Muir Electrical Co Pty Ltd v Commissioner of State Revenue
[2001] VSCA 86
•12 June 2001
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No. 7618 of 1998
| THE MUIR ELECTRICAL CO. PTY. LTD. & ORS | |
| Appellants | |
| v. | |
| THE COMMISSIONER OF STATE REVENUE (IN HIS CAPACITY AS COMMISSIONER OF PAYROLL TAX) | Respondent |
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JUDGES: | ORMISTON, CALLAWAY and BUCHANAN, JJ.A. | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 7 and 8 May 2001 | |
DATE OF JUDGMENT: | 12 June 2001 | |
MEDIUM NEUTRAL CITATION: | [2001] VSCA 86 | |
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REVENUE LAW – Pay-roll tax – Company providing accounting and other services to retailers – Whether company and retailers a “group” – Pay-roll Tax Act 1971, s.9A.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr G. Pagone, Q.C. and | Hall & Wilcox |
| For the Respondent | Mr D. Graham, Q.C. (Solicitor-General) and Mr R.L. Berglund, Q.C. | Solicitor for the Commissioner of State Revenue |
ORMISTON, J.A.:
In this appeal I have had the very considerable advantage of reading the judgment of Callaway, J.A. in draft form. For the reasons he there puts forward, I would allow the appeal and deal with the matter in the manner suggested by him.
CALLAWAY, J.A.:
The Pay-roll Tax Act 1971 imposes pay-roll tax on employers by whom taxable wages are paid or payable[1]. “Taxable wages” are, in essence, wages paid or payable by an employer for services performed or rendered that have a sufficient territorial nexus with Victoria[2]. Section 9B(3) of the Act provides for a deduction of the “prescribed amount” from the amount of the taxable wages in respect of which pay-roll tax is calculated. The effect is to establish a minimum below which the wages paid by an employer are not taxable and so to remove from small businesses, and to alleviate for larger businesses, the obligation to pay the tax.
[1]Section 8.
[2]Sections 3 and 6.
That concession is, however, restricted by s.9A, the directly relevant provisions of which read:
“(1)A reference in section 9 or 9B to taxable wages does not include a reference to any wages paid or payable by an employer if the employer and another person or other persons together constitute a group, unless the employer is excluded from the group under sub-section (1J).
(1A) For the purposes of this Act, if –
…
(d)an employer has, in respect of the employment of, or the performance of duties by, one or more employees, an agreement, arrangement or undertaking, whether formal or informal and whether expressed or implied, with another person or other persons (which other person is, or other persons are, in this section, called an ‘associate’) relating to a business carried on by the associate or by the associate and other person or persons –
the employer and all persons who are related persons or associates in relation to that employer together constitute a group and each is a member of that group.
…
(1J)If the Commissioner is satisfied, having regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other matters the Commissioner considers relevant, that a business carried on by a member of a group, including a group constituted by reason of section 9A(2), is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group, the Commissioner may exclude the member from that group.
…
(2)If a person is a member of two or more groups (whether or not by reason of the sub-section), all the members of those groups constitute one group for the purposes of this Act.”[3]
[3]The relevant period is 1st July 1993 to 30th June 1996: see [8] below. These are the provisions in force at that time, except that the expression “9 or” was omitted from sub-section (1) on 25th June 1996, when s.21(a) of Act No. 10 of 1996 came into operation. The assessments were for the period 1st November 1993 to 30th June 1996.
In addition, the members of a group within the meaning of s.9A are jointly and severally liable to pay the tax payable by members of the group.[4]
[4]The applicable provision during the relevant period was s.30(2), which was replaced by s.8A in 1997: see Act No. 40 of 1997, s.138 and Sch. 2 items 11.5 and 11.11.
On 2nd October 1998 the Victorian Civil and Administrative Tribunal decided that the first appellant (“Muirs”) and the second to fifteenth appellants (“the retailers”) constituted a group by reason of s.9A(1A)(d), to which I shall hereafter refer simply as “paragraph (d)”, and s.9A(2). The Tribunal thereby affirmed an earlier decision by the respondent, to whom I shall usually refer as “the Commissioner”, although, as we shall see, the Commissioner assigned other reasons, in addition to the application of paragraph (d), for treating those appellants as a group.[5] Both the Commissioner and the Tribunal refused to apply s.9A(1J), to which I shall hereafter refer simply as “sub-section (1J)”. The Commissioner imposed a penalty of 35%, which the Tribunal reduced to 10%.
