HJA Holdings Pty Ltd v Commissioner for Act Revenue (Administrative Review)
[2014] ACAT 24
•21 March 2014
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
HJA HOLDINGS PTY LTD & ORS v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2014] ACAT 24
AT 10/53-58; AT 11/75-82; AT 11/115-120 & AT 12/48-49
Catchwords: ADMINISTRATIVE REVIEW – liability for payroll tax – group of companies for payroll tax purposes: wages of a group – payroll tax assessments under the Payroll Tax Act 1987 – interlocking shareholdings and directorships, discretionary beneficiaries clause in the discretionary trust, effect of the interest in the discretionary trust – Section 3Q of the Payroll Tax Act 1987: discretion to de-group entities in a group of companies – criterion for de-grouping entities: whether a business is carried on independently of, and is not connected with the carrying on of, a business of a member of a group – having regard to three limbed test: the nature and degree of ownership and control of the businesses, nature of the businesses, and other relevant matters – weight given to nature and degree of ownership and control of businesses test: consideration of long-term control (evidenced by overall strategic and financial direction, and shareholders’ power to determine the composition of the board of directors) – nature of the businesses test – whether a sub-group of entities, apart from a single entity, within a group, may be excluded from grouping – whether entities may be de-grouped and then regrouped into smaller groups: whether such approach would undermine the operation of the grouping provisions – interpretation of “de-grouping” provision: reason why the singular “person” does not include the plural “persons” – whether criterion for de-grouping is met: factors that demonstrated link between entities – reasons why two companies may be de-grouped – penalty tax: whether tax default was intentional disregard of tax law; intent to hinder or obstruct or lack of reasonable care to fulfil tax obligations
Legislation:ACT Civil and Administrative Tribunal Act 2008, s 68
Legislation Act 2001, ss 139, 145 and 146
Corporations Act 2001 (Cth) , s 50
Pay-roll Tax Act 1971 (NSW), s16H
Payroll Tax Act 1987 (Repealed) (Republications 6B, 14 and 33), s 3Q, 6, 11 and 16
Payroll Tax Amendment Act 2008 (ACT), s 9
Taxation Administration Act 1999 (Republication 1B to Republication 10), ss 31, 34, 82, 112-116 Part 11 and Dictionary
Cases:Artistic Pty Ltd v Commissioner of State Revenue
[2006] WASAT 39Baxter v Chief Commissioner of Pay-roll Tax
(1986) 7 NSWLR 122
Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd & Ors [2010] NSWCA 326
Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd &
Ors [2012] NSWCA 181
Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd (No 2) [2012] NSWCA 403
Commissioner of Stamps (SA) v Rivington Farms Pty Ltd (1981) 28 SASR 169; (1981) 81 ATC 4449
Commissioner of State Revenue v Muir Electrical Co Pty Ltd (2003) 8 VR 200
Commissioner for State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd (1981) 81 ATC 4576
Conte Mechanical and Electrical Services Pty Ltd v Commissioner of State Revenue [2011] VSC 104
Crusher Holdings Pty Ltd v Commissioner of Taxes
[1994] 117 FLR 485
Fletcher v Federal Commissioner of Taxation
(1988) 16 ALD 280
GTS Industries Pty Ltd v Commissioner of State Taxation [2004] VCAT 21
HJA Holdings Pty Ltd and others v. ACT Revenue Office [2011] ACAT 91
John FrenchPty Ltd v The Commissioner of Payroll Tax [1984] 1 Qd R 125
Liquid Rock Constructions Pty Ltd v Commissioner for State Revenue [2011] VCAT 2164
Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (1978) 78 ATC 4164
Network Clothing Company v Commissioner of State Revenue (Taxation) [2007] VCAT 2492
Plummers Border Valley Orchards Pty Ltd v Commissioner of Taxes [2002] NTSC 33
Port Augusta Medical Centre Pty Ltd v Commissioner of State Taxation [2011] SASC 31; (2011) 84 ATR 706
Tasty Chicks Pty Limited v Chief Commissioner of State Revenue (2011) 245 CLR 446; (2011) ALR 687
Tribunal: Professor P. Spender – Presidential Member
Mr C.G. Chenoweth – Senior Member
Date of Orders: 21 March 2014
Date of Reasons for Decision: 24 April 2014
ACT CIVIL AND ADMINISTRATIVE TRIBUNAL
NO:AT 10/53-58;
AT 11/75-82;
AT 11/115-120;
AT 12/48-49
BETWEEN:
HJA HOLDINGS PTY LTD
AT 10/53
KONSTANTINOU DEVELOPMENTS PTY LTD
AT 10/54
TECHNOLOGY WAREHOUSE AUSTRALIA PTY LTD
AT 10/55
FSF (HOLDINGS) PTY LTD
AT 10/56
KONSTANTINOU HOLDINGS PTY LTD
AT 10/57
ADVANCE PROJECT DEVELOPMENTS PTY LTD
AT 10/58
TECHNOLOGY WAREHOUSE AUSTRALIA PTY LTD
AT 11/75
HJA HOLDINGS PTY LTD
AT 11/76
THE CLUB GROUP PTY LTD
AT 11/77
VELOCITY INTERNET PTY LTD
AT 11/78
ADVANCE PROJECT DEVELOPMENTS PTY LTD
AT 11/79
SPORT CENTRE MANAGEMENT AUSTRALIA PTY LTD
AT 11/80
KONSTANTINOU HOLDINGS PTY LTD
AT 11/81
FSF (HOLDINGS) PTY LTD
AT 11/82
KONSTANTINOU HOLDINGS PTY LTD
AT 11/115
KONSTANTINOU DEVELOPMENTS PTY LTD
AT 11/116
ADVANCE PROJECT DEVELOPMENTS PTY LTD
AT 11/117
FSF (HOLDINGS) PTY LTD
AT 11/118
TECHNOLOGY WAREHOUSE AUSTRALIA PTY LTD
AT 11/119
HJA HOLDINGS PTY LTD
AT 11/120
KONSTANTINOU DEVELOPMENTS PTY LTD
AT 12/48
SPORTS CENTRES AUSTRALIA PTY LTD
AT 12/49
Applicants
AND:
THE COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL: Professor P. Spender – Presidential Member
Mr C.G Chenoweth – Senior Member
DATE:21 March 2014
ORDERS
The Tribunal Orders that:
In matters AT 10/53, AT 10/54, AT 10/55 and AT 10/57, subject to the orders in paragraphs 2 and 3 below, the respondent’s decision is confirmed.
In matter AT 10/56, the respondent’s decision is set aside and a decision that FSF (Holdings) Pty Ltd should not be grouped with other members of the K Group during the relevant period is substituted.
In matter AT 10/58 the respondent’s decision is set aside and a decision that Advance Project Developments Pty Ltd should not be grouped with other members of the K Group during the relevant period is substituted.
