Cessnock Tyres Pty Ltd v Chief Commissioner of State Revenue [2018] NSWCATAP 147

Date of judgement 8 June 2018 Proceeding No. AP 18/00216
Judge(s) M Harrowell, Principal Member
J Currie, Senior Member
Court or Tribunal Civil and Administrative Tribunal Appeal Panel
Legislation cited Civil and Administrative Tribunal Act 2013

Payroll Tax Act 2007
Catchwords PAYROLL TAX - s 79 Payroll Tax Act 2007 - order for de-grouping - independence
Cases cited Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223

Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181

Collins v Urban [2014] NSWCATAP 17

Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42

Minister for Immigration and Citizenship v Li (2013) 249 CLR 332; [2013] HCA 18

Background

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 decision[1]. The Taxpayer filed a Notice of Appeal with the Appeal Panel on 2 January 2018 in respect of the Tribunal’s decision.

Group structure

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.

The Statutory Framework

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.”

Primary Decision

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 Arguments on Appeal

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:

  1. firstly, in determining that the public’s perception and Mark’s position of potential authority and control were relevant considerations;

  2. secondly, in failing to properly consider the evidence in relation to the “intra-group” loans, and

  3. thirdly, in concluding that these matters constituted a significant, connecting factor.

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.

  1. Public Perception & Potential to Control

    The Taxpayer conceded that “holding out” on the website that the businesses were part of the Group was a relevant consideration, but argued that the public’s perception of the entities’ connectivity was not a relevant consideration. The Taxpayer accepted that the theoretical ability for Mark to control the other entities was relevant; but his failure to exercise any actual control or authority meant that this should not have been a relevant consideration in the decision. The Taxpayer argued that the Tribunal’s conclusion in this respect was factually incorrect based upon conclusions relating to the shared website and the failure to consider family disagreements.

    The Chief Commissioner submitted that public perception was a relevant consideration and was indicative of the dependencies between the entities in the Group. The Chief Commissioner argued that more weight should have been given to the personal guarantees that were provided between the entities. The Chief Commissioner also argued that the shared website and business name meant the entities had shared goodwill and a common interest in maintaining the brand, which was dependent upon the other entities’ reputation and perception.

  2. The Intra-Group Loans

    The Taxpayer argued that the loans were not significant as they did not relate to the business operations of the entities. The Taxpayer referred to an example of a loan from the Taxpayer to Gateshead in the amount of $92,647.00. The Taxpayer submitted that this should not have been considered as the loan was for the purpose of purchasing land and was not to be used for business operation purposes. The Taxpayer also argued that the loans were insignificant as the company had a gross income of approximately $2.4 million and an average net annual profit of $200,000.

    The Chief Commissioner argued that the loan arrangements lacked commercial characteristics which suggested that the entities were connected. The loans were informal, unsecured and interest-free. Further, the Chief Commissioner rejected that Taxpayer’s submission that the loan to Gateshead for the purchase of the land was not business related because that land was used to house the Gateshead premises, which is essential to the business’ daily operations.

Decision

The test in Lombard Farms[2] 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 [68]). 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 [73]). 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 [43]). 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 [64]).

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 [65]).

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 [68] to [70]).

Orders

  1. Leave to appeal is refused and the appeal is otherwise dismissed.

  2. If any party seeks a costs order, such application (including submissions and evidence) must be made within 7 days from the date of these orders. The respondent to the costs application is to file and serve submissions and evidence in reply within 14 days from the date of these orders. The applicant for cost may file and serve submissions in response 7 days thereafter. Submissions must include submissions about whether an order should be made dispensing with a hearing pursuant to s 50(2) of the Civil and Administrative Tribunal Act, 2013.

Link to decision

Cessnock Tyres Pty Ltd v Chief Commissioner of State Revenue [2018] NSWCATAP 147

Footnotes

  1. ^ Cessnock Tyres Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 368.
  2. ^ Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42.
Last updated: 11 July 2018