[5]No submissions were made in the court below or before us concerning the sixteenth to nineteenth appellants. I shall say nothing about them, it apparently being common ground that their fortunes stand or fall with those of the first 15 appellants.
The appellants sought leave to appeal against the Tribunal’s decision pursuant to s.148 of the Victorian Civil and Administrative Tribunal Act 1998. On 18th November 1998 a master ordered by consent that, should the trial judge be of the opinion that the appellants had raised questions of law in their proposed notice of appeal, their application for leave be treated as if it were the appeal. The matter proceeded on that basis, coming on for trial before Balmford, J. beginning on 31st May 1999. On 1st July 1999 her Honour gave judgment, ordering that leave to appeal be granted, that the appeal be allowed in a respect not presently material and that, in all other respects, the appeal be dismissed. The appellants were ordered to pay the respondent’s costs. It is against the dismissal of the appeal and the consequential order for costs that the present appeal is brought, no further leave being necessary[6] unless the view be taken that her Honour’s judgment was “a judgment … in an interlocutory application” within the meaning of s.17A(4)(b) of the Supreme Court Act 1986.
[6]See Rabel v. Eastern Energy Ltd [1999] 3 V.R. 45 at [23]. The position has since changed, by reason of s.17A(3A) and (3B) of the Supreme Court Act 1986, inserted by s.10 of Act No. 51 of 2000.
The appeal itself raises four issues: first, whether the appellants constituted a group by reason of paragraph (d)[7]; secondly, whether, if they did, the Commissioner was bound to “degroup” them pursuant to sub-section (1J); thirdly, whether the Tribunal should have imposed no penalty on the appellants instead of reducing the penalty imposed by the Commissioner; and, fourthly, if the appeal succeeds, its proper disposition, in particular whether the matter should be remitted to the Tribunal to consider other grounds on which the Commissioner relied to treat the
appellants as a group[8]. I have concluded that the appeal should succeed on the first issue, so that it is unnecessary to consider the second or third. I shall return to the fourth issue after I have given reasons for my primary conclusion.
[7]I shall not refer again to s.9A(2), as to which there is no controversy.
[8]No authority was cited to us that was said to be directly in point in relation to the first issue, but the appellants sought to derive support by analogy from Commissioner of Taxation v. Scully (2000) 74 A.L.J.R. 504 and J & G Knowles and Associates Pty Ltd v. Commissioner of Taxation (2000) 96 F.C.R. 402, both of which were decided after her Honour gave judgment and reversed the decisions below. A number of authorities were cited in relation to sub-section (1J), including Commissioner of State Taxation (W.A.) v. Scotford Cameron & Middleton Pty Ltd (1981) 12 A.T.R. 406, but it is unnecessary to consider them.
I gratefully adopt Balmford, J.’s summary of the facts. Paragraphs 6 to 9 of her Honour’s reasons read:
“6. For the purposes of the hearing before the Tribunal, the following facts were agreed between the parties (omitting purely formal matters and with some changes of nomenclature and corrections of grammar):
1.An investigation by the Commissioner was conducted into Muirs and the other plaintiffs for the period 1 July 1993 to 30 June 1996 (‘the relevant period’) to establish the level of compliance with the Act.
2(a)Each of the retailers is the trustee of a separate unit trust and each of those trusts conducts a discount electrical store under the name ‘The Good Guys Discount Warehouses’ in addition to its individual trading name;
2(b).Muirs operates two discount electrical stores under the name ‘Mighty Muirs’ in addition to ‘The Good Guys Discount Warehouses’;
2(c).Each of the retailers referred to in 2 and 3 stocks electrical goods, for example white goods;
2(d).Muirs has entered into a separate supplemental deed with each of the retailers which deeds provide, inter alia, for certain services to be performed by Muirs in relation to the particular retailer for reward.
3. Each of the retailers is operated by a unit trust.
4.As part of the services provided by Muirs pursuant to the respective supplemental deed referred to in 2 hereof, Muirs provides a ‘banking facility’ to each of the individual retailers who bank their particular receipts into a specific bank branch of the National Australia Bank Limited and Muirs will pay in respect of each individual retailer:
(i) stock purchased as authorised by individual retailer;
(ii) salaries and wages upon authorisation; and
(iii) any accounts authorised by the retailer.
5.Each of the supplemental deeds provides that the unit holders would be equally represented on the board of directors of the trustee of the unit trust. The majority unit holder would appoint one member.