In matters AT 11/75, AT 11/76, AT 11/77, AT 11/78, AT 11/80, AT 11/81, the respondent’s decision is set aside and a decision substituted that the discretion to remove the company may be exercised pursuant to section 3Q of the Payroll Tax Act 1987 but that the relevant companies, Technology Warehouse Pty Ltd, HJA Holdings Pty Ltd, the Club Group Pty Ltd, Velocity Internet Pty Ltd, Sport Centre Management Australia Pty Ltd and Konstantinou Holdings Pty Ltd should not be excluded from the K Group.
In matters AT 11/79 and AT 11/82 the respondent’s decision is set aside and substituted with a determination that Advance Project Developments Pty Ltd and FSF (Holdings) Pty Ltd be excluded from the K Group during the relevant period, pursuant to section 3Q of the Payroll Tax Act 1987.
Upon the respondent abandoning the allegation that the deeds of variation executed by Harry Konstantinou on 23 May 2011 amounted to a tax avoidance scheme, the following applications are dismissed: AT 11/115, AT 11/116, AT 11/117, AT 11/118, AT 11/119 and AT 11/120.
In matter AT 12/48 concerning Konstantinou Developments Pty Ltd and matter AT 12/49 concerning Sports Centres Australia Pty Ltd, subject to the orders in paragraphs 2, 3 and 6 above, the respondent’s decision is confirmed.
The respondent’s decision that the penalty rate of 90 percent be imposed upon the amount of unpaid tax is set aside and substituted with a decision that the relevant penalty tax rate is 50 percent pursuant to section 31 of the Taxation Administration Act 1999.
The respondent’s decision regarding the remission of interest on the unpaid tax is confirmed.
Matters AT 10/53, AT 10/54, AT 10/55, AT 10/56, AT 10/57, AT 10/58, AT 11/79, AT 11/80, AT 11/81, AT 11/82, AT 12/48 and AT 12/49 are remitted to the respondent for the calculation of payroll tax, penalty tax and interest in accordance with the orders above.
………………………………..
Professor P. Spender
Presidential Member
For and on behalf of the Tribunal
REASONS FOR DECISION
The Tribunal finds that during 1 July 2000 to 30 June 2005 (‘the relevant period’), the following entities constitute a group (the “K Group”) for the purpose of Part 11 of the Taxation Administration Act 1999 (TAA) and Subdivision 1A.4.4.4 of the Payroll Tax Act 1987 (PTA):
Club Blue Pty Ltd (CB)
Club Lime Pty Ltd (CL)
Club Pink Pty Ltd (CP)
Club Team Pty Ltd (CT)
Club Swim Pty Ltd (CS)
Do It Media Pty Ltd (DIM)
Gungahlin Golf Investments Pty Ltd (GGI)
HJA Holdings Pty Ltd (HJA)
Konstantinou Developments Pty Ltd (KDPL)
Konstantinou Holdings Pty Ltd (KHPL)
Sports Centres Australia Pty Ltd (SCA)
Sport Centre Management Australia Pty Ltd (SCMA)
Technology Warehouse Australia Pty Ltd (TWA)
The Club Group Pty Ltd (CGPL)
The Club Group Management Pty Ltd (CM)
Velocity Internet Pty Ltd (VIPL)
and that the following entities should be excluded from the K Group with effect from 1 July 2000:
Advance Project Developments Pty Ltd (APD)
FSF (Holdings) Pty Ltd (FSF).
This decision relates to 22 matters that are before the Tribunal relating to 18 companies that were members of the Konstantinou group (the K Group) during the period 1 July 2000 – 30 June 2005 (the relevant period).
The following reasons explain why the Tribunal has concluded that the members of the K Group should be grouped under relevant provisions of the Payroll Tax Act 1987 and the Taxation Administration Act 1999, other than Advance Project Developments Pty Ltd and FSF (Holdings) Pty Ltd. The Tribunal has found that Advance Project Developments Pty Ltd and FSF (Holdings) Pty Ltd should be excluded from the K Group under the relevant legislative provisions.
The Tribunal has also concluded that a penalty rate of 50% for tax default should be substituted for the 90% tax that was imposed by the respondent.
The matters are to be remitted to the respondent for assessment of payroll tax, penalty tax and interest in accordance with the Tribunal’s orders.
In the reasons below, a reference to ‘tribunal’ refers to the ACT Civil and Administrative Tribunal generally, whereas ‘Tribunal’ refers to the current members who have heard these matters.
Background
The applicants in this matter are a group of companies based in Canberra, ACT. The companies are known as the Konstantinou or “K” group of companies, being companies controlled by the members of the Konstantinou family. The companies are collectively and loosely referred to as “the K Group”, although these reasons will specify particular companies when dealing with the precise issues that these matters raise.
The members of the Konstantinou family with whom these proceedings are concerned consist of two brothers – Spiros Konstantinou and Stamatios Konstantinou – and the three sons of Spiros being John, Angelo and Harry Konstantinou. For reasons of convenience, they are referred to by their first names. In addition, certain interests in the shares in some of the companies in the K Group are held by Spiros and Stamatios on behalf of the estate of their late father. It appears that the father died intestate, and so members of his family would inherit his interest. These interests in the assets of the father are referred to as “the Estate.”
The companies that are the subject of these proceedings carry on business in a range of different areas including property development and management, the conduct of gymnasiums and sporting clubs, an aquatics centre and an administration company providing services to other members of the group. The latter company is also a trustee company, which acts as trustee of a discretionary family trust.
Annexure A to these reasons for decision sets out a schedule with the names of a number of companies in the K Group, which are the subject of or are affected by these proceedings. The schedule in annexure A also sets out the names of the directors and shareholders in each company, and the management of those companies where that is said to be separate from the directors. Each company has been assigned a distinctive set of initials, and those will be used in these reasons for decision for convenience. The information used in preparing that schedule has been obtained from company searches filed as part of the tribunal documents, and from information provided by the applicants in these proceedings. Annexure B is a reproduction of a diagram that was admitted into evidence in the hearing as “Exhibit A1”. This diagram sets out the shareholding of the applicant companies. The arrows on the diagram refer to some of the allegations of grouping made by the respondent which are exemplified in Annexure D (which sets out the respondent’s reasons for decision).
The Tribunal has conducted a number of hearings in relation to this matter. The original proceedings (matter numbers AT 10/53, AT 10/54, AT 10/55, AT 10/56, AT 10/57 and AT 10/58) were applications disputing the levying of payroll tax and penalties by the respondent against those companies.
At the heart of these proceedings was the decision by the respondent to group various companies in the K Group together, aggregating their wages for the purposes of determining whether the wages and other emoluments paid exceeded the threshold for purposes of levying payroll tax under the PTA and the TAA. The relevant legislative provisions are extracted below. The legislation allows the respondent to group companies together where they are deemed to constitute a "group" within the meaning of Part 11 of the TAA (as it operated during the relevant period). Penalties and interest were then imposed for the failure to register for payroll tax purposes, and because of the respondent’s determination that there had been obstruction and a wilful failure to comply with the legislation.
