Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Corrosion Control Engineering (NSW) Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 20 Hearing dates: 1 and 2 August 2016 Date of orders: 16 January 2017 Decision date: 16 January 2017 Jurisdiction: Administrative and Equal Opportunity Division Before: N S Isenberg, Senior Member Decision: The decision under review is confirmed. Catchwords: REVENUE LAW - payroll tax – grouping - discretion to de-group members of a payroll tax group – s79 Payroll Tax Act 2007 - onus of taxpayer. Legislation Cited: Administrative Decisions Review Act 1997 Civil and Administrative Tribunal Act 2013 Payroll Tax Act 2007 Taxation Administration Act 1996 Corporations Act 2001 (Cth) Cases Cited: B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187 Boston Sales and Marketing Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 139 Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 Chief Commissioner of State Revenue v Seovic Civil Engineering Pty Ltd [2014] NSWCATAP 94 Conrad Linings Pty Ltd v Chief Commissioner of State Revenue [2014] NSWSC 1020 Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 GTS Industries Pty Limited v Commissioner of State Revenue [2004] VCAT 21 Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42 Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 132 Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242 Tasty Chicks Pty Limited and Others v Chief Commissioner of State Revenue of the State of New South Wales [2011] HCA 41; [2011] 245 CLR 446 Category: Principal judgment Parties: Corrosion Control Engineering (NSW) Pty Ltd (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: AH Rider (Respondent) Solicitors: CJ Batten (As agent for the Applicant) Crown Solicitors Office (Respondent) File Number(s): 1510634 REASONS FOR DECISION Introduction 1. The Respondent determined that the Applicant and three other companies, were grouped for the purposes of the Payroll Tax Act 2007 (the Act) for the 2010 to 2013 financial years (the Tax Years). The Respondent has a discretion to exclude the Applicant from the group and declined to exercise his discretion (the Degrouping Decision). 2. The Applicant objected to the Degrouping Decision and the objection was disallowed (the Disallowance Decision). The Applicant applied to the Tribunal to review the Disallowance Decision. 3. In his written submissions, the Respondent described the respective cases of the Applicant and himself as follows: 2. The Applicant's case is that it should be degrouped on the basis that its business was carried on independently of and was not connected with a business carried on by the other group members, being: a. Corrosion Control Engineering (VIC) Pty Ltd (CCE (VIC)); and b. Corrosion Control Engineering (QLD) Pty Ltd (CCE (QLD)); c. Corrosion Control Engineering (WA) Pty Ltd (CCE (WA)). 3. The Respondent's case is that the Applicant should not be degrouped as its business was not carried on independently of, and was connected with, the carrying on of the businesses of other group members. 1. In these reasons I sometimes refer to the Applicant, CCE (QLD), CCE (VIC) and CCE (WA) collectively as the CCE companies, the CCE group or the Group. Powers of Tribunal on review 1. Section 96 of the Taxation Administration Act 1996 (TA Act) provides that a taxpayer may apply to the Tribunal for an administrative review of a decision that has been the subject of an objection under certain circumstances, including if the taxpayer is dissatisfied with the Respondent's determination of the objection. The Tribunal may confirm or revoke a reviewable decision of an administrator or make a decision in place of the reviewable decision and make orders as to costs or otherwise as it thinks fit, s 101(1) of the TA Act. 2. Section 38 (2) of the Civil and Administrative Tribunal Act 2013 provides that the Tribunal is not bound by the rules of evidence and may inquire into and inform itself on any matter in such manner as it thinks fit, subject to the rules of natural justice. Further, at s 38 (4) and (5) the Tribunal is to act according to equity and good conscience and the substantial merits of the case without regard to technicalities and shall take such measures as are reasonably practicable to ensure that the parties have a reasonable opportunity to be heard or otherwise have their submissions considered in the proceedings. 3. In accordance with s 63 of the Administrative Decisions Review Act 1997 (the ADR Act) the Tribunal is to decide what the correct and preferable decision is, having regard to the material then before it, including any relevant factual material, and any applicable written or unwritten law. Payroll tax law 1. Payroll tax is a tax on employers in respect of New South Wales wages (as defined) paid to employees during each financial year. If total wages paid by an employer during a financial year are below the statutory payroll tax threshold for that year, then no payroll tax is payable by that employer. 2. Part 5 of the Act provides that if employers are part of a group for payroll tax purposes, then only a single threshold deduction applies to the whole group rather than each member of the group benefiting from a separate threshold deduction. Section 79, which is found within Part 5, provides a conditional discretion to the Chief Commissioner to exclude an employer from a group. The relevant provisions are: 79 Exclusion of persons from groups (1) The Chief Commissioner may, by order in writing, determine that a person who would, but for the determination, be a member of a group is not a member of the group. (2) The Chief Commissioner may only make such a determination if satisfied, having regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other matters the Chief Commissioner considers relevant, that a business carried on by the person, is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group. … (5) A determination can be expressed to take effect on a date that is earlier than the date of the determination. 1. References to legislative provisions in these reasons are to provisions of the Act unless stated to the contrary. Material before the Tribunal 1. The Respondent relied on: 1. A bundle of 397 pages of documents filed pursuant to s 58 of the ADR Act (the s 58 documents). 2. An affidavit made on 26 May 2016 by Elizabeth June Tsitsikronis attached to which were 2,720 pages of documents (EJK1). 3. An affidavit made on 8 July 2016 by Marianne Dakhoul attached to which was an email and details of certain interest rates. 4. The Respondent's written submissions made 26 May 2016 (RS) attached to which are documents marked Appendix A to Appendix E, and oral submissions by Mr Rider. 1. All references to paragraph numbers of submissions on behalf of the Respondent are to paragraphs of RS unless stated to the contrary. 2. The Applicant relied on: 1. Three volumes of documents filed 17 March 2016 totalling 1,706 pages (AD) including seven pages of the Applicant's written submissions made 17 March 2016 (AS). 2. A bundle of 206 pages of financial documents and company constitutions together with 15 pages of the Applicant's written submissions in reply made 24 June 2016 (ASR). 3. 24 pages of Applicant's written submissions made 1 August 2016 described as Outline of Oral Submissions (AOS). 4. Oral submissions made during the hearing by Mr Batten, who by leave of the Tribunal, represented the Applicant as its agent during the hearing. 1. All references to paragraph numbers of submissions on behalf of the Applicant are to paragraphs of AS unless stated to the contrary. Consideration Factual background 1. The Respondent outlined the factual background and the events leading to the proceedings in RS. The background, excluding footnotes, is set out at [4] to [32] as follows: Background 4. During the Tax Years, the Corrosion Control Engineering (CCE) group of companies, comprising the Applicant, CCE (VIC), CCE (QLD) and CCE (WA), operated in NSW, Victoria, Queensland and Western Australia (for the 2012 Tax Year onwards). 5. The nature of the group's business was the sale of products and provision of cathodic protection services (metal corrosion control) to other group members and the public generally. NSW business 6. In 2001, Peter Kalis established the Applicant. 7. In July 2003, Jim Galanos joined the Applicant. John Kalis (Peter's uncle) joined the Applicant in February 2004. 8. Peter Kalis is the sole director of the Applicant. 9. The shareholders in the Applicant comprise Peter Kalis, his wife and entities associated with John Kalis and Jim Galanos. Victorian business 10. In 2003, CCE (VIC) was established after Darryl McCormick approached John Kalis about establishing a similar business to the Applicant in Victoria. 11. Peter Kalis, John Kalis and Jim Galanos provided the initial funding for CCE (VIC). 12. The directors of CCE (VIC) are John Kalis and Darryl McCormick. 13. The shareholders in CCE (VIC) are entities associated with Peter Kalis, John Kalis, Jim Galanos (together 50%) and Darryl McCormick (50%). Queensland businesses 14. In 2004, CCE (QLD) was established after James Steele approached John Kalis about establishing a similar business to the Applicant in Queensland. 15. Peter Kalis, John Kalis and Jim Galanos provided the initial funding for CCE (QLD). 16. The directors of CCE (QLD) are John Kalis and James Steele. 17. The shareholders in CCE (QLD) are entities associated with Peter Kalis, John Kalis, Jim Galanos (together 75%) and James Steele (25%). WA business 18. In 2011, CCE (WA) was established after John Grapiglia approached John Kalis and Jim Galanos about establishing a corrosion control technology business in WA. 19. Peter Kalis, John Kalis, Jim Galanos, James Steele and Darryl McCormick provided the initial funding for CCE (WA). 20. The directors of CCE (WA) are John Kalis and John Grapiglia. 21. The shareholders in CCE (WA) are entities associated with Peter Kalis, John Kalis, Jim Galanos, James Steele and Darryl McCormick (together 75%) and John Grapiglia (25%). Leases of business premises 22. During the Tax Years, the Applicant, CCE (VIC) and CCE (QLD) all leased premises owned by individuals and entities associated with the directors and shareholders in these companies. CCE group companies supplied each other and used common suppliers 23. During the Tax Years, the CCE group companies supplied goods and/or services to each other and sourced supplies from a number of common suppliers. 