Chief Commissioner of State Revenue v RET Enterprises Pty Ltd and Ors

REASONS FOR DECISION 1 There are two appeals before the Appeal Panel in relation to the decision of the Revenue Division of the Tribunal in RET Enterprises Pty Ltd & ors v Chief Commissioner of State Revenue [2005] NSWADT 67 (31 March 2005). 2 The issues were: whether various businesses were liable to pay pay-roll tax on a grouped basis, the applicable legislation being the Pay-roll Tax Act 1971 ('the Pay-roll Tax Act'); and, if liable, the amount of the penalty tax and interest payable pursuant to the Taxation Administration Act 1996 ('TAA'). The Tribunal's final orders were: 'The assessment by the Chief Commissioner of State Revenue is confirmed. Interest should be assessed at market rate component only. The provisions of Section 27(3)(a) of Taxation Administration Act 1996 ['TAA'] are to be applied so that no penalty tax is to be payable.' 3 The businesses have appealed against the liability decision; and the Commissioner has appealed against the penalty tax and interest decision. In these reasons the parties will be referred to as 'the applicants' and 'the Commissioner'. 4 Under ss 112 and 113 of the Administrative Decisions Tribunal Act 1997 ('the ADT Act') a party may appeal against a decision of the Tribunal in relation to the review of a reviewable decision (the position here) 'on any question of law'; and may apply to the Appeal Panel for leave to extend the appeal to the merits. In both instances the appeals raise questions of law; and both make applications for leave to extend to the merits. 5 Ms Hirschhorn of counsel appeared for the applicants; Mr Hamilton of counsel appeared for the Commissioner. They provided detailed written submissions in addition to their oral submissions. 6 The Commissioner's appeal was the first in time of the two appeals (lodged 28 April 2005). The applicants' appeal was a belated one, lodged out of time (11 May 2005). There was no objection to the late filing. The Appeal Panel gave leave to file out of time. We will deal with the applicants' appeal first. Liability 7 The Commissioner's assessment relates to the years ending 30 June 2000 to 30 June 2003 ('the relevant period'). 8 There are five applicants. The history, nature and degree of their association is set out at length in the decision under appeal. We will not repeat all that material here. 9 The Tribunal explains that in the 1970s the founder of the (now) major residential construction company, Meriton Apartments Pty Ltd ('Meriton'), Harry Triguboff, developed a business relationship with two bricklaying contractors, John Thomson and Ken McDonald, and that has endured over the years. John's brother Robert and Ken's son Keith both became involved in the business. Four of the five applicant businesses are connected to one of more of these four people. The fifth person of relevance is Mrs Laureen Place who started out in 1978 as the employed book-keeper for John and Ken's business. The fifth applicant business is connected to Mrs Place. 10 Paragraph [7] of the Tribunal's decision notes that: 'The structure of the entities has evolved over a considerable period of time and relates to the history of employment of John Thomson (John) and Ken McDonald (Ken). Their future anticipated work arrangements and the inclusion of John's brother Robert and Ken's son Keith in the structures that evolved were driving factors, according to the applicant's submissions'. 11 Listing them in order of significance rather than in party order, the businesses are: + Tommac (Tommac Enterprises Pty Limited), + RET (RET Enterprises Pty Ltd A/T Robert Thomson Family Trust); + Gemfen (Gemfen (Aust) Limited); + Tomald (Tomald Investments Partnership); and + Place P/L (Place Administration Services Pty Limited). 12 Tommac is controlled by John and Ken. In the last of the financial years under notice in these proceedings its gross income was $29.9m. John and Ken were the only shareholders of Tommac during the relevant period. Tommac obtains the bricklaying work and subcontracts it to RET or Gemfen. Tomald was involved as the owner and supplier of the necessary equipment. RET and Gemfen undertake the actual bricklaying work. 13 Tomald is, like Tommac, controlled by John and Ken. It owns and supplies equipment used by the bricklaying entities. It is also the employer of John and Ken. Tomald was during the relevant period a partnership between K & J McDonald Investments Pty Ltd and J & M Thomson Investments Pty Ltd and as to 50% each. 14 Until 1996 Robert and Keith had worked within the principal business, Tommac. They then established RET and Gemfen. Meriton was not prepared to deal with persons other than John and Ken (and, in turn, Tommac) when distributing work. Tommac always received the Meriton work. If Tommac subcontracted it, it was only given to RET or Gemfen. During the relevant period and save only for one minor contract performed for a non-Meriton party in the 2000 year, RET and Gemfen were exclusively engaged on the work entrusted by Meriton to Tommac and subcontracted by Tommac to them. 15 RET is controlled by Robert Thomson; gross income, 8.9m. Gemfen is controlled by Keith McDonald; gross income, 7.6m. RET was, during the relevant period, a company in which Robert Thomson and his wife were the shareholders; RET acted as trustee of the Robert Thomson Family Trust. Gemfen was, during the relevant period, a company in respect of which Keith McDonald was the sole shareholder and director; it acted as trustee of the Keith McDonald Family Trust. 