ADELAIDE, 21 July 1997 (hearing), 13 August 1997 (decision)

This is an appeal by the Commissioner of Stamps under s36 of the Payroll Tax Act, 1971 (SA) ("the Act") against a decision of the Payroll Tax Appeal Tribunal ("the Tribunal"). The provisions relating to this appeal have now been repealed, but the parties agreed that under transitional provisions the appeal still lies to this Court and is governed by the repealed provisions.

The appeal is against a decision given on an objection by the respondents against assessments made under the Act by the Commissioner. The assessments were in respect of the years ending 30 June 1987, 30 June 1988, 30 June 1989, 30 June 1990 and the period from 1 July 1990 to 30 September 1990. The assessments were made in the early months of 1995.

Although it is not apparent from the assessments themselves, it appears that the assessments were made by the Commissioner on the basis that the respondents constituted a group pursuant to s18C of the Act. That means that for the purposes of the assessment, wages paid by each member of the group are aggregated.

The respondent taxpayers objected to the assessments by Notice of Objection received by the Tribunal on 27 April 1995. The Notice of Objection objects to the assessments only to the extent that they are made on the basis that the taxpayers should be treated as a group under the Act.

The Tribunal considered the objection and conducted a hearing for that purpose. The Tribunal found that s18C of the Act constituted the taxpayers as a group. But the Tribunal upheld the objection on the basis that the Commissioner should have excluded one of the taxpayers from the group, exercising a power given by s18I of the Act. If that taxpayer were excluded, it followed that the other two taxpayers must be excluded since they were included in the group only by virtue of their relationship with the taxpayer first excluded. Accordingly, the Tribunal ordered the Commissioner to re-assess the taxpayers on the basis that they were not members of a group.

The Act does not provide for the Tribunal to give such a direction. However, that was undoubtedly a convenient course to follow, because it would have been difficult for the Tribunal itself to modify the assessment. No point was taken by the Commissioner, on the hearing of the appeal, in relation to this aspect of the matter.

The Commissioner has appealed to this Court, arguing that the Tribunal erred and that his original assessment should be confirmed.

I take the facts largely from the decision of the Tribunal.

The parties provided the Tribunal with two sets of agreed facts. Apparently there were some slight differences. The Tribunal apparently managed to reconcile the differences.

The group comprised three companies. Geoffrey S Vercoe Pty Ltd and Garrett F Hunter Pty Ltd each conducted a specialist medical practice. Each of them employed only one person. They were respectively Dr G Vercoe and Dr G Hunter. Each of them was a specialist ear nose and throat surgeon. Each doctor and his wife were the directors and only shareholders of the relevant company. The third company in the group is Meldrick House Pty Ltd ("Meldrick"). Meldrick is the trustee of the Meldrick House Service Trust.

Meldrick provided serviced consulting rooms and essential secretarial and administrative services to three medical practices. They were the practices conducted by the two companies earlier referred to, and the practice conducted by Dr P Clark. He also is an ear nose and throat surgeon. He had not incorporated his practice. He paid no taxable wages and is not affected by the assessments.

The shareholdings in the group members, and their relationship, is shown diagramatically in the following diagram, which was part of the reasons of the Tribunal. It includes, for completeness, the position of Dr Clark.

1 A Class 1 B Class 1 A Class 1 B Class Share Share Share

1 Share 1 Share 1 Share (in trust) (in trust) (in trust)

The Meldrick House Service Trust was a unit trust. The unit holdings in the Service Trust, and the ownership of those units, is conveniently summarised in the following diagram, which was also part of the reasons of the Tribunal.

discretionary discretionary discretionary beneficiaries

beneficiaries beneficiaries 1 unit 1 unit 1 unit

Meldrick was incorporated in 1979. The Service Trust was established at the same time. Geoffrey S Vercoe Pty Ltd and Garrett F Hunter Pty Ltd were incorporated and took over the practices of Dr Vercoe and Dr Hunter respectively in the mid 1980s. It was the inclusion of the wages paid to Dr Vercoe and to Dr Hunter that had the result that, if the three companies were grouped together, the group wages would reach a level that attracted payroll tax.

Hereafter I will refer to Geoffrey S Vercoe Pty Ltd and Garrett F Hunter Pty Ltd as "the practice companies". On occasions it will be convenient to refer to the businesses conducted by them and by Dr Clark as "the practices".

