Solicitors:
S Gerber (Agent for Applicant)
Crown Solicitor's Office (Respondent)
File Number(s): 1510274
[2]
reasons for Decision
The applicant, Eastside Veterinary Emergency & Specialists Pty Ltd ("Eastside"), seeks a review of a decision made by the respondent ("the Chief Commissioner") not to exclude Eastside from its grouping with two other companies for the purposes of the Payroll Tax Act 2007 ("the Act").
The applicant accepts that it has been properly grouped with Rose Bay Veterinary Hospital Pty Ltd (Rose Bay) and ANHM Investment Pty Ltd ("ANHM") as trustee for the Eastside Property Unit Trust under s 72 of the Act for the period from 19 December 2011 to 31 August 2014.
However, the applicant claims that the Chief Commissioner should de-group the applicant pursuant to his powers under s 79 of the Act. In s 79(1) the Chief Commissioner is given the discretion to "determine that a person who would, but for the determination, be a member of a group is not a member of the group".
The Chief Commissioner's discretion to exclude a member from a group can only be exercised if the member satisfies that the business conducted by that member is independent of, and not connected with the business conducted by any other member of the group. In considering the application of his discretion the Chief Commissioner is required to have regard to the matters set out in s 79(2) of the Act which provides that -
The Chief Commissioner may only make such a determination if satisfied, having regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other matters the Chief Commissioner considers relevant, that a business carried on by the person, is carried on independently of, and is not connected with the carrying of, a business carried on by any other member of that group.
Rose Bay was incorporated on 6 June 2011 and acquired a veterinary practice on 1 July 2011, which had previously been carried on by Dr Howard Smyth as a sole practitioner for a number of years. With effect from 1 July 2011, Rose Bay had two directors, Dr Smyth and Dr M Linton and each held 150 shares in the company.
The ANHM Trust was settled in May 2011. The only unit holders in the Trust during the relevant period were Dr Smyth and Dr Linton who each held 50 units.
Eastside was incorporated on 13 July 2011. The initial shareholders of Eastside were Dr Smyth and Dr Linton who each held 50 shares and an unrelated investment company, Babtec Holdings Pty Ltd that held 100 shares. On 30 November 2011, Babtec Holdings Pty Ltd sold its shares to Pet General Pty Ltd, another investment company also unrelated to both Dr Smyth and Dr Linton.
The directors of Eastside upon incorporation were Dr Smyth, Dr Linton and Mr Platus who represented Babtec Holdings Pty Ltd. As a result of the sale of the 150 shares held by Babtec Holdings Pty Ltd to Pet General Pty Ltd, Mr Quirk replaced Mr Platus.
Sometime in May 2012, Dr Smyth acquired the shares held by Pet General Pty Ltd and in June 2012 further shares were issued by Eastside as follows:
75 Shares to Dr M Linton
75 Shares to Dr E Buffa
100 Shares to Dr A Simon
50 Shares to Drs Mosman and Crawford.
Eastside procured premises next door to the Rose Bay practice under a lease from 30 September 2011 and after some alterations it commenced its veterinary practice.
In February 2012, Eastside employed Dr Adrian Simon who was a qualified veterinary surgeon "with advanced training and experience in emergency medicine and referral centres" to have "complete management" of Eastside.
The applicant's case was that Rose Bay is a general veterinary practice whereas the nature of the business carried on by Eastside "is a specialist veterinary hospital, providing veterinary services that are in nature different to those" provided by Rose Bay.
Dr Smyth provided a written statement and also gave evidence. Dr Smyth stated that he and Dr Linton "who had been practicing in the eastern suburbs of Sydney as general vets for a number of years, were of the view that there was a need in the area for a specialist and emergency practice, to which general practices in the area could refer specialist and emergency cases, and which would accordingly be open on a twenty four hour a day, seven day a week basis, to service this need, as the nearest such practice was a considerable distance from the eastern suburbs".
