Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Lombard Farms Pty Ltd v The Chief Commissioner of State Revenue [2013] NSWADT 17 Hearing dates: 6 and 7 December 2012 Decision date: 24 January 2013 Jurisdiction: Revenue Division Before: A Verick, Judicial Member Decision: The payroll tax assessments for the 2008 - 2010 tax years are affirmed. Catchwords: Payroll Tax - grouping provisions - exercise ofdiscretion to exclude a member from group - section 79 Payroll Tax Act 2007 Legislation Cited: Payroll Tax Act 2007 Corporations Act 2001 (Cth.) Cases Cited: Commissioner of State Taxation (W.A.) v Scotford Cameron and Middleton Pty Ltd 81 ATC 4576 GTS Industries Pty Limited v Commissioner of State Revenue [2004] VCAT 21 Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue [2011] HCA 41; [2011] 245 CLR 355 Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181 Triline Home Pty Ltd v Commissioner of State Revenue (Victoria) (Unreported AAT (VIC) 3.3.95) Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) 78 ATC 4164 John French Pty Ltd v Commissioner of Pay-roll Tax (Qld)[1984] 1 Qd R 125 Commissioner of Stamps v Garrett F Hunter Pty Ltd (1977) 69 SASR 275 Liquid Rock Constructions Pty Ltd v Commissioner of State Revenue (Taxation) [2011] VCAT 2164 Burswood Management Limited v The Attorney-General of the Commonwealth of Australia 23 FCR 144 Category: Principal judgment Parties: Lombard Farms Pty Ltd (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel A Tsekouras (Applicant) I Latham (Respondent) Barraket Stanton Lawyers (Applicant) Crown Solicitor's Office (Respondent) File Number(s): 126032 Decision Introduction 1This is a review of payroll tax assessments for the 2008 - 2010 tax years issued by the Chief Commissioner of State Revenue (" the Chief Commissioner") to the Applicant pursuant to the Payroll Tax Act 2007 ("the Act") on 30 June 2011. The assessments were issued following the decision of the Chief Commissioner to group the Applicant together with: (i) Con-Tec Pty Limited (Con-Tec); (ii) Albem Operations Pty Limited (Albem Operations); (iii) Albem Pty Limited (Albem); and (iv) Alpine Pty Limited (Alpine). 2The Applicant concedes that the grouping provisions set out in Part 5 (Grouping of employers) of the Act apply but contends that the Chief Commissioner should determine under s 79 that the Applicant is not a member of the group. 3Section 79 of the Act is in the following terms: 79 Exclusion of persons from groups (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. (3) The Chief Commissioner cannot exclude a person from a group if the person is a body corporate that, by reason of section 50 of the Corporations Act 2001 of the Commonwealth, is related to another body corporate that is a member of that group. (4) This section extends to a group constituted by reason of section 74 (Smaller groups subsumed by larger groups). (5) A determination can be expressed to take effect on a date that is earlier than the date of the determination. (6) The Chief Commissioner may by order in writing revoke a determination that applies in respect of a person if satisfied that the circumstances in which a determination may be made do not apply to the person. (7) The revocation of a determination can be expressed to take effect on a date that is earlier than the date of the determination. 4Broadly speaking, grouping of employers can occur where: (1) one or more employees of an employer are employed solely or mainly to perform duties for or in connection with one or more business carried on by one or more other persons (groups arising from the use of common employees - s 71); or (2) a person or set of persons has a controlling interest in each of 2 businesses (groups of commonly controlled businesses - s 72(1)); or (3) the two corporations are related bodies corporate within the meaning of the Corporations Act 2001 of the Commonwealth (related corporations - s 72(3)); or (4) an entity has a controlling interest in a corporation arising from tracing of interests in corporations (groups arising from tracing of interests in corporations - s 73). 5Payroll tax is imposed on all taxable wages and is paid by the employer by whom the taxable wages are paid or payable. Each employer is only taxable in respect of wages that exceed a fixed threshold. The effect of the grouping provisions is to only allow the threshold to one employer within the group and all other employers within the group are liable to payroll tax on all taxable wages paid or payable. 6The High Court in Tasty Chicks Pty Limited and Others v Chief Commissioner of State Revenue of the State of New South Wales [2011] 245 CLR 446 at 451 explained the purpose of the grouping provisions - The "grouping" provisions were designed to counter tax avoidance through the splitting of business activities by the use of additional entities, each attracting a threshold. The "degrouping" provisions were available for application by the Chief Commissioner upon determination, in broad terms, that it would be unreasonable to apply the "grouping provisions". Background 7The short facts leading to the application for review were set out in the Applicant's submissions as follows: 2. On 22 July the Applicant requested that the Chief Commissioner degroup the Applicant. 