Lombard Farms Pty Ltd v Chief Commissioner of State Revenue - [2014] NSWCATAD 132 - NSWCATAD 2014 case summary — Zoe

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Lombard Farms Pty Ltd v Chief Commissioner of State Revenue

[2014] NSWCATAD 132

NCAT Administrative and Equal Opportunity|2014-04-29

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NCAT Administrative and Equal Opportunity

Decision date

2014-04-29

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Judgment (31 paragraphs)

[1]

The Applicant's Case 9At the hearing the Applicant relied on a bundle of photographs, one statement by each of Dr Benedict James Panizza ("Dr Panizza"), Mr Mark Joseph Panizza and Ms Helen Antoinette Panizza, 3 statements by Mr Albert John Panizza (" Mr Panizza") dated 11 July 2012, 19 September 12 and 7 November 2013 (respectively referred to as the July, September and November statements), a draft financial report for the Applicant for the year ended 30 June 2012, written submissions dated 20 December 2013 ("AS1"), 7 February 2014 ("AS2") and 3 June 2014 ("AS3"), oral submissions by Mr Jones and a bundle of authorities. The four witnesses are siblings, often referred to below as "the Siblings". 10The Application stated that the reasons for seeking a review of the decision were the same grounds as set out in the original objection and attached those grounds. The grounds took up some 12 pages and I will not repeat them in full. 11The focus of the Applicant's case is set out at [3], [4] and [23] of AS3 as follows: [3] Despite the significant volume of material before the tribunal the only real issue is whether the existence of a loan to Lombard from Alpine and the fact that some minor administrative services were provided to Lombard by Albem are fairly characterized as "not immaterial or inconsequential" to the carrying on of each of those businesses. [4] There is no serious suggestion by the respondent that there is any connection between the business of Lombard and any other group member. [23] The Applicant has established that there was a "substantial absence of connection and substantial independence"15 between Lombard and the other group members. The conditions for the exercise of the discretion to de-group in s.79 have been satisfied.

[2]

The Respondent's Case 12The Respondent relied on documents filed pursuant to section 58 of the then ADT Act contained in two tabbed volumes comprising 807 pages, affidavits sworn by Elizabeth June Tsitsikronis on 5 September 2012 ("exhibit R1") and 17 February 2014 ("exhibit R2"), written submissions dated 23 January 2014 ("RS1") and 13 June 2014 ("RS2"), a bundle of authorities handed up during the hearing, and oral submissions by Mr Latham. 13What is described at [2] in RS2 as "the crux of" the Respondent's case is "the effect of the grouping provisions in" the Act. RS2 continues: [3] The effect of the grouping provisions is to allow the Commissioner to group those different companies so that the threshold was applied to the group as a whole. [4] The applicant concedes that the Commissioner was correct to group the companies. The only question is whether the Commissioner was correct in failing to 'degroup' the companies. [5] The Payroll Tax Act gives the Commissioner a discretion to `degroup' companies if their businesses are carried on independently of and not connected with the carrying on of, a business carried on by any other member of that group. [8] The Applicant submitted that the business of the grouped companies were not the same. The links between them were inconsequential. Further, while the various directors of one company had the ability to control the businesses of other companies within the group that this was a theoretical ability and should not be taken into account. Summary of the Commissioner's Argument [9] The links between the companies are not immaterial or inconsequential to the carrying on of the businesses. It is sufficient that one business had the ability to able to influence the decisions of another for them to be no longer independent. A theoretical ability to influence is sufficient. In any event, the group of companies in question, are in fact, interdependent. This is clear in the evidence of common ownership, common management and the integration of business activities.