He further stated that as Eastside was "reliant on referrals from general veterinary practices", he and Dr Linton assured the general practices that any patient referred to Eastside would not become a patient of Rose Bay. And that they made it clear to the general practices that Rose Bay was not a specialist practice, and that Eastside "would be staffed by properly qualified staff to provide specialist and emergency services".
Dr Smyth also stated, that "to give effect to this, Dr Adrian Simon, a qualified vet with advanced training and experience in emergency medicine and referral centres, was employed in February 2012". Dr Smyth added that Dr Simon "has at all times had complete and unfettered responsibility for managing the business" of Eastside and "has had no connection with Rose Bay".
Dr Smyth further stated that since the appointment of Dr Simon, he and Dr Linton "have had no involvement in the management of" Eastside.
Dr Smyth in his written statement also set out these further matters -
1. Only about 6% of Eastside's income is from patients referred by Rose Bay.
2. Rose Bay does not receive patient referrals from Eastside.
3. The bookkeeping and accounting functions of Eastside and Rose Bay are completely separate. They do not share staff or premises.
4. The only other arrangement between Eastside and Rose Bay is that they share an X-Ray machine, with costs being borne by them on arm's length basis determined on estimated usage.
5. There are no loan agreements or any other financial arrangements between Rose Bay and Eastside.
According to the returns lodged with the Australian Securities and Investments Commission ("ASIC") Dr Smyth and Dr Linton had between them 67% control of the Eastside from 13 July 2011 to 13 April 2012. This was increased to 100% for the period 14 April 2012 to 27 December 2013 but reduced to 67% from 27 December 2013 to 29 August 2014.
The Chief Commissioner placed reliance on the documents produced under s 58 of the Administrative Decisions Review Act 1997 and documents tendered in a bundle and marked "Exhibit R1".
The Chief Commissioner's case was that the material produced by the Chief Commissioner "shows":
1. From the time Eastside was registered and until 14 January 2014, Eastside and Rose Bay shared the same premises as their registered offices and principal places of business according to information provided by them to ASIC.
2. On registration, Eastside informed ASIC that it in fact occupied the premises occupied by Rose Bay.
3. Dr Smyth has been a guarantor of the obligations of both Eastside and Rose Bay under respective leases of their premises since 2011.
4. Dr Smyth and Dr Linton are both recorded on the payroll records of Eastside and Rose Bay.
5. At various times there were up to six people recorded on the payroll of both Eastside and Rose Bay.
6. Eastside and Rose Bay are joint lessees of the X-ray and blood equipment they share, and split the cost of the equipment between them.
7. The website for Rose Bay has a link to the website for Eastside on its 'Emergency' page.
8. In 2014, the websites of Eastside and Rose Bay advertised that both Dr Linton and Dr Smyth practiced at both veterinary hospitals.
9. In May 2014, the Rose Bay address is recorded as the postal and business address of Eastside in income tax and BAS records.
10. In May 2014, the telephone number of Rose Bay is recorded as the telephone number of Eastside in income tax records.
11. Eastside and Rose Bay used the same tax agents for their income tax purposes in 2014.
12. Eastside charged fees to Rose Bay in 2014.
13. Eastside and Rose Bay have common suppliers of medication.
14. Dr Smyth and Dr Linton are both cheque signatories for the accounts of Eastside and Rose Bay.
15. Notice was given to ASIC that Dr Smyth ceased to be director of Eastside only two days after Eastside lodged its application for exclusion from grouping.
The applicant's principal submission was that Eastside and Rose Bay carried on different and independent businesses. It was claimed that in the case of Eastside, the business was largely managed by Dr Simon and in the case of Rose Bay it was in the relevant period managed by Dr Smyth and Dr Linton.
In his written submissions, Mr Gerber further developed this argument as follows:
36. It is submitted that the essential consideration, and what needs to be the paramount consideration is the relationship between the actual businesses and not the shareholders and directors. Are the businesses carried on independently, or are they connected in the carrying on of the businesses.
37. It is submitted that the way the businesses are carried on and any connections in this way is the relevant criterion.
