Grubers Beckett Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 30

Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Grubers Beckett Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 30 Hearing dates: 21 October 2013, 28 October 2013 and 5 March 2014 Decision date: 21 March 2014 Jurisdiction: Administrative and Equal Opportunity Division Before: J Block, Senior Member Decision: The objection decision under review is affirmed Catchwords: Payroll tax - onus of proof - degrouping Legislation Cited: Pay-roll Tax Act 2007; Taxation Administration Act 1996 Cases Cited: Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor [2004] NSWADTAP 19; Jones v Dunkel 1959 (101) CLR 298 Category: Principal judgment Parties: Grubers Beckett Pty Limited (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel J Svehla (Applicant - on 5 March 2014) A Gerard (Respondent) Crown Solicitors Office (Respondent) File Number(s): 136012

reasons for decision

Part A Preliminary and Background. 1The objection decision which is under review in this matter, is the disallowance by the Respondent (who is usually referred to in these reasons as the "Chief Commissioner") of objections by the Applicant (who is sometimes referred to in these reasons as "Grubers Beckett PL") of objections against notices of assessment made in accordance with the Pay-roll Tax Act 2007 and the Taxation Administration Act 1996, for the period commencing on 1 April 2007 and ending on 31 December 2011 (referred to in these reasons as "the relevant period") 2This application commenced in the Administrative Decisions Tribunal ("the ADT") The ADT was merged into the Civil and Administrative Tribunal of New South Wales ("NCAT") on 1 January 2014 and in consequence of which I am authorised and required to determine the matter as a matter of NCAT; see clause 7(2) in Schedule 1 to the Civil and Administrative Tribunal Act 2014 ("NCAT Act"). Matters formerly dealt with in the Revenue Division of the ADT are dealt with in the Administrative and Equal Opportunity Division of NCAT; see section 96 of the Taxation Administration Act 1996 and clause 3(1) (b) in Schedule 3 to the NCAT Act. 3(a) The assessments referred to in clause 1 were issued on the basis that the Applicant and Business Forum Pty Ltd ("Business Forum") formed a payroll group during the relevant period. (b) The Chief Commissioner also determined that during the relevant period Grubers Beckett PL and Business Forum formed a payroll tax group with A.C Gruber and L. Gruber partnership ("Grubers Partnership") and Business Forum NSW Pty Ltd ("Business Forum NSW") 4The Tribunal had before it the documents lodged in accordance with section 58 of the Administrative Decisions Review Act 1997 (previously the Administrative Decisions Tribunal Act) and which are contained in a (tabbed) volume consisting of 231 pages. 5The entirety of the evidence in the proceedings was taken on 21 October 2013, During the course of the hearing the Tribunal admitted exhibits as follows: Exhibit A! letter dated 19 June 2013; Exhibit A2 Submissions dated 30 August 2013; Exhibit A3; documents produced in answer to summonses but confined to pages 4 to 41 and specifically excluding pages 1 to 3; Exhibit R1; Applicant Payroll Activity summary 1/7/2019 to31/12/2009; Exhibit R2; Applicant Payroll Activity summary 1/1/ 2010 to30/6/2010; Exhibit R3;Business Forum Payroll activity summary 1/7/2009 to 31/12/2009; Exhibit R4 Business Forum Payroll Activity summary 1/1/ 2010 to 30/6/2010; Exhibit R5; invoices issued by Applicant dated 7/9/2010 and 7/9/2011; Exhibit R5; affidavit of Sharon Gordon dated 17 October 2013 together with exhibit thereto marked SG1 6It is relevant to note that Exhibit SG1, which is an exhibit to Exhibit R6 consists of accounts and other documents obtained by the Respondent from the Applicant; it too is a tabbed volume which consists of 378 pages. It is usually referred to in these reasons by reference to the Exhibit pursuant to which is was accepted and being Exhibit R6. 7This matter was originally heard in the Administrative Decisions Tribunal on 21 October 2013 and on which date, and as set out previously, all of the oral evidence was taken; the term "TS" refers to the transcript in respect of the hearing on that day. At that hearing Mr Alfred Gruber, who is a professional accountant with in excess of 40 years of experience appeared on behalf of the Applicant. He said that he would be calling only one witness (himself). He said (TS3) that "Mrs Gruber would have been available but she is not". He said also that his legal representative was in Cairns. He said furthermore that he did not intend to call any of the persons sometimes referred to him as "principals" of branches of the accountancy practise conducted under the name of Grubers Beckett. Most of that hearing day was taken up by the evidence and cross-examination of Mr Gruber; however at the end of the day Ms S. Gordon gave evidence (briefly) on behalf of the Respondent and at which time