Meldrick was the registered proprietor of premises at 186 Melbourne Street, North Adelaide. The Tribunal found that Meldrick provided its clients with the following:

rooms for consulting and related purposes at 186 Melbourne Street;

the usual range of secretarial and administrative services;

consumable goods required in the course of the medical practices.

The doctors carried on their practices at other places. In relation to one of them, a private hospital, Meldrick also provided consulting rooms at the hospital, a booking service and account delivery service and arranged for the collection of patient records. The Tribunal's findings indicate that the services at the private hospital, or some of them, may not have been provided to Dr Clark, but nothing seems to turn on that.

Meldrick also carries out what were referred to as "audio tests" on patients at the premises at Melbourne Street upon request by the doctors. Meldrick forwards an account to the patient in the name of the doctor who ordered the test. The monies received were paid by Meldrick into an account in the name of the practitioner (I assume that this means the practice company), and at the end of each financial year Meldrick calculated the cost of the test provided and charged that cost to the relevant practitioner.

According to the Tribunal the income of Meldrick comprised payment for audio tests, rental for the use of rooms and payment for the provision of secretarial and administrative services.

Each of the doctors is, as already noted, a specialist ear nose and throat surgeon. The doctors have never been in partnership with each other, nor have the practice companies been in partnership. As each practice is in the same field, the practices are to that extent competitive.

The only employee of each of the practice companies is the relevant doctor. No wages are paid by the practice companies to their directors in that capacity.

Meldrick employs a number of staff. As would be obvious, most of their time is spent providing services to the practices. Some of Meldrick's employees, for example, certain secretaries, spend all of their time performing tasks for a particular doctor, apart from any time spent on tasks for Meldrick. Some of Meldrick's employees, for example, receptionists, spend nearly all of their time performing tasks for each of the doctors. Although I do not think it is of any particular relevance, the wife of each doctor was, according to the Tribunal, employed by Meldrick to perform some secretarial and telephone answering services.

Each practice is conducted at various places as well as at Meldrick House. The practices are conducted at Darwin, at "regional centres" in South Australia, at the private hospital referred to earlier and at Adelaide hospitals. The Tribunal said that the doctors spent more time away from Meldrick House than they spent at Meldrick House.

I have already referred to the fact that the practices are in competition. There was no suggestion that they provided services to each other.

The Tribunal accepted that there was no written agreement or arrangement between the practice companies and Meldrick for the provision of services. Apparently, Meldrick charged a monthly service fee for the provision of secretarial and administrative services and, as already remarked, rent. The Tribunal said that each practice paid the same fixed monthly fee, although the value of the services provided to each practice differed.

Each doctor had guaranteed the borrowings of Meldrick. Apart from that, there were no financial arrangements of any significance as between the group members or as between the practices.

I assume that the profits of Meldrick were distributed to the three family trusts identified in the second diagram set out above.

None of the three companies in the group were related to each other for the purposes of s50 of the Corporations Law. Nor, according to the Tribunal, did any corporation have a controlling interest in the business of any other corporation.

The Tribunal observed that the arrangement which I have described is not uncommon among professionals in Australia. I accept that that is so. The arrangement is one which has advantages in relation to income tax and the protection of assets.

(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 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,

"18I. (1) Where the 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 Commissioner considers relevant, that a business carried on by a member of a group is carried on substantially independently of, and is not substantially connected with the carrying on of, a business carried on by any other member of that group, the Commissioner may, by notice in writing served on that first mentioned member, exclude that member from that group.

(2) The Commissioner cannot exercise the power conferred by subsection (1) so as to exclude a person from a group on and from a date if that person is or was on that date a corporation which, by reason of section 50 of the Corporations Law, is to be taken, for the purposes of that Law, to be related to another corporation which is a member of that group.

(3) Notwithstanding any other provision of this Part, a notice under subsection (1) has effect according to its terms on and from the date specified in the notice (being a date that is the date of the notice or before the date of the notice) as the date on and from which the person referred to in the notice is or is to be taken to have been excluded from the group so referred to."

After the assessments had been made, and the objection lodged, the taxpayers applied to the Commissioner for exclusion from the group under s18I(1). By letter dated 5 December 1995 the Commissioner declined to exclude the taxpayers. The only reason given was this:

"The medical practices are heavily dependent on Meldrick House Pty Ltd for the provision of staff and services."

The objection to the Tribunal, and the appeal to this Court, were treated as turning on the question of whether the taxpayers constituted a group and whether the Commissioner had correctly refused to exclude the taxpayers.

