Supreme Court New South Wales Medium Neutral Citation: KinCare Community Services Limited v Chief Commissioner of State Revenue [2019] NSWSC 182 Hearing dates: 13,14,15 and 16 August 2018 Date of orders: 06 March 2019 Decision date: 06 March 2019 Jurisdiction: Equity Before: Payne J Decision: (1) Application allowed. (2) Objection decision revoked. (3) The assessments of payroll tax to KinCare Community Services Limited in the 2009, 2010, 2011, 2012, 2013 and 2014 years are revoked. (4) Remit the matter to the Commissioner to issue assessments in accordance with these reasons. (5) The Commissioner pay KinCare's costs of the application. Catchwords: TAXES AND DUTIES – pay-roll tax – liability to taxation – arrangements affecting liability to tax – objections and appeals – collection and recovery of tax TAXES AND DUTIES – Payroll Tax Act 2007 (NSW), Sch 2 cl 12 – transitional provisions relating to the continuation of exemptions under s 10 of the repealed Payroll Tax Act 1971 (NSW) TAXES AND DUTIES – meaning of "non-profit organisation" – whether a "non-profit organisation" – where constitution contained an express restriction on distribution of profits to members – where no distribution of profits were made to members – where there were transactions with related entities that received incidental benefits – where alleged that transactions were not arm's length and on commercial terms – where alleged that the organisation was "carried on for the benefit or gain of particular individuals" TAXES AND DUTIES – meaning of "public benevolent institution" – whether a "public benevolent institution" – whether benevolence was directed to the public at large – whether benevolence was directed to the profit or gain of particular individuals TAXES AND DUTIES – apportionment – whether wages were wages paid or payable to a person in respect of time when the person was engaged in charitable work of a non-profit organisation – whether wages were wages paid or payable to a person in respect of time when the person was engaged in work of a public benevolent nature – apportionment of wages based on time spent by the person engaged in charitable work or work of a public benevolent nature – absence of sufficient evidence STATUTORY INTERPRETATION – extrinsic materials – Interpretation Act 1987 (NSW), s 34 – legislative history – explanatory memoranda EVIDENCE – weight of evidence – expert evidence –letter of instruction – absence of adequate instructions – where no assumptions of fact or questions to be addressed or guidance about how to approach the task was given Legislation Cited: Australian Charities and Not‑for‑profits Commission Act 2012 (Cth) Broadcasting and Television Act 1942 (Cth), s 81 Charitable Fundraising Act 1991 (NSW), Sch 1 Charities (Consequential Amendments and Transitional Provisions) Act 2013 (Cth) Companies and Securities Legislation (Miscellaneous Amendments) Act 1983 (Cth) Co-operation Act 1923 (NSW) Corporations Act 2001 (Cth), ss 34, 124, 125, 180, 181, 182, 254SA, Pt 2D.1 Income Tax and Social Services Contribution Assessment Act 1936-1962 (Cth), s 23 Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth), ss 50-5, 50-40 Interpretation Act 1987 (NSW), ss 33, 34 Land Tax Management Act 1956 (NSW), s 10 Payroll Tax Act 2007 (NSW), ss 3, 6, 10, 48, Sch 2 cl 12 Pay-roll Tax Act 1941 (Cth) Pay-roll Tax Act 1971 (NSW), s 10 Pay-roll Tax Act 1971 (SA), s 12 Pay-roll Tax Assessment Act 1941 (Cth) Pay-roll Tax (Amendment) Act 1979 (NSW), Sch 1 Pay-roll Tax (Further Amendment) Act 1977 (NSW), Sch 1 State Revenue Legislation (Amendment) Act 1994 (NSW), Sch 6 Statute Law (Miscellaneous Provisions) Act (No 2) 1995 (NSW), Sch 2 Taxation Administration Act 1996 (NSW), s 97 Cases Cited: ACI Operations Pty Ltd v Berri Ltd (2005) 15 VR 312; [2005] VSC 201 Adelaide City Mission v South Australian Planning Commission (1993) 60 SASR 178 Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (Cth) [1983] 1 NSWLR 1 Australian Council of Social Service Inc v Commissioner of Pay-roll Tax (1985) 1 NSWLR 567 Canberra and District Racing and Sporting Broadcasters Ltd v Canberra Stereo Public Radio Inc (1985) 63 ALR 502 Canberra Stereo Public Radio Inc v Australian Broadcasting Tribunal (1985) 6 FCR 456 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 Cooperative Bulk Handling Ltd v Commissioner of Taxation [2010] FCA 508; 79 ATR 582 Crows Nest Club Ltd v Commissioner of Land Tax [1978] 1 NSWLR 523 Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21 Evans v Federal Commissioner of Taxation (1988) 19 ATR 1784 Federal Commissioner of Taxation v Co-operative Bulk Handling Ltd (2010) 189 FCR 322; [2010] FCAFC 155 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 Federal Commissioner of Taxation v Slater Holdings Ltd (1984) 156 CLR 447 Federal Commissioner of Taxation v Sun Alliance Investments Pty Ltd (in liq) (2005) 225 CLR 488; [2005] HCA 70 Federal Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204; [2008] HCA 55 Grain Growers Ltd v Chief Commissioner of State Revenue [2015] NSWSC 925 Grain Growers Ltd v Chief Commissioner of State Revenue (NSW) (2016) 93 NSWLR 415; [2016] NSWCA 359 Illawarra Suburbs Lawn Tennis Association Ltd v Commissioner of Land Tax (NSW) (1985) 16 ATR 664 Incorporated Council of Law Reporting of Queensland v Federal Commissioner of Taxation (1971) 125 CLR 659 Maughan v Federal Commissioner of Taxation (1942) 66 CLR 388 McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 New York Life Insurance Co v Styles (1889) 14 App Cas 381 Pamas Foundation (Inc) v Commissioner of Taxation (1992) 35 FCR 117 Perpetual Trustee Co Ltd v Federal Commissioner of Taxation (1931) 45 CLR 224 Public Trustee of New South Wales v Federal Commissioner of Taxation (1934) 51 CLR 75 R v Brown [1996] 1 AC 543 Re Spanish Prospecting Co Ltd [1911] 1 Ch 92 Repromed Pty Ltd v Lucas (2000) 76 SASR 575; [2000] SASC 203 South Australian Employers' Chamber of Commerce & Industry Inc v Commissioner of State Taxation [2017] SASC 127; 106 ATR 305 Stratton v Simpson (1970) 125 CLR 138 Sydney Water Board Employees' Credit Union Ltd v Federal Commissioner of Taxation (1973) 129 CLR 446 SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; 91 ALJR 936 Taylor v The Owners – Strata Plan No 11564 (2014) 253 CLR 531; [2014] HCA 9 Theosophical Foundation Pty Ltd v Commissioner of Land Tax (1966) 67 SR (NSW) 70 Trustee for the Estate of the Late A W Furse No 5 Will Trust v Federal Commissioner of Taxation (1990) 21 ATR 1123 Trustees of the Allport Bequest v Federal Commissioner of Taxation (1988) 19 ATR 1335 Trustees of the Indigenous Barristers' Trust v Commissioner of Taxation (2002) 127 FCR 63; [2002] FCA 1474 Union Trustee Co of Australia Ltd v Federal Commissioner of Taxation (1962) 108 CLR 451 Texts Cited: K L Fletcher, The Law Relating to Non-profit Associations in Australia and New Zealand (1986, Law Book) J Mitchell, "Non-Profit? It's Not What You Think It Means" (2018) 46 ABLR 32 Category: Principal judgment Parties: KinCare Community Services Limited (Plaintiff) Chief Commissioner of State Revenue (Defendant) Representation: Counsel: F L Harrison QC / M Sealey (Plaintiff) R Seiden SC / H El-Hage / T Russell (Defendant) Solicitors: PPM Tax & Legal (Plaintiff) Crown Solicitor's Office (Defendant) File Number(s): 2016/00321955 Publication restriction: None Judgment 1. PAYNE J: This is a case raising issues under the Payroll Tax Act 2007 (NSW) (the Payroll Tax Act). KinCare Community Services Limited (KinCare) is a company limited by guarantee which was incorporated in 1998. KinCare has since that time been a provider of home care services to aged people, people with disabilities and more recently Aboriginal and Torres Strait Islander people. From 1 April 2014, KinCare was subject to a significant restructuring and ceased from that day to employ any staff or pay any taxable wages. Accordingly, no question of payroll tax, including the operation of any exemption, arises after 1 April 2014. 2. On 4 November 2015, over 18 months after KinCare had ceased to employ any staff, the Chief Commissioner of State Revenue (the Commissioner) decided that with effect from 1 July 2008, wages paid by KinCare were not exempt wages, and assessed KinCare to payroll tax of $3,238,157.10 in total for the financial years between 30 June 2009 and 30 June 2014 (the Assessments). KinCare had previously been granted an exemption from payroll tax on the basis that it was a non-profit charitable organisation under former s 10(1)(j) of the Pay-roll Tax Act 1971 (NSW) (now repealed). 3. KinCare objected to the Assessments. KinCare seeks review under s 97(1)(a) of the Taxation Administration Act 1996 (NSW) and seeks to have the Assessments set aside on the basis that the relevant wages were exempt wages under Sch 2 cl 12 of the Payroll Tax Act. That provision is a transitional provision available to entities that meet its terms. The Commissioner rejected the objection. By the time of the hearing before me, however, the Commissioner accepted that KinCare had as one of its objects a charitable purpose. 4. By the time the hearing before me commenced, the parties had narrowed the issues even further to the following: 1. whether KinCare was a non-profit organisation during the relevant period within the meaning of Sch 2 cl 12(1)(c) of the Payroll Tax Act. The essential issue to be determined is whether KinCare was a "non-profit organisation"; 2. whether wages paid by KinCare were wages paid or payable to a person in respect of time when the person was engaged in the charitable work of KinCare within the meaning of Sch 2 cl 12(1)(c) of the Payroll Tax Act. This issue only arises if KinCare was a non-profit organisation during the relevant period. The essential issue is whether wages paid to KinCare's administrative staff (who worked for KinCare and also for related entities) qualified as exempt from payroll tax; 3. whether KinCare was a public benevolent institution during the relevant period within the meaning of Sch 2 cl 12(1)(b) of the Payroll Tax Act. The essential issue to be determined is whether KinCare was a "public benevolent institution"; and 4. whether wages paid by KinCare were wages paid or payable to a person in respect of time when the person was engaged in work of a public benevolent nature for KinCare within the meaning of the Sch 2 cl 12(1)(b) of the Payroll Tax Act. The same issue as arises under issue 2 needs to be determined. 1. In the way the case was ultimately presented, issues 3 and 4 were very much subsidiary to issues 1 and 2. Senior Counsel for KinCare, Mr Harrison QC who appeared with Mr Sealey, explained that in the way the issues and evidence had developed he did not need issues 3 and 4 to be determined in his favour if he succeeded on issues 1 and 2, and probably could not succeed on issues 3 and 4 if he failed on issues 1 and 2. Nevertheless, as issues 3 and 4 remained at the end of the case I will address them, albeit briefly. Evidence relied upon 1. KinCare read affidavits from: Scott Joseph Pease, sworn on 27 October 2016; David George Francis Morgan, sworn on 28 March 2017; Alice Leah Kim, sworn on 29 March 2017; James Ian Howie, sworn on 30 March 2017; Margaret Lynette Howie, sworn on 30 March 2017; Jason Andrew Howie, sworn on 30 March 2017 and 20 December 2017; and Xiaocong Zhao, sworn on 20 December 2017. Only Mr Jason Howie was cross-examined. I will not attempt to summarise the affidavit and oral evidence here but will refer to the most important aspects of it when explaining my factual findings. 2. The Commissioner relied upon two expert reports from Goodwin Cullimore Allen Gower, dated 25 September 2017 and 8 March 2018, and one from Dennis John Roams, dated 14 November 2017. KinCare relied upon an expert report of Tamara Lindsay, dated 20 December 2017 and a note prepared by Ms Lindsay, dated 13 August 2018 in reply to Mr Gower's second report. Mr Gower and Ms Lindsay gave concurrent evidence. Mr Roams was not required for cross-examination. As the expert evidence, and in particular Mr Gower's second report, is important in the resolution of issues 1 and 3 described above, I will address my findings based on that report separately in a little detail. 3. Voluminous documentary evidence was tendered. I will not attempt to summarise that evidence here but will refer to the most important of the documents when explaining my factual findings. Relevant facts 1. I make the following findings of fact about the relevant entities the subject of these proceedings. 2. Mr James Howie is a retired teacher and pastor with the Seventh-day Adventist Church. Before founding KinCare and its "for profit" related entities (which I will refer to as the KinCare Group), Mr Howie worked as a teacher and pastor for approximately 30 years. Prior to 1990 his wife, Mrs Margaret Lynette Howie, a co-founder of KinCare and the KinCare Group, worked for approximately 25 years as a registered nurse in aged care facilities. In 1990, Mrs Howie began providing home care nursing support services on behalf of Parramatta Nursing Services. In 1991, Mrs Howie was offered the opportunity to take 16 existing home care nursing support clients as her own by arrangement with Parramatta Nursing Services and the Commonwealth Department of Veterans' Affairs. Mr and Mrs Howie commenced a business in 1992 to provide those services which was conducted from the Howie family home in West Pennant Hills. Over the next few years the business grew and the home care services provided by Mr and Mrs Howie and nurses employed by them expanded beyond veterans to include other community groups. In 1998, Mr and Mrs Howie decided to form a not-for-profit charitable organisation to provide home care packages using funding provided principally by the Commonwealth Government. 3. On 14 April 1998, KinCare was incorporated as a company limited by guarantee. Mr and Mrs Howie were co-founders and directors of the company. The subscribers to the Memorandum of KinCare were James Ian Howie, Margaret Lynette Howie, Megan Joy Howie, Hunka Holdings Pty Ltd and KinCare Pty Ltd. The Memorandum and Articles of Association of KinCare have remained unchanged since they were signed by Mr and Mrs Howie on 14 April 1998. 4. Clause 2 of the Memorandum of Association lists KinCare's objects. The primary objects in subcll (a)(i), (a)(ii) and (a)(iii) of the Memorandum of Association are as follows: "(i) To provide support and services for aged people, people with disabilities and their carers. (ii) To provide support and services in respect of aged people and people with disabilities to continue living in the community and to assist in the prevention of inappropriate entry to residential care. (iii) To enter into contracts with Government or Government Agencies to provide services or support in connection with or related to the Home and Community Care Program and to provide such support and services in connection therewith and pursuant to the Home and Community Care Act 1985 or otherwise." 1. Clause 3 of KinCare's Memorandum of Association provides: "3. The income and property of [KinCare] whencesoever derived, shall be applied solely towards the promotion of the objects of [KinCare] as set forth in this Memorandum of Association; and no portion thereof shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise, to the members of [KinCare]. Provided that nothing herein contained shall prevent the payment in good faith of remuneration to any officers or servants of [KinCare] or to any member of [KinCare] in return for any services actually rendered to [KinCare] or for goods supplied in the ordinary and usual way of business nor prevent the payment of interest at a rate not exceeding the rate for the time being fixed for the purpose of this paragraph by the Articles of Association on money borrowed from any member of [KinCare] or reasonable and proper rent for premises demised or let by any member to [KinCare]." 1. Clause 6 of KinCare's Memorandum of Association provides: "6. If upon the winding-up or dissolution of [KinCare] there remains, after satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid to or distributed among the members of [KinCare], but shall be given or transferred to some other institution or institutions having objects similar to the objects of [KinCare], and whose Memorandum of Association or constitution shall prohibit the distribution of its or their income and property among its or their members to an extent at least as great as is imposed on [KinCare] under or by virtue of clause 4 hereof, such institution or institutions to be determined by the members of [KinCare] at or before the time of the dissolution and in default thereof by application to the appropriate Supreme Court for determination." 1. It is now common ground that the reference in cl 6 to cl 4 is a mistake. The Commissioner accepted, and I find, that this was a mistake, based on the unchallenged evidence of Mr Morgan who prepared the Memorandum. The reference in cl 6 should have instead been to cl 3. When cl 6 is read as referring to cl 3, as I find it should be, the same wide prohibition on direct and indirect distributions that exists with respect to members of KinCare exists also in relation to members of any institutions with similar objects to which the assets of KinCare might be given or transferred on a winding up of KinCare. 2. In the relevant period, 1 July 2008 to 31 March 2014, KinCare provided home based care to aged people and people with disabilities. KinCare has also provided home based care for Aboriginal and Torres Strait Islander people. On 27 March 2002, Mr Jason Howie, the son of the founders, became the CEO of KinCare. As I have said, from 1 April 2014, KinCare was subject to a significant restructuring and ceased from that day to employ any staff or pay any taxable wages. Accordingly, no question of the payroll tax exemption arises after 1 April 2014. KinCare continued, however, to operate after that date and to provide services to its clients under existing funding arrangements and client service agreements. 3. KinCare received the bulk of its income during the relevant period from Commonwealth Government contracts under which it provided services or support, predominantly in connection with the Commonwealth Home Support Programme and Home Care Packages. Towards the end of the relevant period KinCare also received funding under agreements with the NSW Department of Ageing, Disability and Home Care. Each of the respective funding agreements was renewed by the Commonwealth and the relevant NSW Government departments throughout the period. Each of the agreements contained strict provisions about expenditure of the funds granted by the agreement for the purposes of the agreement. There is no evidence that any Commonwealth or NSW funding body has ever complained about expenditure by KinCare other than for the purposes for which the funding was advanced. 4. The Commonwealth agreements throughout the relevant period contained detailed record keeping and reporting provisions. Those agreements required KinCare to keep financial records so as to enable the Commonwealth to identify all of the income and expenditure related to the funding to be identified in the accounts. KinCare's accounts were to be prepared in accordance with Australian Accounting Standards. The audit of those accounts was to be in accordance with Australian Audit Standards. I find that KinCare complied with those requirements and that its financial statements were in each year of income prepared in accordance with Australian Accounting Standards and audited in accordance with Australian Audit Standards. There is no evidence that the Commonwealth, or any emanation of the Commonwealth, ever complained that KinCare's financial statements did not accurately record KinCare's income and expenditure related to its Commonwealth funding in any year of income. 5. The financial statements of KinCare in evidence demonstrate a number of matters relevant to the issues before me. 6. The audited 30 June 2009 Special Purpose Financial Report for KinCare demonstrated that: 1. KinCare had 85 employees across Australia; 2. net surplus for the 2008-2009 year was $171,979 but no income tax was payable as KinCare was exempt from income tax; [1] 3. KinCare's revenue for the year was $10,967,499 of which $10,063,404 was grant revenue, principally from the Commonwealth Government; 4. KinCare's total employee benefit expense was $7,092,029 (the total expense in that year of all KinCare's administrative staff was $1,103,880 according to the affidavit evidence of Ms Kim which I address below at [33]); 5. KinCare had total equity of $433,102; 6. the Financial Statements had been prepared in accordance with AASB 101 (Presentation of Financial Statements); AASB 107 (Cash Flow Statements); AASB 108 (Accounting Policies); AASB 117 (Leases); AASB 1031 (Materiality); AASB 110 (Events after Balance Sheet Date); and AASB 1048 (Interpretation and Application of Standards); 7. KinCare declared that it was economically dependent upon the Howie Family Trust (trading as KinCare Nursing Services) and KinCare Health Services Pty Ltd for the provision of fieldwork staff under a continuing staff supply agreement. Staff were provided to KinCare by those entities at rates equivalent to those charged to third parties; and 8. the auditor, Mr Milner of PKF Chartered Accountants, provided an unqualified audit opinion including an opinion that the Financial Statements gave a true and fair view of the Company's financial position as at 30 June 2009. 