38. Based on the facts it is submitted that the businesses are not connected in the way they are carried on, and the businesses are carried on independently.
39. It is submitted that the fact that there are to some degree common shareholders and common directors is not determinative of the way the businesses are carried on.
40. If the degree of shareholdings and directorships was determinative of independence, then subsection 79(2) would be superfluous and ineffective because it would mean that a determination could never be made because of section 79.
41. Subsection 79(2) requires that regard must be had to the nature of the businesses and other matters. It is submitted therefore that the nature of the business not shareholdings and directorships that is the most relevant consideration.
Mr Gerber also placed some reliance on the decision of the Martin CJ in Crusher Holdings Pty Ltd v Commissioner of Taxes [1994] NTSC 82; 117 FLR 485; 94 ATC 4646; 29 ATR 156. In particular, on his Honour's observations made when speaking of the old de-grouping provision, that the provision "requires the Commissioner to have regard to the nature of the business". It was Mr Gerber's submission that the inquiry was essentially with regard to the nature of the business and not the control of the business.
The Chief Commissioner submitted that the applicant "has taken too narrow an approach to interpreting section 79 of the PTA and has understated the relevance of the degree of ownership and control". Mr Walker, counsel for the Chief Commissioner, in his written submissions explained the approach to exercise the discretion to de-group as follows:
33. It is clear from the text of section 79 of the PTA that in determining whether to exercise the discretion, the respondent must have regard to, inter alia, the nature and degree of ownership and control of the businesses in the Group. In other words, control and ownership are relevant and mandatory considerations in this process.
34. In Conrad Linings Pty Limited v Chief Commissioner of State Revenue [2014] NSWSC 1020 at [50-51], White J said:
Conrad is required by s 79(2) (and s 100(3) of the Taxation Administration Act) to demonstrate that the business carried on by Conrad was carried on independently of and was not connected with the business carried on by Interiors. The onus is on it to do so. Moreover whilst the focus is on the independence in the way the businesses are carried on and the lack of connection between them, the degree of ownership as well as the degree of control of the two businesses is a relevant matter.
On the issue of independence and connection, or lack of it, the following matters appear to me to be of particular relevance … Any profits deprived by Conrad would have been for the benefit of the shareholders. Mr Bevan submitted that to take this factor into account would be to emasculate the effect of s 79 because it would always be the case or at least would usually be the case, where businesses are grouped pursuant to s 72(2)(e), that there would be common ownership. There is some force in that submission. Nonetheless ownership is a matter that by the terms of s 79(2) has to be taken into account.
35. Thus, the fact control and ownership are each factors which may cause persons to be grouped in the first place does not obviate the requirement for them to be accounted for pursuant to the requirements of section 79 of the PTA.
36. Further, White J noted that common ownership in the period of time in question will bear heavily upon determining the existence or absence of independence and connection in circumstances where there are uncorroborated assertions made in evidence going to independence and connection (Conrad at [53]).
Further, relying on what was said by the Appeal Panel in Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 32, it was submitted "there must be a finding of substantial absence of connection and substantial independence between the businesses, to warrant the exercise of the discretion".
Counsel also relied on the decision of Doyle CJ in Commissioner of Stamps v Garrett F Hunter Pty Ltd (1997) 69 SASR 275 which was cited with approval by the Full Court of the Supreme Court of South Australia in Port Augusta Medical Centre Pty Ltd v Commissioner of State Taxation [2012] SASCFC 7. In particular, reliance was placed on the following observations made by the court in the first instance, which the Full Court agreed with:
[64] In my view, while in some cases de facto control of the day-to-day business may be important, I consider that in the present case the retaining of the capacity to control the business is of greater importance, particularly in relation to the "connection" question. In this regard, I note that in Garrett F Hunter, Doyle CJ recognised that although the day-to-day running of the practice in that case was left to another doctor, nevertheless Dr Vercoe, one of the directors of the company, was in a position to influence the conduct of the business.
