|Date of judgement||8 June 2018|
|Proceeding number||AP 18/00216|
|Judge(s)||M Harrowell, Principal Member|
J Currie, Senior Member
|Court or Tribunal||Civil and Administrative Tribunal Appeal Panel|
PAYROLL TAX - s 79 Payroll Tax Act 2007 - order for de-grouping - independence
Associated Provincial Picture Houses Ltd v Wednesbury Corporation  1 KB 223
Cessnock Tyres Pty Ltd (“the Taxpayer”) lodged an application with the Chief Commissioner of State Revenue (“Chief Commissioner”) under s 79 of the Payroll Tax Act 2007 (“the PTA”), seeking to be de-grouped from a number of entities collectively known as the “O’Neills Tyres Group”. The Chief Commissioner refused the application, and the Taxpayer applied to the Tribunal for review of this decision.
On 15 December 2017, the Tribunal confirmed the Chief Commissioner’s decision1. The Taxpayer filed a Notice of Appeal with the Appeal Panel on 2 January 2018 in respect of the Tribunal’s decision.
The O’Neills Tyres Group (“the Group”) consists of four entities; Cessnock Tyres Pty Ltd, Cessnock Truck Tyre Centre Pty Ltd (“CTTC”), O’Neill Tyres Gateshead Pty Ltd (“Gateshead”) and Bayrond Pty Ltd (“Bayrond”). These entities are primarily owned and operated by three sons of the founder, Mark, Bernard and Stephen. The sons have interrelated trust arrangements. Mark and his wife are directors of the Taxpayer company, which carries on a business as trustee for the Mark O’Neill Family Trust (“the Trust”). CTTC is the trustee of Bernard’s family trust and is directed by Mark and Bernard. CTTC’s shareholders are Mark and the Taxpayer. CTTC sold its business to Gateshead. Gateshead’s directors are Bernard and Mr Leggett. Its shareholders are CTTC and Mr Leggett. Mark and Stephen are directors and shareholders of Bayrond.
Section 79(2) of the PTA provides:
“The Chief Commissioner may only make such a determination 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.”
At first instance, the Tribunal affirmed the Chief Commissioner’s decision to refuse to de-group the Taxpayer from the Group. The Tribunal was not satisfied that the entities were carrying out their individual businesses in a manner that was sufficiently independent and not connected with the other entities in the Group. The relevant considerations in making this decision included that the entities sharing a similar name, a common website and marketing arrangements which would influence the general public to regard them as connected. The entities sourced products from one another, ordered stock together obtain discounts and rebates, and had made a number of “intra-group” unsecured, informal loans. Finally, Mark held authority and therefore the potential to control the business of the other entities in the group, even if he did not exercise it.
The Taxpayer submitted that there was an injustice or factual error which led to the Tribunal’s decision not to grant an exclusion, and appealed on the grounds that the Tribunal made the following errors of law:
The Taxpayer submitted that the facts which influenced the Tribunal’s conclusion were limited to these factors.
The Taxpayer also claimed that, if these factors were not found to be errors of law, then the Taxpayer sought leave to appeal under s 80(2)(b) of the Civil and Administrative Tribunal Act 2013 (NSW) (“the CAT Act”).
The Chief Commissioner submitted that, pursuant to s 79 of the PTA, the Tribunal has a wide discretion to consider “any other matter” which it determines to be relevant in making its decision. The Chief Commissioner argued that the businesses were not independent, which was evident in their structure and informal relationships.
The test in Lombard Farms2 requires the trier of fact to be satisfied, by reference to objective facts, that the connection between members of a group is “material and not insignificant or inconsequential” (at ). Further, the connection should be “meaningful in a commercial sense and not immaterial or inconsequential to the carrying on of the business”. The Appeal Panel disagreed with the Taxpayer’s submission that the Tribunal’s conclusion was limited to the issues set out in the grounds of appeal and found that a number of factors were examined and given various weight towards the final decision (at ). Ultimately, it was concluded that the connection between the entities was material, and not insignificant or inconsequential.
By reference to the principles and the test in Lombard Farms, the Appeal Panel concluded that the issue of “public perception” is a question of law. Similarly, the question of whether the facts found by the Tribunal were sufficient to reach the conclusion that the businesses were independent is also such a question (at ). The Taxpayer submitted that “public perception” was considered by the Tribunal as a “relevant consideration”. The Appeal Panel concluded that the Tribunal had, in fact, made the finding that this was a connecting factor between the businesses on the basis of the shared website and marketing arrangements and therefore found there was no error of law.
In relation to the loans, the Appeal Panel concluded that there were several issues with the Taxpayer’s submissions and concluded that, again, there was no error of law. Firstly, the Tribunal reached a conclusion of financial interdependence based on the facts and the Taxpayer’s failure to discharge its onus of proof under s 100(3) of the Taxation Administration Act 1996 (NSW) to prove otherwise. Secondly, the common branding of the businesses suggests that they have a common interest in the success of the other businesses in the group. Coupled with the fact that the loans were not on commercial terms, this suggests financial interdependence (at ).
The Appeal Panel held that, when considering the “significance” of the amount of the loan in comparison to turnover in the context of determining independence, one must also consider the use and purpose of the loan, the commonality of business activities, location and holding out (at ).
The Appeal Panel also rejected the submission that, although Mark had the potential to control the business of the other entities, the fact that he did not should not be considered a relevant consideration. On the basis of the Lombard Farms requirement that the connection be “material and not insignificant”, the Appeal Panel could not conclude that the possibility to control and the common directorships of the brothers were factors that were “completely irrelevant” and they should in fact be considered and given weight (at  to ).