|Date of judgement||5 January 2016|
|Court or Tribunal||NSW Civil and Administrative Tribunal - Administrative and Equal Opportunity Division|
REVENUE LAW – payroll tax – grouping – reasonable care – interest – penalty tax - onus
In these proceedings, Chan & Naylor Australia Pty Ltd and Chan & Naylor Pty Ltd ATF the Chan & Naylor Trust (“the Applicants”), sought review of the Chief Commissioner of State Revenue’s (the “Chief Commissioner”), decision regarding liability for payroll tax in relation to grouping under the Payroll Tax Act 2007 (“PTA”) in respect of the financial years 2009 to 2013 (“the Relevant Period”) as well as penalty tax and interest imposed under the Taxation Administration Act 1996 (“TAA”).
On 8 August 2013, the Chief Commissioner assessed Chan & Naylor Australia Pty Ltd (“CN Australia”) as liable for payroll tax, penalty tax and interest in the amount of $222,246.95 for the Relevant Period, on the basis that both of the Applicants constituted a group for the purposes of NSW payroll tax from 1 July 2008 pursuant to Part 5 of the PTA (“the Initial Decisions”).
The Initial Decisions of the Chief Commissioner on 11 July 2013, were as follows:
The Applicants objected to the Initial Decisions and also made an application for exclusion pursuant to s.79 of the PTA. On 3 June 2014, the Chief Commissioner partly allowed the objection, stating that s.72(2)(g) did not apply as previously stated. However, as ss.72(1), 74(1) and 74(2) still applied, the Chief Commissioner issued amended assessments for the Relevant Period which reduced the aggregate tax, penalty and interest to $203,714.60 (“the Grouping Decision”).
The Applicants also sought review of the Chief Commissioner’s decision to refuse to exercise the power under s.79(2) of the PTA so as to exclude either or both of the Applicants from the group (“the Exclusion Decision”). At the request of both parties, the Tribunal directed that the question of costs in this matter and the determination of the exclusion application, be adjourned pending the determination of the Initial Decisions.
The Statutory Framework
With respect to grouping, Part 5, Divisions 1 to 3 of the PTA sets out several alternative statutory tests to determine whether a legal person is a member of a group. Under s. 79 of the PTA, the Chief Commissioner may, in some circumstances, determine that a person who would, but for the determination, be a member of a group is not a member of the group.
In the event of a tax default, ss. 21 and 22 of the TAA provide that the taxpayer is liable to pay interest on the amount of unpaid tax. Section 25 of the TAA, however, empowers the Chief Commissioner to remit the interest where appropriate.
Likewise, ss. 26 to 29 of the TAA outline the relevant provisions with regards to penalty tax in the case of a tax default, while s.33 provides for remission at the Chief Commissioner’s discretion. Notably, s.27(3) states that the Chief Commissioner may decide not to impose penalty tax if satisfied that:
The first issue for the Tribunal to consider was whether, as the Chief Commissioner contended, the Applicants were to be grouped for each payroll tax year during the Relevant Period. Pursuant to s.100(3) of the TAA, the Applicants had the onus of proving their case on the balance of probabilities. 1
The Tribunal examined each of Chan & Naylor Pty Ltd, CN Australia and CN Holdings in light of the parties’ submissions. The parties agreed that throughout the Relevant Period, the same persons, that is, Mr Edward Chan, Mr David Naylor and Mr Kenneth Raiss, were the directors of CN Australia and CN Holdings.2
With respect to Chan & Naylor Pty Ltd, the Tribunal noted that there was no evidence that the shares held by Mr Chan and Mr Naylor did not comprise all of the voting shares issued by the company, nor that Mr Chan and Mr Taylor could not together, throughout the Relevant Period, directly or indirectly exercise or control the exercise of more than 50% of the voting power attached to the company’s shares.3 Moreover, the Tribunal noted that Mr Chan and Mr Naylor were the only directors of Chan & Naylor Pty Ltd for the whole of the Relevant Period until 15 April 2013.4 Accordingly, pursuant to ss. 72(2)(e), 72(2)(c)(i) and 72(2)(d) of the PTA, the Tribunal found on the balance of probabilities that Mr Chan and Mr Naylor constituted a set of persons who had a controlling interest throughout the Relevant Period in the businesses carried on by Chan & Naylor Pty Ltd.5
With regard to CN Australia, the Tribunal held that it was not satisfied that Mr Chan was not the chairman of the board of directors of CN Australia with a casting vote throughout the Relevant Period.6 The Tribunal then considered that if Mr Chan was the chairman, and there was no evidence to the contrary, then he and Mr Naylor would have been a set of persons entitled to exercise more than 50% of the voting power at meetings of the directors of the company.7 Therefore, the Tribunal found on the balance of probabilities that for the Relevant Period, Mr Chan and Mr Naylor comprised an absolute majority of the board, entitled to exercise more than 50% of the voting power at directors’ meetings, and thereby satisfying s.72(2)(c)(i) of the PTA.8
In respect of CN Holdings, the Tribunal noted that throughout the Relevant Period, Mr Chan and Mr Naylor held not less than 65 and up to 85 of the 100 shares issued by CN Holdings.9 The Tribunal then held that as there was no evidence that the shares were subject to any rights or restrictions, it was satisfied on the balance of probabilities that Mr Chan and Mr Naylor could directly or indirectly exercise more than 50% of the voting power attached to the voting shares of the company.10 Accordingly, pursuant to s.72(2)(e), Mr Chan and Mr Naylor were a set of persons that had a controlling interest in the business of CN Holdings.11
In light of the above, the Tribunal was not satisfied that throughout the Relevant Period, Mr Chan and Mr Naylor did not comprise a set of persons with a controlling interest in each business carried on by Chan & Naylor Pty Ltd, CN Australia and CN Holdings.12Accordingly, the Tribunal concluded that each of Chan & Naylor Pty Ltd, CN Australia and CN Holdings constituted a group pursuant to s.72(1) of the PTA.13 The Tribunal further noted that, in any event, s.74(1) was also satisfied for the purposes of grouping the Applicants.14
The next issue for the Tribunal to consider was whether the interest and penalty tax imposed by the Chief Commissioner on the Applicants should be remitted in full. On the question of interest, the Tribunal cited Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue  NSWCATAD 215 as authority that only “exceptional circumstances”, such as where the Chief Commissioner contributed to the taxpayer’s default, would justify remission of interest.15 In this case, the Tribunal held that even if, as the Applicants had submitted, the Chief Commissioner had altered its position and caused lengthy delays in forming a final view with respect to grouping and assessments, the Tribunal did not consider these sufficient to constitute “exceptional circumstances” for remission of the interest.16
Finally, on the issue of penalty tax, the Tribunal cited Boston Sales and Marketing Pty Limited v Chief Commissioner of State Revenue  NSWCATAD 139 at - as authority that it is for the Applicants to prove their case before the Tribunal. Whether a taxpayer has taken “reasonable care” for the purposes of s.27(3)(a) of the TAA is a question of fact for which regard must be had to the particular circumstances of the case.17 The Tribunal found that the Applicants in this case had not sufficiently proved that they took reasonable care or that the tax default occurred because of circumstances beyond their control.18 Moreover, the Tribunal considered that the Applicants had not provided evidence of any appropriate circumstances to justify a full or partial remission of penalty tax under s.33 of the TAA.19 Therefore, the Tribunal was not satisfied that there existed circumstances in respect of which it would be appropriate for the Tribunal to remit the penalty tax beyond the extent already allowed by the Chief Commissioner.