Fanfold Business Forms Pty Ltd v Chief Commissioner of State Revenue

[2004] NSWADT 210

CITATION:	Fanfold Business Forms Pty Ltd -v- Chief Commissioner of State Revenue [2004] NSWADT 210
DIVISION:	Revenue Division
PARTIES:	APPLICANT Fanfold Business Forms Pty Ltd RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	036040
HEARING DATES:	10/03/2004
SUBMISSIONS CLOSED:	03/10/2004
DATE OF DECISION:	09/24/2004
BEFORE:	Hole M - Judicial Member
APPLICATION:	Pay-roll tax - grouping of commonly controlled businesses
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Pay-roll Tax Act 1971
CASES CITED:	Permanent Trustee Nominees (Canberra) Ltd v Chief Commissioner of Pay-Roll Tax (1997) 8 NSWLR 527 Trevisan and Anor v Commissioner of Taxation (1991) 29 FCR 157 CS & Co Legal Services Pty Ltd v Commissioner of State Revenue (VIC) 1996 Sup Ct (Vic) 4,651 Kivelos Nominees Pty Ltd v Commissioner for State Revenue (VIC) 1997 AAT of Victoria 2,135
REPRESENTATION:	APPLICANT F Carnovale, barrister RESPONDENT P Gormly, barrister
ORDERS:	The Notices of Objection by the applicant to the Payroll Tax Assessment issued to Fanfold Business Forms Pty Limited for the financial years ending June 2000, June 2001 and June 2002 are allowed.

1 This is an application on behalf of a company which has been denied the provision of a threshold of payroll tax on the basis that it is subject to the grouping provisions contained in the Pay-roll Tax Act 1971 (“the Act”) and in particular the operation of sections 16A, 16D3(b), 16D(2) and 16E.

2 During the period for the financial years ended June 1998, 1999, 2000, 2001 and 2002 the two companies, Fanfold Business Forms Pty Limited and South Pacific Business Forms Pty Limited the Trustee for W.G.P. No. 1 Trust were structured as follows:-

Fanfold Business Forms Pty Limited

Directors Robert William Wilson

Alice Joyce Wilson

Shareholders Robert William Wilson – 90%

Alice Joyce Wilson – 10%

[Robert William Wilson manages the company and provides 70% of his working time to this company]

South Pacific Business Forms Pty Limited

Directors Robert William Wilson

Robert Jan Gardner

Michael Desmond Peel

Shareholders Robert William Wilson – 52%

Robert Jan Gardner – 24%

Michael Desmond Peel – 24%

South Pacific Business Forms Pty Limited is the sole trustee for W.P.G. No. 1 Trust. It is not an employer and does not lodge a tax return.

W.G.P. No. 1 Trust

Issued units First Homes (Australia) Pty Limited – 40%

Pheroz Holdings Pty Limited – 30%

Zumura Pty Limited – 30%

3 The respondent provided the historical versions of the relevant sections of the Act for the benefit of the Tribunal. They are:

“ Historical version of the provisions as applicable for the financial years ended June 1998 and 1999 .
“16A Definition

In this Part, business includes:

(a) a trade or profession,

(b) any other activity carried on for fee, gain or reward, and

(c) the activity, carried on by an employer, of employing one or more persons where that person performs or those persons perform duties for or in connection with another business

16D Grouping of commonly controlled businesses

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

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

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


…………………………………..
(b) a person has, or persons have together, a controlling interest in a business, being a business carried on by a corporation that has a share capital, if that person or those persons acting together may (whether directly or indirectly) exercise, control the exercise of, or substantially influence the exercise of, 50 per centum or more of the voting power attached to voting shares issued by the corporation …………
16E Smaller groups subsumed into larger groups
(1) Notwithstanding any other provision of this Part (except subsection (2)), where a person is, whether or not by virtue of this subsection, a member of two or more groups (each of which is in subsection (2) referred to as a smaller group), all of the members of those groups constitute, for the purposes of this Act, one group.

(2) Except for the purpose of determining whether a group is constituted under subsection (1), a group which, but for this subsection, would be a smaller group ceases to be a group if its members are members of a group constituted under subsection (1).