16 Place P/L, is the alter ego of Mrs Laureen Place (Mrs Place). Mrs Place began working for John and Ken in 1978, handling payment of wages of employees. In 1995 Mrs Place interposed Place P/L between herself and John and Ken because, as she told the Tribunal, she wanted to reduce the incidence of taxation on her remuneration. Place P/L thereafter and during the whole of the relevant period performed the same work as Mrs Place had performed prior to the interposition of Place P/L; Mrs Place performed the work, as she had done previously, at the offices of the other applicants in Alexandria. Place P/L did not offer its services generally; para [105] of the Tribunal decision noted that Place P/L had no other clients. Mrs Place was the only full-time employee of Place P/L. Her husband did perform some work for Place P/L in that on Monday evenings at their home he performed a manual check of his wife's calculations. The Law 17 During the relevant period, s 16C of the Pay-roll Tax Act 1971 provided: '16C For the purposes of this Act, where: (a) an employee of an employer, or two or more employees of an employer, performs or perform duties solely or mainly for or in connection with a business carried on by that employer and another person or other persons or by another person or other persons, or (b) an employer has, in respect of the employment of, or the performance of duties by, one or more of his or her employees an agreement, arrangement or undertaking (whether formal or informal, whether expressed or implied, and whether or not the agreement, arrangement or undertaking includes provisions in respect of the supply of goods or services or goods and services) with another person or other persons relating to a business carried on by that other person or those other persons, whether alone or together with another person or other persons; (c) that employer and; (b) each such other person, or (c) both or all of those other persons, constitute a group.' 18 Applying s 16C(a) and (b), the Commissioner treated the following as groups: (i) Tommac and RET; (ii) Tommac and Gemfen; (iii) Tommac and Place P/L; (iv) Place P/L and RET; (v) Place P/L and Gemfen; (vi) Place P/L and Tomald. 19 Section 16E, as then in force, provided: ' 16E Smaller groups subsumed into larger groups (1) Notwithstanding any other provision of this Part (except subsection (2)), where a person is, whether or not by virtue of this subsection, a member of two or more groups (each of which is in subsection (2) referred to as a smaller group), all of the members of those groups constitute, for the purposes of this Act, one group. (1A) If the members of a group (in subsection (2) referred to as a smaller group) have together a controlling interest in a business, that group and the person or persons who carry on that business will constitute, for the purposes of this Act, one group. (2) Except for the purpose of determining whether a group is constituted under subsection (1) or (1A), a group which, but for this subsection, would be a smaller group ceases to be a group if its members are members of a group constituted under subsection (1) or (1A).' 20 The Commissioner applied this provision, aggregating the six groups into one group. 21 Section 16H, as then in force, provided: ' 16H Exclusion of persons from groups (1) Where the Chief Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that the Chief Commissioner considers relevant, that businesses carried on by members of a group constituted under section 16C are carried on substantially independently of, and are not substantially connected with, the carrying on of a business or businesses of another member or other members of the group, the Chief Commissioner may, by order in writing served on those firstmentioned members, exclude them from that group. (2) (Repealed) (3) Notwithstanding any other provision of this Part, an order under subsection (1) shall have effect according to its tenor on and from the date specified in the order (being a date that is the date of the order or before the date of the order) as the date on and from which the person referred to in the order is or shall be deemed to have been excluded from the group so referred to.' The Circumstances 22 The Position of Place P/L: As to the grouping of Place P/L, Ms Hirschhorn drew attention to the decision in Muir Electrical Co Pty Ltd v Commissioner of State Revenue [2001] ATC 4386; [2001] 4 VR 70 ('Muir No 1'), involving the corresponding Victorian legislation. In Muir No 1, the Court of Appeal found that the relevant tribunal had erred in grouping various companies, and had misapplied the provision equivalent to this State's s 16C(b). 