Conte Mechanical and Electrical Services Pty Ltd v Commissioner of State Revenue
[2011] VSC 104
•25 March 2011
| IN THE SUPREME COURT OF VICTORIA |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST F
No. 04405 of 2010
No. 04407 of 2010
No. 04408 of 2010
No. 04409 of 2010
No. 04412 of 2010
| CONTE MECHANICAL AND ELECTRICAL SERVICES PTY LTD (AS TRUSTEE FOR THE CONTE ELECTRICAL TRUST) (ACN 050 917 247) | Appellant |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | Pagone J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 March 2011 | |
DATE OF JUDGMENT: | 25 March 2011 | |
CASE MAY BE CITED AS: | Conte Mechanical and Electrical Services Pty Ltd v CSR | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 104 | |
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TAXATION – Appeal against determinations of objections by the Commissioner of State Revenue – Commissioner’s discretion to “de-group” companies for payroll tax purposes - s 9A(1J) Pay-roll Tax Act 1971 (Vic) and s 79 Pay-roll Tax Act 2007 (Vic) – Taxpayer did not establish legal error by the Commissioner – Where reasons given error must be found in operative decision – Insufficient to show that weight preferred by taxpayer was not given to factors that ought to be taken into account – Only questions of law before a Court on appeal.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr A Trichardt | Enslin and Associates |
| For the Respondent | Mr C Caleo SC with Mr C Young | Solicitor for the Commissioner of State Revenue |
HIS HONOUR:
Conte Mechanical and Electrical Services Pty Ltd (“Conte”) has commenced five appeals in this Court from five decisions by the Commissioner of State Revenue (“the Commissioner”) disallowing objections made by Conte against each of five assessments. The assessments were for payroll tax under the Pay-roll Tax Act 1971 (Vic) (“the 1971 Act”) and the Payroll Tax Act 2007 (Vic) (“the 2007 Act”) for the respective periods from 1 July 2004 to 30 June 2009 to which each of the Acts related. The assessments were made by the Commissioner on the basis that Conte and Conte Service Department Pty Ltd (“CSD”) constituted a group for the purpose of both the 1971 Act and the 2007 Act. Conte objected to the assessments on the basis that the Commissioner should have been satisfied of the matters in s 9A(1J) of the 1971 Act and s 79 of the 2007 Act, respectively, to “de-group” Conte and CSD for payroll tax purposes. It is common ground between the parties that the relevant provisions for de-grouping under the 1971 Act and the 2007 Act are to the same effect for the purposes of the assessments, the objections and the appeals to this Court.
The right of appeal to the Supreme Court is found in s 106 of the Taxation Administration Act 1997 (Vic). Section 106(1) gives a taxpayer who is dissatisfied with the Commissioner’s determination of an objection the option of requesting the Commissioner either (a) to refer the matter to the Victorian Civil and Administrative Tribunal, or (b) to treat the objection as an appeal and cause it to be set down for hearing in the Supreme Court. The option, and the choice made by the taxpayer, is not without important significance. A matter referred for review to the Tribunal invokes the powers and functions of the Tribunal under the Victorian Civil and Administrative Tribunal Act 1998 (Vic). Section 51 of that Act provides that the Tribunal has all of the functions of the decision maker in exercising its review jurisdiction in respect of a decision. This effectively puts the Tribunal in the shoes of the Commissioner[1] and, amongst other things, permits the Tribunal to re-exercise for itself any discretion which had otherwise been given to the Commissioner.[2] Section 111 of the Taxation Administration Act 1997 makes clear that the powers of the Tribunal under that Act are in addition to its powers and functions under the Victorian Civil and Administrative Tribunal Act 1998.
[1]Garde-Wilson v Legal Services Board (2000) 19 VR 398, 414 (Dodds-Streeton JA); Davidson v Victorian Institute of Teaching (2006) 25 VAR 186, [14] (Neave JA); Re Landro Pty Ltd v Commissioner of State Revenue (2004) 56 ATR 363, [36] (Deputy President McNamara); Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409, 419 (Bowen CJ and Deane J).
