B & L Linings Pty Ltd v Chief Commissioner of State Revenue

NCAT Administrative and Equal Opportunity|2016-09-15

Solicitors: TressCox, Lawyers (Applicant) Crown Solicitor's Office (Respondent) File Number(s): 1410634, 1510480

Introduction

Following an audit which commenced in 2010 the Chief Commissioner (sometimes referred to as the Respondent in these reasons) on 17 October 2012 issued six payroll tax assessment notices (the Assessments) to Urmar Pty Ltd (Urmar) as trustee for the Ross Burton Family Trust (usually referred to as the Applicant in these reasons) for the period 1 July 2006 to 30 September 2011 (Relevant Period) on the basis that the Applicant was grouped for payroll tax purposes with NJW Contractors Pty Limited (NJW) and Ross Burton Transport Pty Ltd (RBT).
On 8 April 2014, the Respondent issued a notice to the Commonwealth Bank of Australia (CBA) under s 46 of the Taxation Administration Act 1966 (s 46 notice) (TA Act) requiring CBA to pay him an amount of $246,745.25 (the Debt) from the Applicant's bank account(s) with the CBA.
The Applicant has submitted that CBA deducted that amount from the Applicant's bank account(s) and paid it to the Chief Commissioner.
By objections dated 4 June 2014 (the first objections) the Applicant objected to the Assessments, the decision of the Respondent not to de-group the Applicant, and the decision to issue the s 46 notice. The Applicant also requested an extension of time for lodgement of these objections. By letter dated 12 September 2014 the Respondent disallowed the first objections (First Disallowance Decision) and indicated that the Respondent proposed relying on a second grouping decision.

Material before the Tribunal

The Respondent relied on: 1. Two bundles of documents respectively filed on 19 December 2014 and 20 August 2015 pursuant to s 58 of the Administrative Decisions Review Act 1997 (ADR Act) (the s 58 documents). 2. An affidavit made on 24 June 2016 by Ishita Bose attached to which were five volumes of documents comprising 2,289 pages (IB1). 3. The Assessments. 4. The Respondent's written submissions made 24 June 2016 (RS), written submissions in reply dated 15 July 2016 (RSR) attached to which is a copy of the s 46 notice, and written submissions headed "Administration Income of Urmar - Asserted Loans - No Evidence" handed to the Tribunal on 15 September 2016, during the hearing (ACS); and 5. Oral submissions by Mr Gerard.
All references to paragraph numbers of submissions on behalf of the Respondent are to paragraphs of RS unless stated to the contrary.
The Applicant relied on: 1. Affidavits made by Leslie Ross Burton (Mr Burton) on: 1. 26 October 2015 (RB1), to which was exhibited a bundle of 383 pages of documents marked LRB1; 2. 16 August 2016 (RB2) to which was annexed a letter dated 9 November 2011 to Mr Burton from the Respondent and a copy of the s 46 notice; and 3. 30 August 2016 (RB3), to which were exhibited folders comprising 987 pages of documents marked exhibit LRB2. 1. An affidavit made 26 October 2015 by Marie Leslie Burton (Mrs Burton). 2. Both Mr Burton and Mrs Burton gave oral evidence. 3. Written submissions on behalf of the Applicant made 27 October 2015 (AS), further submissions made 24 June 2016 (AFS), submissions in reply made 1 September 2016 (ASR) and submissions headed Closing Address handed to the Tribunal during the hearing on 15 September 2016 (ACS); and 4. Oral submissions by Mr Heraghty.
All references to paragraph numbers of submissions on behalf of the Applicant are to paragraphs of ACS unless stated to the contrary.

Powers of Tribunal on review

Section 96 of the TA Act provides that a taxpayer may apply to the Tribunal for an administrative review of a decision that has been the subject of an objection under certain circumstances, including if the taxpayer is dissatisfied with the Respondent's determination of the objection. The taxpayer may also apply for an administrative review if 90 days have passed since the objection was served on the Chief Commissioner and the Chief Commissioner has not determined the objection.
The Tribunal may confirm or revoke a reviewable decision of an administrator, including an assessment, or make a decision in place of the reviewable decision and make orders as to costs or otherwise as it thinks fit, s 101(1) of the TA Act.
Section 38 (2) of the Civil and Administrative Tribunal Act 2013 provides that the Tribunal is not bound by the rules of evidence and may inquire into and inform itself on any matter in such manner as it thinks fit, subject to the rules of natural justice. Further, at ss 38 (4) and (5) the Tribunal is to act according to equity and good conscience and the substantial merits of the case without regard to technicalities and shall take such measures as are reasonably practicable to ensure that the parties have a reasonable opportunity to be heard or otherwise have their submissions considered in the proceedings.
In accordance with s 63 of the ADR Act the Tribunal is to decide what the correct and preferable decision is, having regard to the material then before it, including any relevant factual material, and any applicable written or unwritten law.

Preliminary issue

The Applicant has requested that the Tribunal review the Disallowance Decisions.
In Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184, Basten JA, Giles JA and Campbell JA agreeing, said: 28 … the right of review under s 97 is given by reference to the operative decision of the Chief Commissioner and not to a ruling made on an objection. Although the existence of an objection is a necessary precondition to the power of review by the Court, and it is the taxpayer's dissatisfaction with the determination of the objection which provides standing to seek review, it is the initial decision which is the subject matter of the review ... Further, it is the original assessment or other decision which is confirmed, revoked or replaced: s 101(1)(a) and (b).
There is no dispute that the substantive issues before the Tribunal relate to the matters raised in the objections rather than the Disallowance Decisions.

Onus

The Applicant has the onus of proving its case in a review by the Tribunal, s 100(3) of the TA Act. The requisite standard of proof in such a review is the "balance of probabilities" Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [31] and B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187.

Payroll tax law

Payroll tax is a tax on employers in respect of New South Wales wages (as defined) paid to employees during each financial year. If total wages paid by an employer during a financial year are below the statutory payroll tax threshold for that year, then no payroll tax is payable by that employer.
The legislation provides that if employers are part of a group for payroll tax purposes, then only a single threshold deduction applies to the whole group rather than each member of the group benefiting from a separate threshold deduction. There is joint and several liability in respect of a group and pursuant to s 81 of the PTA the Chief Commissioner may recover the whole of the relevant amount from all or any one of the group members.
The Chief Commissioner (and in relation to these proceedings, the Tribunal) has a conditional discretion to exclude an employer from a group. For the period 1 July 2006 to 30 June 2007, the conditional discretion is found in the Pay-roll Tax Act 1971 (1971 Act). For the period 1 July 2007 to 30 September 2011 the discretion is found in the Payroll Tax Act 2007 (PTA).

Extension of time to lodge objections

On 6 June 2014, the Applicant sent the first objections to the Chief Commissioner and requested an extension of time to lodge the objections. The First Disallowance Decision did not refer to the request. This matter was raised during the hearing.
Mr Gerard submitted that the first objections had been lodged out of time. However, as the Chief Commissioner had dealt with the objections, the Chief Commissioner had either explicitly or impliedly consented to the extension of time and it was not necessary for the Tribunal to make an order extending time. Subsequently Mr Heraghty withdrew the Applicant's request for orders to extend the time to lodge the first objection.
I informed the parties that to the extent that it was necessary to do so I extended the time for lodgement of the relevant objections to the date on which they were received by the Chief Commissioner.

