Grubers Beckett Pty Limited v Chief Commissioner of State Revenue
[2014] NSWCATAD 30
•21 March 2014
NSW Civil and Administrative Tribunal
New South Wales
Medium Neutral Citation: Grubers Beckett Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 30 Hearing dates: 21 October 2013, 28 October 2013 and 5 March 2014 Decision date: 21 March 2014 Jurisdiction: Administrative and Equal Opportunity Division Before: J Block, Senior Member Decision: The objection decision under review is affirmed
Catchwords: Payroll tax - onus of proof - degrouping Legislation Cited: Pay-roll Tax Act 2007; Taxation Administration Act 1996 Cases Cited: Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor [2004] NSWADTAP 19; Jones v Dunkel 1959 (101) CLR 298 Category: Principal judgment Parties: Grubers Beckett Pty Limited (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel J Svehla (Applicant - on 5 March 2014)
A Gerard (Respondent)
Crown Solicitors Office (Respondent)
File Number(s): 136012
reasons for decision
Part A Preliminary and Background.
The objection decision which is under review in this matter, is the disallowance by the Respondent (who is usually referred to in these reasons as the "Chief Commissioner") of objections by the Applicant (who is sometimes referred to in these reasons as "Grubers Beckett PL") of objections against notices of assessment made in accordance with the Pay-roll Tax Act 2007 and the Taxation Administration Act 1996, for the period commencing on 1 April 2007 and ending on 31 December 2011 (referred to in these reasons as "the relevant period")
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.
(a) The assessments referred to in clause 1 were issued on the basis that the Applicant and Business Forum Pty Ltd ("Business Forum") formed a payroll group during the relevant period.
(b) The Chief Commissioner also determined that during the relevant period Grubers Beckett PL and Business Forum formed a payroll tax group with A.C Gruber and L. Gruber partnership ("Grubers Partnership") and Business Forum NSW Pty Ltd ("Business Forum NSW")
The Tribunal had before it the documents lodged in accordance with section 58 of the Administrative Decisions Review Act 1997 (previously the Administrative Decisions Tribunal Act) and which are contained in a (tabbed) volume consisting of 231 pages.
The entirety of the evidence in the proceedings was taken on 21 October 2013, During the course of the hearing the Tribunal admitted exhibits as follows:
Exhibit A! letter dated 19 June 2013;
Exhibit A2 Submissions dated 30 August 2013;
Exhibit A3; documents produced in answer to summonses but confined to pages 4 to 41 and specifically excluding pages 1 to 3;
Exhibit R1; Applicant Payroll Activity summary 1/7/2019 to31/12/2009; Exhibit R2; Applicant Payroll Activity summary 1/1/ 2010 to30/6/2010; Exhibit R3;Business Forum Payroll activity summary 1/7/2009 to 31/12/2009;
Exhibit R4 Business Forum Payroll Activity summary 1/1/ 2010 to 30/6/2010; Exhibit R5; invoices issued by Applicant dated 7/9/2010 and 7/9/2011; Exhibit R5; affidavit of Sharon Gordon dated 17 October 2013 together with exhibit thereto marked SG1
It is relevant to note that Exhibit SG1, which is an exhibit to Exhibit R6 consists of accounts and other documents obtained by the Respondent from the Applicant; it too is a tabbed volume which consists of 378 pages. It is usually referred to in these reasons by reference to the Exhibit pursuant to which is was accepted and being Exhibit R6.
This matter was originally heard in the Administrative Decisions Tribunal on 21 October 2013 and on which date, and as set out previously, all of the oral evidence was taken; the term "TS" refers to the transcript in respect of the hearing on that day. At that hearing Mr Alfred Gruber, who is a professional accountant with in excess of 40 years of experience appeared on behalf of the Applicant. He said that he would be calling only one witness (himself). He said (TS3) that "Mrs Gruber would have been available but she is not". He said also that his legal representative was in Cairns. He said furthermore that he did not intend to call any of the persons sometimes referred to him as "principals" of branches of the accountancy practise conducted under the name of Grubers Beckett. Most of that hearing day was taken up by the evidence and cross-examination of Mr Gruber; however at the end of the day Ms S. Gordon gave evidence (briefly) on behalf of the Respondent and at which time Exhibit R6 was admitted. The matter was then adjourned until 28 October 2013 (on the basis that Mr Gruber would be entitled if he so desired to attend by telephone) for the purpose of closing submissions. On that later date Mr Gruber said that the Applicant intended to brief counsel (Mr Svehla): the matter was then adjourned to enable the parties to produce and file final submissions dealing in particular with the evidence taken at the hearing on 21 October 2013. In the result the Applicant produced "Final Submissions for Grubers Beckett Pty Ltd dated 24 December 2013 ("FAS") while the Respondent produced "Final Submissions for the Chief Commissioner of State Revenue dated 25 February 2014 ("FRS"). FRS dealt (as the Tribunal had requested) in some detail with the evidence at the hearing on 21 October 2013 and the Tribunal has therefore drawn on FRS to some considerable extent for the purposes of these reasons. The matter came before this Tribunal on 5 March 2014 for the purpose of final submissions only.
It is convenient at this early stage to include the content of RFS under the head of "Procedural History of Assessment and Proceedings" contained in clauses 5 to 9 of FRS (excluding footnotes although the footnoted references have been checked and found to be correct) as follows:
5. On 11 May 2010, the Chief Commissioner advised Business Forum (not Business Forum NSW) that the Chief Commissioner was commencing an investigation into Business Forum to assess its compliance with the PTA 2007 and Pay-roll Tax Act 1971. As part of the opening of the investigation the Chief Commissioner requested Business Forum to complete an Unregistered Payroll Tax Employers Questionnaire and to provide the Chief Commissioner with specified documents.
6. Having received no response, on 19 June 2010, the Chief Commissioner sent a reminder notice to Business Forum Pty Ltd. On 10 September 2010, a Francesca Cernanka completed a Unregistered Payroll Tax Employers Questionnaire for Business Forum NSW Pty Ltd (a company of which Ms Cernanka was a Director). On 22 October 2010, Louise Gruber (Frances Gruber) forwarded a copy of that document to the Chief Commissioner.
7. On 13 January 2011, the Chief Commissioner issued Notices pursuant to s.72 of the TA Act ("Section 72 Notices") requiring the production of documents from: Business Forum NSW; Grubers Beckett PL; Business Forum; Grubers Partnership.
8. On 28 February 2011, the Chief Commissioner issued Payroll Tax Notice of Assessments to Business Forum NSW for the period 1 July 2005 to 31 March 2009. On 14 April 2011, the Chief Commissioner issued a Legal Notice - Payroll Tax to Business Forum NSW in respect of the payroll tax payable as assessed for the period 1 July 2005 to 31 March 2009. On 8 July 2011, Louise Gruber wrote to the Chief Commissioner noting that Business Forum had not traded since 1 April 2009 and had only debts and no assets. On 12 December 2011, the Chief Commissioner sent a Director's Compliance Notice pursuant to s.47B of the TA Act in respect of Business Forum NSW's unpaid payroll tax liabilities.