24. From 12 September 2011 onwards, all CCE group companies had a joint account with Telstra (account no. …). CCE group companies had common customers 25. During the Tax Years, the CCE group companies sold goods and/or services to each other and a number of common customers. Intercompany loans between CCE group companies 26. During. the Tax Years, the CCE group companies made various unsecured loans to CCE (WA). The Applicant also made unsecured loans to CCE (QLD). CCE group companies used same accountants and registered office 27. During the Tax Years, all CCE group companies: a. used CCS Partners to prepare and lodge their income tax, BAS and FBT returns, financial statements and ASIC documents; b. had the same contact person at CCS Partners (George Manuli); and c. had the same registered office (c/- CCS Partners). CCE group companies used same insurance broker and had joint insurance policies 28. During the Tax Years, all CCE group companies: a. used Don Hutton Insurance Brokers to effect insurance; and b. had joint public and products liability insurance and professional indemnity insurance. 29. Also, during the Tax Years, in various insurance-related documents: a. John Kalis signed as "Financial Controller" or "CFO" of the "Corrosion Control Engineering Group"; and b. John Kalis described himself as "Partner/Director of the Corrosion Control Engineering Group", "CCE Group Director", or "Director/Principal Engineer of the CCE Group"; c. John Kalis was described as having a general overseeing role for the CCE group of companies; d. John Kalis and Peter Kalis signed on behalf of the CCE group of companies; and e. the business address of the Applicant was given as the principal address or head office of the CCE group of companies, and the lease between CCE WA and the landlords refers to the CCE WA address as being that of the Applicant. CCE group companies used same ISO Accreditation and OH&S manuals 30. During the Tax Years, all CCE group companies used the ISO Accreditation of CCE (QLD). 31. Also, CCE (QLD), CCE (VIC) and CCE (WA) used substantially the same OH&S manuals. CCE group companies used same website, letterhead and standard contract conditions 32. During the Tax Years, all CCE group companies used the same website, "CCE Corrosion Control Engineering" letterhead and "Standard Conditions of Contract". 1. The Applicant conceded at ASR [4]: The facts set out in the Respondent's submissions are agreed except for the use of the ISO Accreditation and OH&S manuals at 30 and 31 of the submissions. 1. The Applicant also conceded that the businesses of the Applicant and the other three CCE companies were grouped in respect of the Tax Years. Issue before the Tribunal 1. The Applicant has requested that the Tribunal review the Disallowance Decision. 2. The Respondent submitted that it is the Degrouping Decision that the Tribunal is empowered to review, not the Disallowance Decision. 3. In Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184, Basten JA, Giles JA and Campbell JA agreeing, said: 28 … the right of review under s 97 is given by reference to the operative decision of the Chief Commissioner and not to a ruling made on an objection. Although the existence of an objection is a necessary precondition to the power of review by the Court, and it is the taxpayer's dissatisfaction with the determination of the objection which provides standing to seek review, it is the initial decision which is the subject matter of the review ... Further, it is the original assessment or other decision which is confirmed, revoked or replaced: s 101(1)(a) and (b). 1. The substantive issue before the Tribunal is whether the Tribunal, in place of the Respondent, can and should exercise the discretion in s 79 (1) to determine that the Applicant is not grouped with any of the other CCE companies. Onus 1. There is no dispute that the Applicant has the onus of proving its case in a review by the Tribunal, s 100(3) of the TA Act. The requisite standard of proof in such a review is the "balance of probabilities" Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [31] and B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187. Analysis 1. Before the Tribunal may make a determination in accordance with s 79 (1) the Tribunal must be satisfied as to the matters referred to in s 79 (2). 2. The Respondent noted that in Boston Sales and Marketing Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 139, the late Block SM said at [20]: It is important to note that the only statutory question which requires an answer is as to whether a business carried on by the person, is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group, the Chief Commissioner (or, Tribunal in this instance) is to have regard to: (1) to the nature and degree of ownership and control; (2) the nature of the businesses; and (3) any other matter considered relevant. Nature and degree of ownership and control of businesses 1. Agreed details of the shareholding and directors of each CCE company are set out at [15] above. 2. In summary Mr Peter Kalis (Mr Kalis) is the sole director of the Applicant. Each of the other CCE companies has two directors. A common director is Mr John Kalis (Mr Kalis' uncle) and the other director is a person who holds either 25% or 50% of the shareholding in the relevant CCE company and is a managing director of the company. 3. The Applicant submitted in ASR: 15. As the Applicant and the other businesses are all constitutional corporations acting in their own capacity, the Corporations Act 2001 and the various constitutions of the Applicant, CCE (QLD), CCE (VIC) and CCE (WA) are paramount in determining issues of control. … 17 … the constitutions all contain identical terms. 19. It is the directors of the various entities that manage and exercise the powers required to operate the business of a company. 22. The constitution provides at clause 23.1 that "The directors may elect a director to chair their meeting, and may determine the period for which the director is to be the chair." Therefore, the election of a chair is not mandatory and cannot be forced upon the directors. 23. Therefore, should a dispute arise between the directors' no one director can override or force the other director to accept his decision. 24. In addition to this, clause 13.1 of the constitution provides that the directors may appoint 1 or more managing directors. The powers of a managing director are outlined in Schedule 3 of the constitution as follows: Unless otherwise provided upon appointment, all of the powers of the directors shall be conferred upon a Managing Director, such person shall have the authority to exercise those powers alone and without conferring or meeting with the other directors of the company, and such appointment shall continue until otherwise resolved by the Directors or by the Members. 25. Pursuant to the witness statements contained at Tab XX of the submissions Mr. Peter Kalis is the Managing Director of the Applicant, Mr. John Grapiglia is the Managing Director of CCE (WA), Mr. James Steele is the Managing Director of CCE (QLD) and Mr. Darryl McCormick is the Managing Director of CCE (VIC). The managing directors make the decisions and operate the businesses free from any involvement or control by the other directors. No revocation or variation has been made to the managing director of any of the businesses. 1. No evidence has been brought to the attention of the Tribunal: 1. as to whether Mr John Kalis, a director of each of CCE (QLD), CCE (VIC) and CCE (WA) was also appointed a managing director of any or all of those companies in accordance with clause 13.4 and Schedule 3 of the standard constitution. 2. as to, at the time that any managing director was appointed, whether any conditions or other restrictions were placed upon the powers of that managing director. 3. that any of the managing directors, other than Mr Kalis who is the sole director of the Applicant, is not subject to control by the board of directors. 1. The standard constitution provides at Schedule 3 for additional provisions in respect of managing directors. The Applicant provided at ASR [24] details of the first paragraph of Schedule 3. The second paragraph of that Schedule states: If there is more than one Managing Director appointed at any time, and unless otherwise provided at the time the appointments are made, or concurrently acting Managing Directors shall be entitled to individually exercise the powers of a sole Managing Director in the manner provided in the preceding paragraph. 1. Mr Grapiglia said he has chaired some (unidentified) board meetings of CCE (WA). However, no evidence has been brought to the attention of the Tribunal as to whether Mr John Kalis was at any time appointed chair of the board of directors of any of CCE (QLD), CCE (VIC) or CCE (WA). Clause 25 of the standard constitution provides that the chair of a directors' meeting has a casting vote, in addition to any vote the chair has as a director, if such is provided for in Schedule 5 of the standard constitution. Schedule 5 relevantly provides that the chair has a casting vote at directors' meetings. 2. Having regard to my consideration of the standard constitution I find that there is no evidence before me that Mr John Kalis was not at any time during the Tax Years: 1. a managing director of any or all of CCE (QLD), CCE (VIC) or CCE (WA); 2. the chair of the board of directors of any or all of those companies with a casting vote at all relevant directors' meetings, and thus effectively able to control each such meeting by virtue of that casting vote. This is subject only to any meeting at which Mr Grapiglia was chair. 1. The onus lies on the Applicant to prove its case by probative evidence on the balance of probability. I refer to the submissions in the last two sentences of ASR [25], namely: The managing directors make the decisions and operate the businesses free from any involvement or control by the other directors. No revocation or variation has been made to the managing director of any of the businesses. 1. It is possible that the first sentence of the above extract is accurate to the extent that there is only one managing director of a particular company. However, there is no evidence before me that Mr John Kalis is not a second managing director of each CCE company other than the Applicant. Nor is there any evidence to substantiate the submission in the last sentence of ASR [25]. 