The Basis of Payroll Tax
The intention of the payroll tax legislative scheme is that payroll tax is levied on the wages and other benefits as defined in the PTA, paid in any year by an employer based in the territory. The rate is determined by the Minister under section 139 of the TAA. The rate exempts employees whose total wages are below the threshold determined by the Minister.
An employer may seek to avoid payroll tax by the use of a number of separate companies, each employing a few employees so that the wages bill for those individual companies is below the threshold. To avoid that device, the PTA and the TAA have adopted what are referred to as "grouping provisions".
Where the respondent is satisfied that a number of companies and individuals fall within the definition of a group for the purposes of the PTA and the TAA, the respondent may treat them as a single entity for the purposes of calculating payroll tax. This has the effect of treating all the wages of the group as wages of a single entity. Payroll tax is then imposed on this basis. Only one company in the group is entitled to the minimum wages threshold. .[1]
[1] Section 11 Payroll Tax Act 1987 and section 139 Taxation Administration Act 1999
An employer is required to lodge a payroll tax return where it is, or should as a group be, treated as an employer.
History of the Approach to the K Group
In September 2005, a delegate of the respondent wrote to the K Group. The letter stated that the K Group had not lodged payroll tax returns or paid payroll tax. It also enclosed a payroll questionnaire and sought financial information about the group.[2]
[2] Tribunal documents at page T112
On 25 October 2005, the K Group responded with a completed return for KHPL, setting out wages paid for the 2001/2, 2002/3 and 2003/4 tax years. The return stated that the company was not a member of a group for payroll tax purposes.[3]
[3] Tribunal documents at page T119
There then followed correspondence from the respondent seeking further information and referring to the number of companies in the K Group as referred to on the K Group's website. In response, Harry on behalf of the K Group, wrote to the respondent on 22 December 2005. The letter included the following:
“The entities within the group all have different directors/shareholders, and as such do not fall under the definition of "Group" for payroll tax purposes in our opinion.”[4]
[4] Tribunal documents at page T129
Harry also offered to sign statutory declarations to verify the information that had been provided, but resisted giving financial statements on the grounds of sensitivity.[5]
[5] Tribunal documents at page T130
On 11 January 2006, the respondent sought information about 15 companies it had identified as part of the K Group on 11 January 2006.[6] Relevant parts of this letter stated as follows:
[6] Tribunal documents at pages T132 – T133
Company extracts from the Australian Securities and Investment Commission obtained by this Office have revealed a number of commonly controlled businesses within the K Group. In accordance with Part 11, Division 11.1 of the Taxation Administration Act 1999 (Tax Administration Act) a primary group exists.
Our records indicate that Mr John Konstantinou, Mr Angelo Konstantinou and yourself are Directors, Company Secretaries and shareholders of the below listed entities.• Do It Media Pty Ltd
• Velocity Internet Pty Ltd
• HJA Holdings Pty LtdOur records also indicate that Mr John Konstantinou, Mr Angelo Konstantinou, Mr Spiros Konstantinou and yourself are Directors, Company Secretaries and shareholders of the below listed entities.
• Konstantinou Developments Pty Ltd
• Sport Centre Management Australia Pty Ltd
• Sports Centres Australia Pty Ltd
• The Club Group Pty Ltd
• Gungahlin Golf Investments Pty LtdMr John Konstantinou, Mr Angelo Konstantinou and you combined have a controlling interest (more than 50%) in·all of the eight entities listed above and constitute a group for ACT payroll tax purposes.
In addition to the above, HJA [H]oldings Pty Ltd is the sole shareholder of Technology Warehouse Australia Pty Ltd and The Club Group Pty Ltd is the sole shareholder of The Club Group Management Pty Ltd, Club Blue Pty Ltd, Club Lime Pty Ltd, Club Team Pty Ltd, Club Swim Pty Ltd and Club Pink Pty Ltd. These entities, subsidiary companies, are also included in the group for
payroll tax purposes.In light of the above, wage information is required to assist in determining if ACT payroll tax liabilities exist for the group members.[7]
[7] Tribunal documents at pages T132-133
Discussions ensued between the respondent, the K Group's legal practitioner and the directors of the K Group.
In April 2006 the respondent issued formal notices under section 82 of the TAA requiring the production of information.[8] These were directed to HJA, KDPL, TWA, FSF, KHPL and APD. On 5 June 2006, Harry on behalf of HJA, KDPL, TWA and KHPL, and Spiros on behalf of FSF and APD, replied that they expected to get the information to the respondent by 12 June 2006.[9]
[8] Tribunal documents at page T141 ff
[9] Tribunal documents at pages T167-172
By 9 June 2006, a substantial amount of information was provided by the K Group's lawyers to the respondent.[10] On 2 August 2006, the respondent wrote to the K Group's lawyers reminding them that some of the information was still outstanding.[11] The letter referred to the penalty provisions for failing to provide information. Correspondence continued.
[10] Tribunal documents at pages T181-205
[11] Tribunal documents at page T206
On 28 November 2006, the respondent issued an assessment against HJA for $93,426.26.[12] The assessment covered the years 2000/1, 2001/2, 2002/3, 2003/4 and 2004/5. Payroll tax, interest and penalty tax at the rate of 90% was imposed.[13] The respondent also stated that it considered that HJA was a member of a group of companies for payroll tax purposes.
[12] Tribunal documents at pages T222-T226
[13] Tribunal documents at page T223
On 28 November 2006, the respondent also issued an assessment against KDPL for $1280.77 for the year 2004/5.[14] This also included penalty tax and interest.
[14] Tribunal documents at pages T227-T230
On the same day, an assessment was issued against TWA for a total of $50,031.02, covering the years 2000/1 to 2004/5. The amount assessed included interest and penalties.[15]
[15] Tribunal documents at pages T231-T235
On 28 November 2006 an assessment was issued against FSF for the years 2000/2001 to 2004/5 for a total of $29,715.56 including interest and penalties.[16] An assessment was issued against KHPL on the same date for a total of $66,040.20, for the years 2000/1 to 2004/5. The assessment included interest and penalties.[17]
[16] Tribunal documents at pages T236 –T240
[17] Tribunal documents at pages T241-T245
An assessment was issued against APD on the same date for a total of $84,305.43 including interest and penalties. The assessment ran for the years 2000/1 to 2004/5.[18]
[18] Tribunal documents at pages T246-T250
With all of the assessments that were issued, a schedule of 18 companies was attached described as "ACT payroll tax group number 1981." The respondent indicated in each assessment that it considered that the company was part of a payroll tax group comprising all of those companies set out in the schedule. The schedule is set out in Annexure C to these reasons.