16H Exclusion of persons from groups
(1) Where the Chief Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that the Chief Commissioner considers relevant, that businesses carried on by members of a group are carried on substantially independently of, and are not substantially connected with, the carrying on of a business or businesses of another member or other members of the group, the Chief Commissioner may, by order in writing served on those first mentioned members, exclude them from that group ….”
Historical version of the provisions as applicable for the financial years ended June 2000, 2001 and 2002.
“16A Definition

In this Part, business includes:

(a) a trade or profession,

(b) any other activity carried on for fee, gain or reward, and

(c) the activity, carried on by an employer, of employing one or more persons where that person performs or those persons perform duties for or in connection with another business.

16D Grouping of commonly controlled businesses
(1) A reference in this section to two businesses does not include a reference to two businesses both of which are owned by the same person, not being a trustee, or by the trustee or trustees of a trust.

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

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

…………………………………

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

16E Smaller groups subsumed into larger groups
(1) Notwithstanding any other provision of this Part (except subsection (2)), where a person is, whether or not by virtue of this subsection, a member of two or more groups (each of which is in subsection (2) referred to as a smaller group), all of the members of those groups constitute, for the purposes of this Act, one group.

(1A) If the members of a group (in subsection (2) referred to as a smaller group) have together a controlling interest in a business, that group and the person or persons who carry on that business will constitute, for the purposes of this Act, one group.

(2) Except for the purpose of determining whether a group is constituted under subsection (1) or (1A), a group which, but for this subsection, would be a smaller group ceases to be a group if its members are members of a group constituted under subsection (1) or (1A).

16H Exclusion of persons from groups
(1) Where the Chief Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that the Chief Commissioner considers relevant, that businesses carried on by members of a group constituted under section 16C are carried on substantially independently of, and are not substantially connected with, the carrying on of a business or businesses of another member or other members of the group, the Chief Commissioner may, by order in writing served on those firstmentioned members, exclude them from that group ……”

4 The essence of the amendment made in 1999 removed certain administrative provisions from the Act by the State Revenue Legislation (Miscellaneous Amendments) Act 2000 and had the effect of removing the discretion of the Chief Commissioner to exclude a group member where substantial independence can be established.

This amendment was introduced to parliament to amend several provisions, one being in relation to the grouping provisions of the Act. The Minister moving the amendment, Mr Knight – Minister for the Olympics, said:-
“The bill amends the grouping provisions of the Pay-roll Tax Act by removing their application to joint ventures. Currently the provisions have application where a person or persons together have a 50 per cent or more interest in another business. The Chief Commissioner of State Revenue then has a discretion to exclude a group member where substantial independence can be established. The increased use of joint ventures to minimise the cost of business, even by natural marketplace competitors, has resulted in an increase in inappropriate groupings and the consequential requests for exclusion.

The bill introduces a true controlling interest test by changing the test to a more than 50 per cent interest. That is offset by the removal of the Chief Commissioner’s discretion to exclude group members, providing greater certainty for entities engaged in joint business activities. The greater than 50 per cent test is in line with Western Australia and the Australian Capital Territory and the related corporations test under the Corporations Law. The amendments will reduce compliance costs by streamlining administration and will encourage business through the use of joint ventures.”

One of the reasons, as quoted in the last sentence above, effectively removed the Commissioner’s discretion where exclusions may be granted where a grouping occurs due to more than 50% common ownership or control. This amendment became effective from 1 July 1999.

5 The Act was then amended again in 2003 and the amendment partially restores the discretion available prior to the amendment referred to at paragraph 4 above. The Hon. Ian Macdonald introduced further amendments to the Pay-roll Tax Legislation on 4 December 2002, these amendments restored the discretion available to the Commissioner which had been removed by the amendment in 1999. Mr Macdonald commented as follows:

“The Report also recommends that WorkCover and the Office of State Revenue adopt consistent approaches to the assessment and collection of pay-roll tax and workers compensation premiums.

Implementation of these recommendations should significantly reduce compliance costs for employers, increase the ease of enforcement for WorkCover and the Office of State Revenue, and improve the transparency of the system.