23 The question posed by s 16C(b) is one of fact. We consider that Muir No 1 is distinguishable. Muir No 1 examined the relationship between a service company and various retailers of electrical goods. The Court was not satisfied that an employer-employee connection of the kind contemplated by the relevant provision had been established. Accordingly, the service company could not be grouped with the retail businesses. The Court noted that there was no agreement in respect of the performance of duties by one or more of Muir's employees. Muir was not required to perform the services by its own officers or employees and could therefore sub-contract those services to another company (VR at 76). Muir No 1 is distinguishable also because Place P/L was, in contradistinction to the circumstances in Muir No 1, engaged to produce a result with reference to the identity of the employees involved. 24 There can be no doubt, as we see it, that Place P/L was employed by the other four applicants in a way contemplated by s 16C(b). The role of Mrs Place was, on the evidence before the Tribunal, crucial. Place P/L was, in our view, correctly grouped with each of the other Applicants under either s 16C(a) or 16C(b) of the Act. This being so, the effect of s 16E is that each of the Applicants is subsumed into a group consisting of all of them. 25 RET and Gemfen: As to the grouping of RET and Gemfen, the Tribunal found that employees of RET and Gemfen performed their duties solely or mainly 'in connection with' the business conducted by Tommac (and thereby satisfied the test found in s 16C(a)). There is nothing here to suggest that the Tribunal so misconceived the evidence in making its findings of fact on this question, as to amount to an error of law. 'In connection with' is a term of wide connotation. 26 The Scope of the Group: the Position of Meriton: The most radical proposition put by Ms Hirschhorn was that the Commissioner and the Tribunal had failed to identify the relevant relationship for grouping purposes. She submitted that the relevant relationship was with Meriton itself. On this view, the Commissioner and the Tribunal were wrong in that they grouped what might be described as the Thomson/ McDonald group of businesses rather than the Meriton/ Thomson/ McDonald group of businesses. Ms Hirschhorn's submission was therefore that Meriton would be affected by the grouping provisions. Meriton was not present at the proceedings. 27 The applicants' submission raises a question about where the line is drawn in applying the criteria found in s 16C and s 16E in relation to businesses that form part of a chain of relationships within an industry. As noted earlier Meriton is a major apartment building company. Obviously, it will be the head contractor in respect of a range of suppliers of building skills, bricklaying being one of them. 28 Ms Hirschhorn contended that the employed bricklayers of RET and Gemfen also performed their duties in equal measure for and in connection with the business of Meriton and that this being so, it could not be said that they had performed their services 'solely or mainly' (s 16C(a) or (b)) for Tommac. 29 Tommac obtained the work from Meriton and subcontracted it (and as we have said, exclusively) to RET and Gemfen. During the relevant period, the employees of RET and Gemfen were engaged, as we have said, almost exclusively on Meriton work. There is no evidence to suggest that any time there was ever any privity of contract between RET and Gemfen on the one hand and Meriton on the other. There was, by contrast, privity of contract between RET and Gemfen on the one hand and Tommac on the other. 30 Mr Hirschhorn referred to the Interpretation Act 1987 (NSW) pursuant to which, and absent a contrary intention, the singular includes the plural (see ss 8 and 5(2)). She submitted that in this instance there is a contrary intention and that the singular form of 'a business' in s 16C(a) was intended. That is, the requirement in s 16C(a) that an employee or employees perform duties 'solely or mainly for or in connection with a business' had to be satisfied in respect of each relevant business, and not in relation to a number of businesses considered together. She relied in this regard on Muir Electrical Co Pty Ltd v Commissioner of State Revenue (No 2) [2002] VSC 224 (Mandie J); 2002 ATC 4590 ('Muir No 2'). 31 As had occurred in Muir No 1, the Supreme Court in Muir No 2, reversed a Tribunal decision upholding the Commissioner's assessment. The provision under notice was the Victorian equivalent of s 16C(a). We accept, as did the court in Muir No 2, that s 16C(a) and (b) manifest a contrary intention such that the singular does not include the plural. 32 We do not consider that the decision now under appeal is contrary to the decision in Muir No 2. In our view the Tribunal approached the question by looking at the question of a connection on a one-to-one basis. This is consistent with the construction that the use of the singular in s 16C(a) and (b) is deliberate, and not subject to the usual rule that the singular includes the plural. 