Paul Murphy Real Estate Pty Ltd v Chief Commissioner of State Revenue (No 2) (Rd)

[2010] NSWADTAP 42

Appeal Panel - Internal

CITATION:	Paul Murphy Real Estate Pty Ltd v Chief Commissioner of State Revenue (No 2) (RD) [2010] NSWADTAP 42
PARTIES:	Appellant: Paul Murphy Real Estate Pty Ltd Respondent: Chief Commissioner of State Revenue
FILE NUMBER:	099029
HEARING DATES:	19 April 2009
SUBMISSIONS CLOSED:	19 April 2009
DATE OF DECISION:	9 June 2010
BEFORE:	Callaghan P, SC, Deputy President; Block J - Judicial Member; Bennett C - Non-Judicial Member
CATCHWORDS:	Pay-roll tax – grouping of businesses -trustee companies as employers
DECISION UNDER APPEAL:	Paul Murphy Real Estate Pty Ltd & Anor v Chief Commissioner of State Revenue [2009] NSWADT 105
FILE NUMBER UNDER APPEAL:	086026
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Income Tax Assessment Act 1936 (Cth) Land Tax Management Act 1956 Pay-roll Tax Act 1971 Taxation Administration Act 1996
CASES CITED:	CPT Custodian Pty Ltd v CSR (2005) 224 CLR 98 CS & Co Legal Services Pty Ltd v CSR (1996) 32 ATR 539 Fanfold Business Forms Pty Ltd v CCSR [2004] NSWADT 210 Howey v FCT (1930) 44 CLR 289 Kivelos Nominees Pty Ltd v CSR (1997) 37 ATR 1025 Muir Electrical Co Pty Ltd v CSR [1999] VSC 239 Paul Murphy Pty Ltd v CCSR [2009] NSWADTAP 71 Paul Murphy Real Estate Pty Ltd v CCSR [2009] NSWADT 105 Permanent Trustee Nominees (Canberra) Ltd v Chief Commissioner of Pay-roll Tax (1987) 8 NSWLR 527 Saunders v Vautier (1841) 4 Beav 115 The Muir Electrical Company Pty Ltd v CSR (1998) 99 ATC 2083 The Muir Electrical Company Pty Ltd v CSR [1999] VSC 239 Trevisan v FCT (1991) 29 FCR 157
REPRESENTATION:	Appellant Representative: J. Hyde Page (Solicitor) Respondent Representative: A. Rider (Counsel)
ORDERS:	1. Appeal dismissed. 2. The order appealed from, affirming decision of the Respondent to group the Appellant and The Belmore Maitland Pty Ltd for the period 7 January 2005 to 30 June 2006 for the purposes of pay-roll tax, is affirmed. 3. No award of costs.

Part A History of Proceedings and Issue on Appeal

1 On 13 May 2009 in Paul Murphy Real Estate Pty Ltd and Anor v Chief Commissioner of State Revenue [2009] NSWADT 105 (file number 086206) this Tribunal (Judicial Member Verick) issued a decision affirming the decision of the Chief Commissioner to group the Appellant and The Belmore Maitland Pty Ltd for purposes of payroll tax in respect of the period 7 January 2005 to 30 June 2006 (“the relevant period”). That decision is referred to in these reasons as “the original decision”. In the original decision the relevant period is actually referred to as the period from 7 January 2005 to 30 June 2007. In this Appeal it is common ground that the relevant period is in fact 7 January 2005 to 30 June 2006 and that references to 30 June 2007 in the original decision should be read as if they were to 30 June 2006. The Appellant has appealed against the original decision by Notice of Appeal dated 5 June 2009.

2 This appeal first came for hearing before an Appeal Panel of this Tribunal on 30 September 2009. That hearing became confined to the objection by the Respondent to what had then become the first of two grounds of appeal, referred to as the “s 16C issue”, and after separate consideration the s 16C issue was ordered by the Appeal Panel to be struck out: [2009] NSWADTAP 71. That Appeal Panel included Judicial Member Hole and when the Appeal Panel reconvened on 22 February 2010 to finalise the appeal, by dealing with the second ground of appeal, concern was raised on behalf of the Respondent that the decision by Judicial Member Hole in Fanfold Business Forms Pty Ltd v CCSR [2004] NSWADT 210 might be called into question in this Appeal and the Appeal Panel was subsequently reconstituted by the substitution of Judicial Member Block for Judicial Member Hole.