2. Section 251A of the Corporations Act 2001 (Cth) requires that a company must keep minute books in which are recorded proceedings and resolutions of directors' meetings including resolutions passed by directors without a meeting. The Applicant chose not to provide to the Tribunal any such minutes, which may have assisted in providing evidence to support the Applicant's relevant submissions. This failure to provide probative evidence does not assist the Applicant's case, nor does the failure to bring to the attention of the Tribunal any employment agreement of any managing director nor any duty statement, however described, in respect of any managing director of any CCE company. 3. Pages 143 to 150 in the s 58 documents comprise a letter dated 15 July 2014 by Samaras Lawyers to the Respondent (the Samaras letter). The letter states that the lawyers act for all of the CCE companies, provides certain documents and information requested by the Respondent and is an application that each of the businesses operated by CCE companies be excluded from being a group for payroll tax purposes. 4. ASR [25] states that the managing director of each of the CCE companies "make the decisions and operate the businesses free from any involvement or control by the other directors". 5. In contrast the Samaras letter states, under the heading "Facts" that the day-to-day decisions in respect of each CCE company are made by its managing director while the "Long Term" decisions for the Applicant are made by Mr Kalis as sole director and the "Long Term" decisions in respect of each of the other CCE companies are made by the "board of directors". It is noted that for each of those other companies the board of directors comprises Mr John Kalis and the respective managing director. Accordingly, Mr John Kalis has the right to veto any resolution proposed at any meeting of the board of each of CCE (QLD), CCE (VIC) and CCE (WA) unless he has agreed that the other director chair the meeting and have the right to exercise a casting vote. 6. The Samaras letter continues at [20]: Importantly, having different managing director (sic) for each of the businesses together with the independent relationship amongst the directors further illustrates the independence of each of the businesses. 1. Having regard to the wording used in the letter it appears that the independence relates only to the "day to day decisions" made in relation to the businesses rather than decisions concerning "Long Term" issues. 2. The Respondent referred at [50] to my decision in Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 132 where I observed at [75]: … that the payroll tax legislation refers to control of businesses, not management of day to day business operations. The legislation does not discount the legal control by the board of the company which owns the business and delegates day to day powers to company employees. 1. I also have regard to the above submission at ASR [19] that "it is the directors of the various entities that manage and exercise the powers required to operate the business of a company". 2. I find, having regard to the power which may be exercisable by Mr John Kalis and in respect of which there is no evidence to the contrary, I am not satisfied that in this respect there is no relevant connection between the carrying on of the businesses of the CCE companies other than the Applicant. I make findings below in relation to connections between the business of the Applicant and one or more of the other CCE companies. Lease of business premises 1. The Applicant conceded that during the Tax Years each of CCE (QLD) and CCE (VIC) leased premises owned by entities including Mr Kalis, the director of the Applicant and shareholders of the Applicant. 2. The Applicant submitted at ASR [28] that "If the premises were leased from arms-length parties, the rental expense would have been the same." 3. No evidence was brought to the attention of the Tribunal in support of the above submission nor was any evidence provided as to the market rental of any relevant properties. Accordingly, I reject the submission. 4. I also observe that even if the premises leased by CCE (QLD) and CCE (VIC) were leased at arms-length, this would not of itself indicate that the businesses carried on by those companies were carried on independently of and were not connected with the carrying on of the Applicant's business. CCE group companies used common suppliers 1. Mr Batten conceded that the nature of the CCE group's business was the sale of products and provision of cathodic protection services to other Group members and the public generally. 2. There is no dispute that all of the CCE group companies carried on substantially similar businesses in the same industry, albeit in different states. The undisputed evidence shows that in each Tax Year there were two or more external entities which supplied two or more of the CCE group companies. 3. By itself, I do not regard the acquisition of supplies from external suppliers in this situation to evidence: 1. a lack of independence between a business carried on by the Applicant and a business carried on by any other CCE company, or 2. a relevant connection for the purpose of section 79 (2) between the carrying on of a business of the Applicant and the carrying on of a business by any other CCE company. CCE group companies supplied each other 1. The Applicant conceded at ASR [4] that the nature of the CCE group's business included the sale of products and the provision of cathodic protection services to other group members. 2. The Applicant submitted at ASR [29]: The various businesses acquired goods from each other on an ad hoc basis. A market rate is charged for the materials acquired from one of the other CCE businesses. The acquisitions are a minor part of the expenses incurred by the CCE businesses. In the majority of cases they are less than 4% of the purchases for the financial year. In relation to the common suppliers each supplier has a separate account in relation to each business. … 1. Mr Batten submitted that although there was some trade amongst the CCE group companies, it was only in some goods and it was on an arms-length basis. 2. Mr Batten also conceded that whether or not trade between the Applicant and the other CCE companies was at arms-length was irrelevant to the operation of s 79 (2). 3. Mr McCormick said that on occasions CCE (VIC) requires supplies from other CCE companies including the Applicant. He said the charge for the supplies depends on what is supplied. If something is required for resale, then CCE (VIC) pays a price based on a reduced margin and vice versa. The price charged is generally cost +10%. 4. Mr McCormick was asked if the same arrangement applies between CCE (VIC) and non-CCE companies. He said there are some understandings from competitors to sell to each other at reduced rates. 5. Schedules at Tab C of AD state the names of major customers of each CCE group company and what appears to be the value of trade during the financial year with each such customer. 6. The schedules indicate that: 1. In respect of 2010 CCE (QLD) was the fifth highest value customer of the Applicant and the Applicant was the sixth highest value customer of CCE (QLD) and the ninth highest value customer of CCE (VIC). 2. In respect of 2011 CCE (QLD) was the fourth highest value customer of the Applicant. 3. In respect of 2012 CCE (QLD) was the 15th highest value customer of the Applicant and the Applicant was the sixth highest value customer of CCE (WA). 4. In respect of 2013 CCE (WA) was the fifth highest value customer of the Applicant while CCE (QLD) was the 10th highest value customer of the Applicant. The Applicant was the ninth highest value customer of CCE (VIC) and the eighth highest value customer of CCE (WA). 1. I observe that for some but not all years the value of transactions with the two or three highest value customers of a particular CCE company were a multiple of the value of transactions with customers who were a few places lower in the order. 2. Pages 151 to154 of AD contain similar Suppliers' Comparison for the 2010 - 2013 Tax Years. 3. In respect of the 2010 Tax Year CCE (VIC) was the fifth highest value supplier to the Applicant and CCE (QLD) was the eighth highest value supplier. In that year the Applicant was the highest value supplier to CCE (QLD). 4. In respect of the 2011 Tax Year CCE (VIC) was the sixth highest value supplier to the Applicant and the Applicant was again the highest value supplier to CCE (QLD). 5. In respect of the 2012 Tax Year CCE (VIC) was the eighth highest value supplier to the Applicant, CCE (WA) was the 11th highest value supplier to the Applicant and CCE (QLD) was the 16th highest value supplier. I also observe that the value of CCE (QLD)'s supplies were approximately 1/17 that of the highest value supplier and fell somewhere between the cost of supplies from Telstra and from the insurance broker. In that year the Applicant was the 17th highest value supplier to CCE (VIC), the fifth highest value supplier to CCE (QLD) and the second highest value supplier to CCE (WA). 6. In respect of the 2013 Tax Year CCE (VIC) was the sixth highest value supplier to the Applicant. The Applicant was the 15th highest value supplier to CCE (VIC), the sixth highest value supplier to CCE (QLD), and the highest value supplier to CCE (WA). 7. Mr Kalis provided an unsworn statement dated 7 March 2016. He gave oral evidence to the Tribunal and confirmed the accuracy of the above information in respect of the top 20 customers of the Applicant and top 20 suppliers to the Applicant. He said that the information in respect of the other CCE group companies may be correct if the figures were prepared by the accountants. 8. Mr Kalis said the Applicant has purchased supplies from the other CCE companies on the odd occasion, not often, and when out of stock. He said prices were determined on a wholesale basis of cost plus "not very much". In the vicinity of 10% or 15%. He said that the Applicant would transact the same deal with competitors for a similar 10% to 15% markup. 9. Given that Mr Kalis has confirmed that during three of the four Tax Years, either CCE (VIC) or CCE (QLD) was either the fifth or sixth highest value supplier to the Applicant I am not satisfied on the basis of his oral evidence that the Applicant only purchased supplies from the other CCE companies on the odd occasion, not often or when out of stock. To the extent that the Applicant relied on stock supplies from other CCE companies I observe that there is no evidence before the Tribunal that the Applicant was not dependent on those companies for that stock. 