Following the issue of the assessments, there was further correspondence and a meeting between the legal representative for the applicants and the respondent. Objections were lodged against the assessment on behalf of HJA, TWA, KDPL, FSF, KHPL and APD on 20-22 December 2006.[19]
[19] Tribunal documents at pages T259-T288
Further information was provided to the respondent by the legal representative of the applicants on 27 February 2007. Included in that information was a discretionary trust deed of 13 August 1996, of which KHPL was the trustee. [20]
[20] Supplementary Tribunal Documents at page T86
On 10 May 2007, the respondent wrote to the applicants’ representatives stating the reasons for the issuing of the assessment notices and explaining why the respondent considered that the companies in the K Group were to be grouped for payroll tax purposes pursuant to sections 113, 114 and 115 of the TAA.[21] This letter referred to the manner in which the administrative arrangements between the companies were undertaken, the use of premises and common shareholding and directorships. It addressed issues that had been raised previously by the applicants.[22]
[21] Tribunal documents at pages T308-T312
[22] Tribunal documents at pages T308-T312
There then followed a period in which further information was provided to the respondent by the applicants, and representations were made on their behalf. The applicants and other members of the K Group registered for payroll tax purposes, and payroll tax was paid. Ultimately, after a lengthy exchange of correspondence and provision of information, the parties were unable to resolve the matter.
On 21 June 2010, the delegate of the respondent wrote to the lawyer for HJA and TWA, advising that their objections had been partly successful. The respondent acknowledged that the figure for wages and other benefits contended for by the taxpayer were correct, and that the assessments for the years 2002/3, 2003/4 and 2004/5 needed to be amended. The respondent was similarly satisfied in relation to the assessment for TWA for the 2004/5 financial year. The respondent disputed that the figure of $8863 should be deducted from the taxable amount of the wages of HJA for the 2004/5 year as the payments did not appear to have the legal characteristics of commissions. The respondent held to the view that both companies should be grouped with the other companies in the K Group because of common control and the use of shared office services and employees.[23]
[23] Tribunal documents at pages T19-T39
The objection by KDPL was allowed to the extent of $15,367, being the payment to a commercial real estate agent. The assessment, including the grouping of the taxpayer with other members of the K Group was confirmed.[24]
[24] Tribunal documents at pages T40-T55
The respondent also maintained that the companies should all be grouped together because of the wide discretionary beneficiaries clause in the discretionary family trust. The respondent decided that the extent of the shareholding of the directors, and the fact that they were all beneficiaries under the discretionary beneficiaries clause had the effect that all of the companies in which they had an interest would be deemed to be beneficiaries in respect of more than 50% of the value of the interest in the discretionary trust, and would therefore constitute a group under section 115(6) of the TAA.[25]
[25] Tribunal documents at page T53
The objections lodged by FSF,[26] KHPL[27] and APD[28] were all disallowed. Internal reviews were sought by the appellants. Similar reasons were given for the rejection of the appeals.
[26] Tribunal documents at pages T56-T73
[27] Tribunal documents at pages T74-T93
[28] Tribunal documents at pages T949-T111
The reasons statement for the internal review set out the basis upon which the respondent considered that grouping took place. They were as follows:
(a)TWA was a wholly-owned subsidiary of HJA, therefore, the two companies constituted a primary group under section 113 of the TAA;
(b)groups were formed under section 115 of the TAA as a result of the shareholding and directorships of John, Harry, Angelo in some companies, and John, Angelo, Harry and Spiros in the case of others. These would constitute groups under section 115(2);
(c)because of the interlocking shareholdings and directorships in the primary groups, the groups established in (a) and (b) above then comprised a further primary group;
(d)CGPL and its subsidiaries comprised a group under section 113 of the TAA. As its directors and shareholders were Spiros, John, Harry and Angelo then CGPL and its subsidiaries were grouped with the other groups;
(e) because Spiros, Stamatios, John, Harry and Angelo (together with all of the companies that were grouped together with them) were potential beneficiaries under the terms of the discretionary family trust, they were all separately grouped under section 115(6) of the TAA.
An extract of the statement of reasons that was given by the respondent to the applicants HJA and TWA is attached to these reasons at Annexure D. The extract provides the respondent’s detailed reasons for the alleged grouping. The reasoning of the respondent was the same mutatis mutandis in responding to the other applications for internal review.[29]
[29] Tribunal documents at pages T19 - T111
When the appellants realised that the beneficiaries clause in the discretionary family trust combined with section 115(6) of the TAA had the alleged effect of grouping the companies, steps were taken with the assistance of their legal advisers to sever the relationship that arose under the discretionary family trust. The attempt to sever the relationship was purportedly done by the execution of deeds of disclaimer dated 23 May 2011 by Harry as attorney on behalf of the parties, as set out in paragraph 31 of the Tribunal’s decision made on 29 November 2011 in HJA Holdings Pty Ltd and others v. ACT Revenue Office [2011] ACAT 91 (the First Decision), which is discussed below. At the same time, a deed of variation of the discretionary trust deed was executed to amend the beneficiaries of the trust so as to exclude persons and companies that would have otherwise been grouped. The deed of variation purported to take effect from 30 June 2000, except in relation to CGPL which had received a distribution in 2006.
The Tribunal agreed to consider this as an initial question for consideration, before proceeding with the other issues. As a result, two questions were asked, dealing with the effect of the disclaimers signed by the family trust and the amendment of the deed, and enquiring whether there could be retrospective determination under section 3Q of the PTA that businesses were carried on independently and not connected with the carrying on of a business by any other members of the alleged group. Section 3Q of the PTA is set out below.
The PTA had been amended in 2008 to introduce the de-grouping or exclusion from groups provision that is set out in section 3Q. An issue was raised by the applicants as to whether this section could be applied retrospectively, to enable the respondent to de-group companies from a group in respect of tax years prior to the date of introduction of section 3Q. The Tribunal agreed that this question should also be the subject of a separate decision.
On 29 November 2011, the Tribunal handed down the First Decision which dealt with those two questions.[30] In relation to the first question, the Tribunal answered the question as "No". The second question was answered ‘yes’ because Tribunal considered that it was open to the respondent, and therefore the Tribunal, to apply the provisions of section 3Q retrospectively if the conditions of exercise set out in the section were satisfied.
The Issue of De-Grouping
[30] HJA Holdings Pty Ltd and others v. ACT Revenue Office [2011] ACAT 91
Following the First Decision, on 16 April 2012, the applicants applied to the respondent to exercise its powers under section 3Q of the PTA to de-group a number of the companies. The companies that were the subject of the application were FSF, APD, TWA, VIPL, HJA, CGPL and its subsidiaries, SCMA, KHPL, SCA and KDPL.[31]
[31] Applicant’s Statement of Facts, Contentions and Submissions on De-Grouping dated 16 April 2012 (Exhibit A13)
A detailed submission was placed before the respondent’s legal representative, pointing out the different activities in which the various entities were involved, and arguing the activities of the businesses had not been "split" in order to avoid payroll tax. The application sought to argue that the businesses were "carried on independently of, and [were] not connected with the carrying on of a business carried on by any other member of the group", as per section 3Q(2) of the PTA.[32]
The De-Grouping Sought
[32] Applicants’ Statement of Facts, Contentions and Submissions on De-Grouping dated 16 April 2012
By letter dated 16 June 2011, the applicant had applied on behalf of all the applicant companies for de-grouping into the following groups. The applicants sought to have the companies grouped by grouping into a set of five subgroups. The first was comprised of SCMA and CGPL and necessarily its subsidiaries, with effect from 1 July 2003. The second would be comprised by VIPL, HJA and TWA, with effect from 1 July 2000. The third would comprise FSF and APD with effect from 1 July 2000. KHPL would be in a group by itself from 1 July 2000, and the fifth group would comprise SCA and KDPL with effect from an unspecified date. By letter dated 19 July 2011, the Commissioner refused the application for de-grouping on the basis that “there is no discretion available to the Commissioner to remove any of the companies from the current payroll tax group for the period 1 July 2000 to 30 June 2008.” [33]
[33] Applicants’ Statement of Facts, Contentions and Submissions on De-Grouping dated 16 April 2012 atDuring the hearing, the applicants amended the de-grouping applications to identify 4 new groups that would allegedly come into existence during the relevant period after the discretion in section 3Q had been exercised. The formation of these new groups was articulated in the applicants’ submissions of 29 November 2012. An extract of these submissions is reproduced in Annexure E below.
