Cessnock Tyres Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 368

Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Cessnock Tyres Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 368 Hearing dates: 7 - 8 September 2017 Date of orders: 15 December 2017 Decision date: 15 December 2017 Jurisdiction: Administrative and Equal Opportunity Division Before: RL Hamilton SC, Senior Member Decision: (1) The Chief Commissioner's refusal to degroup the Applicant was correct and the decision is confirmed.

(2) Leave to lodge out of time is granted. Catchwords: TAXES & DUTIES – PAYROLL TAX – GROUPING – Discretion to Degroup Legislation Cited: Civil and Administrative Tribunal Act 2013 Payroll Tax Act 2007 Taxation Administration Act 1996 Cases Cited: Headwear Pty Ltd v CCSR [2015] NSWCATAD 166 Lombard Farms Pty Ltd v CCSR [2013] NSWADTAP 42 Category: Principal judgment Parties: Cessnock Tyres Pty Ltd (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: Mr M Pesman SC (Applicant) Mr A H Rider (Respondent)

Solicitors: Beazley Boorman Lawyers (Applicant) Crown Solicitor's Office (Respondent) File Number(s): 2016/00378456 Publication restriction: Nil

reasons for decision 1. This matter involves a decision where the taxpayer seeks to be excluded from a group for payroll tax purposes. It says first that it was not part of the group. It says secondly that if it is wrong on the first ground it should by exercise of discretion be "degrouped". Degrouping is a matter in the discretion of the decision maker. To succeed, the taxpayer must show that the business/es carried on by the person is/are carried on independently of, and is/are not connected with, the carrying on of a business or businesses by any other member of the group. The decision maker must have regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other relevant matters. 2. The Chief Commissioner of State Revenue (CCSR) has refused a degrouping application by the taxpayer covering the period from 1 July 2013 (the 'relevant period'), and has disallowed the taxpayer's objection to that decision. The taxpayer has applied, pursuant to s. 96 Taxation Administration Act 1996 (TAA) for the CCSR's decision to be reviewed. 3. Division 2 of Part 5 the Payroll Tax Act 2007 (PRTA) (entitled' Business Groups') relevantly provided during the relevant period as follows: 70 GROUPS OF CORPORATIONS (1) Corporations constitute a group if they are related bodies corporate within the meaning of the Corporations Act 2001 of the Commonwealth. 72 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 group. Note : Section 79 (Exclusion of persons from groups) allows the Chief Commissioner, for payroll 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: … (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 directors 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) …. (e) 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, or any class of voting shares, issued by the corporation, or (f) … (g) in the case of a business carried on under a trust--the person or set of persons (whether or not as a trustee of, or beneficiary under, 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 bodies corporate within the meaning of the Corporations Act 2001 of the Commonwealth, and (b) 1 of the corporations has a controlling interest in a business, the other corporation 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 another business, the person or set of persons referred to in paragraph (a) 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 another 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 the trustee and another person, exercising or failing to exercise a power or discretion, is taken, for the purposes of this Part, 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) … 73 GROUPS ARISING FROM TRACING OF INTERESTS IN CORPORATIONS (1) An entity and a corporation form part of a group if the entity has a controlling interest in the corporation. Note : Section 79 (Exclusion of persons from groups) allows the Chief Commissioner, for payroll tax purposes, to exclude persons from a group constituted under this section in certain circumstances. (2) For the purposes of this section, an entity has a "controlling interest"in a corporation if the corporation has share capital and: (a) the entity has a direct interest in the corporation and the value of that direct interest exceeds 50%, or (b) the entity has an indirect interest in the corporation and the value of that indirect interest exceeds 50%, or (c) the entity has an aggregate interest in the corporation and the value of the aggregate interest exceeds 50%. (3) Division 3 applies for the purposes of the interpretation of this section. Note : Division 3 sets out the manner for determining whether an entity has a direct interest, indirect interestor aggregate interest in a corporation, and the value of such an interest. (4) In this section: "associated person" means a person who is