1. The audited 30 June 2010 Special Purpose Financial Report for KinCare demonstrated that: 1. KinCare had 93 employees across Australia; 2. net surplus for the 2009-2010 year was $179,678 but no income tax was payable as KinCare remained exempt from income tax; 3. KinCare's revenue for the year was $14,452,198 of which $13,218,377 was grant revenue, principally from the Commonwealth Government; 4. KinCare's total employee benefit expense was $10,628,185 (the total employee expense in that year of all KinCare's administrative staff was $1,264,501 according to the affidavit evidence of Ms Kim); 5. KinCare had total equity of $612,780; 6. the Financial Statements had been prepared in accordance with AASB 101 (Presentation of Financial Statements); AASB 107 (Cash Flow Statements); AASB 108 (Accounting Policies); AASB 117 (Leases); AASB 1031 (Materiality); AASB 110 (Events after Balance Sheet Date); and AASB 1048 (Interpretation and Application of Standards); 7. KinCare declared that it was economically dependent upon the Howie Family Trust (trading as KinCare Nursing Services) and KinCare Health Services Pty Ltd for the provision of fieldwork staff under a continuing staff supply agreement. Staff were provided to KinCare at rates equivalent to those charged to third parties; and 8. the auditor, Mr Milner of PKF Chartered Accountants, provided an unqualified audit opinion including an opinion that the Financial Statements gave a true and fair view of the Company's financial position as at 30 June 2010. 1. The audited 30 June 2011 Special Purpose Financial Report for KinCare demonstrated that: 1. KinCare had 97 employees across Australia; 2. net surplus for the 2010-2011 year was $274,556 but no income tax was payable as KinCare remained exempt from income tax; 3. KinCare's revenue for the year was $17,787,006 of which $16,542,871 was grant revenue, principally from the Commonwealth Government; 4. KinCare's total employee benefit expense was $13,209,508 (the total employee expense in that year of all KinCare's administrative staff was $1,268,852 according to the affidavit evidence of Ms Kim); 5. KinCare had total equity of $887,336; 6. the Financial Statements had been prepared in accordance with AASB 101 (Presentation of Financial Statements); AASB 107 (Cash Flow Statements); AASB 108 (Accounting Policies); AASB 117 (Leases); AASB 1031 (Materiality); AASB 110 (Events after Balance Sheet Date); and AASB 1048 (Interpretation and Application of Standards); 7. KinCare declared that it was economically dependent upon the Howie Family Trust (trading as KinCare Nursing Services) and KinCare Health Services Pty Ltd for the provision of fieldwork staff under a continuing staff supply agreement. Staff were provided to KinCare at rates equivalent to those charged to third parties; and 8. the auditor, Mr Milner of PKF Chartered Accountants, provided an unqualified audit opinion including an opinion that the Financial Statements gave a true and fair view of the Company's financial position as at 30 June 2011. 1. The audited 30 June 2012 Special Purpose Financial Report for KinCare demonstrated that: 1. net surplus for the 2011-2012 year was $163,120 but no income tax was payable as KinCare remained exempt from income tax; 2. KinCare's revenue for the year was $26,049,372 of which $24,261,301 was grant revenue, principally from the Commonwealth Government although there was significant NSW Government funding during this year; 3. KinCare's total employee benefit expense was $20,527,880 (the total employee expense in that year of all KinCare's administrative staff was $1,875,225 according to the affidavit evidence of Ms Kim); 4. KinCare had total equity of $1,050,456; 5. the Financial Statements had been prepared in accordance with AASB 101 (Presentation of Financial Statements); AASB 107 (Cash Flow Statements); AASB 108 (Accounting Policies); AASB 1031 (Materiality); AASB 110 (Events after Balance Sheet Date); and AASB 1048 (Interpretation and Application of Standards); 6. KinCare declared that it was economically dependent upon the Howie Family Trust (trading as KinCare Nursing Services) and KinCare Health Services Pty Ltd for the provision of fieldwork staff under a continuing staff supply agreement. Staff were provided to KinCare at rates equivalent to those charged to third parties; and 7. the auditor, Mr Milner of BDO East Coast Partnership, provided an unqualified audit opinion including an opinion that the Financial Statements gave a true and fair view of the Company's financial position as at 30 June 2012. 1. The audited 30 June 2013 Special Purpose Financial Report for KinCare demonstrated that: 1. net surplus for the 2012-2013 year was $370,806 but no income tax was payable as KinCare remained exempt from income tax; 2. KinCare's revenue for the year was $29,641,868 of which $28,376,540 was grant revenue, principally from the Commonwealth Government although there was significant NSW Government funding during this year; 3. KinCare's total employee benefit expense was $26,855,416 (the total expense in that year of all KinCare's administrative staff was $1,942,544 according to the affidavit evidence of Ms Kim); 4. KinCare had total equity of $1,412,262; 5. the Financial Statements adopted "all of the new, revised or amended Accounting Standards … that are mandatory for the current reporting period"; 6. KinCare declared that it was economically dependent upon KinCare Health Services Pty Ltd for the provision of fieldwork staff under a continuing staff supply agreement. Staff were provided to KinCare at rates equivalent to those charged to third parties; and 7. the auditor, Mr Milner of BDO East Coast Partnership, provided an unqualified audit opinion including an opinion that the Financial Statements gave a true and fair view of the Company's financial position as at 30 June 2013. 1. The audited 30 June 2014 Special Purpose Financial Report for KinCare demonstrated that: 1. net surplus for the 2013-2014 year was $219,506 but no income tax was payable as KinCare remained exempt from income tax; 2. KinCare's revenue for the year was $32,026,882 of which $12,122,984 was grant revenue, principally from the Commonwealth Government; 3. KinCare's total employee benefit expense was $28,282,434 (the total expense in that year of all KinCare's administrative staff was $1,160,845 according to the affidavit evidence of Ms Kim); 4. KinCare had total equity of $1,641,201; 5. the Financial Statements adopted all of the amendments to Australian Accounting Standards which were relevant to and effective for financial statements for the period; 6. KinCare declared that it was economically dependent upon KinCare Health Services Pty Ltd for the provision of fieldwork staff under a continuing staff supply agreement. Staff were provided to KinCare at rates equivalent to those charged to third parties; and 7. the auditor, Mr Kemp of Grant Thornton, provided an unqualified audit opinion including an opinion that the Financial Statements gave a true and fair view of the Company's financial position as at 30 June 2014. 1. I find that the audited financial statements of KinCare demonstrate that no dividend was paid during the relevant period, 1 July 2008 to 31 March 2014, and no distribution of profit was made by KinCare at any time during that period. 2. As is apparent from the summary of KinCare's financial statements during the relevant period, KinCare had a number of related entities, ultimately controlled by the Howie family. 3. In this case, the most important "for profit" related entity was KinCare Health Services Pty Ltd which was a provider of nursing services to aged people, people with disabilities and their carers throughout the relevant period. In the year ended 30 June 2011, KinCare Health Services Pty Ltd became part of a consolidated group, the head company of which was KinCare (Holdings) Pty Ltd. Throughout the relevant period, KinCare Health Services Pty Ltd provided field staff to KinCare. The Commissioner now accepts that the services of field staff were supplied to KinCare by KinCare Health Services Pty Ltd at rates equivalent to those charged to third parties. 4. The other related entity the subject of disclosure in KinCare's accounts in the years 2009 to 2012 was the Howie Family Trust (trading as KinCare Nursing Services). It also provided field staff to KinCare at rates equivalent to those charged to third parties. 5. There were other related entities of KinCare, which do not play a prominent role in the issues in this case: 1. TeleResponse Australia Pty Ltd – which acted as an after-hours provider of nursing services to aged people, people with disabilities and their carers; 2. National College Australia Pty Ltd – which was a registered training organisation, delivering nationally recognised community care qualifications; and 3. KinCare Management Pty Ltd – which was a provider of employee management and office services to the KinCare Group. 1. The relationship between KinCare and the "for profit" related entities was at the heart of this case. KinCare devised care plans for aged and disabled people. The most important interaction between KinCare and "for profit" related entities was in the provision of most of the field staff to KinCare by KinCare Health Services Pty Ltd (and to a lesser extent by the Howie Family Trust) so that KinCare could give effect to the home care plans it had devised. KinCare paid a market rate to those related companies for the provision of those field staff. I find that in order to carry on its activities of providing services to aged and disabled persons in the community (including, but not limited to, basic domestic assistance in the home, personal care, social support and respite services, and high level nursing care) KinCare engaged with KinCare Health Services Pty Ltd (and, in the early years, with the Howie Family Trust) to the extent necessary to provide those services, most importantly in relation to the provision of field staff who were primarily responsible for executing the field care plans designed by KinCare for its clients. 2. Another important interaction between KinCare and its "for profit" related entities was in relation to services provided by administrative staff. Administrative staff employed by KinCare also provided services to related entities. I find that at the end of each financial year an allocation was made based on an apportionment of administrative services provided and a charge levied by KinCare and paid by the related companies for those administrative services. I find that the allocation was misdescribed by Mr Jason Howie in his evidence. Mr Jason Howie accepted in cross-examination that the fees charged for the provision of administrative services in the KinCare Group did not include an hourly operation charge. Where he had referred to "an hourly operation charge" in his affidavits he was incorrect. This finding has consequences in the determination of issues 2 and 4. Nevertheless, I accept that there was an allocation made in relation to administrative services provided and a charge levied by KinCare and paid by the "for profit" related companies for those administrative services. For reasons I will develop when addressing the expert accounting evidence, I find that the allocation was a reasonable one. 3. I find that KinCare management would propose an allocation each year about the relative levels of activity undertaken by KinCare and the KinCare Group and allocate administrative costs across the two groups on the basis of that activity. That allocation was the subject of audit in each financial year. The principal effect of this allocation was that KinCare was recompensed for administrative services provided to the KinCare Group. That is, funds flowed from the "for profit" KinCare Group to KinCare as a balancing charge at year end. This is not a promising start for the Commissioner's central thesis on issues 1 and 3 which was that KinCare was being operated to confer "benefits" on related entities. The essence of the Commissioner's submission about KinCare conferring "benefits" on related companies by reason of the amount of this charge is based on the expert evidence of Mr Gower. It is sufficient for present purposes to note that for reasons I will explain in detail when addressing the expert evidence, the attack by the Commissioner on the charge levied by KinCare for administrative services fails. 4. There is an issue (particularly relevant to issues 2 and 4 that I need to decide) about the total amount of wages paid to KinCare's administrative staff during the relevant period. Mr Jason Howie addressed the question of services provided by administrative staff of KinCare at [34]-[50] and [65]-[71] of his affidavit sworn on 30 March 2017. Mr Jason Howie described the process whereby administrative staff providing services to KinCare and to the KinCare Group came to be employed by KinCare. Mr Jason Howie described the administrative services supplied by administrative staff as "including" the provision of human resource services, finance functions, IT support services and general clerical functions. 5. Ms Kim, who is the solicitor acting for the firm appearing for KinCare, conducted an analysis of the employee lists forming part of the business records of KinCare (contained in Exhibit A). Ms Kim identified all employees whose job classifications were Administration, Information Technology, Finance and Human Resources. She calculated the total taxable wages paid to each of those employees (from documents contained in Exhibits D, E, F, G, H and I). 6. I have examined the underlying documents used by Ms Kim to derive those total payments. I was initially troubled that Mr Jason Howie's evidence, in describing the services provided by administrative staff as "including" certain services, may have left open the question of whether Ms Kim's analysis adequately captured the administrative staff the subject of issues 2 and 4. Having examined those records, however, I am satisfied that, with the exception of the 2009 year, Ms Kim has correctly identified the administrative staff employed by KinCare and correctly calculated the total wages paid to KinCare's administrative staff being: $1,264,501 for the year ended 30 June 2010; $1,268,852 for the year ended 30 June 2011; $1,875,225 for the year ended 30 June 2012; $1,942,544 for the year ended 30 June 2013; and $1,160,845 for the year ended 30 June 2014. As earlier noted, the Commissioner now raises no issue about the field staff employed by KinCare. The job classification categories for the remaining employees, other than those identified by Ms Kim as "administrative", were all involved in providing client services to KinCare's clients. For example, in the 2012-2013 year, those categories were "Care Coordinator", "Client and Clinical Services", "Customer Service Representative", "Customer Service and Business Administrator", "Quality Manager", "Program Management", "Operations and Service Manager", "Training", "Junior Financial Analyst/Claims Officer", "Transpac Coordinator", "Administration Assistant", "Project Manager", "Call Centre", "Management", "Staff Management" and "Executive Management". Whilst it would perhaps have been useful to have more information about the last three of these job classification descriptions, on the balance of probabilities I am satisfied on the basis of Mr Jason Howie's evidence and the available business records that Ms Kim's identification of KinCare's administrative staff is correct. 7. The reason I am unable to conclude that administrative staff in the 2009 year have been correctly identified by Ms Kim is that the job description field at p 117 of Exhibit A which addresses employees in the period 1 July 2008 to 30 June 2009 is blank. I am unable to be satisfied whether the employees listed on p 117 of Exhibit A and the first two employees listed on p 118 were or were not administrative staff of KinCare. I will address the consequence of that conclusion for the 2009 assessment when I have dealt with the remaining issues. 8. As the parties spent a deal of time analysing the evidence of Mr Jason Howie I will make findings about that evidence. In truth, however, most of the evidence of Mr Jason Howie was of little assistance to either party. The voluminous documentary evidence in this case, and in particular the audited accounts of KinCare, provide much more compelling proof of the matters that I need to decide. 9. Mr Jason Howie's cross-examination established that he did not calculate any of the management fees in KinCare's accounts. That was done by KinCare's finance department. Mr Howie had only a high level understanding of the calculation criteria. He accepted that the calculation criteria changed between 2009 and 2014. His understanding was that the costs in the KinCare Group had been split between administrative and field costs, partially to recognise the actual cost of the field workers and partially to recognise the administrative costs. In that sense, he said, there was some discount on the actual services delivered because the profit margin also includes some of the costs that KinCare was already covering and then the rest of the "rebate" (which I explain below) covers the remaining costs that have been incurred. He could not explain how the split was calculated or how the discount was achieved but maintained that there was a discount. Whether "rebate" is the correct term may be open to debate. 10. What is not open to debate is that there was a balancing charge in each of the years 2009 to 2012 from the KinCare Group to KinCare. That is, there were items in KinCare's accounts in respect of employee payments showing a payment by the KinCare Group to KinCare. To take an example, in 2010, KinCare paid $10,156,137 to the Howie Family Trust (trading as KinCare Nursing Services) and KinCare Health Services Pty Ltd for the provision of field staff, for which KinCare received payment from the Commonwealth Government. The Commissioner accepts, and I find, that the payment for field staff by KinCare was at rates equivalent to those charged to third parties. The 2010 accounts also record a payment of $3,437,610 flowing from the KinCare Group to KinCare in respect of employee costs recharged to related parties. An additional payment was made by the KinCare Group to KinCare of $1,145,870 described in the accounts as "rebate on contracted field workers". These two inflows (about $4.5 million in total) from the KinCare Group in respect of employee payments are greater in total than the entire amount paid in 2010 by KinCare for administrative staff being $1,264,501 according to the evidence of Ms Kim which I accept. The Commissioner's submission that KinCare has, for this reason, been operated during the relevant period so as to confer benefits upon the "for profit" KinCare Group should be rejected. 11. The issue is a little more complicated in 2013 and 2014. In respect of 2013 and 2014 Mr Jason Howie could not explain why KinCare achieved a profit of about 2% of revenue in those years, but explained that as CEO he ensured that the auditors saw the draft financial statements. Mr Gower's evidence, which I will address below, was that in 2013 adjustments between KinCare and the KinCare Group resulting from management fees had the effect of an adjustment payment from the KinCare Group in favour of KinCare. This is inconsistent with the submission that KinCare was operated during the relevant period so as to confer benefits upon the "for profit" KinCare Group. 12. In 2014, the position is more complex. Mr Gower pointed to the amount of a management fee and an administration fee which he opined had the effect that KinCare reported a profit of $169,808 rather than a profit of $762,966 which he said would otherwise have been achieved if the management fee and administration fee had been differently calculated. There was, however, no challenge to Mr Jason Howie's evidence that KinCare ceased to employ staff after 1 April 2014 but nevertheless continued to provide services to its existing clients. KinCare was charged a fee by the KinCare Group for providing those services. I will return to this topic when addressing Mr Gower's report but I do not accept that the charging of a management fee so that KinCare obtained a 2% profit in 2014 provides a basis to conclude, of itself, that KinCare was operated in 2014 for the purposes of the "for profit" KinCare Group. 