[2]Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 442, 453 (Lockhart, Wilcox and Burchett JJ).
Conte has not elected to refer its adverse determinations to the Tribunal for its review. Conte, rather, has elected to request the Commissioner to treat the objections as appeals and to cause them to be set down for hearing in this Court. The nature of the proceeding in this Court is in some cases substantially different from the nature of a proceeding in the Tribunal. Critically for present purposes this Court is not given a power like that in s 51 of the Victorian Civil and Administrative Tribunal Act 1998. The Court, therefore, does not for this appeal stand in the shoes of the Commissioner and is not able to re-exercise for itself the discretions which the Commissioner exercised and which the Tribunal could re-exercise for itself in an appropriate case.[3]
[3]Osland v Secretary to the Department of Justice (2010) 267 ALR 231, 255 (Hayne and Kieful JJ); Commissioner of State Revenue v STIC Australia Pty Ltd [2010] VSC 608, [9] (Davies J); Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24, 40-1 (Mason J); Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353, 360 (Dixon J); Paddle v State Electricity Commission of Victoria [1968] VR 425, 430-1 (Menhennitt J).
The nature of the proceeding in the Court pursuant to s 106 of the Taxation Administration Act 1997 requires the taxpayer to demonstrate legal error for the Court to set aside the decision of the Commissioner before remitting it back to the Commissioner for re-determination.[4] In Avon Downs Pty Ltd v Federal Commissioner of Taxation[5] Dixon J said:
But it is for the commissioner, not for me, to be satisfied of the state of the voting power at the end of the year of income. His decision, it is true, is not unexaminable. If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review.[6]
That case concerned an appeal by a taxpayer from an assessment to income tax made by reference to a provision which depended upon the taxpayer establishing something to the satisfaction of the Commissioner of Taxation. It was in that context that his Honour made clear that the legislature had made the taxpayer’s liability depend upon a matter for the Commissioner, and not for the Court, to determine. The provision in that case, like those in question in this appeal, left it to the Commissioner, and not to the Court, to be satisfied about certain matters. The liability in that case, like that before me, is not made to depend solely upon objective finding of facts capable of judicial determination, nor do the provisions seek to confer upon the Court the power to re-exercise any discretion conferred upon the Commissioner. Critical to the “de-grouping” sought by Conte is that the Commissioner (and on review, the Tribunal) rather than the Court, be satisfied about certain matters.
[4]Challenger Listed Investments Limited v Commissioner of State Revenue [2010] VSC 464, [29] (Pagone J).
[5](1949) 78 CLR 353.
[6]Ibid 360.
For Conte to succeed in an “appeal” to the Court what must be shown is an error by the Commissioner in his reaching, or not reaching, a state of satisfaction. Precise identification of that error is of critical importance. It is important not only because it is that which must be shown for Conte to succeed but also because the legislature has determined that it is the Commissioner who must be satisfied about something. The Court should not intrude upon the province which parliament has determined for, and given to, the Commissioner.[7] An appeal from the Commissioner based upon the principles from Avon Downs requires the Court to determine whether the Commissioner erred in a matter entrusted for his determination, and a consideration of the determination must generally be upon the materials that were before him.[8]
[7]Commissioner of State Revenue v STIC Australia Pty Ltd [2010] VSC 608, [9] (Davies J); Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24, 40-1 (Mason J); Hoe v Manningham City Council [2011] VSC 37, [3]-[4] (Pagone J); Paddle v State Electricity Commission of Victoria [1968] VR 425, 432 (Menhennitt J).
[8]Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2010] NSWCA 326, [33] (Handley AJA with Giles and Macfarlan JJA agreeing); overruling Affinity Health Ltd v Chief Commissioner of State Revenue [2005] 205 ATC 4637.
The provisions relevant to these proceedings are those found, respectively, in s 9A(1J) of the 1971 Act and s 79 of the 2007 Act. The former provided:
If the Commissioner is satisfied, having regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other matter the Commissioner considers relevant, that a business carried on by a member of a group … 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 Commissioner may exclude the member from that group.
