Bisvic Pty Limited v Chief Commissioner of State Revenue (No2) [2014] NSWCATAD 166

Background

In these proceedings, the Taxpayer, Headwear Pty Ltd, sought review of the Chief Commissioner’s decision not to degroup the Taxpayer and three other employers (“the Headwear Group”) under s.79 of the Payroll Tax Act 2007 (“the Act”) in respect of the 2008 to 2011 tax years (“the Relevant Period”). The other employers are Duwan Pty Ltd as trustee for The Barblett Trust (“the WA Business”), 055 698 149 Pty Ltd as trustee of the Headwear Stockists Unit Trust (“the Victorian Business”), and the Taxpayer as trustee for a partnership trading under the name "Headwear Stockists (QLD)" (“the Queensland Business”).

The Headwear Group has been in the headwear (caps and hats) manufacturing industry since 1974, with a distribution network serving all continents of the world. It provides customised headwear for corporate, sporting, licensed and retail customers.

By letters dated 28 March 2011 and 12 December 2011, the advisers for the Taxpayer, Nexia Perth Pty Ltd (“the Advisers”) conceded that the Headwear Group constituted a group for payroll tax purposes. However, they requested that the Chief Commissioner exercise his discretion to exclude the Taxpayer from the group.

The Statutory Framework

Section 79 of the Act enables the Chief Commissioner to exercise a discretion to exclude a member of a group if 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 Chief Commissioner considers relevant, that a business carried on by the person, 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.”

Decision

The issue for determination is whether the Tribunal, standing in the shoes of the Chief Commissioner, should exercise the discretion in s.79 of the Act to exclude the Taxpayer as a member of the Headwear Group.

Nature and degree of ownership and control

The Tribunal had regard to the fact that Peter and Suzanne Barblett owned and controlled the WA business, Peter Barblett, R.B. Peterson and R.A. Brandsma controlled the board of the business entities in NSW, Victoria and Queensland, and trusts associated with these individuals and I.P. Crockett held 70% or more of the interests in the businesses in NSW, Victoria and Queensland.¹

Nature of the business

Financial statements from the Barblett Trust show that it received income, distribution and interest from businesses in the Headwear Group. Further, the Barblett Trust was the major equity owner in each of the NSW business, the Queensland business and the Victorian business. Mr Barblett was at all relevant times a director of the company carrying on each such business as well as being a director of the trustee of the Barblett Trust.² Senior Member Isenberg concluded the Barblett Trust was engaged in the business of investing and deriving income from business in the Headwear Group not just the importation and distribution of headwear to WA.³

Other relevant matters

The Tribunal considered various matters presented in evidence, including:

• All businesses in the Headwear Group had the same financial advisers. ⁴
• The sole manufacturer of stock for Headwear companies globally throughout the Relevant Period was a single factory in China. The Tribunal found that Mr Barblett, as director of all group members, is a person who was in a position of substantial influence in relation to all group businesses, in terms of marketing, contact with potential customers through the common website, the provision of financial assistance and control of equity. It was Mr Barblett’s evidence that all communications between the factory on the one hand and all Headwear companies globally and in Australia be through the WA business which him and his wife controlled.⁵
• The supply of ongoing administrative and bookkeeping services by the WA business to the Taxpayer over a 15 year period, without considering contracting the work to another accountant or part-time accountant, suggests a strong likelihood that there was a substantial connection between the businesses.⁶
• The use of the same stationary for their invoices and identical invoice formats could not come about without some central purchasing arrangement.⁷
• As to competition between the headwear Group, Mr Barblett gave evidence that they would compete for contracts; however evidence from Mr Smith contradicted this. He stated that the NSW business is only involved in sales in NSW and the ACT.⁸
• No minutes were recorded of the director’s meetings. Evidence from Mr Smith stated that the only meetings that took place were between him and Mr Barblett, despite there being two other directors.⁹
• The financial statements showed a loan from the Barblett Trust to the Taxpayer of $390,765 as at 30 June in each year in the Relevant Period. The evidence is that there was no loan agreement and no security was provided. The Tribunal considered that this loan comprised more than half of the Taxpayer’s liabilities for each financial year and this, compared to other liabilities, was not a small loan and was not repaid over a lengthy period.¹⁰
• There is a single website for the Headwear Group, and all contacts from this website are dealt with by the WA business at first instance. The Tribunal regarded this procedure as suggestive that the businesses were not independent.¹¹
• Mr Barblett was a signatory to the Taxpayer’s bank account and paid the FBT and BAS liabilities of the Taxpayer.¹²

In his submissions, Mr Diorio asserted that the Taxpayer’s business activities comprise a small percentage of that of the WA business. He also submitted that matters such as the involvement of Mr Barblett in compliance issues, form filling and the common web site were not material connections considering the judgement in Chief Commissioner of State Revenue v Seovic Civil Engineering Pty Ltd [2014] NSWCATAP 94 (“Seovic”) at [56].¹³

However, the Tribunal found that, while matters such as the businesses using the same external advisers, sharing the same postal address and the business operators having the same registered office may of themselves be inconsequential, in order to answer the statutory question it is necessary to consider those matters in conjunction with other potentially relevant matters including:

• the role played by Mr Barblett in the business activities of both the Taxpayer and the WA business;
• the supply of all stock to all group members from a single factory with exclusive communications through the WA business;
• the financial connections between the Taxpayer and the Barblett Trust;
• Mr Smith’s failure to consider alternate sources of stock, funding and providers of administrative and accounting services;
• group marketing and the Headwear Group website;
• the communication process for potential clients of the Headwear Group; and the use of the same “Headwear” branding by all group members.

Those considerations taken together, led the Tribunal to conclude that the Taxpayer has not discharged its onus of satisfying, on the balance of probabilities, that for any tax year during the Relevant Period the business of the Taxpayer was carried on independently of and was not connected with the carrying on of each other group business.¹⁴

Orders

The decision under review was affirmed.

Link to decision

Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166

Footnotes

1. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [26].
2. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [32].
3. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [33].
4. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [36].
5. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [53].
6. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [56].
7. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [59].
8. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [61].
9. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [63]-[68].
10. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [75].
11. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [79]-[80].
12. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [81]-[86].
13. ^ See Chief Commissioner of State Revenue v Seovic Civil Engineering Pty Ltd [2014] NSWCATAP 94, [56]: “In these circumstances, it can be said that the carrying on of the businesses of each of (the other two companies) was connected to Exell’s carrying on of its business. Accordingly, a statutory precondition to exclude a member from a group (absence of connection) is not met”
14. ^ Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, [106].