13. As I will explain when addressing Mr Gower's evidence, I do not accept that the management fees in the audited accounts had the effect that "profits" that otherwise would have flowed to KinCare flowed instead to the "for profit" KinCare Group. 14. There is also an issue about interest on inter-company loans. I find that, when money was lent by KinCare to the KinCare Group, interest was levied and paid. The timing of KinCare's Commonwealth funding varied and funds were deposited by KinCare into a central bank account from which the various entities in the KinCare Group and KinCare then withdrew. It was from this central account that KinCare obtained funds to pay the administrative and field staff through inter-company transactions and loan accounts with the KinCare Group. Interest calculations on loan balances would be conducted at the end of the year and a balancing charge levied and paid. Detailed business records comprising the calculations of interest on inter-company loans were in evidence. I find that interest at the same rate was calculated and paid on loan balances owed and owing by KinCare in each of the relevant years of income. I reject the submission that by reason of any timing difference in the calculation of interest on funds owing by KinCare to the KinCare Group, KinCare thereby conferred a "benefit" on any related entity. I also reject the submission that by reason of the way interest was levied and paid on inter-company loans, profits (or any potential "operating surplus") that otherwise would have flowed to KinCare flowed instead to the "for profit" KinCare Group. 15. There was also an issue about a guarantee KinCare provided to KinCare (Holdings) Pty Ltd in 2011. It will be recalled that KinCare (Holdings) Pty Ltd was the head company of the consolidated group that KinCare Health Services Pty Ltd was part of. KinCare was dependent upon KinCare Health Services Pty Ltd throughout the relevant period to supply field staff. The guarantee was provided to ANZ Bank to enable the acquisition by KinCare Health Services Pty Ltd of PNS (Home Care) Pty Ltd, a provider of aged care services. I accept, as the Commissioner submitted, that KinCare would not have provided a guarantee to an entity not controlled by the Howie family. I also accept that the guarantee was valuable to KinCare (Holdings) Pty Ltd and KinCare Health Services Pty Ltd. It would not otherwise have been required. It does not follow that KinCare was thus carried on from 2011 (the year the guarantee was given) for the benefit of the KinCare Group. I reject that submission. I also reject the submission that by reason of giving the guarantee, profits that otherwise would have flowed to KinCare flowed instead to the "for profit" KinCare Group. 16. Standing back from the issues in this case, and subject to Mr Gower's thesis that KinCare is not a "not-profit organisation" by reason of it allegedly conferring "benefits" on "for profit" related entities (which thesis I will address in detail below), there is no issue that the wages paid to KinCare's employees, other than those engaged in providing administrative services, were paid in respect of time when the employees were engaged full-time in the charitable purposes of KinCare, designing care packages for KinCare's clients, and giving effect to those home care packages. 17. In short, I find that KinCare did not confer "benefits" upon the KinCare Group such that profits that otherwise would have flowed to KinCare flowed instead to the "for profit" KinCare Group. I find that no income or property of KinCare had ever been paid or transferred to the members of KinCare. To the extent that this issue was addressed in the expert evidence, I will now turn to that issue. To the extent necessary I will make additional findings of fact when addressing that evidence. Expert evidence 1. The Commissioner's case about the "non-profit organisation" issue centred around two reports prepared by an accounting expert, Mr Gower. It appears that a principal purpose of Mr Gower's reports was to cast doubt upon the accuracy of the audited accounts of KinCare. By the time of the trial Mr Gower's first report, dated 25 September 2017, was in most respects redundant. The second report, dated 8 March 2018, essentially identified different ways that KinCare's financial statements could have been expressed. Mr Gower's reports did not address, at least directly, the issue about whether KinCare is a "non-profit organisation" within the meaning of cl 12 of Sch 2 of the Payroll Tax Act. 2. There is a significant question at the outset about what issues Mr Gower's reports address. In par 14 of Mr Gower's first report he said: "I have been instructed to provide expert assistance with evaluating the financial and operational interdependency of the various corporate entities within the "KinCare Group" of companies." 1. In Mr Gower's second report he was simply instructed to respond to Ms Lindsay's report dated 20 December 2017. Ms Lindsay, in turn, was instructed to respond to Mr Gower's first report and also prepared a note dated 13 August 2018 responding to Mr Gower's second report. Whilst served late, and after KinCare's solicitors indicated that no reply was to be served to Mr Gower's second report, there was ultimately no objection to the admission in evidence of Ms Lindsay's note concerning Mr Gower's second report. 2. It appears that Mr Gower understood that all he was doing in his reports was providing expert assistance and not answering specific questions posed to him: "HIS HONOUR: Go to paragraph 14 of that first report. Am I right in thinking that's the only instruction you were given by your instructing solicitors in this case? WITNESS GOWER: My instruction is attached but essentially, yes, that's as I understand it. HIS HONOUR: No criticism at all. My question is really this. How we've got here is what you're doing is providing expert assistance with evaluating the financial and operational independency of various companies and that's all you've set out to do? WITNESS GOWER: That's correct, your Honour. HIS HONOUR: And you weren't asked to make any assumptions about the relevant legal framework in which that evaluation is to be conducted? WITNESS GOWER: No, I wasn't. HIS HONOUR: And you weren't asked to answer any questions? WITNESS GOWER: No, your Honour. HIS HONOUR: You weren't instructed to consider the possible operation of, for example, the Corporations Act or Australian Accounting Standards or Australian Audit Standards? WITNESS GOWER: No, I wasn't. HIS HONOUR: And you haven't done that, have you? WITNESS GOWER: No." 1. After he had left the witness box, Senior Counsel for the Commissioner read a further affidavit from Mr Gower sworn on 15 August 2018 which did annex a letter of instruction dated 21 April 2017. That letter of instruction asked Mr Gower to address three "issues", namely: 1. the interdependency (both financial and operational) of the various corporate entities, including the Plaintiff, within the KinCare Group of companies; 2. the flow of funds/financial benefits between companies within the KinCare Group; and 3. the possible financial consequences if, during the period in issue (2008-2014) corporate entities within the KinCare Group (excluding the Plaintiff) engaged their own staff, instead of using staff employed by KinCare. 1. Perhaps in par 14 of his first report quoted above Mr Gower was attempting to summarise those questions. In any event, as Ms Seiden SC, Senior Counsel for the Commissioner accepted, the letter of instruction did not really illuminate the questions that Mr Gower was addressing in his reports. Whilst in his affidavit sworn on 15 August 2018 Mr Gower said that he addressed the questions in the letter of instruction dated 21 April 2017, it is not apparent to me that he did so, at least directly. 2. In essence, Mr Gower critiqued various aspects of KinCare's accounts and accounts of the KinCare Group and presented arguments for a different treatment of various items in those accounts. Mr Gower opined that, if various accounting adjustments were made in a way Mr Gower suggested they could have been, KinCare "would have recorded substantially greater surpluses in total across the relevant period than it actually recorded". It followed, Mr Gower opined, that a "substantial transfer of profit occurred from [KinCare] to other KinCare Group entities". I have concluded that Mr Gower did not demonstrate anything that could be described as a transfer of profit from KinCare to the KinCare Group. 3. All Mr Gower set out to do was evaluate "the financial and operational independency of various companies", being KinCare and the KinCare Group. It is no criticism of Mr Gower to record that this approach, with no assumptions or clear questions or guidance being given to an expert, is an unhelpful way for litigation to be conducted. As the High Court has explained, an expert's evidence must explain how the field of specialised knowledge in which the witness is expert, by reason of training, study or experience and on which the opinion is wholly or substantially based, applies to facts assumed or observed so as to produce the opinion propounded: Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21 at [37]. Mr Gower was not asked to assume any facts and in critical respects it is not clear what, if any, facts were assumed in expressing his opinion. 4. This case was made much more difficult by the Commissioner's expert embarking on the task of reconstructing KinCare's audited financial statements without any assumptions of fact being identified or guidance being given about how to approach the task. The assumptions Mr Gower made about the legal framework in which that task should be approached were not identified. Ultimately, by reason of the absence of adequate instructions given to Mr Gower, including the absence of assumptions of fact and questions to be addressed, his ultimate opinions are not entitled to the weight I would ordinarily accord an expert of his stature. 5. It is necessary nonetheless to descend a little into the detail of the accounting evidence to explain how it was Mr Gower came to the view that a "substantial transfer of profit occurred from [KinCare] to other KinCare Group entities" and why it was that KinCare's expert, Ms Lindsay, disagreed with Mr Gower's conclusions. 6. In the way the evidence developed the first reports prepared by Mr Gower and Ms Lindsay played little part in the position each ultimately adopted. Mr Gower, in particular, produced a prodigious amount of paper comprising numerous schedules and recalculations of aspects of KinCare's accounts and the accounts of other entities in the KinCare Group. The critical exchanges occurred in Mr Gower's second report and Ms Lindsay's note in response to that report, and during the concurrent evidence which was given. 7. Whilst framed as a response to the first report of Ms Lindsay, Mr Gower's second report contained a number of quite new opinions travelling outside a response to anything that Ms Lindsay had said. No objection was taken to the second Gower report by KinCare. 8. In his second report, Mr Gower opined that the audited financial statements of KinCare did not property reflect the "operating surpluses" of KinCare. Mr Gower opined that "benefits" had informally been transferred to related entities through erroneously calculated management fees and incorrect inter-entity interest charges. The steps in Mr Gower's reasoning to reach these conclusions were as follows: 1. Mr Gower opined that there was a "shortfall" in management fees that should have been paid to KinCare (as a result of the miscalculation of those fees); and 2. notwithstanding that KinCare's financial statements for the years 2009 to 2014 had been audited and received an unqualified audit opinion: 1. disclosures in the years 2009, 2010 and 2011 of employee costs recharged to related parties and rebates on contracted field workers were in Mr Gower's opinion "incorrect". This was because there were no rebates allowed on contracted field workers. The apportionment of overhead costs across the KinCare Group was "incorrect". Revenues had not been adjusted as Mr Gower opined they should be to "exclude related entity transactions" (as Mr Gower opined had correctly been done in 2012); 2. disclosure of employee costs in the year ended 30 June 2012 was "inaccurate". Mr Gower opined that what was described as "employee costs" was really a reallocation of certain overhead costs; 3. the management fees in the years 2013 and 2014 were merely a reallocation of profit between KinCare Group entities; and 4. the criterion by which the apportionment of overhead costs was determined differed materially from year to year. 1. Ms Lindsay's response to Mr Gower's second report was pithy. Ms Lindsay did not accept that Mr Gower had identified any legitimate basis to criticise the choices made by KinCare management and approved by the auditors in the financial statements. Ms Lindsay opined that there is an important distinction between, on the one hand, operating surpluses and, on the other, distributions or dividends. The existence of a hypothetical "operating surplus" in a counterfactual world, created by adopting Mr Gower's opinions about the "correct" apportionment of overhead costs and "correct" calculation of employee costs recharged to related parties and rebates on contracted field workers, does not mean that something which, in that alternative world, would have contributed to an increased operating surplus is, in the real world, a "distribution" made or a "dividend" paid by KinCare to a related company. 2. The experts were agreed that no dividends had been paid by KinCare. As to distributions, Ms Lindsay: "assume[d] that the reference to a distribution is to: '… a payment or drawing out of KCS' net surplus for a FY [ie financial year] or out of its retained earnings (which comprises the "equity" on the balance sheet).'" 1. Mr Gower said of that paragraph: "I don't disagree with that statement at all, your Honour." Later, Mr Gower agreed that "there's been no distribution or dividend paid" by KinCare. 2. As a preliminary observation about this issue, an operating surplus is not equivalent to a distribution of profit or a dividend. Even assuming that operating surpluses in KinCare should have been calculated in a different way and been greater, it does not follow that amounts representing a dividend or a distribution of profit have in fact been paid. I will return to this topic when addressing the relevant legal question in addressing issue 1 which is whether KinCare met the statutory description of "non-profit organisation" in cl 12 of Sch 2 of the Payroll Tax Act. 3. In his second report, Mr Gower did not assert that KinCare paid a dividend or made a distribution but rather identified amounts which he said had been "distributed informally" by KinCare. Mr Gower stated: "[34] In my opinion, Ms Lindsay's assumption that distributions or dividends are not paid out of KCS' net surpluses relies on the assumption that the net surplus has been properly determined. I disagree with Ms Lindsay's assumption that the surpluses have been properly determined. The reasons for my opinion are detailed in this report. [35] Ms Lindsay's assumption does not include in distributions and dividends the effect of the shortfall in management fees that should have been paid to KCS." 1. About these paragraphs Mr Gower said: "HIS HONOUR: Drop down to paragraph 34. Mr Gower, you disagree with Ms Lindsay's assumption that surpluses in KCS had been properly determined? WITNESS GOWER: That's correct, your Honour. HIS HONOUR: You're not saying though, as I understand it, that the audited financial statements are incorrect for any reason [of] non-compliance with the Accounting Standards or the Audit Standards, are you? WITNESS GOWER: Your Honour, I say that the financial statements are incorrect because the disclosures are incorrect. HIS HONOUR: You'll have to help me, I don't understand that. WITNESS GOWER: Your Honour, matters which are disclosed in those accounts are factually incorrect. HIS HONOUR: And this is the methodology, if you like, for certain calculations that you draw attention later; is that what you - that the point you're making? WITNESS GOWER: That's correct." 1. To address the issue raised by Mr Gower identified at [65] it is thus necessary to examine what Mr Gower opined was "incorrect" about KinCare's accounts. 2. At a high level, the principal issue raised by Mr Gower was the composition and amount of the integers used to conduct an apportionment of administrative overheads provided by KinCare to related entities in each financial year. Much of the criticism levelled by Mr Gower at KinCare's accounts relates to descriptions in those accounts, for example, the "rebate" applied to field workers. It is important to understand that ultimately, Mr Gower accepted that the critical issue was not the disclosures or descriptions in the accounts but rather the substance – the apportionments conducted. 3. Mr Gower explained the issue thus: "… It is quite common within groups of companies that one company will provide a particular service for the whole group and then it is a matter of reasonableness as to how that cost is applied across the various entities in order to ensure that the costs relating to each entity correctly reflect the costs relating to their revenues. And so that's the genesis of this apportionment of costs. In this case … [KinCare] has incurred overhead costs which in relation to management, the provision of a head office which effectively services all of the other entities or these other related entities." 1. Mr Gower accepted that "there's no one particular standard" for conducting an apportionment. Mr Gower and Ms Lindsay agreed that an apportionment was a matter for management to conduct. It is the role of the auditor to opine about the reasonableness of that apportionment. 2. The first, and perhaps most significant, "error" pointed to by Mr Gower in KinCare's apportionment was what he described as "double counting" in KinCare's accounts. As I have explained in making factual findings, KinCare was provided with field staff by the Howie Family Trust (trading as KinCare Nursing Services) and KinCare Health Services Pty Ltd. The field workers provided services to the aged and disabled clients of KinCare. The Commissioner now accepts that an arm's length price was paid by KinCare for the services of those field staff. 3. KinCare actually paid for those services. That amount was included in KinCare's accounts as an expense to KinCare. When the Commonwealth paid KinCare for the provision of those services, KinCare included in its accounts the amount received as revenue. 4. Broadly speaking, and although the details varied year by year, in conducting the apportionment in each year of administrative costs KinCare used the revenue of each of the relevant entities as a proxy for activity. This method of apportionment is sometimes referred to as activity-based costing. Mr Gower opined that what should have been done for the purpose of calculating the apportionment of administrative costs was to strip out from KinCare's revenues payments received in relation to services provided by field staff to KinCare's clients. Those revenues were included in KinCare's accounts because KinCare provided the service, having purchased the services of the field staff for market value, which amount was included in KinCare's expenses. Mr Gower explained his different approach this way: "HIS HONOUR: What's the accounting rule that you say supports your recalculation of these matters? WITNESS GOWER: The costs should relate to the revenues, so costs … the costs should rest where the revenues rest, or where the service is provided. HIS HONOUR: Is it based on a particular accounting standard, or based on something else? WITNESS GOWER: It's not based on a particular accounting standard. HIS HONOUR: If you look then at, and maybe you've already answered this, but in paragraph 35 the short fall in management fees that you identified that's based on your recalculation that we've just been discussing? WITNESS GOWER: That's correct, your Honour." 