9. On 24 April 2012, the Chief Commissioner issued Payroll Tax Assessment Notices ("relevant Payroll Tax Assessments") to Grubers Beckett PL for the relevant period being 1 April 2009 to 31 December 2011 on the basis that Business Forum, Grubers Beckett PL and the Grubers Partnership were a group. On 24 July 2012, Grubers Beckett PL objected to the relevant Payroll Tax Assessments. On 30 November 2012, the Chief Commissioner disallowed Grubers Beckett PL's objections to the relevant Payroll Tax Assessments. On 7 February 2013, Grubers Beckett PL lodged an Application for Review of a Revenue Decision with the Administrative Decisions Tribunal.
It is convenient also at this early stage to include the content of FRS under the head of "Objective Documentary Evidence (ASIC Documents; Business Records; Tax Returns; Profit and Loss and Balance Sheets; Internal Company Documents) contained in clauses 23 to 50 of FRS (again without footnotes although and again the footnote references have been checked and found to be correct) as follows:
23. The objective documentary evidence before the Tribunal (which is comprised entirely of the Applicant's own business records compiled prior to these proceedings and publicly available information) evidences the following:
24 Alfred and Louise Gruber have title to and own the trading name "Grubers Beckett".
25. Grubers Beckett PL is a proprietary limited company registered on 16 January 2004.
26. Alfred Gruber has been the sole director of Grubers Beckett PL since registration through to 31 December 2011 (the end of the relevant period).
27. Grubers Beckett PL, throughout the relevant period, had an issued share capital of 200 ordinary shares. From 10 June 2009 to 31 December 2011 (the end of the relevant period) Alfred Gruber held 100/200 (50%) of the ordinary shares issued by Grubers Beckett PL and Louise Gruber held the other 100/200 ordinary shares. The registered office and registered principal place of business of Grubers Beckett PL, since 17 June 2009, has been 12 Possum Street, Trinity Beach, Qld.
28. Grubers Beckett PL and Business Forum have partially produced financial reports and company tax returns for Grubers Beckett PL, Business Forum and Business Forum NSW in relation to the relevant period.
29. Throughout the relevant period Gruber Beckett PL carried on an accountancy business providing "accounting services" from various locations. The evidence before the Tribunal records that Grubers Beckett PL carried on the business of providing accounting services to clients of Grubers Beckett Pty Ltd from various offices in NSW and Queensland. Grubers Beckett PL, in the relevant period, carried on the accounting services business from Grubers Beckett PL's locations: Sydney (Lime Street); Freshwater (Harbord); Innisfail; Cairns; Gawler; Erina; Newport;
30...Business Forum is a proprietary limited company registered on 13 January 2009. The registered office and registered principal place of business of Grubers Beckett PL, since 17 June 2009, has been 12 Possum Street, Trinity Beach, Qld.
31.Alfred Gruber was the sole director of Business Forum from 13 January 2009 to 27 January 2012, when the company went into liquidation. Throughout the relevant period, Business Forum had an issued share capital of 2 ordinary shares. One share was held by Alfred Gruber, the other by Louise Gruber.
32 Throughout the relevant period Business Forum carried on an accountancy, administrative, employment and management service business (a service company business acting as a "conduit" for Grubers Beckett). Business Forum provided services to, and in connection with, the accounting services business carried on by Grubers Beckett PL. It received "Management Fees" paid to it by Grubers Beckett PL (s.67 (a), (b) PTA 2007).
33.Business Forum also held money and property used in connection with the accounting business carried on by Grubers Beckett PL (for instance cash, lease interests and equipment) (see s.67(e) PTA 2007).
34.Business Forum also employed persons who performed duties in connection with, and indeed solely and exclusively for Grubers Beckett PL, in the accounting services business carried on by Grubers Beckett PL (see s.67(c) PTA 2007).
35.Business Forum was a dedicated service company for Grubers Beckett PL. Prior to the liquidation of Business Forum NSW, Business Forum NSW provided the same accounting, administrative, employment and management services (service company services) to Grubers Beckett PL in respect of Grubers
36 The Grubers Partnership is a partnership of Alfred and Frances Gruber. The partnership traded as Grubers Beckett Chartered Accountants and apparently carried on the business of providing accounting services. The Grubers Partnership "pumped in" (on unidentified terms) sums of money in excess of $750,000 into the accountancy business carried on by Grubers Beckett.
37 .In the financial year ending 30 June 2009, Grubers Beckett PL recorded in its Company Tax Return, $2,239,514 in total income (of which $7 was "interest income") and $2,355,164 in total expenses (which included $2,132,478 in "other expenses").
38. In its Profit and Loss Statement, Grubers Beckett PL recorded "Income" from "Professional Fees" of $2,239,507.03. Those "Professional Fees" are recorded as being earned by Grubers Beckett PL's offices in: Sydney (Lime Street); Freshwater (Harbord); Innisfail; Cairns; Newport; Casino; Mareeba; and Atherton.
39. The Company Tax Returns lodged with the Australian Taxation Office under Mr Grubers hand record and declare those fees as being earned by Grubers Beckett PL in its own right. Those documents do not reveal at all that the fees were earned and the income returned on behalf of anybody in any representative capacity whatsoever.
40. The Profit and Loss Statement reveals that Grubers Beckett PL paid wages and salaries of $291,391.64. The Profit and Loss Statement also records in the "Expenses" section the payment of $1,835,558.73 in "Mgmnt Charges General". Those Management Fees were paid to Business Forum NSW between 1 July 2008 and 31 March 2009 and to Business Forum between 1 April 2009 and 30 June 2009.
41. Grubers Beckett PL's Balance Sheet for the financial year ending 30 June 2009 records intra-group debts to:
Business Forum in the sum of $39,004.80;
Business Forum NSW in the sum of $218,351.72; and
Grubers Partnership in the sum of $711,428
42. Business Forum, as outlined, commenced trading on 1 April 2009. In its Company Tax Return for the financial year ending 30 June 2009, Business Forum recorded total income of $359,260.
43 In its Profit and Loss Statement for the financial year ending 30 June 2009, Business Forum recorded:
"Management Fee Income" of $346,000;
Rent/Occupancy Costs of $63,800 in respect of rent for "Lime Street; Cairns; Casino; Head Office; Mareeba; Atherton; Freshwater; Newport; and Innisfail;
Management Fees Paid to "GBPL" in the sum of $62,553.98
44. The Management Fees were paid to Business Forum by Grubers Beckett PL. The rental/occupancy fees were paid by Business Forum in respect of leases it held over property from which the various Grubers Beckett PL offices operated.
45. The Profit and Loss Statement reveals that Business Forum paid wages and salaries of $233,684.65. Those wages and salaries were paid by Business Forum to employees of Business Forum who were employed to work for, or in connection with, the accountancy services business carried on by Grubers Beckett PL.