3. On 16 June 2011 the Chief Commissioner declined to degroup the Applicant and on 30 June 2011 issued assessments to the Applicant and other members of the group for the 2006 to 2011 tax years. 4. The Applicant lodged an objection under s 86 of the Taxation Administration Act 1996 (TAA) on 18 August 2011. However, notwithstanding that the assessments issued to the Applicant and other members of the group related to the 2006-2010 tax years, the objection was confined to the 2008 and following tax years, that is the year commencing 1 July 2007 under the PRTA. 5. By letter dated 25 January 2012, the Chief Commissioner disallowed the Applicant's objection. 6. On 23 March 2012 the Applicant filed an application for review of the Chief Commissioner's decisions in accordance with s 96 of the TAA. In accordance with the Applicant's objection, this application relates to the 2008 and following tax years. 8The companies have a long history and were established by Giovanni Panizza, now deceased. The companies are now owned and controlled by his three sons and a daughter, Albert Panizza, Mark Panizza, Helen Panizza, Benedict Panizza, and his widow, Mary Panizza. 9The Applicant was incorporated in 1997 and carries on agriculture in New South Wales and aquaculture in Northern Territory. It is wholly owned by a holding company, Beath Investment Pty Ltd ("Beath"). Each of the siblings has a 25% share in Beath and all four are also directors of the company. The Applicant's sole director and secretary is Albert Panizza. 10Con-Tec, incorporated in 1978, carries on concrete manufacturing business in Queensland and is wholly owned by Con-Tec Investments Pty Ltd, a holding company. Each sibling holds 16.66% in the holding company. Mary Panizza, their mother, has the rest of the shareholding, 33.33% in the company. All the siblings are directors of the holding company but only Albert Panizza and Mark Panizza are directors of Con-Tec. 11Albem Operations carries on civil construction and engineering business in Queensland and was incorporated in 1980. Albert Panizza and Mark Panizza are directors of the company. It is wholly owned by Shire Hill Holdings Pty Ltd, with shareholding held in equal shares by the siblings for their individual families and all four are directors of the holding company. 12Albem, incorporated in 1970, carries on equipment hire and provides administration services to all the companies in the group. Previously it was in construction business as well. The four siblings and Mary Panizza are directors. Albem shareholders are the siblings, each with 12% interest, Mary Panizza with 6% and rest of the shareholding is held by Alpine Pty Ltd. The five Panizzas and Andrew Tunney are directors of Alpine Pty Ltd. Alpine Pty Ltd is wholly owned by Mary Panizza and the estate of Giovanni Panizza but the shares are held beneficially for the four Panizza siblings. Evidence 13The Tribunal heard evidence from all four Panizza siblings. Each also provided the Tribunal with a comprehensive witness statement about the corporate structure, each individual's particular role, contribution and responsibility in the business operations of the companies within the group. They were subjected to cross-examination by counsel for the Chief Commissioner. Some of the evidence was, in substance, the conclusions of a particular sibling as distinct from individual facts to support the conclusions reached, but the essential facts to determine the issue raised by the Applicant were not in dispute. 14Albert Panizza, the principal witness, in his statement first provided some background to the activities in which the Applicant was involved. In New South Wales, the Applicant has two farms "which primarily grow cotton, canola and cattle, on properties located in Warren (Wambandry) and Boggabilla (Eumorella)". 15The Applicant, sometime in 2001, also "commenced operating a prawn farming business near Darwin in the Northern Territory (Wild River Farmed Seafood)" and, on 11 September 2003 it "entered into a partnership with Phelps Aquaculture Pty Ltd to develop and operate Wild River Farmed Seafood". 16The partnership, pursuant to an agreement dated 16 September 2003, "borrowed the sum of $3,450,000 from Alpine for the purpose of constructing the prawn farm and then growing the first crop of prawns". As a security, the Applicant and Phelps Aquaculture Pty Ltd provided a fixed and floating charge over the assets and undertakings of both parties. On 12 May 2005, the partnership borrowed a further sum of $4,550,000 from Alpine. The total loan was apportioned between the parties, the Applicant - $5,607,280.80 (60%) and Phelps Aquaculture Pty Ltd - $3,783,187.20 (40%). 17Sometime in early 2006, the partnership was terminated with the expulsion of Phelps Aquaculture Pty Ltd. "By agreement dated 6 June 2007, Alpine released Phelps Aquaculture Pty Ltd from its obligations to pay its debt to Alpine in the sum of $3,738,187.20". 