Chan & Naylor Australia Pty Ltd v Chief Commissioner of State Revenue

NCAT Administrative and Equal Opportunity|2015-09-03

Solicitors: Speed and Stracey Lawyers (Applicants) Crown Solicitor's Office (Respondent) File Number(s): 1410403

Background

The Applicants applied to the Tribunal for a review of the decision dated 8 August 2013 by the Respondent (sometimes called the Chief Commissioner in these reasons) under the Payroll Tax Act 2007 (the Act) to assess Chan & Naylor Australia Pty Ltd (CN Australia) as liable for payroll tax, penalty tax and interest in the sum of $222,246.95 for the financial years 2009 to 2013 (the Relevant Period) on the basis that both of the Applicants are members of a group pursuant to Part 5 All references in these reasons to sections without reference to particular legislation are to sections of the Act.
The 8 August 2013 letter from the Office of State Revenue (OSR) to Chan & Naylor Pty Ltd as trustee for Chan & Naylor Trust stated that CN Australia and Chan & Naylor Pty Ltd constituted a group for NSW payroll tax purposes from 1 July 2008 (the Initial Decision). The OSR stated that the reasons for the Initial Decision had been sent to Chan & Naylor Pty Ltd on 11 July 2013.
In the 11 July 2013 communication the OSR stated: 1. Chan & Naylor Pty Ltd was grouped with Chan & Naylor Holdings Pty Ltd (CN Holdings) under s 72(1) and ss 72(2)(c) and (g); 2. CN Australia was a wholly owned subsidiary of CN Holdings, accordingly those two companies were grouped under s 70; and 3. as CN Holdings and CN Australia were grouped then in accordance with s 74(1) members of both of those groups together constituted a single group.

Evidence before the Tribunal

The evidence before the Tribunal consisted of: 1. Volumes 1 and 2, of 3 volumes of s 58 documents comprising 556 pages (exhibit R1). 2. An agreed supplementary tender bundle tendered by the Applicants and admitted without objection (exhibit A1). 3. Affidavit made 4 June 2015 by E Pardey, solicitor employed in the office of the Acting Crown Solicitor (exhibit R2) attaching documents obtained from ASIC.
No affidavits were tendered by the Applicants.

The Respondent's Case

The Respondent relied on certain of the documents in evidence, the Respondent's written outline of submissions dated 26 May 2015 (RS) and oral submissions by Mr Balafoutis. Mr Balafoutis provided a bundle of authorities to the Tribunal. All references to paragraph numbers of submissions on behalf of the Respondent are to paragraphs of RS.
In summary RS outlined two approaches to the grouping decision.
The first approach is set out at [66] to [97] and is stated at [65] to involve "a different analysis…to the one employed by the Chief Commissioner on 3 June 2014". This approach involves six separate groupings of companies either on their own account or in their capacity as trustees of various trusts. The Respondent submits that the groupings lead to a conclusion that the Applicants are part of a payroll tax group. The groups were numbered from 1 to 6 in RS and their details are described below to the extent that they are relevant to these reasons.
The second approach, which is much shorter and is described by Mr Balafoutis as an alternative method of reaching the same grouping decision, is set out at [124] to [131]. This is dealt with in some detail below.

The Applicants' Case

The Applicants relied on certain of the documents in evidence, written submissions dated 15 April 2015 (AS), submissions in reply dated 8 July 2015 (ASR) and the Applicants' closing submissions dated 2 September 2015 (ACS), and oral submissions by Mr Young. Mr Young provided a bundle of authorities to the Tribunal. All references to paragraph numbers of submissions on behalf of the Applicants are to paragraphs of AS unless they specifically refer to ASR or ACS.
Mr Young submitted that the Applicants conceded the existence of group 1, disputed that groups 2 and 4 were made out and said that the other groupings, that is groups 3, 5 and 6, follow from the dispute that groups 2 and 4 were made out. He submitted that the key issues between the parties was the existence of groups 2 and 4. He also submitted that the matter raised seven issues which he summarised as follows: 1. the disclaimer; 2. "the" beneficiary versus "a" beneficiary, involving the interaction between ss 72(6) and s 72(2)(g); 3. carrying on of a business under a trust, involving the definition of "business" in s 67 (d) and s 72(2)(g): 4. the Chief Commissioner's alternative grouping, in particular paragraphs [128] to [131] of RS and whether that grouping is made good; 5. imposition of penalties; 6. remission of interest; and 7. costs.

Consideration

I observe that Mr Balafoutis agreed with Mr Young that the issues outlined above were key issues in the matter. However, having regard to the several alternative ways in which persons can be grouped under the Act, and the statutory onus on the Applicants to prove that there was no grouping, I have not found it necessary to comment on all the issues raised by each party in order to make my findings.

Powers of Tribunal on review

There is no dispute that on a review the Tribunal may affirm vary or set aside administratively reviewable decisions, such as the Initial Decision and the revised assessments and make orders as to costs or otherwise, s 101(1) of the Taxation Administration Act 1996 (TAA), s 63 Administrative Decisions Review Act 1997 (ADR Act) and s 60 Civil and Administrative Tribunal Act 2013 (CAT Act).