As a first step it is proposed to amend the pay-roll tax and workers compensation legislation, with effect from 1 July 2003, to implement certain short-term recommendations.

These include common definitions of ordinary wages; the introduction of common grouping provisions; and placing an obligation on principal contractors to ensure their sub-contractors comply with workers compensation and pay-roll tax legislation.

This bill contains amendments to the Pay-roll Tax and Taxation Administration Acts to these short-term measures.”

6 Matters in issue include:-

- whether Robert William Wilson, as a person having a controlling interest in Fanfold Business Forms Pty Limited, as a result has a controlling interest in South Pacific Business Forms Pty Limited;

- is the employer South Pacific Business Forms Pty Limited or

W.G.P. No. 1 Trust?;
- are Fanfold Business Forms Pty Limited and South Pacific Business Forms Pty Limited carrying on the same business?; and
- which entity carries on the business – South Pacific Business Forms Pty Limited or W.P.G. No. 1 Trust?

7 The applicant submitted that the two companies ought not to be grouped, taking into consideration that Fanfold Business Forms Pty Limited carried on a print manufacturing business in its own right during the relevant periods and that it had no other activities and that South Pacific Business Forms Pty Limited as Trustee for the W.P.G. No. 1 Trust carried on a print-broking business with no gain to itself in its own right. The information supplied to the Tribunal does not disclose that the businesses are performed in connection with each other, it cannot therefor be said that the two companies are carrying on the same business.

8 The respondent submitted that South Pacific Business Forms Pty Limited is no different to South Pacific Business Forms Pty Limited as Trustee for W.P.G. No. 1 Trust, that South Pacific Business Forms Pty Limited is not a professional trustee. Further that the trustee and beneficiaries are one entity and cannot be separated in any event. The applicant submitted that the trustee and beneficiaries are different, the trustee being the company and the beneficiaries being First Homes (Australia) Pty Limited, Pheroz Holdings Pty Limited and Zumera Pty Limited and this is the structure as disclosed by the trust deed dated 1st November, 1982.

9 The W.G.P. No. 1 Trust was established by a Trust Deed dated 1 November 1982. The Representative of the Commissioner of State Revenue submitted that as paragraphs 7 and 8 (1)(b) of the Trust Deed provides that South Pacific Business Forms Pty Limited as trustee managed the trust fund and undertook employment (together with other duties) and then paid for those services from the trust fund this also attracted the provisions of Section 16A. For the reasons set out at Paragraph 14 this is rejected. The Trustee attended to the duties imposed by the trust deed in the representative capacity only and with the application of the reasoning set out in Permanent Trustee Nominees (Canberra) Ltd v Chief Commissioner of Pay-Roll Tax (1997) 8 NSWLR 527 then the employer ultimately is the W.G.P. No 1 Trust and must be considered so for the grouping provisions in that the business of print-broking is carried on by the W.G.P. No 1 Trust.

10 The applicant submitted that Fanfold Business Form Pty Limited carried on a business and that South Pacific Business Forms Pty Limited as trustee of W.G.P. No. 1 Trust carried on a different business and further that South Pacific Business Forms Pty Limited did not carry on a business. South Pacific Business Forms Pty Limited as Trustee of W.G.P. No. 1 Trust attended to its duty as Trustee without any fee, gain or reward to itself in its own right and therefore South Pacific Business Forms Pty Limited did not carry on a business within the meaning of section 16A.

11 The respondent submitted that the discretion of the Commissioner available prior to the 1999 amendment had been exercised by the Commissioner to the companies involved in this matter as “The Commissioner was satisfied the businesses operate independently of one another and are not substantially connected.”

Further that the amendment was introduced to allow for the increasing use of joint ventures as a legitimate commercial entity and to remove the Chief Commissioner’s discretion to exclude group members, providing greater certainty for entities engaged in joint businesses.

12 The further amendment in July 2003 appears to have been made to reduce the impact of the 1999 change. The discretion of the Chief Commissioner was available prior to the 1999 amendment and had been applied to trusts in certain circumstances. The respondent submitted that “Had trusts not been affected by the grouping provisions (amongst other things, by the 1999 amendment – my interpretation), this July 2003 amendment would not have been required.