18Albert Panizza provided the following further background - 18 Following the dissolution of the NT Partnership in 2007, Wild River Farmed Seafood in the Northern Territory has been operated solely by Lombard Farms. In 2007, the operation was converted from a prawn farm to a barramundi farm. 19 Lombard Farms in New South Wales derives its income from customers which include Cargill Cotton and Namoi Cotton Co-operative Ltd. Lombard Farms does not share customers with any other Group Members. 20 Most equipment used in the Lombard Business is owned by Lombard Farms. A small amount is rented from family partnerships at commercial rates. 21 Lombard Farms leases Wambandry and Eumorella from my siblings Mark, Helen and Benedict, and my parents Giovanni (who passed away six years ago) and Mary at a commercial rent. There are registered leases in place which have expired, but the parties continue to observe their operation. 19Albert Panizza in his written statement also dealt with the ownership and control of the Applicant - 25 I acquired a shelf company which subsequently became Lombard Farms on 26 March 1997. It was my desire to run an agriculture business, particularly in cotton and grain. I recall that no other members of my family were interested in running that business. 26 As the sole director, I make all the major decisions in respect of Lombard Farms. 27 Day-to-day management of Lombard Farms is undertaken by Mathew Secombe, who is the general manager employed by Lombard Farms and who lives and splits his time between the Northern Territory and Wambandry. Lombard Farms also employs other farm managers who run the business on a daily basis. 28 Mr Secombe consults me several times a week but has general authority to run the business as he is a professional farm manager. Mr Secombe is responsible for most of the purchasing for the farms, the hiring, termination and management of staff and recommending various matters to me such as the purchase of expensive equipment. 29 My role in respect of Lombard Farms is primarily to sell the crops grown at Wambandry and Eumorella, approve major plant and equipment purchases and make decisions relating to the farms' overall strategic direction (for example: the purchase of other land and farms). ... 32 Beath Investments was established initially to purchase land. After that transaction did not occur the company was transferred to me, Mark, Helen and Benedict with the intention that it would own shares in Lombard Farms, for the purposes of asset protection for my siblings and me. It now owns subdivided land near Buderim, Brisbane which has been developed and is ready to be sold. 33 My siblings and I were each appointed as directors of Beath Investments around the time that the company was established in early 1994. ... 36 When my father died, my siblings and I remained as directors of various companies, despite the fact that not all of us are involved in running those companies. 37 Therefore, despite my siblings each being shareholders and directors of Beath Investments, they have no input as to the management or strategic direction of Lombard Farms. 38 No Board meetings are held for Beath Investments, nor are there any meetings held in respect of Lombard Farms at which the shareholders and directors of Beath Investments vote. 39 Benedict is an ear, nose and throat specialist and has no involvement in Lombard Farms or any other Group Member. 40 In summary, my siblings' role in relation to the carrying on of Lombard Farms' business has always been and continues to be minimal or insignificant. 41 Helen and Mark do however have the authority to sign cheques and make electronic funds transfers on behalf of Lombard Farms, but only with my approval. This is for the following reasons: (a) Helen, as a part-time employee of Albem, undertakes administration, treasury and banking services for Lombard Farms. (b) It is a matter of convenience to have a third person (Mark) as a signatory as I travel frequently and Helen is only available on a part-time basis. 42 My mother Mary, siblings and I might hold one or two "family meetings" a year, the purpose of which is to update my mother (who is 77 years of age) and my brother, Benedict as to what is happening with the Group Members and other companies. 43 These meetings are vey casual: no minutes are recorded, no votes are taken, no decisions are made and we do not discuss financial matters in any detail. They are merely informal discussions about what might be of interest to different family members and a general update as to the respective positions of the various entities. 20Albert Panizzaalso explained the financial relationship between the Applicant and Alpine - 51 The arrangement with Alpine was that, due to the prolonged drought, Alpine would postpone repayments until such time that Lombard Farms became profitable and able to repay the loan. I always expected that Lombard Farms would become profitable again. 52 I am aware that Alpine did not call upon the loan to Lombard Farms because it was expected that Lombard Farms would return to profitability. 