislowski & Mr D S Romano
Solicitors:
Appellant : State Solicitor for Western Australia
Respondent : Wilson & Atkinson
Case(s) referred to in judgment(s):
Artistic Pty Ltd v Commissioner of State Revenue [2006] WASAT 39
(Page 3)
1 MARTIN CJ: The Commissioner of State Revenue (the Commissioner) appeals from a decision of the State Administrative Tribunal (the Tribunal) in which the Tribunal ordered that each of DBR Holdings Pty Ltd (DBR) and Rowson Nominees Pty Ltd (Rowson Nominees) be excluded from a group with Artistic Pty Ltd (Artistic) for the period 1 July 1997 to 31 December 2003 for the purposes of the Pay-roll Tax Assessment Act 1971 (WA) and the Pay-roll Tax Assessment Act 2002 (WA).
The proceedings in the Tribunal
2 The Commissioner has previously assessed the payroll tax payable by Artistic on the basis that it is to be grouped with two other entities - DBR and Rowson Nominees. As a result, the total wage bills of the three entities have been aggregated by the Commissioner for the purposes of assessing the payroll tax which is payable. Had Artistic not been grouped with the other entities, its annual wages bill would have been below the threshold at which payroll tax becomes payable.
3 During 2003, Artistic objected to an assessment of payroll tax which had been issued by the Commissioner. In December 2003, the Commissioner reviewed the grouping and declined to exercise a power to exclude DBR and Rowson Nominees from being grouped with Artistic. Artistic objected to that decision. That objection was disallowed in November 2004. Artistic then applied to the Tribunal to review the Commissioner's decision to disallow its objection.
4 The Commissioner's determination, and the review of that determination by the Tribunal, covered the period between 1 July 1997 and 31 December 2003. The Pay-Roll Tax Assessment Act 1971 applied to the period between 1 July 1997 to 30 June 2003, whereas the Pay-Roll Tax Assessment Act 2002 applied to the period between 1 July 2003 and 31 December 2003. However, it was agreed in the proceedings before the Tribunal that the relevant provisions in the two Acts were substantially the same, and that as the 1971 Act covered the majority of the relevant period, it would be sufficient, and simpler, to refer only to the provisions of that Act. The appeal was conducted on the same basis.
5 The relevant provisions of the 1971 Act were s 16D and s 16G. Section 16G provides that a person who might benefit under a discretionary trust is to 'be deemed, for the purposes of s 16D, to be a beneficiary in respect of more than 50% of the value of the interests in that trust'. Section 16D contains a number of provisions for the grouping of businesses where the same person or persons have a controlling interest
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- in each of those two businesses. For the purposes of s 16D(3)(d), a person or persons is taken to have a controlling interest in a business carried on under a trust if he, she or they are beneficiaries in respect of more than 50% of the value of the interests in the trust. Section 16D(9) provides that where a member of a group is included by reason of a person or persons having a controlling interest as beneficiaries under a discretionary trust, the Commissioner may exclude that member of the group:
… if after considering -
(a) the nature and degree of ownership and control of the businesses;
(b) the nature of the businesses; and
(c) any other matter that the Commissioner considers relevant,
the Commissioner is satisfied that the business is carried on by him or them substantially independently of the business carried on by any other member of the group and that it is just and reasonable for him or them to be excluded from the group.
7 The Tribunal found that each of Artistic, DBR and Rowson Nominees has an association with Mr Peter Lawford Rowson and Mrs Jennifer Elizabeth Rowson, who are husband and wife. Artistic carries on the business of hairdressing and DBR carries on the business of electrical contracting. Rowson Nominees acts as trustee for the P&J Rowson Family Trust and makes investments in that capacity. The Tribunal found that the hairdressing business conducted by Artistic was carried on under the direction and control of Jennifer Rowson. The Tribunal also found that the electrical contracting business carried on by DBR was under the control and direction of Peter Rowson. The Commissioner asserted that because of the relationships between the three
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- entities, including Peter Rowson's involvement in all three entities and a number of financial transactions and book entries as between the entities, neither DBR nor Rowson Nominees should be regarded as carrying on business substantially independently of the business carried on by Artistic, nor was it just and reasonable for DBR and/or Rowson Nominees to be excluded from a grouping with Artistic. After evaluating the findings of fact which had been made (and which are not challenged), the Tribunal rejected those contentions and ordered that Artistic not be grouped with either DBR or Rowson Nominees.