The Legislative Framework
The proceedings concern payroll tax assessments for the financial years ending
30 June 2001 to 30 June 2005. The legislation that is relevant to the assessments is the PTA[34] and the TAA.[35].[34] Republication numbers 6B, 14 and 33
[35] Republication numbers 1C and 12
Although there were minor changes to the payroll tax legislation during the relevant years, unless otherwise indicated, the changes were not relevant to the applications for review, therefore the legislation that was operative as at 30 June 2005 will primarily be referred to in these reasons for decision. Note, however that section 3Q of the PTA was introduced into the PTA by the Payroll Tax Amendment Act 2008 (ACT) and commenced on 1 July 2008.
Section 6 of the PTA provided at the relevant time:
6 Payroll tax liability
(1)Tax is payable by an employer in respect of wages to which
this Act applies because of section 5 that are paid or payable by the employer on or after the commencement date.Section 16 of the PTA provided that if the sum of all taxable wages exceeded a determined amount, the employer was to, within seven days of the end of the month,[36] lodge a return in relation to that month. Interim tax was payable under sections 10-12 of the PTA.
[36] Section 16(2)(b) Payroll Tax Act 1987
Section 113 of the TAA provided that corporations constitute a "primary group" if they are related corporations within the meaning of the Corporations Act 2001 (Cth). Section 114 provides that two persons that have an agreement under which employees are shared constitute a "primary group".
The Respondent primarily relied on a further method of grouping set out in section 115 of the TAA as follows:
115 Primary groups of commonly controlled businesses
(1) If a person or set of persons has a controlling interest in each of 2 businesses, the persons who carry on those businesses constitute a primary group.
(2) For this section, a person or set of persons has a controlling interest in a business if—
(a) for 1 person—the person is the sole owner (whether or not as trustee) of the business; or
(b) for a set of persons—the persons are together the exclusive
owners (whether or not as trustees) of the business; or
(c) for a business carried on by a corporation—
(i) the person or each of the set of persons is a director of the corporation and the person or set of persons is entitled to
exercise more than 50% of the voting power at meetings of the directors of the corporation; or
(ii) a director or set of directors of the corporation that is entitled to exercise more than 50% of the voting power at meetings of the corporation is under an obligation, whether formal or informal, to act in accordance with the direction, instructions or wishes of that person or set of persons; or
(d) for a business carried on by a corporation that has a share capital—that person or set of persons can, directly or indirectly, exercise, control the exercise of, or substantially influence the exercise of, more than 50% of the voting power attached to the voting shares issued by the corporation; or
(e) for a business carried on by a partnership—that person or set of persons—
(i) own (whether beneficially or not) more than 50% of the capital of the partnership; or
(ii) is entitled (whether beneficially or not) to more than 50% of the profits of the partnership; or
(f) for a business carried on under a trust—the person or set of persons (whether or not as a trustee or trustees of another trust) is the beneficiary in relation to more than 50% of the value of the interests in the first mentioned trust.
(3) If—
(a) 2 corporations are related to each other within the meaning of the Corporations Act; and
(b) 1 of the corporations has a controlling interest in the business; the other corporation has a controlling interest in the business.
(4) If—
(a) a person or set of persons has a controlling interest in a business; and
(b) a person or set of persons who carry on the business has a controlling interest in another business;
the person or set of persons referred to in paragraph (a) has a controlling interest in that other business.
(5) If—
(a) a person or set of persons is the beneficiary of a trust in relation to more than 50% of the value of the interests in the trust; and
(b) the trustee has a controlling interest in a business of the trust; the person or set of persons has a controlling interest in the business.
(6) A person who may benefit from a discretionary trust as a result of the exercise of a power of discretion by the trustee or another person, or by the trustee and another person, is deemed, for subsection (5), to be a beneficiary in relation to more than 50% of the value of the interests in the trust.
(7) Subsection (1) does not apply in relation to a person or set of persons that has a controlling interest in 2 businesses if—
(a) for 1 person—both businesses are wholly owned by the person, whether as trustee or otherwise; or
(b) for a set of persons—both businesses are wholly owned by the persons as trustees.
Smaller groups may be subsumed into larger groups under section 116 of the TAA.
116 Smaller primary groups are subsumed under larger groups
If a person is a member of 2 or more primary groups, the members of all the groups together constitute a primary group.
The Commissioner’s Power to Exclude Persons from the Group
At the relevant period, i.e. 2000-2005, the Commissioner’s power (or at least one of the powers) to exclude persons from the group was expressed in section 112 TAA.
112 Membership of groups
(1) For a tax law, a group is constituted by all the persons forming a primary group that is not a part of any larger primary group, apart from persons in relation to whom a determination under subsection (2) is in force.
(2) The commissioner may, in writing, determine that a person who would, apart from the determination, be a member of a group arising under section 114 is not a member of the group if the commissioner is satisfied that the person has continuously carried on business, and will continue to carry on business, substantially independently of the other members of the group.
(3) In determining, for subsection (2), whether a person carries on business substantially independently of the other member or members of a group, the commissioner shall have regard to the nature and degree of ownership or control of the business of each member of the group, the nature of each of those businesses and any other matter that the commissioner considers relevant. …
As stated above, section 3Q was introduced into the PTA by section 9 of the Payroll Tax Amendment Act 2008 (ACT) which commenced on 1 July 2008. Section 3Q is in the following terms:
3Q Exclusion from groups
(1) The commissioner may 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 make a determination under subsection (1) only 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 the group.
(3) The commissioner must not exclude a person from a group if the person is a corporation that, because of the Corporations Act, section 50 (Related bodies corporate) is related to another corporation that is a member of the group.
(4) This section extends to a group made up because of section 3L (Smaller groups included in larger groups).
(5) The commissioner may revoke a determination that applies to a person if satisfied that the circumstances in which the determination was made do not apply to the person.
(6) A determination under this section may provide for its commencement on or before the determination’s notification day.
Note This subsection provides express authority for a determination to commence on or before its notification day (see Legislation Act, s 73 (2) (d)).
(7) A determination under this section is a notifiable instrument.