[65] Similarly, in Crusher Holdings Pty Ltd v Commissioner of Taxes, Martin CJ recognised the primary importance of the capacity to control the affairs of the business even though de facto control of day-to-day business vested elsewhere and stated:
Further, should the occasion arise, it would be open to Mr Kennon to exercise his powers as a life governor of that company to inhibit its demand upon the appellant.
In this matter, at the hearing the applicant conceded that it had been properly grouped with Rose Bay and ANHM.
Rose Bay and Eastside were grouped on the basis that Dr Smyth and Dr Linton had a controlling interest in both entities by reason of them being entitled to exercise more than 50% of the voting power at meetings of directors of the companies. They were grouped pursuant to provisions found in s 72(2)(c)(i) of the Act.
Eastside and ANHM were grouped on the basis that Dr Smyth and Dr Howard had a controlling interest in both companies. During the relevant assessment period the two were entitled to exercise more than 50% of the voting power at meetings of directors of Eastside (s 72(2)(c)(i) of the Act) and as beneficiaries of the ANHM trust they had more than 50% of the value of the interests in the trust (s 72(2)(g) of the Act).
The only issue that remains is whether the Chief Commissioner should exercise the discretion in s 79 of the Act to exclude the applicant as a member of the group.
The applicant also accepted that in these proceedings, pursuant to the provisions of s 100(3) of the Taxation Administration Act and s 79 of the Act the onus was on Eastside to establish that the discretion should be applied in this case.
The Tribunal notes that the current provision found in s 79 of the Act is different in some important aspects with the provision in the law prior to the introduction of the current de-grouping provision as observed by his Honour Anderson J in the Port Augusta case that was cited by counsel for the Chief Commissioner:
The wording of the section giving the Commissioner power to exclude persons from groups has been significantly changed in the current Act. The whole scheme for the grouping of employees has been significantly revised.
The equivalent of s 18I of the old Act is s 79(1) and (2) in the current Act. There are subtle but significant changes in the criteria for exclusion, the most obvious being that the word "substantially" no longer prefaces the words "independently" or "connected".
The other significant change is that in s 79 of the current Act, in relation to the control of the business, the words used are "having regard to the nature and degree of ownership and control" compared with "ownership or control" in the old Act (my emphasis).
Accordingly, the decisions on the old de-grouping provision have to be read with care when applying them to the current provision. In any case, the new provision no longer requires a "substantial independence" of the business and lack of "substantial connection" to be established in order for the discretion to be available.
In Conrad, his Honour held that Conrad had to discharge the onus of establishing "independence in the carrying on of Conrad's business in the years in question and lack of connection between its business and Interiors' business". No reference was made to the old requirement of the independence or control being "substantial". His Honour was, of course, referring to the current test as set out in s 79 of the Act.
In the Explanatory Note to the Payroll Tax Bill 2007 which introduced the current Act, the role of s 79 was explained as follows;
Clause 79 provides the Chief Commissioner with a discretion to exclude a member from a group if satisfied that the business conducted by that member is independent of, and not connected with, the business conducted by any other member of the group. In considering the application of this discretion, the Chief Commissioner will have regard to the nature and degree of ownership and control of the businesses, the nature of the businesses, and any other relevant matters. The discretion is not available for corporations that are related bodies corporate under section 50 of the Corporations Act 2001 of the Commonwealth.
No explanation was given in the Explanatory Note for omitting the term 'substantially' from the test to determine the degree of independence and connection. However, it is I think quite easy to discern the reasoning for the absence of the prefix 'substantially' in the new provision.
As noted by his Honour Riley J in Plummers Border Valley Orchards Pty Ltd v Commissioner of Taxes 2002 ATC 4520 at paragraph [18] -
The word "substantially" does not have a fixed meaning. What is required to demonstrate that a business is "not substantially connected" with another business is a matter of fact and degree to be considered in all of the circumstances. It must not be minimal yet need not be total.