The grounds of appeal
Grounds 1 and 2
8 As grounds 1 and 2 of the appeal substantially overlap, they are conveniently considered together. They are in the following terms:
1. The Tribunal erred in law by depriving itself of the ability to reach the correct and preferable decision by refusing to order the production of all general ledger accounts pertaining to Artistic Pty Ltd, Rowson Nominees Pty Ltd and DBR Holdings Pty Ltd for the period 1 July 1997 to 31 December 2003.
2. Alternatively, the Tribunal erred in law by denying the Appellant natural justice in denying him the opportunity of presenting his case properly.
9 The circumstances giving rise to these grounds, and the reasons for the course taken by the Tribunal, are set out at [9] - [22] of the Tribunal's reasons. In the light of the argument advanced by the Commissioner, it is desirable to augment the reasons given by the Tribunal with reference to the following events.
10 At the directions hearing held on 18 October 2005 (referred to in the Tribunal's reasons at [14]), the Commissioner applied for an order for the production of all general ledger accounts relating to DBR, Rowson Nominees and Artistic. The Tribunal declined to order the production of all the general ledgers for all entities over the relevant period (6½ years) because the general ledgers, by their very nature, recorded a vast number of transactions which were irrelevant to the proceedings in the Tribunal. Counsel for Artistic advised the Tribunal that entries in the general ledgers which were thought to be relevant, because they involved transactions between the three entities said to be associated, had already been disclosed. In light of that assertion, the Tribunal directed a
(Page 6)
- conference of the experts engaged by the parties, aimed at identifying any additional transactions for which further documentation was required.
11 Following the adjournment of the hearing which had been listed to commence on 31 October 2005, on 2 December 2005, counsel for the Commissioner again sought an adjournment of the hearing listed to commence on 7 December 2005. That adjournment was sought on the basis that the entirety of the general ledger accounts of the relevant entities over the entire period should be provided, and an application to that effect was renewed. The Tribunal declined to vacate the dates which had been set for the hearing, but instead directed that the extent of the prejudice to the Commissioner, if any, by reason of non-disclosure of the general ledgers in their entirety, would be reconsidered during the course of the hearing, on application by the Commissioner. The Tribunal indicated that if it concluded that there was additional material that should have been provided by the taxpayer, the lack of which was prejudicing the Commissioner's case, appropriate directions would be made and the matter adjourned part heard.
12 On 7 December 2005, prior to the commencement of cross-examination of the first witness called by Artistic, counsel for the Commissioner renewed the application for a direction that the general ledgers for all three entities be provided for the entire period, and that the hearing be adjourned until those ledgers had been provided, and the Commissioner had been given the opportunity to study them in detail. After hearing argument on that application, the Tribunal ruled:
Well, what I am going to do is proceed today and do what I foreshadowed I'd do on Monday, which is - - - sorry; on Friday, whenever that application was previously made, and that is I'm not foreclosing the possibility that the proceedings may need to be adjourned. That may involve potentially recalling witnesses, producing additional documents and so on, but I do think it's appropriate, having set aside the time, that we go as far as we can and I'll make an assessment, you can remake your application at the end of the evidence if you consider that there is a void, and I'll be in a better position to make that assessment.
13 After that ruling the case proceeded, Artistic's witnesses were called and cross-examined, and experts, called by both parties, gave their evidence concurrently. During the course of the hearing, considerable attention was directed to particular transactions which took place between the three relevant entities. However, despite the invitation from the Tribunal to renew the application in the event of prejudice, no further
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- application was made by the Commissioner for a direction that the general ledgers be provided in their entirety, or for a further adjournment.