1. I do not accept that there was any "double counting" of revenues shown in KinCare's accounts of the kind alleged by Mr Gower for the purposes of conducting an apportionment. Simply put, I do not accept that KinCare's revenues were overstated for the purposes of the apportionment exercise. KinCare obtained services from a related company. It provided those services to its clients and was remunerated for providing those services. It recorded the expenses of obtaining the staff in its accounts and recorded the revenue it received from providing those services to its clients. The related entities to KinCare also recorded in their accounts as revenue the amounts paid by KinCare for field staff. In no sense was it "double counting" for KinCare to record revenue it had received as revenue in its accounts. It was reasonable in calculating the apportionment each year to use KinCare's actual revenues as a proxy for activity. 2. The way Mr Gower reasoned on this topic emerged in the following exchange: "HIS HONOUR: Can you go to paragraph 75 of your second report, Mr Gower? So this is just one of these examples and you can talk me through. I am going to ask you each to do this. So this is in the May 2009 management accounts you set out at paragraph 73 and then you are talking about double counting. So just explain to me by reference to the numbers on this page what you mean? WITNESS GOWER: Your Honour, what we have is a total revenue amount here of $23 million across the group. If we turn the page we see that same calculation over the page and we see in the small writing below it we see the KCS financial statements record a revenue of 10 million. They purchase services from related entities of 7.1 million and so the sales of KCS which were derived on their own accord, that is not from related entity staff supply is 3.7 million and so what the calculation above shows and the numbers that are in my column, which is the revenue as recalculated on my figures, those figures come directly from the financial statements and they differ from the figures which are shown in the management accounts because they seem to have been some of these calculations seem to have been done at an earlier stage before the completion of the accounts so the numbers do differ, but the point that is made here is that KCS has recorded sales of 7 million or in fact of 10.9 million of which 7.1 have been relating to services provided by other entities. HIS HONOUR: Why do you take it out though? WITNESS GOWER: I take it out because the purpose of this calculation is to work out how much overhead expense should be apportioned to the various entities and if we overstate KCS's revenues in this calculation it causes a disproportionate amount of overheads to be applied to KCS. HIS HONOUR: Do you accept that the accounting standards would require KCS to bring to account revenue of $10.9 million in its accounts though? WITNESS GOWER: Yes, I have no argument with the 10.9. HIS HONOUR: If that's right, what's the accounting standard or rule that leads you to treat this for the apportionment purposes as adjusted revenue of only 3.7 million? WITNESS GOWER: Because it has bought services which are largely from the Howie Family Trust, of 7.1 million. Those services have been bought at market value, as it is described, and those services include all the costs … all the work that is done in generating those revenues, all those costs have been charged to KCS but KCS continues to incur overhead costs relevant to those related party purchases, which haven't been reallocated to that related party. HIS HONOUR: I can understand this is a way of doing it. Why is the way that KCS did it incorrect as a matter of accounting? WITNESS GOWER: Because what's happened is you … they do in fact correct it in 2012, because what's happened is KCS, while it records the 10.9 million in revenue, in fact the work has been done largely by the provider of those field staff. The Howie Family Trust I think is most of it, and that's where the costs relevant to providing that service should rest." 1. It is to be recalled that the essence of the debate was the methodology of apportioning administrative costs provided by KinCare across all of the bodies for whom KinCare provided those administrative services. The problem at the heart of the recalculation conducted by Mr Gower is that KinCare provided the relevant service and was remunerated for providing that service. Mr Gower accepted that KinCare was required to bring that revenue to account. In the above example Mr Gower said that "Yes, I have no argument with the 10.9 [million]". It is significant that $10.9 million was the amount of revenue in KinCare's accounts, not $3.7 million which was the amount "recalculated" by Mr Gower by stripping out the revenues related to field staff from KinCare's revenues. I do not accept that there was any "double counting" of field staff revenues in KinCare's accounts such that the apportionment exercise based on its revenues was unreasonable. I do not consider Mr Gower's method of apportionment a better method of apportionment than that adopted by KinCare management and its auditors as reflected in its financial statements. 2. I reject Mr Gower's thesis that there is any basis to conclude that an "error" in apportionment of overhead costs occurred by reason of an alleged "double counting" of KinCare's revenues. In making this finding I accept that KinCare's administrative overhead costs may be apportioned in different ways. So much is obvious from the fact that, as Mr Gower correctly pointed out, KinCare itself adopted different methods in different years. Mr Gower did not suggest that there was only one reasonable way of conducting such an apportionment. Ms Lindsay produced detailed recalculations of the allocation based on different, and I find reasonable, assumptions. If I found it necessary for there to be any recalculation of the allocation of administrative costs in the years 2009 to 2012, I would have preferred Ms Lindsay's recalculations as better reflecting a reasonable allocation of administrative costs than those postulated by Mr Gower. The results of Ms Lindsay's recalculations do not demonstrate any "indirect" distribution of "profit" in the way Mr Gower suggested; that is, they demonstrate that KinCare would have been in a worse financial position in each year than it in fact was. 3. It follows that I do not accept Mr Gower's recalculations of KinCare's revenues (and his amended apportionment) based on any suggested "double counting" of KinCare's revenues. 4. The second "error" pointed to by Mr Gower in KinCare's apportionment was the content of disclosures in the 2009, 2010 and 2011 accounts. At par 37 of his second report Mr Gower said: "In my opinion, Ms Lindsay's assumption that KCS' financial statements are accurate and that they properly record and disclose transactions with Howie related entities because the financial statements are audited is incorrect because: (a) Disclosures in the financial statements of employee costs recharged to related parties and rebates on contracted field workers for FY09, FY10 and FY11 are incorrect because: (i) There are no rebates on contracted field workers. This disclosure in the financial statements is erroneous; (ii) The disclosure of employee costs recharged to related parties incorrectly describes the apportionment of certain overhead costs across KCS and Howie related entities; and (iii) In any event, the calculation of the apportionment is incorrect because revenues have not been adjusted to exclude related entity transactions. KCS correctly calculates revenues for FY12; (b) In respect of FY12, disclosure of employee costs recharged to related parties is a reallocation of certain overhead costs. The disclosure of 'employee costs' is inaccurate;" 1. On this issue Mr Gower ultimately stated that "there was an apportionment of those costs. It is not disclosed that way in the financial statements." Ms Lindsay opined that any misdescription in the accounts had no effect. Mr Gower ultimately agreed with Ms Lindsay that this was so for the years 2009 to 2012, save for the suggestion of double counting which I have addressed above. 2. The third "error" pointed to by Mr Gower relates to the 2013 and 2014 accounts. At par 37 of his second report Mr Gower said: "(c) In respect of FY13 and FY14, management fee income or expense is a reallocation of profit between Howie related entities to derive a KCS desired level of profit; and (d) The overheads which are included in the overhead or profit reallocation calculations differ materially during the period FY09 to FY14." 1. In relation to the years 2013 and 2014 Mr Gower said: "I just say that there is no basis for that transaction at all … A transaction has been recorded which has no basis at all. It doesn't … it's not based on anything the company has done, any transaction the company has entered into. It is just a transfer which management have chosen to record, but there is no … there is no proper basis for it, as I see it." 1. The effect of the management fees Mr Gower identified in the year ended 2013 was, he opined, to transfer funds from KinCare's related companies to KinCare. Accepting Mr Gower's analysis for the purposes of argument, the effect of the management fees he identified in 2013 was that KinCare made a small profit when it would otherwise have made a loss of $2,821,839. As I have earlier found, this transfer of funds from related companies to KinCare in 2013 is inconsistent with the Commissioner's central thesis that "profits" were indirectly distributed by KinCare to related bodies corporate in each relevant year of income. 2. The year ended 2014 gives rise to different issues. In relation to 2014, Mr Gower opined that the effect of the allocation effected by the management fees was that a profit of $169,808 was achieved rather than $762,966. KinCare's net management fee expense of $593,158 was dissected in a management charge working table which was discovered by KinCare and produced by Mr Gower at par 119 of his second report: Year Ended 30 June 2014 Revenue Profit / (Loss) Before Adjustment Revenue Percentage In Calc Of Profit After Adjustment Profit / (Loss) After Adj Adjustment For Mgmt Fees Expense Of Various Entities For Mgmt Fees Income Of Various Entities For Mgmt Fees Summary of Calculation of Inter-Entity Management Fees Concerning $593,158 From KCS $ $ % $ $ $ $ KCS 8,490,392 762,966 2.0% 169,808 (593,158) 593,158 Private Care 5,685,963 163,989 -12.0% (682,316) (846,305) 846,305 Homecare 16,631,449 7,402,165 -5.0% (831,572) (8,233,737) 8,233,737 Homecare SA 6,835,222 1,925,100 9.0% 615,170 (1,309,930) 1,309,930 Services 37,261,609 3,698,083 19.5% 7,266,014 3,567,930 3,567,930 College 1,781,999 349,310 22.0% 392,040 42,730 42,730 Management 0 (9,991,911) Not stated (2,619,442) 7,372,470 7,372,470 Teleresponse 455,397 (88,767) N/A N/A 77,142,031 4,220,934 0 10,983,130 10,983,130 1. That table shows that the management fee had the effect that KinCare achieved profit as a percentage of revenue after adjustment of 2%. In the absence of any further evidence, it appears correct that the figure of 2% was predetermined by KinCare. It does not follow, however, that the management fee charged was exorbitant, as during that year KinCare had outsourced the conduct of its entire operation between April and July 2014. It will be recalled that KinCare ceased to employ staff after 1 April 2014 but nevertheless continued to provide services to its existing clients. Further, the accounts which disclosed the management fee were audited and the Commonwealth, the major funder of KinCare, was made aware of the management fee paid and apparently raised no issue. 2014 was a year when KinCare's revenues were over $32 million and its employee expenses were more than $28 million. Although I harbour some disquiet at KinCare obtaining what appears to be a pre-determined figure of 2% profit as a percentage of revenue, I have concluded that this is not enough, of itself, to conclude that KinCare was operated in 2014 for the benefit of the KinCare Group. 2. The only other area of dispute between the parties based on Mr Gower's evidence was in relation to interest charged. KinCare received government grants in advance which, in part, were loaned to related entities. KinCare also received loans from related entities throughout each relevant year of income. It was common ground that interest on related party loans was recorded and charged at financial year end. The calculations of interest were based on monthly balances, although within a financial year interest was not added to the loan balance before calculating interest for the next month. On this issue I accept the evidence of Ms Lindsay and Xiaocong Zhao. Shortly put, I accept Ms Lindsay's evidence that in two of the six relevant years KinCare was a net recipient of interest from the KinCare Group. As to the remaining period, I accept Ms Lindsay's evidence described in her Annexures L and O to her first report to the effect that loan balances moved materially from month to month and that the balances at year end were not necessarily indicative of the position in the course of each financial year. I do not find that the way interest was calculated on loan balances owing to KinCare as opposed to owing by KinCare had the effect of conferring a "benefit" on the KinCare Group. Even if I were to accept Mr Gower's thesis about interest, any benefit conferred by KinCare upon members of the KinCare Group by reason of a timing difference in the calculation and payment of interest was incidental at most. 3. The two final issues arising from the expert evidence relate to the guarantee provided by KinCare. The affidavit of a banking expert, Mr Roams, dated 8 December 2017 was read by the Commissioner. The essence of that affidavit, which was not challenged, was that KinCare, its related entities and members of the Howie family were "inextricably linked". The different entities were interdependent and each had members of the Howie family as owners and directors. Entities which were part of the KinCare Group would not have obtained replacement loans to those provided by KinCare and "Howie family entities" without "operational or financial support from KinCare". Howie family entities were significantly reliant on KinCare to introduce business opportunities. 4. The second issue addressed by Mr Roams was that KinCare (Holdings) Pty Ltd would not have been able to secure a loan to purchase PNS (Home Care) Pty Ltd in July 2011 if KinCare (Holdings) Pty Ltd had to "stand on its own", ie absent loans and employees provided "at cost" by "[KinCare] and Howie family entities". 5. Whilst I accept Mr Roams' evidence that KinCare, it's related entities and members of the Howie family were "inextricably linked" and that KinCare (Holdings) Pty Ltd would not have been able to secure a loan to purchase PNS (Home Care) Pty Ltd in July 2011 if KinCare (Holdings) Pty Ltd had to "stand on its own", those conclusions do not in and of themselves, shed very much light on the questions that I need to determine. I will return to the significance of Mr Roams' evidence when addressing the relevant issues. Legislation 1. KinCare bore the onus of showing that it is more likely than not that the amount assessed by the Commissioner in the Assessments should have been less: Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (Cth) [1983] 1 NSWLR 1; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614; Evans v Federal Commissioner of Taxation (1988) 19 ATR 1784; McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263. 2. The Payroll Tax Act commenced operation on 1 July 2007. Under s 6, payroll tax is imposed on all taxable wages. Section 3 provides that: "taxable wages has the meaning given in section 10." 1. Section 10 provides: "10 What are taxable wages (1) For the purposes of this Act, taxable wages are wages that are taxable in this jurisdiction. (2) However, exempt wages are not taxable wages." 1. Section 3 also provides that: "exempt wages mean wages that are declared by or under this Act to be exempt wages." 1. The critical section in the current matter is cl 12 of Sch 2 which I have set out at [132]. The effect of cl 12 is to preserve, for certain organisations, the relevant test that applied under s 10 of the Pay-roll Tax Act 1971 in determining whether entities are non-profit organisations or public benevolent institutions. 2. Section 48 of the Payroll Tax Act, by contrast, imposes a stricter test, being that wages are exempt where (inter alia) a non-profit organisation has as its "sole or dominant purpose a charitable, benevolent or philanthropic purpose". Section 48 provides: "48 Non-profit organisations (1) Subject to subsection (2), wages are exempt wages if they are paid or payable by any of the following: (a) a religious institution, (b) a public benevolent institution (but not including an instrumentality of the State), (c) a non-profit organisation having as its sole or dominant purpose a charitable, benevolent, philanthropic or patriotic purpose (but not including a school, an educational institution, an educational company or an instrumentality of the State). (2) The wages must be paid or payable: (a) for work of a kind ordinarily performed in connection with the religious, charitable, benevolent, philanthropic or patriotic purposes of the institution or body, and (b) to a person engaged exclusively in that kind of work. (3) For the purposes of subsection (1)(c), an educational company is a company: (a) in which an educational institution has a controlling interest, and (b) that provides, promotes or supports the educational services of that institution. (4) For the purposes of subsection (3), an educational institution has a controlling interest in an educational company if: (a) members of the board of management of the company who are entitled to exercise a majority in voting power at meetings of the board of management are accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the educational institution, or (b) the educational institution may (whether directly or indirectly) exercise, control the exercise of, or substantially influence the exercise of, more than 50% of the voting power attached to voting shares, or any class of voting shares, issued by the company, or (c) the educational institution has power to appoint more than 50% of the members of the board of management of the company. (5) In this section: educational institution means an entity that provides education above secondary level." 1. The distinction between s 48 of the Payroll Tax Act and the approach under the Pay-roll Tax Act 1971 (which is preserved where cl 12 applies) is reinforced by the extrinsic materials. The explanatory note to the Payroll Tax Bill 2007 (NSW) provides: "Significant changes made to the 1971 Act include the following: … (d) the payroll tax exemption for newly created non-profit organisations will only apply if the organisation has wholly charitable, benevolent, philanthropic or patriotic purposes and the person to whom the wages are payable is engaged exclusively in that kind of work," 1. It is common ground that s 48 has no application in these proceedings, and accordingly, that only one of KinCare's objects must be charitable. The Commissioner accepted that one of KinCare's objects was charitable. Issue 1 – was KinCare a non-profit organisation within the meaning of Sch 2 cl 12(1)(c) of the Payroll Tax Act? KinCare's submissions 1. KinCare submitted that authority has long compelled the conclusion that as KinCare was prohibited by its constitution from distributing its profits to members it was therefore a non-profit organisation: Theosophical Foundation Pty Ltd v Commissioner of Land Tax (1966) 67 SR (NSW) 70. 2. KinCare submitted that its status as a non-profit organisation was not affected by its relations with associated profit-making entities in the KinCare Group. Those relations consisted of: 1. engaging the other entities to provide staff for the provision of health care services to KinCare's clients; 2. providing administrative services to the other entities for reward; and 3. lending money to, or borrowing money from, the other entities on reasonable terms. 1. KinCare submitted that its engagement with associated entities in the KinCare Group was undertaken to the extent necessary to carry on its activities of providing services to aged and disabled persons in the community. 2. KinCare submitted that the authorities show that the mere fact of transacting with associated entities is insufficient to disturb the non-profit status of an organisation. KinCare cited Federal Commissioner of Taxation v Co-operative Bulk Handling Ltd (2010) 189 FCR 322; [2010] FCAFC 155, where Mansfield and McKerracher JJ (Siopis J dissenting) held that, in circumstances where the totality of the activities carried out by the taxpayer were directed to a not-for-profit purpose, the re-application of a surplus income towards the objects of the taxpayer and the expansion of activities of the taxpayer's tax-paying subsidiaries were insufficient to deny the taxpayer a tax exempt status: at [80]-[84], [122]. Further, because the taxpayer's facilities were available to all grain producers irrespective of their membership status with no different charge imposed, it was not carried on for the profit or gain of its individual members: at [94], [111], [113]. 