Background
In these proceedings, the applicants (Home 789 Resources Pty Ltd (“Home 789”), Great Fortune Investment Pty Ltd (“GFI”), UFN Resources Pty Ltd (“UFN”) and Aust Sunshine Marketing Pty Ltd (“ASM”)) sought review of a decision by the Chief Commissioner not to exercise the discretion under s. 79 of the PTA to exclude the applicants from a single payroll tax group for the purposes of assessment of payroll tax. The applicants at all relevant times carried on business in the real estate industry.
The key facts in terms of ownership structure were:
- Mr Walton Chu was at all relevant times the sole director and sole shareholder of Home 789 and GFI;
- Mr Chu was also, at least for part of the period 1 July 2012 to 21 December 2016 (when the company was deregistered), the sole director and sole shareholder of Bright Ausina Pty Ltd;
- Mr Chu owned more than 50% of the issued share capital of UFN A Epping Pty Ltd (which was the trustee of the UFN A Epping Unit Trust) and Mr Chu had a beneficial interest in more than 50% of the units in that trust;
- Mr Chu was also a discretionary beneficiary of more than 50% by value of the CJ Family Trust. The primary beneficiaries of that trust were Mr Chu’s wife (Ms Whitney Jiang) and their children. The trustee of that trust was SWASW Wealth Pty Limited (“SWASW”), and in that capacity SWASW Wealth applied for and currently holds the intellectual property rights in the brand name “Home 789”;
- SWASW Wealth in its capacity as trustee of the CJ Family Trust was the sole shareholder in UFN and held 99% of the shares in ASM; and
- ASM traded, in part, as “Home 789”, and Ms Jiang was, until July 2016, a director of ASM.
Following an investigation, the Chief Commissioner notified the applicants on 15 March 2019 that, pursuant to s.72(2) (which deals with groups of commonly controlled businesses) and s. 74(1) (which deals with smaller groups subsumed by larger groups) of the Payroll Tax Act 2007 (“PTA”), and each of the applicants had been grouped with each other, and with SWASW Wealth as trustee for the CJ Family Trust, Bright Ausina Pty Limited and UFN A Epping Pty Limited as trustee for the UFN A Epping Unit Trust (together, the “Group”).
Also on 15 March 2019, the Chief Commissioner disallowed an application under s. 79 of the PTA for exclusion from the Group.
In the relevant period, the applicants made payments to certain persons which were not included in its declared salary or wages for payroll tax purposes. The Assessments were issued by the Chief Commissioner for the relevant period on the basis that the payments to those persons were liable to payroll tax.
The Statutory Framework
Section 79 of the PTA provided (relevantly):
"(1) The Chief Commissioner may, by order in writing, determine that a person who would, but for the determination, be a member of a group is not a member of the group.
(2) 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.”
The applicants also sought a review of the Chief Commissioner’s decision to assess payments made to certain persons under the “relevant contract” provisions, seeking to rely on the following exemption in s. 32(2)(b)(iv):
“(2) However, a “relevant contract" does not include a contract of service or a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person-- …
(b) is supplied with services for or in relation to the performance of work where-- …
(iv) those services are supplied under a contract to which subparagraphs (i)-(iii) do not apply and the Chief Commissioner is satisfied that those services are performed by a person who ordinarily performs services of that kind to the public generally in that financial year.”
Issues
- whether each of the Chief Commissioner’s decisions to group the applicant companies and to refuse to remove some companies or combinations of companies from the group (ie refusal to de-group them), was the correct and preferable decision (“the De-Grouping Issue”); and
- whether payments made to certain persons (comprising both natural persons and corporations) should be treated as taxable wages for the purposes of the PTA (“the Taxable Wages Issue”).
Submissions
- De-Grouping Issue
The applicants submitted that the Tribunal should de-group them because they each carried on distinct and separate businesses, which were independent and not relevantly connected.
The Chief Commissioner submitted that the applicants had failed to discharge their onus of demonstrating error either in grouping the applicants under ss. 72(2) and 74(1) of the PTA, or in failing to de-group any of them under s. 79 of the PTA. Further, the Chief Commissioner submitted that the corporate and business structure of the applicants necessarily led to the conclusion that there were substantial commercial connections and interdependencies between the various businesses, such that the s. 79 discretion to de-group the applicants should not be exercised.
