Conrad Linings Pty Ltd v Chief Commissioner of State Revenue  NSWSC 1020
|Date of judgement||18 July 2014||Proceeding No.||2011/221227|
|Court or Tribunal||Supreme Court of NSW|
|Legislation cited||Payroll Tax Act 2007
Taxation Administration Act 1996
|Catchwords||TAXATION AND REVENUE - assessment for payroll tax - where taxpayer is admittedly a group member with another company pursuant to s 72(2)(e) of the Payroll Tax Act 2007 and jointly and severally liable for payroll tax pursuant to s.81- whether the taxpayer should be excluded from group pursuant to s 79 of the Act|
Conrad Linings Pty Ltd appealed against decisions of the Chief Commissioner to group the company with Salex Interiors Pty Ltd for 2007-08 and 2008-09, and to not exercise the discretion to exclude Conrad from the group. Conrad subsequently conceded the companies were grouped.
In relation to exercise of the Chief Commissioner’s discretion to exclude Conrad from the group, the Court held that Conrad had failed to discharge the onus of proving the grounds of its appeal. The Court determined that Conrad had failed to present financial and other information to substantiate the evidence of its sole director in support of granting an exclusion.
The court considered that matters relevant to demonstrating that the businesses conducted by the two companies were not independent and were connected included that the same persons were the shareholders of both companies, there was a $500,000 inter-company loan, the two companies had the same place of business, Salex provided administrative services to Conrad, and there were common employees.
The Taxpayer, Conrad Linings Pty Ltd (“Conrad”), sought a review under s.97 of the Taxation Administration Act 1996 (NSW) of two decisions of the Chief Commissioner of State Revenue. The first decision of 3 December 2010 assessed Conrad as liable for payroll tax, penalty tax and interest for the financial years ended 30 June 2008 and 30 June 2009 on the basis that Conrad was a group member with another company called Salex Interiors Pty Limited ("Interiors") pursuant to s 72(2)(c)(i) and 72(2)(e) of the Payroll Tax Act 2007 (NSW) ("the Act").
The second decision was made on 13 September 2012 rejecting Conrad’s application under s.79 of the Act for exclusion from the payroll tax group.
The proceedings were the first proceedings where the Chief Commissioner of State Revenue has sought to use the joint and several liability provision in the Act to recover an amount of payroll tax payable by a corporation from another member of the payroll tax group.
Interiors was incorporated on 18 October 2004. Until at least April 2009 it had three shareholders, namely, Mr Kasim Salagic, Mr Nikola Jurleta and Mr Samir Decevic. Mr Decevic is the sole director of Conrad. He, Mr Salagic and Mr Jurleta became business partners in 2004 in the building industry, in particular in fixing walls and ceilings with plasterboard sheets. Interiors was incorporated for the purpose of operating that business. Each of the three shareholders became a director of Interiors.
Conrad was incorporated on 11 May 2006. It was then called Salex National Pty Limited. It changed its name to Conrad by resolution passed on 3 March 2010. Mr Decevic was its sole director. There were three issued ordinary shares in Conrad. From incorporation each of Messrs Decevic, Salagic and Jurleta held one share. Messrs Jurleta and Salagic continued to hold their shares until 10 September 2009, at which time Mr Decevic became the sole shareholder.
Although it had been raised in its Appeal Statement as a point of dispute, Conrad conceded at the hearing that by reason of s 72(2)(e) of the Act, it and Interiors were both members of a group for the years in question as Mrs Decevic, Jurleta and Salagic as a set of persons could directly control 100% of the issued shares in Conrad and Interiors during the years in question.
However, Conrad asserted that the Court ought to exercise its discretion under s.79 of the Act to exclude it from the payroll tax group. The onus of establishing that the discretion should be exercised in its favour lay with Conrad (Taxation Administration Act, s 100(3)).
His Honour noted that as grouping has been conceded, he did not have to decide this issue. However, His Honour found that even if it had been in issue, he would have agreed with the Chief Commissioner that Conrad and Interiors were grouped pursuant to s.72 of the Act.
Whether Conrad was “carrying on a business”
His Honour also noted that as grouping under s.72 relied upon Conrad “carrying on a business”, Conrad had now conceded that Conrad was carrying on a business during the years in question (it had previously disputed this). Again, His Honour found that if it were in issue, he would not accept Mr Decevic’s evidence given in cross-examination that Conrad did not trade at all during the relevant years. His Honour relied on Mr Decevic’s inconsistent evidence within his affidavit and in cross-examination as well as the objection to the assessment of 3 December 2010, where Conrad admitted that it did carry on a business for the relevant tax years.
Onus of proof
His Honour found that Conrad had not discharged its onus under s.100(3) of the Taxation Administration Act of establishing that the Court should exercise its discretion under s.79 to exclude Conrad from the group.
His Honour noted that Conrad had tendered no financial information about its business, no tax returns, financial statements, cash books, ledgers, journals or any other financial records were tendered by it. Nor did Conrad seek to corroborate Mr Decevic's evidence from any other source. Neither Mr Salagic nor Mr Jurleta, nor any employee of either business, nor any accountant retained for either business, was called.
Importantly, His Honour held that whilst the focus of s.79 is on the independence in the way the businesses are carried on and the lack of connection between them, the degree of ownership as well as the degree of control of the two businesses is a relevant matter.
His Honour considered the following matters were relevant to demonstrating that Interiors and Conrad were in fact not independent and were connected:
At least for the substantial part of the years in question the same persons were the shareholders of both businesses. Any profits derived by Conrad would have been for the benefit of the shareholders.
The $500,000 debt owed by Interiors to Conrad which showed that Conrad provided financial support to Interiors.
Both companies had the same place of business.
At least as at November 2007, Interiors provided administrative services to Conrad.
His Honour made the following orders:
The amended summons be dismissed.
The assessment dated 2 December 2010 of the taxpayer of payroll tax, interest and penalty tax for the periods 1 July 2007 to 30 June 2008 and 1 July 2008 to 30 June 2009 be confirmed.
The decision of the Chief Commissioner dated 12 December 2012 not to exclude the taxpayer from its group with Salex Interiors Pty Ltd for payroll tax purposes be confirmed.
The taxpayer pay the Chief Commissioner's costs.