14 In the rulings to which I have referred, the Tribunal expressly invited the Commissioner to renew the application for the provision of the general ledger accounts in their entirety and/or an adjournment if the course of evidence revealed that the lack of those accounts had prejudiced the Commissioner in the presentation of his case. No such application was made. The failure of the Commissioner to renew the application for a direction requiring production of copies of the entire general ledger accounts, and to support that application by a demonstration of the manner in which the lack of those accounts was prejudicial to the presentation of his case, having regard to the evidence adduced, is, I think, fatal to grounds 1 and 2. The course taken by the Tribunal appears to me to have been eminently sensible and practical, and left open to the Commissioner the opportunity of demonstrating to the Tribunal just how he had been prejudiced in the presentation of his case, by reference to the evidence adduced. Having failed to take up that opportunity, the Commissioner cannot now come to this Court and complain of error by the Tribunal.
15 The course taken by the Tribunal was entirely consistent with two of its main objectives, as specified by s 9 of the SAT Act, being:
(a) to achieve the resolution of questions, complaints or disputes, and make or review decisions, fairly and according to the substantial merits of the case;
(b) to act as speedily and with as little formality and technicality as is practicable, and minimise the costs to parties.
16 The Tribunal is better equipped than this Court to assess and determine the general practices and procedures that will best achieve those objectives. In this case, the Tribunal applied a process of case management to the preparation of the case for hearing. In the course of any particular case being managed by the Tribunal, the Tribunal is likely to be better equipped than this Court to determine precisely which processes and directions will best achieve the objectives specified in s 9 of the SAT Act in that particular case. Accordingly, this Court should hesitate before concluding that decisions made by the Tribunal in respect of the processes and procedures to be adopted, or as to the pre-hearing directions appropriately made, or as to the course to be followed at a hearing, were erroneous. This Court should only arrive at such a conclusion in a clear case, in which the procedural course followed has
(Page 8)
- deprived the Tribunal of the capacity to make or review a decision fairly and according to the substantial merits of the case. This is not such a case. The Commissioner did not take up the opportunity provided by the Tribunal to press an application for production of the general ledgers, nor did he demonstrate to the Tribunal, or to the Court, how his case was prejudiced by their non-disclosure in full. In particular, neither in the Tribunal, nor in this Court, has the Commissioner identified any evidence which would sustain an inference that there were other inter-entity transactions beyond those which were the subject of documentary disclosure and which were addressed in detail in the evidence.
17 The Commissioner faces an additional difficulty in respect of ground 1. The decisions of the Tribunal to refuse to direct the provision of the entire general ledgers of the three relevant entities were made on 18 October 2005, 2 December 2005 and 7 December 2005. Assuming, without deciding, that decisions of the State Administrative Tribunal, which lack the character of finality, can be the subject of an appeal brought pursuant to s 43A of the Taxation Administration Act 2003, then such an appeal must be commenced within 28 days of the relevant decision. This appeal was not commenced until 16 March 2006, and has not therefore been brought within the time limited for appealing from the determinations of the Tribunal made in October and December 2005.
18 Grounds 1 and 2 must be dismissed.
Ground 3
19 Ground 3 asserts that the Tribunal erred by taking into account two irrelevant considerations, namely that:
(a) There was no suggestion that the three entities were split into separate entities to avoid pay-roll tax; and
(b) The application of the grouping provisions would impose a burden on a small business not imposed upon competitors of a similar size.
20 This ground stems from the following paragraphs of the Tribunal's reasons for decision at [98] - [99]:
Is it just and reasonable to exclude Artistic from the group?