The corresponding provisions in the 2007 Act provide:
(1)The Commissioner may, by order in writing, determine that a person who would, but for the determination, be a member of a group is not a member of the group.
(2)The 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 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 these provisions the Commissioner is given the power to “de-group” companies that would otherwise be grouped for the purposes of the payment of payroll tax. For the Commissioner to exclude a company from a group by these provisions it is the Commissioner who must be satisfied that: (a) the business carried on by the taxpayer is carried on independently of a business carried on by any other member of the group, and (b) that the business carried on by the taxpayer is not connected with the carrying on of the business carried on by the other member of the group.
Conte is the trustee of a unit trust. Persons will each be a member of a group for payroll tax purposes where the same person has, or the same persons have together, a controlling interest (as defined) in each of two businesses.[9] Payroll tax is paid upon the wages paid by an employer, but the wages of one or more than one employer may be treated and calculated as one if the employer and another person constitute a group. Persons are deemed to have a “controlling interest” (within the meaning of the provisions) in a number of circumstances including where a business is carried on by a corporation where a person, or that person together with others, may control more than 50% of the voting power of the company.[10] A person has, or set of persons have, a controlling interest in businesses in certain circumstances where they have interests as beneficiaries of a trust.[11] A person who may benefit from a discretionary trust as a result of the trustee or another person, or the trustee and another person, exercising or failing to exercise a power or discretion is taken to be a beneficiary in respect of more than 50% of the value of the interest in the trust for the purposes of the relevant provisions.[12]
[9]Pay-roll Tax Act 1971 (Vic) s 9A(1B); Payroll Tax Act 2007 (Vic) s 72(1).
[10]Pay-roll Tax Act 1971 (Vic) s 9A(1C)(b); Payroll Tax Act 2007 (Vic) s 72(2)(e).
[11]Pay-roll Tax Act 1971 (Vic) s 9A(1E); Payroll Tax Act 2007 (Vic) s 72(5).
[12]Pay-roll Tax Act 1971 (Vic) s 9A(1H); Payroll Tax Act 2007 (Vic) s 72(6).
The Commissioner conducted an investigation into Conte and CSD in 2008-2009 and concluded that they constituted a payroll tax group. The Commissioner placed the two in a payroll tax group from 1 July 2004 with Conte nominated as the designated group member. Conte accepts for these proceedings that its grouping with CSD fell within the provisions but that the Commissioner ought to be satisfied of the matters in s 9A(1J) of the 1971 Act and s 79 of the 2007 Act. The Commissioner issued assessments dated 3 September 2009 for each of the fiscal years to which Conte objected on 30 October 2009. One of the grounds relied upon by Conte was that the Commissioner had failed properly to exercise his discretion to “de-group” Conte from CSD; that is, that the Commissioner had failed to exclude one of the members from the group under either s 9A(1J) of the 1971 Act or under s 79 of the 2007 Act as the case required.
On 3 February 2010 the Commissioner notified Conte (through its professional advisors) that the objections had been disallowed. The reasons given for disallowance were, in short, that the weight of factors showed to the Commissioner’s satisfaction that the business carried on by CSD was connected to and not independent of the business carried on by Conte.
The Commissioner’s reasons recited the background to the assessments and recited some of the points which had been raised in the objection. The reasons were set out over several pages under various headings and concluded by saying:
Although CSD has provided evidence demonstrating that the nature of the businesses carried on by it and Conte are not connected, the weight of factors show that the business carried on by CSD is connected to and not independent of the business carried on by Conte. These factors include a strong financial interdependence, which is of an ongoing and significant nature without formal agreements, a sharing of business premises and a disproportionate sharing of overhead offices and back-office expenses. In addition, CSD is an active ultimate beneficiary to the profits of the Conte, and has presented itself on its own website and others as being in a group with Conte. CSD has not been able to demonstrate a separation in management between the businesses.