13 The applicant submitted that the decision in Permanent Trustee Nominees canvassed the issues relating to the grouping provisions and trustee companies. The submissions made equated South Pacific Business Forms Pty Ltd as trustee for W.G.P. No. 1 Trust with the Permanent Trustee Co and that the reasoning in that case applies to the extant situation. The respondent submitted that the Permanent Trustee Nominees case can be distinguished on the basis that the applicant in that case was trustee of many trusts and is (was) a professional trustee company. At page 528 A Lee J comments:-

“The case raises for consideration the effect of s 16 b of the Act upon the liability of a corporation for tax on wages paid when it is a trustee of the business in which the wages are paid.”

14 Section 42(1) and (2) of the Act was variously analysed by the representatives of the applicant and the respondent. This section was also subject to analysis by Lee J in Permanent Trustee Nominees. At page 530 Lee J comments:-

“In my view, the fact that the grouping provisions came into the Act after s 42 had operated for some years, the place in the Act of s 42 – it is in Pt VIII – and the language of s 42, especially subs (1)(b), provide as clear an indication as one could have that the legislature was intending, in s 42, to deal expressly and separately with the case of pay-roll tax on wages paid in a business carried on by a trustee (or by an agent). The Act provides in s 3 that unless the context or subject matter otherwise indicates or requires, “trustee, in addition to every person appointed or constituted trustee by act of parties, by order or declaration of a court or by operation of law, includes ….” and “person includes a company”.

and then at page 531

“In my view this is to disregard the purpose of s 42(1)(b) which is to make clear that the liability of trustees is only to be referable to their being trustees.”

and then at page 532

“The grouping provisions of the Act have in s 16D(3)(e) and s 16D(6)(b) expressly dealt with grouping in the cases of trusts and a provision such as s 42(2) was needed to make clear that those particular grouping provisions override s 42(1).”

15 In the circumstances of Fanfold Business Forms Pty Limited, South Pacific Business Forms Pty Limited and South Pacific as trustee for W.G.P. No. 1 Trust, Fanfold Business Forms Pty Limited is liable to payroll tax. South Pacific is liable to payroll tax in respect of its employees and South Pacific as trustee for W.G.P. No. 1 Trust is liable for payroll tax in respect of the employees in the business of South Pacific as trustee for W.G.P. No. 1 Trust. Robert William Wilson has the controlling interest in Fanfold, Robert William Wilson has the controlling interest in South Pacific; Robert William Wilson does not have the controlling interest in South Pacific as trustee for W.G.P. No. 1 Trust.

16 Both representatives referred to the Victorian case of Kivelos Nominees Pty Ltd v Commissioner for State Revenue (VIC) 1997 AAT of Victoria 2,135, the respondent’s representative sought to distinguish this case as the trust had an interest in two businesses.

It is useful to bear in mind the preliminary comments in Kivelos by Mr G Gibson, Member of Administrative Appeals Tribunal of Victoria.

“If George III lost the American colonies because of a stamp tax, heaven only knows what may have happened to India and the rest of the Empire if the Crown had had a pay-roll tax. Such a law could hardly have been good for the peace of mind of His Majesty; it could even have been one of the causes of his celebrated madness. Section 9A of the Pay-roll Tax Act 1971 of the Australian state named after a still reigning grand daughter of George III covers some fifteen pages. It is probably longer than the whole of the Stamp Act 1765. I would think it may confidently be asserted that the number of people who may truthfully claim to understand this part of our tax laws would be significantly smaller than those who can truthfully claim to understand either Einstein’s Theory of Relativity or Kant’s refutation of the Ontological Argument for the Existence of God. In Quadric Pty Ltd v. Commissioner of Pay-roll Tax (1992) 5 VAR 483, I expressed my worries about the threats that impossibly complex tax legislation pose. The best minds in the country can be baffled if not beaten by this sort of law. I am therefore sad to report that the intervening years have brought neither light nor balm.”

17 Both representatives referred to Trevisan and Anor v Commissioner of Taxation (1991) 29 CR 157 where Burchett J found that the reasoning of Lee J in Permanent Trustee Nominees was “quite compelling”.

