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Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184; Federal Commissioner of Taxation v Consolidated Media Holdings (2012) 250 CLR 503; [2012] HCA 55; Gebo Investments (Labuan) Ltd v Signatory Investments Pty Ltd [2005] NSWSC 544; Grain Growers Ltd v Chief Commissioner of State Revenue [2015] NSWSC 925; Hyde v Sullivan (1955) 56 SR (NSW) 113 Kay’s Leasing Corporation Pty Ltd v Fletcher (1964) 116 CLR 124; [1964] HCA 79 Hope v Bathurst City Council (1980) 144 CLR 1; [1980] HCA 16 Taxation (WA) (1996) 189 CLR 253; [1996] HCA 32 Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (2011) 245 CLR 446; [2011] HCA 41 Tobacco Leaf Marketing Board v Corte [1983] 3 NSWLR 10 Valve Corporation v Australian Competition and Consumer Commission (2017) 258 FCR 190; [2017] FCAFC 224
Background
These proceedings concerned a review of the Chief Commissioner’s decision to group Winlina Pty Ltd (“Winlina”) with Panlirn Pty Ltd (“Panlirn”) via common control (s.70 of the Payroll Tax Act (PTA)). Panlirn carried on its business in NSW and went into liquidation without paying its payroll tax. Winlina therefore became jointly and severally liable for Panlirn’s tax debt.
Issues
Winlina challenged the grouping on the basis that it carried on its business in Queensland and did not carry on business in NSW. The issues to be determined were:
whether Winlina is not a group member with Panlirn, as the grouping provisions of the PTA do not apply to corporations who do not carry on business in NSW; and
if the PTA applies to corporations that do not carry on business in NSW, whether the PTA is invalid to the extent that it purports to apply to the extraterritorial activities of Winlina, because it exceeds the power of the State Government to make laws “for the peace, welfare and good government of New South Wales”.
Submissions
The plaintiff submitted that:
Pt 5 of the Payroll Tax Act (“PTA”) does not apply to Winlina because Winlina is a business wholly based in Queensland and did not “carry on a business” in NSW as it did not employ any person to perform work in NSW or pay wages for work performed in NSW; and
for the purposes of s. 72 (in Pt 5 of the PTA), the “businesses” referred to are necessarily businesses “carried on” in NSW. Section 12(1)(b) of the Interpretation Act 1987 required the words of a statute to be read as if the words “in and of New South Wales” are incorporated within that statute unless the contrary intention appears. (1) The words “of New South Wales” indicated that there must be a territorial connection between the law and NSW. (2)
The Chief Commissioner submitted that:
the proper construction of the text of Pt 5 of the PTA, considered in the light of its context and purpose, requires the conclusion that no geographical limit be placed on its application; and
Part 5 of the PTA was within the constitutional competence of NSW.
Decision
The Court held:
A company may be found to be carrying on a business “in” a particular geographic area even though the bulk of its business is conducted elsewhere.(3)
For the purposes of Pt 5 of the PTA (if it were assumed that it refers only to a business carried on in NSW), a corporation will carry on business “in” NSW in circumstances where, at least:
the corporation has a place of business located within NSW;
and members of the corporation’s management engaged in activity on behalf of the business are resident in NSW and performing tasks on behalf of the business in NSW.(4)
Winlina carried on business in NSW throughout the relevant period; its registered office and principal place of business were located in NSW; its sole director, who was responsible for the day-to-say management of the company was resident in NSW; its operative trading bank accounts were held with bank branches in NSW; it engaged in a systematic and continuous course of dealings with companies, for a fee, which were registered and trading in NSW; and it loaned monies to companies which were registered and trading in NSW (paras. 80-81).
Even if Winlina did not carry on business in NSW, no geographical limit is to be placed on Pt 5 of the PTA’s application i.e. there is no requirement that group members must “carry on” a business “in” NSW.
Division 2 of Pt 2 of the PTA contains its own comprehensive geographic limitation. Section 10 of the PTA provides that “taxable wages are wages that are taxable in this jurisdiction”. Thus, no employer or group member may be liable for payroll tax in more than one State or Territory in respect of the same wages.
Additionally, s. 79 in Pt 5 of the PTA contains a further relevant limitation. A company which carries on its business independently of, and in a manner unconnected with, the carrying on of businesses by the other group members can apply to be excluded from the payroll tax group under s. 79 of the PTA.
The suggested additional geographical limitations Winlina advanced were inconsistent with the anti-tax avoidance purpose of Pt 5 of the PTA of ensuring the collection of payroll tax from members of the group is not negated simply because a group member is based in another State.(5)
The only modern justification of the principle that legislation enacted by a State and operating outside its territory must be connected in some relevant way with the State, is that it may avoid conflicts with other rules of law applicable to the area in which the legislation is intended to operate.(6)
It was undesirable to address the constitutional validity of a law when the facts necessary to address such an argument (i.e. that Winlina did not conduct business in NSW) have not been proven.
Winlina bore the onus of demonstrating that during the relevant period Winlina did not carry on business in NSW (7) and did not discharge it.
Orders
(1) Summons dismissed.
(2) Plaintiffs to pay the costs of the defendant as agreed or assessed.