33 There is nothing in our view in Muir No 2 to support the proposition that Meriton could, somehow, be said to have an employer-employee relationship with one or more of the applicants of the kind contemplated by s 16C(a) or (b). No doubt the services supplied by Tommac benefited Meriton in the sense that they advanced Meriton projects. It does not, in our view, follow that the relationship between Tommac and Meriton meets the requirement of s 16C(a) that they were provided 'solely or mainly for or in connection with a business carried on by that employer'. 34 Some practical judgment has to be brought to the question of what is contemplated by the term 'employer'. There are gradations of 'employment' in the conduct of a building project. There is no suggestion of any connection between Meriton and Tommac that might be said to make Tommac somehow subservient to Meriton in relation to the performance of its work. There is no evidence, for example, of a shareholding or ownership connection, or possibly close familial ties; and there is no evidence of any specific directions being given as to the performance of the skilled work. The relationship appears to be a classic one of principal-independent contractor. In our view, without more, that is not the sort of relationship to which the grouping provisions are directed. Meriton was not bound in any way to give work to Tommac. 35 Viewed practically, this case involves a family-type structure whose business is bricklaying; and, during the relevant period at least, it only did work received from Meriton (with one minor exception). There was only one business with which RET and Gemfen had a contractual connection and that was the principal business, Tommac. The fact that another entity higher up derived a benefit or an advantage because those services were provided is irrelevant; they were not provided (relevantly) in connection with that other entity's business. 36 The applicants submitted that s 16C(b) of the Act could not be satisfied because an agreement for the performance of duties by particular employees could not be identified. The Appeal Panel agrees with the Commissioner's contention that such an identification is not necessary. 37 Ms Hirschhorn referred in this context to the Court of Appeal decision in Muir No 1. In that case the taxpayer had the freedom if it so desired to provide the services itself or to subcontract them; there was no stipulation that the services be provided personally by employees of Muirs: see Callaway JA, VR at 76 para [12]. 38 In this case the evidence before the Tribunal established that there was no such freedom of contract and that Tommac expected and required Robert Thomson and Keith McDonald and their employees to perform the relevant services themselves. 39 Degrouping: s 16H: In the alternative, Ms Hirschhorn submitted that, if the entities were properly grouped, nonetheless the Tribunal erred in not considering the question of the applicability of the degrouping discretion. She contended that the Tribunal decision was fundamentally flawed because it did not make specific reference, and in so many words, to the first of the considerations set out in s 16H of the Act. She submitted that it was necessary for the Tribunal to exercise the discretion after, as the section requires, 'having regard to the nature and degree of ownership or control of the businesses'. 40 While the Tribunal may not have used those precise words it is clear that it had the concept well in mind; see by way of example para [109] of the original decision as follows: '109 The evidence given herein discloses that the nature and extent of all relevant contracts and dealings taken as a whole, between Tommac, RET, Gemfen, Place and Tomald discloses that the business of each of them is not substantially independent.' 41 The Appeal Panel agrees with the Commissioner's contention that para [109] of the original decision (read with para [107(6h)] of the original decision) indicate that the Tribunal did take these factors into consideration. But in any event the exercise of a discretion does not involve a process which requires the Tribunal to 'slavishly tick off' each of the relevant factors. A composite or global consideration is sufficient (FC of T v Consolidated Press Holdings Limited 99 ATC 4945 at 4971). Conclusion 42 Having regard to the Tribunal's findings of fact (and in particular, but not exclusively, in paras [105] and following of the original decision) it is clear that the Tribunal considered all of the relevant facts and circumstances with particular care, and in relation to the substantive issue, it is not conceivable that it could have come to any other conclusion. Nor is there any basis upon which its finding as regards s 16H of the Act can be disturbed. 