Onus and standard of proof

The Applicants acknowledged at [29] that by s 100 (3) of the TAA they bear the onus of proving their case to the ordinary civil standard, that is, on the balance of probabilities. However, the Applicants submit at [30] that "to say the onus is the civil onus says nothing as to the manner in which that onus might be discharged". At [32] the Applicants submit that the Respondent has specifically disavowed his Initial Grouping and "the deliberate and considered invocation of the Objection Grouping". The Applicants then submit that the Respondent "is precluded from seeking to rely on some other construct, not particularised in the Objection Grouping, to defend the grouping for which he asserts: See Delmege v CCSR [2009] NSWSC 1052."
In AS, the term "Initial Grouping" is described at [2] as "the question of the existence of the subsumed one larger "business group", first particularised by the CCSR in his grouping identification letter dated 11 July 2013" while "Objection Grouping" is described as the grouping "recast and substituted by the decision dated 3 June 2014".
The Respondent's response to these submissions is found at [46] to [49]. In summary the Respondent submits that the Chief Commissioner has not agreed to limit the proceedings and it would be entirely inappropriate to do so, "particularly since the Applicants have sought to retrospectively alter their corporate structure by deeds of disclaimer after the Chief Commissioner had determined the Applicants' objection. For the avoidance of all doubt, the Chief Commissioner puts the Applicants to proof of every element of their case."
The Applicants submitted at [30] and [31] "the leading decision of the High Court on the nature of onus of proof in revenue cases is FCT v Dalco [1990] 168 CLR 614" and acknowledged that in that case Brennan J, with whom Mason CJ agreed, said "the Commissioner might put the taxpayer to strict proof of every material fact necessary to establish the excessiveness of the assessment and negate every alternative postulate or construct which might support or justify the amount assessed". The Applicants also provided the following extract from the decision of Brennan J at page 624, "The manner in which a taxpayer can discharge that burden varies with the circumstances. If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount of the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment…" (Emphasis added)
I find that there is no evidence before me as to any agreement between the Commissioner and the Applicants to confine the review by the Tribunal.
In Delmege, to which the Applicants referred, the solicitors for the Chief Commissioner said on 29 May 2009 that the Chief Commissioner did not propose to adduce any evidence. The matter was then set down for hearing on 1 October 2009. On 29 September 2009 the Chief Commissioner served supplementary submissions without the leave of the Court and the Chief Commissioner sought to adduce additional evidence. While the Court disallowed the additional submissions and the tender of any evidence to support a particular contention not previously raised in those proceedings, the Court ordered that the matter be adjourned on the basis that the Chief Commissioner made certain amended assessments and was required to pay the Plaintiffs' costs thrown away by the adjournment. This is not the factual situation before the Tribunal and I reject the Applicants' submission at [32] in which they relied on Delmege.
I observe that s 100(3) of the TAA states "The applicant has the onus of proving the applicant's case in an application for review." The requisite standard of proof in reviews by the Tribunal is the "balance of probabilities" B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187, (2008) 74 NSWLR 481 ("B & L Linings") at [104].
In accordance with s 38 (2) of the CAT Act the Tribunal is not bound by the rules of evidence and may inquire into and inform itself on any matter in such manner as it thinks fit, subject to the rules of natural justice. Further at s 38 (4) and (5) the Tribunal is to act according to equity and good conscience and the substantial merits of the case without regard to technicalities and shall take such measures as are reasonably practicable to ensure that the parties have a reasonable opportunity to be heard or otherwise have their submissions considered in the proceedings.
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.
I find that the onus lies on the Applicants to prove their case on the balance of probabilities having regard to the evidence before the Tribunal.

Payroll tax law

Payroll tax is a tax on employers in respect of New South Wales wages 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.
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 are several alternative statutory tests, any of which may determine that a legal person is a member of a group. The tests are found in Part 5 , Divisions 1 to 3 of the Act. They include: 1. companies constitute a group if they are related bodies corporate within the meaning of the Corporations Act 2001; 2. groups may arise from the use of common employees; 3. a person or set of persons who have a controlling interest in each of two businesses may constitute a group; 4. groups may arise from tracing interests in corporations; 5. smaller groups may be substituted by larger groups; and 6. there are circumstances in which an entity will be held to have a direct or indirect interest in a corporation for the purposes of s 73 (tracing interests in corporations).
In Pastel Pines International v Chief Commissioner of State Revenue [2013] NSWADT 49 a case which concerned the grouping provisions of both the Act and its immediate predecessor, Walker JM said at [42] that the rationale behind the grouping provisions: was explained by the Court of Appeal in the context of an earlier, similar section, in Commissioner of Pay-Roll Tax v RG Elsegood & Co. Pty Limited [1983] 1 NSWLR 223 at 229 to 230. Mahoney JA adopted a submission by the Commissioner to this effect: Tax relief was given by the Act to businesses employing less than a specified number of employees. Attempts have been, or could be, made by larger businesses to obtain that relief by splitting their businesses into a number of smaller or separate businesses, employing no more than the specified number of employees. The remedy adopted by the statute to avoid that mischief was to deny such relief to members of a "group"; to provide for the employees of " commonly controlled" businesses to be deemed to constitute a " group"; to define " group" for this purpose in wide terms so as hopefully to include all who might be involved in the avoidance of the purpose of the legislation...
Section 68 provides that the fact that a person is not a member of a group constituted under a particular provision of Part 5 does not prevent that person from being a member of a group constituted under a different provision of the Part.
I observe that in order to ameliorate certain consequences arising from the grouping provisions, the Chief Commissioner may, in some circumstances, under s 79 determine that a person who would, but for the determination, be a member of a group is not a member of the group. It is the decision of the Chief Commissioner not to exercise this power of exclusion which is at issue in file number 1410642 referred to at [6] to [8] above.
Certain excerpts from Divisions 1 to 3 of Part 5 of the Act are set out below: Part 5 Grouping of employers Division 1 Interpretation 67 Definitions In this Part: business includes: (a) a profession or trade, and (b) any other activity carried on for fee, gain or reward, and (c)…and (d) the carrying on of a trust (including a dormant trust), and (e)… whether carried on by 1 person or 2 or more persons together. group means a group constituted under this Part, but does not include any member of the group in respect of whom a determination under Division 4 is in force. 68 Grouping provisions to operate independently The fact that a person is not a member of a group constituted under a provision of this Part does not prevent that person from being a member of a group constituted under another provision of this Part. Division 2 Business groups 69 Constitution of groups A group is constituted by all the persons or bodies forming a group that is not a part of any larger group. 72 Groups of commonly controlled businesses (1) If a person or set of persons has a controlling interest in each of 2 businesses, the persons who carry on those businesses constitute a group. (2) For the purposes of this section, a person or set of persons has a controlling interest in a business if: (a)… (b)… (c) in the case of a business carried on by a corporation: (i) the person or each of the set of persons is a director of the corporation and the person or set of persons is entitled to exercise more than 50% of the voting power at meetings of the directors of the corporation, or (ii) a director or set of directors of the corporation that is entitled to exercise more than 50% of the voting power at meetings of the directors of the corporation is under an obligation, whether formal or informal, to act in accordance with the direction, instructions or wishes of that person or set of persons, or (d) in the case of a business carried on by a body corporate or unincorporate - that person or set of persons constitute more than 50% of the board of management (by whatever name called) of the body or control the composition of that board, or (e) in the case of a business carried on by a corporation that has a share capital - that person or set of persons can, directly or indirectly, exercise, control the exercise of, or substantially influence the exercise of, more than 50% of the voting power attached to the voting shares, or any class of voting shares, issued by the corporation, or (f)… (g)… (3)… (4) If: (a) a person or set of persons has a controlling interest in a business, and (b) a person or set of persons who carry on the business has a controlling interest in another business, the person or set of persons referred to in paragraph (a) has a controlling interest in that other business. (5)… 74 Smaller groups subsumed by larger groups (1) If a person is a member of 2 or more groups, the members of all the groups together constitute a group. (2) If 2 or more members of a group have together a controlling interest in a business (within the meaning of section 72), all the members of the group and the person or persons who carry on the business together constitute a group.

