Dealings with Clements Dunne & Bell
95 Clements Dunne & Bell Pty Ltd (CDB) is a company which conducts an accounting practice. Its directors were Paul Clements, Christine Dunne and Raymond Bell. Mr Bell died in an accident on 14 October 1999.
96 In 1997, CDB acted for clients including Radioactive Clothing Pty Ltd (Radioactive), A&G Steel Metal Fabrications Pty Ltd (A&G), Farmer Cortese Pty Ltd (Farmer Cortese), Glow Zone Products Pty Ltd (Glow Zone) and Fraser Jenkinson Pty Ltd (Fraser Jenkinson). At that time, Coadys solicitors were engaged in marketing employee share incentive plans. CDB obtained advice from Coadys concerning the use of such plans for these clients. Each of the clients entered into such a plan.
97 The Coadys' plan involved establishing a related company. The related companies were as follows: for Radioactive - London Beach Investments Pty Ltd; for A&G - Alfgor Investments Pty Ltd; for Farmer Cortese - Coad-64 Pty Ltd; for Fraser Jenkinson - Henry Court Investments Pty Ltd; and for Glow Zone - Glow Zone Investments Pty Ltd.
98 The stated purpose of the plan was to encourage productivity and loyalty on the part of employees. The plan required the employer to make a payment to the related company. This payment provided a tax deduction for the employer. The amount of the payment was ultimately to be received by the employee when the employee reached specific targets, whether as to turnover, profits or some other measure. The payments were to be treated as capital contributed to the related company. The employee received shares in the related company, which shares entitled the employee to payment upon reaching specified goals.
99 The documentation for the Coadys' plan was completed prior to 30 June 1997. The contributions from the employers were paid prior to the end of June 1997. The intention at the end of June 1997 was that the employer entities would claim the deduction in their tax returns to be lodged in about March 1998.
100 Evidence of the implementation of the Coadys' plan included a minute of a meeting of directors held on 30 June 1997 as follows:
"Resolved re Employee Share Plan:
1. The Chairperson confirmed that, in accordance with the previous resolutions of the Company, a new Company COAD-64 PTY LTD ACN 079 005 333 ('ESP Company') had been incorporated for the purpose of implementing an employee share plan for the Company's employees and that employee, manager and residuary share [sic] in the ESP Company had been allotted.
2. That the following contributions to the plan now be made in respect of the shares already issued to the named employees:
PETER FARMER $110,000
JUDITH LORRAINE FARMER NIL
JOHN CORTESE $5,000
BRUCE JOHN FAIRBAIRN $5,000
Applications for Shares:
Applications for 24 employer shares in the ESP Company were tabled by the Chairperson.
Resolved that the Company make application to COAD-64 PTY LTD ACN 079 005 333 for the issue of 24 employer shares of $1.00 in the capital of that company on which it is proposed to pay a premium of $5,000.00 per share being the company's contribution towards the employee share plan on behalf of those employees participating in the plan.
Resolved that the company seal be affixed to the application for employer shares in accordance with the Company's Articles.
Closure:
There being no further business the meeting then closed."
101 While this minute relates to Farmer Cortese, the evidence indicated that like minutes were passed by the directors of the other employer companies. It is noteworthy that the resolution did not stipulate any targets to be attained by the employees. In the cases of Glow Zone, Fraser Jenkinson and A&G, contributions were made in respect of employees who themselves had control of the employer companies. The transactions were thus not made at arm's length.
102 In mid November 1997, as part of a review of compliance with tax laws, the ATO wrote to some of CDB's clients which had entered into employee share plans. The ATO sought details as follows:
"1. The amount of contributions paid by you to the ESP company in the period.
2. The method by which the quantum of contributions paid to the ESP company is decided.
3. The method by which it is decided how the premium paid on the employer shares is allocated to individual employee shares.