6.All of the retailers advertise in their own local areas without reference to the other retailers or to Muirs. Insofar as the retailers combined in advertising the advertisements were placed in the white or yellow pages of the telephone directory or upon a national advertising campaign. The retailers are also listed individually in the white and yellow pages.
7.Harper Wootton are the auditors and prepare the end of year accounts for each of the retailers. Muirs pays the account of Harper Wootton which is an expense against the administration fee.
8.The financial statements of Muirs show the loan accounts over the relevant period as follows:
[I omit a chart set out in her Honour’s reasons showing the loan accounts between Muirs and each of the other appellants.]
9.Upon the retailer purchasing stock Muirs pays the suppliers and debits the particular retailer’s loan account. When the particular retailer sells the stock, the retailer banks the proceeds in Muirs and its loan account is appropriately credited.
7. The Tribunal, on the basis of the evidence before it, made additional findings of fact, which may be summarised as follows:
·In addition to carrying on retail business itself, Muirs also employs approximately 36 people, some of whom provide administration and accounting services to the retailers pursuant to the supplemental deeds. Those services include, as well as the matters listed in the preceding paragraph, preparation and dissemination of monthly management accounts and profit and loss statements, financial control and stocktaking.
·The retailers pay to Muirs a monthly administration charge being a percentage of gross weekly sales.
·The deeds provide that no board resolution of a retailer shall be passed and no action taken or authorised in respect of certain specific matters without the prior majority approval of the directors.
·Muirs provide funding to all (or possibly some only) of the retailers for the initial fit out of premises and for working capital.
·In each retailing unit trust, 49% of the interest in the trust is held by Muir interests, 50% by the retailer company and 1% by a third party. (It is common ground, although not appearing in the findings of the Tribunal, that the third party is normally an individual associated with one of the other retailers.)
·The retailers do not have separate bank accounts.
8.In addition, the Tribunal, from its manner of expression, must be taken to have tacitly adopted so much of the evidence before it as follows in this paragraph:
·Mr Muir, the managing director of Muirs, gave evidence that he becomes the secretary of each trustee company, and he or his father a director, but he believes that the business of the trust is run and controlled by the owner or manager of the trust.
·He said that each owner controls its own staff without interference from Muirs, sets its own staff levels, wage rates, commissions and bonus rates. Each is separately registered as a group employer and looks after workers compensation and FBT requirements. Each owner controls its own stocktake. There is no requirement of reporting to Muirs. Each owner authorises payment of accounts. There are no stock transfers or stock sharing. Stock movements are confidential. Each store has its own computer system which is not shared with other stores.
·Mr Muir said that the boards of directors of the trustee companies for the retailers did not meet, apart from the statutory requirements. The provisions of the supplemental deeds requiring affirmation by both directors were never invoked. The retailers derived some benefit from rebates or discounts from the fact that they bought in bulk as an association, but each retailer dealt with its own suppliers and set its own level of purchases and prices.
·Evidence was given by the managing directors of three of the retailers, all materially to the same effect. Mr Sheedy, the managing director of Sheedy Muirs Pty Ltd, said in his witness statement:
I agreed to take ownership in this store as a joint venture with Muirs but with complete control of:
Purchasing all goods for sale.
Negotiating with all manufacturers in respect of costing – rebates – pricing – sales – deliver[y].
All staff – now approximately 20 persons.
I hire and terminate all staff, set wage levels and incentives, authorise all time sheets and set rosters for 7 day trading.
Security of premises – all keys, etc are held by myself and no outside person has any authority to enter this store.
The negotiate [sic] all leases and repairs for buildings and outside land.
Advertising. My contract with Dandenong Journal has been in force for 16 years. They set a special rate for Bill Sheedy and respect me as having complete control of advertising in my store.
I open and close my store and set all hours of trading. No person can alter any of my decisions. My store after 16 years is now in a position to state that it is the best self owned electrical store in Victoria. I own the store, run the store, work 6 days a week in the store and control all aspects of the store.
Once more I state that, it is my store and no other person controls my store.
9.The Tribunal found that each of the witnesses called from the retailers regarded Muirs as either a joint venturer or a partner or both, and Mr Muir saw Muirs as a joint venturer with the retailers. Each of the witnesses was hazy about the formalities of the arrangement, about the nature of the security interests held by Muirs over any of the assets of the trusts , about the way in which the unit trust was established, about their obligations as directors, and about the way in which profits were distributed. None of the witnesses from the retailers had any real knowledge of or interest in the position of the third unitholder.”
It is paragraph 10 that is particularly relevant to the first issue in the appeal.
