|Date of judgement||15 December 2017|
|Judge(s)||RL Hamilton SC, Senior Member|
|Court or Tribunal||New South Wales Civil and Administrative Tribunal|
TAXES & DUTIES – PAYROLL TAX – GROUPING – Discretion to Degroup
The entities Cessnock Tyres Pty Ltd (“Cessnock Tyres”), Cessnock Truck Tyre Centre Pty Ltd (“CTTC”), O’Neill Tyres Gateshead Pty Ltd (“Gateshead”) and Bayrond Pty Ltd (“Bayrond”), are each run by 1 of 3 sons (Mark, Bernard and Stephen) of the founder of the businesses. Each of the entities is in the business of tyre retail sales, each for different types of vehicles, each is controlled by a separate trust and together they form a group entitled “O’Neills Tyres”. The directors of Cessnock Tyres during the relevant period were Mark and Bernard. Mark is also a director of Bayrond and CTTC.
The entities appeared to be linked in various respects including trading arrangements, shared services, and control and direction. The businesses purchased stock in bulk and received subsequent rebates and discounts, made intra-group stock transfers and were listed together on one “O’Neills Tyres” website, although stating they are independently run. The businesses shared accounting services, although financial data was maintained separately along with banking and telecommunications arrangements. They also made significant loans to one another in excess of $50,000 but shared no common employees. In relation to control and direction, each brother submitted that decision making and conducting of each business was done only with consideration of the interests of each individual entity and its owners and had no regard to the other entities.
The Tribunal considered two issues:
The Tribunal determined that, as the application to seek leave for late lodgement was not opposed, leave was granted pursuant to s. 41 of the Civil and Administrative Tribunal Act 2013.
The Applicant submitted that there was an intention that each business would operate separately from the other businesses following a family disagreement, evidenced in a previous Application for Exclusion from Grouping in 2012 which was not pursued. A Rectification Deed entered into by the brothers was an attempt to renounce their interests in the other brothers’ respective trusts.
The Applicant proposed that, pursuant to s. 79 of the PTA, the Chief Commissioner should exercise the discretion and degroup Cessnock Tyres from the O’Neills Tyres group, on the basis of change in directorships of the entities within the group and the lack of common employees.
The Chief Commissioner argued that there were three smaller groups within O’Neills Tyres. The Applicant was grouped with Bayrond under s. 72 of the PTA, as Mark was a director of both and held a 50% share, indicating a level of common control (Group 1). CTTC and Gateshead are grouped under s. 70 as related corporations (Group 2). CTTC and Bayrond are grouped under s. 73, as brothers Mark and Bernard are related persons with controlling interests (Group 3). Under s. 74, these three smaller sub-groups form one large group with common, controlling interests.
In relation to the Rectification Deed, the Chief Commissioner argued that this was ineffective to degroup the entities pursuant to s. 72 of the PTA for the following reasons:
InLombard Farms v Chief Commissioner of State Revenue  NSWADTAP 42 the Appeal Panel determined that, in exercising discretion to degroup a taxpayer under section 79 of the Act, it must be established that the business was carried on independently of and not connected with the business of any other member of the group. Section 79 provides that the decision maker must have regard to the nature and degree of ownership and control of the businesses and any other relevant matters.
The Tribunal upheld the Chief Commissioner’s decision to refuse the degrouping application. Whilst it was accepted that there was an attempt to distance Cessnock Tyres from the other entities within the group, there were still links suggesting they remained connected and were not independent within the meaning of the Payroll Tax Act. The Tribunal noted that: