Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Edgely Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 16 Hearing dates: 21 May 2014, 11 June 2014 and 8 August 2014 Decision date: 04 February 2015 Jurisdiction: Administrative and Equal Opportunity Division Before: A Verick, Senior Member Decision: The pay-roll tax assessments for the period 1 July 2002 to 30 June 2007 are confirmed. Catchwords: TAXES and DUTIES – pay-roll tax – whether a person with no employees can be liable to payroll tax – whether carrying on business for grouping provisions – joint and several liability- de-grouping – whether businesses carried on substantially independently of each other – Pay-roll Tax Act 1971 and Taxation Administration Act 1996 Legislation Cited: Pay-roll Tax Act 1971 Administrative Decisions Tribunal Act 1997 Civil and Administrative Tribunal 2013 Taxation Administration Act 1996 Corporations Act 2001 State Revenue Legislation Further Amendment Act 2000 Payroll Tax 2007 Cases Cited: Tasty Chicks Pty Ltd & Ors v Chief Commissioner of State Revenue [2011] HCA 41; (2011) 245 CLR 446 Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-Roll Tax (NSW) (1978) 8 ATR 477 Federal Commissioner of Taxation v Rador Pty Ltd 91 ATC 4689 Fanmac Ltd v Federal Commissioner of Taxation 91 ATC 4703 Erichen v Last (1881) 8 QBD 414 Hope v The Council of the City of Bathurst 80 ATC 4386 Ferguson v FC of T 79 ATC 426 J & R O'Kane v Inland Revenue Commissioners (1919-1920) 12 TC 303 London Australia Investment Company Limited v FC of T 77 ATC 4396; (1976-1977) 138 CLR 106 John French Pty Ltd v Commissioner of Pay-roll Tax (Qld) [1984] 1 QdR 125 Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181 Conte Mechanical and Electrical Services Pty Ltd v CSR [2011] VSC 104 Category: Principal judgment Parties: Edgely Pty Ltd (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: C W Robinson (Applicant) J Mitchell (Respondent) Solicitors: City Legal (Applicant) Crown Solicitor Office (Respondent) File Number(s): 136043 reasons for decision 1. The Applicant seeks a review of the Chief Commissioner's decision to disallow an objection against pay-roll tax assessments issued to the Applicant on 10 December 2010 for the period 1 July 2002 to 30 June 2007. 2. The Chief Commissioner has taken the view that the Applicant, Transtar Express Pty Ltd ("Transtar") and Nitestar Express Pty Ltd ("Nitestar") are a group for purposes of s 16D(2) of the Pay-roll Tax 1971 ("PTA") for the period 1 July 2002 to 30 June 2003 and s 106I(1) of the Taxation Administration Act 1996 ("TAA") for the period 1 July 2003 to 30 June 2007. 3. The Applicant's case is that, at no time, has the Applicant paid "taxable wages" for the purposes of the PTA or carried on any business activity during the relevant period and should not be included as a group with Transtar and Nitestar. In the alternative, the Applicant claims that the Chief Commissioner should have, in any case, excluded the Applicant from the group. 4. This application was instituted in the Revenue Division of the Administrative Decisions Tribunal ('the ADT') under the provisions of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). On 1 January 2014, the ADT with a number of other Tribunals in New South Wales, were abolished and their jurisdiction and functions integrated into the Civil and Administrative Tribunal of New South Wales ('the NCAT') established under the Civil and Administrative Tribunal Act 2013 ('the NCAT Act'). Because the proceedings in this matter were 'unheard proceedings' on 1 January 2014 as defined in clause 6(1) of Schedule 1 to the NCAT Act, they 'are taken to have duly commenced in NCAT and heard and determined instead by NCAT' (Clause 7(1)). This decision is, accordingly, a decision of NCAT. 5. The Tribunal had before it the documents lodged by the Chief Commissioner pursuant to s 58 of the ADT Act; it also admitted into the evidence, an affidavit sworn by Ronald Wesley Searle, the Chief Commissioner's tender bundle of documents tendered and admitted without objection and a photograph tendered by the Chief Commissioner of the principal property owned by the respondent during the relevant period. 6. The parties also furnished the Tribunal with written submissions at the hearing and further written submissions in September 2014 and October 2014 by the Applicant and the Chief Commissioner, respectively. Factual Background 1. The Applicant was incorporated on 30 September 1999. 2. During the relevant period, Kagua Pty Ltd held 100 ordinary shares in the Applicant in trust for the beneficiaries of the R W Searle Family Trust. The beneficiaries were Ronald Wesley Searle ("RWS"), John Weslyn Searle ("JWS") and Elizabeth Mary Searle ("EMS"). One E share was held by RWS, which gave a right to be paid dividends. 3. RWS was the sole director of the Applicant from 12 October 1999 until 18 January 2005. On 7 March 2005, JWS was appointed director and remained the sole director until 23 February 2006 when RWS was reappointed director of the Applicant. 4. On 15 July 2000, the Applicant purchased land situated at 15 Contaplas Street, Arndell Park. Construction of a warehouse with offices on the property was completed in 2003. 5. During the relevant period the Applicant derived rental and storage income: 2002……$84,000 2003…….$89,000 2004-……$817,128 2005….….$448,939 2006……..$439,739 1. Transtar Express Pty Ltd ("Transtar") was incorporated on 12 July 1973. The shares in Transtar were held during the relevant period as follows: 1. 8,999 ordinary shares, 100 A Class voting non-dividend shares and 900 non-voting C Class dividend shares by RWS. 2. (8,999 ordinary shares, 100 A Class voting non-dividend shares and 900 non-voting B Class dividend shares held by JWS. 3. 1 ordinary share held by EMS. 1. RWS was sole director of Transtar from November 1996 until 18 January 2005 when he resigned. JWS was appointed sole director of Transtar on 7 March 2005 until 23 February 2006 when RWS was reappointed as a director. 2. Transtar carried on a trucking hire business with a registered office at the Contaplas Road property from 9 December 2003 until April 2012 when it went into administration and liquidation. 3. Kagua Pty Ltd was incorporated on 14 June 1973 and EMS and JWS each held one ordinary share in the company during the relevant period. RWS was the sole director and company secretary of Kagua until 18 January 2005 when he resigned. On 7 March 2005, JWS was appointed director and remained sole director of Kagua until 23 February 2006 when RWS was reappointed director of Kagua. 4. Nitestar Express Pty Limited was incorporated on 12 December 2002. It carried on a trucking business from 1 December 2003 with its principal place of business at the Contaplas Road property. 5. RWS was sole director from 12 December 2002 until 7 March 2005. JWS was sole director during the period from 7 March 2005 to 23 February 2006. RWS and JWS were directors from 23 February 2006 until an administrator was appointed on 9 July 2007. RWS held all shares in Nitestar during the relevant period. 6. Events leading to this application for review are set out in the Respondent's written submissions - 18. In November 2006 an audit was commenced in relation to the affairs of Edgely, Kagua, Transtar and Nitestar. The audit concerned payroll tax and land tax. 19. On 18 December 2007 the Chief Commissioner completed the audit and issued a notice to Transtar that Transtar, Edgely, Kagua and Nitestar would be grouped for payroll tax purposes. 20. On 20 September 2007 the Chief Commissioner issued payroll tax assessments to Transtar and Nitestar for the relevant period. 21. The Chief Commissioner then sought to enforce the payroll tax liabilities by statutory demand against Edgely. That statutory demand was set aside on 22 May 2008. 22. On 11 April 2008 the Chief Commissioner issued reassessments of payroll tax to Transtar and Nitestar for the period 1 July 2004 to 30 June 2007. These assessments reduced the wages figures for those years so as to remove amounts referable to workers compensation payments: s 58 at 93. 23. On 10 December 2010 the Chief Commissioner issued assessments for payroll tax to Edgely for the relevant period (the "relevant assessments"). 24. Again the Chief Commissioner then sought to enforce the payroll tax liabilities by statutory demand against Edgely. That statutory demand was set aside on 23 October 2012. 25. On 19 October 2012 Edgely lodged an objection to the relevant assessments with the Chief Commissioner. The objection contended that Edgley should not have been grouped with Transtar and Nitestar. 26. On 11 April 2013 the Chief Commissioner disallowed the objection. 1. This matter concerns principally the pay-roll tax grouping provisions, which, as the High Court in Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue [2011] HCA 41 described are essentially 'designed to counter tax avoidance through the splitting of business activities by the use of additional entities, each attracting a threshold'. Issues 1. The parties identified the issues as follows: 1. Whether a company without employees and paying no wages can be subject to a pay-roll tax liability? 2. Whether the Applicant was correctly grouped? 3. Whether the Applicant was jointly and severally liable for pay-roll tax in circumstances where a member of the group failed to pay pay-roll tax due under an assessment issued to the member? 4. If the Applicant was correctly grouped, whether the Chief Commissioner ought to have exercised his power to de-group the Applicant? Issue 1 – Whether a company without employees and paying no wages can be subject to a pay-roll tax liability? 