On appeal to this Court, the Commissioner accepted that he had to show that the Tribunal had erred as a matter of fact or as a matter of law. It was not suggested by either party that my role was to re-hear the matter afresh. The Commissioner accepted the correctness of the decision of Mitchell J in Commissioner of Stamps v Rivington Farms Pty Ltd (1981) 28 SASR 169. I therefore proceed on that basis, without examining the matter any further. For what it is worth, in my respectful opinion that decision appears to be correct.

I mention that before the Tribunal the matter appears to have been conducted as if it were a complete re-hearing, not in any way limited to the material before the Commissioner when he made his decision. Once again, there is no need for me to enquire into that, both parties apparently having been content that the matter should be conducted that way. I mention that previous decisions that have considered this point have not been uniform in the approach taken to what might be called the first stage challenge to a decision of the Commissioner: see Ballarat Brewing Co Limited v Commissioner of Payroll Tax (Vic) (1979) 10 ATR 228, Commissioner of Payroll Tax (Qld) v John French Pty Ltd (1983) 14 ATR 228 and Clerk Walker and Stops and Clerestory Pty Ltd v Commissioner of Payroll Tax (Tas) (1983) 14 ATR 662.

The Commissioner also accepted that his failure to be satisfied that a member of a group should be excluded from the group under s18I could be raised by way of a challenge to the assessment.

Finally, I record that the Commissioner appears to have provided no details of the basis of his decision under s18I, or of the reasons, other than the brief reasons set out above. In part, this may be because it appears to have been agreed before the Tribunal that not all of the information provided by the taxpayers in support of their application under s18I was accurate.

The Tribunal concluded that s18C(a) had the effect of constituting the three tax payers as a group.

One need only glance at s18C to appreciate that its application to a set of facts is likely to be difficult. It is expressed in terms that are capable of having a very wide application.

I consider that it is convenient, as did the Tribunal, to test the application of s18C(a) by reference to Meldrick and one of the practice companies. For convenience, I will take Geoffrey S Vercoe Pty Ltd.

If an employee of Meldrick performs duties "solely or mainly for or in connection with a business carried on by ...." the practice company, then Meldrick and that company constitute a group. I approach the matter thus because there is no suggestion that an employee of Meldrick performed duties in connection with a business carried on by Meldrick and a practice company jointly.

It was an agreed fact that certain employees of Meldrick spent all of their time, other than time spent performing duties for Meldrick itself, providing services for Geoffrey S Vercoe Pty Ltd. Such employees did not spend time providing services to either of the other medical practices. The time spent by such persons performing services for Meldrick does not appear to have been quantified, but I assume that it was a relatively small amount of time.

On the basis of these facts, the Tribunal concluded that s18C(a) applied. It referred to the position of secretaries employed by Meldrick who worked exclusively for a particular practice company. It contrasted them with the receptionist who spent an equal amount of time providing services to each of the three practices. The Tribunal concluded that the secretaries were employees of Meldrick to whom s18C(a) applied, even though they were employed by Meldrick and, when providing services to the practice company, did so as employees of Meldrick. In that connection the Tribunal relied upon the width of the expression "in connection with".

On appeal, counsel for the taxpayers contested this view. It was argued that the word "duties" was chosen deliberately, in preference to a word such as "activities". It was argued that the word "duties" was chosen to indicate an intention to apply the section only if an employee was employed by Meldrick on the terms that the employee would work solely or mainly for Geoffrey S Vercoe Pty Ltd. It was said that Parliament intended to distinguish between such a person and one who was employed by Meldrick and, in the course of that employment, was merely directed to provide services to or perform duties for Geoffrey S Vercoe Pty Ltd.

In support of this contention the point was made that if it was not correct, the supply of temporary staff by a staff agency to work mainly for a particular client for a period of time would result in that staff agency and the client constituting a group. It was argued that Parliament could not have intended such a wide reach for s18C(a), and that to read it as having that reach was to give it an operation which was impractical and unlikely to have been intended.

Putting it a little differently, the argument was that an employee of A does not perform duties in connection with the business of B merely because the employee provides services to B in the course of B's business and does so at the direction of A. It was said that that merely amounts to the performance of activities in connection with the business of A. Duties would be performed in connection with the business of B only if the employee was employed by A on the basis that the employee's contractual duties were to perform tasks for B.

This particular submission does not appear to have been dealt with in terms in cases dealing with similar legislation in other States. I must say, however, that it appears to me that the decision of the Full Court of the Supreme Court of Queensland in Commissioner of Payroll Tax (Qld) v John French Pty Ltd (1983) 14 ATR 228 is inconsistent with the submission.