Substantive issues

The Applicant initially objected to its grouping with NJW and RBT having regard to the legislative provisions relied on by the Chief Commissioner. However, during the proceedings the Applicant conceded that the Applicant, NJW and RBT were grouped for the whole of the Relevant Period.
The Applicant submitted: 17. … the issue for determination by the Tribunal in relation to the Section 46 Notice is whether the Section 46 Notice is void ("the Section 46 Notice Issue"). 18. … the issues for determination by the Tribunal in relation to the issue of whether to de-group the Applicant from NJW and Ross Burton Transport ("the De-Grouping Issue") are: (a) whether in relation to the Relevant Period, the business carried on by the Applicant was carried on substantially independently of the businesses carried on by each of NJW and Ross Burton Transport; (b) whether in relation to the period 1 July 2007 to 30 September 2011, the business carried on by the Applicant was not substantially connected with the businesses carried on by each of NJW and Ross Burton Transport; and (c) if the answer to (a) and (b) is yes, whether the Applicant should be excluded from the group comprising Applicant, NJW and Ross Burton Transport.
During the hearing both counsel made oral submissions in relation to matters raised in the objections, concerning penalty tax and interest imposed in the Assessments, which objections were disallowed when the objection to the Assessments was disallowed. These are also issues to be determined by the Tribunal.

Factual background

There is no dispute that throughout the relevant period Urmar was the sole trustee of the Ross Burton Family Trust (the Trust) and it is in that capacity that Urmar made the Application. There is also no dispute that throughout the Relevant Period Urmar did not act in any capacity other than as trustee of the Trust.
The Applicant owned all the shares of RBT and more than 95% of the shares of NJW.
Mrs Burton was the sole director NJW and RBT and owned all the shares of Urmar. She was also a director of Urmar as was her daughter Cindy Burton. Mr Burton was an alternate director and acted in place of Cindy Burton from April 2006 to December 2009.
Throughout the Relevant Period NJW and RBT each operated fleets of trucks. NJW carted chicken feed for Ingham's Chickens and RBT carted gyprock for CSR.

The Applicant's case

The Applicant's overall case is summarised in ACS at [106] to [131], excerpts from which, excluding footnotes, are set out below. Legal Issues 106. The Applicant submits that the first legal issue for determination by the Tribunal is whether, during the period 1 July 2006 to 30 June 2007, the business carried on by the Applicant was continuously carried on and would continue to be carried on substantially independently of NJW and Ross Burton Transport. 107. The Applicant submits that the second legal issue for determination by the Tribunal is whether, during the period 1 July 2007 to 30 September 2011, the business carried on by the Applicant was carried on substantially independently of, and was not substantially connected with the carrying on of the businesses carried on by NJW and Ross Burton Transport. 108. In each case the Tribunal should focus on those issues from the point of view of the Applicant, that is, whether the business carried on by the Applicant was carried on substantially independently of, and was not substantially connected with the businesses carried by NJW and Ross Burton Transport, not whether the businesses carried on by NJW and Ross Burton Transport were carried on substantially independently of, and were not substantially connected with the business carried on by the Applicant. …. Relevant Factors 111. The Applicant submits that the major factors which should be taken into account by the Tribunal in addressing the 2 legal issues are: (a) the nature and degree of ownership and control of the businesses; (b) the nature of the businesses; (c) whether the business of the Applicant was substantially financially dependent on the businesses of NJW or Ross Burton Transport; (d) whether the existence or continued operation of the business of the Applicant depended upon the existence or custom of the business of NJW or Ross Burton Transport; (e) whether the actions of NJW or Ross Burton Transport or its directors influenced the conduct of the business of the Applicant; (f) the percentage of the Applicant's income derived from NJW; and (g) any other matters the Tribunal considers relevant:

Relevant legislation

The Chief Commissioner's power (and in these proceedings the power of the Tribunal) to exclude the Applicant from the group for the period 1 July 2006 to 30 June 2007 is found at s 16B of the 1971 Act and for the period 1 July 2007 to 30 September 2011 at s 79(1) of PTA. The wording, which is identical in each section is: The Chief Commissioner may, by order in writing, determine that a person who would, but for the determination, be a member of a group is not a member of the group.
The exercise of the power up to 30 June 2007 is conditional on the provisions of s16C of the 1971 Act while the exercise of the power from 1 July 2007 is restricted by s 79(2) of the PTA. Relevant extracts from those sections are: The 1971 Act 16C Grounds for excluding persons from group (1) A determination may be made by the Chief Commissioner under section 16B in respect of the following persons only: (a) a person who would, but for the determination, be a member of a group arising under section 106H (Primary groups arising from the use of common employees) of the Taxation Administration Act 1996, (b) a person who carries on a business as trustee of a trust and would, but for the determination, be a member of a group arising under section 106I (Primary groups of commonly controlled businesses) of the Taxation Administration Act 1996, (c) a person who would, but for the determination, be a member of a group arising under section 106IA (Primary groups arising from tracing of interests in corporations) of the Taxation Administration Act 1996. … (3) The Chief Commissioner must not make a determination under section 16B unless satisfied that the business carried on by the person the subject of the determination has been continuously carried on, and will continue to be carried on, substantially independently of the other members of the group. (4) In determining whether a person carries on business substantially independently of the other member or members of a group, the Chief Commissioner is to have regard to the nature and degree of ownership or control of the business of each member of the group, the nature of each of those businesses and any other matter that the Chief Commissioner considers relevant. Payroll Tax Act 2007 79 Exclusion of persons from groups …. (2) The Chief Commissioner may only make such a determination if satisfied, having regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other matters the Chief Commissioner considers relevant, that a business carried on by the person, is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group

Analysis

Having regard to my findings below in respect of the application of s 16C (3) and (4) of the 1971 Act is not necessary for me to deal with s 16C (1).
In summary: 1. The relevant test up to 30 June 2007 relates to the independence of the Applicant's business from NJW and RBT, both continuously throughout the Relevant Period and thereafter; 2. The relevant tests from 1 July 2007 to 30 September 2011 relate to both: 1. whether the Applicant's business was carried on independently of the carrying on of the businesses of both NJW and RBT throughout the Relevant period; and 2. whether the carrying on of the Applicant's business throughout the Relevant Period was not connected with the carrying on business of either NJW or RBT. 1. When considering whether to make the determination. The Tribunal is to have regard: 1. up to 30 June 2007 to "the nature and degree of ownership or control of the business of each member of the group, the nature of each of those businesses and any other matter that the [Tribunal] considers relevant"; and 2. from 1 July 2007 to "the nature and degree of ownership and control of the businesses, the nature of the businesses and any other matters the [Tribunal] considers relevant.

The Applicant's case

In relation to the independence of the Applicant's business from that of both NJW and RBT the Applicant submitted: 112. … there is only one matter which points to the business of the Applicant not being carried on substantially independently of the business of NJW, that being the percentage of the Applicant's income derived from NJW. 113. …. the following matters point to the business of the Applicant being carried on substantially independently of the business of NJW: (a) the business of the Applicant was not substantially financially dependent on NJW during the Relevant Period because even when NJW went into liquidation and the loans due from NJW were not repaid, the Applicant continued to exist; (b) the nature of the business carried on by the Applicant during the Relevant Period was the business of a property owner whereas the nature of the business carried on by NJW during the Relevant Period was the business of carting chicken feed for Ingham's Chickens; and (c) the actions of NJW and its sole Director Mrs Burton did not substantially influence the conduct of the business of the Applicant.
In relation to connections between the Applicant's business and that of NJW and RBT the Applicant submitted in AS: 54. The connection must be a relevant and real connection that affects the business concerned in a material, commercial, practical and meaningful sense (Boston Sales at [39]). 55. The connection must be in "carrying on" the business and not merely the connection between the entities (Lombard Farms at [44] to [48].
The Applicant substantially relies on Mr Burton's affidavits. Mr Burton also gave extensive oral evidence. The Chief Commissioner places substantial reliance on contemporaneous business records of the Applicant, NJW and RBT, some of which are disavowed by Mr Burton, and the affidavit by Mrs Burton and her oral evidence.