53 I also verily believed that following the required development pursuantto the Crown Lease in the Northern Territory, that lease would be convertible to a lease in perpetuity and therefore would become more valuable. 54 Allowing further time for the loan to be repaid would be potentially far more commercially beneficial for both Alpine and Lombard Farms in the long term rather than enforcing the debt and possibly forcing Lombard Farms into liquidation. This would have also irreparably damaged the Wild River Farmed Seafood brand. ... 58 As at the date of swearing this statement, I understand that the loan from Alpine to Lombard Farms is around $9,567,174, which includes $5,607,281 owing as at 30 June 2007 (share of NT Partnership debt). ... 67 In the past, Alpine has also extended financial support to Panizza family entities if required but has not made loans to any Group Member, other than Lombard Farms since 2007. 21Mark Panizza in his evidence indicated that his role in the Applicant's business "is insignificant". His evidence was that he was "primarily responsible for the control and management of Albem, Albem Operations and to a lesser extent, Con-Tec". His evidence was that Albem employs a financial controller and staff to provide administrative services to the other group members and deal with external accountants to finalise financial statements and meet taxation obligations. Albem owns all "equipment used in the Albem business" which "mainly consists of office and computer equipment, software and accounting systems". In addition it owns construction equipment which it hires to "Albem Operations on commercial terms". 22He also stated that - Regardless of their shareholdings and directorships in the various companies ... Helen, Benedict and Mary/Giovanni do not participate in or control any of the Group Members as: i. Benedict is an ear, nose and throat specialist. His only interest in the Group Members is financial. ii. Helen was a dentist and now works part-time for Albem. She doe not hold a management position. iii. Mary is 77 years of age and retired and Giovanni is deceased. 23The viva voce evidence and written statements of both Benedict Panizza and Helen Panizza add very little to the relevant factual background. Consideration 24The issue for determination is essentially whether the Chief Commissioner should exercise his discretion under s 79 of the Act to exclude the Applicant from the group of the other companies. 25There is no dispute that the companies have been properly grouped by the Chief Commissioner. 26The critical issue in this matter involves the proper exercise of the discretion given to the Chief Commissioner under s 79 of the Act. Section 79 gives the Chief Commissioner a power to exclude a person from a group 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". 27It was the Applicant's submission that s 79(2) "requires that the decision maker determine whether or not the Applicant's business is 'independent' and 'not connected with' the other companies or businesses" and "presupposes that the businesses have been grouped but provides an avenue for de-grouping having regard to whether, on objective criteria, the businesses are 'carried on' in the relevant way". In this regard it was submitted that the Tribunal should adopt "the approach of the Victorian Civil and Administrative Tribunal (VCAT) in GTS Industries Pty Limited v Commissioner of State Revenue [2004] VCAT 21 at [37] where it was pointed out that the law as to the de-grouping discretion does not require there to be a complete absence of connection" and "what is required is a 'finding of substantial independence and substantial absence of connection'". 28On behalf of the Chief Commissioner it was contended that s 79(2) of the Act "is different to its predecessors in that it no longer uses a test of 'substantial independence'" and that the "current wording would mean that insubstantial (although perhaps not de minimus) independence would be covered by the provision whereas it would not have been covered by its predecessor". It was submitted that the Explanatory Note to the Payroll Tax Bill 2007 which, introduced s 79, also did not make any reference to the previous test. It merely stated that: Clause 79 provides the Chief Commissioner with a discretion to exclude a member from a group if satisfied that the business conducted by that member is independent of, and not connected with, the business conducted by any other member of the group. In considering the application of this discretion, the Chief Commissioner will have regard to the nature and degree of ownership and control of the businesses, and any other relevant matters. The discretion is not available for corporations that are related bodies corporate under section 50 of the Corporations Act 2001 of the Commonwealth. 29Against that background, it was submitted that "the cases dealing with the earlier statutory provisions may not be directly on point". 30In my view having regard to the plain wording of s 79(2) of the Act this submission is correct insofar as it relates to the degree of independence or connection the business seeking de-grouping is required to have with the business conducted by any other member of the group. 