Exhibit R6 was admitted. The matter was then adjourned until 28 October 2013 (on the basis that Mr Gruber would be entitled if he so desired to attend by telephone) for the purpose of closing submissions. On that later date Mr Gruber said that the Applicant intended to brief counsel (Mr Svehla): the matter was then adjourned to enable the parties to produce and file final submissions dealing in particular with the evidence taken at the hearing on 21 October 2013. In the result the Applicant produced "Final Submissions for Grubers Beckett Pty Ltd dated 24 December 2013 ("FAS") while the Respondent produced "Final Submissions for the Chief Commissioner of State Revenue dated 25 February 2014 ("FRS"). FRS dealt (as the Tribunal had requested) in some detail with the evidence at the hearing on 21 October 2013 and the Tribunal has therefore drawn on FRS to some considerable extent for the purposes of these reasons. The matter came before this Tribunal on 5 March 2014 for the purpose of final submissions only. 8It is convenient at this early stage to include the content of RFS under the head of "Procedural History of Assessment and Proceedings" contained in clauses 5 to 9 of FRS (excluding footnotes although the footnoted references have been checked and found to be correct) as follows: 5. On 11 May 2010, the Chief Commissioner advised Business Forum (not Business Forum NSW) that the Chief Commissioner was commencing an investigation into Business Forum to assess its compliance with the PTA 2007 and Pay-roll Tax Act 1971. As part of the opening of the investigation the Chief Commissioner requested Business Forum to complete an Unregistered Payroll Tax Employers Questionnaire and to provide the Chief Commissioner with specified documents. 6. Having received no response, on 19 June 2010, the Chief Commissioner sent a reminder notice to Business Forum Pty Ltd. On 10 September 2010, a Francesca Cernanka completed a Unregistered Payroll Tax Employers Questionnaire for Business Forum NSW Pty Ltd (a company of which Ms Cernanka was a Director). On 22 October 2010, Louise Gruber (Frances Gruber) forwarded a copy of that document to the Chief Commissioner. 7. On 13 January 2011, the Chief Commissioner issued Notices pursuant to s.72 of the TA Act ("Section 72 Notices") requiring the production of documents from: Business Forum NSW; Grubers Beckett PL; Business Forum; Grubers Partnership. 8. On 28 February 2011, the Chief Commissioner issued Payroll Tax Notice of Assessments to Business Forum NSW for the period 1 July 2005 to 31 March 2009. On 14 April 2011, the Chief Commissioner issued a Legal Notice - Payroll Tax to Business Forum NSW in respect of the payroll tax payable as assessed for the period 1 July 2005 to 31 March 2009. On 8 July 2011, Louise Gruber wrote to the Chief Commissioner noting that Business Forum had not traded since 1 April 2009 and had only debts and no assets. On 12 December 2011, the Chief Commissioner sent a Director's Compliance Notice pursuant to s.47B of the TA Act in respect of Business Forum NSW's unpaid payroll tax liabilities. 9. On 24 April 2012, the Chief Commissioner issued Payroll Tax Assessment Notices ("relevant Payroll Tax Assessments") to Grubers Beckett PL for the relevant period being 1 April 2009 to 31 December 2011 on the basis that Business Forum, Grubers Beckett PL and the Grubers Partnership were a group. On 24 July 2012, Grubers Beckett PL objected to the relevant Payroll Tax Assessments. On 30 November 2012, the Chief Commissioner disallowed Grubers Beckett PL's objections to the relevant Payroll Tax Assessments. On 7 February 2013, Grubers Beckett PL lodged an Application for Review of a Revenue Decision with the Administrative Decisions Tribunal. 9It is convenient also at this early stage to include the content of FRS under the head of "Objective Documentary Evidence (ASIC Documents; Business Records; Tax Returns; Profit and Loss and Balance Sheets; Internal Company Documents) contained in clauses 23 to 50 of FRS (again without footnotes although and again the footnote references have been checked and found to be correct) as follows: 23. The objective documentary evidence before the Tribunal (which is comprised entirely of the Applicant's own business records compiled prior to these proceedings and publicly available information) evidences the following: 24 Alfred and Louise Gruber have title to and own the trading name "Grubers Beckett". 25. Grubers Beckett PL is a proprietary limited company registered on 16 January 2004. 26. Alfred Gruber has been the sole director of Grubers Beckett PL since registration through to 31 December 2011 (the end of the relevant period). 