1. This issue, raised by Counsel for the Applicant, was essentially a jurisdictional issue. 2. It was submitted by the Applicant that the Chief Commissioner did not have the necessary statutory power to issue the assessments because the Chief Commissioner 'has no power to assess a person to pay-roll tax, who is not an employer liable to pay wages'. 3. Reliance was placed essentially on the scheme of the legislation to impose liability for pay-roll tax. In particular, reference was made to s 8 of the PTA, which provided that "Pay-roll tax shall be paid by the employer by whom the taxable wages are paid or payable". 4. Counsel for the Applicant also referred to the definition of 'employer', which, in Part 1 of the PTA, defined "employer" in terms of a person liable to pay 'wages'. It was submitted that s 6 of the PTA 'identifies those "wages" upon which liability to pay-roll tax is imposed and that - 23. Payment of tax is required by "…every employer liable to pay-roll tax…" in accordance with s 17 of the PTA. Section 18 of the PTA also confers upon the Respondent a power to assess amounts of taxable wages for which an employer is liable and to calculate the pay-roll tax payable by the employer. 24. The role of the "grouping provisions' in the scheme of the PTA is to overcome the potential "splitting" of payrolls to take advantage of the pay-roll tax threshold. These provisions operate by tracing underlying control of multiple businesses each with a payroll. They do not impose a primary liability upon any member of the group which is not an employer liable to pay wages. 1. At the hearing, Mr Robinson, counsel for the Applicant, conceded that the Chief Commissioner had power to 'group persons who do not employ people but who are carrying on a business with other persons who do employ people'. In making the concession, counsel was essentially referring to the statutory scheme dealing with grouping of businesses for pay-roll tax purposes and in particular to the extended definition of 'business' to include 'any activity carried on for fee or reward'. 2. But, it was further argued 'that a company can hold in the long term properties which both make a capital gain and are held for the purpose of deriving rental income as not being a business'. Mr Robinson submitted that it was open to the Tribunal to find in this case that the Applicant is one such vehicle because 'simply deriving rental income is plainly a passive conduct' and did not constitute an 'activity'. 3. Mr Mitchell, counsel for the Chief Commissioner, on the other hand submitted that - The evidence of Mr Searle demonstrates that his evidence, supplemented with what is in the material already, that the 15 Contaplas Street property was purchased in 1999 transferred in 2000 and thereafter there was development activity involving the construction of a warehouse which was completed sometime in 2003 and remembering that the relevant payroll tax period here is from 1 July 2002 to 30 June 2007. During that period the Contaplas Road property was changed from being a greenfield vacant block in the witness's description to property which is now the subject of the photograph, which is R1. There can be no dispute that there has been considerable activity for the development of the property so that it now has a substantial warehouse and I think there were three or four offices inside of the building, so to suggest that there is not some activity besides passively holding the land is, in my submission, not a tenable submission. In terms of the reward for those activities the financial statements show that initially as a greenfield or vacant site rent of $80,000 per year was being paid by Transtar to Edgely for the use of the site and that Transtar were leaving its trucks, and I think he might have said trailers, on the land prior to being developed and then upon being developed the rent was increased from $80,000 a year to $400,000 a year. 1. Counsel for the Chief Commissioner further submitted that the 'activities, in the form of storage and or leasing, gave rise to fees or rewards or gains in the relevant period' and 'plainly constituted Edgely as carrying on a business in the relevant period as defined in s 16A PTA and s 106E TAA'. 2. The submissions made by both parties were, unfortunately, devoid of any authority. 3. The Applicant's threshold submission that the Applicant did not have employees nor paid wages and as such ought not to be the subject of any pay-roll tax action by the Chief Commissioner can easily be disposed of. Counsel for the Applicant correctly pointed out that the basic scheme of pay-roll tax liability depends on an employer paying wages as defined. But that was not the case in this matter. 4. The Applicant had been issued with the pay-roll tax assessments because the Chief Commissioner had taken the view that it was a business that could be grouped with two other related businesses. 5. In considering equivalent provisions in Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) (1978) 8 ATR 477 his Honour Rath J at 487 importantly, observed as follows: Under s 16C one member of the group is an employer (as defined in s 3); but it does not appear that the other members must be such employers. The other members are described as "persons". An employer is defined to mean any person who pays or is liable to pay wages. "Person" includes a company; and "company" is defined to include all bodies and associations (corporate and unincorporated) and partnerships. In s 16D the criterion for membership of a group is the existence in "persons" of a controlling interest in two businesses. 1. His Honour was dealing with s 16C of the PTA. In this matter, the Chief Commissioner had in grouping the Applicant relied on s 16D(2) PTA (see Appendix A) for the period from 1 July 2002 to 30 June 2003 and s 106I of the TAA (see Appendix B) for the period from 1 July 2003 to 30 June 2007. Both dealt with grouping of commonly controlled businesses. The Chief Commissioner was entitled to group two businesses where the same person or persons together had a controlling interest in both. Under these provisions a person carrying on a business as defined could have been be the subject of grouping with other businesses with or without employees provided the common control test was satisfied. 2. The definition of the term 'business' for purposes of the grouping provisions during the period from 1 July 2002 to 30 June 2003 was in s 16A of the PTA (see Appendix A) and in the following terms: business includes: (a) a trade or profession, or (b) any other activity carried on for fee, gain or reward, and (c) the activity, carried on by an employer, of employing one or more persons where that person performs or those persons perform duties for or in connection with another business. 1. For the period 1 July 2003 to 30 June 2007, the definition was set out in s 106E of the TAA (see Appendix B) - business means: (a) a profession or trade, or (b) any other activity carried on for fee or reward, or (c) the activity of employing persons to perform duties in connection with another business, or (d) the carrying on of a trust, whether carried on by 1 person or 2 or more persons together. 1. The definitions are similar. In my opinion both captured the common law definition of the term by the inclusion of 'a profession or trade'. But went further to ensure that 'any other activity carried on for a fee or reward' (both definitions) and 'the carrying on of a trust' (the TAA definition) were also included. Cases dealing with trusts have often highlighted the difficulty of treating a trustee as carrying on a business but the TAA 'extended definition' makes it clear that a trustee is to be treated as carrying a business (see Federal Commissioner of Taxation v Radnor Pty Ltd 91 ATC 4689 where Hill J found the trustee was not carrying on a business when dealing with capital assets of the trust and Fanmac Ltd v Federal Commissioner of Taxation 91 ATC 4703 where, in contrast, Beaumont J held that the trustee was 'the business of establishing, marketing, managing and administering trusts which issue fixed rate securities). 2. In dealing with the common law definition, courts, in particular in taxation matters, have indicated various criteria, which are often relied upon as applicable principles or indicia, in considering whether an activity constitutes a business. 