The taxpayer has the burden of proving its case on a review and in an appeal.[13] It is, therefore, for Conte to establish that the Commissioner has erred in not being satisfied as contemplated under s 9A(1J) of the 1971 Act or s 79 of the 2007 Act. This requires Conte to identify with precision the error which the Commissioner is said to have made. The error may be found in the construction of a provision,[14] or it may lie in the Commissioner’s failure to have considered some relevant factor, or in the Commissioner’s consideration of some irrelevant factor. Where no reasons are given for a decision it may be that an error may be inferred from the decision on a full consideration of the material that was before the decision maker. In Avon Downs Dixon J said:
Moreover, the fact that he has not made known the reasons why he was not satisfied will not prevent the review of his decision. The conclusion he has reached may, on a full consideration of the material that was before him, be found to be capable of explanation only on the ground of some such misconception. If the result appears to be unreasonable on the supposition that he addressed himself to the right question, correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition. It is not necessary that you should be sure of the precise particular in which he has gone wrong. It is enough that you can see that in some way he must have failed in the discharge of his exact function according to law.[15]
Avon Downs was a case in which the Commissioner had not given reasons for not being satisfied of the matters required by the relevant statute, but the Court was not prepared to find that the Commissioner’s refusal to be satisfied upon the relevant issue was due to “such misapprehension, mistake, misconception, unreasonableness or miscarriage of judgment as would authorise” the Court to interfere and to set aside the Commissioner’s decision.[16]
[13]Taxation Administration Act 1997 (Vic) s 110.
[14]Hoe v Manningham City Council [2011] VSC 37.
[15](1949) 78 CLR 353, 360.
[16](1949) 78 CLR 353, 362-3 (Dixon J).
In this case, unlike Avon Downs, the Commissioner has supplied reasons which Conte contended demonstrate error. For de-grouping to occur the Commissioner must be satisfied that a business carried on by one member of a group 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”.[17] The equivalent provisions in New South Wales were considered by Rath J in Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW)[18] who said:
Section 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 the 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. At all events the composite expression used in the sub-section requires a consideration of the businesses and their control, and a finding of substantial independence and substantial absence of connection. Where, as here, there are three members of a group, one of them will not be entitled to exclusion by an order under the sub-section unless the requisite satisfaction is had in respect of each of the other members of the group. Though no argument was addressed to me on the point, it would appear that a non-Australian corporation (such as The Mead Corporation here) may be a member of a group, even though it does not carry on business in Australia. Under s 16C one member of the group is an employer (as defined in s 3); but it does not appear that the other members must be such employers. The other members are described as “persons”. An employer is defined to mean any person who pays or is liable to pay any wages. “Person” includes a company; and “company” is defined to include all bodies and associations (corporate and unincorporate) and partnerships. In s 16D the criterion for membership of a group is the existence in “persons” of a controlling interest in two businesses. The steps which led the Commissioner to group the plaintiff, Leigh-Mardon Pty Ltd and The Mead Corporation are briefly as follows. By virtue of s 16D(3)(b) Leigh-Mardon has a controlling interest in the business of the plaintiff. Being the sole owner of its business Leigh-Mardon Pty Ltd has a controlling interest in that business by virtue of s 16D(3)(e). Leigh-Mardon Pty Ltd accordingly has a controlling interest in two businesses, and by virtue of s 16D(2) Leigh-Mardon Pty Ltd and the plaintiff constitute a group. By a parity of reasoning The Mead Corporation and the plaintiff constitute a group. The plaintiff is thus a member of two groups; and by virtue of s 16E(1) all members of those two groups constitute a group. By the operation of s 16E(2) the two groups (consisting of two members each) cease to be groups, thus leaving one group of three members. There was no challenge to this line of reasoning. It is complicated, but appears to be correct. The result is that the plaintiff is not entitled to an order excluding it from this group of three members unless the requisite satisfaction is had in relation to its business and that of Leigh-Mardon Pty Ltd, and also in relation to its business and that of The Mead Corporation. The facts that The Mead Corporation does not carry on business in Australia, and pays neither taxable wages nor interstate wages, are irrelevant.[19]
The provisions reflect the legislature’s view that the fiscal base for payroll tax should not treat some employers as one group where the Commissioner is satisfied about certain matters by reference to specified criteria. In reaching a state of satisfaction the Commissioner is required to have regard to three broadly defined categories of matters. The first is “the nature and degree of ownership and control of the businesses”.[20] The second is “the nature of the businesses”.[21] The third is “any other matters the Commissioner considers relevant”.[22] For the Commissioner to “have regard” to these matters it will be necessary for the Commissioner to take them into account and to give such weight to each of them as the circumstances of the case require.[23]
[17]Pay-roll Tax Act 1971 (Vic) s 9A(1J); Payroll Tax Act 2007 (Vic) s 79(2).