4. Details of the financing arrangements in connection with the payment of the contributions.
5. The classes, quantity and recipients of shares allotted in the ESP company.
6. The circumstances in which an employee is able to redeem his or her shares.
7. Profit and Loss Statements of you and the ESP company.
8. Balance Sheets of you and ESP company.
9. Notes to the accounts listed in 7 and 8 above.
10. Details of any private binding rulings obtained in relation to the ESP."
103 Mr Bell replied to the ATO on behalf of clients including A&G, Glow Zone, Radioactive and Farmer Cortese.
104 On 26 November 1997, Mr Bell attended the seminar conducted by Mr Gray at the Melbourne Hilton. As related earlier in these reasons, Mr Petroulias also attended the seminar representing the ATO. The general message given by the promoters to the meeting was that the Coadys' plan was not acceptable to the ATO, but that the PIC scheme would come with a private binding ruling demonstrating that it was acceptable to the ATO.
105 A file note prepared by an employee of Mr Gray on the day following the seminar records, by reference to Mr Bell, "may have sold one". It further records a phone conversation on that day with Mr Petroulias in which it was suggested that Mr Bell put forward a proposal to roll the existing plans into a new plan which the ATO would accept and "pretend the old ones did not exist and roll over into the new as though it was the original .. intention from the start".
106 Then, on 28 November 1997, Mr Gray spoke to Mr Bell. Mr Gray told Mr Bell that he would speak to Mr Morgan about the costs of transferring five clients from the Coadys' plans to "something acceptable". Mr Gray's file note states "set up for genuine reasons - stress to ATO".
107 On 18 December 1997, Mr Bell had a meeting with Mr Petroulias. It is noteworthy that the matters in the forefront of interest for Mr Bell were the need to ensure that the contribution already paid on 30 June 1997 continued to be deductible when the tax returns were filed in about March 1998, and that a private binding ruling from the ATO confirmed that outcome. Thus, the day after the meeting, Mr Bell wrote to Mr Petroulias confirming the discussion about clients who enter into the PIC plan as follows:
"Clients who Adopt a Replacement Plan
We will lodge the 1997 income tax returns of the employer, employees and employee share plan company on the basis that the Tax Office will accept the arrangement for 1997 as a genuine employee share plan which satisfies the Tax Office and the Income Tax Assessment Act, Fringe Benefits Tax Assessment Act and any other law which may apply.
The clients who choose this option will also be deleted from the audit list.
We will also arrange for a replacement plan to be adopted which will be effective for the year ended 30 June, 1998 and future years (as soon as possible) which will satisfy the Tax Office and the necessary legal requirements for future years.
Upon receiving the replacement plans we will provide a copy of this documentation together with a Request for Private Ruling for each client. These requests will be forwarded to you and provided the replacement plan meets the necessary Tax Office and legal requirements a Private Ruling will be issued approving the employer to use the plan and accepting the 1997 employee share plan as a genuine arrangement. In the course of discussions you suggested that a Private Ruling may be issued for a period of 3 years (in this instance 30 June, 1997, 1998 and 1999). CCH Federal Tax Reporter suggests at paragraph 971 - 595 (page 871,113) that the Tax Office can only issue a Private Ruling on a particular year of income although a notice of several rulings (ie. in relation to several years of income) may be given in one ruling notice.
This would not create a problem for the years ended 30 June, 1997 and 1998 but if a Public Ruling issued before the 1999 year commenced it seems that the Public Ruling may have the effect of cancelling the validity of the Private Ruling. Section 14ZAW of the Taxation Administration Act effectively enables any inconsistencies in a Private Ruling compared to a Public Ruling to be withdrawn subject to the application of section 14ZAU. Assuming the client (rulee) does not consent to the private ruling, or part thereof, being withdrawn can the Tax Office withdraw the ruling on the basis that the arrangement for the year ended 30 June, 1999 has not begun to be carried out? Although the structure, being the employee share plan company exists the question arises is whether this is a part of the arrangement or is the employer contribution the arrangement?"