3. In Radnor, Hill J, usefully, set out the basic criteria that can assist in determining whether an activity constitutes a business as follows: There is no single factor that can be isolated as determinative of the question whether a taxpayer is carrying on a business. Rather, as Jessel M.R. said in Erichen v Last (1881) 8 QBD 414 at 416: "There are a multitude of things which together make up the carrying on of trade." Two factors assist, however, in making out activities as a business: repetition and the existence of making a profit; Hope v The Council of the City of Bathurst 80 ATC 4386 at 4389-4390; (1980) 144 CLR 1 at 8-9. The significance of these factors was pointed out in the joint judgment of Bowen C.J. and Franki J in Ferguson v FC of T 79 ATC 426 at 4264; (1979) 37 FLR 310 at 314, where their Honours said: "There are many elements to be considered. The nature of the activities, particularly whether they have the purpose of profit-making, may be important. However, an immediate purpose of profit-making in a particular income year does not appear to be essential. Certainly it may be held a person carrying on business notwithstanding his profit is small or even where he is making a loss. Repetition and regularity of the activities is also important. However, every business has to begin and even isolated activities may in the circumstances be held to be the commencement of carrying on business. Again, organization of activities in a business-like manner, the keeping of books, records and use of system may all serve to indicate that a business is being carried on." Volume and scale of the activity may be significant, as the passage quoted earlier from the judgment of Jacobs J. in London Australia suggests, as may the amount of capital employed. While intention to carry on a business must exist, this does not mean that the question is subjective. As Lord Buckmaster said in J & R O'Kane v Inland Revenue Commissioners (1919-1920) 12 TC 303 at 347: "… the intention of a man cannot be considered as determining what is that his acts amount to." 1. His Honour referred to London Australia Investment Company Limited v FC of T 77 ATC 4396; (1976-1977) 138 CLR 106 where Gibbs J at ATC 4404; CLR 118, considered 'whether a sale was a business operation carried out in the course of the business of profit-making, rather than a mere realisation of a capital asset'. In finding that the company was carrying on a business, his Honour made the rather important observation that - The position of an investment company is materially different from that an individual managing his own portfolio of shares. 1. I think a similar observation can be made where the taxpayer is a company earning rental income from properties held as assets. 2. The above principles, when applied to this matter, lead to the irresistible conclusion that the Applicant was carrying on a business in the relevant period within the extended definition. In the present case, if the only relevant activity of the Applicant were merely holding of property for long-term capital gain and meanwhile earning passive rental income, there would be much to be said for the view that the Applicant was not carrying on a business. But, in my view, this would be to take too narrow a view of what the Applicant's activities were in the relevant period. 3. In my opinion, it is appropriate to describe the relevant activities, which were highlighted by counsel for the Chief Commissioner, as constituting a business or, in the narrow sense, as an activity carried on for gain or reward within the extended definition. In particular, the development of the Contaplas Road property and the subsequent leasing of the property to the related companies earning regular income, would satisfy the profit making and regularity criteria to establish that a business activity was conducted by the Applicant during the relevant period. Issue 2 – Whether the Applicant was correctly grouped? 1. The disputed assessments fall within two periods in terms of the relevant grouping provisions. 2. For the period 1 July 2002 to 30 June 2003, the relevant provisions were sections 16D and 16E of the PTA. (see Appendix A) 3. For the period 1 July 2003 to 30 June 2007, sections 106I and 106K in Part 10A of the Taxation Administration Act 1996 ("TA Act") applied. (see Appendix B) 4. The Applicant's case was that, in respect of the relevant period until 30 June 2003, the various tests set out in s 16D of the PTA were not available to the Chief Commissioner on the facts of this matter. 5. In relation to the test set out in s 16D(3)(a) the Applicant submitted - 32. This test is directed at control from outside the board. In the absence of formal or informal directions or instructions to the directors upon which they act or are accustomed to act, this provision has no application. 33. In the case of the Taxpayer, the evidence is that at all material times when this provision was in force RWS was the sole director of the Taxpayer. There is no evidence that during that time, did he "… act in accordance with the directions, instructions or wishes of …" any other person. This provision does not apply in relation to the Taxpayer. 34. At the same time he was director of Edgely, RWS was a director of Transtar and Nitestar. Those facts alone do not attract any provision in s16D, which might cause those companies to be grouped. 35. However, the evidence of RWS is that at all material times while he was a director, of either Transtar or Nitestar, he did "…act in accordance with the directions, instructions or wishes of…" another person, namely JWS. 36. No other provision relied upon by the Respondent establishes that RWS had a controlling interest in the businesses of Transtar or Nitestar. Consequently in order to group any of these companies with the taxpayer using one of the tests applied by the respondent, JWS must have a controlling interest in the taxpayer. 37. As indicated, JWS does not have a controlling interest by reason of s.16D(3)(a). 1. The Applicant further submitted that the test found in s16D(3)(d) of the PTA did not apply for the following reasons: 39. Sec 16G effectively provides that in the case of a discretionary trust a person who is a discretionary object of the trust is taken to have more than 50% of the value of the interests in the trust. 40. There is only one relevant trust in this matter and that is the Trust. Kagua, the trustee of the Trust does not carry on a business in any sense, under the Trust. The only assets of the Trust are shares in the Taxpayer. Nothing in this provision establishes a controlling interest in a business of the Taxpayer, on the part of JWS. 1. It was also further submitted that it was 'not clear' how the test in s 16D(5) of the PTA has been applied but that it should not have been applied in any case because - It does not seem to have any application where the only person who might have a controlling interest under s.16D(3) in any business of the Taxpayer is RWS. Edgely does not under s.16D(3) have a controlling interest in any other business. 1. Finally, it was submitted the s16D(6) test also did not apply because - 44. Read with s.16G this provision applied in this case determines the sole effective object, RWS to have the controlling interest in a business, which would otherwise be a controlling interest of the trustee. As already submitted the only assets of the Trust are the shares in the taxpayer. 45. The respondent has taken JWS to be person who may benefit from the Trust. 1. In relation to the period from 1 July 2003, it was submitted that the Chief Commissioner 'relies upon section 106I(1), 106I(2)(c), 106I(2)(f), 106I(5) and 106I(6)' of the TAA but these provisions do not apply for the following reasons: 49. In this case for period from 1 July 2003, when both JWS and RWS were both appointed to the boards of the tax payer, Nitestar and Transtar, RWS had the controlling interest in the board of the Taxpayer while JWS had a controlling interest in both Transtar and Nitestar, by reason of s.106I(2)(c)(ii). 50. For the purposes of s.106I(2)(f), the only possible person with an identifiable controlling interest would be RWS who was the only effective object of the Trust. Section 106I(6) operates to deem a person who may benefit under a discretionary trust as having more than 50% interest in the business of a trust. Again however, Kagua simply holding the shares in the Taxpayer as trustee for the Trust, does not constitute a business in any sense. 51. Again at all material times, if the Trust was taken to have a controlling interest in a business, RWS should be taken to have had that interest. If the holding of shares in the Taxpayer were taken to give the Kagua as trustee a controlling interest in the Taxpayer that interest should be taken to be that of RWS by reason of s.106I(5). 1. The Chief Commissioner's case was that Edgely, Transtar and Nitestar should be grouped under s 16D(2) PTA (prior to 30 June 2003) and 106I(1) TAA (post 30 June 2003) by reason of the following facts and circumstances: (a) Edgely carried on business in the relevant period. Edgely's activities, in the form of storage and or leasing, gave rise to fees or rewards or gains in the relevant period. Those activities plainly constituted Edgely as carrying on a business in the relevant period as defined in s 16A PTA and s 106E TAA. (b) Ronald was entitled to exercise majority voting power at meetings of directors in each of Edgely, Transtar and Nitestar in the period 1 July 2002 to 18 January 2005 because he was the sole director of those companies during that period (s 16D(3)(a) PTA and s 106I(2)(c)(i) TAA). For that reason Ronald had a controlling interest in the businesses carried on by Edgely, Transtar and Nitestar during that period. (c) Wes was entitled to exercise majority voting power at meetings of directors in each of Edgely, Kagua, Transtar and Nitestar in the period 7 March 2005 to 23 February 2006 because he was the sole director of those companies during that period (s 16D(3)(a) PTA and s 106I(2)(c)(i) TAA). For that reason Wes has a controlling interest in the businesses carried on by Edgely, Transtar and Nitestar during that period. (d) Ronald and Wes were entitled to exercise majority voting power at meetings of directors in each of Edgely, Kagua, Transtar and Nitestar in the period 23 February 2006 to 30 June 2007 because they were the directors of those companies during that period (s 16D(3)(a) PTA and s 106I(2)(c)(i) TAA). For that reason Ronald and Wes have a controlling interest in the businesses carried on by Edgely, Transtar and Nitestar during that period. (e) There was no director of Edgely, Kagua, Transtar and Nitestar according to the records of those companies between 18 January 2005 and 7 March 2005. During that period, and in any case: (i) Edgely and Nitestar should be grouped for the relevant period or part thereof because Ronald had a controlling interest in the business of Edgely, because he was a beneficiary of the R W Searle Family Trust, a discretionary trust (ss 16D(3)(b) and (6) and 16G PTA and ss 106I(3) and 106I(5) and (6) TAA), and he had a controlling interest in the business of Nitestar because he owned all of the voting shares in Nitestar (s 16D(3)(b) PTA and 106I(2)(d) TAA). (ii) Edgely and Transtar should be grouped for the relevant period or part thereof because Ronald and Elizabeth or Ronald and Wes or Elizabeth and Wes had controlling interest in the business of Edgely, by reason of them being beneficiaries of R W Searle Family Trust, a discretionary trust (ss 16D(3)(b) and (6), 16E and 16G PTA and 106I(3), (5) and (6) TAA), and also had controlling interests in the business of Transtar because Ronald and Elizabeth, Ronald and Wes or Wes and Elizabeth owned the majority or all of the voting shares in Transtar (s 16D(3)(b) PTA and 106I(2)(d) TAA). (iii) By reason of (i) and (ii), namely that Edgley is a member of two groups, Edgely, Nitestar and Transtar are grouped (s 16E PTA and 106K TAA); see also Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) (1978) 8 ATR 477 at 487; John French Pty Ltd v Commissioner of Pay-roll Tax (Qld) [1984] 1 QdR 125 at 135-6. 