3. KinCare cited South Australian Employers' Chamber of Commerce & Industrial Inc v Commissioner of State Taxation [2017] SASC 127; 106 ATR 305 at [163], where Blue J said: "If an institution's purposes are otherwise charitable, it is not disqualified from being charitable merely because its activities give rise to an incidental benefit to members. Conversely, if its purpose is to benefit its members, it will not be charitable." 1. KinCare referred to the expert report of Ms Lindsay dated 20 December 2017 at pars 17 and 18, submitting that the evidence does not support the conclusion that KinCare passed profit or a financial benefit to the associated entities in the KinCare Group in the relevant period. 2. KinCare submitted that, consistently with its principal object of providing support and services for aged people, people with disabilities and their carers as set out in cl 2 of its Memorandum of Association, it had never made a distribution or paid a dividend to any of its members. It was forbidden to do so by s 125 of the Corporations Act 2001 (Cth). 3. In any event, KinCare submitted that as a company limited by guarantee it is prohibited from paying a dividend to its members: Corporations Act, s 254SA. Commissioner's submissions 1. The Commissioner submitted that KinCare was not a non-profit organisation for the purposes of Sch 2 cl 12(1)(c). The Commissioner submitted that the doctrine of ultra vires no longer applies to restrict the conduct of a company following the commencement of the Companies and Securities Legislation (Miscellaneous Amendments) Act 1983 (Cth), and companies now possess the legal capacity and powers of an individual: Corporations Act, ss 34, 124(1). 2. The Commissioner submitted that the correct characterisation of an organisation as "non-profit" requires a consideration of the existence of any legal constraints in the organisation's constitution and the day-to-day conduct of the organisation's business, citing Federal Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204; [2008] HCA 55 where the High Court held that: "[17] … it is necessary to examine the objects, and the purported effectuation of those objects in the activities, of the institution in question. … [34] To avoid doubt in future, it should be noted that it would not be enough that the purpose or main purpose of an institution were charitable if in fact it ceased to carry out that purpose." 1. The Commissioner submitted that KinCare was not in an arm's length relationship with the profit-making entities in the KinCare Group because members of the Howie family, directly or indirectly, controlled both KinCare and the other KinCare Group entities. 2. The Commissioner submitted that the relevant legal principles for determining whether an organisation is carried on for the benefit or gain of particular individuals (thus precluding reliance on Sch 2 cl 12(1)(c)) are: 1. whether there is a flow of pecuniary benefits from the organisation's profits to particular individuals: Illawarra Suburbs Lawn Tennis Association Ltd v Commissioner of Land Tax (NSW) (1985) 16 ATR 664 at 670 per Lee J; 2. whether the operation of the organisation precludes any portion of its profits from flowing to individuals: Repromed Pty Ltd v Lucas (2000) 76 SASR 575; [2000] SASC 203 at [35] per Debelle J; and 3. whether persons are deriving benefits different from benefits derived by non-members who deal with the organisation in the ordinary course: Federal Commissioner of Taxation v Co-operative Bulk Handling Ltd (2010) 189 FCR 322; [2010] FCAFC 155 at [112] per Mansfield and McKerracher JJ. 1. The Commissioner submitted that KinCare was not a non-profit organisation because it has not discharged its onus of proving that its dealings with the other KinCare Group entities were at arm's length and on commercial terms. It follows that the Court could not be satisfied that KinCare has been operated in a manner that precludes any portion of its profits from flowing to the other KinCare Group entities, and KinCare has not discharged its burden of proving entitlement to exemption under cl 12(1)(c). 2. In support of its submission, the Commissioner submitted that KinCare provided administrative services to other KinCare Group entities without proving that those services were provided on commercial terms. There was no evidence disclosing the actual services provided or the time spent providing them, and the exact nature of the fees charged was ambiguous. 3. The Commissioner also submitted that inter-company loans provided by KinCare to KinCare Group entities were not provided at arm's length, primarily on the basis that there was a mismatch in the timing of payments of interest between KinCare and the borrowers and also in the payment of management fees. In these circumstances the Commissioner submitted that KinCare had not demonstrated that it had been operated in a manner precluding any portion of its profits from flowing to the other entities in the KinCare Group. 4. The Commissioner submitted that the absence of an arm's length relationship is further demonstrated by the fact that KinCare gave a guarantee in respect of a loan to another KinCare Group entity with no evidence of any fee charged for this guarantee or any attempt to endeavour to negotiate an arm's length amount for such a fee. 5. The Commissioner submitted that inter-company loans provided by KinCare to KinCare Group entities would not have otherwise been provided, on the basis of the conclusion in Mr Roams' report that such entities would not have been able to obtain loans in the general lending market given their poor financial position. 6. The Commissioner submitted that KinCare was operating for the benefit of members of the Howie family because, based on evidence in Mr Gower's second report, there was a transfer of profit from KinCare to other KinCare Group entities (and in turn to members of the Howie family). 7. The Commissioner submitted that, at a minimum, the inaccuracies in KinCare's financial accounts (identified in Mr Gower's reports) negate any inference that KinCare was a non-profit organisation that might otherwise arise from those financial accounts. 8. The Commissioner submitted that the correct question I should address is "whether [KinCare] has negatived a purpose of private gain". KinCare's purpose of private gain was submitted to be a dominant purpose of private gain. Consideration of issue 1 – was KinCare a non-profit organisation within the meaning of Sch 2 cl 12(1)(c) of the Payroll Tax Act? 1. The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. The meaning of words and phrases is influenced by the immediate context in which they are used. The meaning of the whole may be different to the sum of the meaning of the parts: Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at 396-397 per Brennan CJ, Dawson, Toohey, Gaudron and McHugh JJ, citing Lord Hoffmann in R v Brown [1996] 1 AC 543 at 561. The modern approach to statutory interpretation uses "context" in its widest sense "to include such things as the existing state of the law and the mischief which, by legitimate means … one may discern the statute was intended to remedy": CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 per Brennan CJ, Dawson, Toohey and Gummow JJ. 2. Those "legitimate means" include any material that may be considered in the interpretation of a provision of an Act, or a statutory rule made under the Act, including all matters not forming part of the Act that are set out in the document containing the text of the Act as printed by the Government Printer: Interpretation Act 1987 (NSW), s 34(2)(a). A construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object: Interpretation Act, s 33. 3. In Taylor v The Owners – Strata Plan No 11564 (2014) 253 CLR 531; [2014] HCA 9 French CJ, Crennan and Bell JJ said: "[39] … the task remains the construction of the words the legislature has enacted. In this respect it may not be sufficient that 'the modified construction is reasonably open having regard to the statutory scheme' because any modified meaning must be consistent with the language in fact used by the legislature. Lord Diplock never suggested otherwise. Sometimes, as McHugh J observed in Newcastle City Council v GIO General Ltd, the language of a provision will not admit of a remedial construction. Relevant for present purposes was his Honour's further observation, "[i]f the legislature uses language which covers only one state of affairs, a court cannot legitimately construe the words of the section in a tortured and unrealistic manner to cover another set of circumstances." (Footnotes omitted.) 1. In the same case Gageler and Keane JJ said: "[65] Statutory construction involves attribution of legal meaning to statutory text, read in context. 'Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning ... But not always.' Context sometimes favours an ungrammatical legal meaning. Ungrammatical legal meaning sometimes involves reading statutory text as containing implicit words. Implicit words are sometimes words of limitation. They are sometimes words of extension. But they are always words of explanation. The constructional task remains throughout to expound the meaning of the statutory text, not to divine unexpressed legislative intention or to remedy perceived legislative inattention. Construction is not speculation, and it is not repair. [66] Context more often reveals statutory text to be capable of a range of potential meanings, some of which may be less immediately obvious or more awkward than others, but none of which is wholly ungrammatical or unnatural. The choice between alternative meanings then turns less on linguistic fit than on evaluation of the relative coherence of the alternatives with identified statutory objects or policies. [67] The construction of s 12(2) adopted by the majority in the Court of Appeal coheres with the statutory object of subjecting an award of damages of the kind identified in par (c) of s 12(1) to the rule set out in s 12(2). But it is a very strained construction." (Footnotes omitted.) 1. In SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; 91 ALJR 936 Kiefel CJ, Nettle and Gordon JJ said: "[14] The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected." (Footnotes omitted.) 1. The Pay-roll Tax Act 1971 was introduced subsequent to the repeal of the Commonwealth Payroll Tax Act which had been introduced during WWII: Pay-roll Tax Act 1941 (Cth); Pay-roll Tax Assessment Act 1941 (Cth). 2. Section 10 of the Pay-roll Tax Act 1971 introduced an exemption for wages paid by a religious or public benevolent institution or a public hospital, or by a hospital carried on otherwise than for the purpose of profit or gain. There was no reference in this form of the exemption to charitable purpose and no limitation as to time spent on the relevant purposes was included. 3. Schedule 1 of the Pay-roll Tax (Further Amendment) Act 1977 (NSW) inserted into the Pay-roll Tax Act 1971, s 10(2): "(2) Paragraphs (j), (k) and (1) of subsection (1) only operate so as to exclude from wages liable to pay-roll tax under this Act wages which are paid or payable to employees in respect of time when they are engaged in charitable work within the charity, society, institution or statutory body." (Italics added.) 1. That section was further amended by Sch 1 of the Pay-roll Tax (Amendment) Act 1979 (NSW): "(c) Section 10(2) – Omit "within", insert instead "of"." 1. The Pay-roll Tax (Amendment) Act 1979 also introduced the time limitation in s 10: "After section 10(1), insert: - (1A) Paragraphs (b), (c) and (d) of subsection (1) only operate so as to exclude from wages liable to pay-roll tax under this Act wages which are paid or payable by – (a) a religious institution to a person in respect of time when the person is engaged in religious work of the religious institution; (b) a public benevolent institution to a person in respect of time when the person is engaged in work of a public benevolent nature; (c) a public hospital to a person in respect of time when the person is engaged in work of a kind ordinarily performed in connection with the conduct of public hospitals; (d) a hospital referred to in subsection (1)(c) to a person in respect of time when the person is engaged in work of a kind ordinarily performed in connection with the conduct of hospitals; or (e) a school or college (other than a technical school or technical college) referred to in subsection (1)(d) to a person in respect of time when the person is engaged in work of a kind ordinarily performed in connection with the conduct of schools or colleges (other than technical schools or technical colleges)." 1. An important amendment related to the present question was made by the Charitable Fundraising Act 1991 (NSW), Sch 1: "Omit section 10 (1) (j), insert instead: (j) by a non-profit organisation having as one of its objects a charitable, benevolent, philanthropic or patriotic purpose; (j1) by an organisation that: (i) was, immediately before the repeal of the Charitable Collections Act 1934, a charity within the meaning of that Act and registered or exempted from registration under that Act; and (ii) has not, since the repeal of that Act, altered its constitution in so far as its constitution relates to its charitable objects;" 1. The section was further amended by Sch 6 item (3)(j) of the State Revenue Legislation (Amendment) Act 1994 (NSW): "(j) From section 10 (2), omit "charitable work of the charity", insert instead "charitable, benevolent, philanthropic or patriotic work of the charity or the charitable work of the organisation"." 1. The Statute Law (Miscellaneous Provisions) Act (No 2) 1995 (NSW), Sch 2.13 made further changes: "Omit "patriotic work of the charity" from section 10(2). Insert instead "patiotic work of the non-profit organisation". [2] Explanatory note The proposed amendment renders the language of section 10(2) consistent with that of section 10(1)(j), (j1) and (k)." 1. Immediately prior to the repeal of the Pay-roll Tax Act 1971, the exemption in s 10 provided, relevantly: "10 Exemptions from pay-roll tax (1) Subject to subsections (1A) and (2), the wages liable to pay-roll tax under this Act do not include wages paid or payable: … (j) by a non-profit organisation (other than a school or college, statutory body or an instrumentality of the State) having as one of its objects a charitable, benevolent, philanthropic or patriotic purpose, (j1) by an organisation (other than a school or college, statutory body or an instrumentality of the State) that: (i) was, immediately before the repeal of the Charitable Collections Act 1934, a charity within the meaning of that Act and registered or exempted from registration under that Act, and (ii) has not, since the repeal of that Act, altered its constitution in so far as its constitution relates to its charitable objects, … (2) Paragraphs (j), (j1) and (k) of subsection (1) only operate so as to exclude from wages liable to pay-roll tax under this Act wages which are paid or payable to employees in respect of time when they are engaged in charitable, benevolent, philanthropic or patriotic work of the non-profit organisation or the charitable work of the organisation, society or institution." 1. The critical provision in the present case, cl 12 of Sch 2 of the Payroll Tax Act provides, relevantly: "12 – Continuation of certain exemptions—religious institutions, public benevolent institutions, non-profit and charitable organisations (1) Wages are exempt wages for the purposes of this Act if they are paid or payable by: … (b) a public benevolent institution (other than an instrumentality of the State), to a person in respect of time when the person is engaged in work of a public benevolent nature, being a public benevolent institution in existence immediately before the repeal of the Pay-roll Tax Act 1971, or (c) by a non-profit organisation (other than a school or college, statutory body or an instrumentality of the State) having as one of its objects a charitable, benevolent, philanthropic or patriotic purpose, to a person in respect of time when the person is engaged in charitable, benevolent, philanthropic or patriotic work of the non-profit organisation, being a non-profit organisation in existence immediately before the repeal of the Pay-roll Tax Act 1971, or … (2) Wages are exempt under subclause (1)(c) or (e) only if the organisation, society or institution concerned has not, since the repeal of the Pay-roll Tax Act 1971, altered its constitution in so far as its constitution relates to its charitable, benevolent, philanthropic or patriotic purposes." 1. There are a number of things to notice about the text. First, cl 12 of Sch 2 is a transitional provision relating to a "continuation" of exemptions given under the repealed Pay-roll Tax Act 1971. This directs attention to the circumstances in which wages were exempt wages under s 10 of the repealed Pay-roll Tax Act 1971. In the case of a non-profit organisation, having as one of its objects a charitable, benevolent, philanthropic or patriotic purpose, the exemption is available under cl 12(2) only when the organisation has not altered its constitution in so far as its constitution relates to its charitable, benevolent, philanthropic or patriotic purposes. This latter requirement tends to emphasise the critical nature of the availability of an exemption at the time of the repeal of the Pay-roll Tax Act 1971. 2. Secondly, the fulcrum of the continued exemption is that one of the objects of the organisation need be, relevantly, a charitable object. That is a clear legislative recognition that a qualifying organisation may have other objects which do not relate, relevantly, to its charitable purpose. That matter leads to a significant caution from reasoning too readily from the identification of any non-charitable activities carried on by the organisation to a conclusion that the organisation is not a "non-profit organisation". The legislation plainly contemplates that a "non-profit organisation" may engage in activities other than in furtherance of its charitable object or objects. 3. Thirdly, the words in parentheses "other than a school or college, statutory body or an instrumentality of the State" tend to emphasise the breadth of the concept of a "non-profit organisation". The language assumes that unless specifically addressed ("other than"), a school or college, statutory body or an instrumentality of the State could meet the statutory description of a "non-profit organisation". This emphasises that it is the form of the organisation which is important. That in turn directs attention to the structure of the organisation and the mechanism, if any, to determine its profits and distribute those profits. 4. Fourthly, the relevant restriction to wages paid to a "person in respect of time when the person is engaged in charitable, benevolent, philanthropic or patriotic work of the non-profit organisation" provides a significant restriction on the availability of the exemption. Wages are only exempt when paid to a person "in respect of time" when the person is engaged in the identified work of the non-profit organisation. That has at least two consequences. The provision permits an apportionment of wages based on the time spent by the employee engaged in charitable, benevolent, philanthropic or patriotic work of the organisation. The other consequence is that it tends to link the extent of the exemption granted with the extent to which the worker is giving effect to the charitable, benevolent, philanthropic or patriotic work of the organisation. 5. The most important aspects of context are provided in the language of the current exemption in s 48. The use of the same language, "non-profit organisation", is important when it is recognised that the essential change made by s 48 was to limit the exemption to non-profit organisations where the sole or dominant purpose is a charitable, benevolent, philanthropic or patriotic purpose. This is a matter of context tending to emphasise the critical importance of a charitable, benevolent, philanthropic or patriotic purpose as the principal focus of the exemption and the continuing operation of the meaning of "non-profit organisation" as a broader concept. 