108 On the same day, Mr Bell sent a fax to Mr Gray making further enquires about the cost of preparation of an employee share plan which complied with ATO requirements. On 22 December 1997 Mr Gray sent a copy of this fax to Mr Petroulias and asked him "would you suggest an appropriate fee structure?".
109 On 1 January 1998, Mr Gray sent a fax to Mr Bell in the course of further negotiating the terms of a retainer. This fax again shows the prominence given by Mr Gray to the securing of a private binding ruling. He wrote:
"We are instructed that a number of your firm's clients are participants in company employee incentive plans ('plans'), all of which share a common form of Memorandum and Articles of Association, a copy of which you have now supplied to us.
As we have previously advised (and confirm after our review of the copy of the Memorandum and Articles provided), we believe that the structure of your client's existing plans is deficient in that ultimately, as they are presently structured, the plans will expose employers to Fringe Benefits Tax, and employees (and perhaps also employers) to premature Capital Gains Tax liability. Further, employers may not receive the (anticipated) deduction expected from the share funding exercise. Similarly, employees may not receive the advantages associated with deferred capital gains. As we presently understand the policy of the Australian Taxation Office, the Deputy Commissioner of Taxation holds the same view.
If we are favoured with your instructions to amend documentation for your clients, we propose that in each case, the following methodology be adopted:
1. Amendments to existing Memoranda and Articles of Association be undertaken in relation to each employee incentive company to accord with a variant of the existing plan, in respect of which we have received a favourable advance opinion from the Deputy Commissioner. As we understand your instructions to date, such amendments should ensure that both employers and employees alike will achieve expected outcomes from their respective participation in the plans.
…
4. In each case, an Application for Private Ruling will be made to the Deputy Commissioner of Taxation in accordance with Income Tax Ruling IT 2500."
110 In reply, Mr Bell sent a fax to Mr Gray on 2 January 1998 concerning further issues relating to the proposed retainer. He stated:
"At this stage you have understandably been guarded about the method in which your plans work but it is necessary that we be fully conversant with the plan prior to finalising your engagement. This is a usual procedure of our practice as we believe that it is incumbent upon a professional adviser to make every effort to satisfy himself as to the operation of any business transaction. We would be prepared to sign a confidentiality agreement to satisfy you of our genuine intentions."
111 Then, on 12 January 1998, Mr Bell, by fax, further clarified the result of the discussions with Mr Petroulias. His fax elicited a response from Mr Petroulias on the following day in these terms:
"Employee share Plans
Reference is made to your letter dated 12 January 1998. The Commissioner's approach to the Coadys arrangement is that there is FBT payable on the premium contributed by the employer and that, at the same time, the premium increases the discount received by the employee and forms part of the assessable income of the employee under Division 13A of Part III of the Income Tax Assessment Act 1936. These consequences are independent of whether or not the employer has claimed a deduction.
In the best interests of your clients, you have identified that your options are:
1. to switch into a employee reward plan in respect of which a positive advance opinion / ruling can be obtained; or
2. to dismantle the existing structure.
Where your clients have dismantled the existing structure, there would be no tax shortfall arising and, as such, your clients will avoid the adverse tax consequences that would otherwise arise. Whilst the office would be less inclined to investigate your clients as part of the current project where there is a low risk to the revenue, no undertaking can be given that there will be no investigation of their affairs.
If your clients switch to a plan that receives an advance opinion or private binding ruling, the next issue that has been raised is whether a deduction can be claimed for the 1997 year. On the hypothesis that you have received a positive response from the Commissioner in respect of a proposed alternative plan and in generalised terms which do not take into account individual circumstances, if the new plan does not fundamentally alter the agreed remuneration package of the employees concerned, the employer would be liable to make good on the remuneration package in the 1997 year. As such , there could well be an entitlement to a deduction to the employer in the 1997 year.