31A great deal of reliance was placed by the Applicant on the decision of the Victorian Civil Administrative Tribunal in GTS Industries Pty Limited v Commissioner of State Revenue. The Tribunal in that case had in turn sought to argue the outcome on the basis of what was said by its predecessor, Administrative Appeals Tribunal of Victoria in Triline Homes Pty Ltd and Others v Commissioner of State Revenue (Victoria) (1994)(unreported) (AAT (VIC) 3.3.95). 32In Triline Homes and GTS Industries Pty Limited the de-grouping provision under consideration was similar to s 79(2) of the Act. But in reaching its conclusion in Triline Homes, the Presiding Member relied on what had been said by Rath J in Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) [1978] 78 ATC 4164 in relation the then de-grouping provision in the Pay-roll legislation, s 16H(1), which provided as follows:- (1) Where the Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that he considers relevant, that a business carried on by a member of a group is carried on substantially independently of, and is not substantially connected with the carrying on of, a business carried on by any other member of that group, the Commissioner may, by order in writing served on that first-mentioned member, exclude him from that group. (emphasis added) 33His Honour provided the following construction to the provision - Section 16H requires two findings to be made, namely (1) that a business carried on by the plaintiff (as a member of a group) is carried on substantially independently of a business carried on by any other member of that group; and (2) that the business is not substantially connected with the carrying on of the business carried on by the other member of the group. The first limb appears to relate to the independence of the business, and requires an examination of the connection between the business activities. The second limb appears to relate to connection in management. At all events the composite expression used in the subsection requires a consideration of the businesses and their control, and a finding of substantial independence and substantial absence of connection. 34His Honour when using the term "substantial" to describe the required degree of independence or connection was, of course, merely relying on the precise language used in the legislation. His Honour was not suggesting that it was necessary for the independence or connection to be substantial in the absence of the use of the term substantial in the legislation. 35The reason for the absence of the substantial "quantitative" requirement in the current de-grouping provision was not explained in the Explanatory Note. The provision has also not been considered in its present form by the Tribunal or the courts. In my view, the absence of the additional requirement is quite significant because the discretion in its present form can only be exercised where there is complete independence of, and complete absence of any connection between the person seeking de-grouping and the other member or members of the group. The additional question of determining whether the independence or connection is substantial is not, therefore, an issue in its current application. The exercise will, of course, depend on all relevant matters on an objective basis. 36The Applicant's submission was that "the statutory enquiry is directed at the actual way in which the businesses in question are 'carried on', not the theoretical way in which they could be carried on". The Applicant relied upon Commissioner of State Revenue (WA) v Scotford Cameron and Middleton Pty Ltd (1981) 81 ATC 4576, where Burt CJ in the Full Court of the Supreme Court of Western Australia said at 4579 that: "The question to be answered with reference to that business is whether it is carried on substantially independently of a business carried on by any other member of that group and whether it is or is not substantially connected with the carrying on of a business carried on by any other member of that group... The fact that both companies were owned and controlled by the same eight persons collectively ... on the facts of this case had no bearing upon the manner in which each businesses was carried on and established no connection 'with the carrying on' of one business with the other. Nor does the legal power to control either company establish any relevant connection between 'carrying on' of the two businesses." [original emphasis] 37The Chief Commissioner's contention was that s 79(2) of the Act applies broadly. It was submitted that "'independence' is a word of broad meaning" as suggested by the Court of Appeal in Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181 at [51] - The ordinary meaning of independent includes not depending on the existence or actions of others and not being influenced by others in matters of conduct. A business may not be carried on independently of another business if its existence or continued operation depends upon the existence or custom of that other business. 