1. The Chief Commissioner also in his final submissions responded to the submissions made by the Applicant. 2. It was submitted that the suggested interpretation of the provisions found in s 16D(3)(a) of the PTA requiring control from a person outside the board was not supported by any authority and was in any case 'absurd' - That is because, according to Edgely's interpretation, two companies, with the same sole director who acts in accordance with his or her own wishes, would not be grouped but if that director who acted in accordance with another's person's wishes they would be grouped. Similarly, based on Edgely's interpretation, where two companies each have a number of directors all of whom act in accordance with the wishes of the Chairman who is the same person the two companies would not be grouped whereas if they acted in accordance with a person who was not a director they would be grouped. That cannot have been the intention of s 16D(3)(a), an anti-avoidance provision: Tasty Chicks Pty Limited & Ors v Chief Commissioner of State Revenue (2011) 245 CLR 446 at [8] per French CJ, Gummow, Crennan, Kiefel, Bell JJ. (g) If the intention were to exclude such control from grouping s 16D(3)(a) would have used the phrase another person rather than a person or that person. 1. The Chief Commissioner's response to the Applicant's contention that Kagua was not carrying any business in the relevant period was as follows: The business of Edgely was carried on under a trust in the sense that all of the shares in Edgely were held on trust by a trustee, Kagua, as trustee of the R W Searle Family Trust. Kagua had the same directors to Edgely at all relevant times (Ronald until 18 January 2005, Wes from 7 March 2005 to 23 February 2006 and thereafter Ronald and Wes). Edgely's business was thereby carried on under the R W Searle family trust. 1. In relation to the s 16D(5) of the PTA argument advanced by the Applicant, the response was that the Chief Commissioner only relied on this provision in the alternative and it, in any case, had the following effect: 21. As Edgely was landlord and debtor to Transtar and landlord to Nitestar and Transtar and Nitestar's operations were conducted from Edgely's premises at the Contaplas Road property it should be inferred that Ronald and or Wes controlled the group of companies in a manner that involved the application of s 16D(5). Specifically, it should be inferred that the premises at Contaplas Road were used by Ronald and or Wes for Transtar's and Nitestar's needs as a trucking business and thereby Edgley was controlled through those companies. That is, the director or directors of Edgley were accustomed to act in accordance with the wishes of Transtar and or Nitestar as sole tenant and, in Transtar's case, lender to Edgely by providing office facilities and housing trucks in a building that was constructed by Edgley specifically to meet the needs of Transtar and Nitestar. Thereby, Ronald, Wes and or Elizabeth controlled Transtar and Ronald controlled Nitestar as already submitted (see [31] of submissions of 5 August 2014) and Transtar and or Nitestar controlled Edgely by reason of operation of s 16D(3)(a). By reason of s 16D(5) the persons that controlled Transtar and Nitestar controlled Edgely. 1. It was further submitted that as 'Kagua had a controlling interest in the business of Edgley and thereby Ronald as a beneficiary of R W Searle Family Trust in respect of more than 50% of the value of the interests in that trust was deemed, by s 16D(6) of the PTA, to have a controlling interest in Edgley's business'. 2. It was also submitted that the Applicant has incorrectly identified the directorships in his submissions. It was also submitted by the respondent that 'the Chief Commissioner relied on s 106I(2)(i) for grouping and not (2)(ii), albeit that (2)(ii) could also be satisfied'. 3. It was also further submitted that s 106I(6) of the TAA applies because 'each of Ronald, Wes and Elizabeth were beneficiaries of the R W Searle Family Trust, being a discretionary trust' and 'according to the terms of that trust any of Ronald, Wes or Elizabeth could benefit from an exercise of discretion by the trustee of that trust'. 4. By way of background, it is important to note the policy reason for grouping two or more employers to constitute a group for purposes of the pay-roll tax law. This was usefully explained by the High Court in Tasty Chicks at 451 - 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. 1. Broadly speaking, during the two periods at issue, two or more businesses could have been grouped if the same person had, or the same persons had together, a controlling interest in the businesses. 2. In this matter, the Chief Commissioner grouped the Applicant, Transtar and Nitestar under s 16D(2) of the PTA for the period prior to 30 June 2003 and, pursuant to s 106I(1) of the TAA, for the period from 1 July 2003 to 30 June 2007. The PTA provision provided that 'where the same person has, or the same persons have together, a controlling interest under subsection (3) in each of the two businesses, the persons who carry on those businesses constitute a group'. The TAA provision provided: If a person or set of persons has a controlling interest in each of 2 businesses, the persons who carry on those businesses constitute a primary group. Under both provisions the key concept to determine whether two or more businesses constituted a group was whether the same person or persons had a 'common controlling interest' in the respective businesses concerned. 3. I have found that the Applicant did carry on a business in the relevant period in terms of the definition found in s 16A of the PTA and s 106E of the TAA. Accordingly, that ground, which I think was the Applicant's critical ground, was not available to the Applicant for purposes of challenging the grouping of the Applicant with the two related companies. The issue for purposes of the grouping provisions was essentially whether the 'common controlling interest in two businesses' test applied. 4. In order to determine the common controlling interest, it was necessary to establish in the case of the PTA period whether any test set out in 16D(3) applied to establish that interest. In respect of the TAA period, the tests as set out in s 106I(2) had to be satisfied. 5. Essentially, reliance was placed by the Chief Commissioner on the test found in s 16D(3)(a) for the PTA period and s 106I(2)(c)(i) for the TAA period. 6. The test in s 16D(3)(a) of the PTA provided as follows: a person has, or persons have together, a controlling interest in a business, being a business carried on by a corporation, if the directors, or a majority of the directors, or one or more of the directors, being a director or directors who is or are entitled to exercise a majority in voting power at meetings of the directors, of the corporation are or is accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of that person or of those persons acting together 1. The test in s 106I(2)(c)(i) of the TAA provided as follows: (c) in the case of a business carried on by a corporation: (i) the person or each of the set of persons is a director of the corporation and the person or set of persons is entitled to exercise more than 50% of the voting power at meetings of the directors of the corporation, or (ii) a director or set of directors of the corporation that is entitled to exercise more than 50% of the voting power at meetings of the corporation is under an obligation, whether formal or informal, to act in accordance with the direction, instructions or wishes of that person or set of persons, 1. Whilst the two provisions were differently worded, they nevertheless applied in similar circumstances. Under both provisions, the test was satisfied if a director or set of directors were able to make decisions by exercising their voting power. 