In any event, while I agree that the reach of the provision is extremely wide if the taxpayers' submission is not accepted, I am not prepared to accept the submission. To my mind the submission requires an artificial and restricted meaning to be given to the expression "perform duties", for which meaning no basis can be found in the section itself. Nor do I consider that one can conclude that such a meaning should be given to the expression to avoid the provision having the reach that it would otherwise have. If the intention of Parliament had been to create a group only when an employer employs or

engages an employee on the terms that the employee is to work solely or mainly in connection with the business of another person, it would have been quite easy to select words to indicate that much narrower reach for the provision.

As a matter of ordinary language, a secretary employed by Meldrick, but working for most of the time as secretary for Dr Vercoe, is performing duties mainly for or in connection with the business carried on by Geoffrey S Vercoe Pty Ltd. To my mind there is no convincing basis for giving the words anything other than their ordinary meaning.

Likewise, I reject the submission that because such a secretary is also performing duties for Meldrick, that that is a complete description of what the employee does. On that approach the section would have no meaning, because every employee of an employer, who provides a service to another person, does so in performance of a duty to the employer, assuming that the provision of the service is authorised or required by the employer.

It does not follow, from what I have said, that I would conclude that every time an employee of Meldrick performs a service for Dr Vercoe, that employee is performing duties for or in connection with the business conducted by Geoffrey S Vercoe Pty Ltd. In the case in question, the relevant employees of Meldrick do not simply provide a service, such as the typing of a report or the answering of a telephone. As I understand the facts, a secretary who works mainly for Dr Vercoe will be under his general direction, and will perform such tasks as he or the practice company requires. While the arrangement remains one for the provision of services, it is one under which the employee of Meldrick can, as a matter of ordinary language, be said to be performing duties for or in connection with the business of Geoffrey S Vercoe Pty Ltd. The secretary may be said to be performing duties for or in connection with that business, and not to be merely a person who, while working for Meldrick, performs duties that enable it to provide a service to the service company. I realise that there is an element of impression in this. However, if necessary I consider that this aspect of the matter can be relied upon in support of the conclusion of the Tribunal.

For those reasons I consider that the Tribunal correctly concluded that the taxpayers constituted a group. The same reasoning applies in relation to Garrett F Hunter Pty Ltd, and, as I understand the provision, all three companies are then to be regarded as constituting the one group.

The Tribunal also considered the application of s18C(b). The Tribunal said that that provision also probably applied, but that it did not have to decide the matter.

In my opinion, in light of the circumstances set out above, it was open to the Tribunal to draw the inference that Meldrick had, at least in respect of the performance of duties by those employees who worked almost entirely for one of the practices, an informal and unwritten arrangement with the relevant practice company relating to the business carried on by that practice company. I consider that the nature of the informal and unwritten arrangement was that Meldrick would provide to the practice company an employee or employees, who were acceptable to the practice company, to perform such duties within the relevant classification (eg secretarial) as might be directed by the relevant practice company or the relevant doctor. In my opinion the facts suggest that the arrangement between Meldrick and the practice companies was more than simply an arrangement for the provision of identified services or a given outcome, such as the typing of reports. In my opinion the facts suggest that the arrangement is, as I have already said, that Meldrick would provide to the relevant practice, employees who were acceptable to the relevant doctor, to perform a

range of functions at the direction of the relevant doctor, and on the basis that the relevant employee would be generally available to that doctor and to no other person.

I consider that the Tribunal should have drawn that inference. As a matter of commonsense, I consider that the facts speak strongly for the drawing of that inference. In my opinion, therefore, s18C(b) also operated to constitute the taxpayers as a group.

I should add that, on appeal, counsel for the taxpayers argued that the inference that I am prepared to draw was not an inescapable inference from the facts. My answer to that is that the inference does not have to be inescapable. It is sufficient if one would draw it on the balance of probabilities. The taxpayers also argued that the three doctors, as directors of Meldrick, agreed on the services to be provided by Meldrick and how they would be provided, and that there was therefore no need for any agreement between Meldrick and the practice companies. I reject that submission. In my opinion arrangements were able to proceed as they did only because the doctors concerned were, in effect, assenting to proposals by Meldrick in their capacity as representatives of the three practices.

The Tribunal decided that the Commissioner should have excluded the two practice companies from the group.