27. Grubers Beckett PL, throughout the relevant period, had an issued share capital of 200 ordinary shares. From 10 June 2009 to 31 December 2011 (the end of the relevant period) Alfred Gruber held 100/200 (50%) of the ordinary shares issued by Grubers Beckett PL and Louise Gruber held the other 100/200 ordinary shares. The registered office and registered principal place of business of Grubers Beckett PL, since 17 June 2009, has been 12 Possum Street, Trinity Beach, Qld. 28. Grubers Beckett PL and Business Forum have partially produced financial reports and company tax returns for Grubers Beckett PL, Business Forum and Business Forum NSW in relation to the relevant period. 29. Throughout the relevant period Gruber Beckett PL carried on an accountancy business providing "accounting services" from various locations. The evidence before the Tribunal records that Grubers Beckett PL carried on the business of providing accounting services to clients of Grubers Beckett Pty Ltd from various offices in NSW and Queensland. Grubers Beckett PL, in the relevant period, carried on the accounting services business from Grubers Beckett PL's locations: Sydney (Lime Street); Freshwater (Harbord); Innisfail; Cairns; Gawler; Erina; Newport; 30...Business Forum is a proprietary limited company registered on 13 January 2009. The registered office and registered principal place of business of Grubers Beckett PL, since 17 June 2009, has been 12 Possum Street, Trinity Beach, Qld. 31.Alfred Gruber was the sole director of Business Forum from 13 January 2009 to 27 January 2012, when the company went into liquidation. Throughout the relevant period, Business Forum had an issued share capital of 2 ordinary shares. One share was held by Alfred Gruber, the other by Louise Gruber. 32 Throughout the relevant period Business Forum carried on an accountancy, administrative, employment and management service business (a service company business acting as a "conduit" for Grubers Beckett). Business Forum provided services to, and in connection with, the accounting services business carried on by Grubers Beckett PL. It received "Management Fees" paid to it by Grubers Beckett PL (s.67 (a), (b) PTA 2007). 33.Business Forum also held money and property used in connection with the accounting business carried on by Grubers Beckett PL (for instance cash, lease interests and equipment) (see s.67(e) PTA 2007). 34.Business Forum also employed persons who performed duties in connection with, and indeed solely and exclusively for Grubers Beckett PL, in the accounting services business carried on by Grubers Beckett PL (see s.67(c) PTA 2007). 35.Business Forum was a dedicated service company for Grubers Beckett PL. Prior to the liquidation of Business Forum NSW, Business Forum NSW provided the same accounting, administrative, employment and management services (service company services) to Grubers Beckett PL in respect of Grubers 36 The Grubers Partnership is a partnership of Alfred and Frances Gruber. The partnership traded as Grubers Beckett Chartered Accountants and apparently carried on the business of providing accounting services. The Grubers Partnership "pumped in" (on unidentified terms) sums of money in excess of $750,000 into the accountancy business carried on by Grubers Beckett. 37 .In the financial year ending 30 June 2009, Grubers Beckett PL recorded in its Company Tax Return, $2,239,514 in total income (of which $7 was "interest income") and $2,355,164 in total expenses (which included $2,132,478 in "other expenses"). 38. In its Profit and Loss Statement, Grubers Beckett PL recorded "Income" from "Professional Fees" of $2,239,507.03. Those "Professional Fees" are recorded as being earned by Grubers Beckett PL's offices in: Sydney (Lime Street); Freshwater (Harbord); Innisfail; Cairns; Newport; Casino; Mareeba; and Atherton. 39. The Company Tax Returns lodged with the Australian Taxation Office under Mr Grubers hand record and declare those fees as being earned by Grubers Beckett PL in its own right. Those documents do not reveal at all that the fees were earned and the income returned on behalf of anybody in any representative capacity whatsoever. 40. The Profit and Loss Statement reveals that Grubers Beckett PL paid wages and salaries of $291,391.64. The Profit and Loss Statement also records in the "Expenses" section the payment of $1,835,558.73 in "Mgmnt Charges General". Those Management Fees were paid to Business Forum NSW between 1 July 2008 and 31 March 2009 and to Business Forum between 1 April 2009 and 30 June 2009. 41. Grubers Beckett PL's Balance Sheet for the financial year ending 30 June 2009 records intra-group debts to: Business Forum in the sum of $39,004.80; Business Forum NSW in the sum of $218,351.72; and Grubers Partnership in the sum of $711,428 42. Business Forum, as outlined, commenced trading on 1 April 2009. In its Company Tax Return for the financial year ending 30 June 2009, Business Forum recorded total income of $359,260. 43 In its Profit and Loss Statement for the financial year ending 30 June 2009, Business Forum recorded: "Management Fee Income" of $346,000; Rent/Occupancy Costs of $63,800 in respect of rent for "Lime Street; Cairns; Casino; Head Office; Mareeba; Atherton; Freshwater; Newport; and Innisfail; Management Fees Paid to "GBPL" in the sum of $62,553.98 44. The Management Fees were paid to Business Forum by Grubers Beckett PL. The rental/occupancy fees were paid by Business Forum in respect of leases it held over property from which the various Grubers Beckett PL offices operated. 