“10.Clause 7.1 of the supplemental deed contains an undertaking by Muirs to provide to the retailer:
(a)all accounting services including, but not limited to, the preparation and dissemination of monthly management accounts and profit and loss statements;
(b)financial control;
(c)accounts payable function;
(d)payment for all stock ordered by [the retailer] in the name of and approved by Muirs;
(e)administrative services and advice in respect of the businesses of [the retailer];
(f)stocktaking from time to time;
I note, however, the finding of the Tribunal in paragraph 25 of the decision that Muirs did not in fact purchase stock on behalf of the retailers.”
It was common ground before us that most of the criteria in paragraph (d) were satisfied as between Muirs and each of the retailers. In particular, it could be said that “an employer” (Muirs) “ has … an agreement” (the supplemental deed) “with another person” (the relevant retailer) and that that agreement is an agreement “relating to a business carried on by” the retailer. The difference between the parties was as to whether the words “in respect of the employment of, or the performance of duties by, one or more employees” were also satisfied. The argument focused, rightly I think, on “the performance of duties by … one or more employees” rather than “the employment of … one or more employees”, so I shall say no more about the latter alternative.
Mr Pagone submitted that, for paragraph (d) to apply, the agreement relating to the other person’s business must also be an agreement in respect of the performance of duties by one or more of the employer’s employees. The Solicitor-General responded to that submission in two ways. First, he pointed out that the words “in respect of … “ were located in juxtaposition with “has”, so that the natural reading of paragraph (d) was not that they were an adjectival expression qualifying “agreement” but that they were an adverbial expression modifying “has”. Secondly, by way of alternative submission, he said that it was sufficient if the result of the agreement was the performance of duties by one or more of the employer’s employees in relation to the other person’s business.
In my opinion, Mr Pagone’s submission should be accepted and the submissions to the contrary should not. It may be conceded that the critical words appear in juxtaposition with “has” but, if they are an adverbial expression modifying that word, it is difficult to see what content they have. An obstacle to accepting the Solicitor-General’s alternative argument is that it is not the natural reading of the words. Paragraph (d) does not speak of an agreement that has a particular result but of an agreement that is in respect of a particular subject matter. Mr Pagone’s submission accords with the natural meaning of the words once they are seen as qualifying “agreement”. As we shall see later, I think there are other considerations, too, that support his construction.
Returning to the facts of the present case, it cannot be said that the supplemental deed is an agreement in respect of the performance of duties by one or more of Muir’s employees. It is an agreement for the provision of services by Muirs, leaving Muirs free to choose how it will provide those services. It was not denied on behalf of the respondent that the provision of the services could be sub-contracted to another company, nor was it suggested that the retailers had stipulated for personal performance by Muirs, i.e. performance by its own officers or employees. Importantly, it was not suggested that the agreement was a sham or that it did not represent the true agreement between the parties.
I foreshadowed that there were other considerations supporting the construction advanced on behalf of the appellants. One of them is that that construction sits well with the other paragraphs of s.9A(1A). Each of them describes circumstances in which an employer and another person together constitute a group. It is sufficient to summarise their effect. Paragraph (a) refers to the case of related corporations within the meaning of s.50 of the Corporations Law. Paragraph (b) refers to the case where an employee of an employer performs duties for or in connection with a business carried on by the employer and another person. Paragraph (c) refers to the case where an employee of an employer is employed solely or mainly to perform duties for or in connection with a business carried on by another person. None of those paragraphs has the wide sweep that paragraph (d) would have it were sufficient that an agreement to which it refers had the result that employees of one person perform duties in relation to the business of another.
Another consideration favouring Mr Pagone’s construction is that acceptance of the Solicitor-General’s argument drives one to the conclusion, as it did the learned trial judge, that Parliament has cast the net in paragraph (d) with the deliberate intention of catching a large number of everyday business and professional arrangements, leaving the taxpayer’s relief solely to the discretion of the Commissioner under sub-section (1J) [9]. Such a mode of taxation should not too readily be attributed to the legislature. That is especially true where it has described three other cases, in paragraphs (a) (b) and (c), with reasonable precision.
[9]See s.45(1) and (3) of the Interpretation ofLegislation Act 1984. I do not overlook the Solicitor-General’s concession that, in the circumstances of the present case, there would be no basis for exercising the discretion adversely to the appellants if the condition precedent in sub-section (1J) were satisfied. The facts remain that there is a discretion, that it could be exercised adversely in other cases and that the condition precedent itself turns on the Commissioner’s satisfaction.