46. In its Balance Sheet for the financial year ending 30 June 2009, Business Forum recorded in the Assets section under the title "Associated Entities": "Grubers Beckett Pty Ltd $39,004.80";
47. Business Forum NSW ceased trading on 1 April 2009. In the financial year ending 30 June 2009 Business Forum NSW recorded:
"Management Fee Income" of $1,303,780. Those Management Fees were paid by Grubers Beckett PL;
Occupancy/Rent costs (for the same locations as Business Forum recorded for the period 1 April 2009 to 30 June 2009) in the sum of $224,768; "Advertising" costs of $42,126.16; "Maintenance/Hire Equipment" in the sum of $78,000 and under the title "Assets", "Grubers Beckett Pty Ltd $4,933.21
48. Consistent with the pattern of the group's business operations as in the 2009 and previous years, the financial accounts and filed Tax Returns of Grubers Beckett PL and Business Forum continued in the 2010 financial year record, for example:
Grubers Beckett PL recorded "Professional Fee Income" of $2,267,162.41. Those fees were earned from the accounting services provided at Grubers Beckett PL's offices in: Mareeba; Harbord/Freshwater; Sydney; Cairns; Casino; Atherton; Innisfail; Newport; Cairns Mall; and Trinity;
The Company Tax Returns lodged with the Australian Taxation Office under Mr Grubers hand record those fees as being earned by Grubers Beckett PL in its own right. Those documents do not reveal at all that the fees were earned and the income returned on behalf of anybody.
Grubers Beckett PL recorded "Mgmnt Charges General", as an expense, in the sum of $1,735,184.58. Those Management Fees were paid to Business Forum;
Grubers Beckett PL paid wages and salaries in the sum of $278,687.25
Grubers Beckett PL recorded in its liabilities to creditors:
Business Forum - $153,309.91;
Business Forum NSW $4,933.21;
Grubers Partnership $766,883.55;
Business Forum recorded "Management Fee Income" of $1,803,897.02. $1,735,184.58 of those Management Fees were paid to Business Forum;
Business Forum recorded Occupancy/Rent Costs of $284,829.60. in relation to (Lime Street, Cairns, Casino, Head Office, Mareeba, Atherton, Gawler, Freshwater, Newport, Innisfail). The rental/occupancy fees were paid by Business Forum in respect of leases it held over property from which the various Grubers Beckett PL offices operated;
Business Forum paid wages and salaries of $1,011,415.67. Those wages and salaries were paid by Business Forum to employees of Business Forum who were employed to work for, or in connection with, the accountancy services business carried on by Grubers Beckett PL.
Business Forum recorded other costs such as "Advertising $22,992.23" and "Maintenance/Hire Equipment $105,658
Business Forum recorded a debt, from its "Associated Entity" Grubers Beckett PL, of $153,309.91
49. A similar pattern in the financial accounts and filed Tax Returns of Grubers Beckett PL and Business Forum continued in the 2011 financial year. For example:
Grubers Beckett PL recorded "Professional Fee Income" of $2,319,303.27. Those fees were earned from the accounting services provided at Grubers Beckett PL's offices in: Mareeba; Harbord; Sydney; Cairns; Casino; Atherton; Innisfail; Newport; Cairns Mall; and Trinity;
The Company Tax Returns lodged with the Australian Taxation Office under Mr Grubers hand record those fees as being earned by Grubers Beckett PL in its own right. Those documents do not reveal at all that the fees were earned and the income returned on behalf of anybody;
Grubers Beckett PL recorded "Mgmnt Charges General" in the sum of $1,618,350.37. Those Management Fees were paid to Business Forum;
Grubers Beckett PL paid wages of $378,726.64
Grubers Beckett PL recorded in its liabilities to creditors: Business Forum - $82,274.93; Business Forum NSW $121,766.21; Grubers Partnership $499,636.46;
Business Forum recorded "Management Fee Income" of $1,692,106.60 of which $1,618,350.37 was paid to it by Grubers Beckett PL;
Business Forum recorded Occupancy/Rent Costs of $289,648.62 in relation to the Grubers Beckett PL offices at Lime Street, Cairns, Casino, Head Office, Mareeba, Atherton, Gawler, Freshwater, Newport and Innisfail;
Business Forum recorded other costs such as "Advertising $19,051.09" and "Maintenance/Hire Equipment $90,351.55";
Business Forum paid wages and salaries in the sum of $954,012.99. Those wages and salaries were paid by Business Forum to employees of Business Forum who were employed to work for, or in connection with, the accountancy services business carried on by Grubers Beckett PL.
Business Forum recorded a debt, from its "Associated Entity" Grubers Beckett PL, of $82,274.93 and its "Associated Entity Business Forum NSW" of $82,380.51.
50. The key (and determinative) matters of note in respect of the relevant period are:
(i)The Professional Fees earned and recorded by Grubers Beckett in its Profit and Loss Statements, Balance Sheets and Income Tax Returns were earned by Grubers Beckett PL providing accounting services to Grubers Beckett PL clients;
(ii) Contrary to the thesis of the Applicant, the Grubers Beckett PL Company Tax Returns lodged with the Australian Taxation Office under Mr Grubers hand declare and record those fees as being earned by Grubers Beckett PL in its own right. Those documents do not reveal that any fees were earned, and the income returned, on behalf of anybody in any representative capacity;
(iii) Contradictory to the entire thesis of the Applicant, there is absolutely no delineation/separation (re various offices which the Applicant says were separate business) in the profit and loss statements during the relevant period of either Grubers Beckett PL or Business Forum of key incomings and expenses and which "separate business" they are attributable to. Using the 2010 profit and loss statements as examples there is no delineation between offices of: the wages paid ($1,011,425.67 by Business Forum and $278,687.25 by Grubers Beckett PL); Management Charges incurred by Grubers Beckett PL ($1,735,184.58); Management Charges Income of Business Forum ($1,803,897.02); consulting fees; commission; advertising; debt collection; disbursements; interest; equipment; superannuation; legal fees. The Applicant's own business records present a complete rejection of its case in this regard;
(iv)The Management Fees earned by Business Forum were paid to it by Grubers Beckett PL (possibly as reimbursements) for Business Forum's administrative, management and service business activities conducted in relation to Grubers Beckett PL's accounting business;
(v) The wages and salaries paid by Business Forum to employees of Business Forum who were employed to work solely for, or in connection with, the accountancy services business carried on by Grubers Beckett PL;
(vi).Other expenses incurred by Business Forum (such as lease and equipment hire expenses i.e. property) were incurred by Business Forum in respect of property used for the accounting services business of Grubers Beckett PL.
In the interests of balance only and although I consider that this content is of limited relevance only (and although relevant assertions are comprehensively contradicted by the evidence before the Tribunal) I include clauses 18 to 28 of FAS as follows:
18. The intention was to commence operations and set-up the companies for each Business to implement the Scheme on 1July 2008 and commencing trading from that date.
19. By 1 July 2008, the Chartered Accountants/Tax Advisers who subsequently formally took control of the franchisees from February 2012 had been selected. The internal site conversion, including registration with the Institute of Chartered Accountants and Tax Agents Board had commenced.