The respondent contends that it is not just and reasonable to exclude Artistic. That contention appears to be based on the proposition that the common directorships, and the fact that Jennifer Rowson has obtained benefits as a beneficiary of the discretionary trust, puts these groups outside those cases caught as an unintended consequence of the deeming
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- provisions of s 16D(6) of the 1971 PTA Act or s 33(9) of the 2002 PTA Act. The grouping provisions of the legislation are undoubtedly enacted as an anti-avoidance mechanism. The rationale for the provisions was summarised in an argument by the appellant in Commissioner of Pay-Roll Tax v R G Elsegood & Co Pty Ltd [1983] 1 NSWLR 223, which was accepted by Mahoney JA (at 229-230). The argument was summarised as follows:
Tax relief was given by the Act to businesses employing less than a specified number of employees. Attempts have been, or could be, made by larger businesses to obtain that relief by splitting their businesses into a number of smaller or separate businesses, employing no more than the specified number of employees. The remedy adopted by the statute to avoid that mischief was: to deny such relief to members of a 'group'; to provide for the employees of 'commonly controlled' businesses to be deemed to constitute a 'group'; to define 'group' for this purpose in wide terms so as hopefully to include all who might be involved in the avoidance of the purpose of the legislation; and to deal with such anomalies as might arise because of the wide terms of the definition of 'group' partly by specific provisions: s 16E is perhaps directed to this, at least in part; and partly by committing to the Commissioner a discretion which he may exercise so as to remove such anomalies. Section 16H was seen as giving such a discretion.
In this case, there is no suggestion of splitting a business into separate entities. The nature of the businesses is entirely separate. In the case of Artistic, its turnover is such that it would not, by itself, exceed the payroll threshold which would render it liable to payroll tax. To apply the grouping provision to Artistic is to impose a burden on a small business not imposed upon competitors of a similar size. The scheme of the payroll tax is to avoid the imposition of payroll tax on small businesses by providing for a threshold below which liability for payroll tax does not arise. To deprive Artistic's hairdressing business of that benefit would not be just and reasonable. In my view, it is just and reasonable that Artistic not be grouped with either DBR or Rowson Nominees, and the exclusion should be granted in respect of the period sought.
21 It is clear from these paragraphs that the Tribunal considered the two matters complained of in the context of its consideration of whether it was 'just and reasonable' for Artistic not to be grouped with DBR and Rowson Nominees. The expression 'just and reasonable' is an expression obviously calculated by the legislature to enable the Commissioner, and the Tribunal standing in his shoes, to consider a wide range of circumstances that may be relevant to the exercise of a discretion in respect of the grouping of taxpayers. Given the breadth of language employed by the legislature, the Commissioner must overcome a
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- significant hurdle to establish that the matters referred to by the Tribunal are irrelevant.
22 If the businesses in question had been split off from one larger business, that fact would plainly be relevant to the exercise of the discretion in respect of grouping. In the passages set out above, all that the Tribunal was saying was that there was no suggestion that this was such a case. It cannot be contended that in making that observation the Tribunal was taking into account an irrelevant consideration.
23 Counsel for the Commissioner properly conceded, in the course of argument, that the range of considerations embraced by the expression 'just and reasonable' included considerations personal to the prospective taxpayer. The financial burden which would be imposed upon such a taxpayer, in contrast to competitive businesses of the same size who were not subject to such a burden, is plainly just such a consideration. Accordingly, consistently with the concession properly made by counsel for the Commissioner, it cannot be concluded that such a consideration was irrelevant to the exercise of the discretion in respect of grouping.
24 Ground 3 must be dismissed.
Ground 4
25 Ground 4 asserts that the Tribunal erred by incorrectly construing the expression 'is carried on' when used in relation to the businesses referred to in s 16D(9). However, neither the written submissions, nor counsel in the course of argument were able to identify any particular passage in the reasons for decision of the Tribunal which embodied the alleged error of construction. Rather, the submission was put on the basis that the general approach taken by the Tribunal, as evident from a number of passages in its reasons, reveal an erroneous approach to the question of what constitutes 'the carrying on' of a business, for the purposes of the grouping provisions of the Pay-Roll Tax Assessment Act.
26 The paragraphs in the Tribunal's reasons particularly identified in support of that submission were [71], [74] - [77] and [92].