The 'substantially' test must have posed some real difficulties in determining the 'quantum' of independence or connection necessary to satisfy the test. The new provision makes the task much easier for the decision-maker when exercising the discretionary power given in s 79.
In Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 32 at [51], the Appeal Panel took the view that for s 79 to apply "there must be a finding of substantial absence of connection and substantial independence between the businesses, to warrant the exercise of the discretion".
However, the Appeal Panel in Chief Commissioner of State Revenue v Seovic Civil Engineering Pty Ltd [2014] NSWCATAP 94 said at [32]:
"Section 79 focuses attention on the nature of interconnections between group businesses, the nature of the businesses and other relevant matters. The Chief Commissioner must turn his mind to the "carrying on" of the businesses. In order to be relevant to s 79 of the Act, the interconnection must affect group members' businesses in some real or practical sense. Read in context, the expressions "independently of and "not connected with " are somewhat elastic and depend on the nature and degree of the connections and the type of businesses. To be disentitled from exclusion from a group, there must be a real or meaningful connection, in a commercial sense and not an immaterial, inconsequential or passing connection between the carrying on of the businesses. The reference to a substantial connection in Lombard Farms at [51] is to be read in that context: meaning material and not necessarily large or weighty." (Emphasis Added)
The view expressed by the Appeal Panel in Seovic reflects the difference in the language used in the old de-grouping provision and the current provision. The Panel has also referred to its earlier decision in Lombard Farms and clarified that the test is not "substantial connection" but a real or meaningful connection and not necessarily large or weighty.
The policy reasoning for grouping of employers in the payroll tax law in certain circumstances was succinctly explained by the High Court in Tasty Chicks Pty Limited and Others v Chief Commissioner of State Revenue of the State of New South Wales [2011] HCA 41; (2011) 245 CLR 446 at 451 -
The "grouping" provisions were designed to counter tax avoidance through the splitting of business activities by the use of additional entities, each attracting a threshold. The "degrouping" provisions were available for application by the Chief Commissioner upon determination, in broad terms, that it would be unreasonable to apply the "grouping provisions".
The grouping provisions act to prevent avoidance of payroll tax, the de-grouping provision in that context provides a narrow relief to cases where it would be unreasonable to group a person or persons.
In order to exercise the discretion under s 79, the Chief Commissioner is required to have regard to -
(1) the nature and degree of ownership and control of the businesses;
(2) the nature of the businesses; and
(3) any other matters the Chief Commissioner considers relevant.
Having regard to these matters, the Chief Commissioner can proceed to determine that a person is not a member of a group if satisfied that the business carried on by that person is independent of, and is not connected with, the business conducted by any other member of the group.
In Port Augusta Medical Centre Pty Ltd v Commissioner of State Taxation, the Full Court considered the old de-grouping but the statements made by Kourakis J (as his Honour then was) in relation to the old provision equally apply to the new provision. The clause 'is carried on independently of, and is not connected with' in the new provision should, as suggested by his Honour, 'be applied as a compound expression describing the nature of the business relationship between the entities'. His Honour went on to make the following important observation (at paragraph 110) -
Insofar as the two limbs of the clause focus on different aspects of the relationship between the entities, in my view, the former focuses on control of the management of the businesses and the latter on the relationship between the business activities themselves.
The Commissioner has issued a revenue ruling 'to explain the exclusion under section 79, including the matters the Chief Commissioner takes into account in exercising the discretion' - (Revenue Ruling No PTA0331 - Commissioner's discretion to exclude from a group) on 30 June 2008.
The Chief Commissioner has expressed the view that to exercise the discretion found in s 79 of the Act -
The Chief Commissioner must be satisfied that:
● there is not a continuous course of active and significant relationship, in a business or commercial sense, between the carrying on of the applicant's business and the carrying on of businesses conducted by every other member of the group, and
● the connections which do exist are no more than casual, irregular or occasional occurrences.
The approach suggested by the Chief Commissioner in his ruling is, in my opinion, in accordance with the terms of s 79 of the Act. The Chief Commissioner has correctly not relied on the old test - a finding of substantial absence of connection and substantial independence between the businesses.