3 The extant ground of appeal concerns what has been referred to as the “s 42 issue”, namely, the question of law “whether s 42 of the Pay-roll Tax Act 1971 (“PTA”) excludes the operation of the grouping provisions in this particular case”. The s 42 issue was added to the Notice of Appeal without objection at the appeal hearing on 30 September 2009: [2009] NSWADTAP 71 at [1]. The s 42 issue was dealt with in the original decision at [9] to [23] of [2009] NSWADT 105; it was more expansively expressed in those proceedings: “Whether, given the provisions of s 42 of the Act, the grouping provisions found in s 1061 of the Tax Administration Act apply to trustees who carry on business in their capacity as trustees and which are trustees of businesses in which wages are paid?” The other issue dealt with in the original decision was what was there referred to as the “Amending Deed issue” and this was dealt with at [24] to [45] of the original decision. The Amending Deed issue was decided adversely to the Applicants in the original decision but is not the subject of this Appeal. As we have noted, the first issue, referred to as “the s 16C issue” namely “whether the Commissioner had discretion under s 16B of the Pay-roll Tax Act to exclude one or both of the Applicants from a pay-roll tax group” had until 30 September 2009 constituted the only ground of appeal. As explained in [2009] NSWADTAP 71 the s 16C issue not having been prosecuted and indeed, having been explicitly abandoned, below, was not dealt with in the original decision, and it was struck out in [2009] NSWADTAP 71 for the reasons there given.

Part B Factual Background and Groupings

4 In the original decision at [2] a summary of the factual background of the relevant entities prepared by counsel for the applicants in the proceedings below is set out and it is convenient to reproduce that:

“6. On 9 April 1981 the PMF Trust was established under a Discretionary Trust Deed made between Tresou Pty Limited (“Tresou”) as Trustee and Robert Shorten as Settlor with Paul Murphy and Beryl Murphy as the principal beneficiaries.

7. On 29 July 1981 Tresou changed its name to P Murphy and Co Pty Limited.

8. On 3 September 1981 the Paul Murphy Trust Deed was amended.

9. Sometime in 1981 the trustee of the PMF Trust, Tresou, commenced trading as a real estate business at Maitland.

10. In September 1993, the trustee commenced trading as Murphy Real Estate at Maitland.

11. On 28 July 2000 Paul Murphy Real Estate (Hunter Valley) Pty Limited was incorporated. On the same date, Paul Murphy Real Estate (Hunter Valley) Pty Limited was appointed the new trustee of the PMF Trust.

12. On 3 November 2000 Paul Murphy Real Estate (Hunter Valley) Pty Limited changed its name to Paul Murphy Real Estate Pty Limited (“PMRE”). Accordingly, as from this PMRE was the trustee of the PMF Trust.

13. On 31 March 2004 The Belmore Maitland Pty Limited (“TBM”) was incorporated. On the same day The Belmore Maitland Unit Trust (“TBM Unit Trust”) was created with TBM as the trustee and David Wyatt as the founder. The original unit holder in the trust was St. Peter’s Pastoral Pty Limited.

14. On 22 April 2004 Mackinnon Murphy Pty Limited (“MMPL”) was incorporated. On the same day the unit held in the TBM Unit Trust was transferred by St. Peter’s Pastoral Pty Limited to MMPL.

15. On 28 June 2004 TBM commenced trading as a hotel business under the name “Belmore Hotel Maitland”.

16. On 7 January 2005 Joshua Murphy became the sole director and shareholder of TBM.”

In this Decision we intend to use some initials or abbreviations adopted above: “MMPL” for Mackinnon Murphy Pty Ltd; “PMF Trust” for the Paul Murphy Family Trust; “PMRE” for Paul Murphy Real Estate Pty Ltd; “TBM” for The Belmore Maitland Pty Ltd; and “TBM Unit Trust” for The Belmore Maitland Unit Trust. In addition we propose to use the term “JM” to refer to Mr Joshua Murphy who was the sole director of and the sole shareholder in TBM and also a discretionary beneficiary in the PMF Trust. Also we will refer to the period 7 January 2005 to 30 June 2006 as “the relevant period”. It is convenient at this point to note that each of TBM and JM were also discretionary beneficiaries of the PMF Trust.

5 We add to that factual summary, set out in paragraph 4 above, a few details concerning the Amending Deed issue from [4] of the original decision:

“On 27 January 2009, a deed was executed between Paul Murphy Family Trust, Paul Murphy as Appointer and Joshua Earnest Paul Murphy and The Belmore Maitland Pty Limited as “Consenting Beneficiaries”. The purpose of this Deed, executed one day before the hearing of this matter, was to amend the terms of the trust deed dated 9 April 1981 establishing the PMF Trust so as to exclude Joshua Murphy and The Belmore Maitland Pty Limited as beneficiaries of the PMF Trust with retrospective effect from 6 January 2005 and 1 July 2005 respectively. It was purported that the trustee had power under Clause 12 of the PMF Trust Deed to amend the PMF Trust Deed to exclude Joshua Murphy and The Belmore Maitland Pty Limited as beneficiaries under the PMF Trust. …”

The conclusion on the Amending Deed issue was expressed in [45] of the original decision:

“Accordingly, the Deed could not retrospectively change the fact that Joshua Murphy and TBM were beneficiaries of the PMF Trust at the relevant time for pay-roll tax purposes. That is, the Deed did not have retrospective effect as against the respondent, nor could it affect the application of the Act or the Taxation Administration Act to the facts, which existed at the relevant time.”