18 Both representatives referred to CS & Co Legal Services Pty Ltd v Commissioner of State Revenue (VIC) 1996 Sup Ct (Vic) 4,651 a case based on the Victorian legislation and required interpretation of the Victorian equivalent of section 42 although the section is not the same.

19 In Permanent Trustee Nominees , Trevisan, Kivelos and CS & Co the issue to be decided rested on statutory construction. The issue in this matter turns on the statutory construction and the revolving door of the Commissioner’s discretion.

20 The representative of the Respondent agreed with the submissions made by the representative of the Applicant that the intent of the provisions, generally, is to ensure that there be only one threshold amount shared in a group of companies. The representatives also submitted that if the amendment had not been made to the Act in 1999, then the Commissioner would have exercised his discretion in the same manner as had been followed in the assessment for 1998 and 1999 and accordingly, there would not have been a grouping of the companies.

The section 16H of the Act, following the amendment in 1999, included the way in which the group could be constituted and thus leading to the application of section 16C. The representative of the Applicant accepted that if the companies were grouped under section 16D, then the discretion provided in section 16H does not apply.

21 Robert William Wilson as the person having a controlling interest in Fanfold Business Forms Pty Limited could be considered, pursuant to section 16D(3)(b) to have a controlling interest in South Pacific Business Forms Pty Limited. In the event that the businesses are grouped under section 16D and in the absence of the discretion which had been included in the Act prior to the amendment on 1 July 1999 then Mr Wilson would have a controlling interest during the relevant years.

22 Both the respondent and the applicant’s representatives submitted that the Commissioner had treated South Pacific Business Forms Pty Limited as a separate entity to that company where it was trustee of the W.G.P. No. 1 Trust. The respondent submitted that since South Pacific Business Forms Pty Limited employed people then it was carrying on business and was an entity in its own right. The respondent’s representative submitted that in extending the concept of employer to that of carrying on a business is a misuse of the language and it was therefore a misuse of the language to say that South Pacific Business Forms Pty Limited is different to South Pacific Business Forms Pty Limited as trustee for W.G.P. No. 1 Trust.

23 As previously referred to and by virtue of the reasoning of Lee J in the Permanent Trustee case the employer, to be considered for the purposes of grouping, would be the W.G.P. No. 1 Trust. Therefore the statutory construction in respect of the grouping provisions result in there not being a grouping of South Pacific Business Forms Pty Limited as trustee for W.G.P. No. 1 Trust with Fanfold Business Forms Pty Limited.

24 The applicant’s representative submitted that section 42(1) is only applicable if there is a specific inclusion of the entity within the provisions. Further that section 42(2) provides that nothing in subsection 42(1) affects the operation of PT IVA in relation to trustees. There is no clear suggestion that section 42(1) catches trustees. Section 16D(3) refers to a trust as does section 16D(6). This is supported by the reasoning in Trevisan where Burchett J commented that the reasoning of Lee J in Permanent Trustee Nominees was quite compelling albeit that he was dealing with different legislation which, in some respects, raised different issues. He further commented that Lee J’s fundamental point was the irrationality of lumping different trusts together, simply because they have, as trustee, the one trustee company. In CS & Co Legal Services Pty Ltd Hanson J commented that "Like Lee J, I regard the provisions of section 42 as overriding the grouping provisions, unless the exception within section 42 is brought into play”. It is noted that the legislation in Victoria does not include trusts in the grouping provisions, it is also noted that the equivalent of section 42(2) was not included in the Victorian legislation.

25 In this particular matter when the provisions of section 42(1) and 42(2) are applied then, with the benefit of the reasoning in Permanent Trustee the entities of Fanfold Business Forms Pty Limited and South Pacific Business Forms Pty Limited as trustees for W.G.P. No. 1 Trust are not subject to the grouping provisions of section 16(D) albeit that the benefit of the discretion provided prior to the amendment in December 1999 was afforded by the Commissioner and the subsequent reintroduction of the curative exclusion in 2003.

26 The notices of objection in respect of the years ended 30 June 2000, 30 June 2001 and 30 June 2002 should have been allowed by the Chief Commissioner.