2. In this matter, there was no serious challenge by the Applicant to the factual links highlighted by the Chief Commissioner in his submissions as set out in paragraph 52 above. As I understand the Applicant's position was based on the following contentions: (a) that s 16D(3)(a) only operated where the control was from outside the board; (b) that s16D(3)(d) in conjunction with s 16G did not establish a controlling interest in a business of the Applicant, on the part of JWS; (c) that s 16D(5) had no application where the only person who might have had a controlling interest under s 16D(3) in any business of the Applicant was RWS. The Applicant did not under s 16D(3) have a controlling interest in any other business; (d) that s 16D(6) when read with s 16G did not lead to the conclusion that JWS would have benefitted from the R W Searle Family Trust; (e) that s 106I(2)(c) was different from s 16D(3)(a) – for the period 1 July 2003 when both JWS and RWS were both appointed to the boards of the Applicant, Nitestar and Transtar, RWS had the controlling interest in the board of the Applicant while JWS had a controlling interest in both Transtar and Nitestar, by reason of s 106I(2)(c)(ii) and (f) that for the purposes of s 106I(2)(f) the only possible person with an identifiable controlling interest would have been RWS who was the only object of the R W Searle Family Trust. 1. I agree with the interpretation of s 16D(3)(a) suggested by counsel for the Chief Commissioner. There is nothing in the language of the provision to suggest that it would have only operated in the case of control from a person outside the boards of the Applicant and the associated companies. 2. Section 16D(5) was an alternative base to support the position taken by the Chief Commissioner and that, pursuant to this provision, the persons that controlled Transtar and Nitestar also controlled the Applicant. I agree with the Chief Commissioner's submission that, as the Applicant 'was landlord and debtor to Transtar and landlord to Nitestar and Transtar's operations were conducted from Edgely's premises at the Contaplas Road property, it should be inferred that Ronald and or Wes controlled the group of companies in a manner that involved the application of s 16D(5)'. 3. I reject the contention made by the Applicant in relation to the operation of s 16D(3)(d). I agree with the submission made by counsel for the Chief Commissioner that the suggested interpretation, that required Kagua to be carrying on a business, was not supported by the words of the provision. 4. RWS was a beneficiary under the R W Searle Family Trust, a discretionary trust, and would have been deemed to be a beneficiary in respect of more than 50% of the value of the interests in that trust. Pursuant to s 16D(3)(b), as Kagua held all the shares in the Applicant, it could have exercised more than 50% of the voting power attached to the voting shares issued by the Applicant. As Kagua had a controlling interest in the business of the Applicant and RWS a beneficiary of the R W Searle Family Trust with more than 50% of the value of the interests in that trust was correctly deemed by the Chief Commissioner pursuant to s 16D(6) to have a controlling interest in the Applicant's business. 5. The Applicant's submission in relation to the operation of s 106I(2)(c)(ii), as pointed out by counsel for the Chief Commissioner, was based on incorrect facts. In any case, the Chief Commissioner had relied on s 106I(2)(c)(i). 6. Finally, I reject the Applicant's contention that, for purposes of s 106I(2)(f) of the TAA, RWS was the only effective object of the Trust. It was submitted by the Chief Commissioner that as RWS, JWS and EMS were beneficiaries of R W Searle Family Trust, a discretionary trust, any of them could have benefitted from an exercise of the discretion by the trustee of the trust. And that for that reason s 106I(6) would have applied. I agree with that submission. 7. I should add that nothing really turned on the evidence given by JWS and his cross-examination. His evidence did not in any way assist the Applicant to discharge the onus placed on it by s 100(3) of the TAA. 8. Accordingly, I find that the Chief Commissioner correctly grouped the Applicant with Nitestar and Transtar for pay-roll tax purposes during the relevant period. Issue 3 – Whether the Applicant was jointly and severally liable for pay-roll tax in circumstances where a member of the group failed to the pay the pay-roll tax due under an assessment issued to the member? 1. On 18 September 2007, at the conclusion of an audit of the Applicant, Kagua, Transtar and Nitestar, the Chief Commissioner notified the relevant parties that the companies constituted a group for the PTA and TAA. 2. On 20 September 2007, assessments were issued to Transtar and Nitestar but both failed to meet the demand to pay the respective pay-roll tax liabilities. 3. On 18 October 2007, the Chief Commissioner issued a notice of demand to the Applicant in respect of Nitestar's outstanding pay-roll tax (together with penalties and interest). The Applicant was informed that, as the Applicant and Nitestar constituted a group, it was by reason of s 16LA of the PTA, s 81 of the Pay-roll Tax Act 2007 and s 45 of the TAA, jointly and severally liable with Nitestar for the payment of the amount due from Nitestar. 4. The Applicant did not respond to the demand and the Chief Commissioner sought to recover the amount due under the demand in the Supreme Court but the demand was set aside. No explanation was provided but in the absence of any assessments against the Applicant, the demand was not authorised. 5. On 11 April 2008, the Chief Commissioner issued reassessments of pay-roll tax to Transtar and Nitestar for the period 1 July 2004 to 30 June 2007 making some adjustments to those assessments previously issued to them for that period. The pay-roll tax liabilities under these reassessments were also not met by Transtar and Nitestar. 6. On 31 December 2010, the Chief Commissioner issued assessments to the Applicant in accordance with s 45(2A) of the TAA in respect of the pay-roll tax liabilities previously assessed to Transtar and Nitestar for the whole of the relevant period. 7. In the absence of any response by the Applicant, the Chief Commissioner made a creditor's statutory demand under s 459E of the Corporations Act 2001. The Applicant did not respond to the demand. But, sometime in May 2012, the Applicant proceeded to take action in the Supreme Court and had the demand set aside on the grounds that it had not received the demand in the first place. 8. The Applicant also sought and obtained from the Chief Commissioner an extension of time to lodge objections to the assessments but the Chief Commissioner disallowed the objections. The assessments are the subject of this review. 9. The assessments were issued to the Applicant pursuant to s 16LA of the PTA and s 45 of the TAA. 10. Section 16LA relevantly provided: 16LA Joint and several liability (1) If a member of a group fails to pay an amount that the member is required to pay under this Act in respect of any period, every member of the group is liable jointly and severally to pay that amount to the Chief Commissioner. (2) Section 45 of the Taxation Administration Act 1996 applies to an amount payable under this section. 1. Section 16LA was inserted into the PTA by the State Revenue Legislation Further Amendment Act 2000. The explanatory memorandum to the bill introducing this provision noted that - The section will enable the recovery of pay-roll tax, in the case of a group from any member of the group and not just from a member that pays wages. The section also applies section 45 of the Taxation Administration Act 1996 to an amount of pay-roll tax payable by a group member. Section 45 of the Taxation Administration Act 1996 is to be amended by Schedule 6[1] to the proposed Act. Section 45, as amended, will provide that the liability of a group member to pay an amount of tax includes a liability to pay any interest, penalty tax and costs and expenses associated with the recovery of the tax. Section 45, as amended, will also give a group member who pays an amount in accordance with the section such right of contribution or indemnity from other group members as are just. 1. Section 45 of the TAA, after the amendments introduced by the State Revenue Legislation Further Amendment Act 2000, relevantly provided: 45 Joint and several liability (1) If two or more persons are jointly or severally liable to pay an amount under a taxation law, the Chief Commissioner may recover the whole of the amount from them, or any of them. (2) If under a taxation law two or more persons are jointly and severally liable to pay an amount of tax that is payable by any one of them, each person is also jointly and severally liable to pay any related charges, being: (a) any amount payable to the Chief Commissioner under a taxation law in relation to that amount, including any interest and penalty tax under Part 5, and (b) any costs and expenses incurred in relation to the recovery of that amount that the Chief Commissioner is entitled to recover from any such person. (2A) The Chief Commissioner may issue a notice of assessment of the liability of a person to pay any tax and related charges for which the person is jointly and severally liable with another person under a taxation law, even if a notice of assessment has already been issued to the other person. 1. (3) A person who pays an amount of tax in accordance with the liability imposed by this section has such rights of contribution or indemnity from the other person or persons as are just. The Applicant's challenge in this matter was based essentially on the contention that Chief Commissioner did not have statutory power to impose any pay-roll tax liability because the Applicant did not have any employees and was not involved in any business activity during the relevant period. The Tribunal has rejected that contention and has also found that the Applicant was correctly grouped with Transtar and Nitestar. 