6 The three groupings involved may be described as follows:

(a) “The JM Grouping”. The components in this grouping are JM’s positions, first as the sole shareholder and director of TBM and secondly as a discretionary beneficiary in the PMF Trust. This is based on s 106I(2)(f), s 106I(5) and s 106I(6) of the Taxation Administration Act 1996 (“TAA”) in respect of the real estate agency business and on s 106I(2)(c) and s 106I(2)(d) in respect of the hotel business.

(b) “The TBM Grouping”. The components in this grouping are TBM’s position, predominantly first as a discretionary beneficiary of the PMF Trust and secondly as the owner of the TBM business. This is based on s 106I(2)(f), s 106I(5) and s 106I(6) in respect of the real estate agency business and s 106I(2)(a) in respect of the hotel business.

(c) “The MMPL Grouping”. The components in this grouping are MMPL’s positions, predominantly first as a discretionary beneficiary of the PMF Trust and second as the only unit holder in the TMB Unit Trust. This is based on s 106I(2)(f), s 106I(5) and s 106I(6) in respect of the real estate agency business and s 106I(2)(f), s 106I(5) and s 106I(6) in respect of the hotel business.

7 As referered to above, PMRE owned and conducted a real estate agency business while TBM owned and conducted a hotel business. Those businesses were conducted separately.

Part C Principal Legislative Provisions

8 S1061 of the TAA as it applied in the relevant period is as follows:

“106I 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.
(Note. Section 16B of the Pay-roll Tax Act 1971 allows the Chief Commissioner, for pay-roll tax purposes, to exclude persons from a group constituted under this section in certain circumstances).
(2) For the purposes of this section, a person or set of persons has a controlling interest in a business if:
(a) in the case of 1 person—the person is the sole owner (whether or not as trustee) of the business, or
(b) in the case of a set of persons—the persons are together the exclusive owners (whether or not as trustees) of the business, or
(c) in the case of 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) in the case of 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) in the case of 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) in the case of 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 respect of 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 2001 of the Commonwealth, and
(b) 1 of the corporations has a controlling interest in a 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 respect of more than 50% of the value of the interests in the trust, and
(b) the trustee of the trust (whether alone or together with another trustee or trustees) 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 trustee or another person, or the trustee and another person, exercising or failing to exercise a power or discretion, is taken, for the purposes of subsection (5), to be a beneficiary in respect of more than 50% of the value of the interests in the trust.
(7) If:
(a) a person or set of persons has a controlling interest in the business of a trust, and
(b) the trustee of the trust (whether alone or together with another trustee or trustees) has a controlling interest in the business of a corporation,
the person or set of persons is taken to have a controlling interest in the business of the corporation.
(8) If:
(a) a person or set of persons has a controlling interest in the business of a trust, and
(b) the trustee of the trust (whether alone or together with another trustee or trustees) has a controlling interest in the business of a partnership,
the person or set of persons is taken to have a controlling interest in the business of the partnership.
(9) Subsection (1) does not apply in relation to a person or set of persons that has a controlling interest in 2 businesses if:
(a) in the case of 1 person—the businesses are wholly owned by the person, whether as trustee or otherwise, or
(b) in the case of a set of persons—the businesses are wholly owned by the persons as trustees.

Note: Under the Pay-roll Tax Act 1971 , if 2 businesses are owned by the same employer then the employer would provide a single return in relation to all wages paid in respect of those businesses. There is no need to apply the grouping provisions. This also applies where the trustee is answerable under that Act as an employer (see section 42 of that Act).

9 Section 106G of the TAA as it applied during the relevant period is as follows:

“106G Primary groups of corporations
(1) Corporations constitute a primary group if they are related corporations within the meaning of the Corporations Act 2001 of the Commonwealth.
(2) For the purpose of assessing whether corporations are related under that Act, they are taken to carry on a business and not to be trustee companies.”

10 Sections 106I and 106G of TAA broadly correspond respectively with former sections 16D and 16B of PTA and so that references to each of sections 106I and 106G can conveniently be read as equivalent references to the former sections of PTA to which each of them respectively corresponds, and vice versa.