Ownership and control of the businesses

Details of the directors and shareholders of Urmar, NJW and RBT are outlined at [31] and [32] above.

Urmar

No evidence was provided by Cindy Burton. Nor is there any evidence as to her involvement in the conduct of the Applicant's business other than Mr Burton saying that she and her husband were involved in obtaining finance.
Mrs Burton was involved in the bookkeeping and banking of payments from NJW to the Applicant. She was asked whether NJW paid rent to the Applicant. Mrs Burton said she was aware that payments were made but was not sure what NJW was paying the Applicant for.
Mrs Burton said an employee of NJW with bookkeeping skills maintained the data system for the Applicant, NJW and RBT. That system was maintained electronically within separate accounts for each of the three businesses using a single MYOB program on a computer owned by NJW and located at the Mamre Rd Property. Initially Camerons sent an employee to the Mamre Rd Property to obtain details from the MYOB system to prepare the relevant BAS for all three businesses and ultimately to prepare annual income tax returns. The accounts and tax returns were sent by the accountants to her. She would review and approve those documents. At some date, which she could not then recall a remote connection was set up with the accountants' office and the MYOB system. She was not sure if it was used for all three businesses.
Other than Mr Burton stating that Mrs Burton was involved in obtaining finance for the Applicant to on-lend to NJW, obtaining finance directly for NJW from third parties, and recalculating the debt owing by NJW to the Applicant from that shown in the Applicant's accounts, there is no evidence that Mrs Burton's involvement in the Applicant's business was other than performing bookkeeping and banking duties, paying bills and preparing a proof of debt after an administrator was appointed to NJW. Mrs Burton did not corroborate Mr Burton's statement that she recalculated the NJW debt. Indeed, her evidence in relation to the quantum of debts owing by NJW to the Applicant substantially differed from Mr Burton's evidence.
The Applicant had no employees.
Urmar's constitution provides for the appointment of a governing director who has power to exercise all of the authority of the board of directors. There is no evidence that any person was appointed governing director.
Urmar's constitution requires the appointment of a director as chairman of the meetings. There is no evidence that a chairman was appointed. The constitution provides that the chair of a committee of directors shall have a casting vote in the event of any quality of votes. There is no evidence that any committee was established. Nor does either director appear to have a casting vote at board meetings.
Accordingly, it appears that each of Mrs Burton and, when he was acting as an alternate director, Mr Burton, had equal votes at directors' meetings and each could veto the other's vote. To that extent, it appears that each of Mr Burton and Mrs Burton could exercise substantial control in respect of the Applicant's business activities, even if only in a negative respect, if there was no consensus.

RBT

There is no dispute that Mrs Burton was the sole director RBT at all relevant times and that Mr Burton managed the company's business.

NJW

Mrs Burton was the sole director of NJW and as such was empowered to exercise all the authority of the board of directors of that company. There is evidence that Mrs Burton performed bookkeeping, paymaster and banking duties for NJW. There is also evidence that Mrs Burton was involved in obtaining finance for NJW and on occasions providing a personal guarantee for that company's debts. However, Mrs Burton states that she was not involved at all in the day-to-day management of its business.
Mr Burton's evidence was that neither he nor any member of his family, including Mrs Burton, "had anything to do with the day-to-day management of NJW", at [31] in RB1.
In AS the Applicant submitted that the issue of directors' control or day-to-day management control was a matter of some controversy. At [46] the Applicant submitted: In Boston Sales at [26] Mr Block, Senior Member, said that the control of a company should be determined at the Directors' level, but also said that the practical ability to control and influence was also a relevant consideration.
Notwithstanding Mr Burton's initial statement at [31] in RB1, I find there is substantial evidence that Mr Burton was heavily involved in the carrying on of NJW's business.
Mr Burton's somewhat inconsistent oral evidence was to the effect that: 1. The only work he did for NJW was within his skill in repairing trucks if asked. If they (the drivers) had a noise in the gearbox or the motors or something like that they could ask my advice. 2. We had dedicated mechanics and dedicated managers but I was always asked for advice. 3. I was always there [presumably at the Mamre Rd Property] and could talk to the people from Inghams or whatever the case was. But there were managers in charge of the whole operation. I was always around. The managers have the right to hire and fire. 4. He interviewed prospective managers and was involved in making hiring decisions. 5. He made the decisions as to trucks to be purchased by NJW.
It is undisputed that, throughout the Relevant Period Ingham was the sole customer of NJW. No other evidence concerning communications between NJW and representatives of Ingham whether before, during or after the Relevant Period was brought to the attention of the Tribunal. There is no evidence as to who on behalf of NJW entered into transport contracts with Ingham's.
None of the employee managers of NJW's business gave evidence to the Tribunal nor was any explanation provided for this lack of evidence.
Mr Burton was asked whether he approved payments on the part of NJW. His response was that the accounts came out and the accounts girl paid them as far as he knew.
Later, Mr Burton was again asked who would approve payment of accounts. He said his wife would pay the accounts by electronic transfer. When asked if he was involved in the payments he said "only if they asked, if there was something wrong". Normally they just paid the accounts.
Mr Burton was asked if he ever dealt with banks or third-party financiers. He said he never dealt with the banks. His wife always dealt with the banks and organised loans. The first loan was organised by his daughter and her husband, neither of whom gave any evidence.
Mr Burton was asked who was involved in hiring and firing the managers employed by NJW. He said that no managers were ever fired, they all left to go to better paid jobs elsewhere. When pressed, he said that he would interview some of the managers for their jobs. He thought that the previous manager who was being replaced would also be involved in the interview. Mr Burton was asked who would decide whether to hire particular people as managers. He said his wife would be involved in it "on the resume" and he would be involved in the decision. No written agreement was made with any manager nor were their duties or powers reduced to writing.
Mrs Burton gave no evidence as to any involvement in hiring managers for NJW.
Having regard to the above evidence I find on the balance of probability that the employed managers of NJW were involved in certain ongoing day-to-day operations. However, I am not satisfied that Mr Burton did not exercise overall control over NJW's business.

Nature of the businesses and relevant accounts

There is no dispute that throughout the Relevant Period "… the businesses of NJW and Ross Burton Transport each involving the carting of goods by truck … NJW carted chicken feed for Ingham's Chickens and [RBT] carted gyprock for [CSR]", RB1 at [60].
There is substantial dispute as to the nature of the Applicant's business throughout the Relevant Period.
In RB1 Mr Burton said: 14. The only thing the Trust did during the Relevant Period was to act as the owner of the Properties. 15. Those activities involved mainly in collecting rent and paying the expenses normally associated with being the owner of the Properties, such as paying Council Rates.
LRB1, the exhibit to RB1, included financial statements and income tax returns of the Applicant for the years ended 30 June 2007, 2008, 2009 and 2011. The 2007 statement had been executed by Mrs Burton on behalf of the trustee of the Trust. However the other statements were not signed. The statements included balance sheets as at June 2008, 2009 and 2011 showing debts owing by NJW of $328,396, $395,496 and $54,616 respectively.
The income tax return for 2007 described the main business activity as Road Freight Transport Service" and declared business income of $92,500.
The 2008 income tax return described the main business activity of the Applicant as "property rental" and declared total business income of $148,501. The 2009 and 2011 income tax returns described the main business activity of the Applicant as "Other Administrative Services N.e.c" and declared total business income of $159,700 for 2009 and $154,000 for 2011.
There was no reference in any of the financial statements or income tax returns to rental income.
Mr Brian Palesy of Camerons Gold Coast Pty Ltd (Camerons), was the external accountant for each of the Applicant, NJW and RBT. He was involved in preparation of the accounts for some 9 years including the Relevant Period. Neither Mr Palesy nor any other representative of Camerons gave evidence.
There is no dispute that the financial statements and income tax returns were prepared by Camerons.
The balance sheets for the Applicant do not show that the Applicant owned a property at Mamre Road and another at Overett Avenue (the Properties). However, there is no dispute that at all relevant times the Properties were owned by the Applicant.
Mr Burton said the income in the statements represented interest paid by NJW to the Applicant. The balance sheets prepared by Camerons were incorrect. Saying there was rental every year was wrong. The accountant did not know how to reconcile it. He sent his office girl down every year and she would put it all together. Camerons made a complete botch of it.
That evidence is difficult to reconcile with Mr Burton's evidence at [16] in RB3 where he said: I took a close interest in the financial dealings and financial reports prepared in respect of all [of the Applicant, NJW and RBT] during the …. the Relevant Period. and, in reply to a question asking him whether he took a close interest in the financial accounts of NJW, Mr Burton said he sat down with a person from Camerons who came down from Queensland once a year and would discuss the matters with the family. It is also difficult to reconcile Mr Burton's evidence regarding the interest income of the Applicant with his evidence at [14] in RB1 that "the only thing the Trust did during the Relevant Period was to act as the owner of the Properties".
For his part, Mr Burton disputes the accuracy of Camerons' balance sheets. His evidence at [56] in RB3 is that Mrs Burton recalculated the loan balances between NJW and the Applicant and between RBT and the Applicant; that Mr Burton checked the recalculations "and they are correct". According to Mr Burton the liability of NJW to the Applicant on 30 June 2008 2009 and 2011 was respectively $992,320, $1,077,660 and $1,051,940. The liabilities of RBT to the Applicant on the relevant dates, according to Mr Burton are zero, zero and $6,500.
Although Mrs Burton gave evidence for the Applicant I observe that she gave no evidence confirming any such recalculation nor that the amounts deposed to by Mr Burton were accurate.
Mr Burton said at [53] in RB3: a) it appears that the former Accountant for the Applicant, Mr Brian Palesey, did not understand when preparing the Profit and Loss Accounts for the Applicant, NJW and Ross Burton Transport that the interest paid by NJW and Ross Burton Transport to the Applicant needed to be recorded as "Interest Income" in the Applicant's Profit and Loss Accounts; (b) when payments were made by NJW to the Applicant on account of the loan by the Applicant to NJW, whole dollar amounts were usually paid and those amounts were apportioned to, firstly, interest, and then to principal
Mr Burton's evidence as to the accuracy of the financial statements and income tax returns is difficult to reconcile with Mrs Burton's evidence.
Mrs Burton's affidavit evidence included: 1. During the period 1 July 2006 to 30 September 2012 I performed bookkeeping, paymaster and banking duties for the [Applicant] (the Trust), NJW and [RBT]. 2. My bookkeeping duties involved writing up the cash books and then an employee data entry person would enter the details into the MYOB software system kept for the Trust, NJW and [RBT]. I also arranged payment of bills. …. 4. My banking duties involved banking the income of the Trust, NJW and [RBT]. 5. Each quarter an employee of the Accounting Firm engaged for the Trust, NJW and [RBT] came to the office at [the Mamre Rd Property] to obtain details from the MYOB system to prepare the relevant BASs and eventually the Income Tax Returns.
Mrs Burton, the sole director of NJW and RBT one of two directors of the Applicant at all relevant dates, said Camerons prepared the accounts of the Applicant, NJW and RBT from data obtained from the MYOB records prepared by a bookkeeping employee of NJW. Mrs Burton also said that she had reviewed and approved the accounts.
Mr Burton's evidence was that Mr Palesy, the relevant partner at Camerons, and Camerons carried out external accounting work including preparation of income tax returns from 2005 until 2014, when NJW and RBT went into administration and were subsequently liquidated.
I find Mr Burton's statement, that he took a close interest in the accounts of the Applicant and that the only activities of the Applicant during that period were to act as the owner of the Properties, collect rent and pay expenses normally associated with being the owner of properties, such as paying council rates is not supported by the weight of evidence.
Contemporaneous documents in evidence disclose that during the Relevant Period no income from rental was shown in either profit and loss statements or income tax returns. On Mr Burton's own evidence almost the whole of the Applicant's income was derived from NJW in the form of interest receipts. In addition, the Applicant was throughout the Relevant Period the owner of the shares of RBT and 95% of the shares of NJW. The Applicant's Mamre Rd Property was provided rent-free to NJW to park its vehicles, use as an administrative office and use the facilities of the workshop. It seems to me that the Applicant's business was substantially concerned with providing financial and other assistance to NJW and to a lesser extent to RBT.
I note the income shown in the profit and loss statement/income tax return prepared by Camerons for 2008 was $148,500/$148,501. However, Mr Burton said at [55] in RB3 that the correct amount transferred by NJW to the Applicant's bank account in the 2008 financial year was $148,500 comprising $89,143.49 on account of interest and $59,356.51 on account of repayment of principal.
No evidence was provided by the Applicant to indicate that ATO had been informed that the Applicant's income for 2008 should have been reduced by nearly $60,000. Nor was any evidence brought to the attention of the Tribunal that there had been any adjustment of accounts for these alleged errors by Camerons.
Having regard to the other evidence before the Tribunal I am not satisfied as to the accuracy of figures put forward by Mr Burton, which differ from the figures included in financial statements and income tax returns prepared by Camerons. I also observe that neither Mr Palesy nor any other representative of Camerons gave evidence to the Tribunal nor was any explanation provided as to why no such evidence was called.
I find it implausible that a firm of external accountants would have been engaged for some nine years where one of the two directors of Urmar who states that he took a close interest in the accounts of the relevant businesses noticed during that period what are alleged to be numerous and continuing blatant and substantive errors in balance sheets, incorrect categorisation of the industry in which the Applicant was involved and substantial errors in calculating the Applicant's income.
On the other hand, I observe that the other director, who was directly involved in bookkeeping, completion of a cashbook, banking and reviewing annual accounts and income tax returns, and allegedly had recalculated the loan balances between NJW and the Applicant, provided no corroborative evidence to the Tribunal of the errors alleged by the first director, her husband.
Mr Burton was an alternate director, and sometimes acting director, of Urmar from 2003 until he became the sole director on 7 November 2014. Mr Burton was asked if the Applicant had lodged a proof of debt with the liquidator of NJW in about 2014. He said he was not sure.
A document described as "Formal Proof of Debt or Claim" to the administrator of NJW from Urmar dated 19 August 2014 was shown to Mr Burton. That document is at page 595 of exhibit IB1. Mr Burton was also shown documents at pages 596 to 598 which appear to be supporting ledgers of NJW in respect of loan(s) from Urmar for the period 1 July 2011 to 5 June 2014. The aggregate amount shown as owing in the ledgers as at 5 June 2014 is the aggregate amount shown as the debt in the Proof of Debt.
Mr Burton said the Proof of Debt was a fabrication, he had never seen the document before. The Proof of Debt claims a loan from Urmar to NJW of $64,805.91, rental of property amounting to $144,000, and an aggregate debt of $208,805.91. Mr Burton said the figures are incorrect.
When Mrs Burton was shown the Proof of Debt her evidence was that she had seen the document previously. It was in her handwriting and bore her signature. She prepared the document on 19 August 2014 from the MYOB records in NJW's computer system.
No explanation was given to the Tribunal as to the calculation of the amount of $144,000 described as "rental of property".
There is no evidence that NJW ever used the Overett Ave Property. On the other hand there is no dispute that NJW used the Mamre Rd Property throughout the Relevant Period as its administrative office, to park trucks, and as the site of its vehicle workshop.
Rental to NJW of any property owned by the Applicant would be inconsistent with other evidence by Mr Burton. In RB3 Mr Burton stated: 20. The Applicant did derive rent during the Relevant Period from the lease of … the Mamre Road Property. The rent derived from the Mamre Road Property was approximately $50.00 per week over a period of roughly 3 years during the Relevant Period when I engaged a pensioner on behalf of the Applicant to act as the caretaker of the Mamre Road Property. This was necessary because if the Mamre Road Property remained unoccupied for a specified period of time the Applicant's insurance company would not cover the Mamre Road Property under its insurance policy. 23. … the only financial transactions between the Applicant and NJW and between the Applicant and Ross Burton Transport during the Relevant Period were in relation to the loan from the Applicant to NJW and the loan from the Applicant to Ross Burton Transport; those financial transactions were transfers of funds between them on account of the increase or decrease in the principal owed by NJW or Ross Burton Transport to the Applicant and on account of interest paid by NJW or Ross Burton Transport to the Applicant in connection with those loans.
Mr Burton's oral evidence was to the effect that: …. The Mamre Rd Property had a licence for 13 greyhounds. An old-age pensioner worked there with us and the greyhounds. We took some money from him so that we had an agreement rather than being a squatter. He lived in the house and my daughter and son-in-law lived in the house before that. My wife and also I lived in the house. We raced greyhounds. …. Sometimes we collected the rent from the pensioner, sometimes we didn't. It continued until the old-age pensioner went back to Malta last year [2015]. He paid rent on occasions and worked it out a fair bit. We have had a licence to train dogs for 40 or 50 years. He paid cash to me it never went into the bank.
Mr Burton's evidence at [57] in RB3, in relation to parking trucks at the Mamre Rd Property was: 57. … (b) trucks which were driven by NJW drivers were parked from time to time overnight or for maintenance at the Mature Road Property and generally only 2 trucks were parked there; (c) now and then friends of mine would ask if they could park their truck overnight at the Mamre Road Property and that happened on an irregular basis; and (d) a friend of mine who ran a business selling trucks at Bankstown from time to time would ask me if he could store a truck at the Mamre Road Property which he did when he did not have any room to store trucks at his yard at Bankstown
Mr Burton said that during the Relevant Period the administrative activities of NJW were carried out at the Mamre Rd Property owned by the Applicant. There was approval for a truck or repair workshop and there was such a workshop on the property. He agreed that NJW and RBT used the workshop and NJW had staff who worked at the Property. He informed the Tribunal that NJW had never paid any rent for the use of that property nor any other property owned by the Applicant.
Mr Burton's evidence in RB3 included: 28. … the agreement between the Applicant and NJW and the Applicant and Ross Burton Transport was that the Applicant would obtain finance from external lenders, namely Carter Mayfair, St George Bank and the CBA and would then on-lend some of those amounts, mainly to NJW, on the basis that the interest charged by those external lenders to the Applicant would then be passed on by the Applicant to NJW and Ross Burton Transport, so that those two companies would pay exactly the same interest to the Applicant as the Applicant was paying to the external lenders. 29. The practice which developed during the Relevant Period was that NJW would transfer to the Applicant amounts on account of the debt due to the Applicant and on account of the interest payable to the Applicant. 30. Interest due to the Applicant would be paid first and then after the interest payments were up-to-date any further payments would be in reduction of the principal due under the loan. ... 51. … the Applicant should have returned the interest it received from NJW in its Profit and Loss Account as interest income. The line item "Administrative Income" in the Applicant's Profit and Loss Accounts is not an accurate description of that line item, as it should have been described as "Interest Income". The equivalent interest paid by NJW to the Applicant should then have been returned as "Interest Expenses" in the Profit and Loss Accounts of NJW.
No evidence was brought to the attention of the Tribunal that any of the $50 amounts which Mr Burton said he received from the pensioner in respect of rent for the Mamre Rd Property were paid to or in any way credited to the Applicant.
Notwithstanding paragraphs 14 and 15 in RB1 I am not satisfied that the only "thing" the Applicant did during the Relevant Period was to act as the owner of the Properties and that its activities "involved mainly in collecting rent and paying the expenses normally associated with being the owner of the Properties, such as paying Council Rates."
In my opinion the submission at [113(a)] confuses the existence of the business of the Applicant during, and perhaps for a time after, the Relevant Period, with the existence of the Applicant. Also, I am not satisfied that the Applicant's submission that "the business of the Applicant was not substantially financially dependent on NJW during the Relevant Period" is supported on the evidence before the Tribunal. I reject the submission.
The Applicant's submission at [113(b)] that "the nature of the business carried on by the Applicant during the Relevant Period was the business of a property owner" is contrary to the weight of evidence and I reject it.
The submission at [113(c)] is to the effect that there was no substantial influence on the conduct of the Applicant's business because of "the actions of NJW and its sole Director Mrs Burton". The evidence shows that NJW provided almost all the income of the Applicant and I have found that a substantial part of the Applicant's business involved the provision of finance for NJW's business. The submission is not based on probative evidence and I reject it.