20. Also by 1 July2008, the Grubers Beckett and Business Forum accounting system segregated the various Businesses to be franchised so that they were accounted for independently until this occurred.
21. Each Business, itself a separate business when acquired, was to be, and was operated as a separate and autonomous entity, not dependent upon each other separate and autonomous Business operating at a separate location with a separate Chartered Accountant/Tax Adviser.
22. The Chartered Accountant/Tax Agent in control of each Business, who was to participate in the Scheme, would hold his/her interest in that Business howsoever he/she determined, whether individually or through an entity (eg a company).
23. In 2009, at about the time of the commencement of the Relevant Period, Alfred, who is 63, and Louise, who Is 55, left New South Wales and went into semi-retirement in Cairns, Queensland.
24. In the Relevant Period, the Grubers rarely returned to New South Wales. The Grubers visited the New South Wales Businesses for social events organised by the Chartered Accountants/Tax Advisers of such Businesses.
25. In the Relevant Period, Alfred and the Gruber shad no involvement in the day to day operation and running of the Businesses.
26. In the Relevant Period, Alfred and the Grubers received no remuneration or income or other financial reward from the Businesses.
27. In the Relevant Period, the Businesses were accounted for as separate 'operating entities, to conform with the reality.
28. In the Relevant Period, the Grubers provided financial support by way of working capital interest free loans to each Business, enabling it, under the day to day control of one of the Chartered Accountants! Tax Advisers, to continue in operation through its IVGrubers Beckett"infancy.
Part B The evidence of Mr Gruber in general terms
It is convenient at the outset of this Part B to note that, as I understood Mr Gruber, the Applicant sought to contend that although the Applicant throughout the relevant period conduced an accountancy practise through a number of branches in New South Wales and Queensland, it desired to enter into a franchise arrangement in respect of some of the branches with persons who would become franchisees of specific branches and as such entitled to the profits derived from those branches. He referred in particular to Michael Carswell in respect of a branch in Sydney, Louise Docherty in respect of a branch in Harboard and Annette Axford in relation to a branch in Mareeba... Mr Gruber said that the setting up of franchise arrangements was an expensive and time-consuming exercise; the proposed franchise arrangement was not concluded until 2012 and thus after the expiry of the relevant period. Mr Gruber also referred on a number of occasions to the concept of an entity acting as trustee for a company to be formed; I inferred that he had in mind that in respect of the proposed franchisees each franchisee would through an entity acting as trustee for a company to be formed acquire a particular branch. I emphasise that the precise implications of these proposed arrangements were never clarified. Suffice it to say that there was no evidence of any kind before the Tribunal as to a franchise arrangement entered into prior to the end of the relevant period in respect of the branches or any of them; nor for that matter was there any evidence of any companies being formed and which adopted and ratified agreements entered into prior thereto by an entity acting as trustee for any companies to be formed.
Part C The evidence of Mr Gruber; cross-examination
As indicated previously in these reasons FRS dealt with the evidence at the hearing on 21 October 2013 while FAS did not. FRS in clauses 57 to 92 contains so admirable and comprehensive a summary of the evidence of Mr Gruber under cross-examination that I include with approval all of that content (once again omitting footnotes although again the footnotes have been checked and found to be correct but on this occasion including brief TS references in the body of these reasons) as follows:
57. The transcript reveals that, generally, Mr Gruber was cross-examined about the accountancy business operated by Grubers Beckett; the relationship between Grubers Beckett and Business Forum and Business Forum NSW; the relationship between the Grubers Partnership and Grubers Beckett and Business Forum; the ownership structure of those persons; the financial and business dealings between Grubers Beckett, Business Forum and the Grubers Partnership; the matters recorded in the produced business records and Tax Returns of Grubers Beckett and Business Forum; the employment of, and payment of wages to, Mr Carswell, Ms Axford and Ms Doherty by Grubers Beckett and Business Forum; the execution of franchise arrangements in 2012; and the decision by the Applicant not to call evidence from Carswell, Axford or Doherty.
Mr Grubers History
58. Mr Gruber agreed he was a chartered accountant in practice for over 40 years. (TS17) Mr Gruber agreed he had been a director and secretary of numerous companies (TS18). He agreed he had assisted clients in "setting up companies" (TS18) and he had clients who conducted businesses as sole traders, through a partnership and through a trust (TS18). Mr Gruber agreed he was aware of the legal incidents of those vehicles. (TS18)
Mr Gruber and Louise Grubers Directorships and Shareholdings in Group Companies
59. Early in his cross-examination Mr Gruber was asked a series of questions regarding whether he was the sole director and secretary of Grubers Beckett and whether he held 50% of the shares issued by Grubers Beckett (TS18). Mr Gruber was asked those questions in the context of an ASIC search of that company having been identified to him. Mr Gruber initially answered, "I don't dispute that" on three occasions. Eventually he agreed with the propositions.
60. In respect of Business Forum NSW, Mr Gruber said he "presumed" he was a director of that company.(TS23) He agreed that he and his wife Louise Gruber were 50% shareholders in that company. Mr Gruber agreed he was the sole director of Business Forum during its existence and he and Louise Gruber held 50% of the shares each in the company.
Production of Tax Returns and Business Records - Grubers' Statement of Facts.
61. Mr Gruber said that the Applicant had produced full copies of Grubers Beckett's Tax Returns lodged with the ATO for the 2006, 2007, 2008, 2009, 2010 and 2011 years.(TS29) Mr Gruber agreed that Grubers Beckett had partially produced its financial records for those years also.(TS29)
62. After stating that he "presumed" the Tax Returns produced to the Chief Commissioner were in fact lodged with the ATO, the following exchange occurred regarding the signing of declarations that the contents of those documents are true and correct:
Q: So I think I just asked you whether these documents were lodged with the Australian Tax Office for those years, and your answer to that was.
A: I presume they have been, because I'm not responsible for those.
Q: Turn to page 16 of SG1. Do you see at the bottom there in the box titled tax agent's declaration?
A: Yes
Q: You'll see there's a declaration by Grubers Beckett Pty Ltd and the contact name is you?
A: Yes
Q: So you would agree that it's you who has lodged this document with the Tax Office?
A: I agree it's --- there are a lot of documents that go in with my name on them as a contact person. It's a tax agent's number. I don't review the documents, there's thousands of documents that go in and this would be one of them that I don't - you know, I don't review it.
Q: I'll just get you to turn over to the next page, page 17, there's a declaration there from a public officer, and that is you. You are the only public officer of Grubers Beckett Pty Ltd is that correct?
A: Yes.
Q: So it is the case that on every income tax return for this company lodged with the ATO, you would have given a declaration that the contents were true and correct, that must be so?
A: Yes, because I believe that whatever people put in is true and correct, yes.
63. Mr Gruber was asked the same questions about lodgement of Business Forum's (TS33) and Business Forum NSW's (TS34) Tax Returns with the ATO.