Issues

The Tribunal's task is to determine whether, as the Respondent contends, the Applicants are grouped for each payroll tax year during the Relevant Period. Payroll tax years run from 1 July in each year to the following 30 June. As noted above there is judicial authority to the effect that the Commissioner is not required to prove the grouping, it is for the Applicants to prove that they are not grouped in respect of each year during the Relevant Period.

The Respondent's alternative grouping

The Commissioner submits that the Applicants form a group pursuant to s 72(1). The first step in the Chief Commissioner's analysis is set out at [126] and is to the effect that Chan & Naylor Pty Ltd carries on at least two businesses. Firstly, it acts as trustee of the Chan & Naylor Trust, therefore it carries on a trust which is a business (s 67(d)) and secondly it is a professional accounting and tax service business and therefore carries on a business on its own account (s 67(a)). The second part of the first step is that CN Australia licences and sells intellectual property, precedents and educational material to 3rd parties for a fee and therefore carries on a business (s 67(b)). I take this opportunity to observe that at [23] the Respondent stated, and the Applicants conceded, that the professional accounting and tax service business known as Chan & Naylor Pymble operated by Chan & Naylor Pty Ltd was operated by that company as trustee for the Chan & Naylor Discretionary Trust (also referred to from time to time by the parties as the Chan & Naylor Trust).
Mr Young conceded the first step on behalf of the Applicants.
The Respondent's second step relates to s 72(2)(e) which involves grouping of commonly controlled businesses. Section 72 relevantly provides: (1) If a person or set of persons has a controlling interest in each of 2 businesses, the persons who carry on those businesses constitute a group. … (2) For the purposes of this section, a person or set of persons has a controlling interest in a business if: … (e) in the case of a business carried on by a corporation that has a share capital - that person or set of persons can, directly or indirectly, exercise, control the exercise of, or substantially influence the exercise of, more than 50% of the voting power attached to the voting shares, or any class of voting shares, issued by the corporation, or
The Respondent submits that Mr Edward Chan and Mr David Naylor comprise a set of persons who have a controlling interest in the business carried on by CN Australia and at least one of the businesses carried on by Chan & Naylor Pty Ltd.
The Respondent submits at [128] that Mr Chan and Mr Naylor have a controlling interest in the businesses carried on by Chan & Naylor Pty Ltd because they are the set of persons who can exercise more than 50% of the voting power attached to the voting shares of that company. The unchallenged evidence is that throughout the whole of the Relevant Period Mr Chan and Mr Naylor each held one of the only two shares issued by that company. For the reasons set out at [62] to [67] below, I find pursuant to s 72(2)(e) that Mr Chan and Mr Naylor had a controlling interest in each business carried on by Chan & Naylor Pty Ltd throughout the Relevant Period.
At [129] the Respondent submits that Mr Chan and Mr Naylor have a controlling interest in the business of CN Australia because: they have owned more than 50% of the voting shares in the holding company (Chan & Naylor Australia Holdings Pty Ltd) of Chan & Naylor Australia Pty Ltd. By reason of that shareholding in the holding company, Edward Chan and David Naylor have been able to indirectly control the exercise of all of the shares in Chan and Naylor Australia Pty Ltd held by Chan & Naylor Australia Holdings Pty Ltd.
The Applicants' written submissions in reply to the Respondent's [129] submissions are found in ASR from [32] and in ACS from [2] to [8].
In ASR the Applicants assert that the shares held by CN Holdings in CN Australia are held as trustee of three discretionary trusts. At [32] the Applicants submit "the directors of a trustee company must act in the interests of the beneficiaries of the trust and trust property they administer and not its own shareholders." ASR relies on the authority of Australasian Annuities Pty Ltd (in liq) (recs and mgrs apptd) v Rowley Super Fund Pty Ltd (2015) 104 ACSR 312 and at [227] and [229].
ASR also states at [32] "… It cannot be said that shareholders of a trustee company have any control, whether direct, or indirect or indeed influence over what the trustee company does in the exercise of its fiduciary duties as trustee." The Applicants provided authority to support this submission.
The Applicants effectively repeated this argument with slightly different wording in ACS at [6] and [7] where they also said: …. the Applicants elected to take the CCSR's evidence at its highest and not to adduce evidence from Messrs Chan & Naylor as to whether they did "indirectly influence" the exercise of voting power in the subsidiary. On a demurrer, the Applicants are entitled to succeed on this point.
I reject the above submission and repeat my observation that in these proceedings the onus is on the Applicants to prove their case on the evidence before the Tribunal. If the Applicants choose not to adduce evidence in respect of a particular issue it may not be possible for the Tribunal to find in their favour.
The Respondent's third and final step is set out in [130] as follows: The third step is to apply s 72(1) of the Payroll Tax Act. That section provides that, if a person or set of persons has a controlling interest in each of 2 businesses, the persons who carry on those businesses constitute a group. Applying that provision, Edward Chan and David Naylor have a controlling interest in businesses carried on by Chan & Naylor Pty Ltd and CN Australia. Therefore, each of those companies constitute a group.
This third step may have been undisputed except that the parties did not agree that Mr Chan and Mr Naylor had a controlling interest in CN Australia.
It is undisputed that throughout the whole of the Relevant Period all of the issued shares in CN Australia were held by CN Holdings. The question in dispute in the Respondent's alternative grouping is did Mr Chan and Mr Naylor comprise a set of persons who could exercise or substantially influence the exercise of the voting power of the shares held by CN Holdings in CN Australia? If so, did Mr Chan and Mr Naylor hold that influence because they controlled the votes of shareholders of CN Holdings, as asserted by the Respondent and disputed by the Applicants, or was there some other relevant source of their influence or power?