27 Paragraphs 71 and 74 - 77 are found in that portion of the Tribunal's reasons addressing the role of Mr Peter Rowson, and the significance of the inter-entity transactions. On the former topic, the Tribunal concluded that Mr Rowson's occasional involvement in taxation issues and book entries involving Artistic were matters of little significance to the business carried on by Artistic. On the latter subject, the Tribunal observed that the
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- inter-entity transactions were, in the main, book entries which did not reflect actual payments made by or to Artistic, and were, in a number of cases, undertaken for tax minimisation purposes.
28 Those characterisations of the facts found by the Tribunal were plainly open. The nature of Mr Rowson's involvement with the financial affairs of Artistic, and the character of the inter-entity transactions undertaken with Artistic were relevant to the Tribunal's determination of whether the businesses were being carried on 'substantially independently'. There is nothing in those observations which would support the conclusion that the Tribunal erred in construing the expression 'is carried on'.
29 Paragraph 92 of the Tribunal's reasons contains an observation that the provision of financial assistance to Artistic by DBR to establish a hairdressing salon and make superannuation payments supported the Commissioner's contentions as to lack of independence. However, in the result, those matters were not regarded by the Tribunal as sufficient to sustain a conclusion of lack of substantial independence. That conclusion was open to the Tribunal and does not suggest any misconstruction of the expression 'carrying on business'.
30 Paragraph 92 of the Tribunal's reasons also contains an observation by the Tribunal that the fact that Rowson Nominees had benefited from the business of DBR, and Jennifer Rowson had benefited in her personal capacity as a beneficiary of the family trust did not suggest any lack of independence between the carrying on of the hairdressing business on the one hand, and either the electrical business or the investment business on the other. That observation is plainly correct, and does not suggest any misconstruction of the expression 'carrying on business'.
31 Ground 4 must be dismissed.
Ground 5(a)
32 Ground 5(a) asserts that the Tribunal erred in law by failing to take into account the fact that Artistic had received trust distributions from the Rowson Family Trust. However, in [72] of its reasons, the Tribunal makes express findings in respect of those distributions, which findings are not challenged. Those findings are specifically referred to in [97] of the Tribunal's reasons, in the context of the reasoning processes applied by the Tribunal. It cannot therefore be contended that the Tribunal failed to take these matters into account. It seems that the Commissioner's real complaint is that those findings did not lead the Tribunal to conclude that
(Page 12)
- the businesses were not being carried on substantially independently of each other. However, that is not a ground of appeal, and the conclusion that the businesses were being carried on substantially independently of each other notwithstanding the distributions from the family trust was open to the Tribunal.
33 Ground 5(a) must be dismissed.
Grounds 5(b) and 6
34 In these grounds, the Commissioner complains that the Tribunal failed to take into account, or did not consider that Peter Rowson exercised control over the businesses of Artistic by authorising the making of book entries in the accounts of those businesses. However, the Tribunal made express findings in respect of the role of Mr Rowson in the authorisation of entries in the accounts of the businesses carried on by Artistic at [69] - [71] of its reasons. Further reference is made to those findings, and the fact that book entries were undoubtedly designed to minimise the tax position of family members is contained in [97] of the Tribunal's reasons. While the Tribunal did not consider those matters precluded the conclusion that the relevant businesses were being carried on substantially independently of each other (a conclusion which was open to it), it cannot be said that the Tribunal failed to take them into account, or did not consider them. Accordingly, grounds 5(b) and 6 must be dismissed.
Summary
35 The Tribunal's reasons for decision set out the findings of fact made by the Tribunal quite clearly. No challenge was made to those findings. The Tribunal's reasons also clearly elucidate the process of reasoning applied by the Tribunal to the findings of fact which it made in order to arrive at its conclusion. No error of law is demonstrated in respect of those processes of reasoning. The approach taken by the Tribunal to the Commissioner's applications for a direction for the provision of substantial documentary disclosure, and for an adjournment to enable that to occur, was entirely consistent with the Tribunal's statutory objectives and does not reveal any error.
36 For these reasons, this appeal should be dismissed.
37 BUSS JA: I agree with the Chief Justice.
38 NEWNES AJA: I agree with Martin CJ.
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