[5]

Appeal Panel order and reasons 16In order to appreciate the Appeal Panel's reasons, which guide the Tribunal in this decision, it is necessary to have regard to former legislation. Prior to 1 July 2007 the relevant payroll tax legislation was the Pay-roll Tax Act 1971 ("the 1971 Act"). The equivalent in the 1971 Act to s 79(2) of the Tax Act was s 16C(3) and (4) of the 1971 Act which are set out below. "16C Grounds for excluding persons from group (3) The Chief Commissioner must not make a determination under section 16B unless satisfied that the business carried on by the person the subject of the determination has been continuously carried on, and will continue to be carried on, substantially independently of the other members of the group. (4) In determining whether a person carries on business substantially independently of the other member or members of a group, the Chief Commissioner is to have regard to the nature and degree of ownership or control of the business of each member of the group, the nature of each of those businesses and any other matter that the Chief Commissioner considers relevant." 17Much of the wording of s 16C(2) and (3) is similar to s 79(2) other than that the word "substantially" in the phrase "substantially independent" which appeared in each of s 16C(2) and (3) does not appear in s 79(2). In the ADT hearing the Respondent submitted that, as a matter of statutory construction the change by the legislature to the wording creates a presumption that the meaning of the statute also changed (T1 at page 15). This issue was dealt with by the Appeal Panel at [39] to [41] as follows: "Harmonisation of legislation 39 Immediately prior to the introduction of the Act, it was necessary only to demonstrate that there was substantial independence between group businesses: s 16C(3) of the Taxation Administration Act 1996 (NSW) (TAA). Prior to that, it was necessary to demonstrate that group businesses were substantially independent and "not substantially connected": s 16H(1) of the Payroll Tax Act 1971 (NSW) (the 1971 Act). The fact that the word "substantial" has been omitted from the section suggests, absent some other explanation, that the current provision has a narrower ambit than its earlier versions. 40 The Appellant however, raised for consideration the possibility that there was an explanation for the omission of the word "substantial" that does not have a narrowing effect on the discretion. The enactment of the Act stemmed from a harmonisation of payroll tax legislation amongst various participating jurisdictions. The Explanatory Note to the Bill stated, under the heading "Overview of Bill", that the object of the Bill was to "repeal and reenact the Payroll Tax Act 1971 (the 1971 Act) with various changes to harmonise the Act with the equivalent payroll tax legislation of Victoria". The relevant Victorian provision at the time was s 9A(1J) of the Payroll Tax Act 1971 (Vic): (1J) If the Commissioner is 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 Commissioner considers relevant, that a business carried on by a member of a group, including a group constituted by reason of section 9A(2), is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group, the Commissioner may exclude the member from that group. 41 As demonstrated by GTS Industries at [37] and Triline at [20] and [25] the Victorian provision had been interpreted consistently with the earlier New South Wales provision which posed a test of "substantial independence", despite the fact that the Victorian counterpart did not contain the word "substantial". It is reasonable therefore to infer that the word "substantial" was, in those circumstances, otiose and omitted for that reason. Even if this is not correct, there is much force to the submission that the Victorian provision and the current New South Wales provisions are to be interpreted harmoniously and this means the Appeal Panel would follow GTS Industries and Triline unless we were of the view they were clearly wrong. For the reasons we explain below, we agree with the Victorian authorities." 18The Appeal Panel outlined its further reasoning as follows: "Question of judgment and degree 50 Section 79(2) requires the trier of fact to determine whether, having regard to the nature of the connections between group businesses, it can nevertheless be said that the businesses are independent and not connected. Ultimately, this will be a question of judgment based on facts objectively determined. It is not the case that any connection between businesses will disentitle an applicant from degrouping. The connection must be material and not insignificant or inconsequential. This is the approach that was adopted in the Victorian authorities referred to above: see Triline at [19], [22] and [30] and GTS Industries at [38]. We agree with this approach because it directs the focus to the "carrying on" of the business: to be relevant, the connection must affect the business in some real or practical sense. 