[18](1978) 8 ATR 477.
[19]Ibid 486-7.
[20]Pay-roll Tax Act 1971 (Vic) s 9A(1J); Payroll Tax Act 2007 (Vic) s 79(2).
[21]Pay-roll Tax Act 1971 (Vic) s 9A(1J); Payroll Tax Act 2007 (Vic) s 79(2).
[22]Pay-roll Tax Act 1971 (Vic) s 9A(1J); Payroll Tax Act 2007 (Vic) s 79(2).
[23]R v Hunt; Ex parte Sean Investments (1979) 180 CLR 322, 329 (Mason J with Gibbs J agreeing at 324); Minister for Aboriginal Affairs v Peko-Wallsend (1986) 162 CLR 24, 41 (Mason J); Davidson v Fish [2008] VSC 32, [9] (Pagone J).
Conte has not established error in the Commissioner not being satisfied that the business of Conte was not carried on independently of, or was not connected with the carrying on of, the business of CSD or vice versa. Most of Conte’s complaints were that the Commissioner had not given sufficient weight to factors which ought to have been taken into account. One complaint by Conte was said to be a misapplication by the Commissioner in his decision in taking account the degree of common ownership of the businesses due to direct and indirect interests of the Conte family members. It was contended that the statement made by the Commissioner that “common ownership of the businesses exists due to the direct and indirect interests of the Conte family members” was inconsistent with a statement made in a ruling that common controlling interests were not considered determinative in the exercise of the Commissioner’s discretion. It was said that one of the reasons given by the Commissioner for not “de-grouping” Conte therefore demonstrated an error in considering or in not correctly applying the first of the two factors specifically required to be considered in deciding whether he was satisfied of the matters for de-grouping. Amongst the many problems with this argument is that it relied upon a statement which was not found in the Commissioner’s actual decision. The words I have quoted came, not from the decision which was the subject of appeal, but in an earlier letter dated 18 May 2009. At that stage the objection had not been lodged and the decision upon the objection had not yet been made. The statement is not one found in the operative decision itself. In any event, I cannot see why common ownership of the businesses is not a factor relevant to the Commissioner’s state of satisfaction for the purposes about whether to exclude a person from a group. Indeed, it is one of the preconditions for the grouping provisions to operate. It must be true to say, as the Commissioner has said in a ruling, that common ownership will not be determinative to his state of satisfaction for these purposes but “the direct and indirect interests” of the common owners are, it seems to me, matters for the inquiry which is called for by the statutory criteria of whether there should be exclusions from the group. An obligation to have regard to “the nature and degree of ownership and control of the businesses” is an inquiry into the direct and indirect interests of the common owners of the businesses and its existence, and the nature and degree of the ownership and control lies at the heart of the Commissioner’s inquiry.
Each of the other complaints made by Conte against the Commissioner’s decision are, it seems to me, equally complaints about the weight given by the Commissioner to factors that were relevant to the inquiry called for by the relevant provision. Complaints, for example, that Mr Conte’s parents had, as discretionary beneficiaries of the discretionary trust, “no legally enforceable ownership interests” in Conte may be true, but the nature and extent of their interests is plainly a factor which the Commissioner can, and indeed should, take into account. All other things being equal that fact may well satisfy the Commissioner in an appropriate case to be that the condition for exclusion had been established. However, it is only one factor to take into account and it appears that the Commissioner has taken it into account.