45. The Profit and Loss Statement reveals that Business Forum paid wages and salaries of $233,684.65. Those wages and salaries were paid by Business Forum to employees of Business Forum who were employed to work for, or in connection with, the accountancy services business carried on by Grubers Beckett PL. 46. In its Balance Sheet for the financial year ending 30 June 2009, Business Forum recorded in the Assets section under the title "Associated Entities": "Grubers Beckett Pty Ltd $39,004.80"; 47. Business Forum NSW ceased trading on 1 April 2009. In the financial year ending 30 June 2009 Business Forum NSW recorded: "Management Fee Income" of $1,303,780. Those Management Fees were paid by Grubers Beckett PL; Occupancy/Rent costs (for the same locations as Business Forum recorded for the period 1 April 2009 to 30 June 2009) in the sum of $224,768; "Advertising" costs of $42,126.16; "Maintenance/Hire Equipment" in the sum of $78,000 and under the title "Assets", "Grubers Beckett Pty Ltd $4,933.21 48. Consistent with the pattern of the group's business operations as in the 2009 and previous years, the financial accounts and filed Tax Returns of Grubers Beckett PL and Business Forum continued in the 2010 financial year record, for example: Grubers Beckett PL recorded "Professional Fee Income" of $2,267,162.41. Those fees were earned from the accounting services provided at Grubers Beckett PL's offices in: Mareeba; Harbord/Freshwater; Sydney; Cairns; Casino; Atherton; Innisfail; Newport; Cairns Mall; and Trinity; The Company Tax Returns lodged with the Australian Taxation Office under Mr Grubers hand record those fees as being earned by Grubers Beckett PL in its own right. Those documents do not reveal at all that the fees were earned and the income returned on behalf of anybody. Grubers Beckett PL recorded "Mgmnt Charges General", as an expense, in the sum of $1,735,184.58. Those Management Fees were paid to Business Forum; Grubers Beckett PL paid wages and salaries in the sum of $278,687.25 Grubers Beckett PL recorded in its liabilities to creditors: Business Forum - $153,309.91; Business Forum NSW $4,933.21; Grubers Partnership $766,883.55; Business Forum recorded "Management Fee Income" of $1,803,897.02. $1,735,184.58 of those Management Fees were paid to Business Forum; Business Forum recorded Occupancy/Rent Costs of $284,829.60. in relation to (Lime Street, Cairns, Casino, Head Office, Mareeba, Atherton, Gawler, Freshwater, Newport, Innisfail). The rental/occupancy fees were paid by Business Forum in respect of leases it held over property from which the various Grubers Beckett PL offices operated; Business Forum paid wages and salaries of $1,011,415.67. Those wages and salaries were paid by Business Forum to employees of Business Forum who were employed to work for, or in connection with, the accountancy services business carried on by Grubers Beckett PL. Business Forum recorded other costs such as "Advertising $22,992.23" and "Maintenance/Hire Equipment $105,658 Business Forum recorded a debt, from its "Associated Entity" Grubers Beckett PL, of $153,309.91 49. A similar pattern in the financial accounts and filed Tax Returns of Grubers Beckett PL and Business Forum continued in the 2011 financial year. For example: Grubers Beckett PL recorded "Professional Fee Income" of $2,319,303.27. Those fees were earned from the accounting services provided at Grubers Beckett PL's offices in: Mareeba; Harbord; Sydney; Cairns; Casino; Atherton; Innisfail; Newport; Cairns Mall; and Trinity; The Company Tax Returns lodged with the Australian Taxation Office under Mr Grubers hand record those fees as being earned by Grubers Beckett PL in its own right. Those documents do not reveal at all that the fees were earned and the income returned on behalf of anybody; Grubers Beckett PL recorded "Mgmnt Charges General" in the sum of $1,618,350.37. Those Management Fees were paid to Business Forum; Grubers Beckett PL paid wages of $378,726.64 Grubers Beckett PL recorded in its liabilities to creditors: Business Forum - $82,274.93; Business Forum NSW $121,766.21; Grubers Partnership $499,636.46; Business Forum recorded "Management Fee Income" of $1,692,106.60 of which $1,618,350.37 was paid to it by Grubers Beckett PL; Business Forum recorded Occupancy/Rent Costs of $289,648.62 in relation to the Grubers Beckett PL offices at Lime Street, Cairns, Casino, Head Office, Mareeba, Atherton, Gawler, Freshwater, Newport and Innisfail; Business Forum recorded other costs such as "Advertising $19,051.09" and "Maintenance/Hire Equipment $90,351.55"; Business Forum paid wages and salaries in the sum of $954,012.99. Those wages and salaries were paid by Business Forum to employees of Business Forum who were employed to work for, or in connection with, the accountancy services business carried on by Grubers Beckett PL. Business Forum recorded a debt, from its "Associated Entity" Grubers Beckett PL, of $82,274.93 and its "Associated Entity Business Forum NSW" of $82,380.51. 