First, Meldrick was not formed to enable the splitting of one business into different entities with a payroll below the taxable threshold. The doctors had never carried on a business together. The case was not the sort of case at which the provisions were aimed.

Secondly, the Tribunal saw as significant the fact that, but for the incorporation of the practice companies, the payroll of the group that they were included in would not have reached the taxable threshold level. It was the inclusion of the salaries of the two doctors employed by the practice companies that brought the group payroll above the threshold.

Thirdly, the Tribunal relied upon the fact that Meldrick dealt with three clients who were in competition with each other. The case could be distinguished from other cases in which the relevant service company provided all of its services to a single client, and the same persons controlled the client and the service company. The Tribunal referred to the fact that no one doctor could control the operations of Meldrick, and each had his own interest in the operations of Meldrick.

Fourthly, the Tribunal referred to the fact that there were no significant interconnections between the business of Meldrick and the three practices, beyond that connection that arose from the provision of services to the practices. There was no sharing of business goodwill. Meldrick and the practices did not do business with the same clients, although that point has to be qualified to the extent that Meldrick carried out audio tests. In this respect the Tribunal drew a distinction between the case at hand and Clerk Walker and Stops and Clerestory Pty Ltd v Commissioner of Payroll Tax (Tas) (1983) 14 ATR 662. There the service company in question had a number of business dealings with persons and entities that were also clients of the legal practice to which it provided services.

Fifthly, the Tribunal relied upon the fact that the doctors could readily conduct their practices independently of Meldrick if they wished. Conversely, Meldrick was not dependent upon the continued use of its services by any particular medical practice. Apparently, by the time the matter was before the Tribunal, Dr Clark was no longer using Meldrick's services.

For those reasons the Tribunal considered that the Commissioner erred in not being satisfied that he should exclude Meldrick from the group.

The decision to exclude a member from a group depends upon the Commissioner being satisfied that a business being carried on by the member is carried on "substantially independently of, and is not substantially connected with the carrying on of, a business carried on by any other member of that group ..."

It is convenient, once again, to begin by testing the situation by reference to Meldrick and Geoffrey S Vercoe Pty Ltd.

Section 18I directs attention in particular to the ownership and control of the two businesses and to the nature of the businesses, which I take to be a reference to the activities comprising the businesses. I consider that an interrelation of business activities, and participation by a person in a position of influence in one business, in the management and decision making of the other business, to be relevant matters: see Commissioner of Payroll Tax (Qld) v John French Pty Ltd (1983) 14 ATR 228 at 239.45.

The business activities of Meldrick are controlled and managed by the three doctors. Although day to day control is, as a matter of convenience, left to Dr Clark, each doctor has an equal say, in the end, in the conduct of the affairs of Meldrick. Bearing in mind the business of Meldrick, and the fact that it provides services to Geoffrey S Vercoe Pty Ltd, one would expect doctor Vercoe to be able to influence the manner in which Meldrick conducts its business. I do not mean by this to say that he has any greater power than his position as one of three directors would give him. I mean that as a director of Meldrick he is in a position to have influence over the manner in which Meldrick provides services to Geoffrey S Vercoe Pty Ltd.

Dr Vercoe is also one of two directors and shareholders of Geoffrey S Vercoe Pty Ltd. He is the sole employee of that company, and it is entirely dependent upon him for the conduct of its business. He is in a position, in my opinion, to exercise substantial control over the business of the practice company.

It follows that Dr Vercoe is, as I have said, in a position to exercise substantial control over the business of the practice company and in a position to influence the conduct of the business of Meldrick.

The business of Meldrick is conducted for the benefit of its shareholders. Each shareholder is a trustee of a discretionary trust. Dr Vercoe is a shareholder and director of the trustee company, along with his wife. I assume that as a family member he is a potential beneficiary under the family trust. In his role as a director and shareholder of the trustee company he is in a position to exercise some influence over the affairs of Meldrick.

The medical practice conducted by Geoffrey S Vercoe Pty Ltd is conducted solely for the benefit of that company. There is no reason to think that decisions about the conduct of that business are in any way influenced or affected by considerations related to the success of

the business of Meldrick. In that sense, the business of the practice company is conducted quite independently of Meldrick's business. However, the practice company is provided with all secretarial and administrative services that are required for the practice by Meldrick, as well as its premises. In that sense there is a connection between the business of the practice company and the carrying on of business by Meldrick, but I do not regard that as a substantial connection. It is simply the connection between a service provider and a client.