10. Mr Steele said supplies were obtained by CCE (QLD) from the Applicant and CCE (VIC) if CCE (QLD) was short. There was usually a 10% surcharge for those acquisitions. 11. Mr Grapiglia said that on the occasions when CCE (WA) obtained supplies from other CCE companies, CCE (WA) would pay the cost +10% plus the freight. 12. On the evidence before me I am not satisfied that the carrying on of the Applicant's business was not connected in a material sense with the carrying on of the business of all other CCE companies. CCE group companies had common customers 1. Mr Kalis said the Applicant operates independently of the other CCE companies and actively sources its own customers independently of those companies. He also said the Applicant's supplier accounts are not connected with the supplier accounts maintained by the other CCE companies. 2. Mr Steele and Mr McCormick's written statements of 4 March 2016 and Mr Grapiglia's written statement of 8 March 2016 are in many respects, including the sourcing of customers of businesses operated by companies of which they are directors, almost identical with Mr Kalis' written statement other than in respect of the substitution of CCE company names and the percentage interest in various CCE group companies. 3. Mr Steele said that when supplies were obtained from competitors the price was a wholesale price +10% and vice versa if CCE (QLD) supplied a competitor. 4. On the evidence before me I do not regard the existence of common customers of CCE companies as demonstrating: 1. a lack of independence between a business carried on by the Applicant and a business carried on by any other CCE company, or 2. a relevant connection for the purpose of section 79 (2) between the carrying on of a business of the Applicant and the carrying on of a business by any other CCE company. Intercompany loans between CCE group companies 1. The Respondent submitted: 26. During. the Tax Years, the CCE group companies made various unsecured loans to CCE (WA). The Applicant also made unsecured loans to CCE (QLD). … 1. In response, the Applicant submitted at ASR [31] The loans made to CCE (QLD) from the Applicant were repaid with interest within 2 months of being made The loans made by the Applicant, CCE (VIC) and CCE (QLD) to CCE (WA) all bear interest I attach the calculation of interest on the loans 1. No written evidence was provided as to any relevant repayments nor as to the calculation of interest. 2. The submission includes "the loans made by the Applicant, CCE (VIC) and CCE (QLD) to CCE (WA) all bear interest." 3. Mr Kalis' oral evidence in chief was to the effect that the interest rate in respect of loans from the Applicant to CCE (WA) was the "ATO benchmark rate" and that in respect of loans from the Applicant to CCE (QLD) the accountant said to charge the "ATO benchmark rate". 4. In cross-examination Mr Kalis said he did not know whether loans made by the Applicant to each of the other CCE group companies were secured, although he did say that there was no mortgage or charge. He was asked whether the loans were interest-free and said that the accountant put the loans on the books and the accountant would charge interest at the ATO benchmark rate. 5. Mr Kalis confirmed that the Applicant banked with National Australia Bank (NAB). He was asked whether the other CCE companies also banked with NAB and said he did not know but he assumed that they did. 6. There is evidence before the Tribunal as to the NAB historical benchmark interest rates for unsecured business loans, including changes to those rates from December 1984 to May 2016. 7. Mr Kalis was asked if the interest charged to CCE (WA) was less than the NAB benchmark rate. He said interest was charged in accordance with ATO guidelines. His evidence was that there were no negotiations between the companies and that he had authorised the accountants in relation to relevant interest rates to be charged. Mr Kalis said that discussions took place with the directors of each of the other CCE companies, that no record was kept of the discussions or any agreement which was reached, and there was no written loan agreement in existence nor were any minutes kept of any relevant directors' resolutions. 8. Mr Kalis said that normally loans were only start-up loans and that the shareholders knew what was happening. 9. In re-examination Mr Kalis said he did not know what the NAB benchmark interest rate was, the interest income was included in the financial statements as "other income". He also said that there were no interest-free loans from the Applicant to any of the other CCE companies. 10. Mr Grapiglia's unsworn written statement is to the effect that he is the managing director of CCE (WA) and is responsible for the operational and financial management of that company. 11. He said CCE (WA) commenced trading on 4 July 2011 and the $25,000 loan to the company shown in the financial statements in evidence for the year ended 30 June 2011 as an unsecured non-current loan from the Applicant bore interest at a rate based on ATO rates pursuant to a recommendation from the accountants. The financial statements for CCE (WA), in the Applicant's folder named "Applicant's submissions in response", (ASR folder) for the year ended 30 June 2013 and incorporating comparative figures for the 2012 financial year show at page 80 unsecured loans from the Applicant in the 2012 and 2013 years of $145,000 and $175,000 respectively, from CCE (VIC) of $115,000 for each of those years and from CCE (QLD) of $110,000 and $75,000 for 2012 and 2013. 12. Mr Grapiglia was asked if there was any discussion with the directors of the Applicant or CCE (QLD) or CCE (VIC) about the loans. Mr Grapiglia said that he was not sure. Mr Grapiglia's lack of certainty as to whether discussions took place with the directors of the lenders is surprising having regard to his written statement that he is responsible for the financial management of CCE (WA), the borrower and having regard to the importance of those loans to the solvency of CCE (WA). 13. Mr Grapiglia said that the start-up finance for his company could be loans or shares. The accountants recommended that the best funding would be short-term loans rather than shares. Mr Grapiglia was asked what the expected term of the loans would be and he said they were intended to be short-term loans. I would not have expected a short-term loan for start-up finance to have been recorded as an unsecured non-current loan in the financial statements for the first full year of trading. No evidence was provided as to relevant accounting standards. 14. In cross-examination Mr Grapiglia's evidence was that all of the loans were unsecured, interest was paid on them at the ATO benchmark rate which had been set by the accountant; that the expectation that the loans would be for a short-term had not worked out and that more time was needed to repay the loans. He said the accountants were representing both his company and the lending companies in relation to determining the interest rate on the loans. 15. I observe that notwithstanding Mr Grapiglia's oral evidence that interest was paid on the loans, the trading, profit and loss statement for the year ended 30 June 2013 including comparatives with the year ending 30 June 2012, at page 74 of the ASR folder, contains no reference to interest expenses although there is a reference to borrowing costs of $79 in the 2012 financial year and $137 in the 2013 financial year. 16. I also observe that the financial statements for the Applicant for the year ended 30 June 2013 together with comparative figures for the 2012 financial year are found at pages 61 to 71 of the ASR folder. Mr Kalis said interest income was included in the Applicant's financial statements as "other income". At page 62 under the heading "other income" is a line item "other income" which shows $7,362 for the 2012 financial year and $1,060 for 2013. Interest received is recorded as $7,878 for 2012 and $7,623 for 2013. 17. Receivables of the Applicant are shown at page 67. There is an amount of $60,000 owing by CCE (QLD) at the end of 2013 under the heading "current". Loans to CCE (WA) of $145,000 for 2012 and $175,000 for 2013 come under the heading "non-current". 18. No evidence was brought to the attention of the Tribunal as to the actual interest rate charged on money owing to the Applicant by any CCE company at any time during the Tax Years. 19. The balance sheet of CCE (WA) at page 76 of the ASR folder shows that that company had a negative equity of $201,553 at the end of the 2012 financial year and the negative equity had increased to $276,464 by 30 June 2013. 20. The evidence is that at the end of the 2012 financial year CCE (WA) was indebted to the other CCE companies in the amount of $370,000 ($145,000 owing to the Applicant) and the indebtedness was $365,000 ($175,000 owing to the Applicant) at the end of the 2013 financial year. 21. Mr Kalis said he became aware of CCE (WA)'s need for funding because he is a shareholder of that company. I find this evidence implausible as there is no evidence before the Tribunal of any documents having been provided by CCE (WA) to shareholders evidencing a need for funding prior to funding being provided by the Applicant to CCE (WA). Nor were any minutes of meetings of either directors or shareholders of any CCE company including CCE (WA) in evidence before the Tribunal. Mr Kalis said that as he was a shareholder of all CCE companies he knew that CCE (WA) wanted money and CCE (QLD) could lend money to CCE (WA). He also said that the decisions in relation to loans were decisions of the directors. 22. It was put to Mr Kalis that his position as a shareholder facilitated the loans. He denied that proposition and said it was a matter that was up to the directors. Given that Mr Kalis was the sole director of the Applicant, on Mr Kalis' own evidence, he must have been personally involved in decisions for the Applicant to lend money to CCE (WA). He also gave evidence that he personally authorised the accountants in relation to recommending and/or determining relevant interest rates. 23. Mr Grapiglia said that minutes of meetings had been signed and he chaired the meetings. I observe that Mr Batten informed the Tribunal that there was no evidence of any meetings of any members of any CCE company nor was there any evidence of any minutes of meetings of directors or any determinations by a sole director of any CCE company. I also observe that Mr Grapiglia's evidence as to the existence of minutes is not consistent with other evidence before the Tribunal. Accordingly, I find Mr Grapiglia's evidence as to the existence of minutes implausible, and without sighting minutes, whether signed or unsigned, I am not satisfied with his evidence that he chaired meetings of directors. 