64. Mr Gruber was also asked about the documents at Tabs 5B, 5D and 5F of SG1 (Exhibit R1) which were the Profit and Loss and Balance Sheets for Grubers Beckett, Business Forum and Business Forum NSW and whether the documents were those records (TS32 and TS34) Mr Gruber on each occasion said he "presumed", "assumed" or had "no reason to doubt" they were. In response to the question about Grubers Beckett's financial documents said "my wife put them together". In respect of Mr Grubers signed Statement of Fact document, Mr Gruber agreed, eventually, that the document contained at page 269 of SG1 (Exhibit R6) contained statements of fact made by Mr Gruber.
Accounting services business carried on by Grubers Beckett (Tax Returns & P&Ls)
65. Mr Gruber agreed that Grubers Beckett carried on a business of providing accounting services to the general public. (TS37). In respect of the 2009 financial year, Mr Gruber agreed that Grubers Beckett earned $2,239,507.03 in professional fees as declared in its 2009 Tax Return. (TS37) Mr Gruber was shown the Grubers Beckett Profit and Loss Statement that recorded the same figure in professional fees for the 2009 financial year. In answer to the proposition that the $2,239,507.03 declared as income in Grubers Beckett's Tax Return was professional fees earned by Grubers Beckett for accounting services provided to the general public, Mr Gruber said that the $2,239,507.03 declared in Grubers Beckett's Tax Return was professional fees earned by Grubers Beckett "for itself" and "on behalf of those other companies - or the other branches". (TS37)
66.In relation to that evidence the following was said in respect of the Profit and Loss Statement and the Tax Return documents (TS38):
"Gerard
Q. So you would agree that this profit and loss totals the amount of professional fees earned by the various Grubers Beckett offices in and around New South Wales and Queensland in that year?
A. Various Grubers Beckett offices, yes.
Mr Block
Q. Sorry could you repeat what you said?
A. Yes, but some are on behalf of these new companies - you know, that's a promoter's thing.
Q. What new companies?
A. Well the new companies yet to be formed. We actually split it up there so that we had the ---
Q. These totals, fees for Grubers Beckett and-
A. Branches.
Q. Other companies yet to be formed?
A. That's right. Yes.
Q. Where does it say so in the tax return?
A. It doesn't say it in the tax return but that's what the situation is, and that's why its split up specifically there.
Gerard
Q. You would agree that there were offices in Mareeba?
A. Yes.
Q. Harbord, Erina, Sydney, Casino, Cairns, Atherton, Innisfail and Newport?
A.Yes.
Q.The fees earned by those offices are recorded in this Grubers Beckett Pty Ltd profit and loss statement for 2009 is that right?
A.Mm.
Q.Those fees were declared as the income on the company tax return for Grubers Beckett Pty Ltd in the 2009 tax year?
A. Well, it's on there.
Mr Block
Q. Sorry, and those figure were declared as the income of Grubers Beckett?
A. For each of that - yes, they were -
Q. Mr Gruber, you are a trained accountant?
A. Yes, I'm saying yes.
Q. This company returned these amounts as its income. It didn't say, "Look here some of this income wasn't mine it was on trust for somebody else"?1
A. That's why we showed in separately. That's why we actually split it up, we did profit and loss statements for each one.
Q. Just answer my question. Does it say it anywhere in this return -
A. No, no it doesn't no.
Q. that this is for other people whose companies are yet to be formed?
A. No. No it doesn't. It's not. It doesn't.
67. It is to be noted that, consistent with the Grubers Beckett 2009 Tax Return the subject of the above examination, none of the other Grubers Beckett Tax Returns for the 2006 to 2011 years record any of the income declared to be earned by Grubers Beckett as income earned on behalf of or as trustee for another person.
68. Mr Gruber was also asked about the recording of assets of Grubers Beckett in the 2009 year. Mr Gruber was asked about trade debts recorded in the company accounts of Grubers Beckett:
Gerard
Q. You'd agree it's recorded as an asset of the company Grubers Beckett Pty Ltd?
A. Yes. But it's shown as a separate branch because each branch had to account for its own -
Q. Yes, I've heard that, but I'm asking you whether you are saying yes or no to my question, its recorded as an asset of the company?
A. Yes. But it's shown separately because it's on behalf of.
Mr Block
Q. Where does it say on behalf of?
A. It doesn't say on behalf of, but that's what it is. Sorry.
Gerard
Q. So these receivables are being recorded as an asset, future asset of the company, Grubers Beckett, that's right isn't it?
A. Right, each branch had its own balance sheet and profit and loss, yeah. Okay.
Mr Block
Q. So it's recorded as an asset of this company?
A. Yes.
69. It is to be noted so far as the assertion that each branch had its own profit and loss and balance sheets, no separate Balance Sheet and Profit and Loss has ever been produced for any of the asserted separate branch/businesses. If those documents existed the Applicant had every opportunity to produce them. The only Balance Sheets, Profit and Loss Statements and Tax Returns produced in these proceedings are the ones for Grubers Beckett PL recording the fees, income, expenses and assets as those of Grubers Beckett PL in its own right.
Business Relationship between Grubers Beckett and Business Forum (Management Fees/Reimbursements) Business Forum a "Conduit" For Grubers Beckett
70. Mr Gruber was asked questions about Grubers Beckett's incurring of "Management Fees", as recorded in its Profit and Loss Statements, and, in turn, Business Forum's receipt of "Management Fee Income", as recorded in its Profit and Loss Statements.(TS39) Mr Gruber's answers regarding the payment, receipt and description of the monies recorded in Grubers Beckett's accounts and Business Forum's accounts as "Management Fees" were inconsistent, and at times, difficult to follow. Ultimately, so far as the recording of "Management Fee" expenses in Grubers Beckett PL's accounts were concerned, and the recording of "Management Fee" income in Business Forum's accounts were concerned, the following exchange summarises the position that Business Forum was used to incur expenses on behalf of the Grubers Beckett accounting business and Grubers Beckett PL paid/reimbursed Business Forum in relation to that:
"Gerard
Q.What I understand to be the case is this, fees and expenses are paid by Business Forum?
A. Yes.
Q. In relation to the business carried on by Grubers Beckett and those fees are then reimbursed to Business Forum by Grubers Beckett, is that an accurate description of these payments?
A. Yes, effectively yes.
Mr Block
Q. Sorry could you repeat that for me?
A. There are payments, the majority of the money you know the amount paid the majority would be physical - there would be physical payments that are put into a pot and Business Forum will expend those payments."
71. Despite Mr Gruber's assertion that the majority of the money recorded in both companies accounts as Management Fees/Management Income were merely journal entries and most were not physical payments, it is clear that most were indeed physical payments apparently either made from Grubers Beckett PL to Business Forum for payment/reimbursement of its function of paying the expenses of Grubers Beckett PL's business or from Mr and Mrs Gruber to Business Forum for payment/reimbursement of its function of paying the expenses of Grubers Beckett PL's business. The following two excerpts reveal as much (TS 47 and TS 48):
"Q. Can I ask you this, because you focus on this word reimbursement, but you also say the money wasn't paid. I want to ask you a question first, if it's a reimbursement, isn't it in terms paid?