Absent any evidence to the contrary, the board of directors of CN Holdings constituted the persons who could exercise or substantially influence the exercise of the voting power of CN Holdings shares in CN Australia.
At Appendix A to RS is a schedule of the shareholders and directors of each of Chan & Naylor Pty Ltd, CN Australia and CN Holdings for each of the 2009 to 2013 financial years. The Respondent submitted that the evidence used for the schedule is the appendices to Ms Pardey's affidavit filed in these proceedings. The Applicants have accepted the accuracy of the contents of the schedule.
That schedule discloses that for the whole of the Relevant Period Mr Chan and Mr Naylor comprised two of the three directors of CN Holdings other than for the period from 30 November 2010 to 2 March 2012 (the Interim Period) during which Mr Chan and Mr Naylor comprised two of the four directors of CN Holdings.
There is no evidence before the Tribunal as to the contents of the constitutions (if any) of CN Holdings, Chan & Naylor Pty Ltd or CN Australia. Nor is there any evidence as to any relevant shareholders' agreements, however described, concerning any of those companies. Mr Young informed the Tribunal that on his instructions there were no relevant shareholder agreements which needed to be in evidence.
I observe that it is not unusual for a company's constitution to provide for the office of a chairman of the board of directors of the company. Nor is it unusual for that chairman to hold a casting vote in the event that the board is otherwise deadlocked on a particular resolution.
The first group of companies referred to in RS, group 1, comprises CN Holdings and CN Australia. This grouping was conceded by the Applicants in the course of the hearing. (Page 3 of the transcript at 15-16 and page 20 at 41-42)
I will consider each of Chan & Naylor Pty Ltd, CN Australia and CN Holdings in some detail shortly. However, before I do, it is appropriate to make some broader observations so as to provide the context for my specific findings in respect of particular companies.
Section 134 of the Corporations Act 2001 (Cth) provides that a company's internal management may be governed by provisions of this Act that apply to the company as replaceable rules, by a constitution or by a combination of both. Section 135 relevantly provides: Replaceable rules Companies to which replaceable rules apply (1) A section or subsection…whose heading contains the words: (a) replaceable rule --applies as a replaceable rule to: (i) each company that is or was registered after 1 July 1998; and (ii) any company registered before 1 July 1998 that repeals or repealed its constitution after that day; and (b) replaceable rule for proprietary companies and mandatory rule for public companies --applies: (i) as a replaceable rule to any proprietary company that is or was registered after 1 July 1998; and (ii) as a replaceable rule to any company that is or was registered after 1 July 1998 and that changes or changed to a proprietary company (but only while it is a proprietary company); and (iii) as a replaceable rule to any proprietary company that is or was registered before 1 July 1998 that repeals or repealed its constitution after that day; and (iv)…. (2) A provision of a section or subsection that applies to a company as a replaceable rule can be displaced or modified by the company's constitution.
Some sections of the Corporations Act containing replaceable rules are: CORPORATIONS ACT 2001 - SECT 198A Powers of directors (replaceable rule--see section 135) (1) The business of a company is to be managed by or under the direction of the directors. (2) The directors may exercise all the powers of the company except any powers that this Act or the company's constitution (if any) requires the company to exercise in general meeting. CORPORATIONS ACT 2001 - SECT 201G Company may appoint a director (replaceable rule--see section 135) A company may appoint a person as a director by resolution passed in general meeting. CORPORATIONS ACT 2001 - SECT 203C Removal by members--proprietary companies (replaceable rule--see section 135) A proprietary company: (a) may by resolution remove a director from office; and (b) may by resolution appoint another person as a director instead. CORPORATIONS ACT 2001 - SECT 248E Chairing directors' meetings (replaceable rule see section 135) (1) The directors may elect a director to chair their meetings. The directors may determine the period for which the director is to be the chair. (2)… CORPORATIONS ACT 2001 - SECT 248G Passing of directors' resolutions (replaceable rule see section 135) (1) A resolution of the directors must be passed by a majority of the votes cast by directors entitled to vote on the resolution. (2) The chair has a casting vote if necessary in addition to any vote they have in their capacity as a director. CORPORATIONS ACT 2001 - SECT 250E How many votes a member has (replaceable rule--see section 135) Company with share capital (1) Subject to any rights or restrictions attached to any class of shares, at a meeting of members of a company with a share capital: (a) on a show of hands, each member has 1 vote; and (b) on a poll, each member has 1 vote for each share they hold. … (3) The chair has a casting vote, and also, if they are a member, any vote they have in their capacity as a member.

Chan & Naylor Australia Pty Ltd and Chan & Naylor Australia Holdings Pty Ltd

The evidence is that both CN Australia and CN Holdings were registered after 1 July 1998, CN Australia on 8 November 2005 and CN Holdings on 1 May 2007.
The parties agreed that throughout the Relevant Period the same persons were the directors of each of these companies from and until the same dates. Mr Chan, Mr Naylor and Mr Kenneth Raiss were directors of both companies for the whole of the Relevant Period. Mr Salvador Carrero was a director for the Interim Period.
There is no evidence that, from their respective dates of registration until the dates on which this matter was heard, either company had a constitution. Accordingly having regard to ss 134 and 135 of the Corporations Act 2001 I find that the replaceable rules outlined above applied to each of CN Australia and CN Holdings throughout the Relevant Period.