Most of Conte’s complaints are expressly stated as being complaints about the “weight” that the Commissioner gave to factors which Conte contended should have been given greater weight than the Commissioner appears to have given. Under the heading “Nature of businesses” Conte contended that the Commissioner had failed to give appropriate weight to the matters which the provision requires to be considered. In fact Conte did not show how that was so but, even assuming that Conte had done so, it is essentially a complaint about judgment within discretion and not a legal failure to take into account something required to be taken into account or to have excluded from consideration something which ought not to have been excluded.
Under the heading “Nature and extent of commercial transactions between the group members” Conte contended:
The Commissioner has indeed been satisfied in respect of this factor, but did not give this factor any weight or any appropriate weight in his determination to disallow the objections to the assessments.
It is plain that the Commissioner did give consideration to the factor but that the weight given by the Commissioner is not the weight which Conte would wish. Counsel for Conte accepted, in my view correctly, that the case made by Conte was not based upon the contention that the decision was so unreasonable that no reasonable decision maker could have reached it. Indeed, there was no serious foundation upon which such a contention could have been made. The passage from Avon Downs that a result may appear to be unreasonable (and which was relied upon by Conte in this case) was made in the context of a decision where no reasons were given and, thus, where legal defect (if any) was necessarily to be inferred rather than found in the reasons themselves. In this case, as I have said, it is to the reasons that one must look to see whether there has been a legal defect in the discharge of statutory duty. The complaint quoted is not made out because the factor was considered by the Commissioner and the complaint that it was not given the weight required by Conte is insufficient to show legal error.
Conte contended under the heading “The extent to which members share resources, facilities or services, including premises, staff, management and accounting services” that the Commissioner had “misdirected himself [by] determining that the equal sharing” of certain costs was a factor which bore upon the issue of dependence. The particular matter relied upon by Conte in this connection was the statement by the Commissioner in the reasons for the determination when he said:
A genuinely independent business would not continue to pay for half of these expenses unless obliged under a formal agreement … Each of these facts indicates that CSD is not independent of Conte.
Counsel for Conte pointed to the existence of a lease as “a formal agreement” which was supposed to show misdirection by the Commissioner. It was put that the existence of the lease was a formal agreement which was said to explain why the two companies might be sharing costs in common. The lease, however, contemplated a sharing equally of rent. It did not provide for the equal sharing of other costs of the costs and expenses to which the Commissioner referred to by the words “these expenses”. This was evident when looking at the whole of the passage from which the shorter quote was taken. In the reasons for the determination under the heading “The extent to which facilities are shared is negligible” the Commissioner had stated:
The customer asserts that, because CSD use only 2.6% of the available space at the common premises, the extent to which the premises are shared is negligible. However, despite the limited space required by CSD, it shares in equal proportions the costs of electricity, telephones, waste disposal and rates. A genuinely independent business would not continue to pay for half of these expenses unless obliged to under a formal agreement.
From the actual passage from which the quote was taken it is clear that by “these expenses” the Commissioner was not referring to those arising under the lease. The Commissioner was accurate in saying that the costs of electricity, telephones, waste disposal and rates were not required to be paid for under a formal agreement. Furthermore, the Commissioner was expressing no more than the commonly accepted expectation that a genuinely independent business would not continue to pay half of the costs of what appear to be largely running costs unless there was something that obliged the payment.