Note 1 A notifiable instrument must be notified under the Legislation Act.
Note 2 Power to make a statutory instrument includes power to amend or repeal the instrument (see Legislation Act, s 46).
Penalties
As part of the assessment of the applicants’ tax liability, the respondent imposed penalty tax pursuant to Division 5.2 of the TAA. Penalty tax may be levied under this division where there has been a tax default. This is defined in the Dictionary of the TAA as follows:
tax default means a failure by a taxpayer to pay, in accordance with the tax law, the whole or part of tax that the taxpayer is liable to pay.
The amount of penalty tax that may be imposed depends upon whether the respondent is satisfied as to certain matters. A penalty of 25% of the unpaid tax may be levied where there is a tax default and the other provisions do not apply. [37] The amount of the penalty rises to 50% of the unpaid tax if, pursuant to Section 31(2) of the TAA:
the commissioner is satisfied that the tax default was caused wholly or partly by a failure by the taxpayer (or a person acting on behalf of the taxpayer) to take reasonable care to fulfil the taxpayers obligations under a tax law.
[37] Section 31(1) of the TAA
A penalty sum rises to 75% where the Commissioner is satisfied that there had been an intentional disregard of a tax law under section 31(5) of the TAA.
The penalty rises again to 90% of the tax the subject of the default where, pursuant to section 34 of the TAA, the Commissioner is satisfied that after the taxpayer has been advised that an investigation is to be carried out and before it is completed, there has been one of the following:
(a)deliberate damage or destruction of records required to be kept;
(b) a failure without reasonable excuse to comply with a requirement to provide information in accordance with a direction;
(c)the hindering or obstructing of an officer exercising functions under the TAA, or;
(d) otherwise showing intentional disregard for the law.
It should be noted that the heading of section 34 is "Increase in penalty tax for concealment."
CONSIDERATION
Introduction
The legislative provisions that deal with grouping and de-grouping of businesses in revenue law have been described as ‘complex’ and ‘difficult’.[38] This complexity is compounded in these matters by the large number of companies that are involved in the K Group. Most of the preceding case law has dealt with disputes involving a small number of businesses, generally around 3. Where a larger group is involved, the case usually involves a single business that is seeking to be de-grouped from the remainder of the group. [39] In this case, 11 of the 18 companies are seeking to be de-grouped. The remaining companies, that cannot be de-grouped from at least one of the companies in the group, are related companies under section 50 of the Corporations Act 2001 and these companies must not be excluded from the group due to the operation of section 3Q(3) of the PTA.[40]
[38] Baxter v Chief Commissioner of Pay-roll Tax (1986) 7 NSWLR 122 at page 123
[39] For example, Port Augusta Medical Centre Pty Ltd v Commissioner of State Taxation [2011] SASC 31; (2011) 84 ATR 706
[40] The six subsidiaries of the Club Group Pty Ltd and TWA (see Annexure F for further detail)
Given the interwoven nature of the issues in this case, the Tribunal will deal with the parties’ submissions interstitially as it progresses through the issues. The Tribunal will address the main issues discussed by the parties rather than descending into the considerable detail of the alternative grouping and de-grouping proposals put by the parties so as to avoid a myriad of permutations. The major grounds relied upon by the respondent are in the statement of reasons for the relevant reviewable decisions that is exemplified by the extract in Annexure D. The final contentions of the applicants regarding the grouping and de-grouping are reproduced at Annexure E.
Discretionary Nature of the Power in Section 3Q
The respondent argued that the inclusion of the word “may” in section 3Q means that the power “may be exercised or not exercised at discretion.” [41] Although there is no doubt that the Tribunal can exercise the Commissioner’s power as primary decision-maker to group or de-group the companies under the relevant provisions of the PTA,[42] the respondent invited the Tribunal to decline to exercise the power in section 3Q, because it argued that the power should not be exercised retrospectively. In this respect, the Tribunal notes the arguments made by the applicants[43] that there is no reason to infer a discretion once the repository of the power is satisfied that the relevant entitling circumstances are fulfilled.[44]
[41] Section 146(1) Legislation Act 2001 – Respondent's Facts and Contentions dated 31 May 2012 at paragraphs 10-13
[42] Fletcher v Federal Commissioner of Taxation (1988) 16 ALD 280 and section 68 (2) of the ACT Civil and Administrative Tribunal Act 2008
[43] Applicants’ Submissions 26 September 2012 paragraphs 7 - 10
[44] Applicants’ Submissions 26 September 2012 paragraph 10 citing on Pearce and Geddes Statutory Interpretation and Commissioner of State Revenue (Vic) v Royal Insurance Australia Limited (1994) 182 CLR 51 and Finance Facilities Pty Ltd v FCT (1971) 127 CLR 106 at 134
The Tribunal considers that the respondent’s arguments on this issue are an attempt to revisit the question of the retrospectivity of the section 3Q power that was dealt with definitively in the First Decision. The Tribunal is not persuaded by the respondent’s argument and instead adopts the approach of Rath J in Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (Mead Packaging )[45] when applying a similar New South Wales provision (section 16H(1) of the Payroll Tax Act 1971 (NSW)) that if the Tribunal is satisfied of the matters referred to in section 3Q, it would be obliged to make the order excluding the relevant applicant from the group.[46]
The General Approach to Grouping and De-Grouping
[45] (1978) 78 ATC 4164
[46] Applicants’ Submissions dated 26 September 2012 at paragraph 11, relying on Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (1978) 78 ATC 4164 at 4171
The High Court in Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (Tasty Chicks) stated that the policy of the grouping and de-grouping provisions in revenue legislation is as follows:
The "grouping" provisions were designed to counter tax avoidance through the splitting of business activities by the use of additional entities, each attracting a threshold. The "de-grouping" provisions were available for application by the chief commissioner upon determination, in broad terms, that it would be unreasonable to apply the "grouping" provisions.[47]
[47] (2011) 245 CLR 446; (2011) 281 ALR 687 at [8]
The Tribunal notes the arguments made by the applicants which relied upon the comments of Burt CJ in Commissioner for State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd (Scotford).[48]Burt CJ emphasised that the overall inquiry involves a consideration of the businesses carried on by the applicants, stating:
the question to be answered with reference to [a] business is whether it is carried on substantially independently of the business carried on by any other business that group and whether it is or is not substantially connected with the carrying on of the business carried on by any other member of that group (emphasis in original)[49]
[48] (1981) 81 ATC 4576
[49] Commissioner for State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd (1981) 81 ATC 4576 at 4579
The applicants submitted that the emphasis placed on "carrying on" a business yields the result, as expressed by Mitchell J in Cmr of Stamps (SA) v Rivington Farms Pty Ltd (Rivington),[50] that "while it is a matter to be given weight, it is by no means conclusive that where two persons have control of two or more businesses the businesses themselves will be carried on at all in conjunction one with the other" (emphasis added).[51] Accordingly, argued the applicants, the Tribunal in Artistic Pty Ltd v Commissioner of State Revenue (Artistic)[52] took into account the nature of ownership and control (as required) and then concluded that the relevant businesses were carried on independently. The fact that the businesses were all carried on by the members of the same family was, by itself, of little significance.[53]
[50] (1981) 28 SASR 169
[51] Commissioner of Stamps (SA) v Rivington Farms Pty Ltd (1981) 28 SASR 169 at 175
[52] [2006] WASAT 39
[53] Applicants' Submissions dated 26 September 2012 at paragraph 68
The applicants made a further argument about GTS Industries Pty Ltd v Commissioner of State Revenue (GTS),[54] which involved two companies who supplied components to the motor industry. In that case, Senior Member Megay considered that a substantial connection would require there to be some component manufacturing link between the two companies or for them to supply the same identity in the motor industry or if there were some link between the particular goods supplied so that one component required a companion component from the other company.[55]
[54] [2004] VCAT 21
[55] [2004] VCAT 21 at [29]
Relying upon this statement in GTS, the applicants argued that there must be a connection of substance where the various businesses combined to form a whole, so that one’s existence is dependent on the other in respect of the goods or services it produces.[56]
[56] Applicants’ Submissions dated 26 September 2012 at paragraph 70
As discussed below, the Tribunal will proceed on the basis that the K Group was formed by the operation of the discretionary trust pursuant to section 115(6) of the TAA. The applicants accepted that certain groups had been formed which broadly reflect the 4 groups that the applicants said should be the result of their de-grouping application. These alleged groups are set out in Annexure F and will be discussed below. However, for the purpose of testing some of the issues in contention between the parties, the Tribunal adopts the reasoning of the respondent regarding the grouping of the members of the K Group that was set out in the respondent’s statement of reasons given on 21 June 2010 and extracted hereunder in Annexure D.