11 S42 of the PTA as it applied in the relevant period is as follows:

“42 Agents and trustees

(1) With respect to every agent and with respect also to every trustee the following provisions shall apply -

(a) The agent or trustee shall be answerable as an employer for the doing of all such things as are required to be done by virtue of this Act or the regulations in respect of the payment of any wages which are subject to pay-roll tax under this Act.
(b) The agent or trustee shall, in respect of any such wages, make the returns and be chargeable with pay-roll tax thereon, but in his representative capacity only, and each return shall, except as otherwise provided by this Act, be separate and distinct from any other.
(c) If he or she is an executor or administrator, the returns shall be the same as far as practicable as those the deceased person, if living, would have been liable to make.
(d) Where as agent or trustee he pays tax, he is hereby authorised to recover the amount so paid from the person on whose behalf he or she paid it, or to deduct it from any money in his or her hands belonging to that person.
(e) The agent or trustee is hereby authorised and required to retain from time to time out of any money which comes to the agent or trustee in his or her representative capacity so much as is sufficient to pay the tax.
(f) The agent or trustee is hereby made personally liable for the tax payable if, after the Chief Commissioner has required him to make a return, or while the tax remains unpaid, he or she, except with the written permission of the Chief Commissioner, disposes of or parts with any fund or money which comes to the agent or trustee from or out of which tax could legally be paid, but he or she shall not be otherwise personally liable for the tax.
(g) The agent or trustee is hereby indemnified for all payments which he or she makes in pursuance of this Act or by the requirements of the Chief Commissioner.
(h) For the purpose of ensuring the payment of tax the Chief Commissioner shall have the same remedies against attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as he or she would have against the property of any other person in respect of tax, and in as full and ample a manner.

(2) Nothing in subsection (1) affects the operation of Part I0A of the Taxation Administration Act 1996 and Part 4A of this Act in relation to trustees."

Part D The “Permanent” Case

12 Central to the Appellant’s submissions is reliance on Permanent Trustee Nominees (Canberra) Ltd v Chief Commissioner of Pay-roll Tax (1987) 8 NSWLR 527, 87 ATC 4230, 18 ATR 529 (“Permanent”) and it is convenient for us to give that case some overall consideration before dealing with those submissions. The Plaintiff in that case was a subsidiary of Permanent Trustee Co Ltd. It was the trustee of various trusts, in particular one known as the Cotswolds Trust under which it administered a retirement village and as part of that administration it paid wages to the village’s managing agent and other employees. The Plaintiff also acted as trustee of 183 inter vivos trusts, in some of which it employed labour in the carrying on of business subject to the particular trusts; it was not suggested that there was any connection in any way between the business carried on by the Plaintiff under the Cotswolds Trust and any of the businesses carried on by it under other trusts. In that case the Chief Commissioner grouped the wages of the Plaintiff with the wages paid to the head office staff of the holding company and was thereby able to impose pay-roll tax on the wages paid by the Plaintiff to its employees at Cotswolds which was considerably greater than would have been the case if the tax thereon had been assessed by reference only to wages paid by the Plaintiff. Prior to that case, the Commissioner had not applied s 16B of the PTA to companies which were trustee companies, the practice having been that an assessment of tax was raised only in respect of the wages paid by the trustee company in a business carried on in a particular trust; the Chief Commissioner had in effect treated s 42 of the PTA as unaffected by s 16B. S 16B constituted any two corporations a group “if they are by reason of s 7(5) of the Companies (NSW) Code to be deemed, for the purposes of that code, to be related to each other”. The grouping provisions in Pt IVA of the Act grouped together for pay-roll tax purposes not only corporations which came within s 16B, but also employers (whether corporations or not) who had the same employees in their respective businesses (s 16C). In addition, under s 16D, persons having a controlling interest in each of two businesses were grouped and specific provisions were made for determining such groupings in the case of corporations, partnerships and businesses carried on under trusts. It was not contended by the Chief Commissioner that any of the other grouping provisions of s 16C or s 16D applied in that case.

13 The decision of Mr Justice Lee in Permanent allowed the appeal and the objections of the Plaintiff to the assessments which the Chief Commissioner had issued were upheld on the ground that s 16B had no application to the assessment of tax payable by the Plaintiff during the period specified in the assessments. The following of the concluding paragraphs in the judgment (at 532) are appropriate to be quoted:

“It was claimed by counsel for the Chief Commissioner that subsec. (2) of sec. 42 was a clear indication of an intention on the part of the legislature to render the grouping provisions, including sec. 16B, applicable to trustee companies, but I do not see the matter in that light. The grouping provisions of the Act have in sec. 16D(3)(e) and (6)(b), expressly dealt with grouping in the cases of trusts and a provision such as subsec. (2) in sec. 42 was needed to make clear that those particular grouping provisions override sec. 42(1). The fact that sec. 16D concerns itself expressly with trustees and when they are to be grouped as employers, and then in subsec.(4) expressly groups a corporation which has a controlling interest in a business with any other corporation related to it by reason of sec. 7(5) of the Code is again, in my view, a clear recognition by the Act that employers whether corporations or not, who are trustees are intended to be dealt with separately from employers whether corporations or not, who are not trustees.
The case is one in which the operation of sec. 16B in its operation in Pt IVA is repugnant to the operation of sec. 42 particularly subsec. (1)(b) in the case of trustee companies, and a construction to avoid that repugnancy is to be preferred, if one is reasonably open. Without resorting to the rule that in such a case the last section must prevail (Maxwell on Statutes 12 ^th ed. 187), there is, in my view, a clear indication from the provisions of Pt IVA itself as well as from sec. 42 that the legislature is intending to confine the liability of all trustees to pay-roll tax to the amount of the wages paid in the business subject to the trust. Section 42 can properly be construed as applying to all trustees, whether corporations or not, and sec. 16B is intended to apply to corporations which are not also trustees. Each section is intending to deal with a particular class of employer and can be given effect accordingly, with the result that the two sections can operate harmoniously and achieve rationally – and fairly – the essential object of a pay-roll tax which is to tax actual wages paid as between employer and employee.”

14 The original decision dealt with the Permanent case and subsequent authorities at [17]-[23] and with reference to the first of the two paragraphs we quoted from Permanent in par 13 above, the Judicial Member said at [20]:

“When these additional observations are carefully examined it becomes clear that his Honour was not suggesting that the provisions found in s 42(1) had the effect that grouping provision had no application whatsoever to a trustee. Lee J was concerned not with the grouping provisions in their entirety, but only the grouping provisions that were set out in s 16B. His Honour recognised that there were grouping provisions, which applied to trustees, and as submitted by Mr Rider, his Honour in particular mentioned the operation of s 16D to trustees.”

15 We note at this point that s 42(1) of the PTA as referred to in Permanent was substantially in the same terms as it applied in the relevant period, as quoted above. By the relevant period the former s 16D of the PTA had been replaced by s 106I of the TAA and the exception in s 42(2) of the PTA was then altered to refer to Part 10A of the TAA instead of Part IVA of the PTA.

Part E Appellant’s Submissions

16 In his written submissions Mr Hyde Page for the Appellant said:

“It is submitted for the Appellant that the effect of s.42 is to prevent PMRE, as trustee of the Paul Murphy Family Trust, and TBM, as trustee of the Belmore Maitland Unit Trust, from being grouped under s.106I of the Pay-roll Tax Act 1971.

In Permanent Trustee Nominees (Canberra) Limited v Chief Commissioner of Pay-roll Tax (NSW) 87 ATC 4230, the Supreme Court held that s.42 confines the payroll tax liability of all trustees to the wages paid by businesses that are conducted by the trust. In particular, Permanent Trustee said that s.42 was a substantive provision, rather than a miscellaneous provision concerned only with the identity of the person from whom payroll tax may be collected.

The reasoning from Permanent Trustees has since been applied in Fanfold Business Forms Pty Limited v Chief Commissioner of State Revenue [2004] NSWADT 210, where the Tribunal held that s.42 prevents trustee corporations from being subject to grouping provisions that are based on common control. In the present case the Joshua Murphy group, as well as the MMPL and TBM groups that are posited by the Respondent, depend upon common control. Moreover, both the real estate business and the hotel business are conducted by corporations, acting as trustees (viz: TBM and PMRE). By analogy with Fanfold, therefore, the Respondent did not have power to group the hotel business and the real estate business in the first place.”

17 In developing his submissions orally, Mr Hyde Page on behalf of the Appellant accepted that all three groupings were competent under s 106I of TAA as confirmed by, for example, this section of those submissions:

“BLOCK: Would we be correct in our assumption that there’s no dispute between the parties as to the fact that those groupings are competent under those subsections of 1061?

HYDE-PAGE: That’s correct. Now there being no objection to the constitution of those three groupings the sole issue before the Panel today is the effect of section 42 of the Payroll Tax Act on each of those three groups. …”

He then explained his point as to the effect of s 42:

“Now, the issue is that these two sets provisions disclose is that on the one hand the grouping provisions say that Paul Murphy Real Estate and the Belmore Maitland should be grouped together for payroll tax purposes and section 42 says that where there are two trustee entities that they should be separately chargeable with payroll tax. Now, there is then a subsidiary issue about whether or not the effect of section 42 is sterilised by a clause in section 42(1)(b) which says “except as otherwise provided by this Act” and there is then a second issue about whether the effect of section 42 is sterilised by subsection (2) of section 42 which says ‘Nothing in subsection (1) affects the operation of part 10A of the Taxation Administration Act’.”