A. No. No, because what happens is that moneys are pumped into the company as the company needs the moneys, right, so we're pumping money into the company and it just keeps the company afloat effectively. So when they have been reimbursed by the - when Grubers -
Q. When you say we pumped money into the company, who's we?
A. My wife and I.
Q. Well, you see this $1.735 million you've got recorded here, haven't you said before in your statement of fact that this money was reimbursed to Business Forum in this financial year?
A. Yes. That's right.
Q. So if it's reimbursed to Business Forum, isn't it money that's either been put in by Business Forum or owing to Business Forum?
A.It's - we've put in money - most of the money is coming from my wife and I. We're pumping money into Business Forum right, to keep it paying the expenses.
Q.Then?
A. And then -
Mr Block
Q. Sorry, you said you were pumping money into -
A. We're pumping money into the group.
Q. Into Beckett?
A. Yes.
Q. Into Grubers Beckett?
A. Yes.
Gerard
Q. Then at dot point 2, you say, "In the period July 2009 to 30 June 2010" you record a figure of $1,803,897. When you say Business Forum received the following reimbursements, you are saying that it received them from Grubers Beckett Pty Ltd aren't you?
A. Yes. It did, but the whole thing is that there's a group right and they're part of the group. The fees are coming in and at the end of the day Business Forum is making payments and they've got to be reimbursed, be reimbursed by the fees coming in and what initial amounts are needed will come in from us.
Debts to Grubers (Pumping Money Into Business Forum and Grubers Beckett)
72. The exchange of questions and answers outlined above regarding the parallel Management Fee expenses of Grubers Beckett PL and Management Fee income of Business Forum also revealed, importantly, that Mr and Mrs Gruber, in Mr Gruber's words, were "pumping money" (their own personal funds) on terms unknown to pay the expenses of offices that, on Mr Gruber's evidence and the Applicant's case, the Gruber's and Grubers Beckett PL had no control of.
73. That is, with respect, an incredibly improbable set of propositions to say the least.
74.In this connection, Mr Gruber was also asked questions regarding the inter-company and inter-partnership debts recorded in Grubers Beckett PL's Balance Sheets. In respect of the debt Grubers Beckett PL recorded itself as owing to the Grubers Partnership (Mr and Mrs Gruber) the following extract is relevant:
Gerard
Q. [I] understand that to be a reference to the partnership of which you and your wife Louise Gruber are the partners?
A. Yes.
Q. You see the amount of $711,428 recorded there, you'd agree that that records that this company Grubers Beckett owes a debt of $711,428 to the partnership is that right?
A. That's right, yes.
Q. What was that debt for?
A. It's money that we pumped into the group, physically.
Mr Block
Q. So you say the 711 is money pumped in by you and your wife?
A. Yes.
75. It is to be noted that there is no outline in the financials, and no attempt to explain was made in Mr Gruber's evidence, as to which portion (consistent with Mr Gruber's evidence that each office was separately run and owned) of the $711,428 was attributable to each office. So far as the submission is made for the Applicant that these were interest free loans to each separate business, that submission has no footing or support from the evidence whatsoever.
Grubers Beckett and Business Forum's Employment of Michael Carswell, Annette Axford and Lisa Doherty
76. Mr Gruber was asked about the employment of Michael Carswell, Lisa Doherty and Annette Axford (during the relevant period) by both Grubers Beckett and Business Forum. These are the people who Mr Gruber contends had ownership and control of the Grubers Beckett PL offices (separate businesses) at Sydney, Harbord and Mareeba respectively.
77. Mr Gruber agreed that Mr Carswell worked in the Sydney/Lime Street Grubers Beckett office long before 2008 and continued past February 2012.(TS52) Mr Carswell became the principal of the Lime Street franchise following its franchising in February 2012. Despite the Sydney/Lime Street office not being franchised until February 2012 Mr Gruber did not agree that in the period 2008 to February 2012 Mr Carswell was not the owner and principal of the Grubers Beckett Sydney/Lime Street office the "manager" of that office (TS53)
78. Mr Gruber admitted that during the relevant period Business Forum: paid the wages of Michael Carswell, Lisa Doherty and Annette Axford; remitted PAYE to the ATO for those persons in respect of wages paid; paid annual leave; long service leave and sick leave and superannuation in respect of those persons.(TS53 and following pages) Mr Gruber admitted that those persons were paid wages by Business Forum in that period in respect of the work they performed in the Grubers Beckett office they respectively worked in.(TS56)
79. Initially, Mr Gruber refused to accept that Mr Carswell, Ms Doherty and Ms Axford were employees of Business Forum notwithstanding that Business Forum paid wages and other usual employee entitlements to those persons in connection for their working in a Grubers Beckett office. Eventually, though it is not entirely clear, it appears that Mr Gruber did accept that those persons were employees of Business Forum. The following are relevant excerpts from the cross-examination regarding Business Forum's payment of wages and entitlements to those persons:
Excerpt 1 (TS 52)
Gerard
Q. Well, can I ask you this Mr Gruber, when Michael Carswell, say let's take the 2009 financial year, when he was working in the Sydney Lime Street office, he was in fact employed by Business Forum, isn't that right?
A. Business Forum paid his wages. He was not employed by Business Forum I know.
Mr Block
Q. Look somebody must've taken off PAYE?
A. Yes.
Q.Who was it?
A. Business Forum.
Excerpt 2 (TS 53)
Q. Lisa Doherty worked in 2008, 9, 10 and 11 in the Grubers Beckett office at Brookvale and Newport?
A.Yep, that'd be right, yes.
Q. When she did, she was an employee of Business Forum also wasn't she?
A. They paid her wages. They're different - okay, yes. On the face of it yes.
Excerpt 3 (TS 56) (after Exhibits R1-R4 are shown to Mr Gruber - Payroll Records
Q. Isn't it the case that Annette Axford in this period worked in the Grubers Beckett Mareeba Office?
A. She was - yes.
Q. So therefore you would agree that during this period Business Forum employed Annette Axford for the purposes of her working in the Grubers Beckett Mareeba office?
A. She was the manager of the Mareeba office yes, Grubers Beckett Pty Ltd.
Q.She was an employee of Business Forum isn't that right?
A.Well, that's right. Prima facie it would appear that way yes.
Mr Block.
Q. Sorry, if wages were paid by this company to her -
A. Yes, yes.
Q.-was she or wasn't she - it's not a difficult question?
A. yes.
Q. Was she an employee?
A. Yes.
Gerard
Q. Then we go to Michael Carswell and we see Michael Carswell I think you said in your evidence worked in the Sydney Lime Street office, that's right isn't it?
A. Yes.
Q. But you called him the principal of that office?
A. Yes.
Q. He was the principal in your words in that office in this period before us, isn't that right?
A. Yes.
Q. In being the principal of this Sydney Lime Street office for Grubers Beckett, he was employed by and paid wages by Business Forum in relation to that wasn't he?