It must however be emphasised that the extent to which a remuneration package can be varied without it amounting to a fundamentally new agreement and still be enforceable from the original date is a matter of contract law. The nature of the agreement and its terms will depend greatly on the circumstances. Where the variation has the effect of creating a new agreement, it can only take effect from the date of variation and, as such, will not give rise to a deduction at the time of the original agreement."
112 In the context in which this letter was written, it can be seen as a piece of strong advocacy in favour of CDB's clients purchasing the employee share plan offered by Mr Gray.
113 On 20 January 1998, Mr Bell wrote to Mr Gray engaging him to switch Farmer Cortese from a Coadys' plan to "an employee incentive plan which will be satisfactory to the Tax Office and enable a positive advance opinion / ruling to be obtained". Enclosed with the letter was an advice from a remuneration consultant. This assessed the market salary payable to a non-arm's length employee of Farmer Cortese, Mr Peter Farmer, at $180,000. In fact Mr Farmer had been paid a salary package of about $67,000. The result was that the maximum employee share plan contribution could be about $113,000. The amount actually contributed was $110,000. The letter concluded:
"Assuming that the Tax Office respond favourably in regard to this case we will need to contact our other clients to take instructions and engage you to complete the necessary documentation for these. The Application for Private Ruling should address the deductibility of the employer contribution, fringe benefits tax issues, the amount which is assessable income of each employee, Part IVA, capital gains tax issues and any other matters which in your judgement, is appropriate. The Application for Private Ruling should attempt to include as many years as possible in the request and it is imperative that the year ended 30 June, 1997 be one of these years."
114 The next day, Mr Bell was told by Mr Gray that the application for the ruling should be lodged with Mr Petroulias at Market Street, Sydney.
115 On 23 January 1998, Mr Gray spoke to Mr Petroulias about a pricing structure for providing plans to six clients of CDB. It was proposed that $30,000 "with guarantee" be charged for the six clients.
116 A file note written by Mr Gray, dated 9 February 1998, indicates that he told Mr Bell that "PIC said do all 6 @ 5K with guarantee and repaid guarantee if something goes wrong". A further file note, dated 11 February 1998, indicates that Mr Gray spoke to Mr Panos and said that he had told Mr Bell that if there were six clients one would be done for free. The file note recorded that six plans would cost $25,000 "with guarantee that put into something that does work".
117 On 19 February 1998, Mr Gray sent a fax to Mr Bell which, in part, said:
"We confirm that in relation to our fee structure outlined in our letter of 1 January 1998, that fee structure as therein outlined is now vacated. In lieu thereof, and by arrangement with Productivity Incentive Corporation Limited, our fee structure is based on our receiving similar instructions from you in relation to six matters of which we will charge professional fees for five of those matters at $5,000.00 per matter.
We confirm that this variation in our fee structure arises from discussions and representations both with Mr Nick Panos, Solicitor for Productivity Incentive Corporation Limited and our direct discussions with Mr Richard Morgan as Director of Productivity Incentive Corporation Limited.
We confirm your instructions to proceed with the preparation of an Application for Private Ruling in respect of the existing incentive arrangements subsisting between Farmer Cortese Pty Ltd and Coad-64 Pty Ltd.
Whilst this aspect of the matter of course remains the subject of your instructions, it would our [sic] view that it is preferable that the Application for Private Ruling be made in our name and be submitted by us direct to the appropriate officers of the Australian Taxation Office. We would appreciate your specific instructions in relation to this aspect of the matter."
118 Mr Bell responded by fax on the same day. In part, he stated:
"We refer to your facsimile transmission dated 19 February, 1998 and advise that we would prefer all documentation be forwarded to our office in respect to the Application for Private Ruling.
Our policy is to review all matters in respect to the Application prior to its lodgement. This review obviously requires us to have all documentation to attend to this review. As we have not sighted any information in regard to the Plan we consider this review is essential."
119 The following day, 20 February 1998, Mr Gray sent a draft of the Application for a Private Ruling for Farmer Cortese to Mr Petroulias "for your perusal and comment". Copies of further drafts of the application were sent by Mr Gray to Mr Bell on 20 and 23 February 1998.