18 As to the Permanent case, Mr Hyde Page orally submitted in summary:

“Now if I could move on to explain my understanding of the ratio of this case, what this is saying is that section 42 will not prevent trusts from being grouped together where the basis of that grouping is beneficial control of the business of those trusts. What section 42 will do is prevent trustee entities from being grouped where the basis of that grouping is simply that they have a common trustee company or the directors of the trustee company are the same or any one of a number of other grouping principles that relate, not to substantive control of the trust, but rather to just the trustee company that carries it out. Now, the respondent says, in his submissions, that Permanent Trustee related only to grouping on the basis of related control but what the appellant says is that the ratio of this case will extend to all grouping principles which operate on the basis of ownership of trustee companies or exclusive ownership rather than the beneficial control of the underlying business.”

19 In respect of the JM Grouping Mr Hyde Page submitted that JM’s positions as the sole shareholder and director of TBM were not ones of control sufficient to detract from TBM’s position as trustee of the TBM Unit Trust. More particularly, he said:

“The grouping here is because Joshua Murphy is a director and shareholder of the Belmore Maitland – the trustee company. Now, Joshua Murphy has no beneficial entitlement to the hotel business that sits underneath and is conducted by the Belmore Maitland Pty Limited. His control I’d suggest is no more meaningful than the control of somebody with the Permanent Trustee who just happens to be dealing with a deceased estate or some other business which he will never receive economic benefits from and which he is bound to deal with in accordance with the terms of the trust. That is the sole basis on which the respondent says that Joshua Murphy controls the hotel business because he happens to be a director and shareholder of the trustee. Now, we say that because this particular grouping principle does not specifically deal with trusts, it is not a trust grouping principle, that the ratio of Permanent Trustee applies and section 42 prevents the Belmore Maitland from being grouped with Paul Murphy Real Estate.”

20 In respect of the TBM Grouping Mr Hyde Page argued that for the purposes of s 106I(2)(a) of the TAA it could not be said that TBM was the sole owner of the hotel business conducted through the TBM Unit Trust. His argument as we understood it was that MMPL was also an owner in that as the only unit holder and beneficiary in TBM Unit Trust, MMPL was entitled to all of the income and capital gains derived in respect of the hotel business. The following exchange typifies how Mr Hyde Page put this point:

“BLOCK: You say that the owner is the unit holder in that trust which is…McKinnon Murphy sometimes incorrectly described as McKinnon Murphy Real Estate in which the shareholders of various members of the Paul and Beryl Murphy family.

HYDE-PAGE: Correct, sir. Now if I could just emphasise the grouping provision that is said to bring the hotel business into this particular group is an exclusive ownership provision. It says you control the business if you’re the exclusive owner. What we say is while it is true that the Belmore Maitland is the trustee that conducts the business it is not true that it is the exclusive owner..

BLOCK: Well who else is an owner?

HYDE-PAGE: McKinnon Murphy which has all the beneficial entitlements to the benefits of the business.”

21 Mr Hyde Page did not challenge the correctness of the MMPL Grouping in any way but he did submit that (contrary to the history of these proceedings) the MMPL Grouping should be remitted to the Respondent for the exercise of a degrouping discretion under s 16B of the PTA.

Part F Consideration

22 We will deal with the JM Grouping first. As to the hotel business, the Appellant’s contention seems to us to come down to one that while JM’s positions as sole shareholder in and director of TBM were sufficient to give rise to a controlling interest in him in the TBM business under s 102(2)(c) and s 102(2)(d) of the TAA, it was a controlling interest which was appropriate to be classified along the lines of “ownership of trust companies” rather than “beneficial control of the underlying business” (see par 18 above) and as such not able to withstand s 42(1) of the PTA. The controlling interest of JM in the real estate agency business apparently is not itself explicitly challenged by the Appellant whether on the basis of s 42(1) of the PTA or at all. The contention concerning the hotel business requires further consideration of the Permanent case and we will approach that initially by reference to other authorities which have been referred to in submissions.

23 The Respondent submits, with particular reference to Howey v Federal Commissioner of Taxation (1930) 44 CLR 289, that s 42 of the PTA is a miscellaneous provision of the PTA (within Part 8 Miscellaneous) which imposes only administrative duties and responsibilities on an agent or trustee and is virtually identical to s 64 of the Land Tax Management Act 1956 (NSW) and s 254 of the Income Tax Assessment Act 1936 (Cth). The Respondent notes that Rich and Dixon JJ in Howey said of the predecessor provision to s 254 of the Income Tax Assessment Act:

“Possibly so far as it affects trustees, sec.89 should be regarded as a ‘collecting section and not a taxing section’ to borrow the language used by Lord Parker in Drummond v Collins [1915] AC 1011 at 1019. If so, it does no more in respect of trustees than provide machinery for carrying out provisions of sec.31.”

We do not think that Howey, which was not referred to in the Permanent case, would, on its own, require us simply to so classify s42 of the TPA and in effect conveniently avoid deeper consideration of the Permanent case. Such a submission by the Respondent would however receive some support from reference, which we undertake below, to Kivelos Nominees Pty Ltd v Commissioner of State Revenue (Vic.) (1997) 37 ATR 1025.