2. In those circumstances, the Chief Commissioner was clearly entitled to issue the assessments pursuant to the Chief Commissioner's powers found in s 16LA of the PTA and s 45 of the TAA. Issue 4 – If the Applicant was correctly grouped, whether the Chief Commissioner ought to have exercised his power to de-group the Applicant? 1. The Chief Commissioner had a power to exclude a person from a pay-roll tax group during the relevant period but decided not to exclude the Applicant from a group with Transtar and Nitestar. 2. From 1 July 2002 to 30 June 2003, the relevant power was in s 16H(1) of the PTA (see Appendix A) and for the period from 1 July 2003 to 30 June 2007, the relevant power was in s 16B and s 16C of the PTA (see Appendix C) subject to an amendment to 16C in 2005 (see Appendix D). 3. The relevant provision that applied for the first period, 1 July 2002 to 30 June 2003 provided as follows - Where the Chief 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 the Chief Commissioner considers relevant, that businesses carried on by members of a group constituted under s 16C are carried on substantially independently of, and are not substantially connected with, the carrying on of a business or businesses of another member or other members of the group, the Chief Commissioner may, by order in writing served on those first mentioned members, exclude them from that group. 1. In order for the Chief Commissioner to have exercised his discretion to exclude the Applicant for the period 1 July 2002 to 30 June 2003, the Chief Commissioner had to be satisfied that the business carried on by the Applicant was carried on substantially independently of, and was not substantially connected with, the carrying on of the business of Transtar and Nitestar, having regard to the nature and degree of ownership or control of the businesses and any other matters that the Chief Commissioner considered relevant. 2. In Mead Packaging, Rath J in considering s 16H, described the necessary inquiry to exercise the discretion as follows: Section 16H(1) 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 businesses, 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 sub-section requires a consideration of the businesses and their control, and a finding of substantial independence and substantial absence of connection. Where, as here, there are three members of a group, one of them will not be entitled to exclusion by an order under the sub-section unless the requisite satisfaction is had in respect of each of the other members of the group. 1. More recently, the Court of Appeal (Meagher JA, Barrett JA and Sackville AJA) in Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181 considered the de-grouping provisions, in particular s 16H in a similar form. Meagher JA (Barrett JA and Sackville AJA agreeing) handed down the principal judgment and made the following useful observation as to how to conduct the necessary inquiry - 56 The second way in which it is said that the primary judge applied the wrong test emphasises that the Chief Commissioner is required to determine whether the business of the person sought to be excluded is carried on substantially independently of other members of the group. That directs attention to 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. 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. … 57 In John French Pty Ltd v Commissioner of Pay-roll Tax (Qld), McPherson J (with whom Campbell CJ and Matthews 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 "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). 1. And in Conte Mechanical and Electrical Services Pty Ltd v CSR [2011] VSC 104, Pagone J in considering equivalent Victorian pay-roll tax provisions referred to what was said by his Honour Rath J in Mead Packaging and succinctly set out the necessary inquiry in the following terms - The provisions reflect the legislature's view that the fiscal base for payroll tax should not treat some employers as one group where the Commissioner is satisfied about certain matters by reference to specified criteria. In reaching a state of satisfaction the Commissioner is required to have regard to three broad defined categories of matters. The first is "the nature and degree of ownership and control of the businesses". The second is "the nature of the businesses". The third is "any other matters the Commissioner considers relevant". For the Commissioner to "have regard" to these matters it will be necessary for the Commissioner to take them into account and to give such weight to each of them as the circumstances of the case require. 1. Transtar used the Contaplas Road property for its trucking business. The arrangements for its use were informal without any written lease. The Applicant received from Transtar rents for the use of the Contaplas Road property. 2. Nitestar was a subcontractor to Transtar and supplied truck drivers for Transtar's trucking business. Nitestar and Kagua also had offices at the Contaplas Road property. 3. RWS was the sole director of the Applicant, Transtar, Kagua and Nitestar from the commencement of the relevant period until 18 January 2005. He resumed the directorship of the Applicant, Transtar, Kagua and Nitestar from 23 February 2006. His evidence was that, at the behest of JWS, his father, he managed the business of Transtar and Nitestar from the Contaplas Road Property. 4. The same accountant, Martin Roughley, maintained the bookkeeping accounts, attended to the resolutions and board meetings of the Applicant, Transtar, Nitestar and Kagua during the relevant period until some time in 2007. RWS's evidence was that the accountant 'did everything' without any supervision. 5. The Applicant borrowed large sums, $383,513.57 in 2002, $869,280 in 2003, $697,869.92 in 2004 and $989,650 in 2005, from Transtar. There were no formal agreements for this indebtedness. I agree with the Chief Commissioner's submission that 'there was no need for formal documentation of the rights and obligations of Edgely and Transtar because they were commonly controlled by a combination of Ron, Wes and Elizabeth during the relevant period'. RWS was sole director of Transtar, Kagua and the Applicant from 1 July 2002 to 18 January 2005. He was also the sole director of Nitestar from 12 December 2002 to 18 January 2005. JWS was sole director Transtar, Nitestar, Kagua and the Applicant from 7 March 2005 to 23 February 2006. RWS and JWS were directors of Transtar, Nitestar, Kagua and the Applicant from 23 February 2006 to 30 June 2007. 6. The shares in Transtar were held equally by RWS, JWS and EMS. The shares in the Applicant were held by Kagua as trustee for R W Searle Family Trust, a discretionary trust of which RWS, JWS and EMS were objects. Kagua was owned by JWS and EMS. 7. In this matter, the unchallenged evidence leads to only one conclusion, that the businesses of the Applicant, Transtar and Nitestar were interconnected and interdependent during the relevant first period. 8. In the second period, from 1 July 2003 to 30 June 2007, the relevant de-grouping provision was s 16B of the PTA. The Chief Commissioner was, however, by s 16C of the PTA, restricted to make any determination to exclude a person from a pay-roll tax group in respect of the following persons only: (a) a person who would, but for the determination, be a member of a group arising under section 106H (Primary groups arising from the use of common employees) of the Taxation Administration Act 1996, (b) a person who carries on a business as trustee of a trust and would, but for the determination, be a member of group arising under section 106I (Primary groups of commonly controlled businesses) of the Taxation Administration Act 1996. 1. In this matter, it was not in dispute that the Applicant had no employees and that the Applicant did not carry on business as a trustee during the relevant period. The Chief Commissioner accordingly acted within the provisions of s 16C of the PTA to refuse to make a determination under s 16B to exclude the Applicant from the group in respect of the period 1 July 2005 to 30 June 2005. 2. In respect of the period commencing on 1 July 2005, a determination to de-group was subject to the provisions of the PTA as set out in Appendix D. The amended s 16C of the PTA added another category of persons who were qualified to be considered for a determination under s 16B of the PTA. The new provision was s 16C(c) which provided as follows: (c) a person who would, but for the determination, be a member of a group arising under section 106IA (primary groups arising from tracing of interests in corporations) of the Taxation Administration Act 1996. 