2. Taxable Wages Issue
The applicants submitted that each person in dispute was carrying on a real estate business in his, her or its own right, with the effect that the payments made to those persons did not constitute taxable wages. The applicant submitted that none of the persons provide services or perform work for the applicants.
The Chief Commissioner submitted that the applicants had failed to satisfy their onus to establish that the Chief Commissioner’s characterisation of payments to those persons was incorrect.
Decision
- De-Grouping Issue
The Tribunal found that the Chief Commissioner’s decisions to group the applicants, and not to de-group any of them, were the correct and preferable decisions.
The Tribunal referred to the decision in Elanor Operations Pty Limited v Chief Commissioner of State Revenue [2022] NSWSC 104 (“Elanor”), noting that decision “demonstrates that even where one person is the sole director of a number of companies and has effective ownership of all or most of the issued shares in each of them, that in itself will not be conclusive of the issue of whether those companies should be ‘grouped’ for the purposes of the payroll tax legislation” (at [60]). However, the Tribunal distinguished the Elanor case from the present case, on the basis that the ultimate control and ownership of the businesses in the Elanor case rested with the members of each fund, whereas in the present case the Tribunal found that the ultimate control and beneficial ownership rested with the directors and shareholders of the Applicants.
Key findings that led the Tribunal to conclude that the applicants should be grouped, and should not be de-grouped under s. 79 of the PTA, included:
- Mr Chu “was at all relevant times able to influence the strategic and financial decisions” of the applicants (at [93]);
- all the businesses partially shared office premises because they shared some common space and a common reception area and receptionist, the same telephone number and legal and accounting advisers and representatives, and the rental payments were disproportionate between the entities which used the premises (at [102]-[103]);
- the businesses were marketed as a “one stop shop” (as “Home 789” was a brand)(at [105]); and
- the pattern of connection between the businesses “was ongoing and it was material to and ‘went to the heart of’ the carrying on by them of their business” (at [106]).
2. Taxable Wages Issue
The Tribunal was required to determine whether payments to 31 persons (being individuals or corporations), examined individually for each of the relevant financial years, were taxable wages under the PTA. The Tribunal concluded that all payments should be treated as taxable wages, with the exception of three payments (discussed below).
In finding that payments should be treated as taxable wages, the Tribunal broadly accepted the Chief Commissioner’s submission that the applicants had failed to discharge their onus in respect of each of those persons. This included findings that:
- the applicants had failed to establish that certain persons were independent contractors rather than employees of the applicants (at [117(4)]);
- the applicants had failed to establish that certain persons provided real estate services to the public generally so as to attract the exemption contained in s. 32(2)(b)(iv) of the PTA. In this regard the Tribunal had regard to the relatively small proportion of income for the relevant financial years which was received from sources other than the applicants (eg [118]-[119], [173], [204]);
- the Tribunal was not willing to infer (as contended by the applicants) that, because a person carried on real estate activities at an earlier point in time, those activities continued in the same manner during the relevant period (at [232]); and
- statements made by those witnesses of the applicants who had failed to appear at the hearing to be cross-examined were given no weight by the Tribunal, and were only had regard to for the purposes of context (see [158], [161].
In respect of the three remaining persons, the Tribunal found:
- payments made to Mr Daegeun Hwang were taxable as contended for by the Chief Commissioner (on the basis Mr Hwang did not provide real estate services to the public generally so as to attract the exemption contained in s. 32(2)(b)(iv) of the PTA), however the revised figure provided by the applicants should be accepted as the taxable wages figure for the 2014 financial year (at [149]);
- payments made to Mr Hao Wang in the 2017 financial year were not taxable on the basis Mr Wang did provide real estate services to the public generally so as to attract the exemption contained in s. 32(2)(b)(iv) of the PTA for that year(at [173]-[174]); and
- payments made to Ms Yong Fang Jia in the 2017 financial year were not taxable (relying on the fact Ms Jia was qualified as a licensed real estate agent and had entered into a licence agreement with Home 789 in that period) (at [254].
Orders
The orders reflected the decisions summarised above.
Read the full decision