The Methodology of De-Grouping and the Application of Baxter
A major issue that arose between the parties concerned the methodology of the de-grouping. The applicants relied upon Baxter v Chief Commissioner of Pay-roll Tax[57] to argue that subgroups may be excluded from the K Group, whereas the respondent contended that section 3Q(2) must be interpreted so that the de-grouping inquiry is directed at individual companies.[58] Further, the parties disagreed about whether the order of de-grouping is dependent upon the sequence of grouping and whether de-grouping can occur in smaller or intermediate groups.
The Parties’ Submissions
[57] (1986) 7 NSWLR 122
[58] Respondent’s Submissions dated 25 October 2012 at paragraph 10 ff
The applicants argued that Baxter stands for the proposition that a large group can be split into subgroups by the exercise of the de-grouping power where each of the members of a proposed group meet the section 3Q test in relation to each of the remaining members of the main group.[59] The applicant submitted that Baxter permits the removal of a group of applicants (the first group) from the remaining group members (the second group) where each of the members of the first group is independent from each of the members of the second group.[60] The applicant submitted that the Tribunal should apply section 145 of the Legislation Act 2001 (the Legislation Act), which provides that words in the singular number include the plural and words in the plural number include the singular when interpreting section 3Q. Section 139 of the Legislation Act requires the tribunal, when working out the meaning of an Act, to consider the interpretation that would best achieve the purpose of the Act. Ultimately, the aim of the grouping provisions is the prevention of tax avoidance through the splitting of the activities of the business among several employers so as to gain the benefit of multiple tax-free thresholds. However, because it is recognised that groups will arise that were not intended to arise, the Commissioner requires broad powers to de-group to prevent injustice from being done in particular cases.[61]
[59] Applicants’ Submissions dated 2 November 2012 at paragraph 6
[60] Applicants’ Submissions dated 2 November 2012 at paragraph 7
[61] Applicants’ Submissions dated 26 September 2012 at paragraph 22 and 44
Conversely, the respondent argued that the Tribunal must carefully apply the language of section 3Q, which provides a power to make a determination about a person by reference to the circumstances of any other member of the group (emphasis added).
In various submissions made by the respondent during the proceedings,[62] the respondent argued that companies are added to the group one company at a time pursuant to sections 112(1) and 116 of the TAA, except in the case of related companies, where they are clearly grouped by the operation of section 116 of the TAA and section 50 of the Corporations Act. The respondent further argued that companies can apply to be de-grouped at an intermediate stage of grouping rather than only once the final group has been formed[63] but only a single applicant can apply to be de-grouped. [64] The respondent urged that Baxter should not be followed because it contradicts the clear statutory language of section 3Q and has not been followed in subsequent cases, including Port Augusta Medical Centre Pty Ltd v Commissioner of State Taxation (Port Augusta) [65] and Plummers Border Valley Orchards Pty Ltd v Commissioner of Taxes (Plummers).[66] In this argument, the respondent contended that section 3Q provides for an application from a single member of a group for the determination to be made, or not, by reference to the circumstances of that applicant in relation to any (meaning every) other member of the group.[67] The respondent contended that the power to de-group does not allow for the notional de-grouping of all members of a group and then regrouping them into smaller groups.[68]
[62] In particular, the Respondent’s Submissions dated 19 November 2012
[63] Respondent’s Submissions dated 19 November 2012
[64] Respondent’s Submissions dated 25 October 2012 at paragraph 5 (i)
[65] [2011] SASC 31
[66] [2002] NTSC 33
[67] Respondent’s Submissions dated 25 October 2012 at paragraph 5 (i )
[68] Respondent’s Statement of Facts and Contentions dated 31 May 2012 at paragraph 17 and Respondent’s Submissions dated 25 October 2012 at paragraph 19
In support of the argument that the order of de-grouping is predicated upon the sequence of grouping, the respondent put forward a submission that contained a possible grouping of 21 primary groups within the K Group.[69]
[69] Respondent’s Submissions dated 19 November 2012 at paragraphs 1 to 23
In reply to the respondent’s submission, the applicant compared section 16H(1) of the Pay-roll Tax Act 1971 (NSW) with section 3Q(2), noting that the critical phrase in both provisions is “a business carried on by any other member of the group”.[70] The applicant noted that the submission put by the respondent in this case was identical to the submission put by the Commissioner in Baxter’s case therefore quoted the response given by Yeldham J to that argument, as follows:
In construing s 16H it is necessary to keep firmly in mind that the grouping provisions to be found in Pt IVA cast an exceptionally wide net and potentially give rise to a great many unintended grouping situations. The provisions of s16H(1) were intended to provide a balance against this to prevent injustice from being done in particular cases and hence, in my view, it should not be given a narrow constructions.