associated with another person in accordance with any of the following provisions: (a) persons are associated persons if they are related persons, (b) natural persons are associated persons if they are partners in a partnership, (c) private companies are associated persons if common shareholders have a majority interest in each private company, (d) trustees are associated persons if any person is a beneficiary common to the trusts (not including a public unit trust scheme) of which they are trustees, (e) a private company and a trustee are associated persons if a related body corporate of the company (within the meaning of the Corporations Act 2001 of the Commonwealth) is a beneficiary of the trust (not including a public unit trust scheme) of which the trustee is a trustee. "domestic partner" of a person means a person to whom the person is not married but with whom the person is living as a couple on a genuine domestic basis (irrespective of gender). "entity" means: (a) a person, or (b) 2 or more persons who are associated persons (as defined in this section). "private company" means a company that is not limited by shares, or whose shares are not quoted on the Australian Stock Exchange or any exchange of the World Federation of Exchanges. "related person" means a person who is related to another person in accordance with any of the following provisions: (a) natural persons are related persons if: (i) one is the spouse or domestic partner of the other, or (ii) the relationship between them is that of parent and child, brothers, sisters, or brother and sister, (b) private companies are related persons if they are related bodies corporate within the meaning of the Corporations Act 2001 of the Commonwealth, (c) a natural person and a private company are related persons if the natural person is a majority shareholder or director of the company or of another private company that is a related body corporate of the company within the meaning of the Corporations Act 2001 of the Commonwealth, (d) a natural person and a trustee are related persons if the natural person is a beneficiary of the trust (not being a public unit trust scheme) of which the trustee is a trustee, (e) a private company and a trustee are related persons if the company, or a majority shareholder or director of the company, is a beneficiary of the trust (not being a public unit trust scheme) of which the trustee is a trustee. (5) For the purposes of the definition of "domestic partner" in subsection (4), in determining whether persons are domestic partners of each other, all the circumstances of their relationship are to be taken into account, including any one or more of the matters referred to in section 4 (2) of the Property (Relationships) Act 1984 as may be relevant in a particular case. 74 SMALLER GROUPS SUBSUMED BY LARGER GROUPS (1) If a person is a member of 2 or more groups, the members of all the groups together constitute a group. (2) If 2 or more members of a group have together a controlling interest in a business (within the meaning of section 72), all the members of the group and the person or persons who carry on the business together constitute a group. Note : Section 79 (Exclusion of persons from groups) allows the Chief Commissioner, for payroll tax purposes, to exclude persons from a group constituted under this section in certain circumstance 79 EXCLUSION OF PERSONS FROM GROUPS (1) The Chief Commissioner may, by order in writing, determine that a person who would, but for the determination, be a member of a group is not a member of the group. (2) The Chief Commissioner may only make such a determination if satisfied, having regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other matters the Chief Commissioner considers relevant, that a business carried on by the person, is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group. (3) The Chief Commissioner cannot exclude a person from a group if the person is a body corporate that, by reason of section 50 of the Corporations Act 2001 of the Commonwealth, is related to another body corporate that is a member of that group. (4) This section extends to a group constituted by reason of section 74 (Smaller groups subsumed by larger groups). (5) A determination can be expressed to take effect on a date that is earlier than the date of the determination. (6) The Chief Commissioner may by order in writing revoke a determination that applies in respect of a person if satisfied that the circumstances in which a determination may be made do not apply to the person. (7) The revocation of a determination can be expressed to take effect on a date that is earlier than the date of the determination. 1. The taxpayer's case is that it should not have been grouped with, or alternatively should have been excluded from being a member of a group with: * Cessnock Truck Tyre Centre Pty Ltd (CTTC) * O'Neill Tyres Gateshead Pty Ltd (Gateshead) * Bayrond Pty Ltd (Bayrond)