38It was further submitted by the Chief Commissioner that - 15. The word connected is also one of broad meaning. In dealing with a similar phrase the Federal Court held that: "in connection with" are words of wide import; and the meaning to be attributed to them depends on their context and the purpose of the statute in which they appear (Burswood Management Limited v The Attorney-General of the Commonwealth of Australia 23 FCR 144 at 146.7). 39In Tasty Chicks the Court of Appeal agreed with the Chief Commissioner's submission that the judge, at first instance, had failed to address whether the businesses were carried on independently by merely focussing upon ownership and control of each of the businesses. In reaching this conclusion, the Court of Appeal cited with approval the following observations made by the Queensland Court of Appeal when considering a similar de-grouping provision - 57 In John French Pty Ltd v Commissioner of Pay-roll Tax (Qld), McPherson J (with whom Campbell CJ and Matthews J agreed) considered (at 141- 142) that an inquiry as to whether a business was carried on substantially independently, and was not substantially connected with another business, made it necessary to consider the inter-relation of the activities of the businesses and the ability of a principal of one business to influence the management and decision-making of the other. The provision there under consideration was in the same terms as s 16H(1) of the Pay-roll Tax Act as it applied in the first period. Notwithstanding the absence in s 16C(3) of the "substantially connected" consideration in s 16H(1), the matters referred to were said to be relevant to each part of s 16H(1) and to prevent a conclusion that the relevant business was carried on substantially independently of the other business. The same approach was adopted by Doyle CJ in Garrett F Hunter (at 285). He concluded that the corporate trustee providing the secretarial and other services to the three medical practice companies could not be said to be carried on "substantially independently of" the business of each medical practice company. That was because each was one of only two or three clients of the corporate trustee and because its business was so closely connected with that of each practice that decisions by the practice company as to the manner in which its business would be conducted necessarily influenced the conduct of the trustee's business of providing services to the practice (at 285-286). 58 In failing to address in this way whether the Tasty Chickens and Angelo Transport businesses were carried on substantially independently of M&J Chickens, the primary judge applied the test too narrowly and as a result did not take into account matters which he was bound to consider with respect to the "nature" or activities of the various businesses. 40The relevant inquiry in the exercise of the powers given to the Chief Commissioner under s 79(2) of the Act requires two factual findings - (1) independence of the business seeking degrouping from the businesses of the other members of the group and (2) absence of any connection between the business and the other businesses in the group. In particular, it is "necessary to consider the inter-relation of the activities of the businesses and the ability of a principal of one business to influence the management and decision-making of the other". 41In this matter the Applicant had on the facts contended that - 39. Here the parallels with the GTS decision are striking. In the first place the Applicant conducts its business in the agricultural sector whereas the remainder of the group are essentially in the building industry. 40. The Businesses of the Applicant and the remainder of the group are carried on in separate premises, indeed, in separate jurisdictions. The Applicant carries on business in New South Wales and the Northern Territory and the rest of the group essentially conduct their business in Queensland. Unlike GTS there is no trade whatsoever between the Applicant and the other entities in that the Applicant does not sell products to the other group entities. 41. Next the actual management of the Applicant is in the hands of Mr Albert Panizza. The other siblings and their mother have no role in the day to day management of the businesses. Indeed Mr Benedict Panizza is an ear nose and throat specialist. 42. Similarly to GTS Mr Albert Panizza has a managerial role in relation to the Contec group but Mark Panizza is the person actually engaged in the day to day running of the Contec group. 43. The fact that there is a loan arrangement between the Applicant and Alpine, as in GTS, is not an unusual feature of family groups (see GTS at [32]). In this case, unlike GTS there is no evidence that group guarantees have been given to support external borrowings. Further the Applicant's evidence is that the loan in question was established to support its fledgling aquaculture which was, for a time, carried on with a third party. This loan is now in the process of being repaid. 