43 It follows that the applicants' appeal must fail. It would not be just to the Commissioner to grant the further application for leave to extend to the merits. It is denied. Penalty 44 We now turn to the Commissioner's appeal. As noted earlier this appeal relates to the Tribunal's decision to relieve the applicants of liability for interest at the premium rate and for liability for penalty tax. Adequacy of Tribunal's Reasons 45 It is clear that the Tribunal has an obligation to give adequate reasons. This is the position under the general law: see generally, Soulemezis -v- Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247; Mifsud v Campbell (1991) 21 NSWLR 725; and Beale v Government Insurance Office (1997) 48 NSWLR 430; and there are statutory provisions applicable to the Tribunal reinforcing the obligation: the ADT Act, s 89. 46 Mr Hamilton for the Commissioner submitted that the Tribunal failed to give adequate reasons for its conclusion. In particular, it failed to have regard to relevant material, which he submitted was adverse to the applicants, in forming a view as to the discretionary factors that might lead to the non-imposition of premium rate interest or penalty tax. That the Tribunal must have regard to all relevant material when reviewing reviewable decisions is clear: see ADT Act, s 63. 47 On any view, the Tribunal's examination of this issue is thin. Only one paragraph of the Tribunal's decision, the last one, addresses the penalty question, para [112], as follows: '112 In view of the co-operation of the Applicants, the reasonable care taken by the Applicants in seeking and obtaining of advice which led them to consider that the provisions of Section 16C(a) and (b) would not apply, any interest payable should be restricted to market rate only. Pursuant to Section 25 of the Taxation Administration Act 1996 the payment of market rate and/or premium rate of interest may be remitted, either entirely or by any amount. The premium rate is not to be applied. The provisions of Section 27(3)(a) of the Taxation Administration Act 1996 should be applied so that no penalty tax is to be payable.' 48 The two provisions referred to by the Tribunal form part of a series of provisions dealing with interest and penalty tax for tax defaults. As to interest, the ordinary rule under the TAA is that a taxpayer is liable to pay interest on tax unpaid and where there is tax default at the aggregate of the market rate component and the premium component: see ss 21 and 22. 49 Section 25 of TAA provides for a discretionary power as to the remission of interest in the following terms: ' 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.' 50 Section 27 of TAA provides for penalty tax. The primary rule is found in s 27(1) which provides: ' 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.' 51 The primary rule may be varied up or down, according to the circumstances. For example s 27(2) provides that: '(2) The Chief Commissioner may increase the amount of penalty tax payable in respect of a tax default to 75% of the amount of tax unpaid if the Chief Commissioner is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer (or a person acting on behalf of the taxpayer) of a taxation law.' 52 On the other hand, s 27(3) provides: '(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.' 53 There is also in s 33 a general discretion to remit penalty tax not confined to any particular criterion or criteria: ' 33 Remission of penalty tax The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.' 54 In this instance the Commissioner applied the primary rule, considering, as we interpret his decision, that there were no circumstances of an especially negative kind or of an especially positive kind that might cause him to depart from the primary rule. 55 For completeness, we will mention two other statutory provisions. In the first instance s 28 of TAA provides that the penalty tax is reduced by 80% where the taxpayer furnishes relevant assistance before the audit commences. Section 28 of TAA reads: ' 28 Reduction in penalty tax for disclosure before investigation 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.' 56 Section 29 of TAA provides: ' 29 Reduction in penalty tax for disclosure during investigation 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.' 57 Section 28 of TAA could not apply in this instance as there is no suggestion that the applicants made any relevant disclosures before the audit commenced. As to whether the Applicants fall within s 29 of TAA will depend on the extent to which they cooperated with the Commissioner during the audit process. Under that section, the Applicants would, if they complied with its provision, be entitled to a rebate of 20% only of the penalty tax. 58 In this instance the Tribunal applied s 27(3)(a) to reduce the penalty tax to nil. 59 'Reasonable Care': The Tribunal relied solely in reaching its conclusion on this issue on a letter by Mr Richardson (a tax consultant, who appeared for the applicants before the Tribunal) dated 24 August 2000 and addressed to James E Ball & Co, Chartered Accountants. The full text of that letter is as follows: '24 August 2000 James E Ball & Co Chartered Accountants PO Box 243 