A. Grubers Beckett Pty Ltd, Michael Carswell was on Grubers Beckett, not on Business Forum - sorry yes.
80. With reference to the payroll activity records for Business Forum (Exhibits R1-R4) Mr Gruber was asked whether any person who appeared on those records did not work in a Grubers Beckett office. He agreed that they all did.
81. Importantly and in contradiction of the Applicant's case (of separate businesses) there is no splitting up between offices in those records of what person worked at what time in which office. (TS58)
Business Forum an Employment and Wage Paying "Conduit" for Grubers Beckett
82. The cross-examination regarding the employment of or payment of wages to persons by Business Forum for their services provided to Grubers Beckett clearly revealed that Business Forum's role was to act as a "conduit"(TS59) for the payment of wages to persons who worked in Grubers Beckett offices. That is, notwithstanding they worked in Grubers Beckett's operations they appeared on Business Forum's and not Grubers Beckett's payroll:
Q. Well, what I'm going to ask you then is in fact it was the practice throughout the period 1 April 2009 to 31 December 2011 for Business Forum to employ people and pay wages to people who worked in Grubers Beckett offices, that's correct isn't it?
A. What they did was pay those people yes. It was a conduit to pay those people that were in those offices, yes.
83. The cross-examination revealed that acting as a "conduit for payment" of wages was a key role of Business Forum in the group (TS64):
Re 2010 Profit and Loss Statement
Q. See there the amount of $1,011,415 in wages and salaries about halfway down?
A. Yes.
Q. See up the top the management fees, under income?
A. Yes.
Q. Yes, it's a reimbursement of the $1.8 million in expenses incurred by Business Forum?
A. 1.9, yes.
Q. One of those expenses incurred by Business Forum is the $1.001 million in wages and salaries, that's right?
A. Yes.
Q. That expense was incurred by Business Forum by paying employees to work in the office of Grubers Beckett?
A. Of the various branches.
Q. Do you agree with that?
A. Yes.
Business Forum's Other "Conduit" Activities for Grubers Beckett
84. Mr Gruber was also asked about Business Forum's other activities acting as a conduit for Grubers Beckett.(TS66) Mr Gruber agreed that Business Forum paid the rent on the properties from which Grubers Beckett traded.(TS67) Despite some, unexplained, reluctance to agree with the proposition that Business Forum held the lease rights over the land from which Grubers Beckett offices operated (having been shown the lease with respect to the Atherton office) Mr Gruber eventually (it appears) agreed that Business Forum held the lease rights.TS67)
85. Mr Gruber repeatedly said that it did so "on behalf of" the individual offices.(TS69) Once again, it is noted that there is not one indication in the documents supporting that proposition.
86. Mr Gruber also agreed that Business Forum hired equipment and property used in Grubers Beckett offices (such as computers and database rights) (TS71). Again, it is noted there is no separation in the financials between expenses for various offices and no indication that any of that activity was done on behalf of separate businesses, eschewing that proposition.
Same Arrangement re Business Forum and Business Forum NSW and Grubers Beckett prior to 2008
87. Importantly, in the context of Mr Gruber's evidence and the Applicant's case, Mr Gruber agreed that the very same arrangement that was in place between Grubers Beckett PL and Business Forum between 1 April 2009 and 31 December 2011 was in place during 2006 and 2007 (most particularly) and 2008 between Grubers Beckett PL and Business Forum NSW. That is the very same arrangement was in place prior to the asserted informal franchise agreement in 2008 with the franchise principals (TS79):
Q. In fact, whether it was Business Forum NSW or Business Forum, in the period 2006 to 2012 the same arrangement was in place between Grubers Beckett and those two companies?
A. Yes.
Grubers Evidence re "Arrangement" Asserted to be in Place- Not One Document Corroborating Mr Gruber's Evidence re Franchise Agreement in 2008 or any other Agreement
88. Mr Gruber described the 2008 agreement he asserts as in existence with the franchisees/principals as an agreement where the principals would: "get the profit, they would get the equity"; "a profit share". Mr Gruber said that "they [the principals] had control, they had you know, ownership of those branches". Mr Gruber's evidence that the "principals" had control of theffices and the Grubers had no role is contradicted by the Applicant's documents.
89.In contradiction to the above, when questioned why he (Mr Gruber) became the sole director of the franchised companies (after they were incorporated in 2012) Mr Gruber said, "there was no one that was willing to accept the responsibility of a director until Michael Cars well's father came along and said, "I will be a director". I wanted to have - they would not accept responsibility, they wanted the profits but not the responsibility". In further contradiction to the assertion that the principals from 2008 were the owners (see also the transcript page 89-91) Mr Gruber said that the "principals"/"franchisees" did not have to make good the losses.(TS88)
90.Mr Gruber conceded that not one document produced by him or the Applicant (in circumstances where such a request was made) which evidences that any agreement existed between Grubers Beckett and the franchisees/principals at all in 2008 or in the terms which Mr Gruber says such agreement was in place:
"Q. There's no written agreement?
A. No there's no written agreement. There's no written agreement.
Acceptance Grubers Owned and Carried On Business from Each Office
91. Mr Gruber accepted that an office is not a legal entity.(TS89) Mr Gruber accepted that each office, in any event, is not a separate legal identity to Grubers Beckett PL.(TS89) Mr Gruber agreed that Grubers Beckett PL was the legal owner of the business conducted from the Mareeba office (as the example used) (TS89) He then appeared to attempt to withdraw from that contention in the context of the Freshwater office (TS91) before finally conceding it. He then said the principals carried on the business out of the offices before accepting again that it was Grubers Beckett PL(TS91).
92. Mr Gruber was cross-examined regarding the decision not to call any of the asserted principals and eventual franchisees as witnesses. Mr Gruber initially offered. "Louise Gruber can. I don't want to involve the franchisees in any of this because I don't believe that it is any of their business."
Part D. Jones v Dunkel 1959 (101) CLR 298
Mrs Louise Gruber is also an accountant and in partnership with Mr Gruber. As set out previously, she did not swear an affidavit and she was not called to give evidence.
It is relevant to note that during the course of the hearing on 21 October 2013 Mr Gruber was asked whether he would like a postponement to enable him to obtain legal representation when evidence was presented; that invitation was declined.
If, as Mr Gruber contended, there were persons who during the relevant period ran branches and were entitled to the income so derived their evidence was clearly vital. The tax returns of those persons would have reflected their earnings so derived. The failure of Mr Gruber to call any of those persons coupled with his failure to call his wife, who (as his partner and an accountant in her own right) appears to have been involved in many relevant aspects, must give rise to an inference that their evidence would not have assisted the Applicant's case. Jones v Dunkel must accordingly apply. As the Chief Commissioner contends the Applicant relied solely on the evidence of Mr Gruber; the Tribunal notes that insofar as he contended that the earnings of branches were derived by persons other than the Applicant those contentions are comprehensively contradicted by the evidence of the accounts and records produced by the Applicant itself.