6. The text, in context, of cl 12 in Sch 2 provides for a "continuation" of exemptions granted under the repealed Pay-roll Tax Act 1971. The three principal components of that exemption were: that the organisation is a non-profit organisation; that one of the objects of the organisation must address, relevantly, a charitable purpose; and that the exemption be applied only in respect of time when the person is engaged in charitable, benevolent, philanthropic or patriotic work of the non-profit organisation. The text in context rather suggests that a "non-profit organisation" is an organisation whose profits, if any, are applied solely to the advancement of the objects of the organisation and cannot find their way to its members. 7. The reference to "non-profit" directs attention to the profits of the organisation and the distribution of those profits. In concept, a profit of a period is "the amount of gain made by the business during the year … ascertained by a comparison of the assets of the business at the two dates": Re Spanish Prospecting Co Ltd [1911] 1 Ch 92 at 98 per Fletcher Moulton LJ which was described in Federal Commissioner of Taxation v Slater Holdings Ltd (1984) 156 CLR 447 at 460 by Gibbs CJ as a "guide" rather than a "dictum … of universal application". The meaning of "profits", thus, is also dependent upon context. In Federal Commissioner of Taxation v Sun Alliance Investments Pty Ltd (in liq) (2005) 225 CLR 488; [2005] HCA 70 at [43], five members of the High Court cautioned against too easily conflating the concept of "profits" with that of "income". Their Honours also made clear that there is no universal meaning of "profits" applicable in every circumstance for every purpose. Even on the broader conception of profits described by the High Court in Sun Alliance (for a quite different purpose to the present), to reveal profit the relevant gain had to be identified or ascertained, even in a consolidated account and even after the date of payment. 8. The relevant question is whether KinCare was a "non-profit organisation" during each of the relevant income years. None of the cases relied upon, by either party, directly addressed the construction of the phrase "non-profit organisation" within the meaning of cl 12 of Sch 2. Numerous cases were referred to by both parties as touching on this question. 9. The leading authority, which the Commissioner accepted has been understood in the way advanced by KinCare (at least until Word Investments) was Theosophical Foundation. There were two questions in Theosophical Foundation. The first, whether the respondent company was a "religious institution", is what the case has often been cited for in subsequent cases. The relevant question for present purposes was whether the respondent company was a society "not carried on for pecuniary profit" within the meaning of s 10(1)(g)(iii) of the Land Tax Management Act 1956 (NSW). 10. It was held that the respondent company was "not carried on for pecuniary profit" because the profits derived from its commercial letting of the property could not find their way into the pockets of individuals. Sugerman JA, with whom Herron CJ and McLelland JA relevantly agreed, stated at 84-85: "I turn now to the learned judge's alternative conclusion that, if the respondent company was not entitled to a total exemption, it was at least entitled to a proportionate deduction of tax in respect of the portions of Savoy House occupied by itself, the society, the trust company, and the lodge respectively. Although this result is dependent upon sub-ss. (2) and (3) of s. 10 of the Act, as well as upon s. 10 (1) (g) (iii), it is unnecessary to quote those subsections since the concessions made by Mr. Deane in argument reduce the whole matter to a single question of the construction of s. 10 (1) (g) (iii). This question is whether the respondent company is "a society, club or association not carried on for pecuniary profit" within the meaning of that sub-paragraph. In argument, attention was directed to the circumstance that this subparagraph does not refer to the pecuniary profit of members, but merely to pecuniary profit in general terms, whereas other parts of the section refer expressly to the pecuniary profit of the members of the body concerned. Thus s. 10 (1) (d), 10 (1) (g) (iii), 10 (1) (g) (iv), and 10 (2), on the one hand, may be contrasted with s. 10 (1) (h) and s. 10 (1) (j) on the other. For this reason, it has been submitted, there can be no question of an exemption under s. 10 (1) (g) (iii) in favour of a society, club, or association whose activities are conducted for profit to it as such society etc., as is the case with the respondent society which derives profits from the commercial letting of much the greater part of Savoy House. … And some guidance is to be had from the general context of s. 10. I agree with Mr. Fox that in that general context the exclusion of pecuniary profit refers to the pecuniary profit of individuals. The object is to accord exemption to those societies, clubs and associations, and institutions and bodies of various kinds, whose profits, if any, are applied solely to the advancement of their objects and cannot find their way into the pockets of individuals. For instance, it is not, I think, required that a club, in order to gain exemption, should be carried on at a loss as regards its trading activities with its members or the paid services which it renders them, or should refrain from such activities and from charges to its members and rely for its support entirely upon membership subscriptions and donations. And, however that may be in general terms, it seems at least clear that the benefit of the deduction provided for by s. 10 (2), in combination with s. 10 (1) (g) (iii), is not lost because profits are derived from the commercial letting of part of the building referred to, since s. 10 (2) appears to contemplate that very situation. In the present instance, in my opinion, it appears that the profits which the respondent company derives from its commercial letting of part of Savoy House cannot find their way into the pockets of individuals; the respondent company, that is to say, is not "carried on for pecuniary profit" in the relevant sense. It is true, as has been pointed out, that it may pay dividends to members in certain categories. But these categories are limited to, or to trustees for, the society or a component lodge, and it has been admitted that the society, and conceded in argument that the component lodges, are not carried on for pecuniary profit …" 1. That is, an organisation was "not carried on for pecuniary profit" despite the organisation itself earning a profit. The relevant profit was the profit of the members or those who carried on the organisation. An organisation was "not carried on for pecuniary profit" if the profits of the organisation "cannot find their way into the pockets of individuals". The Court of Appeal determined that profits "cannot find their way into the pockets of individuals" if the organisation was prohibited by its constitution from paying dividends or making distributions to members. 2. Theosophical Foundation has subsequently been understood as authority for the propositions I have identified above: Illawarra Suburbs Lawn Tennis Association; Crows Nest Club Ltd v Commissioner of Land Tax [1978] 1 NSWLR 523. In Crows Nest Club at 526, Hutley JA, with whom Moffitt P and Glass JA agreed, explained that the ratio of Theosophical Foundation was that it must be shown that profits "cannot find their way into the pockets of individuals". His Honour went further: "'Cannot' has nothing to do with what has been done, and 'cannot be done' has nothing to do with what is done; and what can or cannot be done can only be found by reference to the powers and authorities found in the instruments which create the corporation." 1. The Commissioner's principal submission was that the test for determining a "non-profit organisation" described in Theosophical Foundation did not survive the changes to the Corporations Act described in Word Investments. 2. Section 124 of the Corporations Act provides: "124 Legal capacity and powers of a company (1) A company has the legal capacity and powers of an individual both in and outside this jurisdiction. A company also has all the powers of a body corporate, including the power to: (a) issue and cancel shares in the company; (b) issue debentures (despite any rule of law or equity to the contrary, this power includes a power to issue debentures that are irredeemable, redeemable only if a contingency, however remote, occurs, or redeemable only at the end of a period, however long); (c) grant options over unissued shares in the company; (d) distribute any of the company's property among the members, in kind or otherwise; (e) grant a security interest in uncalled capital; (f) grant a circulating security interest over the company's property; (g) arrange for the company to be registered or recognised as a body corporate in any place outside this jurisdiction; (h) do anything that it is authorised to do by any other law (including a law of a foreign country). A company limited by guarantee does not have the power to issue shares. Note: For a company's power to issue bonus, partly—paid, preference and redeemable preference shares, see section 254A. (2) A company's legal capacity to do something is not affected by the fact that the company's interests are not, or would not be, served by doing it. (3) For the avoidance of doubt, this section does not: (a) authorise a company to do an act that is prohibited by a law of a State or Territory; or (b) give a company a right that a law of a State or Territory denies to the company." 1. Section 125 of the Corporations Act provides: "125 Constitution may limit powers and set out objects (1) If a company has a constitution, it may contain an express restriction on, or a prohibition of, the company's exercise of any of its powers. The exercise of a power by the company is not invalid merely because it is contrary to an express restriction or prohibition in the company's constitution. (2) If a company has a constitution, it may set out the company's objects. An act of the company is not invalid merely because it is contrary to or beyond any objects in the company's constitution." 1. Given the prominence given by the Commissioner in his argument to Word Investments I will address the decision in a little detail. Ultimately, however, this decision does not address the critical question before me. The question in Word Investments was whether the respondent company was a "charitable institution" within the meaning of s 50-5 of the Income Tax Assessment Act 1997 (Cth), and therefore exempt from income tax. The respondent company gave its profits from its commercial businesses to Christian organisations for international missionary purposes. The plurality concluded that the respondent company was a "charitable institution". The respondent was not a company with both charitable and non-charitable purposes which carried on commercial businesses and incidentally conferred benefits on charity. Rather, charitable purposes were the respondent's sole purposes. Its activities in raising funds by commercial means were not intrinsically charitable, but they were charitable in character because they were carried out in furtherance of these charitable purposes. It did not have a commercial object of profit that was an end in itself. The High Court said: "[18] The distinction between purposes and objects. In H A Stephenson & Son Ltd (In Liq) v Gillanders, Arbuthnot & Co Dixon J drew the following distinction: 'When the question is whether a particular transaction binds the company, or is extra vires, the well-known principle may not apply by which, in considering whether a company should be wound up because the substratum of its constitution has failed, its true, main, dominant or paramount purpose is ascertained and general clauses are understood as subsidiary, as conferring powers not independent but subserving the main end. In the one case the ultimate question is whether it is just and equitable that the company should be wound up, and, for its determination, general intention and common understanding among the members of the company may be important. In the other case the question is one of corporate capacity only, and this must be ascertained according to the true meaning of the memorandum interpreted by a fair reading of the whole instrument.' While the distinction may lack precise correspondence with the modern law since the abolition of the ultra vires doctrine, it applies precisely to companies like Word, which have a memorandum of association with an objects clause." (Italics added.) (Footnotes omitted.) 1. What the High Court was referring to in the italicised portion above is that although s 124 of the Corporations Act provides that a company has the legal capacity and powers of an individual and of a body corporate, s 125 provides, with limitations for the protection of third parties, that if a company has a constitution, that constitution may contain an express restriction on, or a prohibition of, the company's exercise of any of its powers. KinCare has such a constitution containing, as the Commissioner accepted, an express restriction on distribution of profits to members. 2. The limitations in KinCare's constitution continue to bind KinCare. Notwithstanding the abolition of the doctrine of ultra vires and the protection now afforded to third parties dealing with KinCare, the directors of KinCare were still bound by the limitations in KinCare's constitution and required to comply with the provisions of Pt 2D.1 of Ch 2D of the Corporations Act, for example, s 180 (Care and diligence), s 181 (Good faith), s 182 (Use of position) and s 183 (Use of information). 3. The Commissioner relied in particular upon [34] and [38] of Word Investments. In [34] the High Court were reserving a particular question: "A caveat. To avoid doubt in future, it should be noted that it would not be enough that the purpose or main purpose of an institution were charitable if in fact it ceased to carry out that purpose. Just like the former s 23(g)(iii) of the 1936 Act, so the former s 23(e) of that Act, and item 1.1 in the table in the present s 50-5 of the 1997 Act, being provisions in the legislation exempting tax on annual income, have "a periodic operation"; the statute "directs the inquiry to a particular time, namely, the year of income so that consideration must be given not only to the purpose for which the [institution] was established but also the purpose for which it is currently conducted." It was not submitted that Word had acted outside its purposes; rather it was submitted that it had acted inside them, but that they were non-charitable for the reasons advanced in relation either to the first issue or the second. That contention has been rejected so far as it applies to the first issue and is rejected below in relation to the second issue." (Footnotes omitted.) 1. This passage does not directly address the central question here. In the present case the Commissioner did not assert (at least in terms) that KinCare had acted outside the purposes identified in its constitution; rather, the Commissioner's case was that KinCare was free to act without regard to its constitution. Section 125 of the Corporations Act makes clear that this submission must be rejected. 2. It is however correct, and I am bound by Word Investments to conclude, in any event, that it would not be enough that the purpose or main purpose of an institution was charitable if in fact it ceased to carry out that purpose. That is not the allegation in this case. 3. Paragraph 38 of Word Investments states: 'In Baptist Union of Ireland (Northern) Corporation Ltd v Commissioners of Inland Revenue [(1945) 26 TC 335 at 348] MacDermott J said: 'the charitable purpose of a trust is often, and perhaps more often than not, to be found in the natural and probable consequences of the trust rather than in its immediate and expressed objects.' Similarly, the charitable purposes of a company can be found in a purpose of bringing about the natural and probable consequence of its immediate and expressed purposes, and its charitable activities can be found in the natural and probable consequence of its immediate activities." 1. So much may again be readily accepted. There is no question in the present case about discerning KinCare's charitable purposes or charitable activities. Paragraph 38 of Word Investments is, however, of some assistance in determining the meaning of "non-profit organisation" in cl 12 of Sch 2. 2. In addition to Word Investments, the Commissioner relied in particular upon five cases for the proposition that the test for a "non-profit organisation" was as he described. 3. First, in Incorporated Council of Law Reporting of Queensland v Federal Commissioner of Taxation (1971) 125 CLR 659 the question was whether the Incorporated Council of Law Reporting of Queensland was a "charitable institution" for the purposes of s 23(e) of the Income Tax and Social Services Contribution Assessment Act 1936 (Cth). The Commissioner relied upon passages in the reasons of Barwick CJ, with whom McTiernan and Windeyer JJ agreed, at 667, 669-700: "The question here is whether the production not for private gain of law reports, recording the decisions of a superior court in a judicial system in which the decision of an earlier case may itself in terms or by analogy, or in association with other such decisions determine the result of a later case, is a purpose beneficial to the community within the scope of the fourth head of charity as expressed in Pemsel's Case. Not every purpose beneficial to the community is a charitable purpose but only those which are within the equity of the preamble to the Statute of Elizabeth. The purpose must not merely be beneficial: it must also be charitable. … All that remains is to add the lack of private gain by the members of the Council. That the Council itself should profit by the production of the law reports cannot prevent the Council being a charitable institution. Indeed, the very fact that the Act exempts the income of a charitable institution concedes that such an institution may derive profits from its activities. Here there are two significant matters. First, the memorandum of association forbids any distribution of the profits of the Council to or amongst its members. No doubt the presence of such a provision was material to the incorporation of the Council as a company limited by guarantee. Second, the actual distributions of the Council's profits have been confined to grants to the libraries of the Supreme Court of Queensland. Those libraries are themselves important adjuncts to the administration of the law. They facilitate the very purpose the production of the law reports is designed to achieve. They do so none the less because their holdings are not available to every member of the public but only to those with or seeking training in the law. Indeed they are available to all those groups of the community who in general can profit by their use. The application of the profits of the Council to the support of the Supreme Court libraries is itself, in my opinion, an application to charity." (Footnote omitted.) 1. This case is a long way removed from the present question. The Commissioner is correct that the High Court in that case emphasised the lack of private gain by the members of the Council. The latter passage, however, is unhelpful to the Commissioner's contention. Barwick CJ found a charitable purpose based on the memorandum and the payment of profits to the Supreme Court library. His Honour also described the Council as "not carried on for private gain". 2. Secondly, in Canberra Stereo Public Radio Inc v Australian Broadcasting Tribunal (1985) 6 FCR 456 Sheppard J dealt with s 81(1) and s 81(4) of the Broadcasting and Television Act 1942 (Cth): "81 Grant of licences (1) Subject to this Act, the Tribunal may grant or renew a licence upon such conditions, and in accordance with such form, as the Tribunal determines. … (4) A public broadcasting licence or public television licence shall not be granted except to a corporation formed within the limits of the Commonwealth or a Territory, not being a corporation the objects of which include the acquisition of profit or gain for the benefit of its individual members." 1. The Commissioner relied in particular upon his Honour's remarks at 472 of the judgment. In particular, the Commissioner relied upon his Honour's conclusion that while the Australian Capital Territory Gaming and Liquor Authority (the Authority), the relevant corporation under s 81(4), was a "non-profit making body", it was nevertheless a body whose members would "gain", if not "profit", from the increased revenues flowing from increased attendances wrought by the activities of the Authority. The objects of the Authority, broadly defined, thus included the acquisition of a "gain" for the benefit of individual members and thus s 81(4) was engaged. 