Chan & Naylor Pty Ltd

The evidence is that: 1. throughout the Relevant Period Mr Chan and Mr Naylor each held one of the two shares issued by Chan & Naylor Pty Ltd (Appendix A to RS and ASIC historical search of Chan & Naylor Pty Ltd at pages 2 and 3 of Annex A to Ms Pardey's affidavit). 2. The company was registered on 26 June 1990 (Annex A to Ms Pardey's affidavit); 3. A 20 page pre 1991 memorandum and articles of association was lodged with ASIC on 12 September 2013 (Annex A to Ms Pardey's affidavit).
There is no evidence that the constitution comprising that memorandum and articles was altered at any time prior to the hearing nor is there any evidence as to the contents of the memorandum and articles.
There is no evidence that the shares held by Mr Chan and Mr Naylor do not comprise all of the voting shares issued by the company, nor that Mr Chan and Mr Naylor cannot together, throughout the Relevant Period, directly or indirectly exercise or control the exercise of more than 50% of the voting power attached to the company's shares.
The Applicants conceded that the company carried on at least 2 businesses throughout the Relevant Period.
Section 72 provides: (2) For the purposes of this section, a person or set of persons has a controlling interest in a business if: … (e) in the case of a business carried on by a corporation that has a share capital - that person or set of persons can, directly or indirectly, exercise, control the exercise of, or substantially influence the exercise of, more than 50% of the voting power attached to the voting shares, or any class of voting shares, issued by the corporation
Accordingly, pursuant to s 72(2)(e), I find on the balance of probability that Mr Chan and Mr Naylor constitute a set of persons who had a controlling interest throughout the Relevant Period in the businesses carried on by Chan & Naylor Pty Ltd.
Section 72 provides: (2) For the purposes of this section, a person or set of persons has a controlling interest in a business if: … (c) in the case of a business carried on by a corporation: (i) the person or each of the set of persons is a director of the corporation and the person or set of persons is entitled to exercise more than 50% of the voting power at meetings of the directors of the corporation, or (ii)…or (d)…or constitute more than 50% of the board of management (by whatever name called) of the body…
The evidence is that Mr Chan and Mr Naylor were the only directors of Chan & Naylor Pty Ltd for the whole of the Relevant Period until 15 April 2013 when Mr Ian Seeto became the sole director until at least 7 November 2014 (Annex A to Ms Pardey's affidavit). Accordingly, I find that pursuant to s 72(2)(c)(i) and (d), for the whole of the Relevant Period until 15 April 2013 Mr Chan and Mr Naylor were a set of persons with a controlling interest in the businesses carried on by Chan & Naylor Pty Ltd.
It is not unusual that the constitution of a company provides that the company's shareholders control the composition of the company's board of directors in the manner set out in the replaceable rules in ss 201G and 203C of the Corporations Act. Section 72 provides: (2) For the purposes of this section, a person or set of persons has a controlling interest in a business if: … (d) in the case of a business carried on by a body corporate or unincorporate - that person or set of persons … control the composition of that board (of management) (My insertion)
I am not satisfied on the evidence before me that the set of persons comprising Mr Chan and Mr Naylor did not throughout the Relevant Period, as the only shareholders of the company, control the composition of the board of directors of Chan & Naylor Pty Ltd. Accordingly, I am not satisfied that Mr Chan and Mr Naylor are not a set of persons with a controlling interest in the businesses carried on by Chan & Naylor Pty Ltd pursuant to s 72(2)(d).

Chan & Naylor Australia Pty Ltd

The Applicants conceded, as the Respondent submitted at [126], that CN Australia carried on a business throughout the Relevant Period.
Mr Young informed the Tribunal (transcript page 8 at 2-4 and at 39-43) that the Applicants conceded the points raised by the Respondent at [72] in RS, namely CN Holdings has a controlling interest in 3 businesses, satisfying s 72(2)(a) and has a controlling interest in the business of CN Australia because Holdings controls the exercise of more than 50% of the shares of CN Australia (s 72(2)(c)).
However, the Respondent's submission at [129] that Mr Chan and Mr Naylor had a controlling interest in the business of CN Australia "because they have owned more than 50% of the voting shares in CN Holdings was disputed by the Applicants.
For the reasons set out below it is not necessary to make a finding in relation to the dispute on this point in order to show, having regard to s 72(2)(c)(i), both that the set of persons comprising Mr Chan and Mr Naylor: 1. had throughout the Relevant Period, other than the Interim Period, a controlling interest in any business carried on by CN Australia, and 2. that I am not satisfied that Mr Chan and Mr Naylor together did not throughout the Interim Period have a controlling interest in any business carried on by CN Australia.
At pages 183-185 in the section 58 documents is a document headed "Policy Board of Directors responsibilities". The letterhead on which the document appears contains the words "Chan & Naylor Australia" and "Chan & Naylor Australia Pty." The document at page 184 states: The Current board is made up of the following members Ed Chan (Chairman and casting vote) David Naylor (Director) Ken Raiss (Director) Sal Carrero (Managing Director)
The "Policy" document has a marginal note stating that it was written on June 2008 by David Naylor and revised by him on 22 September 2009. No evidence was put to the Tribunal as to whether the policies referred to in the 'Policy' document were or were not put into effect by CN Australia.
At pages 190 - 193 of the section 58 documents appears a copy of a document the heading of which is: Chan & Naylor Australia Pty Ltd Managing Director/Joint Venture-Sal Carrero
This document appears to provide for the appointment of Mr Carrero as managing director/joint venture and to have been signed on 25 September 2009 by Mr Carrero personally and by the other three directors of CN Australia, as directors, and has a start date of 1 October 2009.
Having regard to the limited evidence made available to the Tribunal I am not satisfied that Mr Chan was not the chairman of the board of directors of CN Australia with a casting vote throughout the whole of the Relevant Period. If Mr Chan was the chairman, and there is no evidence to the contrary, then Mr Chan and Mr Naylor would have been a set of persons entitled to exercise more than 50% of the voting power at meetings of the directors of the company.
I find on the balance of probability that for the whole of the Relevant Period, other than the Interim Period, Mr Chan and Mr Naylor, who comprised an absolute majority of the board, were entitled to exercise more than 50% of the voting power at meetings of the directors of the company. Accordingly, pursuant to s 72(2)(c)(i) Mr Chan and Mr Naylor had a controlling interest in the businesses of that company throughout the Relevant Period other than during the Interim Period.
I am not satisfied that during the Interim Period, when Mr Chan and Mr Naylor did not constitute an absolute majority of the directors, Mr Chan was not chairman with a casting vote nor am I satisfied that Mr Chan and Mr Naylor were not entitled to exercise more than 50% of the voting power at meetings of the directors. Accordingly, I am not satisfied that during the Interim Period Mr Chan and Mr Naylor did not have a controlling interest in the business of the company pursuant to s 72(2)(c)(i).