Terms of loan agreements

At [121] to [131] of ACS the Applicant submitted that the loan between the Applicant and NJW being on arm's length terms is a significant factor to be taken into account. The Applicant further submitted that if the parties acted independently in forming their bargain as to the terms on which the loan was made this is a strong argument to support the Applicant's contention that the parties were not substantially connected.
The only evidence brought to the attention of the Tribunal as to the terms on which the Applicant obtained funds from third parties and loaned those funds to NJW is the assertion of Mr Burton. Mr Burton stated that funds were loaned by the Applicant to NJW on the same terms, at least as to interest, as in the relevant agreements between the Applicant and third-party financiers.
Mr Burton said the agreement was made orally and the terms had not been reduced to writing. There were no employees of the Applicant. There is no evidence that the Applicant had appointed any representatives or agents. Accordingly, it appears that in order for the Applicant to have entered into any agreement with a financier or with NJW the agreement would have needed the authority of the Board of Directors comprising Mrs Burton and either her daughter Cindy or Mr Burton. There is no evidence as to who negotiated any relevant, allegedly arms-length, agreement on behalf of the Applicant.
The onus lies on the Applicant to prove its case on the basis of probative evidence. I am not satisfied that the accounts of the Applicant brought to the attention of the Tribunal indicate any substantive correlation between money borrowed by the Applicant from third-party financiers and apparently on-lent to NJW and payments made by NJW to the Applicant in terms of both principal and interest so as to enable the Applicant to repay its debts to third-party financiers in a timely manner.
Mrs Burton was the sole director of NJW at all relevant times and as such would have had authority to cause NJW to enter into loan agreements with the Applicant. There are no minutes of any determination by Mrs Burton as a sole director and she denied any involvement in the day-to-day management of NJW's business.
I am not satisfied on the evidence before me that there was anything other than an informal arrangement under which some moneys were borrowed by the Applicant from third parties and advanced to NJW as and when Mr Burton thought appropriate; that monies were paid by NJW to the Applicant in order to assist the Applicant to meet its cash flow requirements and to the extent that it was considered at all, there would at some time in the future be retrospective adjustments to apportion the payments from NJW to the Applicant between interest and repayment of principal.
Section 251A of the Corporations Act 2001 (Cth) requires that a company must keep minute books in which are recorded proceedings and resolutions of directors' meetings including resolutions passed by directors without a meeting. The Applicant chose not to provide to the Tribunal any such minutes whether of the Applicant or of determinations by Mrs Burton as the sole director of NJW. Such minutes, if they existed, may have assisted in providing evidence to support the Applicant's relevant submissions. This failure to provide probative evidence does not assist the Applicant's case.
I am satisfied that all or a substantial majority of the amounts declared as income in the tax returns of the Applicant for 2007 2008 2009 and 2011 as contained in LRB1 represented receipts from NJW and RBT. I am not satisfied that they exclusively represented interest income as it may be that some amounts declared as income represented a repayment of loans, in the main from the Applicant to NJW but also from the Applicant to RBT. I am satisfied that at least part of the receipts did represent interest income.
I have regard to the onus on the Applicant to prove its case by probative evidence on the balance of probability.
There is no evidence of any benefit to the Applicant for making any loans to NJW, nor for providing first mortgage security over the Properties for the benefit of NJW, nor for providing the use of the Mamre Rd Property to NJW rent-free.
I am not satisfied that NJW and the Applicant dealt with each other at arm's length in relation to relevant financial arrangements.
I find that aspects of Mr Burton's evidence are internally inconsistent, at times implausible, and inconsistent with contemporaneous documents in evidence. To the extent that they differ, I prefer Mrs Burton's evidence to that of Mr Burton.
The evidence shows that: 1. all or almost all the Applicant's income for the whole of the Relevant Period was derived from payments from NJW, at least some of which were in respect of interest on one or more loans. 2. the only substantial assets of the Applicant were the Properties. The Applicant granted mortgages over both Properties, and granted guarantees, to financial bodies to secure finance for NJW's business; 3. the Mamre Rd Property was used rent free by NJW for the purposes of parking vehicles, providing workspace for its administrative employees, and providing the use of a vehicle workshop for the vehicle fleet operated by NJW.
I have had regard to the matters with which I am required to have regard in s 16C (4) of the 1971 Act and s 97(2) of PTA and have regard to the onus on the Applicant to prove its case by probative evidence.
I am not satisfied on the evidence before me that: 1. for the purposes of s 16C (3) of the 1971 Act the business carried on by the Applicant between 1 July 2006 and 30 June 2007 was continuously carried on and would continue to be carried on substantially independently of the business of NJW. 2. for the purposes of s 97(2) of the PTA the business carried on by the Applicant in each tax year from 1 July 2007 to 30 September 2011 was carried on independently of, and was not connected with, the carrying on of a business carried on by NJW.
Having regard to my above findings in respect of the relationship between the carrying on of the businesses of the Applicant and of NJW it is not necessary for me to make any other findings in respect of the relationship between the carrying on of the businesses of the Applicant and of RBT.