24. Mr McCormick said a loan was made by CCE (VIC) to CCE (WA) because a request was made by Mr John Kalis, it was in the interests of shareholders, and CCE (VIC) had spare cash at the time while Mr McCormick did not have spare cash. Mr McCormick did not know the interest rate that was charged. He understood that the accountant used an ATO benchmark rate. Mr McCormick thought that the rate charged was not below the NAB benchmark rate at the time. 25. Mr Steele said CCE (QLD) borrowed $60,000 from the Applicant because, during an active trading period, his company had become overextended. The amount was repaid in less than one month. The accountant determined the rate of interest and no security was provided. Mr Steele said CCE (QLD) could have borrowed from NAB with which the company banked but the other director and shareholders agreed to help CCE (QLD). 26. Mr Steele said that he had agreed to help CCE (WA) with start-up capital of $110,000 and he expected the loan to be on a short-term basis. When asked what interest rate was charged for the loan Mr Steele said "appropriate interest rates". He then said that the interest rates charged to CCE (WA) were higher than the bank interest rate but did not provide any particulars of the rate charged. He said that the accountants negotiated the loan with Mr Grapiglia. No loan agreement had been signed by Mr Steele and the accountants acted as agent for CCE (QLD). 27. Mr Rider put to Mr Steele that it would have been cheaper for CCE (WA) to obtain finance from a bank. Mr Steele said it would have been necessary for CCE (WA) to provide security and the loan from CCE (QLD) was without security. Mr Steele also said that it was better for CCE (QLD) to lend the money to CCE (WA) than leaving the money in a bank account. 28. In re-examination Mr Steele said Mr John Kalis wanted the money for CCE (WA) and Mr Steele told the accountant to proceed to prepare documentation to "satisfy securities". 29. Mr Grapiglia's oral evidence was that none of the loans to his company from other CCE companies were documented and there were no loan agreements. He also said that he did not consider borrowing from a bank. When asked why he accepted advice from the accountants he said because they were ethical and he used the same accountants as the Applicant so as to stay with them. 30. Mr Batten submitted that the benchmark rate of interest for intercompany loans was the FBT rate. No evidence was provided in support of this submission, whether in relation to what the FBT rate was at any relevant time nor the relationship between such rate and the amounts shown in any financial statements as interest paid or received on loans between CCE companies. 31. I observe that the evidence of all the managing directors was that the accountants had determined / negotiated / recommended the relevant interest rates for all intercompany loans. None of the managing directors was able to provide any evidence as to the actual rates. No evidence was provided by the accountants. 32. Mr Batten submitted that the only loan during 2010 was a loan of less than $6,000 from the Applicant to CCE (QLD) and there were no other loans in that year. 33. I find that there is no evidence before the Tribunal that CCE (WA) could have continued trading during the 2011 - 2013 Tax Years without the financial support it received from the Applicant in conjunction with loans by CCE (VIC) and CCE (QLD). 34. I also find that there is evidence before the Tribunal that the Applicant provided $60,000 in short-term finance to assist CCE (QLD) when it was overextended as a result of its trading activities. CCE group companies used same accountants and registered office 1. The Applicant conceded that during the Tax Years, all CCE group companies used CCS Partners to prepare and lodge their income tax, BAS and FBT returns, financial statements and ASIC documents; had the same contact person at CCS Partners (George Manuli); and had the same registered office (c/- CCS Partners). 2. The Applicant submitted that each CCE business was billed separately and paid its own fees to the accountants. The Applicant also submitted that the accountancy expense of each business was less than 1% of the total expenses for the business. 3. I find that the accountants were integrally involved in the determination of the interest rate charged during the Tax Years by any company within the CCE group for loans to any other company within the CCE group and that none of the directors of CCE companies who gave evidence could inform the Tribunal as to any relevant interest rate. I also find that this involvement by the accountants as to financing the business activities of the debtor CCE companies is a material connection between the business operations of the debtor and creditor CCE companies and is of a different nature to the involvement of accountants in the preparation and lodgement of financial statements and statutory returns. CCE group companies used same insurance broker and had joint insurance policies 1. The Applicant conceded that during the Tax Years all CCE group companies used Don Hutton Insurance Brokers to effect insurance and had joint public and products liability insurance and professional indemnity insurance. 2. The Applicant submitted that each company paid its own share of policy premiums and the insurance expenses were approximately 1% of the total expenses of each business. 3. Mr Kalis said each company paid one quarter of the joint insurance cost. He said the liability insurance expense was a flat premium and that the indemnity insurance expense was based on turnover. The evidence is that the turnover of CCE (WA) is substantially less than that of the other companies and it was put to Mr Kalis that the other companies were effectively subsidising CCE (WA). Mr Kalis provided no explanation as to why the share of premiums paid by each CCE company were not in proportion to the method by which the premiums were calculated by the insurer. 4. Mr Kalis said that the insurance broker had informed him that if the Applicant had a separate insurance policy from the other CCE companies there may be an additional $5,000 or $6,000 per annum premium payable by the Applicant. He also said that he had no figures as to any possible change in the premiums payable by CCE (VIC) or CCE (QLD) should they each have separate policies. 5. Mr Steele's written statement includes "… I am responsible for the day-to-day operational and financial management" of CCE (QLD). When asked about the share of the joint insurance premium paid by CCE (QLD) he said he would need to talk to the accountants. 6. Mr Grapiglia said he was aware that CCE (WA) paid 25% of the premium for the joint insurance. It was put to him that the premium was turnover based and asked why his company should pay 25%. He said the insurance was not related to the income. He had discussed the matter with Mr John Kalis and it was agreed to be a payment of 25%. He said the minimum cost to CCE (WA) of obtaining separate insurance would be more than 25% of the joint insurance obtained by the four CCE companies. He gave no evidence as to the basis on which he could say individual insurance would be more expensive than one quarter of the joint insurance Involvement of Mr John Kalis 1. The Applicant conceded that each of the persons who became the managing director of a CCE group company other than the Applicant, had approached Mr John Kalis to establish a corrosion control technology business in their relevant state. 2. Mr John Kalis was involved in providing some of the initial funding for each CCE group company other than the Applicant. Entities associated with Mr John Kalis owned between 10% and 15% of each company within the Group. 3. There is no dispute that Mr John Kalis was, throughout the Tax Years a director of each of CCE (QLD), CCE (VIC) and CCE (WA). I have found that there is no evidence before me to the effect that Mr John Kalis was not the chair of the board of directors of each of CCE (QLD), CCE (VIC) and CCE (WA) other than the statement by Mr Grapiglia that he, Mr Grapiglia, had chaired some meetings of directors of CCE (WA). Mr John Kalis' involvement with CCE (WA) 1. Mr Grapiglia said he was personally involved in all decisions of CCE (WA) as its managing director and Mr John Kalis had no involvement in decisions although Mr Grapiglia might seek his advice in respect of large tenders. 2. In cross examination Mr Grapiglia then said that Mr John Kalis was involved in "big" decisions. The involvement related to being consulted concerning big projects because of Mr John Kalis' expertise in contracts and finance. Tenders were provided to Mr John Kalis to review and to provide recommendations. 3. Mr Grapiglia said that Mr John Kalis' role in the business was not to be involved in the day-to-day decisions but he would be involved in the strategic decisions. 4. Mr Grapiglia's evidence that Mr John Kalis was only involved in "big" or "strategic" decisions does not seem consistent with his evidence that he had discussed with Mr John Kalis the premium payable by the company for joint insurance unless Mr Grapiglia regarded that matter as a "big" or "strategic" decision. 5. Mr Grapiglia would not send all tenders to Mr John Kalis to consider. He would be sent between 2% and 5% of the tenders in particular those tenders that were really important to CCE (WA). Mr John Kalis' involvement with CCE (QLD) 1. Mr Steele's evidence was that he made the decisions as managing director. He acknowledged that Mr John Kalis was a director of CCE (QLD) and said that although he was not required to seek Mr John Kalis' input he would do so for transactions over $1 million as Mr John Kalis had the experience to peer review Mr Steele's proposed decisions. 2. I observe that Mr Steele also gave evidence that Mr John Kalis had informed him that he wanted CCE (QLD) to lend money to CCE (WA). 3. Mr Steele said that decisions concerning joint insurance and payment of premiums through Don Hutton Insurance Brokers went through Mr John Kalis who would speak with Don Hutton with Mr Steele's approval. Mr John Kalis was authorised to deal with the paperwork in respect of the insurance and signed documents on behalf of CCE (QLD). Mr John Kalis was not involved in all insurance, for example some insurance obtained by the company for certain jobs was not dealt with by Mr John Kalis. 