120 On 24 February 1998, Mr Gray sent the final form of the application to Mr Bell under cover of a fax which stated:
"We refer to discussions with the writer on 23 February and now enclose Application for Private Ruling in final form for lodgement.
We understand that the Application should be lodged with Mr Emmanuel Aiviliotes of the Large Business & International Line, Australian Taxation Office, 100 Market Street Sydney, New South Wales. The appropriate facsimile number is (02) 9374 2811. If forwarded by facsimile in the first instance, we suggest that the original be subsequently forwarded by mail.
One matter in relation to amendments discussed on 23 February requires clarification. It may well be correct that incentive targets were not set in respect of 1996/97 year however, our opinion contained in the Application is relevant not only to that year, but subsequent years. Accordingly, no amendment is necessary in relation to this aspect of our opinion."
121 Paragraph 4 of the application listed the questions to be answered by the Commissioner. The first question was:
"Having regard to the matters following:
(i) Will the Commissioner accept the retrospective effect of amendments to be made to the Memorandum and Articles of Association of Coad-64 Pty Ltd (ACN 079 005 333) (TFN 94 271 110) ('EIP Company') by virtue of the implementation of the proposed arrangements outlined in paragraph 5(c) of this Application?"
122 Paragraph 5 of the application set out the issues to be considered by the Commissioner and a full description of the facts. This included the following assumptions and proposals:
5. Issues to be considered and full description of facts:
…
(b) Assumptions
1. That the Memorandum and Articles of Association of the EIP [Employee Incentive Plan] Company are capable of retrospective amendment.
2. That Fairbairn, Cortese and J. [Judith] Farmer are arm's length employees of the taxpayer.
3. That a specialist remuneration consultant has determined an arm's length salary for [Peter] Farmer in respect of the 1996/97 year using a methodology to calculate figures which is available for scrutiny if required.
(c) Proposals
1. That the Memorandum and Articles of the EIP Company be altered with retrospective effect so as to:
(i) redefine the current employee share plan as a 'Productivity Incentive Plan'; and
(ii) in so doing, the classes of shares on issue in the EIP Company would not change; and
(iii) the Productivity Incentive Plan will not fundamentally alter the agreed remuneration package of the concerned employees of the taxpayer.
Features of the Productivity Incentive Plan:
The existing EIP Company will become a special purpose Productivity Incentive Plan Company ('PIP Company'), the object of which is to provide an incentive for the taxpayer's employees to become more productive and thereby increase the profitability of the taxpayer's business by providing them with an additional reward in excess of their normal remuneration. The PIP Company will be investing the capital base created by any productivity incentive payments made by the taxpayer to maximise employee reward in accordance with this objective.
2. Each year, the taxpayer as employer will subscribe for 'incentive providing shares' to be issued at $1.00 each. These shares give the taxpayer the right to put a list of productivity targets and performance criteria to the PIP Company which the latter is to supervise the achievement of. If in any period, the taxpayer's employees do not achieve their targets, the taxpayer will need only to make a productivity incentive payment of $1.00. It is expressly provided that the productivity incentive payment is part of the capital base of the PIP Company.
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7. If the productivity incentive targets of the taxpayer's employees are met, the taxpayer as employer will make a productivity incentive payment and that payment will give it the right to purchase further incentive providing shares for setting out the next generation of targets. Only if the targets are not met, the productivity incentive payment will be a $1.00 amount."