51 To say that there can be absolutely no connection between the businesses sets the bar too high. The question is one of fact and degree: Network Clothing Company v Commissioner of State Revenue [2007] VCAT 2492 at [34]. To disentitle an applicant to degrouping, the connection must be meaningful in a commercial sense and not immaterial or inconsequential to the carrying on of the businesses. Adopting the words of GT Pagone, Presiding Member (as his Honour then was) in Triline at [25] there must be a finding of substantial absence of connection and substantial independence between the businesses, to warrant the exercise of the discretion. Reading in words 52 This is not a case where the omission of the word "substantial" effected a change to the discretion to degroup entities. So much may be seen from the fact that the legislative change was to harmonise the Act with Victorian legislation, which had been interpreted consistently with the NSW provision even though it did not employ the word substantial. 53 If the process of construction we have adopted is one of "supplying omitted words" (adopting the words of Spigelman CJ in R v Young (1999) 46 NSWLR 681 at [16]) then it is necessary to demonstrate that the omission of the word "substantial" from the legislation was inadvertent and that to "read the word in", achieves the legislative purpose: see for instance Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 11316. Furthermore, as this is a matter of construction, the words which actually appear in the legislation must be "open to such a construction": R v Young per Spigelman CJ at [12] and [15]. 54 Here the "inadvertence" may be gleaned from the legislative harmonisation project. In order to achieve that legislative goal, the construction we have adopted is to be favoured. Furthermore, as the words used in the statute describe a spectrum of relationships (Pozzolanic at 288289(sic)) we are satisfied that the construction we have adopted is open." "58 The Judicial Member construed the statutory test as requiring no connection and a complete independence between group businesses: at [35] and [45] of the Decision. As we have concluded that we should follow the Victorian authorities and that the test is a matter of judgment, or degree, the Tribunal fell into error. For reasons discussed below, the matter will be remitted to the Tribunal for reconsideration." "87 The statutory test to be employed is as we have described it at [50] and [51] above." The nature of the discretion 88 The Appellant contends that there is not a true discretion. It is submitted that once a decision is objectively made as to whether the businesses are independent and not connected, degrouping follows. Support for this approach is found in both GTS at [19] and [39] (although there is a contrary indication at [24]) and Triline at [19] and [22] (although the remarks were obiter). 89 The Respondent, on the other hand, submits that even if there is a conclusion reached that the businesses are independent and not connected, the Respondent retains a discretion to not degroup. This is the position that was adopted by the Court of Appeal in Tasty Chicks (at [64]), albeit in respect of a previous version of s 79 of the Act. 90 The structure of s 79 gives some support to the Respondent's contention: the discretion is found in s 79(1), but may only be exercised if not precluded by s 79(2). In this sense, the structure of the discretion under consideration in Tasty Chicks (which required a similar twostep approach: s 16C(3) and s 16B(1) of the TAA) is more similar to s 79 than the Victorian counterpart considered in GTS and Triline where the Commissioner could degroup if satisfied that the businesses were independent and not connected. 91 It is not necessary for us to decide whether the Commissioner retains a discretion to not degroup, if objectively the businesses are independent and not connected, as we have decided to remit the matter for reconsideration. The question of whether s 79 is a true discretion, or whether degrouping follows the result of the s 79(2) analysis may arise when the Tribunal rehears the matter. If so, we indicate that for the reasons that the remarks in Triline were obiter and that there are apparently contradictory observations in GTS and that, on this aspect, there are structural differences between the Victorian and NSW provisions, we would follow the reasoning of the Court of Appeal in Tasty Chicks in relation to s 16C and s 16B of the TAA, by analogy. At [64] Meagher JA (Barrett JA and Sackville AJA agreeing): Assuming s 16C(3) did not prevent the exercise of the discretion to exclude under s 16B(1), in my view the primary judge did not err in either of the respects relied upon. He did not overlook the need to exercise the discretion provided by s 16B(1): [2009] NSWSC 1007 at [143]. His Honour did not proceed upon the basis that if the prohibition did not apply the discretion "must" be exercised: see Interpretation Act 1987, ss 5, 9; Ward v Williams [1955] HCA 4; 92 CLR 496 at 505506; Samad v District Court of New South Wales [2002] HCA 24; 209 CLR 140 at [33][34]. He gave reasons, albeit very short, for his determination that the discretion should be exercised. They were that "on the facts set out" in the judgment the discretion ought to have been exercised: [2009] NSWSC 1007 at [166]. The reference to "the facts" is to be understood as a reference to the facts found or discussed at [127][142]. In so doing the primary judge also sufficiently identified the basis on which he considered that the discretion should be exercised. 92 Section 79(1) of the Act appears to provide the Respondent with a true discretion, subject to there being the necessary finding in relation to independence of group businesses. The exercise of the discretion is to be exercised within the limits delineated by the subject matter, scope and purpose of the provision: Neat Domestic Trading Pty Ltd v AWB Ltd (2003) 216 CLR 277 at [56]."