42The Applicant also submitted that the "the holding/operating company structure was devised for asset protection purposes" and that although all siblings "became directors of the various companies" their controlling roles in the companies and in particular in Beath is merely "theoretical only". 43It was submitted by the Chief Commissioner that the facts before the Tribunal lead to the following conclusions - 34. There are some relationships that fall within s 50 of the Corporations Act 2001 (being the relationship between Con-Tec and Con-Tec Investments, the relationship between Alpine and Albem, and the relationship between Shire Hill and Albem Operations). Those companies could not be degrouped in any event. 35. As to the others; the determination of the test of 'independence' and 'connection' is not always a simple one. The words are broad and can give rise to different interpretation of the same facts. There is no mathematical formula that can be used. It can be a question of impression and judgment that people could reasonably disagree over. 36. To return to the test of independence as outlined in Tasty Chicks, the questions to ask are: is there an inter-relation of the activities of the businesses and is there an ability of a principal of one business to influence the management and decision-making of the other? Further, is there an association between the companies with the group? 37. As to the former question, there is a clear link of business activities between Lombard Farms and Alpine through a very substantial loan. The provision of services by Albem to the Group members, the hire of equipment from Albem to Albem Operations hire and the supply by Albem Operations by Con-Tec are all evidence of an interrelationship. 38. As to the second question, the taxpayer states that there is no intercompany control as a matter of fact. The evidence shows that this control did exist, even if at a very informal level. But in any case, that is not the test. The test as set out by the Court of Appeal is whether one principal has the ability to control the other business. In this case, there is certainly an ability for one group member to control others. It would be astonishing to think that Alpine did not have the capacity to influence the Applicant in circumstances where it could call in the loan or where the siblings could not use their shareholdings or directorships to influence the other group members. 39. More broadly the companies share common ownership and control. They share staff resources. 40. Finally as to the question of connection, it would be counter factual to submit that there was not an association between the companies in the group when regard is had to the ownership and control of the companies within the group. They are largely owned by the Panizza family. Administratively, the companies operate as a group. 44The fact that the ultimate owners and controllers of the various businesses are the closely connected members of the Panizza family is very significant. The evidence also suggests that the Panizza siblings and their mother, as a family, are not concerned with the strict administration of the various companies and are prepared to have one or two informal family get togethers each year to be briefed on the health of the companies. There is also a great deal of trust between the siblings and their mother to rely on Albert and Mark Panizza to ensure that the companies are managed on a day-to-day basis on a proper commercial basis. 45Whether the discretion found in s 79(2) of the Act should be exercised in this matter depends entirely on whether the Applicant conducts its business activities quite independently from any of the other companies in the group and without any connection or the influence of any of the other companies or their principals. 46The Applicant had contended, that in considering the business management of a company for degrouping, "the statute focuses on the actual position and not the theoretical position". I do not think there is anything in the legislation to suggest that the inquiry should be so restricted as contended by the Applicant. The inquiry for purposes of making a determination under s 79(2) of the Act to exclude a company from a group requires a proper consideration of "the conduct of the activities of that business and its inter-relationship, if any, with the conduct of the activities of the businesses of the other members of the group" and the "ability of a principal of one business to influence the management and decision-making of the other" (Tasty Chicks). 47Essentially, the Applicant relied on four factual matters to submit that the Applicant was entitled to be degrouped from their companies in the group. Firstly, the important point was made that the "Applicant conducts its business in the agricultural sector whereas the remainder of the group are essentially in the building industry". Secondly, that the Applicant conducts its business in separate premises and in a separate jurisdiction from the rest of the companies. Next, the Applicant case was that the "Applicant is in the hands of Mr Albert Panizza" and that the "other siblings and their mother have no role in the day to day management of the business". Fourthly, it was submitted that the "fact that there is a loan arrangement between the Applicant and Alpine, as in GTS, is not an unusual feature of family groups". 