The grouping provisions are essentially anti-avoidance provisions. In order to avoid the provisions, under the new relieving provision an applicant has to establish independence of the business and an absence of any connection. In a commercial sense, the business must be an independent business and without any real connection with any member of the group.
In this matter, for a number of reasons, I am not satisfied that the onus has been discharged by the applicant to establish the independence of the Eastside's business and its lack of connection with Rose Bay.
Reliance was placed by the applicant largely on the nature of the businesses of the applicant and Rose Bay. It was submitted that Eastside's business was quite different from that of the business carried on by Rose Bay. It was on the basis that different types of clients were serviced by Eastside and provided a 24-hour specialist and emergency service in contrast to the general practice conducted in the relevant period by Rose Bay during normal hours.
The only evidence properly before the Tribunal was the written statement of Dr Smyth. Dr Smyth also gave oral evidence and was cross-examined. The applicant also filed an unsworn written statement made by Dr Simon but he did not attend the hearing. His whereabouts was not clearly known to the applicant but that he was overseas. His absence must be viewed with great concern. As he was the key employee of Eastside and it was claimed that he had full charge of the management of Eastside since his appointment some time in February 2012. His unsworn statement added very little to Dr Smyth's statement. I agree with counsel for the Commissioner that Dr Simon's statement was essentially a restatement of what was in Dr Smyth's statement.
No independent evidence from any other veterinary business that referred cases to Eastside was produced to provide corroborative evidence that the services provided were different from those provided by general practices. The Tribunal only had the "self serving" statement of Dr Smyth.
Merely on the basis of Dr Smyth's short statement that Eastside provided specialist and emergency services in contrast to the general services provided by Rose Bay, it is difficult to conclude that the two were different businesses.
No evidence was given by Dr Linton to corroborate the evidence given by Dr Smyth.
Dr Smyth and Dr Linton, who also operated Rose Bay, essentially to provide a service outside the normal working hours of general practices, set up Eastside. There was no evidence as to what services were specialist provided by Eastside that could not be provided by a general practice. The only obvious difference between the two businesses was that general practices in the area could refer cases on a "a twenty four hour a day, seven day a week basis" as the nearest such practice which provided such service "was a considerable distance from the eastern suburbs".
No specialist was identified that was in charge of the claimed specialist services rendered by Eastside. Dr Smyth in his evidence claimed that Dr Simon had "advanced training and experience in emergency medicine and referral centres". And, in his evidence, he also said that Dr Simon was undergoing training to become a specialist. But that did not make Dr Simon a specialist during the relevant assessment period. In any case, Dr Simon did not attend the hearing to explain what "advanced training" he had undergone or what specialist tasks he was able to attend and had in fact attended to in the relevant period at Eastside.
The businesses were located side by side and both Dr Smyth and Dr Linton provided paid services to Eastside as well as attending to their business of Rose Bay. In addition, for various periods there were at least 6 employees recorded on the payroll of both Eastside and Rose Bay.
The returns lodged with ASIC indicate that Eastside and Rose Bay had the same registered address until 14 January 2014.
Eastside and Rose Bay were, during the relevant period, joint lessees of the X-ray and blood equipment used by both businesses and the cost shared.
In the income tax returns and BAS records, the address of Rose Bay is recorded as the postal and business address of Eastside. Both businesses used the same tax advisers and accountants during the period.
Dr Smyth provided the necessary security as a guarantor of both the leases of the premises occupied by Eastside and Rose Bay. Both he and Dr Linton were cheque signatories for the bank accounts of both Eastside and Rose Bay.
These factors, when considered cumulatively and objectively, lead to the only conclusion that the business of Eastside, during the relevant period, was closely associated with and complimentary to the business carried on by Rose Bay next door to it. It was not a business that was independent of the Rose Bay business and the businesses were not completely different.