[18]

Strategic control 41Page 637 of the s 58 documents is an extract from a document prepared by KPMG on behalf of the Applicant in its application for de-grouping. The document is a response to specific questions raised by the Chief Commissioner concerning who made strategic and financial decisions of Con-Tec, Albem, Albem Operations and Alpine. The extract states: "Albem Pty Ltd - Albem's Board of Directors are responsible for making the strategic and financial decisions for Albem. Albem Operations Pty Ltd - Albem Operation's Board of Directors are responsible for making the strategic and financial decisions for Albem Operations. Alpine Pty Ltd - Alpine's Board of Directors are responsible for making the strategic and financial decisions for Alpine." 42In cross examination Dr Panizza said in relation to the above extract "Alpine is a - holds shares, that's the majority, and lends money, and those shares are extremely rarely traded, so there's no decision really to make."; in relation to Albem "That might be stated, but it's not the case" and in relation to Albem Operations, what is stated is not a correct analysis of what actually happens. 43Mr Panizza said he was aware that KPMG was engaged to apply for the exclusion from grouping, he did not instruct KPMG, he thought that instructions may have come from Mr Andrew Tunny, he could not recall seeing the documents produced by KPMG, and when asked about the above extract said that it was not a correct analysis of the situation. 44Dr Panizza and Mr Mark Panizza acknowledged that if the directors or shareholders of the holding companies of Group Members voted together they could influence the activities of their subsidiaries and give directions to them. 45No evidence was provided as to when Mrs Panizza's involvement in Alpine lessened nor the extent of the involvement of Messrs Albert and Mark Panizza during the Relevant Period nor was any evidence given as to who instructed the company's share brokers during the Relevant Period. It may well be that Mr Panizza's influence in business decisions of Alpine was substantial during all or part of that period. Mr Panizza said his mother asked him what was happening to the loan. It may be that he, not her, was effectively in charge of or substantially involved in guiding Alpine's business, including making decisions concerning the finance facility provided to the Applicant throughout the Relevant Period.

[19]

Financial records 46Dr Panizza said he is provided with financial statements about each of the companies annually and relies on those financial statements and on conversations with his siblings to ensure that the companies are financially solvent. In re-examination he said the accounts that he sees routinely are the accounts prepared by the accountants for taxation purposes each year and that when he meets with his siblings he does not have a copy of the accounts. There are no meetings of the directors at which the accounts are produced. 47Ms Panizza agreed that a fair description of how the process worked was that at least once a year she and her siblings met to discuss the finances of the companies informally before the accounts were signed off. She also said that the directors of Alpine meet at least on a yearly basis to go through the accounts and sign off on them for the end of the financial year. Ms Panizza acknowledged that she relies on the advice given to her by the accountants and that she looks at the advice and makes her own judgment. 48On the other hand Ms Panizza also said she did not attend or participate in any formal shareholders meeting of Albem nor at any meeting of Alpine, whether shareholders or directors, at which there was a vote. 49Dr Panizza also said that he has never been asked to vote as a director or shareholder of any company. 50Mr Panizza agreed that in relation to Beath and other companies there were board meetings which although informal were where documents like the accounts were examined by the directors. 51Mr Panizza said that the financial accounts were made available to the directors, but not all directors took advantage of looking at those accounts. In relation to Albem, Mr Panizza said that that company is predominantly run by his brother Mark who is trusted by the other directors and Mark looks at the financial accounts. This is not necessarily consistent with evidence of Dr Panizza and Ms Panizza who said they looked at and considered the accounting records they received. 52When asked about meeting annually to sign off on statutory accounts Mr Mark Panizza said that there were a number of things he signed off on but he could not recall exactly what they were as there were a lot of companies.