24 Trevisan & Anor v FCT (1991) 91 ATC 4416, 21 ATR 1649, 29 FCR 157 concerned the interpretation of a then recently introduced section in the Income Tax Assessment Act 1936 (Cth) imposing a taxation detriment on certain superannuation funds which lent money to the employers who had set them up, or which otherwise invested in those employers and its application in the context of our trustee company which was the trustee of different trusts. Burchett J considered the Permanent case at 162 of 29 FCR:

“…I find the reasoning of Lee J in Permanent Trustee quite compelling. It is true he was dealing with different legislation which, in same respects, raised different issues. However his fundamental point was the irrationality of lumping different trusts together, simply because they have, as trustee, the one trustee company.”

25 In CS & Co Legal Services Pty Ltd v Commissioner of State Revenue (Vic) (1996) 32 ATR 539 and (1996) 96 ATC 4651 Hansen J of the Victorian Supreme Court allowed appeals against three assessments of pay-roll tax involving the grouping of a legal practice with a service arrangement for that practice conducted by the corporate trustee of a trading trust. There was in the Victorian legislation a s42 corresponding to s42 of the PTA but the grouping provisions in the Victorian legislation were not then of the same detail as s106I of the TAA. In his consideration of that situation, Hansen J said by way of explanation of an aspect of the Permanent case:

“On reason relied upon by Lee J in deciding Permanent was that there were some parts of the NSW grouping provision which were specifically and expressly directed towards trustee employers. This was a clear indication that where other grouping provisions were expressed in general terms, and made no mention of trustees, then the words ‘except as otherwise provided’ in section 42 were not brought into play. This reasoning cannot be applied to the legislation in this case, for until 1987, there were no grouping provisions which made any mention of trustees. …”

26 . Two decisions in particular of the Administrative Appeals Tribunal of Victoria (“AATV”) and the Victorian Civil and Administrative Tribunal (“VCAT”) respectively (each constituted by the same member) have dealt with the Permanent case: Kivelos Nominees Pty Ltd v Commissioner of State Revenue (1997) 37 ATR 1025, 97 ATC 2135 and The Muir Electrical Company Pty Ltd & Ors v CSR (1998) 99 ATC 2083. In Kivelos there was involved a grouping for pay-roll tax purposes of a trustee company which operated a factory for a family trust and a company which provided supplies to that factory. The grouping was imposed pursuant to s 9A of the Pay-roll Tax Act 1971 (Vic) which had been expanded in 1987 to include among other provisions, specific reference to trusts, which were not in force at the time relevant to the assessments set aside in the CS & Co Legal Services Pty Ltd decision. In Kivelos the grouping was upheld by AATV. There was in Kivelos particular reference to s42(i) which had been introduced in 1993, according to the second reading speech, for an abundance of caution lest a view, evidently stemming from consideration of the Permanent case, that even with the 1987 amendments to s 9A, trustees could not be grouped with other employers and be valid (Kivelos at [12] and [13]). S 42(i) was in terms similar to s 42(2) of the PTA. It was argued in Kivelos that the introduction of s 42(i) amounted to a tacit concession by Parliament that the grouping provisions could not apply to trusts. The Tribunal rejected that argument, commented further that s 9A was “a central provision of the taxing parts of the Act” and s 42 “is to be found in the miscellaneous part dealing with the way in which trustees are to make returns and chargeable for the relevant tax” and held “…it is clear that parts of s 9A that I have referred to make other provisions as for trusts so as to remove s 42 from consideration.”

27 The VCAT decision, the Muir Electrical case, followed Kivelos and held further that the grouping provisions within s 9A did not operate to override s 42 only where the relevant part of s 9A contained express reference to trusts. One of the parts of s 9A under particular consideration in that case was s 9A(1C) which made no express reference to trusts in its relevant provisions and which had provisions akin to s 106(1)(2)(c) and (d) of the TAA which are relied on here by the Respondent in respect of the TBM business component for the JM Grouping. The Muir Electrical decision was affirmed in an appeal which did not raise this aspect of the decision and did not refer to the Permanent case: The Muir Electrical Company Pty Ltd v CSR [1999] VSC 239, 99 ATC 4654, 42 ATR 285.

28 In Fanfold Business Forms Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 210, this Tribunal ruled that the grouping pursuant to s 16D of the PTA of a print manufacturing business conducted by one company in its own right with print-broking business conducted by another company as a trustee was inappropriate to have been made. The decision involved reliance on the Permanent case and reference to the Trevisan, Kivelos and CS & Co Legal Services Pty Ltd decisions. It also involved the question of the exercise of a degrouping discretion by the Respondent. We do not find in this decision any development of relevant principle which would be of assistance in the case before us. At [19] the Tribunal said:

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

Further, we bear in mind that in the case before us, the three groupings are accepted by the Appellant as appropriate under s 106I.