Conte’s submissions sought to demonstrate error by reference to the factors set out in a revenue ruling published by the Commissioner to explain the “exclusion discretion” under s 79 of the 2007 Act.[24] In the ruling the Commissioner set out seven matters which he will consider in the context of the nature and the extent of all relevant agreements and dealings between the member and other members of the group for the purpose of deciding whether to exclude a person from a group. The ruling cannot displace the provisions of the legislation but may provide guidance to taxpayers and their advisers about the matters which the Commissioner considers relevant to the statutory duty that he has been given under the legislation. Conte did not challenge any of the matters as being inconsistent with the legislation but only that the factors taken into account in respect of each of them had not been given the weight which Conte would have preferred. That is insufficient for an appeal under s 106 to the Court whatever may have been the position had Conte elected to refer the matter to the Tribunal.
[24]Commissioner of State Revenue (Victoria), “Commissioner’s discretion to exclude from a group”, June 2008, Revenue Ruling PTA031.
It is strictly unnecessary for me to deal with one minor matter that occupied some debate between the parties in their written submissions but ultimately took up little time during oral hearing. However, it may be desirable that I say something about it. Conte contended that once error was shown it was open for Conte to rely upon evidence in the appeal in the Court that might not have been available before the Commissioner. In support of that proposition Conte relied upon a passage from Kolotex Hosiery (Australia) Pty Ltd v Federal Commissioner of Taxation[25] where Gibbs J said:
In the present case the Commissioner was not in fact satisfied of the matters stated in either s. 80A or of those stated in s. 80C and the first contention made on behalf of Kolotex fails.
The questions that then arise are whether the conclusion of the Commissioner is open to review and, if so, whether it should be held that he should reach the requisite satisfaction. The grounds on which the conclusion by the Commissioner that he is not satisfied may be examined by a court of appeal are those stated in Avon Downs Pty. Ltd. v. Federal Commissioner of Taxation; see also Federal Commissioner of Taxation v. Brian Hatch Timber Co. (Sales) Pty. Ltd.. A board of review may have wider powers — see per Owen J. in Federal Commissioner of Taxation v. Brian Hatch Timber Co. (Sales) Pty. Ltd.. It seems that a court in deciding whether some ground has appeared to justify a review of the Commissioner's conclusion that he is not satisfied should consider the question on the basis of the material which was before the Commissioner even though further material is before the court — Federal Commissioner of Taxation v. Brian Hatch Timber Co. (Sales) Pty. Ltd.. However, it would appear to me that once it is decided that the conclusion of the Commissioner should be disturbed, for example, on the ground that it was based on error, it is right for the court to reach its final conclusion as to whether or not the Commissioner ought to be satisfied by reference to all the material before the Court, because if the matter were referred back to the Commissioner to reconsider the question he would obviously be entitled and bound to consider all the information then available. Both parties in the present case put their submissions on the footing that once this Court decided that the Commissioner had been in error the appeal should be decided by reference to all the material before the Court.[26]
Care must be taken when relying upon passages such as this because of the very substantial change that occurred to the nature of the jurisdiction to hear tax appeals since those passages were written. When Kolotex was decided the statutory basis of an appeal was quite different from that which it now is under s 106. At that time a tax appeal could be brought on a question “involving” law and upon there being a question of law in the appeal the whole of the proceeding was open to review by the Court.[27] The position now is that it is only the question of law that is before a Court on an appeal.[28] The authorities to have considered this issue were not challenged in this proceeding and, in any event, it is sufficient to note that Conte’s proposition is inconsistent with the dicta relevant to the point on the legislation in its current terms.
[25](1975) 132 CLR 535.
[26]Ibid 567-8.
[27]Federal Commissioner of Taxation v Munro (1926) 38 CLR 153, 196 (Isaacs J); Ruhamah Property Co Ltd v Federal Commissioner of Taxation (1928) 41 CLR 148, 151 (Knox CJ, Gavan Duffy, Powers and Starke JJ); Krew v Federal Commissioner of Taxation (1971) 2 ATR 230, 235 (Walsh J).
[28]TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 19 ATR 1067, 1070 (Gummow J); Osland v Secretary to the Department of Justice (2010) 267 ALR 231, [21] (French CJ, Gummow and Bell JJ).
Accordingly, I will dismiss the appeal and hear the parties on the question of costs.
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