[20]

Minutes of meetings 53Dr Panizza was shown copies of three documents annexed to exhibit R1. The documents purport to be being minutes of meetings of directors of Alpine. The meetings were apparently held on 30 June 2008, 2009 and 2010 at a Brisbane address which Dr Panizza identified as KPMG's office. The 2009 and 2010 minutes appear to be signed by Mr Panizza who is stated to have been the chairperson of the meetings. The documents were produced to the solicitors for the Respondent by the solicitors for the Applicant. Dr Panizza said he thought he must have seen the documents previously but initially said he could not recall attending any of the meetings. Subsequently he gave a definite answer and said he had not attended any of the meetings. 54I observe that these Alpine minutes are of meetings reportedly attended by Mrs Panizza and all 4 Siblings. They state "The minutes of the previous meetings of directors were read and confirmed." 55To the contrary, at [28] in her statement Ms Panizza said "These family meetings are very casual: no minutes are taken and no reports or other papers are circulated for discussion". 56Mr Mark Panizza was shown exhibit R1 and asked to look at the attachments which comprised minutes of meetings of Alpine, Albem Operations and Con-Tec and a shareholder dividend statement of Con-Tec. The minutes indicate that Mr Mark Panizza and Mr Panizza were present at all the meetings. Mr Mark Panizza said he could recall seeing some of the minutes previously and that some of the meetings had taken place. I observe that three minutes in respect of meetings of Con-Tec stated that Mr Mark Panizza was present as chairperson and two of those minutes appear to have been signed by him in that capacity. 57In cross examination Mr Panizza said "I don't believe there are formal minutes where we've gotten together and had a meeting" and he thought he would know if that had occurred. 58Mr Panizza was then shown exhibit R1 and asked if he had seen any of the documents being minutes referred to earlier in this decision. Mr Panizza acknowledged that he had seen the documents because he had signed a number of them. He said "That would be KPMG preparing a minute of a meeting that didn't actually happen" and "the meetings did not occur". He sought to qualify his evidence by saying the subject matter of the meeting was discussed by the people involved and the minutes formalised the discussion. 59Mr Panizza was shown exhibit R10 and after reading the documents from page 5, which purport to be memoranda of resolutions by him as sole director of the Applicant and minutes of meetings of the directors of Albem, Albem Operations and Con-Tec, he described those documents as "statutory minutes prepared by KPMG and sent to (him) to sign". He said: "I don't think any of these meetings would've taken place. If KPMG sends these to me, I get them signed." Mr Panizza did not accept that he had responsibilities to make sure that company minutes were accurate. 60In relation to minutes on page 9 of exhibit R10 which purport to record a meeting of the Siblings and their mother as directors of Albem on 22 December 2009 adopting the contents of the annual company statement and resolving "there were reasonable grounds to believe that the company would be able to pay its debts as and when they fall due", Mr Panizza said the meeting, the minutes of which were signed by him, did not take place nor had the family had an informal discussion concerning the substance of the minuted resolution. 61I observe that on page 8 of exhibit R 10 appears minutes of a meeting of directors of Albem on 13 December 2010 apparently attended by each of the Siblings and Mrs Panizza, each of whom have initialled the minutes adjacent to their names. The address at which the meeting took place is blank. The minutes were signed by Mr Panizza as chairperson and contain a solvency resolution which states: "It was resolved after reviewing the result of the company for the previous year, reviewing the cash flow budgets for the ensuing year and considering the ability of the company to realise assets that the company would be able to pay its debts as and when they fall due." 62I also observe that on page 10 of exhibit R 10 appear minutes of a meeting of directors of Albem Operations on 13 December 2010 apparently attended by Mr Panizza and Mr Mark Panizza each of whom have initialled the minutes adjacent to their names. The address at which the meeting apparently took place is 12 Pavo Street, Camp Hill, QLD 4152. Pages 598 to 613 is an historical company extract for Alpine. Pages 599 to 601 list the Pavo St address as the address (presumably residence) of Mrs Panizza and the late Mr Giovanni Panizza. The minutes are signed by Mr Panizza as chairperson and contain a solvency resolution identical to the wording in the preceding paragraph. 63The transcript of Mr Panizza's cross examination concerning directors meetings includes: "Q. Well, were there any other meetings apart from the general family meetings as you describe them? A. There were we did discuss the fact that there were statutory meetings that KPMG prepared minutes for. There were no accounts provided at those meetings I don't think. Q. So there were no accounts provided at what you describe as statutory meetings? A. The statutory meeting is where KPMG prepares a minute, sends it to us and says, "Albert, sign these". Q. Yes, and presumably before the directors signed it, the directors would meet wouldn't they? A. No, not necessarily."