48The decision in GTS is of little or no assistance because, as indicated earlier, the Tribunal fell into a similar error as Triline Homes by adopting a test now not available in making a determination under s 79(2) of the Act. The Senior Member had, in fact, concluded in GTS on the balance of a number of points put to her that she was "not persuaded on a consideration of the above points, that a substantial connection has been made out". (emphasis added) 49The business, as correctly contended by the Applicant, is conducted by the Applicant in the agricultural/aquacultural sector whereas Albem Operations is in civil construction/engineering business and Con-Tec is in concrete manufacturing business. The business location of the Applicant's business is quite independent from the location of the Queensland-based businesses. The evidence also established that the actual management of the Applicant is solely with Albert Panizza. These clearly are strong factors to persuade the decision-maker to exercise the discretion in favour of the Applicant. But there are other more significant matters that need to be considered in order to make a proper inquiry for purposes of s 79(2) of the Act. 50A significant and critical matter on the facts before the Tribunal is the role of Alpine to the existence of the business of the Applicant. The Alpine relationship cannot be dismissed by merely describing the outstanding loan to the Applicant as:"not an unusual feature of family groups". The evidence of Albert Panizza was that, without Alpine's financial support and its decision not to enforce the debt owed to it, has "possibly" avoided any liquidation of the Applicant. The Applicant leases both Wambandry and Eumorella farms from Albert Panizza's siblings, his mother and the estate of his late father. Besides the farm machinery and equipment the only known major asset owned by the Applicant is the Crown lease of the land on which it farms seafood in the Northern Territory. At the time Albert Panizza made the written statement in this matter, the Applicant had an outstanding loan of $9,567,174 from Alpine. Some mention was made in the oral evidence that the Northern Territory fixed term lease upon a conversion to a lease in perpetuity will have some commercial value, but no evidence was produced to indicate that it would be substantial enough to satisfy the outstanding loan and allow the Applicant financial independence from Alpine. The financing arrangements between the Applicant and Alpine have created a very strong link between the two. It clearly allows the Applicant to carry out its business activities with Alpine as its financier. The substantial connection of Alpine alone prevents a finding necessary for both limbs of s 79(2). Namely, a finding of independence and a finding of absence of any connection with the other companies in the group. 51Albem also has a very significant role. It essentially undertakes the entire treasury, banking and administrative services for the Applicant and all the other companies in the group. Albem employs a financial controller for the group and other staff to deal with all the financial matters relating to the companies and also with the external accountants and tax agents of the companies. 52The Applicant and all other companies in the group do not have individual meetings of the directors/shareholders. There is one annual or two biannual meetings collectively of all the companies when the siblings and their mother are briefed. The companies including the Applicant do not have meetings on an independent basis to set future directions or make independent business decisions. 53The Applicant's holding company is Beath, which is owned equally by the siblings and they are all directors of the Beath. Collectively the siblings, other than Albert Panizza, have the ability to decide and provide directions to the Applicant. The fact that Albert Panizza is given the authority to solely manage the Applicant does not take away the ability of the other siblings from exerting their rights as co-owners and directors of the holding company. As no minutes are kept of the joint family meetings it is difficult to assume that the financial health of the Applicant or any of the other companies is not discussed at these meetings. 54On the evidence, it is difficult not to conclude that the Applicant did not operate independently of Alpine and Albem. In the context of family ownership of all the companies, the ability of the other siblings to exercise their powers as shareholders and directors of the Applicant's holding company and most importantly the Applicant's significant dependence on Alpine and Albem, the Applicant's application to be excluded from the group under s 79(2) of the Act must fail. The prerequisites for an exclusion order have clearly not been met. 55The assessments must therefore be affirmed. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 January 2013