Chan & Naylor Australia Holdings Pty Ltd

The evidence is that for the whole of the Relevant Period other than the Interim Period Mr Chan and Mr Naylor had an absolute majority on the board of directors of CN Holdings. For the same reasons I expressed above in relation to CN Australia, other than in relation to the s 58 documents at 183-185 and 190-193, I am not satisfied that Mr Chan and Mr Naylor did not, for the Relevant Period other than the Interim Period, constitute a set of persons having a controlling interest in the businesses carried on by Holdings.
There is no evidence that throughout the Interim Period either Mr Chan or Mr Naylor was not the chair of the board of directors and did not have a casting vote. Accordingly, I am not satisfied that in the Interim Period Ltd the set of persons comprising Mr Chan and Mr Naylor was not entitled to exercise more than 50% of the voting power at meetings of the directors of CN Holdings. It follows that having regard to s 72(2)(c)(i) I am not satisfied that they did not, throughout the Interim Period, constitute a set of persons having a controlling interest in the businesses carried on by Holdings.
The parties agreed that throughout the whole of the Relevant Period the set of persons comprising Mr Chan and Mr Naylor held not less than 65 and up to 85 of the 100 shares issued by CN Holdings. There is no evidence that any shares issued by that company were subject to any rights or restrictions. Accordingly having regard to ss 134 and 135 of the Corporations Act and pursuant to the replaceable rule in s 250E I am satisfied that on a poll Mr Chan and Mr Naylor could directly exercise more than 50% of the voting power attaching to the voting shares issued by the company. I am also satisfied that pursuant to the replaceable rules in ss 250K, 250L, 250M and 249U (which provide that a poll may be demanded on any resolution by shareholders with at least 5% of the votes that may be cast on a poll, a poll on the election of a chair must be taken immediately, and the directors may elect an individual to chair meetings of the company's members and if they do not then the members must elect a member present to chair the meeting) Mr Chan and Mr Naylor could require that any relevant resolution before a meeting of members be decided on a poll rather than a show of hands.
Accordingly, I am satisfied that Mr Chan and Mr Naylor could throughout the Relevant Period directly or indirectly exercise more than 50% of the voting power attached to the voting shares of the company and in accordance with s 72(2)(e) were a set of persons that had a controlling interest in the businesses of CN Holdings.

Groups of commonly controlled businesses

I found pursuant to each of s 72(2)(c)(i) and s 72(2)(d) that I was not satisfied that Mr Chan and Mr Naylor did not comprise a set of persons with a controlling interest in the businesses carried on by Chan & Naylor Pty Ltd throughout the Relevant Period. I also found pursuant to s 72(2)(e) that Mr Chan and Mr Naylor comprised a set of persons who had a controlling interest throughout the Relevant Period in the businesses carried on by Chan & Naylor Pty Ltd.
I found pursuant to s 72(2)(c)(i) that throughout the Relevant Period other than the Interim Period Mr Chan and Mr Naylor had a controlling interest in the businesses of CN Australia and that throughout the Interim Period I was not satisfied that Mr Chan and Mr Naylor did not comprise a set of persons who did not have a controlling interest in the businesses of CN Australia.
I am satisfied, in respect of CN Holdings, that in accordance with s 72(2)(e) Mr Chan and Mr Naylor comprised a set of persons that had a controlling interest in the businesses carried on by that company throughout the Relevant Period. I also found that I was not satisfied having regard to s 72(2)(c)(i) that they did not throughout the Relevant Period comprise a set of persons having a controlling interest in the businesses carried on by CN Holdings.
Accordingly, I find that I am not satisfied that throughout the Relevant Period Mr Chan and Mr Naylor did not comprise a set of persons with a controlling interest in each business carried on by each of Chan & Naylor Pty Ltd, CN Australia and CN Holdings.
Section 72(1) provides "If a person or set of persons has a controlling interest in each of 2 businesses, the persons who carry on those businesses constitute a group." Accordingly, I find that I am not satisfied that each of Chan & Naylor Pty Ltd, CN Australia and CN Holdings did not constitute a group throughout the Relevant Period.
I observe that the Applicants conceded that CN Holdings and CN Australia were grouped, being group 1 of the six groupings referred to in RS. Section 74(1) provides that if a person is a member of two or more groups, the members of all the groups together constitute a group.
Accordingly, even if I should have been satisfied that Mr Chan and Mr Naylor did not comprise a set of persons who had a controlling interest in a business carried on by CN Australia, my findings in relation to the grouping of Chan & Naylor Pty Ltd and CN Holdings and the conceded grouping of CN Australia and CN Holdings lead to the conclusion in accordance with s 74(1) that the Applicants are grouped.

Interest and penalty tax

The long title of the TAA 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 TAA, the Act is a taxation law. In accordance with s 3 of the TAA "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."
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.
I refer to my above findings as to the group including the Applicants and note that there is no dispute that the tax payable by the Applicants was not paid in accordance with the Act.
Part 5 of the TAA 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 Applicants have requested that the Tribunal review the relevant decisions of the Respondent and remit both interest and penalty tax in full. In these proceedings the Tribunal may exercise the Respondent's relevant powers.