[23]

Control of businesses 69During cross examination Mr Panizza acknowledged that at any time Beath could exercise its power as sole shareholder of the Applicant. He repeatedly qualified his answers concerning the power of shareholders by using the word "theoretically". 70At [51] in AS1 the Applicant conceded "there may be some theoretical ability in the non-managerial directors by exercising their rights to control the Applicant's business" but asserted that "any such ability is theoretical and not "real and substantial"." At [35] in AS1 when conceding that there are common directors of holding companies in the group the Applicant submitted "the existence of this directorship structure is of only theoretical significance to the carrying on of the Applicant's business and does not reflect the manner in which the Applicant's business is carried on" and referred to the Appeal Panel stating that "this factor is not "material and not insignificant or inconsequential" (at [50) (sic) bearing in mind that that test is to be applied in reference to "the carrying on of the business" at [51]". 71On the other hand the Respondent submitted at [47] in RS1: "the test is not whether there were formal meetings of directors of one company that determined to influence another company in the group. The test (as used by the Court of Appeal) was whether one company was in a position to influence the ongoing conduct of the business of another company in the group. That was unquestionably the case." 72In relation to the Applicant's reference to [50] in the Appeal Panel's decision I observe that the Appeal Panel did not state that a situation of common directors of holding companies in a group was not "material and not insignificant or inconsequential". The Appeal Panel actually said: "Section 79(2) requires the trier of fact to determine whether, having regard to the nature of the connections between group businesses, it can nevertheless be said that the businesses are independent and not connected. Ultimately, this will be a question of judgment based on facts objectively determined. It is not the case that any connection between businesses will disentitle an applicant from degrouping. The connection must be material and not insignificant or inconsequential.... it directs the focus to the "carrying on" of the business: to be relevant, the connection must affect the business in some real or practical sense." 73In Denham Constructions Pty Ltd v Chief Commissioner of State Revenue (1998) 40 ATR 416 ("Denham Constructions") Studdert J rejected an appeal against a decision of the Chief Commissioner not to de-group members of a payroll tax group under the 1971 Act. A submission was made on behalf of the payroll tax group to the effect that the concept of control of a business meant day to day management and was not to be viewed at directors' level in relation to the former s16H of the 1971 Act. At the relevant time s16H(1), the equivalent of the present s79(1) and (2) of the 2007 Act, stated: "Where the Chief Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that the Chief Commissioner considers relevant, that businesses carried on by members of a group are carried on substantially independently of, and are not substantially connected with, the carrying on of a business or businesses of another member or other members of the group, the Chief Commissioner may, by order in writing served on those first mentioned members, exclude them from that group." 74Studdert J said at point 20 on page 425 that counsel for the group members "was unable to refer to authority that management ought to be viewed in the narrow sense for which he contended, and I am not attracted to this submission to that effect." 75I observe that the payroll tax legislation refers to control of businesses, not management of day to day business operations. The legislation does not discount the legal control by the board of the company which owns the business and delegates day to day powers to company employees. I am not satisfied that control of a business in the context of s 79(2) of the Act means control by employed managers rather than control by the directors of the company which owns the business. I also have regard to the overriding control by the directors of the holding company of the company which owns the business. 76Mr Panizza was throughout the Relevant Period the sole director of the Applicant and a director of every other Group Member. I refer separately to evidence concerning his role in the businesses of other Group Members.