Part E. The evidence of Mr Gruber assessed; onus of proof and degrouping
The difficulties in respect of Mr Gruber's evidence can be summarised in the following terms;
(a) Mr Gruber's evidence was not corroborated by the evidence of any other available witness because the Applicant [through Mr Gruber] decided not to call evidence from the persons it described as "the principals" of the offices owned by the Applicant. That is, the Applicant deliberately did not call the only people who could corroborate or contradict Mr Gruber's version;
(b) No document was produced by the Applicant or Mr Gruber establishing that the arrangements Mr Gruber asserted were in place with those persons were indeed in place as and from July 2008 or at any other time during the relevant period; (the fact that there may have been some such arrangements entered into after the expiry of the relevant period cannot assist the Applicant.)
(c) The evidence of Mr Gruber as to the arrangements asserted to be in place during the relevant period is inconsistent with and directly contradicted by every document produced independently of these proceedings which is in evidence including: Grubers Beckett PL's Profit and Loss Statements; Balance Sheets; lodged tax returns (and therefore what the Applicant [through Mr Gruber] told the Australian Taxation Office); lodged Business Activity Statements; internal business records; and the actions of Mr Gruber and Ms Louise Gruber during that period as those documents record. It is to be noted that those documents, particularly the filed tax returns, were produced (and declared to be true and correct by Mr Gruber) at a time when the Applicant was not involved in a dispute with the Chief Commissioner in respect of its payroll tax liability;
(d) Mr Gruber's evidence was on occasions internally inconsistent and on other occasions evasive of the question asked;
(e) Certain aspects of Mr Gruber's evidence are improbable to say the least. Three key examples of this, include, but are not restricted to:
(i) Mr and Mrs Gruber, on Mr Gruber's evidence, continued to "pump money", being their personal funds, (more than three-quarters of a million dollars) on terms unknown into businesses he said he had no effective control on his evidence and was at best only entitled to 50% of the profits on his evidence;
(ii)That qualified chartered accountants would so incorrectly complete Company Tax Returns and Business Activity Statements declaring to the ATO that the income was earned by a company in its own right when, on Mr Gruber's evidence, it was earned in a representative capacity for separately owned businesses controlled by third parties;
(iii) That such detailed commercial transactions (sale of a business) and attendant responsibilities were entered into without one document setting out the terms or evidencing the terms in existence.
The evidence of Mr Gruber considered as a whole was not credible.
The Chief Commissioner has in FRS cited authorities as to the onus of proof which the Applicant bears on the basis that the Applicant has not discharged that onus. So much is so obvious that it is not necessary for me to set out any of such citations in these reasons. In fact and on the contrary the evidence before the Tribunal establishes that throughout the relevant period Business Forum acted as the service company of the Applicant, paying wages rent and other expenses and receiving funds for this purpose from the Applicant. As indicated previously the documents produced by the Applicant establish the untruthful nature of his evidence/
During the submission stage Mr Svehla referred to a number of pages in Exhibit R6 (or more particularly Exhibit SG) to that exhibit... It is not necessary for me to include those pages in these reasons and it is also not necessary for me to refer to all of them. Page 32 is the balance sheet of the Applicant as at 30 June 2009. Under the head of trade debtors it includes the debtors of certain branches separately; page 33 is the profit and loss account of the Applicant for the year ending 30 June 2009 which also sets out the income of branches separately. Mr Svehla contended that the reflection of these items in this manner should have the effect that the Tribunal should infer that the branches were separately conducted and owned. It is relevant to note that page 32 concludes by dealing with equity, retained earnings and the like (and thus total equity) as the globular amount referable to all of the branches and similarly page 33 deals with expenses, profits, operating profit and net profit and like items, on the same basis i.e. that all of them constituted one entity. The Tribunal clearly cannot draw the inference for which Mr Svehla contends.
At the end of the day it is important to remember that, as set out previously, the balance sheets, profit and loss accounts and tax returns to which the Chief Commissioner has referred were produced by the Applicant itself. It is therefore clear that not only has the Applicant not discharged the onus on it, but that it has, again as set out previously, through documentation produced by it established the Chief Commissioner's case.
It is clear then that during the relevant period the relationship between the Applicant and Business Forum was such that Business Forum served as the service entity in respect of the Applicant and so that the two companies were very closely linked. (On the evidence before the Tribunal Business Forum has no other function). It follows of course that grouping of those two companies throughout the relevant period was legally required.
The Chief Commissioner pointed out that neither the Applicant nor Business Forum was registered or rendered returns for payroll tax. Mr Svehla said that this may have occurred because each of them was under the relevant statutory threshold. It must be remembered that the evidence before the Tribunal establishes that, as set out in the preceding clause, Business Forum was the service company acting as such in relation to the Applicant and so that and on this basis it is unlikely that its wage bill was below the relevant threshold. This does nor of course alter the fact that the Applicant and Business Forum should have been registered and should have rendered returns on a grouped basis.
Part E Interest penalty and other relevant matters.
Mr Svehla contended that the Applicant is entitled to ask that interest and penalty be remitted. He advised the Tribunal in this context that the Grubers had suffered a personal tragedy in that their son had died in tragic circumstances. It is to be noted that, to the extent that this is relevant at all (and it is altogether doubtful that it is) the tragedy occurred towards the end of the relevant period.
Interest has been charged at both the market rate and the premium rate. The decision in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor [2004] NSWADTAP 19 is authority for the proposition that interest at the market rate will not be remitted whether the Chief Commissioner was not at fault and there is no suggestion that the Chief Commissioner was in any way at fault in this case. Penalty was charged at 25% for that part of the relevant period excluding the period from 1 April 2009 to 30 June 2009...
I do not consider that this is a case where premium rate interest or the penalty can or should be remitted. This is a classic splitting case and where the persons responsible were experienced accountants who must have known that grouping was the only proper and correct basis.. The Applicant has not advanced any valid reason why any reduction is warranted.
Mr Gerard advised the Tribunal that a claim for costs made by the Chief Commissioner earlier in the proceedings would not be pressed...
No reason or basis for degrouping was advanced on behalf of the Applicant.
Part F Conclusion
The manner in which this case was conducted by the Applicant indicates that the Applicant did not have a case. As indicated previously the documents produced by the Applicant itself and in particular its tax returns indicated that during the relevant period the income of the branches was derived by the Applicant itself and not by any so-called principals or franchisees.
For the sake of completeness I note that my attention was drawn to the fact that on 30 June 2008 a trust entitled Belton Trading Trust was established. The trust deed appears at pages 166 to 192 of Exhibit R6. A consideration of the deed indicates that the trustee is Grubers Beckett Cairns Pty Limited and that the beneficiaries are Mr and Mrs Gruber. Its relevance is entirely unclear
In summary, the Applicant did not discharge the onus on it as to grouping. The earnings of the various accountancy practice branches were accounted for by the Applicant on the basis that those earnings were its earnings and there is no suggestion anywhere of those earnings or any of them being held in trust for any other person or persons. The Applicant did not advance any reasons why it was entitled to seek degrouping...
In the circumstances the objection decision under review must be affirmed
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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: 21 March 2014
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