Section 46 Notice

There is no dispute that on 8 April 2014 the Chief Commissioner issued a "Notice to 3rd Party" to the Applicant dated 8 April 2014. The notice informed the Applicant that action had been commenced under s 46 of the TA Act to recover the Debt. On the same day the s 46 notice was issued to the CBA.
The Applicant objected to the s 46 notice on several grounds. The objections were disallowed and the Applicant applied to the Tribunal to review the Chief Commissioner's decision. The Applicant seeks an order that the s 46 notice be declared void.
In summary, the Applicant submitted in AFS and at [55] to [98] of ACS that six mandatory steps which were required in order for the s 46 notice to be valid did not occur as the legislative provisions nominated by the Chief Commissioner in a letter dated 9 November 2011 to NJW (First Grouping Letter) did not support the grouping of the Applicant with NJW and RBT. The Applicant also submitted that a letter dated 12 September 2014 (Second Grouping Letter) from the Chief Commissioner which relied on different legislative provisions could not retrospectively validate the s 46 notice.
The Applicant submitted at [55]: 55. The steps in the chain of events which must have occurred for the Section 46 Notice to be valid are as follows: (a) Step 1 - NJW and Ross Burton Transport needed to have been properly grouped in accordance with the relevant payroll tax legislation; (b) Step 2 - the Applicant needed to have been properly grouped with NJW and Ross Burton Transport in accordance with the relevant payroll tax legislation; (c) Step 3 - a member(s) of the group must have failed to pay the amount that the member(s) is required to pay under the relevant payroll tax legislation so that then every member of the group is jointly and severally liable to pay that amount to the Chief Commissioner; (d) Step 4 - once 2 or more members of the group become jointly or severally liable to pay the relevant payroll tax liability then the Chief Commissioner may recover the whole of that amount from them, or any of them, or any one of them; (e) Step 5 - the Chief Commissioner may require a person by notice in writing to that person by whom any money is due or accruing or may become due to the taxpayer instead of the taxpayer to pay tax that is payable but remains unpaid; and (f) Step 6 - a copy of the notice in Step 5 must be served on the taxpayer.
In RSR the Chief Commissioner submitted that the Applicant's submission was fundamentally flawed in that: 1. grouping occurs by operation of law not because of a "purported grouping" by the Chief Commissioner; and 2. payroll tax must be paid in the amounts and on the dates determined by the legislation as the PTA provides for a self-assessment payroll tax scheme without the necessity for the Chief Commissioner to issue an assessment.
During the hearing the Applicant conceded that the Applicant, NJW and RBT were grouped automatically by operation of law. Save for one point in respect of the difference between being "grouped" and being "properly grouped" (the term used in Steps 1 and 2), there is no dispute that there has been a failure to pay the relevant amount (Step 3), that there is joint and several liability and pursuant to s 81 of the PTA the Chief Commissioner may recover the whole of the relevant amount from all or any one of the group members (Step 4), Step 5 has occurred by virtue of the s 46 notice served on the CBA and the Applicant conceded that a copy of the s 46 notice was served on it, (Step 6).
Mr Heraghty said that the difference between being "grouped" and being "properly grouped" proceeds on the basis that the Chief Commissioner is required to give particulars of the grouping in accordance with Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 even though the grouping operates by force of law. The basis for the submission is that the Applicant needs to know the basis on which it has a joint and several liability. The obligation to give particulars and the discretionary nature of the s 46 notice meant that the Chief Commissioner had to act fairly. Accordingly, the taxpayer must be given particulars of the case it had to meet.
Mr Heraghty conceded that the above point was the only defect the Applicant relied on in relation to the s 46 notice. The Applicant submitted: 80. Once given, particulars will limit the evidence that can be given at the trial, unless a tax authority puts forward a different argument to support the assessment prior to the trial. 81. In this case the particulars nominated in the 1st Grouping Letter and the Section 45(2A) Notice were not changed to rely upon an additional or alternative argument until well after the Section 46 Notice was issued when the Respondent sent to the Applicant's Lawyers the 2nd Grouping Letter. 82. As identified by Isaccs J in the extract from his judgment in paragraph [75] above [The King v Associated Northern Collieries] the giving of particulars ensures "a fair trial" and likewise as identified by Gibbs J in the extract from his judgment in Bailey's Case in paragraph [76] above the giving of particulars will "prevent the injustice that may occur when a party is taken by surprise". 83. …. it was only fair that the Applicant should have been given particulars of the grouping sections relied upon by the Respondent so that the Applicant knew the case it had to meet. Without the details of those sections the Applicant would have been left with not knowing what case he was required to meet, which the Applicant submits would have been unfair.
Firstly, I observe that no evidence was brought to the attention of the Tribunal to the effect that the Applicant was not aware at any relevant time of the case it had to meet.
Secondly, in Bailey the leading decision was made by Aickin J, with whose reasons Barwick CJ, and Gibbs, Mason and Jacobs JJ agreed. Aickin J said: 11. … Whatever the position may be at the time of the issuing of a notice of assessment and whether or not it is correct to say, as Williams J. said in H. R. Lancey Shipping Co. Pty. Ltd. v. Federal Commissioner of Taxation (1951) 25 ALJR 145 , that the Commissioner is under no obligation to furnish an "alteration sheet" indicating the adjustments which he has made to the taxable income as returned whether by way of addition of income or denial or allowable deductions, when an appeal comes before this Court or a Supreme Court from the Commissioner's disallowance of an objection, the position is quite different ... in my opinion this Court and the Supreme Courts of the States hearing taxation appeals have inherent jurisdiction to require parties to give particulars if it appears just to do so. 12. The purpose of particulars is to assist in the defining of issues and there is in my opinion no reason why in appropriate cases the Commissioner should not give particulars where they are necessary in order that both the appellant and the court may understand the basis upon which the assessment has been made. 13. There is nothing in the policy of the Act nor in general considerations of policy to require that the Commissioner should not inform the appellant prior to the commencement of the hearing of those details so that the case may proceed in an orderly and comprehensible manner. It is not in the interests of the proper administration of justice that, when the matter comes before the court, the appellant should have to speculate about, and adduce evidence to negate, every possible kind of agreement or arrangement and avoidance which the imagination of his advisers can conjure up. … 21. In Tomlinson v. Federal Commissioner of Taxation (1974) 23 FLR 314, at p 322; (1974) 2 NSWLR 186, … Jeffrey J. … [said] in the exercise of its discretion the court will give paramountcy to the principle that the appellant should have the fullest particulars necessary to him to enable him to appraise the case which he has to disapprove and should have access to documents necessary for the proof by him of this case. With a general proposition expressed in those general terms I would respectfully agree. … 24. … in a case involving s. 260 the argument could not properly proceed without it being known what the Commissioner contended was the relevant contract, agreement or arrangement and what it was that the Commissioner relied upon as being void as against him. Such a course appears to me to be unjust to the taxpayer and inconvenient to the court. 25. Whatever the position may be before the appeal reaches a court of law there is no doubt that the court has power, if not directly under its rules, then under its inherent jurisdiction, to order the Commissioner to provide such particulars of the process of assessment as are necessary to enable the real issues to be ascertained before the case comes on for hearing. … 27. … the court does have power to order the Commissioner to give particulars of his assessment sufficient to enable the issues before the court to be ascertained and the proceedings conducted in an orderly and just manner. The two illustrations which I have given and s. 260 provide straightforward examples of cases where such particulars would be necessary to the proper functioning of the court and to enable the taxpayer effectively to exercise his right of appeal to the court ….
It seems to me that the decision in Bailey relates to giving particulars for the purpose of litigation so that proceedings may be conducted in an orderly and just manner and the taxpayer is enabled to effectively exercise his right of appeal. The analogy in this matter would relate to a hypothetical failure by the Chief Commissioner to have provided reasons for disallowing the objections, failing to provide s 58 documents and perhaps failing to provide any submissions for the purpose of the proceedings before this Tribunal.
I am not satisfied that there is a failure by the Chief Commissioner to comply with any statutory requirement in relation to the issue of the s 46 notice. Nor do the Applicant's submissions satisfy me that there is any relevant unfairness if the Chief Commissioner fails to provide to the Applicant, prior to the issue of the s 46 notice, any particulars, other than those contained in relevant documents issued in accordance with ss 45 (2) and 46 (3), which may at a later time be required for the purpose of litigation.

Imposition of penalty tax and interest

The long title of the TA Act is "An Act to make general provision with respect to the administration and enforcement of the other taxation laws." Pursuant to s 4 of the TA Act, the 1971 Act and the PTA are taxation laws. In accordance with s 3 of the TA Act "tax default" means a failure by a taxpayer to pay, in accordance with a taxation law, the whole or part of tax that the taxpayer is liable to pay."
There is no dispute that tax payable by the Applicant was not paid in accordance with the 1971 Act and PTA.
I respectfully concur with the following useful summary of the relevant law by Block SM in Boston Sales and Marketing Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 139: 63 By s.87(l)(a) and (b) of the PTA 2007 every employer who is registered or required to be must within 7 days after the end of each month except June, lodge with the Chief Commissioner a return relating to that month and within 21 days after the end of June in each year, lodge a return relating to June and to the financial year ending on the close of that month. In the case of a group if the group has a "designated group employer" the designated group employer for a group may lodge a joint return for the group: s.87(2) PTA 2007. 64 In turn, by s.9(l)(a) and (b) of the PTA 2007 a person who is liable to pay payroll tax on taxable wages must pay the tax within 7 days after the end of the month in which those wages were paid or payable, other than the month of June, in the case of which payment is required within 21 days after the end of the month of June.
Part 5 of the TA Act imposes interest and penalties in respect of certain tax defaults and empowers the Respondent to remit either or both interest and penalty tax by any amount in such circumstances as the Respondent considers appropriate. The Applicant has requested that the Tribunal review the relevant decisions of the Respondent and remit both interest and penalty tax in full or to some lesser amount. In these proceedings, the Tribunal may exercise the Respondent's relevant powers.
The first objections included an objection to the imposition of penalty tax and interest. In the First Disallowance Decision the Chief Commissioner said: The penalty imposed was initiated by the auditor as a result of her findings on the original order that for NPW (sic) and RBT, finalised in November 2011. It was determined that a tax default occurred because the client failed to register when first liable. The 8% premium component of interest was remitted and penalty tax reduced from 25% to 20% as the auditor adjudicated that the taxpayer cooperated during the audit, provided information in a timely manner and voluntary disclosure was made during investigation. The penalty tax was carried forward to the joint and several reassessment of the liabilities of NJW and RBT to the [Applicant]. The grouping was found to be valid and therefore the penalty is deemed to be appropriate.
No written submissions were received by the Tribunal from either party in respect of interest and penalty tax.
In oral submissions Mr Heraghty said: 1. he is awaiting instructions as to what the Applicant says was paid and that is one basis for a remission; 2. the Applicant had no prior payroll tax liability before the grouping; 3. the Applicant has no history of default in respect of any legislation administered by the Chief Commissioner; and 4. the Applicant has a reasonably arguable case for de-grouping.
Mr Gerard's oral submissions referred to ss 27 and 33 of the TA Act. Mr Gerard said that there was no evidence that goes to any reasonable care to comply with statutory obligations nor is there any evidence that failure to comply was beyond the control of the Applicant unless it is the theoretical argument that the external accountant has all along caused the problems that relate to the default in respect of payroll tax. Mr Gerard also referred to "AES Wiring" as an authority in respect of pointing a finger at an accountant.