[26]

Financial assistance to the Applicant from Alpine 80The Respondent argued that finance provided by Alpine, a Group Member, to the Applicant, demonstrated a "clear link of business activities" between those companies (RS2 at [67]). The Applicant submitted at [12] and [13] in AS3 "The loan from Alpine is the only relevant connection between it and Lombard. As the appeal panel held, the mere existence of a loan is not enough to disqualify Lombard from de-grouping: [71]" and "Further and in any event it is not a meaningful or consequential connection because": (a) The loan represented a small proportion of Alpine's business and therefore Alpine's existence was not dependent on the loan...: (b) The loan was on commercial terms. It was granted after the submission of a business plan, it was documented and it was secured." 81At [71] the Appeal Panel said: ... the fact that an entity is provided a loan from a group member is not an irrelevant consideration: see for instance, Triline at [25] that the role of one entity as an internal banker precluded the exercise of the discretion to degroup; see too Network Clothing at [39]. However, the mere fact that there is an intergroup loan will not necessitate the conclusion that there is no entitlement to degrouping: see for instance, GTS Industries at [32] and [38]." 82It is not disputed that the Applicant, together with its then partner Phelps Aquaculture Pty Ltd ("Phelps Aquaculture"), borrowed $3,450,000 from Alpine in September 2003. The loan was repayable by September 2006.The relevant Loan Agreement is at Tab 10 of Annexure AJP3 to Mr Panizza's November statement. Each of the Siblings, together with Mr Gregory Phelps, principal of Phelps Aquaculture, were joint and several guarantors to Alpine for the obligations of the borrowers. The Guarantee and Indemnity is at tab 13 of AJP3. The liability of the guarantors is limited to the net proceeds of realisation of a mortgage of a Crown Lease granted as security to Alpine. However the liability of the borrowers does not appear to be so limited. 83In his November statement Mr Panizza said: "[19] Prior to this, Forbes and I had also sought financing from NAB and ANZ banks, however I was not comfortable with providing the personal joint and several guarantee which those lenders required. This would have exposed all my other assets to these banks pursuant to the guarantee, as well as possibly making me responsible for Phelps debt if he had other financial obligations. [20] Alpine required only a personal guarantee limited to my and Phelps' respective ownership percentages in the NT partnership. This was a form of "limited recourse" financing which recognised that Phelps and I were separate parties." 84Mr Panizza's statement at [20] is not consistent with the terms of the Guarantee. Nor is it consistent with [23(b)] of his November statement which referred to "joint and several guarantees from Lombard Farms (sic) and Phelps". It is correct that Alpine had limited recourse to the guarantors but the limit related to the proceeds of realisation of the security, there was no limit in terms of the percentage of ownership of the partnership assets. 85In May 2005 by a Further Loan Agreement (at Tab 2 of AJP1) the Applicant and Phelps Aquaculture borrowed a further $4,550,000 from Alpine. This further loan was also guaranteed jointly and severally by the Siblings and Mr Phelps. Both the 2003 loan and the further loan were interest bearing and repayable over time, the final payment to be made on 31 December 2007. The repayments were not limited to the amount realised from any security. 86Following a dispute between the Applicant and Phelps Aquaculture their partnership was terminated pursuant to a Deed of Settlement and Transfer dated 6 June 2007 (at Tab 3 of AJP1). This Deed provided for mutual releases and the transfer by Phelps Aquaculture and Mr Phelps ("the Phelps Group") of the Phelps Group's interest in certain tangible assets and intellectual property rights to the Applicant and the transfer of the Phelps Group's rights to a relevant Crown Lease and Development Permit attaching to certain land, to the Siblings in equal shares. 87Alpine was not a party to the Deed of Settlement and Transfer but was a party to a Deed of Acknowledgement (at Tab 4 in AJP1) made between it, the Applicant, Phelps aquaculture, the Siblings and Mr Phelps dated 6 June 2007 which recited that the amount owing to Alpine from the 2003 loan and the 2005 further loan was, as at 7 February 2006, $9,345,468. The Deed of Acknowledgment asserted that the joint and several liability of the borrowers and guarantors was not intended. Part of the effect of that Deed was to alter the joint and several liability of each of the guarantors and each of the borrowers from the whole of the debt owing to Alpine as at 7 February 2006: (1)to several debts by the Applicant of $5,607,280.80 and by Phelps Aquaculture of $3,738,187.20, and (2)to several debts by the guarantors limiting their liability to Alpine in respect of Mr Phelps to 40% and in respect of each of the Siblings to 15% rather than the joint and several liability which had previously existed in accordance with the 2003 and 2005 loan agreements. 