1. Unfortunately, the Applicant did not fall within this category as well and was also not entitled to be considered for a de-grouping under s 16B for the period commencing on 1 July 2005 to 30 June 2007. The Chief Commissioner accordingly, acted correctly in refusing to de-group the Applicant for the third period as well. Order 1. The pay-roll tax assessments for the period 1 July 2002 to 30 June 2007 must, therefore, be confirmed. Appendix A 1. For the period 1 July 2002 to 30 June 2003 the relevant provisions were sections 16A, 16C, 16D, 16E, 16G and 16H of the PTA. They were in the following terms: Part 4A Grouping provisions 16A Definition In this Part, business includes; (a) a trade or profession, (b) any other activity carried on for a fee, gain or reward, and (c) the activity, carried on by an employer, of employing one or more persons where that person performs or those persons perform duties for or in connection with another business. … 16C Grouping where employees used in another business For the purposes of this Act, where: (a) an employee of an employer, or two or more employees of an employer, performs or perform duties solely or mainly for or in connection with a business carried on by that employer and another person or other persons or by another person or other persons, or (b) an employer has, in respect of the employment of, or the performance of duties by, one or more of his or her employees, an agreement, arrangement or undertaking (whether formal or informal, whether expressed or implied and whether or not the agreement, arrangement or undertaking includes provisions in respect of the supply of goods or services or goods and services) with another person or other persons relating to a business carried on by that other or those other persons, whether alone or together with another person or other persons, that employer and: (c) each such other person, or (d) both or all of those other persons, constitute a group. 16D Grouping of commonly controlled businesses (1) A reference in this section to two businesses does not include a reference to two businesses both of which are owned by the same person, not being a trustee, or by the trustee or trustees of a trust. (2) For the purposes of this Act, where the same person has, or the same persons have together, a controlling interest under subsection (3) in each of two businesses, the persons who carry on those businesses constitute a group. (3) For the purposes of subsection (2), the same person has, or the same persons have together, a controlling interest in each of two businesses if that person has, or those persons have together, a controlling interest under any of the following paragraphs in one of the businesses and a controlling interest under the same or another of the following paragraphs in the other business: (a) a person has, or persons have together, a controlling interest in a business, being a business carried on by a corporation, if the directors, or a majority of the directors, or one or more of the directors, being a director or directors who is or are entitled to exercise a majority in voting power at meetings of the directors, of the corporation are or is accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of that person or of those persons acting together, (b) a person has, or persons have together, a controlling interest in a business, being a business carried on by a corporation that has a share capital, if that person or those persons acting together may (whether directly or indirectly) exercise, control the exercise of, or substantially influence the exercise of, more than 50% of the voting power attached to voting shares issued by the corporation, (c) a person has, or persons have together, a controlling interest in a business, being a business carried on by a partnership, if that person or those persons: (i) owns, or own together, (whether or not beneficially) more than 50% of the capital of the partnership, or (ii) is, or are together, entitled (whether or not beneficially) to more than 50% of any profits of the partnership, (d) a person has, or persons have together, a controlling interest in a business, being a business carried on under a trust, if that person (whether or not as the trustee of another trust) is the beneficiary, or those persons (whether or not as the trustees of another trust) are together the beneficiaries, in respect of more than 50% of the value of the interests in the trust first mentioned in this paragraph, (e) a person has a controlling interest in a business if, whether or not the person is a trustee of a trust, the person is the sole owner of the business or persons, being two or more trustees of a trust, having a controlling interest in a business if they are the owners of the business. (4) Where a corporation has a controlling interest under subsection (3) in a business, it shall, for the purposes of subsection (3), be deemed to have a controlling interest in any other business in which another corporation that is, by reason of section 50 of the Corporations Act 2001 of the Commonwealth to be taken, for the purposes of that Act, to be related to it has a controlling interest. (5) Where: (a) a person has, or persons have together, a controlling interest under subsection (3) in a business, and (b) the person or persons who carries on carry on that business has or have such a controlling interest in another business' the person or persons referred to in paragraph (a) shall, for the purposes of subsection (3), be deemed to have a controlling interest in the business referred to in paragraph (b). (6) Where: (a) a person is a beneficiary under a trust, or (b) two or more persons together are beneficiaries under a trust, in respect of more than 50% of the value of the interests in that trust and the trustee or trustees of that trust has or have under subsection (3) a controlling interest in a business, that beneficiary or those beneficiaries shall, for the purposes of subsection (3), be deemed to have a controlling interest in that business. … 16E Smaller groups subsumed into larger groups (1) Notwithstanding any other provision of this Part (except subsection (2)), where a person is, whether or not by virtue of this subsection, a member of two or more groups (each of which is in subsection (2) referred to as a smaller group), all the members of those groups constitute, for the purposes of this Act, one group. (1A) If the members of a group (in subsection (2) referred to as a smaller group) have together a controlling interest in a business, that group and the person or persons who carry on that business will constitute, for the purposes of this Act, one group. (2) Except for the purpose of determining whether a group is constituted under subsection (1) or (1A), a group which, but for this subsection, would be a smaller group ceases to be a group if its members are members of a group constituted under subsection (1) or (1A). … 16G Beneficiaries under discretionary trusts A person who, as the result of the exercise of a power or discretion by the trustee of a discretionary trust or by any other person or by that trustee and other person, may benefit under that trust shall be deemed, for the purposes of this Part, to be a beneficiary in respect of more than 50% of the value of the interest in that trust. 16H Exclusion of persons from groups (1) Where the Chief 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 the Chief Commissioner considers relevant, that businesses carried on by members of a group constituted under 16C are carried on substantially independently of, and are not substantially connected with, the carrying on of a business or businesses of another member or other members of the group, the Chief Commissioner may, by order in writing served on those first mentioned members, exclude them from that group. (2) (Repealed) (3) Notwithstanding any other provision of this Part, an order under subsection (1) shall have effect according to its tenor on and from the date specified in the order) as the date on and from which the person referred to in the order shall be deemed to have been excluded from the group so referred to. … Appendix B 1. For the period 1 July 2003 to 30 June 2007 the grouping provisions that applied were sections 106E, 106I and 106K of the TAA and these provisions relevantly provided: 106E Definitions In this Part: business means: (a) a profession or trade, or (b) any other activity carried on for fee or reward, or (c) the activity of employing persons to perform duties in connection with another business, or (d) the carrying on of a trust, whether carried on by 1 person or 2 or more persons together. Primary group means a primary group constituted under section 106G, 106H, 106I, 106J or 106K. … 106I Primary groups of commonly controlled businesses (1) If a person or set of persons has a controlling interest in each of 2 businesses, the persons who carry on those businesses constitute a primary group. Note. Section 16B of the Pay-roll Tax Act 1971 allows the Chief Commissioner, for pay-roll tax purposes, to exclude persons from a group constituted under this section in certain circumstances. (2) For the purposes of this section, a person or set of persons has a controlling interest in a business if: (a) in the case of 1 person-the person is the sole owner (whether or not as trustee) of the business, or (b) in the case of a set of persons-the persons are together the exclusive owners (whether or not as trustees) of the business, or (c) in the case of a business carried on by a corporation: (i) the person or each of the set of persons is a director of the corporation and the person or set of persons is entitled to exercise more than 50% of the voting power at meetings of the directors of the corporation, or (ii) a director or set of directors of the corporation that is entitled to exercise more than 50% of the voting power at meetings of the corporation is under an obligation, whether formal or informal, to act in accordance with the direction, instructions or wishes of that person or set of persons, or (d) in the case of a business carried on by a corporation that has a share capital-that person or set of persons can, directly or indirectly, exercise, control the exercise of, or substantially influence the exercise of, more than 50% of the voting power attached to the voting shares issued by the corporation, or (e) in the case of a business carried on by a partnership-that person or set of persons: (i) own (whether beneficially or not) more than 