CREMORNE NSW 2090 Attention: James Ball Dear Sirs Tommac Enterprises Pty Limited ("Tommac") Gemfen (Aust) Pty Limited ("Gemfen") Ret Enterprises (Aust) Pty Limited ("Ret") Meriton Apartments Pty Limited has written to all of its sub-contractors seeking an urgent response as to whether: (i) they undertake more than 80% of their work on Meriton's development sites; and (ii) whether their internal company structures are such that they do not create more than one payroll tax threshold. It would appear that the Office of State Revenue is to review the payroll tax liability of sub-contractors and, in particular, it has set as a criteria for further investigation sub-contractors who either undertake more than 80% of their work with Meriton Apartments or where more than one threshold is claimed. It would appear that, whether or not Tommac has satisfactorily complied with all of its payroll tax obligations, it will be the subject of review, because it satisfies both of the criteria mentioned. You have requested us to express an opinion on whether Tommac, Gemfen and Ret may have some additional liability to payroll tax. Tommac contracts with the Meriton Group for the supply of bricklaying services required by the Meriton Group for the construction of home units. The payments by the Meriton Group to Tommac exceed $800,000 per annum. The contracts with the Meriton Group require Tommac to provide bricklaying services, sand and cement, doorframes, cement mixing plant and the supervision of the bricklaying services. Tommac acts as a head contractor and sub-contracts the bricklaying services to Gemfen and Ret. Tommac retains a profit margin as head contractor and retains overall management responsibility. Tommac has four employees. At any one time some 200 or more bricklayers and other workers are involved in providing bricklaying services to the Meriton Group. The bricklayers and labourers are employed by Gemfen and Ret. Tommac provides its services exclusively to the Meriton Group. The shareholders and directors of Tommac are Ken MacDonald and John Thompson. Ken has been a long term employee of the Meriton Group. John has been a sub contractor over many years. They are not shareholders or directors of any of the Meriton Group companies. The shareholders and directors of Ret are Robert Thompson (brother of John Thompson) and his wife Caroline Thompson. The directors of Gemfen are Keith MacDonald (son of Ken MacDonald) and his wife. Gemfen and Ret engage and pay the wages of all bricklayers and labourers, provide sand and cement, provide door frames, provide cement mixing plant, provide supervision of the sub-contract work and pay all workers compensation, payroll tax and other associated employee related expenses. The consideration paid by Tommac to each of Gemfen and Ret exceeds $800,000 per annum. Relevant Contract under Section 3A of the Payroll Tax Act Sub-section 3A(1) provides that a "relevant contract" is "a contract under which a person" (for example Tommac) "supplies to another person" (the Meriton Group) "services for or in relation to the performance of work". Certain contracts which would otherwise fall within the definition of "relevant contract" are excluded. One of the exclusions applies where "the payment of the consideration under the contract is made at a rate that is not less than $800,000 per annum". Although the exclusion refers to "the contract", the exclusion also applies where the consideration exceeds $800,000 per annum under more than one contract (because, by virtue of the Acts Interpretation Act, the singular includes the plural). If the exclusion did not apply, sub-section 3A(2) would deem the Meriton Group to be an employer and to be liable to payroll tax in respect of the payment to Tommac. Similar issues arise in relation to the payments by Tommac to each of Gemfen and Ret. It appears clear, however that the exclusion does apply, with the consequence that none of the contracts, ie the contracts between Meriton and Tommac and the contracts between Tommac and Gemfen and Ret would be relevant contracts for the purposes of the Payroll Tax Act. Grouping Provisions Section 16C(b) provides that, where an employer (for example, Gemfen) has, in respect of the employment of, or the performance of duties by, one or more of its employees, an agreement or arrangement with another person, (for example Tommac) relating to the business carried on by Tommac, Gemfen and Tommac constitute a group. Section 16C(b) would not apply if Tommac and Gemfen enter into a contract for the supply of bricklaying services and the agreement entered into does not deal with the performance of duties of particular employees. An issue could arise in relation to the internal accountant, who works for two days per week but who invoices each company separately. It would be argued that there is no arrangement between each of the companies relating to the services of the internal accountant. It is simply the case that the accountant happens to provide services to all three entities. It is unlikely that there would be any need