4. Mr Steele said tenders were an important part of CCE (QLD)'s business. The company did sell corrosion control products, however that was a small part of the business. The majority of the business involved design and construction work. Mr John Kalis' involvement with CCE (VIC) 1. Mr McCormick said Mr John Kalis' role as a director was to communicate with Mr McCormick in respect of tenders, hiring staff and spending substantial amounts of money, while Mr McCormick dealt with day-to-day matters. 2. Mr McCormick said that there was no dollar limit above which he was required to liaise with Mr John Kalis, it was a matter of courtesy and records were kept of their discussions and decisions. Mr John Kalis had particular technical skills in relation to cathode protection which were of benefit to the company and its business. 3. In re-examination Mr McCormick acknowledged that decisions were discussed with Mr John Kalis and when Mr John Kalis was overseas, Mr McCormick would make decisions himself. Mr John Kalis' involvement in respect of the Applicant 1. Mr Kalis was asked about Mr John Kalis' involvement in the company and whether that involvement was as financial controller. Mr Kalis said Mr John Kalis was not the financial controller, he was an engineer. Mr Kalis acknowledged having seen documents which stated that Mr John Kalis was the financial controller. Mr John Kalis' involvement in respect of the CCE group as a whole 1. Mr Kalis said that the Applicant did not rely on Mr John Kalis in respect of the other CCE companies and Mr John Kalis did not do work for any of those companies. Mr Kalis said that Mr John Kalis was not the principal engineer for the Group. 2. Mr Kalis was asked why Mr John Kalis signed documents for the CCE companies. He said that other people preferred to deal with one person not four. 3. At page 1917-1918 of EJK1 are "Standard Conditions of Contract - Commercial Clauses" on the Applicant's letterhead. The document is signed by Mr John Kalis in the capacity of CCE Group Director. 4. Mr Kalis said that he was not sure if he was familiar with the document. He acknowledged that it was signed by Mr John Kalis and that he had previously read the document. When asked if Mr John Kalis looked after the insurance side of the business Mr Kalis said that was not necessarily true. He (Mr Kalis) still had contact with Don Hutton and he was not sure where the document came from. It happened five years ago and he could not recall it. 5. Mr Kalis was asked if other CCE companies used those Standard Conditions. Mr Kalis said he was not aware of any such use. 6. Other evidence as to Mr John Kalis' involvement with CCE group included a proposal at Tab 202.a of EJK1 for professional indemnity insurance on behalf of all Group companies for the 12 months commencing 7 October 2012. The proposal is signed at pages 2045 and 2047 (the latter appears to be a copy of the former) on 25 September 2012 by Mr John Kalis as "Financial Controller". Mr John Kalis also signed as "Financial Controller" at page 2049. At page 2052 Mr John Kalis signed the proposal as "CFO". Attachment 1 to the proposal, commencing at page 2054, is headed "CV OF KEY ENGINEERING PERSONNEL". The first person named is Mr John Kalis whose professional experience is stated to include, from August 2003 to present, that he holds the position of "Principal Engineer, Corrosion Control Engineering P/L". His responsibilities are stated to include: Overseeing design, tendering, installation, commissioning and maintenance of all cathodic protection projects, including: Gas, oil and water pipelines LPG, water and salt-water bottomed storage vessels Offshore, onshore, plant, platforms, jetties etc. Shipping, both impressed current and sacrificial cathodic protection Corrosion Investigations 1. I find there was a holding out by one or more of the CCE companies that Mr John Kalis is its / their "CFO", "Financial Controller" and "Principal Engineer" and that he oversees critical aspects of "all cathodic protection projects" of the Group. 2. Mr Batten submitted that the descriptions of Mr John Kalis as "CFO" and "Financial Controller" were merely errors which were not relevant to the proceedings. I am not satisfied that there is an evidentiary basis for that submission and I reject it. 3. I observe that at pages 2056-2057 appears Mr Kalis' curriculum vitae which includes that he holds the position from March 2001 to the present of "Managing Director" of "Corrosion Control Engineering P/L". 4. Mr Jim Galanos curriculum vitae appears at pages 2058 - 2060 and shows that he is the Engineering Manager of the Applicant and has held the position since February 2003. 5. Mr Steele's written statement refers to his registration of a company named Corrosion Control Engineering [Pty Ltd] in 1991 which he deregistered in June 2000. There is no evidence that a company of that name existed when Mr John Kalis executed documents stating that he was an officer of that company between 2003 and 2012. 6. At page 1950 of EJK1 on the letterhead of the Applicant is a document signed by Mr John Kalis as Partner / Director of "Corrosion Control Engineering Group". 7. At page 1808 is a declaration, as part of a professional indemnity proposal form completed on behalf of all four CCE companies, signed by Mr John Kalis as "Director / Principal Engineer" dated 30 August 2011. The contact person for the CCE companies in respect of the proposal is Mr John Kalis. 8. I find that Mr John Kalis was throughout the Tax Years a central figure in relation to ownership of the shares of all of the CCE companies, a director of all CCE companies other than the Applicant, the uncle of Mr Kalis, a cousin by marriage to Mr Jim Galanos who had an interest of between 10% and 15% in each of the CCE companies, and a person who was involved in strategic decisions throughout the CCE group including decisions relevant to carrying on the Applicant's business. 9. Notwithstanding this involvement in the equity ownership, boards of directors and businesses within the Group Mr John Kalis was not called to give any evidence regarding that involvement nor of his knowledge of the manner in which business was carried on by the Applicant and the connections between the carrying on of the Applicant's business and the carrying on of the business of any other Group member. 10. Contrary to the submission at ASR [25] I am not satisfied on the evidence before me that Mr John Kalis did not play an important role in the management of the business of each Group company. 11. The unexplained failure of the Applicant to call Mr John Kalis to give evidence does not assist the Applicant's case. Joint accounts of CCE group companies 1. Mr Kalis' evidence in chief was that there were no joint accounts of the Applicant and other CCE companies in relation to suppliers to the businesses carried on by any member of the Group. 2. Mr Kalis then conceded that there was a joint insurance policy for the benefit of each Group member. 3. Mr Kalis also conceded that there was a joint Telstra account for the benefit of each Group member. He said the Applicant pays the New South Wales charges. He said that he organised the joint account because Telstra had informed him that there would be benefits, including a group discount, if the other CCE businesses joined the Applicant's account. 4. Mr McCormick said the joint Telstra account was organised by Mr Kalis and CCE (VIC) paid for charges itemised for it. 5. Mr McCormick also said there are no joint accounts held by CCE (VIC) with suppliers with any other CCE group company. He said that CCE (VIC) buys by itself and has a separate account with each supplier which is not shared with any other CCE company. 6. Mr Steele said CCE (QLD) only paid its share of the Telstra account charges. Telstra was used for outback coverage. He said CCE (QLD) has an account with a US company in respect of its landline. Mr Steele said there may be a discount from Telstra because of the grouping. He also said Mr Kalis handles the day-to-day operation of the joint account for all the CCE companies. 7. Mr Grapiglia said CCE (WA) shared a telephone account with the other three CCE companies. The contribution to charges by CCE (WA) was based on the services provided. CCE (WA) mainly used mobile phones with separate accounts. CCE (WA) had five landlines supplied by ENGIN and used another company for facsimile purposes. He had made the decision to engage ENGIN. Mr Grapiglia said he assumed that there was a group discount on the joint Telstra account, which had been organised by Mr Kalis. 8. On the evidence before me I am not satisfied that the existence of the joint Telstra account is by itself evidence that the Applicant's business is not carried on independently of a business carried on by other CCE companies nor that the account is relevantly a connection of the Applicant's business and the carrying on of a business by any other CCE company for the purpose of section 79 (2). Joint website for the CCE group 1. The Applicant has conceded that there is a joint website for the benefit of all four CCE companies. 2. Two partly legible downloads from the CCE website are reproduced at pages 12 and 13 of the s 58 documents. One of the downloads appears to refer to office locations in Melbourne, Sydney and Brisbane. There is possibly a fourth office location however it is substantially illegible. The name "Corrosion Control Engineering" appears on the downloads together with stylised letters CCE. The website does not appear to specifically refer to any of the individual CCE companies. 3. Mr McCormick said that there was a joint website. It did not generate any income for CCE (VIC) and was useless. 4. Mr Grapiglia said that he could not recall any contracts being obtained via the CCE website. 5. Mr Kalis said there were from 0 to 1 enquiries per month from the website. There is very little revenue generated and mainly relates to tenders and existing clients. 6. Mr Steele said that the one to two referrals from the website per month did not contribute to the business of CCE (QLD). He could not attribute any revenue to the website. 7. Mr Batten submitted that there was no evidence as to the duration of the website. To the extent that Mr Batten was implying that the website was not in existence during the Tax Years I observe that, as there is evidence as to the existence of the website, it would have been for the Applicant to provide relevant evidence as to when the website was in existence. 