Interest

In their written submissions the Applicants argued that: 1. to the extent that the Applicants do not properly constitute a business group there is no basis for imposing the market rate interest component under s 22(1)(a) of the TAA; 2. to the extent that the market rate interest component is correctly imposed the Respondent should exercise the power of remission in s 25 of the TAA so as to further remit in whole or part the market rate interest component; 3. having regard to the existence of real and rational arguments the market rate interest component under s 25 should be remitted; and 4. in the alternative the market rate component should only apply after 3 June 2014 being the date from which the Respondent abandoned the hopelessly misconceived Initial Grouping and first propounded a proper case for grouping" (AS at [90]).
In oral submissions Mr Young submitted: In respect of interest what I would point to on interest is the time that is taken and the change in position on the part of the Chief Commissioner over a considerable period of time that we have a position taken on assessment in October 2013. We have an objection taken to that and put bluntly the Chief Commissioner walks away from his grouping decision on assessment and we've got substituted on 4 June 2014 a completely different basis of grouping. Which basis of grouping is then dealt with, attacked in our submissions and we have the Commissioner's final basis of grouping by virtue of his submissions in this Tribunal whereby the basis in respect of the first grouping, the first group, completely recast and grounds taken which were not raised either on assessment or on objection. … my respectful submission is the taxpayer shouldn't have to pay interest for the period at least from date of assessment, that original assessment, to the date of the Commissioner's submissions to this Tribunal and I put that submission in turns of a remission and a remission based upon the Chief Commissioner shifting his grounds and taking the time that he has
The Respondent's written submissions on the imposition of market rate interest were to the effect that: 132 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. 139 The Chief Commissioner also has a general power to remit…the market rate component and/or the premium component of interest. The relevant principles governing the imposition and remission of market interest were considered in Chief Commissioner of State Revenue v Incise technologies Pty Ltd & Anor as follows: 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. 145 There is no reason for the Tribunal to remit the market rate component of the interest rate. The taxpayer's default commenced in the 2009 tax year and has continued to date. Applying the principles set out in paragraph 139 above, there is nothing to suggest that the Chief Commissioner contributed to the taxpayer's default.
The relevant TAA 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.
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 above excerpt from Incise Technologies set out above 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.
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.
Even if the Applicants are correct in their submission that the Respondent altered his position as to the reason for grouping the Applicants and that there were apparently lengthy delays in the Respondent forming his final view as to the reasons for that grouping, I am not of the opinion that these constitute exceptional circumstances which would entitle the Applicants 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 Applicants have not provided any authority in support of their position and I reject their submissions in relation to the Respondent's decision to require them to pay the market rate component of interest in accordance with the TAA.