123 Paragraph 6 of the application set out the opinion of the taxpayer's agent with reasons. This opinion including the following:
"THE APPLICATION OF PART IVA TO THE ARRANGMENT
Having regard to the eight objective criteria in Section 177 D of the Act, it is submitted that the Commissioner cannot conclude that the dominant purpose of the productivity incentive plan is to obtain a tax benefit in connection with a 'scheme'. The dominant purpose of the arrangement is to ensure the employer company, through the encouragement of loyalty and productivity of key staff, is able to generate greater taxable income in the long term. That is, the dominant purpose is to encourage the fulfilment of the performance targets of the employer company giving rise to greater amounts of assessable income in the longer term. Likewise the dominant purpose is to encourage staff loyalty and commitment and reduce transaction costs associated with high staff turnover and therefore reduce allowable deductions in the longer term."
124 It appears that Mr Petroulias spoke to Mr Bell at 3.30pm on the same day (24 February 1998) and indicated certain further requirements in relation to the application. He said that he needed a copy of the Memorandum and Articles with the changes highlighted, and evidence that the remuneration package was entered into earlier. He also indicated that he was not satisfied with page 4 of the application and needed more information. In particular, paragraph 2 on page 4 of the application, which is reproduced in par 122 of these reasons, was circled and the words "key features" were written in the margin next to the paragraph.
125 Again on the same day, Mr Bell reported this conversation between himself and Mr Petroulias, to Mr Gray. He sent Mr Gray a fax as follows:
"We refer to the Application for Private Ruling which we faxed to the Tax Office today and advise that Mr Nick Petroulias telephoned and advised that other matters will need to be provided in the Application.
These are as follows:-
1. He recommended that you consider the original advance opinion provided to you in which the original shares create a link with the new targets each year. He also made reference to a deferred consideration outstanding as part of the purchase of the shares. As I am not fully conversant with your plan I did not fully understand this issue. However, he stated that this is not evident from the Applicant and is critical to the arrangement.
2. A copy of the amendments made to the Memorandum and Articles of Association is to be provided. I did comment that I think you have completely replaced the entire Memorandum and Articles but perhaps you could indicate the amendments or even provide a comment that it is the same as the Memorandum and Articles of Association previously lodged in which the Tax Office have issued a favourable Advance Opinion.
3. He requested copies of correspondence and minutes which evidence that the remuneration to be paid is binding and the date of this understanding. For example, he quoted the ideal situation as 'say date in 1/1/97 - We agree to compensate you in this way …'. That is, there is a binding obligation. I did indicate that we would be unable to provide this and advised on the basis the arm's length employees amount was determined and the reason why it was paid. As previously indicated the reason was to retain important staff, provide incentives etc.
Attached is a copy of the Directors Minute in which the contributions were determined. I have rung Judy Farmer to see if there are any employment contracts or the like. However it is unlikely that the employment contracts would refer to anything as the amounts contributed were determined as bonus type payments and became obligatory to pay at the time the decision was made by the employer.
You may need to provide us with some guidance on this aspect to be included in the Application for Private Ruling.
I mentioned to Nick that I would organise for you to contact him should you need any clarification on these issues.
We would appreciate if this matter could be finalised tomorrow as we are virtually out of time - we really need a response (formally or informally) from the Tax Office by Friday."
126 On the following day, 25 February 1998, Mr Gray sent Mr Bell a draft response to the queries raised by Mr Petroulias. The response provided:
"We refer to discussions with your office on 24 February 1998. Arising from those discussions we make the following further comments in support of the Application:
1. The Application for Private Ruling is predicated on the basis that the Memorandum and Articles of Association of Coad-64 Pty Ltd already reflect the proposals outlined in paragraph 5.(c) of the Application. Accordingly, we have no objection if your response to the Application is predicated upon that assumption.
2. Our instructions are that a binding obligation arose between the taxpayer and its employees in respect of the remuneration of employees in discussions which occurred between representatives of the taxpayer and the employees concerned, in or about January 1997. Those instructions were to have been committed to a formal agreement between the taxpayer and its employees however as you would be aware, there was much uncertainty in relation to the effect of amendments to the Workplace Relations Act 1996 which hindered the preparation of formal written agreements. Notwithstanding, the parties to remuneration arrangements have since their agreements, acted and continued to act in accordance with the agreement as if it were a binding obligation. In fact, a formal confirmatory Minute of the agreement in relation to remuneration was made on 30 June 1997. A copy of that confirmatory Minute is enclosed."