On the other hand, the business of Meldrick, while conducted for the benefit of its shareholders, is to a substantial degree the provision of premises and services to Geoffrey S Vercoe Pty Ltd. While business decisions by Meldrick will be made in its own interests, it appears to me that its business cannot be said to be carried on substantially independently of and not to be substantially connected with that of Geoffrey S Vercoe Pty Ltd. The practice company is one of only two or three clients that it has, and the business of Meldrick is, because of the range of services that it provides to the practice company, closely connected with the business of the practice company. Or, at least, substantially connected with the carrying on of the business of the practice company.

At first sight it may seem contradictory to say that the business of the practice company is independent of that of Meldrick, but that the business of Meldrick is substantially connected with the business of the practice company. But what I mean is, as I have already said, that in my opinion decisions about the business of the practice company can and would be made independently of any consideration of the business of Meldrick, because Meldrick is simply a service provider to the practice company. But decisions about the business of Meldrick are closely involved with and must take account of the needs of the business of the practice company, and the manner in which its business is conducted having regard to their relationship.

From that point of view, in my opinion it is not possible to say that the business of Meldrick is carried on substantially independently of the business of the practice company and not possible to say that it is not substantially connected with the carrying on of the business of the practice company.

I agree that there is no substantial business connection between the two businesses, in the sense that they service and deal with the same clients, apart from the provision of audio tests. That latter matter cannot, however, be entirely disregarded. I also agree that the respective businesses are independent in the sense that their profitability is not linked, except for the obvious point that if the practice company could not pay Meldrick's charges then Meldrick would suffer.

I also accept, and put into the scales, that Meldrick has or had three separate clients, whose businesses were separate and competitive, and each of whom would have expected individual consideration. I also put into the scales that Meldrick charges what I assume to be a realistic fee for the service that it provides.

So far, it seems to me that there is a significant element of common ownership and control of the practice company and of Meldrick, although I acknowledge that those who control the practice company are not in a position to control (as distinct from influence) Meldrick and that those who are Meldrick shareholders are not the same persons as those who are the shareholders of the practice company. But, as I have already pointed out, in relation to both ownership and control Dr Vercoe is in a significant position. It also seems to me that there is a substantial connection between the business of Meldrick and the business of the

practice company, although one would not say that there is such a connection between the business of the practice company and that of Meldrick.

I also add, as a relevant matter, that I am prepared to infer that there is an understanding between the doctors that Meldrick would conduct its business in the manner best suited to meet the needs of the medical practices, consistent with Meldrick's obligation to each practice. In my opinion the relationship between Meldrick and the medical practices is not completely at arm's length.

So far, I consider that grounds for excluding the practice company are not made out. However, can I say that the Tribunal erred? In posing this further question I acknowledge that the question is not what I would decide, but whether the Tribunal can be said to have erred.

In my respectful opinion the fact that Meldrick was not formed to enable the splitting of a single business into parts is of little, if any, relevance. The circumstances have to be considered as they now are. I consider that the fact that it was the incorporation of the practice companies, and the inclusion of wages paid to the employed doctors, that bought the payroll over the threshold, to be irrelevant. I agree that the third, fourth and fifth matters relied upon by the Tribunal are relevant. But, as to the fourth matter, for reasons that I have already explained I consider that there is a substantial connection between the business of Meldrick and the business of the practice companies.

As well as relying on matters that I consider to be irrelevant, I consider that the Tribunal has not given sufficient weight to the aspects of ownership and control to which I have adverted, and to the lack of what I consider to be substantial independence between the business of Meldrick and the carrying on of the business of the practice company. I consider that the Tribunal has paid too much attention to the business of the practice company, and insufficient attention to the business of Meldrick.

In the end, my conclusion is that the Tribunal has erred. I consider that neither practice company should be excluded from the group.

Having reached that conclusion, it is not necessary for me to give separate consideration to the question of whether each practice company is independent of the other for the purposes of s18I. I consider that before the practice companies are excluded, it is necessary to come to an affirmative conclusion on that matter as well. The Tribunal did not deal with that. I am inclined to the view that the business of each practice company is substantially independent of, and not substantially connected with the carrying on of the business carried on by any other practice company, but in light of the decision that I have reached it is not necessary to come to a final conclusion on that.

In my opinion the appeal should be allowed. The decision of the Payroll Tax Appeal Tribunal should be set aside. For that decision should be substituted a decision confirming the assessments made by the Commissioner to which objection was made by the taxpayers.