I do not overlook the emphasis the Solicitor-General placed on purposive construction, but I do not think the words of paragraph (d) with which we are concerned[10] are ambiguous. We were referred to explanatory memoranda and parliamentary debates, mainly by the appellants, but I found nothing in them to the contrary of what I perceive to be the natural meaning of paragraph (d). I express the matter that way because the law is to be found in the statute and not in the extrinsic material.
[10]See [9] above. The argument before her Honour appears to have focused more on the words “relating to a business carried on by” the retailer.
There is nevertheless a passage in the extrinsic material that illustrates the distinction between an agreement in respect of the performance of duties by one or more employees and an agreement that simply has that result. Paragraph (d) and sub-section (1J) replaced and modified provisions formerly appearing in s.9A(1)(c). They were inserted by the Pay-roll Tax Act 1974. The 1974 explanatory memorandum gave, as an example of the need for the provision corresponding with sub-section (1J), “a secretarial agency where the agency is the employer and for a fee provides a temporary workforce for various clients”. The agreement between such an agency and its clients would be an agreement in respect of the performance of duties by one or more employees of the agency. It would fall in what is now paragraph (d) and recourse would be necessary to what is now sub-section (1J). In contrast with the supplemental deed, the secretarial agency would not be providing services but providing workers.
Accordingly, in my opinion, the appellants did not constitute a group by reason of paragraph (d). There is no need to consider whether, if they did, the Commissioner was bound to “degroup” them pursuant to sub-section (1J) and the question of their paying a penalty on the hypothesis that paragraph (d) applies[11] does not arise. The question that does arise is the proper disposition of the appeal. Mr Pagone submitted that orders should be made which, among other things, would allow the taxpayers’ objections in full and set aside the assessments made by the Commissioner. The difficulty in that course, as the Solicitor-General pointed out, is that the Commissioner relied on other provisions, in addition to paragraph (d), to
treat the appellants as a group. The Tribunal recorded that fact[12]. It decided the case on paragraph (d), saying only that there might be serious argument about the applicability of some of the other provisions on which the Commissioner relied[13].
[11]I express it that way because the question of penalty will arise again if the appellants are found to be properly grouped under another provision.
[12]See paragraphs 10, 26 and 38 of the Tribunal’s reasons. There appear to be misprints in some of those paragraphs.
[13]Reasons, paragraph 42.
There were written outlines of argument before Balmford, J. Paragraph 2 of the appellants’ outline referred to paragraph (d) and sub-section (1J) but also contended that they were not liable to be grouped “under any other provision of the Act”. Paragraph 8 of the respondent’s outline said that it was “also open for the Tribunal to group the appellants under other provisions of the Act”. I accept the Solicitor-General’s submission that, when her Honour said that it was not suggested at the hearing before her that Muirs and the retailers constituted a group by virtue of any provision other than paragraph (d)[14], she was saying only that the argument had focused on the provision on which the Tribunal had decided the case.
[14]The Muir Electrical Company v. Commissioner of State Revenue [1999] VSC 239 at [13].
I would give counsel a further opportunity to be heard on this question, but my provisional view is that it would be unfair to the Commissioner to say that he is now, by the course of proceedings below, shut out from contending that the appellants should be grouped under one of the other provisions on which he expressly relied. Counsel should be invited to clarify what those provisions were[15]. If my provisional view is right, there should be a declaration to the effect that no two or more of the appellants constituted a group during the relevant period by reason of paragraph (d) but the matter should be remitted to the Tribunal.
[15]See fn. 12 above.
I referred in [6] to the possibility that the judgment below was “a judgment … in an interlocutory application”, in which case leave to appeal would be required. The test whether an order is final or interlocutory[16] is whether the order, as made,
finally disposes of the rights of the parties.[17] Her Honour’s judgment, as given, did finally dispose of the rights of the parties. It is not to the point that, if it is set aside, other issues may have to be determined. Accordingly the appeal lay as of right and leave to appeal is not required.
BUCHANAN, J.A.:
[16]That one looks at the judgment or order and not at the application was decided in Border Auto Wreckers (Wodonga) Pty Ltd v. Strathdee [1997] 2 V.R. 49.
[17]See, for example, Licul v. Corney (1976) 180 C.L.R. 213 at 225 per Gibbs, J.
I agree with Callaway, J.A. that none of the appellants constituted a group during the relevant period by reason of the provisions of s.9A(1A)(d) of the Pay-roll Tax Act 1971. I also agree with him that, subject to hearing counsel, there should be a declaration to that effect and the matter should be remitted to the Tribunal.
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