8. I also observe that to the extent that the Applicant may have an interest in providing evidence showing that the website had been shut down because it was of no benefit or that there was minimal cost in operating the website I find it surprising that no such evidence was produced by the Applicant nor did the Applicant provide any evidence as to the date on which the website commenced, whether it was before during or after the Tax Years. 9. The failure of the Applicant to address these issues by probative evidence is particularly surprising when one has regard to the onus on the Applicant in these proceedings. 10. If, as the managing director of each CCE company has asserted, the website is of no benefit to their business, it is surprising that the website continued to exist unless there is some other purpose to the website which was not brought to the attention of the Tribunal. CCE group companies using the same ISO accreditation 1. The Respondent submitted at [30] "during the Tax Years, all CCE group companies used the ISO Accreditation of CCE (QLD)." 2. The ASR [4] the Applicant agreed to the facts in RS "except for the use of the ISO Accreditation …" 3. The application for professional indemnity insurance for all Group companies at page 1806 in EJK1 contains a question "Does the Proposer hold ISO or any other third party accreditation for its risk management procedures? If "Yes", please advise which accreditation is held and when it was obtained?" The response, signed by Mr John Kalis and dated 30 August 2011, is "ISO 9001 -2008 May 2006 (CCE QLD only)". 4. At page 1807 in the proposal is the question "Does the Proposer operate any branches?" which also seeks information as to how the Proposer ensures that those branch offices comply with policies and procedures including risk management, quality control and/or compliance programs, referred to in a previous question The answer is "Only the QLD office has ISO2001. NSW VIC & WA operate under the accredited procedures outlined in the QLD ISO policy." 5. Mr Kalis said the Applicant does not use CCE (QLD)'s ISO accreditation. He also said the Applicant tries to operate under the Queensland procedures, however, the Applicant's procedures are not identical. He acknowledged that he had not seen the Queensland procedures and said the Applicant used some of its own procedures. As the Applicant did not operate under Queensland procedures the Applicant did not pay a fee to CCE (QLD). 6. Mr McCormick said CCE (VIC) does not have its own ISO accreditation and uses some of CCE (QLD)'s accreditation. No license fees are paid to use CCE (QLD)'s procedures. There is a requirement to comply with certain standards and CCE (VIC) tries to meet those standards. 7. Mr Steele said that from the start he implemented a quality management system. Fees were paid for the use of the logo. He did not approve or encourage the other CCE companies to use the logo. However, he did encourage them to use the system. 8. I am satisfied on the evidence presented that each of the CCE companies holds out that it operates under the CCE (QLD) accredited ISO procedures, that such accredited procedures are important to joint professional indemnity insurance and accordingly are important to the cathodic protection business carried on by each company. CCE group companies using the same OH & S manuals 1. The Respondent submitted and the Applicant conceded that each of CCE (QLD), CCE (VIC) and CCE (WA) used substantially the same 0H & S manuals. 2. Mr Kalis said that the OH & S manual used by the Applicant is similar to the CCE (QLD) manual and was prepared by the same company. CCE (QLD) obtained its manual first and the Applicant asked for help. The Applicant's manual was different because of different state requirements. 3. Mr McCormick said the OH & S manual used by CCE (VIC) is not the same as that used by CCE (QLD). CCE (VIC) uses a local supplier and he is not sure what manual is used by CCE (QLD) or the Applicant. 4. Mr Steele said the other CCE companies had not adopted CCE (QLD)'s OHS & S Manual. He understood that CCE (VIC) had paid another person to develop their own manual. 5. Pages 165 – 460 of AD contain what appears to be the OH & S Manual of CCE (QLD). I have not considered every page in detail. However, at page 167 under the heading "Health and Safety" appears Mr Steele's name over the title Principal Engineer, the company name "Corrosion Control Engineering Pty Ltd" and the date 12 October 2010. The footer for that page bears the date May 2012. The text on the page commences with: It is the policy of Corrosion Control Engineering Pty Ltd (CCE) that the health, safety and welfare of employees, contractors … 1. There are several references to Queensland legislation throughout the document. 2. Page 462 appears to be identical to page 167 other than that the name of the Principal Engineer of "Corrosion Control Engineering Pty Ltd", is stated to be Mr McCormick. What appears to be the H & S manual for CCE (VIC) goes from page 461 to page 745. Pages 453 to 460 appeared to contain the same policy statements, all signed by Mr Steele as director of Corrosion Control Engineering as the policy statements signed by Mr Kalis at pages 155 - 161. There are several references to Victorian legislation throughout the document signed by Mr Steele. 3. Some provisions which may not be expressly covered by state legislation such as "hazard reporting procedure" found at page 202 in respect of CCE (QLD) and page 502 in respect of CCE (VIC) seem to be identical. 4. The OHS Manual for CCE (WA) appears at pages 746 to 1084. This document, which seems to be substantially identical to the previous two documents, other than for the inclusion of references to Western Australian legislation appears to be over the signature of Mr Grapiglia as "Director/ WA Manager" of "Corrosion Control Engineering Pty Ltd". Much of the wording in the Western Australian manual appears identical to the previous two manuals. There are some changes such as the heading "Hazard Reporting Procedure" at page 502 becomes "Hazard Reporting System" at page 840. The wording of the first several paragraphs on page 840 is identical to the wording on page 502 other than for the insertion of an additional clause in relation to Hazard Identification before identical wording continues. 5. The Applicant appears not to have provided to the Tribunal a copy of its OH & S manual. 6. Having regard to the Applicant's concession, the oral evidence of Mr Kalis and my consideration of the OH & S manuals for CCE (QLD), CCE (VIC) and CCE (WA) I am satisfied that the OHS & S manuals of each Group company are substantially identical subject to relevant state legislation. I reject evidence to the contrary by Mr McCormick and Mr Steele. CCE group companies using the same letterhead 1. The Respondent submitted, and the Applicant conceded, that during the Tax Years all Group companies used the same CCE Corrosion Control Engineering" letterhead. 2. Mr Kalis acknowledged that the header and footer of the Applicant's letterhead and letterheads used by CCE (QLD) and CCE (VIC) were similar other than in respect of the different address and telephone particulars and CCE (QLD)'s ISO logo. He denied that CCE (WA)'s letterhead was similar as he said the header and footer differed in font and size from that used by the other companies. 3. Mr McCormick initially agreed that CCE (VIC)'s letterhead was similar to that used by the Applicant. He said that there was an agreement with Mr Kalis that the same CCE letterhead would be used by all CCE group companies. In re-examination Mr McCormick said that CCE (VIC) could use any letterhead it liked. He said he had a part in the design of the CCE letterhead, it was a joint thing and the letterhead was "nice". 4. Mr Steele said that his company's letterhead was based on that of the Applicant. It was not always used as he had to change the header for the ISO logo. However, he had agreed that CCE (QLD) would use the same letterhead as the other three CCE companies. He also said that he was not required to keep the letterhead. 5. Mr Grapiglia agreed that CCE (WA)'s letterhead was similar to the letterhead used by each of the other CCE companies, it was based on the Applicant's letterhead. He said there was no requirement for CCE (WA) to use the same letterhead. 6. Mr Batten submitted that the evidence showed that none of these CCE companies had to use a common letterhead and that this was not a material issue for s 79. 7. I find that the wording used in the footer of the letterhead of each Group company is identical other than in respect of minor variations in fonts. I find that the first line of the header of the letterheads of each Group member is identical as are the layouts of the balance of the headers other than minor font variations. 8. Having regard to the evidence before me I am satisfied that whether or not there is an agreement by the Applicant and the other CCE companies that they will use substantially identical letterheads for their businesses, throughout the Tax Years all CCE companies used such letterheads for their businesses. CCE group companies using the same standard contract conditions 1. The Applicant conceded that all Group companies used the same "Standard Conditions of Contract". Notwithstanding this concession, I observe that the four managing directors of the CCE companies gave the following oral evidence. 2. Mr Kalis said he was not aware whether the other CCE companies use the same "Standard Conditions" as the Applicant. 3. Mr McCormick said CCE (VIC) had a contract with standard conditions. He did not know if it was the same as the contract used by the Applicant. 4. Mr Steele said he wrote the standard contract conditions for CCE (QLD) and all the CCE companies were now using his conditions. 5. Mr Grapiglia said CCE (WA) used standard contract conditions. He initially said they were not based on the standard contract conditions of the Applicant. He then said that the contract conditions were based on the Applicant's conditions and they were developed and changed in Western Australia. 6. Several "Corrosion Control Engineering Standard Conditions of Contract" are included in EJK1. One such document at pages 1909-1910 containing the footer "Ref: CCE Std Conditions of Contract 15/3/06" appears to have been used in conjunction with a Group insurance proposal in September 2011. A copy of that document appears at pages 2088 - 2089 and appears to have been used in conjunction with an insurance proposal in 2012. 