Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue

Seovic Engineering Pty Ltd and others (the applicants) sought leave to appeal a decision of the Appeal Panel of the Supreme Court of New South Wales concerning the Chief Commissioner of State Revenue's (the respondent) discretion to de-group related companies for payroll tax purposes. The dispute centred on whether the Appeal Panel had erred in law by finding that a necessary precondition for the exercise of this discretion under section 79(2) of the *Payroll Tax Act 2007* (NSW) had not been met.

The core legal issues before the court were whether the precondition in section 79(2) was satisfied when it was merely just and reasonable to exclude certain entities from a group to avoid the harsh consequences of the grouping provisions. Furthermore, the court had to consider whether, in assessing this precondition, the Appeal Panel ought to have taken into account factors such as the presence or absence of artificial arrangements designed to avoid payroll tax, the splitting of existing businesses, or other stratagems, and whether the commercial dealings between group members were on arm's-length terms.

The Court of Appeal dismissed the applicants' summons seeking leave to appeal. The Court found that the Appeal Panel had not erred in law. The reasoning focused on the interpretation of section 79(2), which requires that it be "just and reasonable" to exclude a person from a group. The Court held that this precondition was not satisfied simply by demonstrating that exclusion would alleviate harsh consequences. Instead, the assessment of whether it is "just and reasonable" requires a broader consideration of the circumstances, including whether arrangements were artificial or designed to avoid tax, and the nature of dealings between group members. The Appeal Panel's conclusion that the precondition was not met was upheld.