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Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42

Date of judgement 6 September 2013 Proceeding No. 139005
Judge(s) RL Seiden, Deputy President
J Block, Judicial Member
C Bennett, Non Judicial Member
Court or Tribunal Appeal Panel of the Administrative Decisions Tribunal
Legislation cited Payroll Tax Act 2007 (NSW) s 79
Catchwords Payroll tax - grouping provisions - de-grouping of company - discretion of Chief Commissioner to de-group - nature of discretion under Payroll Tax Act 2007 (NSW) s 79 - independent and not connected - ability to influence management - ability to control - inter-company loans - carrying on of business - statutory interpretation - question of law or fact - task of Appeal Panel where error of law
Cases cited Aktiebolaget Hassle v Alphapharm Pty Limited (2002) 212 CLR 411

Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223

AT v Commissioner of Police, NSW [2010] NSWCA 131

The Australian Gas Light Company v Valuer-General (1940) 40 SR (NSW) 126

B&L Linings Pty Limited v Chief Commissioner of State Revenue [2008] NSWCA 187

Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181

Collector of Customs v Agfa-Gevaert (1996) 186 CLR 389

Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280

Commissioner of Taxation v Crown Insurance Services Limited (2012) 207 FCR 247

Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297

GTS Industries Pty Limited v Commissioner of State Revenue [2004] VCAT 21

Lloyd v TCN Channel Nine Pty Ltd [1999] NSWADTAP 3


Lombard Farms Pty Ltd v The Chief Commissioner of State Revenue [2013] NSWADT 17

Lo v Chief Commissioner of State Revenue [2013] NSWCA 180

Minister for Aboriginal Affairs v Peko-Wallsend (1986) 162 CLR 24

Neat Domestic Trading Pty Ltd v AWB Ltd (2003) 216 CLR 277


Network Clothing Company v Commissioner of State Revenue [2007] VCAT 2492

Newcastle City Council v GIO General Ltd (1997) 191 CLR 85

Norrie v NSW Registrar of Births, Deaths and Marriages [2013] NSWCA 145


R v Young (1999) 46 NSWLR 681

Screen Australia v EME Productions No 1 Pty Ltd (2012) 200 FCR 282


Sharp Corporation of Australia Pty Ltd v Collector of Customs (1995) 59 FCR 6

Triline Homes Pty Ltd v Commissioner of State Revenue (Vic) (1994) unreported AAT Vic 3.3.95

Summary

The Taxpayer appealed to the Appeal Panel against a decision by the Administrative Decisions Tribunal confirming the Chief Commissioner’s payroll tax assessments for the 2008 to 2010 tax years. The substantive issue was whether the Taxpayer should be grouped with four other entities.

It was common ground that the entities were properly grouped under the provisions of the Payroll Tax Act 2007 (NSW) (“the 2007 Act”). The issue was whether the Chief Commissioner ought to have exercised the discretion under s 79(2) of the 2007 Act to determine that the Taxpayer was not a member of the group.

At first instance Judicial Member Verick (“the Judicial Member”) construed the statutory test as requiring no connection between the group members and complete independence between group businesses.

The Appeal Panel determined that to say there can be absolutely no connection between the entities set the bar too high, and as a result the Judicial Member misapplied the statutory test. This constituted an error of law, and the matter was remitted to the Tribunal for reconsideration.

Background

The Taxpayer appealed to the ADT Appeal Panel solely on questions of law.

The Chief Commissioner submitted that the questions raised were questions of fact. In the alternative, the Chief Commissioner submitted that there was no error in the Tribunal’s decision and the appeal should be dismissed.

Whether the issues are Questions of Law

The Appeal Panel distilled the following propositions that were relevant to the matter:

  1. The question whether a word or phrase is to be given its ordinary meaning is a question of law;

  2. The question whether a word is used in a sense other than that in which it is used in ordinary speech is a question of law;

  3. Where, objectively, there is uncertainty as to the meaning of a word, the process of construction raises a question of law;

  4. The process of construing and the construction of an expression raises questions of law; and

  5. Whether facts as found are capable of falling within a statutory provision, must necessarily fall within the statutory provision or must necessarily fall outside the statutory provision are questions of law.

The Appeal Panel found that the Tribunal was required to form a view about whether or not the Taxpayer’s business was “independent” and “not connected with” the other businesses within the group, within the context of the Act. This process required the Tribunal to have regard to the language used by Parliament, the context of the Act as a whole and the historical changes. This task involved a question of law.

The Taxpayer contended that the Judicial Member erroneously constructed the statutory test:

  1. too narrowly by requiring the businesses to be carried on “quite independently” and “without connection or influence” from other group members (grounds 1 and 2);

  2. by taking irrelevant considerations into account, that is, the theoretical ability of a principal of one business being able to control the business of the others, as opposed to whether they were actually carried on independently (grounds 3 and 4); and

  3. by giving the mere fact that there was an inter-group loan conclusive force, which either had regard to an irrelevant consideration or disclosed (by putting too much weight on a relevant factor) that the wrong statutory test had been employed (ground 5).

Grounds 6 to 9 were abandoned by the Taxpayer during the hearing. Grounds 10 and 11 were in furtherance of the earlier-stated grounds.

Grounds 1 and 2

These grounds raised the question of whether s 79(2) of the 2007 Act required a determination that there was complete independence and complete absence of any connection between the Taxpayer's business and the businesses run by the other members of the group.

Prior to the introduction of the 2007 Act, the Payroll Tax Act 1971 required “substantial” independence between group businesses. The Appeal Panel observed that, on its face, the omission of the word "substantial" from the 2007 Act would suggest that the current provision had a narrower ambit than earlier versions, as decided by Judicial Member.