7. Another "Standard Conditions of Contract" appears under the letterhead of the Applicant signed by Mr John Kalis as "CCE Group Director" dated 28 September 2011. I observe that the standard conditions dated 15/3/06 appear identical to the conditions in the document signed by Mr John Kalis other than that the 2006 document: 1. contains four additional words at clause 1.5; 2. contains minor differences at clause 1.11; and 3. contains "EXCAVATION CLAUSES" 2.1, 2.2 and 2.3 which do not appear in the document signed by Mr John Kalis. 1. The insurance proposal in 2011 seeks a renewal of professional indemnity insurance on behalf of the Applicant, CCE (QLD) and CCE (VIC) and adds CCE (WA) as a proposer. 2. The entities proposed to be covered by the 2012 insurance proposal are all 4 Group companies. 3. Having regard to the evidence before me I find that there was a holding out by Mr John Kalis on behalf of all Group companies in at least 2011 and 2012 that each company had substantially identical "Standard Conditions of Contract". Other standard CCE Group documents 1. At Tab F in AD at pages 155-161 are policy statements on a stylised "CCE Corrosion Control Engineering" letterhead in respect of quality, environmental, health & safety, privacy, equal opportunity and anti-discrimination, and drug & alcohol. Each of the documents states "Date Revised: 28.4.13" and is signed by Mr Kalis as "Director" of "Corrosion Control Engineering" and is dated 28.4.13. 2. The policy statements make numerous references to "our company" and "our policy". Page 161, which contains the Drug & Alcohol Policy's Statement includes under the heading "Our commitment" the words: Corrosion Control Engineering Pty Ltd recognises that alcohol or … Consequently, Corrosion Control Engineering requires the performance … 1. Page 155 contains the Quality Policy Statement. That page, signed by Mr Kalis, includes: Our Quality Management System is based on the International quality management standard AS/NZS ISO 9001:2008." I observe that the wording in the logo which appears on the CCE (QLD) letterhead includes "Quality Endorsed Company ISO 9001". 1. I am not satisfied that the Applicant, through action by Mr Kalis, does not hold itself out that it is entitled to use the ISO 9001 logo as a "Quality Endorsed Company". Consideration of authorities 1. The Applicant submitted at AOS [50]: 51. The High Court in Tasty Chicks Pty Limited and Others v Chief Commissioner of State Revenue of the State of New South Wales [2011] HCA 41; [2011] 245 CLR 446 at 451 explained the purpose of the grouping provisions: The "grouping" provisions were designed to counter tax avoidance through the splitting of business activities by the use of additional entities, each attracting a threshold. The "degrouping" provisions were available for application by the Chief Commissioner upon determination, in broad terms, that it would be unreasonable to apply the "grouping provisions". 1. In Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242 (Seovic CA) the Court of Appeal said: 19 The High Court has repeatedly stated that the task of statutory construction begins and ends with a consideration of the text, which is to be considered in its context (including its legislative history and any extrinsic materials): FCT v Consolidated Media Holdings Ltd [2012] HCA 55; 250 CLR 503 at [39]; Thiess v Collector of Customs [2014] HCA 12; 250 CLR 664 at [22]. 20 The applicants' submission that the power conferred by s 79(1) is enlivened whenever it is just and reasonable to exclude members from a group to alleviate any harsh consequences of the grouping provisions finds no support in the statutory language. The precondition for the exercise of that power is described in s 79(2). That subsection provides that the Chief Commissioner may only make a determination to exclude members if satisfied "that a business carried on by the person [being the person sought to be excluded from a group], is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group". 21 The applicants refer to three decisions containing general observations as to the purpose or object of de-grouping powers such as that in Pt 5 of the Payroll Tax Act. One of those decisions is Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue of the State of New South Wales [2011] HCA 41; 245 CLR 446 at [8]. There the "de-grouping" provisions were described as "available for application by the Chief Commissioner upon determination, in broad terms, that it would be unreasonable to apply the 'grouping' provisions". The Court was not directing its attention to the meaning or application of a provision in the same or similar terms to s 79(2). The other decisions referred to, which also do not address that question, are … 22 It may readily be accepted that the broad purpose of the power to exclude is to enable the Chief Commissioner to relieve against the unreasonable operation of the grouping provisions. However the circumstances in which the power to do so is engaged are described in s 79(2). Whilst that description should be construed having regard to that purpose, it nevertheless remains the position that the Commissioner must in terms be satisfied that the business sought to be excluded is not connected with the carrying on of a relevant business 1. Accordingly, the Court of Appeal of the New South Wales Supreme Court has rejected the construction placed by the Applicant on the High Court's Tasty Chicks decision. 2. At [56] – [58] the Respondent submitted: 56 … in Conrad Linings Pty Ltd v Chief Commissioner of State Revenue [2014] NSWSC 1020, the Court held at [51] - [57] that the following matters were relevant to whether the business of group members were independent and not connected: a. substantial commonality of ownership; b. intra-group loans; c. same place of business; d. intra-group provision of administrative services; and e. the nature of the business. The Respondent submitted that matters referred to at [22] - [32] and other matters: 58. … clearly show a material and significant connection between the CCE group's businesses that affected them in a real and practical sense88 1. The Applicant responded in ASR from [44] to [48] relying on GTS Industries Pty Limited v Commissioner of State Revenue [2004] VCAT 21 and submitted that it would prefer to direct the Tribunal to the GTS Industries decision rather than that of Conrad Linings. 2. The Applicant submitted that the facts in GTS Industries were similar to those before the Tribunal in the current proceedings. 3. I accept that some of the facts in GTS Industries are similar to the matters currently before the Tribunal. However there are also substantial differences in the facts of the two matters which are discernible from a consideration of the GTS Industries decision and the above agreed facts and analysis. It is not necessary to repeat those matters. 4. I acknowledge the Applicant's submission at ASR [49]: 49 It should be pointed out that the Appeal Panel in Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42 (6 September 2013) stated at paragraph 41 when considering the statutory application of the New South Wales de-grouping provisions 41 As demonstrated by GTS Industries at [37] and Triline at [20] and [25] the Victorian provision had been interpreted consistently with the earlier New South Wales provision which posed a test of "substantial independence", despite the fact that the Victorian counterpart did not contain the word "substantial" It is reasonable therefore to infer that the word "substantial" was, in those circumstances, otiose and omitted for that reason Even if this is not correct, there is much force to the submission that the Victorian provision and the current New South Wales provisions are to be interpreted harmoniously and this means the Appeal Panel would follow GTS Industries and Triline unless we were of the view they were clearly wrong. For the reasons we explain below, we agree with the Victorian authorities." [emphasis added by the Applicant] 1. Both parties referred to Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42 (Lombard (AP)). In that matter the Appeal Panel said: Question of judgment and degree 50 Section 79(2) requires the trier of fact to determine whether, having regard to the nature of the connections between group businesses, it can nevertheless be said that the businesses are independent and not connected. Ultimately, this will be a question of judgment based on facts objectively determined. It is not the case that any connection between businesses will disentitle an applicant from de­grouping. The connection must be material and not insignificant or inconsequential. … We agree with [the approach in Triline and GTS Industries] because it directs the focus to the "carrying on" of the business: to be relevant, the connection must affect the business in some real or practical sense. 51 To say that there can be absolutely no connection between the businesses sets the bar too high. The question is one of fact and degree … To disentitle an applicant to de­grouping, the connection must be meaningful in a commercial sense and not immaterial or inconsequential to the carrying on of the businesses. Adopting the words of GT Pagone, Presiding Member (as his Honour then was) in Triline at [25] there must be a finding of substantial absence of connection and substantial independence between the businesses, to warrant the exercise of the discretion. 1. I have regard to the persuasive authority of the principles enunciated in Lombard (AP). I also prefer to have regard to the binding authority of the New South Wales Supreme Court in Conrad Linings and of the Court of Appeal in Seovic (CA) rather than the non-binding authority of VCAT in GTS Industries in respect of facts which are similar but not identical to those in this matter. Decision and orders 1. Having regard to the above findings on the material before me, and having regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and the other matters which I referred to above as being relevant, I am not satisfied that throughout each Tax Year the business carried on by the Applicant was carried on independently of the business carried on by each other CCE company, and that there was no relevant connection between the carrying on of those businesses. 2. Accordingly, the correct and preferable decision of this Tribunal is that the decision of the Chief Commissioner under review is confirmed. 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: 16 January 2017