2. Sheppard J's decision was overturned by the Full Court in Canberra and District Racing and Sporting Broadcasters Ltd v Canberra Stereo Public Radio Inc (1985) 63 ALR 502. I do not accept the Commissioner's submission that the relevant part of Sheppard J's decision remained unaffected by the Full Court's decision. In any event, as Lockhart J explained in the Full Court at 511 about an attempt in that case to have the Full Court take into account decisions about different statutory language in construing s 81(4): "The text of each of these provisions varies one from the other and from the text of s 81(4) of the Act itself and each must be read in its context. I do not find them a useful guide to the construction of s. 81(4)." 1. I respectfully agree. A decision about licencing requirements in the broadcasting area is unhelpful in determining the present question. Given the completely different statutory context and the overturning of the decision on a critical issue, Sheppard J's decision in Canberra Stereo is of no assistance in the present exercise. I do not think either his Honour's decision nor the Full Court's decision provide any useful guidance to the construction of cl 12 of Sch 2 of the Payroll Tax Act. 2. Thirdly, in Sydney Water Board Employees' Credit Union Ltd v Federal Commissioner of Taxation (1973) 129 CLR 446, the High Court addressed the mutuality principle in the context of whether the amount of interest received by the taxpayer on loans made to its borrowing members constitutes income in the taxpayer's hands within the meaning of the Income Tax Assessment Act 1936 (Cth). The taxpayer was incorporated under the Co-operation Act 1923 (NSW). It was a credit union which borrowed money from its members and lent money to them. The taxpayer's contention was that according to the mutuality principle the interest paid to the taxpayer by members on moneys borrowed from it did not form part of its assessable income. The Commissioner submitted that it was significant that Mason J, in a discussion of the mutuality principle and the decision in New York Life Insurance Co v Styles (1889) 14 App Cas 381, said at 458: "It is evident from the terms in which the principle was expressed that it extends beyond the field of insurance, although it is most frequently applied in cases of mutual insurance. It is equally apparent that, just as the receipt of the surplus contributions was not in the circumstances "gains or profits" in the ordinary sense of that expression, so also it does not constitute in the hands of the recipients "income" in the natural and ordinary sense of that word." 1. The Commissioner submitted that this reference by the High Court to the natural and ordinary meaning of "gains" and "profits" lent strength to his contention that KinCare in the present case had to negative "a purpose of private gain" and had failed to do so. I reject that submission. Sydney Water Board is so different to the present case and addresses issues remote to the present that it is of little assistance here. 2. Fourthly, in Repromed Debellle J held, for the purposes of s 12(1)(ca) of the Pay-roll Tax Act 1971 (SA) that an organisation which carried on their business for the pecuniary profit of any person, be that person a member or any other person such as the proprietor of the business, was not entitled to the exemption. The taxpayer was a specialist medical clinic treating patients for infertility. Its constitution authorised its members to declare dividends, however dividends had never been declared in the past. The ratio of the decision is that the taxpayer was not "an employer who provides health services otherwise than for the purpose of profit or gain" because the provision distinguishes between undertakings which carry on business for the wellbeing of the undertaking itself or the members as a whole, and undertakings which are for the profit or gain of individual members: Repromed at [33]. In order to satisfy the requirement that the undertaking is not for the purpose of profit or gain, a constraint must be contained in the constitution of the body. Even though members had never declared dividends in the past, "history is no restraint upon the capacity … to do so": Repromed at [35]. In so concluding his Honour referred to and applied Theosophical Foundation, Illawarra Suburbs Lawn Tennis Association and Crows Nest Club which I have described above. To the limited extent Repromed provides assistance, it is equally consistent with the submission of KinCare that the "non-profit organisation" element of the exemption is engaged where the constitution of an organisation provides that profits cannot find their way into the pockets of individuals. 3. Fifthly, in Cooperative Bulk Handling Ltd v Commissioner of Taxation [2010] FCA 508; 79 ATR 582, the question was whether the taxpayer was a society or association, established for the purpose of promoting the development of Australian agricultural resources, not carried on for the profit or gain of its individual members under s 50-40 of the Income Tax Assessment Act 1997. The taxpayer was a major operator of grain bulk handling that derived its income primarily from growers and others who utilised its services and facilities for a fee, most of whom were also its shareholders. Any surplus income received by the taxpayer, which was required to be applied in furtherance of its objects, was then directed to ongoing research and development, and investment in (tax-paying) subsidiaries within the industry. Gilmour J concluded that the taxpayer was not carried on for the profit or gain of its individual members in their capacity as members. His Honour observed that its fees were generally based on concerns for grower and industry costs, its activities benefited both its members and non-members who paid for its services at the same rate as members, and it deliberately engaged in activities at a loss and had done so in the face of resistance from its members. His Honour stated: "[119] An association is not carried on for the profit or gain of its individual members if it cannot distribute its assets among or apply its assets to the individual benefit of its members, but must apply them to the furtherance of its objects. … [121] The fact that the growers who are also members benefit from the activities of [the taxpayer], not because they are members but because they are growers, does not make [the taxpayer] an association carried on for their individual profit or gain. If the principal or predominant purpose is made out it matters not that, as subsidiary and incidental to that purpose, [the taxpayer's] members derive some personal benefit. Furthermore the fact that [the taxpayer] charges for its services does not mean that its purpose is to make profits or gains for its individual members." 1. On appeal, in Federal Commissioner of Taxation v Co-operative Bulk Handling Ltd (2010) 189 FCR 322; [2010] FCAFC 155, what was critical, for present purposes, was that the application of surplus income in the expansion of activities of the taxpayer's tax-paying subsidiaries was insufficient to deny it a tax-exempt status; that is, insufficient to provide a basis for concluding that it was an organisation carried on for the profit or gain of its members. 2. The most helpful discussion of the issue I have to decide is contained in Grain Growers Ltd v Chief Commissioner of State Revenue [2015] NSWSC 925. In that case the question was whether Grain Growers was a "non-profit organisation" within the meaning of s 48(1) of the Payroll Tax Act which I have set out at [95]. The decision on this part of the case was not challenged in the Court of Appeal: Grain Growers Ltd v Chief Commissioner of State Revenue (NSW) (2016) 93 NSWLR 415; [2016] NSWCA 359. Black J at [15] held that the plaintiff was a non-profit organisation, in what his Honour described as both a "broader" and a "narrower" sense. The "broader" sense was that the taxpayer did not conduct, or seek to conduct, its activities at a profit, but relied on income from invested monies to fund its activities. The "narrower" sense was that its constitution required that its income and property be applied solely towards the attainment of its objects and prohibited the distribution of its property to its members by way of dividend, bonus or otherwise or on a winding up or dissolution. "[14] It may be that the fact that Grain Growers is a not-for-profit organisation is now conceded, as Ms Batrouney, who appeared with Ms Gatland for Grain Growers, suggested in oral submissions (T25). I address that question against the contingency that there is any uncertainty as to that concession. The Chief Commissioner points out that the term "non-profit organisation" is not defined in the Payroll Tax Act, but can include an organisation that makes a profit that is used to carry on its purposes rather than being operated for the profit or gain of its individual members: Incorporated Council of Law Reporting of Queensland v Federal Commissioner of Taxation (1971) 125 CLR 659 at 669–670, 671. The Chief Commissioner initially accepted, in his decision on objection dated 18 August 2013, that Grain Growers was a non-profit organisation (Balazs 17.10.2014, Ex JGB-1, Tab 2). The Chief Commissioner qualified that position in his Appeal Statement which did not admit that Grain Growers was a non-profit organisation prior to October 2011 on the basis that he had not then been provided with a previous constitution of Grain Growers (Appeal Statement [15]), although that document was in evidence in the proceedings. [15] I am satisfied that Grain Growers is a non-profit organisation, in both a broader and a narrower sense. Grain Growers does not appear to conduct, or seek to conduct, its activities at a profit and relies on income from invested monies derived from its earlier sale of an interest in GrainCorp to fund those activities (Eastburn 25.3.2015 [15], Garden 27.3.2015 [42]). It appears that one product provided by Grain Growers was sold with a mark-up or profit, but the evidence of its chief executive, Ms Garden, which was neither the subject of objection or any substantial cross-examination, was that the profit derived was applied to investment in other loss making or uncommercial products or to fulfil "industry good" functions (a concept to which I will refer further below) and to fund advocacy areas of Grain Growers' activities (Garden 27.3.2015 [91]). In the relevant period, Grain Growers' Constitution required that its income and property be applied solely towards the attainment of its objects and prohibited the distribution of its property to its members by way of dividend, bonus or otherwise or on a winding up or dissolution of Grain Growers. The annual and financial reports for Grain Growers from 2008 to 2014 are in evidence (Garden 27.3.2015 [51], Ex P2, Tabs 10–16) and do not disclose any dividend paid to members of Grain Growers at any time. These matters support its characterisation as a non-profit organisation, and I find that it had that character." 1. There is a treatment of the early cases in K L Fletcher, The Law Relating to Non-Profit Associations in Australia and New Zealand (1986, Law Book) which reflects KinCare's submission that the identity of a non-profit organisation is to be determined by reference to limitations in its constitution. 2. The article by J Mitchell, "Non-Profit? It's Not What You Think It Means" (2018) 46 ABLR 32 is of some assistance. Associate Professor Mitchell characterised the two relevant approaches, which broadly mirrored the preferred approaches of the parties here, as follows. The first was the "constituent approach" which he described as being whether by operation of its constituent documents the body is prevented from distributing its profits and assets amongst its members while the body is functional or on a winding up. This is KinCare's preferred approach to identification of a "non-profit organisation". The second approach was the "surrounding circumstances" approach which he described as being whether the body is not carried on for purposes of profit or gain to the individual members as determined by reference to the surrounding circumstances. This is the Commissioner's preferred approach to identification of a "non-profit organisation". 3. It will be recalled that the Commissioner submitted that KinCare "must positively demonstrate that it carries itself on as a non-profit organisation" by which the Commissioner meant that KinCare must prove by reference to the relevant surrounding circumstances that it was not "carried on for the benefit or gain of particular individuals". KinCare's relevant purpose, encapsulated in the Commissioner's requirement that KinCare be "carried on for the benefit or gain of particular individuals", the Commissioner submitted, was its dominant, in the sense of ruling or prevailing, purpose. 4. Concentrating on the text, in its historical context, there is much to be said for KinCare's submission that the question of whether KinCare is a "non-profit organisation" posed by cl 12 of Sch 2 is directed to KinCare's powers under its constitution. KinCare cannot, in the language of Theosophical Foundation, consistently with its constitution, distribute its profits to its members. The Commissioner accepted that on this test KinCare was a non-profit organisation. 5. I have concluded, however, that the approach taken by Black J in Grain Growers is correct. That approach is consistent with the decision of the High Court in Word Investments in a different context which was to consider not only the purpose for which KinCare was established but also the purpose for which KinCare was currently being conducted. The latter question was determined by considering all of KinCare's activities. The question of whether in each year of income KinCare was a "non-profit organisation" should thus be approached on both a narrower and a broader basis. First, does its constitution prevent profits from being distributed to members? Secondly, is KinCare being "carried on for the benefit or gain of particular individuals"? If KinCare fails either test, it does not meet the description of a "non-profit organisation" in cl 12 of Sch 2. 6. On the narrower test, KinCare's constitution prevented profits from being distributed to members. In the language of Theosophical Foundation, KinCare's profits could not find their way into the pockets of individuals. As I have said, the Commissioner accepted as much. 7. On the broader test, which focusses upon KinCare's activities, I find that KinCare was not "carried on for the benefit or gain of particular individuals". The Commissioner's submissions about whether KinCare was "dealing" with other entities at arm's length do not take the analysis very far. The cases relied upon by the Commissioner are to be understood in the very different legislative contexts addressed by those cases: Trustee for the Estate of the Late A W Furse No 5 Will Trust v Federal Commissioner of Taxation (1990) 21 ATR 1123 at 1132 per Hill J; ACI Operations Pty Ltd v Berri Ltd (2005) 15 VR 312; [2005] VSC 201 at [223]-[225] per Dodds-Streeton J. 8. KinCare's principal engagement with related entities was in obtaining field staff to provide services to KinCare's clients. This engagement was conducted (as the Commissioner now accepts) on an arm's length basis. 9. As to the remaining engagements between KinCare and related entities, the facts I have earlier found lead me to conclude that KinCare has demonstrated that it was not "carried on for the benefit or gain of particular individuals". 10. The first alleged "benefit" was administrative services provided by KinCare to related entities. In addressing Mr Gower's "double counting" thesis I have dealt at length with the provision of administrative services. There is no one correct way to conduct an activity-based costing of the kind here in issue. I do not accept that any benefit was conferred by KinCare in the provision of administrative services to related entities in circumstances where a management fee was calculated and paid by those entities to KinCare in each year based on KinCare's properly declared revenue. It was only by "stripping out" KinCare's revenues referable to field staff that Mr Gower concluded to the contrary. I have rejected that approach. 11. The second alleged "benefit" was said to be a timing benefit in the calculation of interest charges. For the reasons I have earlier given I do not find that there was any benefit conferred by KinCare upon related entities in timing differences in the calculation of interest. Even if I am wrong in that conclusion, on the findings I have made, any such "benefit" would be at best for the Commissioner an incidental benefit. Even on this contingent hypothesis, I reject the submission that KinCare was thereby "carried on for the benefit or gain of particular individuals". 12. The third alleged "benefit" was the granting of a guarantee to ANZ Bank in favour of KinCare (Holdings) Pty Ltd to enable the purchase of PNS (Home Care) Pty Ltd to go ahead. I find that guarantee was a benefit conferred on KinCare (Holdings) Pty Ltd. KinCare was an organisation that was providing, on behalf of the Commonwealth and NSW Governments, home care services which, for example in 2013, were the subject of $28,376,539 in grants to KinCare. I reject the submission that KinCare was being "carried on for the benefit or gain of particular individuals" because KinCare provided a guarantee to the holding company of a company that it was (to the knowledge of the Commonwealth and NSW Governments) dependent upon to supply field staff. Any benefit conferred by KinCare upon the KinCare Group in providing this guarantee was incidental to its purposes of providing home care services to its clients. 13. The fourth issue was whether the years ended 2013 and 2014 gave rise to any different conclusion. On the findings of fact that I have made, the year ended 2013 was clearly one where the "for profit" KinCare Group paid management fees to KinCare which had the effect that a 1.9% profit (a percentage of revenue) was made. Mr Gower points out that but for that management fee payment a loss for KinCare would otherwise have been the result. Even accepting Mr Gower's calculations and conclusion regarding this year, I find that in the year ended 2013 KinCare was not "carried on for the benefit or gain of particular individuals". Assuming everything Mr Gower has said about that year to be correct, the effect was a payment, or in the Commissioner's terms a conferral of a benefit, upon KinCare by the KinCare Group. 14. The position is more difficult in 2014. It is correct, as the Commissioner submitted, that KinCare appears to have achieved a pre-determined profit of about 2% of revenue in that year. I also accept, as the Commissioner submitted, that Mr Jason Howie could throw no real light on why that was so. Against that, however, KinCare's total revenue in that year was over $32 million. There was a very large body of documentary evidence that KinCare was carried on in 2014 for the dominant purpose of providing home care services to its clients. There was no challenge to Mr Jason Howie's evidence that KinCare ceased to employ staff after 1 April 2014 but nevertheless continued to provide services to its existing clients. KinCare was charged a fee by the KinCare Group for providing those services. Having regard to all of the evidence about the management fees and administrative expenses, I do not conclude that KinCare was being "carried on for the benefit or gain of particular individuals" in the year ended 2014 by reason of the management fee Mr Gower identified. I find that KinCare was conducted in 2014 for the dominant purpose of providing home care services to its clients. 15. Finally, I reject the submission that there is any evidence of an "informal distribution of profits", as that term was explained by Mr Gower. I find there was no distribution of KinCare's profits to any person. The misdescription of certain items in KinCare's audited accounts I have described when addressing the evidence of Mr Jason Howie and the expert accountants does not lead me to doubt the accuracy of the financial statements much less to conclude that KinCare was "carried on for the benefit or gain of particular individuals" in any relevant year of income. 