50% of the capital of the partnership, or (ii) is entitled (whether beneficially or not) more than 50% of the profits of the partnership, or (f) in the case of a business carried on under a trust-the person or set of persons (whether or not as a trustee or trustees of another trust) is the beneficiary in respect of more than 50% of the value of the interests in the first mentioned trust. (3) If: (a) 2 corporations are related to each other within the meaning of the Corporations Act 2001 of the Commonwealth, and (b) 1 of the corporations has a controlling interest in the business. (4) If: (a) a person or set of persons has a controlling interest in a business, and (b) a person or set of persons who carry on the business has a controlling interest in that other business. (5) If: (a) a person or set of persons is the beneficiary of a trust in respect of more than 50% of the value of the interests in the trust, and (b) the trustee of the trust (whether alone or together with another trustee or trustees) has a controlling interest in the business of the trust, the person or set of persons has a controlling interest in the business. (6) A person who may benefit from a discretionary trust as a result of the trustee or another person, or trustee and another person, exercising or failing to exercise a power or discretion, is taken, for the purposes of subsection (5), to be a beneficiary in respect of more than 50% of the value of the interests in the trust. (7) If: (a) a person or set of persons has a controlling interest in the business of a trust, and (b) the trustee of the trust (whether alone or together with another trustee or trustees) has a controlling interest in the business of a corporation, the person or set of persons is taken to have a controlling interest in the business of the corporation. (8) If: (a) a person or set of persons has a controlling interest in the business of a trust, and (b) the trustee of the trust (whether alone or together with another trustee or trustees) has a controlling interest in the business of a partnership, the person or set of persons is taken to have a controlling interest in the business of the partnership. (9) Subsection (1) does not apply in relation to a person or set of persons that has a controlling interest in 2 businesses if: (a) in the case of 1 person-the businesses are wholly owned by the person, whether as a trustee or otherwise, or (b) in the case of a set of persons-the businesses are wholly owned by the persons as trustees. Note. Under the Pay-roll Tax Act 1971, if 2 businesses are owned by the same employer then the employer would provide a single return in relation to all wages paid in respect of those businesses. There is no need to apply the grouping provisions. This also applies where the trustee is answerable under that Act as an employer (see section 42 of that Act). … 106K Smaller primary groups subsumed by larger groups If a person is a member of 2 or more primary groups, the members of all the groups together constitute a primary group. Appendix C 1. Commencing on 1 July 2003 the de-grouping provisions in the PTA were amended and replaced by sections 16B and 16C which were in the following terms: 16B Exclusion of persons from groups (1)The Chief Commissioner may, by order in writing, determine that a person would, but for the determination, be a member of a group is not a member of the group. Note. Section 16C sets out the circumstances in which a determination may be made under this section. (2) The Chief Commissioner must give notice in writing of a determination to the person in respect of whom the determination is made and to each member of the group. (3) A determination takes effect: (a) on the date on which notice under subsection (2) is given to the person excluded from the group, or (b) if another date of effect (including an earlier date) is specified in the notice-on that other date. (4) A determination continues in force until it is revoked and notice of the revocation has been served on the person in respect of whom the determination was made. (5) The Chief Commissioner may revoke a determination if satisfied the circumstances referred to in section 16C do not apply to the person. (6) Notice of the revocation of a determination must be given by the Chief Commissioner: (a) to the person in respect of whom the determination was made, and (b) to each other member of the group of which the person is a member, as a result of the revocation, by virtue of Part 10A of the Taxation Administration Act 1996. 16C Grounds for excluding persons from group (1) A determination may be made by the Chief Commissioner under section 16B in respect of the following persons only: (a) a person who would, but for the determination, be a member of a group arising under section 106H (Primary groups arising from the use of common employees) of the Taxation Administration Act 1996. (b) a person who carries on a business as trustee of a trust and would, but for the determination, be a member of a group arising under section 106I (Primary groups of commonly controlled businesses) of the Taxation Administration Act 1996. (2) In the case of a person referred to in subsection (1)(b), the determination may be made only if the Chief Commissioner is satisfied that the person would, but for the determination, be a member of a group with a person who carries on another business because of the application of one (but not more than one) of the following grouping principles: (a) the exclusive ownership grouping principle (section 106I (2) (a) and (b) of the Taxation Administration Act 1996), (b) the corporate grouping principle (section 106I (2) (c) and (d) and (3) of the Taxation Administration Act 1996), (c) the common beneficiary grouping principle (section 106I (2) (e) and (f) and (5)-(8) of the Taxation Administration Act 1996). (3) The Chief Commissioner must not make a determination under section 16B unless satisfied that the person who is the subject of the determination has continuously carried on the business concerned, and will continue to carry on that business, substantially independently of the other members of the group. (4) In determining whether a person carries on business substantially independently of the other member or members of a group, the Chief Commissioner is to have regard to the nature and degree of ownership or control of the business of each member of the group, the nature of each of those businesses and any other matter that the Chief Commissioner considers relevant. Appendix D 1. Commencing on 1 July 2005 s 16C of PTA was further amended and after the amendments s 16C was in the following terms: 16C Grounds for excluding persons from group (1) A determination may be made by the Chief Commissioner under section 16B in respect of the following persons only: (a) a person who would, but for the determination, be a member of a group arising under section 106H (Primary groups arising from the use of common employees) of the Taxation Administration Act 1996, (b) a person who carries on a business as trustee of a trust and would, but for the determination, be a member of a group arising under section 106I (Primary groups of commonly controlled businesses) of the Taxation Administration Act 1996, (c) person who would, but for the determination, be a member of a group arising under section 106IA (Primary group arising from tracing of interests in corporations) of the Taxation Administration Act 1996. (2) In the case of a person referred to in subsection (1) (b), the determination may be made only if the Chief Commissioner is satisfied that the person would, but for the determination, be a member of a group with a person who carries on another business under section 106I of the Taxation Administration Act 1996 because of the application of one (but not more than one) of the following grouping principles: (a) the exclusive ownership grouping principle (section 106I (2) (a) and (b) of the Taxation Administration Act 1996), (b) the corporate grouping principle (section 106I (2) (c) and (d) and (3) of the Taxation Administration Act 1996), (c) the common beneficiary grouping principle (section 106I (2) (e) and (f) and (5)-(8) of the Taxation Administration Act 1996). (2A) To avoid doubt, the fact that a person referred to in subsection (1) (b) is a member of a group because of the application of the corporate grouping principle and is also a member of that group under section 106IA of the Taxation Administration Act 1996 does not prevent the Chief Commissioner from making a determination under section 16B in respect of the person. (2B) In the case of a person referred to in subsection (1) (c), the determination may be made only if the person would not be a member of a group with a corporation under section 106IA of the Taxation Administration Act 1996 if the person did not have any indirect interest in the corporation. (3) The Chief Commissioner must not make a determination under section 16B unless satisfied that the business carried on by the person the subject of the determination has been continuously carried on, and will continue to be carried on, substantially independently of the other members of the group. (4) In determining whether a person carries on business substantially independently of the other member or members of a group, the Chief Commissioner is to have regard to the nature and degree of ownership or control of the business of each member of the group, the nature of each of those businesses and any other matter that the chief Commissioner considers relevant. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 04 February 2015