Interest

Relevant TA Act provisions in respect of interest are: 21 Interest in respect of tax defaults (1) If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day for payment until the day it is paid at the interest rate from time to time applying under this Division. 22 Interest rate (1) The interest rate is the sum of: (a) the market rate component, and (b) the premium component. (2) The "market rate component" is: (a) unless an order is in force under paragraph (b), the Bank Accepted Bill rate rounded to the second decimal place (rounding 0.005 upwards), or (b) the rate specified for the time being by order of the Minister published in the Gazette. 25 Remission of interest The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount.
Accordingly, if a tax default occurs the taxpayer is liable to pay interest on the amount of unpaid tax. The interest rate may comprise the market rate component and the premium component. In this matter the Respondent has remitted the whole of the premium component.
Relevant principles concerning the imposition and remission of market interest were considered in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor (RD) [2004] NSWADTAP 19 (revised) as follows: 60. In our view the primary interest rate (the market rate component) is intended to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due. So a rate is set which fluctuates, and is connected to an external rate, the Reserve Bank's Accepted Bill rate. This, as we see it, is a component that could rarely, if ever, be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time. The Tribunal made the observation at [50] that to justify any remission of the market rate component of interest, it would be necessary to show that in some way the Commissioner contributed to the default. We agree with this observation.
In Chan & Naylor Australia Pty Ltd v Chief Commissioner of State Revenue [2016] NSWCATAD 4, I said: 102 In Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215 Sorensen SM referred at [107] to [109] to the excerpt from Incise Technologies set out above and also to the decision of Verick JM in Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 who said at [27]: In cases where an amount of interest is imposed by the application of the market rate, only exceptional circumstances would justify any remission. The narrow category of circumstances would include cases where the 'Tax default' is entirely due to a fault of the Chief Commissioner. Other circumstances would include situations completely out of the control of the taxpayer. 103 Sorensen SM said at [110], in rejecting the submissions by the taxpayer in that matter, that he was not satisfied that the taxpayer had demonstrated any exceptional circumstances to justify remission of the market rate component of interest.
I am not satisfied that there are any exceptional circumstances in evidence which would entitle the Applicant to have the use of money otherwise payable to the Respondent for not having the benefit of the tax payment from the time it was due. The Applicant has not provided any authority in support of its position and I reject its submissions in relation to the Respondent's decision to require it to pay the market rate component of interest in accordance with the TA Act.

Penalty tax

The Chief Commissioner levied penalty tax at the default rate of 25% but remitted 20% of the penalty tax because the Applicant co-operated during the audit and disclosed certain information.
The relevant TA Act provisions are: 26 Penalty tax in respect of certain tax defaults (1) If a tax default occurs, the taxpayer is liable to pay penalty tax in addition to the amount of tax unpaid. (2) Penalty tax imposed under this Division is in addition to interest. 27 Amount of penalty tax (1) The amount of penalty tax payable in respect of a tax default is 25% of the amount of tax unpaid, subject to this Division. … (3) The Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if the Chief Commissioner is satisfied that: (a) the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law, or (b) the tax default occurred solely because of circumstances beyond the taxpayer's control (or if a person acted on behalf of the taxpayer, because of circumstances beyond either the person's or the taxpayer's control) but not amounting to financial incapacity. 29 Reduction in penalty tax for disclosure during investigation (1) The amount of penalty tax determined under section 27 is to be reduced by 20% if, after the Chief Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out and before it is completed, the taxpayer discloses to the Chief Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined. 33 Remission of penalty tax The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.
In Boston Sales and Marketing Block SM said at [66] to [68]: 66 By s.27(l) of the TA Act the default amount of penalty tax payable in respect of a tax default is 25% of the amount of tax unpaid. Section 27(3) of the TA Act provides for the circumstances in which the Chief Commissioner (or, the Tribunal) may determine that no penalty tax is payable. In order to determine that no penalty tax is payable the Chief Commissioner must be satisfied that the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law, or the tax default occurred solely because of circumstances beyond the taxpayer's control but not amounting to financial incapacity. In turn, s.33 of the TA Act empowers the Chief Commissioner to remit penalty tax in such circumstances as the Chief Commissioner considers appropriate. 67 It is for the Applicant to satisfy the Tribunal, with evidence, of the matters that must be satisfied under s.27(3). The Tribunal finds there is no evidence that the group took "reasonable care" to comply (s.27(3)(a)) or that the tax default occurred due to something "solely out of the taxpayer's control" (s.27(3)(b)). As to the concept of reasonable care see, generally, Re Confidential and Commissioner of Taxation [2008] AATA 415; Weyers v Commissioner of Taxation [2006] FCA 818; AES Wiring Pty Limited and AKS Distributions Pty Limited v Chief Commissioner of State Revenue [2012] NSWADT. 68 In each case, it is essentially a question of fact whether the taxpayer has taken reasonable care in attending to its tax obligations. Regard must be had to the nature of the obligation requiring the exercise of reasonable care and the particular circumstances in which the person under that obligation finds him or herself.
Accordingly, it is for the Applicant to satisfy the Tribunal, with evidence, of ameliorating matters and the Applicant's particular circumstances are to be considered in applying the test.
Mr Heraghty said the Applicant had a reasonably arguable case for degrouping. Irrespective of the validity of that submission, it is not the relevant test.
The statutory test in s 27(2) of the TA Act is whether the Applicant or someone acting on behalf of the Applicant took "reasonable care to comply with" payroll tax law. In order to establish that the Applicant took reasonable care, evidence should be adduced of the steps that the Applicant (or someone acting on behalf of the Applicant) took regarding compliance. No such evidence was presented to the Tribunal.
It may be that Camerons took reasonable care on behalf of the Applicant. However, as no evidence was provided by either Mr Palesy or any other representative of that organisation, and no reason was provided for the lack of such evidence, the Applicant was not assisted in that regard.
Unfortunately for the Applicant I find that it provided insufficient evidence to satisfy me that it or its representative took reasonable care or that the tax default occurred because of circumstances beyond its control. Nor has the Applicant provided evidence of any other appropriate circumstances to justify a full or partial remission of penalty tax under s 33 of the TA Act. Accordingly, I find that I am not satisfied that there existed circumstances in respect of which it would be appropriate for the Tribunal to remit the penalty tax beyond the extent already allowed by the Respondent.
Having regard to the above findings: 1. I am not satisfied that the s 46 notice is void; 2. I am not satisfied that during the period 1 July 2006 to 30 June 2007 the business of the Applicant was continuously carried on, and would continue to be carried on, substantially independently of the business carried on by NJW; 3. I am not satisfied that during the period 1 July 2007 to 30 September 2011 the business carried on by the Applicant was carried on independently of and was not connected with the carrying on of a business carried on by NJW.

Decision

Having regard to the above findings on the material before me the correct and preferable decision of the Tribunal is that: 1. the decision of the Chief Commissioner not to exclude the Applicant from the group comprising the Applicant, NJW and RBT is confirmed. 2. the s 46 notice issued by the Chief Commissioner is not void. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 February 2017

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Judgment (25 paragraphs)

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Legislation Cited (1)

Cases Cited (11)