50. The key (and determinative) matters of note in respect of the relevant period are: (i)The Professional Fees earned and recorded by Grubers Beckett in its Profit and Loss Statements, Balance Sheets and Income Tax Returns were earned by Grubers Beckett PL providing accounting services to Grubers Beckett PL clients; (ii) Contrary to the thesis of the Applicant, the Grubers Beckett PL Company Tax Returns lodged with the Australian Taxation Office under Mr Grubers hand declare and record those fees as being earned by Grubers Beckett PL in its own right. Those documents do not reveal that any fees were earned, and the income returned, on behalf of anybody in any representative capacity; (iii) Contradictory to the entire thesis of the Applicant, there is absolutely no delineation/separation (re various offices which the Applicant says were separate business) in the profit and loss statements during the relevant period of either Grubers Beckett PL or Business Forum of key incomings and expenses and which "separate business" they are attributable to. Using the 2010 profit and loss statements as examples there is no delineation between offices of: the wages paid ($1,011,425.67 by Business Forum and $278,687.25 by Grubers Beckett PL); Management Charges incurred by Grubers Beckett PL ($1,735,184.58); Management Charges Income of Business Forum ($1,803,897.02); consulting fees; commission; advertising; debt collection; disbursements; interest; equipment; superannuation; legal fees. The Applicant's own business records present a complete rejection of its case in this regard; (iv)The Management Fees earned by Business Forum were paid to it by Grubers Beckett PL (possibly as reimbursements) for Business Forum's administrative, management and service business activities conducted in relation to Grubers Beckett PL's accounting business; (v) The wages and salaries paid by Business Forum to employees of Business Forum who were employed to work solely for, or in connection with, the accountancy services business carried on by Grubers Beckett PL; (vi).Other expenses incurred by Business Forum (such as lease and equipment hire expenses i.e. property) were incurred by Business Forum in respect of property used for the accounting services business of Grubers Beckett PL. 10In the interests of balance only and although I consider that this content is of limited relevance only (and although relevant assertions are comprehensively contradicted by the evidence before the Tribunal) I include clauses 18 to 28 of FAS as follows: 18. The intention was to commence operations and set-up the companies for each Business to implement the Scheme on 1July 2008 and commencing trading from that date. 19. By 1 July 2008, the Chartered Accountants/Tax Advisers who subsequently formally took control of the franchisees from February 2012 had been selected. The internal site conversion, including registration with the Institute of Chartered Accountants and Tax Agents Board had commenced. 20. Also by 1 July2008, the Grubers Beckett and Business Forum accounting system segregated the various Businesses to be franchised so that they were accounted for independently until this occurred. 21. Each Business, itself a separate business when acquired, was to be, and was operated as a separate and autonomous entity, not dependent upon each other separate and autonomous Business operating at a separate location with a separate Chartered Accountant/Tax Adviser. 22. The Chartered Accountant/Tax Agent in control of each Business, who was to participate in the Scheme, would hold his/her interest in that Business howsoever he/she determined, whether individually or through an entity (eg a company). 23. In 2009, at about the time of the commencement of the Relevant Period, Alfred, who is 63, and Louise, who Is 55, left New South Wales and went into semi-retirement in Cairns, Queensland. 24. In the Relevant Period, the Grubers rarely returned to New South Wales. The Grubers visited the New South Wales Businesses for social events organised by the Chartered Accountants/Tax Advisers of such Businesses. 25. In the Relevant Period, Alfred and the Gruber shad no involvement in the day to day operation and running of the Businesses. 26. In the Relevant Period, Alfred and the Grubers received no remuneration or income or other financial reward from the Businesses. 27. In the Relevant Period, the Businesses were accounted for as separate 'operating entities, to conform with the reality. 28. In the Relevant Period, the Grubers provided financial support by way of working capital interest free loans to each Business, enabling it, under the day to day control of one of the Chartered Accountants! Tax Advisers, to continue in operation through its IVGrubers Beckett"infancy.