127 On 25 February 1998, Mr Bell sent Mr Petroulias a response in the terms of this draft.
128 On 25 March 1998, a Notice of Private Ruling in relation to the PIP for Farmer Cortese, under the name of Mr Aivaliotes, was sent to Mr Bell. The response in the ruling to the first question posed in the application set out above was as follows:
"(i) The Commissioner accepts the retrospective effect of the amendments to be made to the Memorandum and Articles of Association of Coad-64 Pty Ltd (A.C.N. 079 005 333) (TFN 94 271 110) ('EIP Company') by virtue of the implementation of the proposed arrangements outlined in paragraph 5 [c] of the Applicant's Application For Private Ruling dated 23 February 1998."
129 The ruling also contained the following:
"(x) On the premise of the retrospective amendment of the Memorandum and Articles of Association of the EIP Company the Commissioner regards the amounts paid by the Taxpayer as premiums to the EIP Company in respect of its employees Farmer, Fairbairn, Cortese and J. Farmer as being deductible to the Taxpayer pursuant to Section 8-1 of the Income Tax Assessment Act 1997 (Section 51(1) of the Income Tax Assessment Act 1936). This is predicated on the fact that the productivity payment will be deductible to the Taxpayer provided the productivity payment is irrevocable and can be shown to provide an incentive to employees."
130 On 6 April 1998, Mr Clements began his direct involvement with Mr Gray apparently on behalf of A&G and Fraser Jenkinson. On 20 April 1998, Mr Clements sent a fax to Mr Gray authorising him to proceed with an application for a private ruling for Glow Zone. On 22 April 1998, Mr Gray wrote to Mr Clements seeking the same information as had been provided for the Farmer Cortese application. On 26 April 1998, Mr Clements confirmed the instructions on behalf of Glow Zone to:
"engage you to prepare the necessary documentation to switch the existing Coadys type employee share plan to an employee incentive plan which will be satisfactory to the Tax Office and enable a positive advance opinion/ruling to be obtained."
131 The letter enclosed a report from a remuneration consultant indicating the appropriate arm's length salary for David Miller and Michael Givoni was $212,530 and $59,114 respectively. The letter indicated that the amount, in fact, paid by the company to each of these employees was approximately $89,000 and $25,000 respectively. The letter also stated:
"In accordance with previous discussions we would also request that you provide supporting documentation including company minutes, etc, which evidence that the remuneration to be paid was binding and the payment was irrevocable and provided an incentive to employees. The Application for Private Ruling should attempt to include as many years as possible in the request and it is imperative that the year ended 30 June, 1997 be one of these years."
132 Mr Clements indicated that the application and supporting documents would be forwarded by CDB to Mr Petroulias.
133 Mr Clements sent a similar letter of instruction to Mr Gray, on 26 April 1998, in relation to Fraser Jenkinson. The letter explained that this company operated the business of a commercial printer and had a turnover of more than 10 million dollars. The directors, Leo Moio and Frank Moio, were both employed full time in the business. At 30 June 1997, the company employed 78 employees. The letter stated:
"No third party remuneration advice was received however, the basic salaries paid to the employees listed below is considered by the company to be very low given the level of responsibility and duties."
134 The letter gave the following details of salary and superannuation paid to employees and the employee share plan contributions made:
EMPLOYEE POSITION SALARY S'ANN ESP CONTR.
CONTR.
Leo Moio Managing Director 22,400 27,170 90,000
Bruno Moio Operations Manager 22,400 9,782 30,000
Frank Moio Warehouse Manager 22,400 9,782 20,000
Rocco Moio Finishing Manager 22,400 9,782 20,000
Ray Moio Print Manager 22,400 9,782 20,000
Lucy Moio Bindery Manager 22,400 9,782 20,000
200,000