However, the Appeal Panel favoured the Taxpayer’s submission that the omission of the word “substantial” in the 2007 Act did not have a narrowing effect. The Appeal Panel noted the object of the Bill was to harmonise the NSW and Victorian Acts as outlined in the Explanatory Note to the Bill. In two Victorian cases (GTS Industries Pty Limited v Commissioner of State Revenue [2004] VCAT 21; and Triline Homes Pty Ltd v Commissioner of State Revenue (Vic) (1994) Unreported AAT Vic 3.3.95 (Triline)) an earlier version of the Victorian Act had been interpreted consistently with the view that only “substantial” independence was required, despite the fact that the relevant Victorian provision did not contain the word “substantial”. The Appeal Panel agreed with the findings in these Victorian cases.

The Taxpayer also contended that the construction arrived at by the Judicial Member led to an absurd result. The Taxpayer argued that in order for entities to be grouped in the first place there must be some connection between them, and if any connection excludes the possibility for exercising the discretion then s 79(2) could never be used.

However, the Appeal Panel reasoned that the focus in s 79(2) is on the connection between the carrying on of the businesses and not merely any connection between the different entities. Therefore the entities might be de-grouped under s 79(2) if the reason they were grouped in the first place was not a connection in respect of the ‘carrying on’ of the business within the group. On this basis the Appeal Panel rejected the Taxpayer’s submission that the construction of s 79(2) adopted by the Judicial Member led to an absurd result.

The Appeal Panel held that a connection between businesses must be meaningful in a commercial sense and not inconsequential to the carrying on of the business in order to disentitle a group member to de-grouping. The Appeal Panel endorsed the words of G T Pagone, Presiding Member in Triline at [25] that there must be a finding of substantial absence of connection and substantial independence between the businesses to warrant the exercise of the discretion. The Judicial Member construed the statutory test as requiring no connection between the group members and complete independence between group businesses. The Appeal Panel determined that to say there can be absolutely no connection between the businesses set the bar too high. This constituted an error of law, and the matter was remitted to the Tribunal for reconsideration.

Grounds 3 and 4

The Taxpayer argued that the Tribunal took into account an irrelevant consideration and, therefore, made an error of law when it took into account the theoretical ability of a principal of one business to control the business of the others, as opposed to the actual carrying on of those businesses.

The Appeal Panel held that the ability of a principal in one business to influence the management and decision-making of another is not an irrelevant consideration. One of the factors that can be taken into account under s 79(2) is the nature and degree of ownership and control of the businesses. This indicates that the ownership and therefore inherent (or theoretical) ability to control the businesses is not an irrelevant consideration.

Ground 5

The Taxpayer argued that the Judicial Member placed too much weight on the fact that there was an inter-group loan or took into account an irrelevant consideration or resulting in the Judicial Member applying the wrong statutory test.

The Appeal Panel held that whether the loan was sufficient to disentitle the Taxpayer from de-grouping, was a factor to be weighed up in the balancing exercise. This will be a matter for the Tribunal to consider on remittal.

Grounds 10 and 11

The Taxpayer claimed that the Judicial Member took into account irrelevant considerations or placed undue weight on certain factors, such as the role of Alpine as financier and the role of Albem as service provider. The Taxpayer also claimed that the Judicial Member failed to give due weight to other factors, such as the lack of common employees, customers and resources, the commercial basis for the loan from Alpine, the fact that the loan had recently been substantially amortised, and that Alpine was controlled by another family member.

Other factors taken into account by the Judicial Member included that the ultimate owners and controllers of the various businesses were closely connected members of the same family; that there were no separate meetings of the directors and shareholders of the individual entities; that there were no meetings of each entity on an independent basis to set future directions or make independent business decisions; and that the siblings had the ability to decide and provide directions to the Taxpayer.

The Appeal Panel found that the factors taken into account by the Judicial Member were not irrelevant considerations, because s 79(2) expressly directs attention to the nature and degree of ownership and control of the businesses, and “any other matters” the Chief Commissioner considers relevant.

Reason for remitting the matter to the Tribunal

The Appeal Panel found that the Tribunal made an error in construing the statute, and determined that the matter be remitted to the Tribunal. However, in forming this view, the Appeal Panel noted that as the appeal did not extend to the merits, the task of the Appeal Panel was to make the “correct” decision, but not to make an evaluative decision. The Appeal Panel also noted that it would only make a decision rather than remit the matter to the Tribunal in a case where a particular outcome was required as a matter of law. As the decision in this case requires the exercise of judgment and there is no single conclusion open in the circumstances, the Appeal Panel decided that remitting the matter to the Tribunal as originally constituted, was the appropriate course.

The nature of the discretion

The Taxpayer submitted that there was no true discretion in s 79(2) as once it has been objectively determined that the businesses were independent and not connected then de-grouping must follow. The Chief Commissioner submitted that even if the businesses were independent and not connected, the Chief Commissioner has a true discretion to not de-group.

The Appeal Panel did not decide this issue as the matter was to be remitted to the Tribunal for reconsideration. However, the Appeal Panel commented that if this issue were to arise when the matter was re-heard, s 79 of the Act appeared to provide the Chief Commissioner with a true discretion subject to there being a finding of independence of group businesses. The exercise of the discretion is to be exercised within the limits delineated by the subject matter, scope and purpose of the provision.

Appeal Panel Decision

The appeal was allowed. The Tribunal’s decision was set aside and the matter was remitted to the Tribunal as originally constituted, to be determined in accordance with the Appeal Panel’s Reasons.

Link to decision

Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42

Last updated: 18 May 2016