for any agreement relating to the performance of duties by the internal accountant in those circumstances. The payroll services for all entities are provided by a company and not by an employee. We understand that there is no movement of the employees between Ret and Gemfen and, accordingly, there is no agreement by each of those companies regarding the performance of duties by employees. This is a matter which may need to be considered further if necessary. We understand that teams of bricklayers from each company could be working on the same site. It seems to us, however, that this would not necessarily require any agreement between their respective employers regarding the performance of duties by the employees. As you are aware, s16D applies to group commonly controlled businesses. Because the shareholders and directors of each company are different, there is no scope for the operation of s16D unless the directors of the companies are accustomed, or under an obligation, to act in accordance with the instructions or wishes of a person or group of persons. You have advised that, to your knowledge, there is no basis for any suggestion that, for example, the directors of Gemfen and Ret comply with the directions of Ken MacDonald and John Thompson. It is likely that the Office of State Revenue will seek to establish that the directors of each of Gemfen and Ret act in accordance with the wishes and directions of John Thompson and Ken MacDonald, the directors of Tommac. The legislation, however, does not contain any provision for treating a person and related persons as a single entity or for assuming that there would be an obligation to act in accordance with the wishes or directions of a related party. This question would be decided as a matter of fact. In the absence of any evidence that the directors did act in accordance with directions or instructions, it would be difficult for the Office of State Revenue to sustain the point. You have also advised that the shareholders of each of the companies retain the profits of the respective companies for their own benefit and there is no pooling or sharing of the profits of the three companies. For these reasons we doubt whether the Office of State Revenue could reasonably claim that Tommac, Gemfen and Ret constitute a group for payroll tax purposes. You will appreciate that we are advising on the basis of the facts revealed to us and our view may differ if the circumstances are not as outlined in this letter. For completeness we should deal with the question whether the circumstance that you are the accountants for all entities in the group is of any significance. Clearly, you are not an employee of the group and there is no contract between group members relating to the performance of your services. You do not have a shareholding interest and do not have a controlling interest for the purposes of s16D. We trust that the above is of assistance and would be pleased to discuss any aspect of the matter further with you should you so desire. Yours faithfully GREENWOOD BKT SERVICES PTY LIMITED R J RICHARDSON Consultant' 60 Mr Hamilton drew attention to the history of the dealings between the applicants and the Office of State Revenue over this matter, as set out in the official bundle of documents filed with the Tribunal by the Commissioner (as required by s 58 of the ADT Act). He submitted that this material which dealt with the history of the applicants' dealings with the Office of State Revenue over the assessment needed also to be taken into account. 61 We agree with Mr Hamilton that the bundle included material relevant to the question of 'reasonable care' going beyond the Richardson advice. In our view, the significance attached by the Tribunal to this advice was far too great. 62 We note first of all that the advice letter was given in the context of an audit of Meriton itself. That letter contained advice, but not in unequivocal terms; it was on the contrary couched in cautious terms. The advice contains an important omission. It makes no mention of the role of Place P/L in relation to the other Applicants unless the reference to 'an internal accountant who works two days per week' is to be so regarded. (This does not appear likely given that Place P/L had been established long before the date of that letter.) 63 Moreover, the 1996 restructuring of the Thompson/McDonald business did not from the viewpoint of its only customer, Meriton, change anything in a practical sense. John Thomson in para 3 of his affidavit said that he and Ken MacDonald sought 'to obtain relief for ourselves from the onerous responsibilities arising from the engagement of employees.' In para 20 of the Commissioner's submissions filed in the Tribunal in June 2005, the Commissioner said (correctly): 'Robert Thompson and Keith McDonald, who were formerly employed as foremen, became proprietors of 'their own businesses' but the nature of their work did not change. Laureen Place was previously employed by John and Ken to manage payroll matters, and after incorporation of Place Administration nothing, in a practical sense, changed either. Laureen Place, according to her evidence, performed her duties principally at the business premises of the other taxpayers (566 Gardeners Road, Alexandria). John Thompson and Ken McDonald continued to conduct the business though without formally engaging the bricklayers as employees, as they had before.' 