29 This further consideration of the Permanent case and associated authorities together with what we have set out in Part D of this decision concerning that case, lead us to the view that:

(a) The Permanent case should be taken to apply to a grouping of companies which are trustees, based only on the related corporations provision of the then s 16B of the PTA and the present s 106G of the TAA. We respectfully agree with the appraisal by the Judicial Member of the Permanent case in the original decision, in particular at [20] which we have quoted in Part D above. To the extent that the Fanfold decision may have suggested a wider application for the Permanent case, we respectfully do not follow it.

(b) Consistently in particular with the Victorian Tribunal decisions in Kivelos and Muir Electrical, the detailed provisions of s 106I of the TAA, insofar as they apply to companies which are trustees, constitute relevant exceptions for the purposes of s 42 of the PTA; in other words, those provisions fall within the “except as otherwise provided by this Act” part of s 42(1)(b) and within s 42(2).

30 It follows, in our opinion, that the JM Grouping is not overridden by s 42 of the PTA.

31 As to the TBM Grouping, we repeat our understanding of the Appellant’s argument: for the purposes of s 106I(2)(a) of the TAA it could not be said that TBM was the sole owner of the hotel business conducted through the TBM Unit Trust, as MMPL was also an owner in that as the only unit holder and beneficiary in TBM Unit Trust, MMPL was entitled to all of the income and capital gains derived in respect of the hotel business. We find it difficult to appreciate how this argument is consistent with the Appellant’s acceptance of the situation that the TBM grouping is valid under s106I. Nevertheless, in our opinion, the argument is without foundation and should be rejected:

(a) The argument does not accommodate the actual words of s 106I(2)(a) -

“(2) For the purposes of this section, a person … has a controlling interest in a business if:
(a) in the case of 1 person – the person is the sole owner (whether or not as trustee) of the business…”

The argument cannot surmount the parenthetical reference in the provision to the irrelevance of the sole owner’s status as trustee.

(b) Even in respect of an application of the rule in Saunders v Vautier (1841) 4 Beav 115, there is no evidence of any call (or entitlement to make such a call) made by MMPL for the transfer to it of the business and further, the terms of the trust deed may operate such that MMPL has no right to make such a call without first discharging liabilities to TBM as trustee (CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98 at [48]-[52]).

(c) In any event there is no expanded definition of “owner” in the PTA to include a person entitled to receive rents and profits as in, for example, the Land Tax Management Act 1956 s 3.

Again, the controlling interest of TBM in the real estate agency business was not itself explicitly challenged whether on a s 42(1) basis or at all.

32 As we have noted, the Appellant does not challenge the MMPL Grouping on the basis of s 42(1) of the PTA or at all. Notwithstanding the concession previously made by the Appellant that “the Respondent was entitled to group the applicants and to refuse to de-group them in respect of the relevant period” (original decision [7]) and the non-prosecution for the purposes of the original decision of the s 16C issue, the Appellant now submits that this Panel should refer the MMPL Grouping to the Respondent for the exercise of a degrouping discretion. No submissions have been made by the Appellant as to why, contrary to the history of these proceedings, the de-grouping power should now be regarded as available and it is not appropriate for us to set about an exploration in respect of that issue. Notwithstanding that, the degrouping power (s 16C(2)) is exercisable only if there is just one available grouping principle:

“In the case of a person referred to in subsection (1)(b), the determination may be made only if the Chief Commissioner is satisfied that the person would, but for the determination, be a member of a group with a person who carries on another business because of the application of one (but not more than one) of the following grouping principles:

(a) the exclusive ownership grouping principle (section 106I(2)(a) and (b) of the Taxation Administration Act 1996),

(b) the corporate grouping principle (section 106I(2)(c) and (d) and (3) of the Taxation Administration Act 1996),

(c) the common beneficiary grouping principle (section 106I(2)(e) and (f) and (5)-(8) of the Taxation Administration Act 1996).”

Here, as we see it, and apart from the other considerations about previously conceded lack of power, there are three available grouping principles remaining, such that a de-grouping determination is on that account alone, not available. In our opinion, no case for relief concerning the MMPL Grouping has been made out by the Appellant.

Part G Conclusion

33 In the overall result, this appeal fails. There was no error of law as alleged in the original decision. No suggestion of any investigation of the merits arises. The subject grouping decision must be affirmed. The Respondent has indicated that it does not seek costs and we make no order as to costs with the intent that each party should pay its own costs.

Part H Orders

1. Appeal dismissed.

2. The order appealed from, affirming decision of the Respondent to group the Appellant and The Belmore Maitland Pty Ltd for the period 7 January 2005 to 30 June 2006 for the purposes of pay-roll tax, is affirmed.

3. No award of costs.