Penalty tax

In their written submissions the Applicants argued that: 1. the Respondent initially imposed 25% penalty tax, reduced to 20% on objection, for CN Australia's failure to take reasonable care to self-recognise the 20 plus individual steps which the Respondent used to formulate his Objection Grouping; 2. to the extent that penalty tax is correctly imposed pursuant to s 27(3)(a) of the TAA the Respondent should exercise the power of remission in s 33 of the TAA so as to further remit in whole, or part, the penalty tax; 3. notwithstanding the changes made by the Respondent to his reasoning process in determining that the Applicants were grouped, the Respondent did not provide an explanation as to how in negating the intellectual basis of the Initial Grouping, the Applicants failed to take reasonable care and thereby exposed themselves to penalty tax under the Respondent's amended reasoning process; 4. as the Applicants demonstrated that the Initial Grouping was without foundation and there was room for a real and rational difference of opinion on the question of grouping, the Applicants have, without more, taken reasonable care to comply with their taxation obligations; 5. having regard to the fact that the Applicants' contentions concerning the construction of ss 72(2)(g), 72(5) and 72(6) were reasonably arguable the Applicants relied on Allen (Trustee), in the matter of Allen's Asphalt Staff Superannuation Fund v Commissioner of Taxation [2011] FCAFC 118 at [74] - [81]; 6. "penalty tax should not be imposed in that reasonable care was taken on account of the existence of "real and rational differencejs] of opinion" (sic) as to the proper construction of sec 72(2)(g) and 72(6) of the" Act - at [89]; 7. "the doctrine of disclaimer is a rational ground for resisting the consequences of mere supine acquiescence to the demands of the CCSR, including the misconceived Initial Grouping" - at [89]); 8. "insofar as sec 27(3)(a) TAA is satisfied, then penalty tax should be remitted further in whole or part, under sec 33 TAA, on account of the existence of those real and rationale arguments" - at [90]; 9. at [27]: Consequential contentions follow from the Applicants' submissions on the assessment/grouping issue. Additionally and consequentially, no basis for penalty tax can be taken to exist. Within sec 27(3) (a) TAA given the complexity of the issues raised, that the Applicants have demonstrated the Initial Grouping to be without foundation and that there was room for a real and rational difference of opinion on the question of grouping, the Applicants have, without more, taken reasonable care to comply with their taxation obligations. If indeed, the Applicants have not taken reasonable care as alleged by the CCSR, then the rhetorical question might be posed as to the reasonableness or otherwise of the CCSR's Initial Grouping. 1. and at ASR [4]: The RS at [52] refers to three contentions which had not been part of the Initial Grouping or the Objection Grouping. At [69] ff the RS seeks to group certain entities in reliance upon provisions which are therein conceded were not relied upon as part of the Objection Grouping. Further, section I of the RS, at [124]-[131] purports to introduce an entirely new "Alternative Grouping".
Mr Young submitted orally: On penalty we say our position is reasonably argument and we pray in aid the Full Court decision in Allen's Asphalt. The Chief Commissioner seeks to distinguish Allen's Asphalt on the basis that … the Commonwealth provision talks about the taxpayer's position being reasonably arguable whereas the State Act talks about taking reasonable care. With respect that's a distinction without a difference. …The point about Allen's Asphalt is that if a contention is reasonably arguable in a sense that it is finely balanced. In a sense that respectable arguments can be put both ways then that is a position which is reasonably arguable and it follows automatically that reasonable care has been taken if the taxpayer's position is reasonably supportable or reasonably arguable.
The Respondent's written submissions on penalty tax were to the effect that 18 The Chief Commissioner levied penalty tax at the default rate of 25% but remitted 20% of the penalty tax because the taxpayer disclosed sufficient information to enable the nature and extent of the tax default to be determined. 19 Further, no penalty tax was levied for the 2013 tax year. 133 If a tax default occurs, the taxpayer must pay penalty tax. The amount of penalty tax is 25% of the amount of tax unpaid. This may be increased to 75% if the Chief Commissioner finds that the tax default was caused wholly or partly by the intentional disregard by the taxpayer. 134 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 took reasonable care to comply with the taxation law; or (b) the tax default occurred solely because of circumstances beyond the taxpayer's control. 135 It is for the taxpayer to satisfy the tribunal, with evidence, of these matters. This is essentially a question of fact. The particular circumstances of the taxpayer are to be considered in applying the test. 136 In their written submissions, the Applicants refer to a judgment of the Full Federal Court concerning the federal income tax legislation. Under that legislation, penalty tax will be remitted if the taxpayer's position was "reasonably arguable". This is a considerably different test to "reasonable care". In order to establish that the taxpayer took reasonable care, evidence should be adduced of the steps that the taxpayer took regarding its compliance with taxation legislation. Such steps are not necessary to establish that the taxpayer's position was reasonably arguable. 137 The penalty tax 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 sufficient information to enable the nature and extent of the tax default to be determined. The Chief Commissioner also has a general power to remit: penalty tax of any amount; 141 The Chief Commissioner agreed to remit 20% of the amount of penalty tax because the taxpayer provided information to assist the Chief Commissioner, after the investigation had commenced. The Chief Commissioner also allowed a full remission of the penalty tax for the 2013 tax year, because the audit commenced before the taxing date of 21 July 2013. 142 The Chief Commissioner noted that the Applicants argued that they had taken reasonable care in managing their payroll tax affairs. Therefore, it was submitted, no penalty tax was payable, pursuant to s 27(3) of the Taxation Administration Act. 143 The Chief Commissioner did not accept that the Applicants had taken reasonable care. The taxpayers were accounting firms. It was expected that, with this high level of knowledge and expertise, the tax default should not have arisen. 144 The Chief Commissioner's decision on this matter should be affirmed. The Applicants have adduced no evidence of any steps that they took to ensure that the proper payroll tax was paid. The fact that the taxpayers were experienced accountants is also significant. In a recently decided case, the Tribunal refused to remit tax in circumstances where the persons responsible were experienced accountants.
Mr Balafoutis submitted orally that the cases say that it is for the taxpayer to satisfy the Tribunal with evidence of these matters. "The taxpayer has not done that here. The taxpayer has not informed the Court of what steps they took to satisfy themselves or to ensure that the proper payroll tax was applicable. Did they take legal advice? Did they consider the terms of the trusts? We simply don't know."
When asked whether there was evidence before the Tribunal as to the care taken by the Applicants in relation to their liability to payroll tax Mr Young informed the Tribunal that there was no evidence of external advice taken, no evidence of any internal thought processes in the preparation of the return, and the like. Mr Young submitted that if a reasonably based argument was raised as to why no tax is payable, then, by definition, reasonable care has been taken and the fact that the submissions raised in the course of the hearing were fairly and properly and reasonably open to the Applicants was evidence of itself that a reasonably arguable position was taken.
The TAA provisions relevant to these proceedings in respect of penalty tax are: Division 2 - Penalty tax 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. 28 Reduction in penalty tax for disclosure before investigation (1) The amount of penalty tax determined under section 27 is to be reduced by 80% if, before the Chief Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out, the taxpayer discloses to the Chief Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined. (2) This section does not apply in respect of information disclosed by a taxpayer if the taxpayer is registered under a taxation law and: (a) the tax default involved a failure to lodge a return as required under that taxation law, or (b) the tax default involved a failure to pay tax by the date required under that taxation law. 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.
Allen's Asphalt involved the application of legislation (Taxation Administration Act 1953 (Cth) s. 284-75 (2)(b)) in which a taxpayer was liable to an administrative penalty if the taxpayer or an agent made a statement to the Commissioner which, in part, "was not reasonably arguable".
Section 27(3)(a) of the TAA refers to the taxpayer (or a person acting on behalf of the taxpayer) taking reasonable care to comply with the taxation law. Allen's Asphalt is not authority for the Applicants' submission that "it follows automatically that reasonable care has been taken if the taxpayer's position is reasonably supportable or reasonably arguable". The Applicants chose to provide no evidence as to what care if any they gave to relevant law at any relevant time. Their submission is rejected.
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.
With respect, I adopt Block SM's analysis that it is for the Applicants to prove their case on the basis of the evidence before the Tribunal. Unfortunately for the Applicants I find that they have provided no evidence to satisfy me that they took reasonable care or that the tax default occurred because of circumstances beyond their control. Nor have the Applicants provided evidence of any other appropriate circumstances to justify a full or partial remission of penalty tax under s 33 of the TAA. 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. Decision
Having regard to the above findings on the material before me, it is the correct and preferable decision of the Tribunal that the Respondent's decisions in respect of the grouping of the Applicants throughout the Relevant Period are confirmed and the revised assessments as to tax, interest and penalty tax are confirmed.
There shall be a directions hearing before me at 9.30 am on Thursday 4 February 2016 in respect of any costs application in this matter and in respect of the issues in file number 1410642 (the Exclusion Decision). The parties have liberty to apply to the Tribunal in relation to the directions hearing.

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

Amendments 07 January 2016 - Formatting error 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: 07 January 2016

(Taxation Administration Act 1953(Cth)

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Decision date

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Judgment (21 paragraphs)

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Legislation Cited (3)

Cases Cited (8)

Cited By (3)