16. On any fair view of the evidence, KinCare was being "carried on" throughout the relevant period for the purpose of providing home care services to its aged, disabled and Aboriginal and Torres Strait Islander clients in accordance with its Commonwealth and NSW Government grants and not for the benefit of members of the Howie family. The only matters on the evidence capable of being described as benefits conferred by KinCare upon related entities were incidental to that purpose. Issue 2 – were wages paid to a person "in respect of time when the person was engaged in charitable … work of the non-profit organisation"? KinCare's submissions 1. KinCare submitted that commercial services provided by employees were charitable in character because they were carried out in furtherance of its charitable purpose in the sense identified in Word Investments at [26], being that the services were ancillary to its objects, with the revenue generated used for its charitable purposes. 2. KinCare submitted that administrative and other ancillary services provided by employees were intrinsically related to its charitable purpose, and therefore wages paid for those services were exempt pursuant to Sch 2 cl 12(1)(c) of the Payroll Tax Act. 3. KinCare submitted that wages paid to administrative employees were exempt wages because the services provided by the employees were intrinsically related to providing support and services for aged people, people with disabilities and their carers, the charitable purpose of KinCare. 4. KinCare submitted that if it is necessary to identify the activities performed by each individual employee and the associated wages for those services, the evidence filed is sufficient to allow such an analysis to be made. Commissioner's submissions 1. The Commissioner submitted that KinCare had not discharged its onus on this point because: 1. the carrying out of work for other KinCare Group entities is insufficient to meet the requirement that the relevant persons spent their time carrying out the charitable work of KinCare in circumstances where those other entities are profit-making and engage in work with other organisations; 2. there were no detailed timesheets or other evidence showing the actual services provided by KinCare, the identity of the individuals providing those services, the time spent on those services, and when those services were provided; and 3. it is not to the point that revenue generated by KinCare from the provision of administrative services to other entities promoted the objects of KinCare – the issue is whether KinCare's employees solely spent time carrying out its charitable work. Consideration of issue 2 – were wages paid to a person "in respect of time when the person was engaged in charitable … work of the non-profit organisation"? 1. This issue essentially concerns the extent to which administrative staff employed by KinCare provided services to other parts of the KinCare Group. 2. It is important to emphasise at the outset that this question is a different one to that addressed in issue 1. There the issue was whether KinCare was a "non-profit organisation" in circumstances where administrative services were provided to "for profit" related entities. My conclusion in relation to issue 1 was that KinCare was a non-profit organisation and the apportionment made by KinCare was a reasonable one. 3. The issue here, however, is whether wages were paid to a person "in respect of time when the person was engaged in charitable … work" of KinCare. Those words provide a significant restriction on the availability of the exemption. It will be recalled that Mr Jason Howie in his affidavits asserted that the apportionment reflected in KinCare's accounts was based on "an hourly operation charge". He accepted, and I have found, that this description was incorrect. 4. The first question is the identification of KinCare's administrative staff and the wages paid to those staff. I have found that KinCare successfully demonstrated the identity of those staff members and the amount of wages paid to them in total. That was: 1. $1,264,501 for the year ended 30 June 2010; 2. $1,268,852 for the year ended 30 June 2011; 3. $1,875,225 for the year ended 30 June 2012; 4. $1,942,544 for the year ended 30 June 2013; and 5. $1,160,845 for the year ended 30 June 2014. 1. I have found that for the year ended 2009 there was a gap in the evidence. The Commissioner accepted that if I came to that conclusion the appropriate course would be to remit the matter to the Commissioner to be recalculated. For that purpose only staff identified as Administration, Information Technology, Finance and Human Resources fall within the appropriate definition of "administrative staff". The matter must be remitted to the Commissioner to determine the administrative staff and the wages paid to those staff in the year ended 2009. 2. In relation to all of the years of income, I find that the administrative staff employed by KinCare provided services to the "for profit" KinCare Group. KinCare submitted that I should find that wages were paid to KinCare's administrative staff "in respect of time when the person is engaged in charitable … work of the non-profit organisation". 3. That was principally because being employed by KinCare and being engaged on its behalf for part of the time was submitted to be a sufficient condition to find that wages were paid "in respect of time when the person is engaged in charitable … work of the non-profit organisation". I reject that submission. Wages are only exempt when paid to a person "in respect of time" when the person is engaged in, relevantly, the charitable work of the non-profit organisation. 4. As I have found, cl 12 of Sch 2 permits an apportionment of wages based on the time spent by the employee engaged in charitable work of the organisation and that spent on other activities. I do not accept, as KinCare submitted that if any part of the time spent by an employee is engaged in charitable work of the non-profit organisation that it follows that the entire wages paid to that person are necessarily exempt from payroll tax. The language used by cl 12 of Sch 2 provides that an apportionment is permissible. The way that this apportionment works is that wages are only exempt to the extent that KinCare has proven that the wages were paid to a worker "in respect of time" engaged in the "charitable … work of the non-profit organisation". 5. Alternatively, KinCare submitted that providing services for "for profit" KinCare Group entities was itself to be engaged in the charitable work of the non-profit organisation. I do not rule out that such a conclusion may have been able to be proved. The availability of such a possible conclusion is emphasised by the legislative history I have described at [125]–[126] and the replacement of requirement that work be "within" the organisation by the requirement that it be "of" the non-profit organisation. 6. I am unable to conclude, however, that KinCare has discharged its onus of demonstrating in this case that by providing services for the "for profit" KinCare Group entities KinCare's staff were thereby engaged in the charitable work of the non-profit organisation. I agree with the Commissioner that, on the facts proved here, the carrying out of unquantified work for other KinCare Group entities for which a payment on an apportionment basis was made is insufficient, without more, to meet the requirement that the relevant persons spent their time carrying out the charitable work of KinCare. I simply do not have enough evidence about what the administrative staff members concerned were each doing to reach that conclusion. KinCare bears the onus of proving that matter. I am not so satisfied. 7. It does not follow from my rejection of the thesis advanced by Mr Gower that KinCare has thereby proven that wages paid by KinCare to administrative staff were paid to a "person in respect of time when the person is engaged in charitable … work of the non-profit organisation". That is because of the quite different legal questions which are engaged. The absence of sufficient evidence, such as timesheets or other evidence about the actual services provided and the time spent on those services, means that KinCare did not discharge its onus in relation to administrative staff. 8. KinCare would be entitled to an exemption for the period of time for administrative staff working on the business of KinCare itself. I am unable to conclude, however, what that time was. It may be that KinCare intended to address this issue by Mr Jason Howie's evidence that a calculation in relation to administrative staff time had been made based on "an hourly operation charge". As I have found, that evidence cannot be accepted. I have also given consideration to whether my conclusion that the apportionment in KinCare's accounts was reasonable has the consequence that part of the cost of administrative staff is entitled to the exemption. I have concluded that it does not. That apportionment, conducted in different ways in different years, broadly on a percentage of revenue basis, does not demonstrate on the civil standard the time spent by KinCare's administrative staff on KinCare's own work, which I have concluded was the only charitable work of the non-profit organisation that I am satisfied KinCare undertook. 9. It follows that in relation to the following wages paid by KinCare: 1. $1,264,501 for the year ended 30 June 2010; 2. $1,268,852 for the year ended 30 June 2011; 3. $1,875,225 for the year ended 30 June 2012; 4. $1,942,544 for the year ended 30 June 2013; and 5. $1,160,845 for the year ended 30 June 2014 KinCare is not entitled to the exemption in cl 12 of Sch 2 of the Payroll Tax Act. 1. The matter should be remitted to the Commissioner to calculate the amounts of payroll tax to be paid in each year having regard to these findings. In relation to the year ended 2009, the Commissioner must first determine the administrative staff in accordance with these reasons and calculate the amount of payroll tax payable on the wages paid to those administrative staff members. Issue 3 – was KinCare a public benevolent institution? 1. This third issue only arises if I am incorrect about issue 1. KinCare's submissions 1. KinCare submitted that it was plainly an "institution" within the ordinary meaning of the term as identified in Stratton v Simpson (1970) 125 CLR 138 at 158 per Gibbs J, being "an establishment, organization, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational etc". 2. KinCare cited multiple authorities concerning the term "public benevolent", showing that: 1. the term is imprecise, and can encompass notions of charity in some circumstances and not others: Adelaide City Mission v South Australian Planning Commission (1993) 60 SASR 178 at 182-183 per Debelle J; 2. the term should be understood in the sense in which it is commonly used which, inter alia, can be expressed as being an institution having as its objects the relief of poverty, sickness, destitution or helplessness. The fact that an institution does not solely assist those in poverty or destitution does not in itself prevent characterisation as a public benevolent institution. However it is a fundamental requirement that the institution is not conducted for individual profit or gain: Repromed at [39]-[44] per Debelle J; and 3. the term encompasses institutions that relieve "disadvantage or misfortune", not merely poverty: Trustees of the Indigenous Barristers' Trust v Commissioner of Taxation (2002) 127 FCR 63; [2002] FCA 1474 at [19] per Gyles J. 1. KinCare submitted that it is a public benevolent institution because it provides benevolent relief to the aged and disabled who are in suffering, distress, or misfortune, and it is not conducted for individual profit or gain. Commissioner's submissions 1. The Commissioner advanced the following propositions: 1. the term "public benevolent institution" is a composite or compound expression: Public Trustee of New South Wales v Federal Commissioner of Taxation (1934) 51 CLR 75 at 103 per Dixon J; 2. a "public benevolent institution" is one organised for the relief of poverty, sickness, destitution, or helplessness: Perpetual Trustee Co Ltd v Federal Commissioner of Taxation (1931) 45 CLR 224 at 232 per Starke J; Union Trustee Co of Australia Ltd v Federal Commissioner of Taxation (1962) 108 CLR 451 at 454 per Taylor J; 3. whether an institution is "public" depends on whether its benevolence is directed to the public at large: Maughan v Federal Commissioner of Taxation (1942) 66 CLR 388 at 397 per Williams J; Trustees of the Allport Bequest v Federal Commissioner of Taxation (1988) 19 ATR 1335 at 1338-1339 per Northrop J; 4. if an organisation is conducted for individual profit or gain, it is not a "public benevolent institution": Repromed at [42]; 5. an "institution" includes, but is not limited to, "an establishment, organization, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational etc": Stratton at 158 per Gibbs J; Word Investments at [33] per Gummow, Hayne, Heydon and Crennan JJ; and 6. in Pamas Foundation (Inc) v Commissioner of Taxation (1992) 35 FCR 117, Beaumont and Lee JJ held at 125-126 that "the term 'institution' is to be given a meaning greater than a structure controlled and operated by family members and friends". 1. The Commissioner submitted that KinCare cannot be characterised as a "public benevolent institution" because, while it had benevolent objects and carried out benevolent activities, on the whole its benevolence was not directed to the public at large; rather, its resources and finances were used for the benefit of the other KinCare Group entities and, by extension, members of the Howie family. 2. The Commissioner submitted that KinCare was not a "public benevolent institution" because it was conducted for profit or gain. Further, KinCare lacked the requisite characteristics of a public "institution" because it was controlled and operated by members of the Howie family. Consideration of issue 3 – was KinCare a public benevolent institution? 1. There is no real dispute between the parties about the legal test to be applied in determining whether KinCare was a public benevolent institution. The dispute was really an echo of the factual dispute in relation to the "non-profit organisation" issue. That is, was KinCare being carried on for private profit or gain, being the profit or gain of members of the Howie family? 2. I will first address the Commissioner's six points, in the order they were addressed: 1. it is common ground that the term "public benevolent institution" is a composite or compound expression: Public Trustee at 103 per Dixon J; 2. it is also common ground that a "public benevolent institution" is one organised for the relief of poverty, sickness, destitution, or helplessness: Perpetual Trustee at 232 per Starke J; Union Trustee Co of Australia at 454 per Taylor J; 3. it may be accepted for present purposes that whether an institution is "public" depends on whether its benevolence is directed to the public at large: Australian Council of Social Service Inc v Commissioner of Pay-roll Tax (1985) 1 NSWLR 567 at 568 per Street CJ; Maughan at 397 per Williams J; Trustees of the Allport Bequest at 1338-1339 per Northrop J. The continued authority of Australian Council of Social Service after Word Investments and the precise meaning of "public at large" does not need to be determined here. KinCare's services were directed in the relevant sense to the public at large. I do not understand the Commissioner to submit to the contrary; 4. if an organisation is conducted for individual profit or gain, it is not a "public benevolent institution": Repromed at [42] per Debelle J. I am prepared to accept this as an accurate statement, the outer boundaries of which do not need to be determined here. For the reasons in relation to issue 1, KinCare was not conducted for private profit or gain; 5. an "institution" includes, but is not limited to, "an establishment, organization, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational etc": Stratton at 158 per Gibbs J; Word Investments at [33] per Gummow, Hayne, Heydon and Crennan JJ. It will be recalled that the Commissioner accepted that one of KinCare's objects was charitable and in any event I find that KinCare was an "institution" in the sense described in the authorities; and 6. in Pamas Foundation (Inc) v Commissioner of Taxation (1992) 35 FCR 117 at 125-126, Beaumont and Lee JJ held that "the term 'institution' is to be given a meaning greater than a structure controlled and operated by family members and friends". I accept that Pamas correctly states the law. The facts found by French J, sitting as the Tribunal in that case, were far removed from the present case. The Pamas Foundation was a small and exclusive organisation. The scale of its activities was "relatively small". The Foundation was closely integrated with the business affairs of a Dr Staer. The Foundation was "substantially engaged in commercial activity". It was a vehicle for Dr Staer and his family to pursue "their Christian purposes". I find that KinCare was a body which was the recipient of millions of dollars from the Commonwealth and State Governments to pursue the important work of providing home care to the aged and disabled in our society and not a "structure controlled and operated by family members and friends" of the kind addressed in Pamas. 1. I find that KinCare is a public benevolent institution because it provides benevolent relief to the aged, the disabled and Aboriginal and Torres Strait Islander people and it was not being carried on for individual profit or gain. 2. In making these findings I adopt, without repeating them all, the findings I have made at [9]-[89] and [118]-[184]. Issue 4 – were wages paid to persons engaged in work of a public benevolent nature of KinCare? 1. Both KinCare and the Commissioner simply re-iterated the submissions each made about issue 2. Consideration of issue 4 – were wages paid to persons engaged in work of a public benevolent nature of KinCare? 1. I make the same finding as I made in relation to issue 2 at [190]-[203]. KinCare did not prove in relation to wages paid to administrative staff that those wages were paid to a person "in respect of time when the person is engaged in work of a public benevolent nature". 2. The same conclusions as in relation to issue 2 apply. It is of course possible that by acting for companies in the KinCare Group administrative staff of KinCare may have been engaged in work of a public benevolent nature for KinCare. On all of the evidence, however, I am not satisfied that KinCare has demonstrated that to be the case. 3. It follows that in relation to the following wages paid to administrative staff by KinCare between 2010 and 2014, which I found were the following: 1. $1,264,501 for the year ended 30 June 2010; 2. $1,268,852 for the year ended 30 June 2011; 3. $1,875,225 for the year ended 30 June 2012; 4. $1,942,544 for the year ended 30 June 2013; and 5. $1,160,845 for the year ended 30 June 2014 KinCare is not entitled to the exemption in cl 12 of Sch 2 of the Payroll Tax Act. 1. The matter should be remitted to the Commissioner to calculate the amounts of payroll tax to be paid in each year having regard to these findings. 2. In relation to the year ended 2009, the Commissioner must first determine the wages paid to administrative staff in accordance with these reasons before calculating the correct amount of payroll tax payable on those wages. Conclusion and orders 1. Whilst not successful on all issues, KinCare has been successful on the major issue litigated before me in all the relevant income years. KinCare is entitled to an award of costs in its favour. 2. I make the following orders: 1. Application allowed. 2. Objection decision revoked. 3. The assessments of payroll tax to KinCare Community Services Limited in the 2009, 2010, 2011, 2012, 2013 and 2014 years are revoked. 4. Remit the matter to the Commissioner to issue assessments in accordance with these reasons. 5. The Commissioner pay KinCare's costs of the application. ********** Endnotes 1. KinCare was at times all endorsed as exempt for income tax purposes by the Federal Commissioner of Taxation as both a "Charitable Institution" and a "Public Benevolent Institution" with effect from 1 July 2000. It has retained that exemption under the transitional provisions of the current regime for income tax now governed by the Australian Charities and Not-for-profits Commission Act 2012 (Cth), the Charities (Consequential Amendments and Transitional Provisions) Act 2013 (Cth), and related legislation. 2. The spelling of "patriotic" was corrected in a subsequent Act. Amendments 06 March 2019 - [107] changed "effectation" to "effectuation" in quote; [118] changed "Hoffman LJ" to "Lord Hoffman" 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: 06 March 2019