In passing, I need to acknowledge that, in considering the nature of the business, the fact that both are owned and controlled by the same persons, although a relevant matter for consideration, may on the facts have no bearing upon the manner in which each business was carried on (see Burt CJ in Commissioner of State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd (1981) 12 ATR 406 at 411). However, in this matter, on the facts ownership and control had an important bearing.
Mr Gerber had also submitted that if "the degree of shareholdings and directorships was determinative of independence, then subsection 79(2) would be superfluous and ineffective because it would mean that a determination could never be made because of section 79". Counsel for the taxpayer in Conrad made a similar submission. In Conrad a submission was made by counsel for the taxpayer "that to take this factor into account would be to emasculate the effect of s 79 because it would always be the case or at least would usually be the case, where businesses are grouped pursuant to s 72(2)(e), that there would be common ownership". Whilst his Honour in Conrad accepted there was "some force in that submission", his Honour went on to state that, "nonetheless ownership is a matter that by the terms of s 79(2) has to be taken into account".
Section 79(2) clearly requires the Chief Commissioner to have regard to the "nature and degree of ownership and control of the businesses".
It is not in dispute that Dr Smyth and Dr Linton had the ultimate control over both Eastside and Rose Bay during the assessment period through their sole directorship of Rose Bay and majority directorships of Eastside.
Dr Smyth gave evidence to the effect that Dr Simon had "complete and unfettered responsibility" for managing the business of Eastside soon after Eastside employed Dr Simon in February 2012.
In Port Augusta, the Full Court recognised that, in some cases, "de facto control of the day-to-day business may be important" but emphasised that "the retaining of the capacity to control the business is of greater importance, particularly in relation to the 'connection' question". In Garrett F Hunter Doyle CJ also noted that although the day-to-day running of the medical practice was left to another doctor, the doctor who was one of the directors of the company, was in a position to influence the conduct of the business. A similar approach was taken by Martin CJ in Crusher where his Honour noted that although the de facto control of day-to-day business was vested elsewhere but that "should the occasion arise" it was open for the director to exercise his powers "to inhibit its demand upon" the company.
Both Dr Smyth and Dr Linton had the majority directorship of Eastside and thus the ultimate control over Eastside during the assessment period. There were other shareholders but both Dr Smyth and Dr Linton held no less than 250 of the 500 shares of Eastside. The applicant did not produce any documentary evidence, such as minutes of the company, its business plans or correspondence between the shareholders/directors and Dr Simon to support what was said about Dr Simon's role. There is also no evidence that the other shareholders participated in any decision-making by Eastside.
Dr Simon himself chose not to attend the hearing and provide oral evidence. Dr Simon, the Tribunal was informed, was aware of the hearing date, but chose instead to go for a holiday at some overseas location. Although his statement was admitted, little weight can be given to the broad assertions he makes in the unsworn statement. I agree with counsel for the Chief Commissioner that the statement was, in any case, a self-serving statement and, in the absence of the maker and the absence of the opportunity to be tested no particular weight can be given to any of his claims.
The application of s 79 of the Act also requires a negative finding of any connection between the applicant seeking de-grouping with the other members of the group. In order to exercise the discretion, it has to be established that the business is not only independent but also not connected with any other business in the group. This would also depend upon an objective consideration of all the facts.
In this matter, both Dr Smyth and Dr Linton, owners of Rose Bay, were, because of their shareholding and directorships able to control the management of Eastside during the relevant assessment period. The cases make it clear that it is sufficient if a member of the group has the ability to dictate the way the other member is managed. It is not necessary that there is evidence to establish that that power was, in fact, exercised.
When all relevant matters, in particular the various matters brought to the attention of the Tribunal by the Chief Commissioner as set out above in paragraph 18, are considered objectively, the only finding that can be made in this case is that the applicant has failed to discharge the burden of showing that the business it carried on in the relevant assessment period was carried on independently of, and was not connected with the carrying on of, a business carried on by Rose Bay.
The Chief Commissioner's decision not to de-group the applicant under s 79 of the Act is affirmed.
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
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Decision last updated: 26 May 2016