I see no reason, either in principle or in the language used in the relevant section, why the latter cannot be construed, with the aid of the Interpretation Act of 1987,
s 21(b), so as, for example, to remove two members from a group of four. Such a result has logic and commonsense on its side and would permit, in a case like the present, an absurd and plainly unintended consequence to be avoided. By treating words in the singular as include those in the plural 16H(1) can, and in my opinion should, be construed as follows:“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 he 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 that group, the Chief Commissioner may, by order in writing served on those first mentioned members, exclude them from the group.”[71]
[70] Applicants’ Submissions dated 29 September 2012 at paragraph 41
[71] Applicants’ Submissions dated 26 September 2012 at paragraphs 43-44 citing Baxter v Chief Commissioner of Pay-roll Tax (1986) 7 NSWLR 122 at 131-132
The applicants further argued, in response to the respondent’s contentions about the sequence of grouping and de-grouping that respondent's test is susceptible to a very large number of potential grouping mechanisms. In a case where there are 18 companies to be grouped, if the order of grouping is relevant and companies are added one at a time, there is a very large number of possible grouping orders. Moreover, the respondent’s analysis is arbitrary because the ameliorating effect of the de-grouping provisions would be defeated by the method which the Commissioner chooses to say that the grouping was formed. The applicants submitted that the legislature did not intend to enact a test as complex nor as arbitrary as that proposed by the respondent.[72]
[72] Applicants’ Submissions dated 29 November 2012 at paragraphs 4 to 17
However, the applicants continued, even if the respondent's test was utilised, it was theoretically possible to arrive at precisely the same grouping that would result from the application of the Baxter test.[73] The applicants further argued that Baxter has been considered in subsequent cases and it was not correct to say that it was “not followed” because, for example, in Port Augusta and Plummers a single company was seeking to be de-grouped so it was not necessary to consider whether groups of applicants could be de-grouped.[74] Instead, the applicants relied upon the general language the Tasty Chicks litigation particularly the New South Wales Court of Appeal decisions[75] where it was apparent that two businesses – Tasty Chicks Pty Ltd and Angelo Transport Pty Ltd – sought de-grouping. However it is not clear whether they each individually sought to be de-grouped or they sought collectively to be de-grouped.[76]
[73] Applicants’ Submissions dated 29 November 2012 at paragraph 18
[74] Applicants’ Submissions dated 2 November 2012 at paragraph 36-46
[75] Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd & Ors [2012] NSWCA 181; Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd (No 2) [2012] NSWCA 403[76] Applicants’ Submissions dated 2 November 2012 at paragraph 50
The applicants’ submissions regarding the formation of the 4 new groups which would be created by the application of Baxter are set out in Annexure E to these reasons. The diagram which captures the new grouping that the applicants sought is attached hereto as Annexure F. The submissions contended that the K group should be understood to operate under 4 businesses corresponding to the following groups, however the Tribunal has used the word “entities” to describe the proposed grouping so as to avoid confusion:
(1)the IT Entities (comprising HJA, TWA, VIPL and DIM),
(2)the Health and Leisure Entities (comprising SCMA & CGPL and its subsidiaries)
(3)the Kaleen Entities (comprising FSF & APD), and
(4)the Construction and Development Entities (comprising KHPL, KDPL, SCA & GGI).
Consideration of the General Approach to Grouping and De-Grouping
In accordance with the High Court’s reasoning in Tasty Chicks, the Tribunal rejects the respondent’s submissions that the order of de-grouping is predicated upon the sequence of grouping.[77] As argued by the applicant, this leads to excessive complexity and a myriad of permutations as well as being arbitrary because the composition of the group is dependent upon the entry point and what appears to be a random choice about the sequence of the addition of other companies. The Tribunal agrees with the applicant that we cannot assume that the legislature intended this.[78]
[77] Respondent’s Submissions dated 19 November 2012
[78] Applicants’ Submissions dated 29 November 2012 at paragraph 14
At the conclusion of this stage, we have a group comprising the following (the Construction and Development Group):
(a)K Developments;
(b) K Holdings;
(c) SCA;
(d) GGI.
Each of the members of the Construction and Development group have individually been degrouped from the Health and Leisure Group in stage 1 above;
Each of the members of the Construction and Development Group have individually been degrouped from the IT Group in stage 2 above;
K Holdings has been degrouped from the Kaleen Group in stage 3 above;
The other members of the Construction and Development Group were not grouped with the Kaleen Group because K Holdings was first degrouped. Alternatively, were the order of grouping different they would each individually seek to be removed upon being added to the group. Each would be removed.
Stage 5: Taking Stock
At the conclusion of this process, we have the following groups.
The Health and Leisure Group (8 entities):
(a)Club Group and its subsidiaries;
(b)SCMA;
The IT Group (4 entities):
(a)Velocity;
(b)HJA;
(c)Tech Warehouse;
(d)DIM.
The Kaleen Group (2 entities):
(a) Advance;
(b) FSF.
The Construction and Development Group (4 entities):
(a) SCA;
(b) K Holdings;
(c) K Developments;
(d) GGI.
60 This is a total of 18 entities. ...
61 The grouping of GGI, DIM, and the Club Group subsidiaries is irrelevant. They do
not carry on business, and they pay no wages.
|
PUBLICATION DETAILS
FILE NUMBERS: | AT 10/53, AT 11/76, AT 11/120 |
PARTIES, APPLICANT: | HJA HOLDINGS PTY LTD |
FILE NUMBERS: | AT 10/54, AT 11/116, AT 12/48 |
PARTIES, APPLICANT: | KONSTANTINOU DEVELOPMENTS PTY LTD |
FILE NUMBERS: | AT 10/55, AT 11/75, AT11/119 |
PARTIES, APPLICANT: | TECHNOLOGY WAREHOUSE AUSTRALIA PTY LTD |
FILE NUMBERS: | AT 10/56, AT 11/82, AT 11/118 |
PARTIES, APPLICANT: | FSF (HOLDINGS) PTY LTD |
FILE NUMBERS: | AT 10/57, AT 11/81, AT 11/115 |
PARTIES, APPLICANT | KONSTANTINOU HOLDINGS PTY LTD |
FILE NUMBERS: | AT 10/58, AT 11/117 |
PARTIES, APPLICANT | ADVANCE PROJECT DEVELOPMENTS PTY LTD |
FILE NUMBERS | AT 11/77 |
PARTIES, APPLICANT | THE CLUB GROUP PTY LTD |
FILE NUMBERS | AT 11/78 |
PARTIES, APPLICANT | VELOCITY INTERNET PTY LTD |
FILE NUMBERS | AT 11/79 |
PARTIES, APPLICANT | ADVANCE PROJECT DEVELOPMENTS PTY LTD |
FILE NUMBERS: | AT 11/80 |
PARTIES, APPLICANT | SPORT CENTRE MANAGEMENT AUSTRALIA PTY LTD |
FILE NUMBERS: | AT 12/49 |
PARTIES, APPLICANT | SPORTS CENTRES AUSTRALIA PTY LTD |
PARTIES, RESPONDENT: | THE COMMISSIONER FOR ACT REVENUE |
COUNSEL APPEARING, APPLICANT | Mr P Walker |
COUNSEL APPEARING, RESPONDENT | Mr G McCarthy |
SOLICITORS FOR APPLICANT | Meyer Vandenberg Lawyers |
SOLICITORS FOR RESPONDENT | ACT Government Solicitor |
TRIBUNAL MEMBERS: | Professor P. Spender – Presidential Member Mr C.G Chenoweth – Senior Member |
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Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd & Ors [2010] NSWCA 326
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