64 The Richardson advice was, in our view couched in terms which, having regard to the background in which it was given, would and should have placed any reasonable taxpayer on his or her guard. 65 Given the following circumstances: + the nature of the Richardson advice; + the history of the Tommac business; + the fact that all of John Thomson, Ken McDonald, Robert Thomson, Keith McDonald and Laureen Place were closely involved in the business itself (and not in any menial capacity); and + the fact that, notwithstanding the restructurings to which we have referred, they remained so,

an application under s 16H of the Act would have been, putting it at its lowest, highly desirable and probably necessary. The Richardson advice was not on its own sufficient in the circumstances. It must be remembered that the Tommac business could not be categorised as a small bricklaying operation; very large revenues were derived from the Meriton work. 66 We recognise that the extent of the obligation to give reasons will vary from case to case: see for example, Flannery v Halifax Estate Agencies Ltd [2000] 1 WLR 377. In that case, in a fact-finding context where there were two irreconcilable versions of one event, it was held sufficient simply to state that one witness was preferred over the other. But the position reflected by Flannery represents the exception rather than the rule. As to the relevance of the requirement to provide adequate reasons to the making of administrative decisions by tribunals (as here), Brennan J observed in Repatriation Commission v O'Brien (1985) 155 CLR 422, at 445-446 that: '. . . a failure by a Tribunal adequately to fulfil its statutory obligation to state the reasons for making an administrative decision does not, without more, invalidate the decision or warrant its being set aside by a court of competent jurisdiction. If a failure to give adequate reasons for making an administrative decision warrants an inference that the Tribunal has failed in some respect to exercise its power according to law (as, for example, by taking account of irrelevant considerations or by failing to consider material issues or facts), the court may act upon the inference and set the decision aside. In such a case, the exercise of the statutory power to make a decision is held invalid not because of a failure to state the reasons for making the decision, but because of a failure to make the decision according to law …'. 67 Here there was only one paragraph of the reasons devoted to the issue of interest and penalty tax, though significant amounts were involved, and there is only a general reference to the consideration that influenced the Tribunal to its conclusion. 68 As we have sought to explain, there were, in our view, a number of factors which considered together had the effect that the Richardson advice could on its own satisfy the 'reasonable care' test. There was also no exploration, whatsoever, of what might be required in order to satisfy the reasonable care test in circumstances of this kind, involving a major commercial operation and, on any view, having relatively highly connected interrelationships between the different entities. 69 On the most generous view, their circumstances were at the margins of the grouping provisions. It is apparent, in our view, that for a long time the applicants were on notice of the holding of a contrary view by the Office of State Revenue yet there was no revisitation of Mr Richardson's advice. There were clearly circumstances of concern to the Commissioner (we have given an example, the situation of Place P/L) which had not been briefed to Mr Richardson. 70 The Commissioner's appeal as to questions of law is allowed. The question which remains, the penalty tax and premium rate interest issues, should be reconsidered by the Tribunal. We have an application for leave to extend the appeal to the merits, but it would be preferable if the Tribunal below heard full submissions on the issue. We have identified doubts and difficulties sufficient to lead us to conclude that the Tribunal's decision should be set aside on this aspect of the matter, but we have not undertaken a complete examination of all the underlying material, which is copious. The application for leave to extend to the merits is refused. The matter will instead be remitted. Orders 1. Appeal No 059029. Dismissed. 2. Appeal No 059027. Allowed. 2.1 Decision under appeal, relieving the applicants from the premium component of interest and from penalty tax, as assessed, set aside. 2.2 Application for review remitted to the Tribunal for redetermination as to premium component of interest and penalty tax.

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