88The original intention regarding joint or several liability was expressed in each of the 2003 Loan Agreement, the 2005 Further Loan Agreement and the Guarantee. At clauses 15.1 and 15.2 of the Guarantee it was made clear that each obligation in the Guarantee was binding on each guarantor individually and that the lender can look to any individual guarantor to pay the whole of the Guaranteed Money even if another person named in the Guarantee never signs it or it is not binding on another person who does sign it 89By a Deed of Forgiveness of Debt and Release of Guarantee made between Alpine, Mr Phelps and Phelps Aquaculture dated 6 June 2007 the acknowledged debt to Alpine by Phelps Aquaculture of $3,738,187.20 was forgiven. I observe that no material consideration appears to flow to Alpine from this $3.7 million write-down. Rather, benefits flow to the Applicant and the Siblings, the latter being directors of the Applicant's holding company and Mr Panizza being the sole director of the Applicant. 90One of the farms in New South Wales operated by the Applicant was subject to drought from 2004 until 2010 when it was flooded. The other New South Wales farm was subject to drought for various periods between 2004 and 2009. The interest payable by the Applicant to Alpine was accrued pursuant to an arrangement (presumably oral) that "Alpine would postpone loan repayments until such time that Lombard Farms became profitable and able to repay the loan." (Mr Panizza's July statement at [51]). 91The draft financial reports of the Applicant for the year ended 30 June 2012 (exhibit A5) show that the Applicant's debt to Alpine as at 30 June 2011 was approximately $9,570,000 and the debt as at 30 June 2012 was $10,847,174. 92Mr Panizza said the aquaculture facility, in respect of which money was borrowed from Alpine in 2003, had run at a loss from inception and as at 6 December 2012 when he gave evidence to the ADT hearing the loss was continuing. He also informed the ADT that Alpine provided a crop finance facility for cotton growing in New South Wales. "The loan has been provided by Alpine because Alpine has a view that it's beneficial to allow Lombard Farms as the operator to continue to operate the farm to continue to improve the security value" and "the loan is a ... very significant asset ...of Alpine Pty Ltd". 93Mr Panizza acknowledged that the provision of crop finance by Alpine to the Applicant was an interest bearing facility from Alpine used by the Applicant to buy seed and plant its crop for its farming business. 94After some 9 years of ongoing financial support to the Applicant by Alpine Mr Panizza provided his opinion of the relationship between Alpine and the Applicant as follows: "Lombard Farms is not financially dependent on Alpine or any other Group Member. It is a viable business that, for a short period of time and due to circumstances beyond its control, suffered a period of decreased profitability" and "now that Lombard Farms is again profitable, the loan to Alpine will be repaid." 95At the ADT hearing Mr Panizza acknowledged that the Applicant could not repay Alpine from its cash reserves but that he imagined that if the barramundi farm operated by the Applicant (formerly the prawn farm for which the 2003 loan was obtained) was placed on the market it would satisfy the loan. 96Mr Panizza told the Tribunal the Commonwealth Bank had, by April 2014, provided crop finance to the Applicant. He said the crop finance provided by Alpine from 2003 until mid 2013 would have been in the order of $1,400 per acre for somewhere between 1,000 and 6,000 acres each year. I observe that if that evidence is correct, such support would involve the provision by Alpine to the Applicant of between $1,400,000 and $8,400,000 each year. 97Mr Panizza also told the Tribunal that as at 2006 the Applicant had a deficiency in net assets of approximately $1.4 million. Interest was not paid by the Applicant to Alpine but accrued and was capitalised for a substantial period of time. Mr Panizza acknowledged that this was a benefit to the Applicant and that the banks with which discussions had taken place prior to the provision of finance by Alpine in 2003 would, in his opinion, have wanted payment of interest rather than allowing it to accrue. 98Mr Panizza conceded that the loan finance and crop finance provided by Alpine to the Applicant was, at its peak, in the vicinity of approximately $10.8 million. He agreed that the facility, the accruing capitalisation of interest, the limited recourse liability and the decision not to call in the loan were benefits to the Applicant which were not inconsequential, were of some importance and some significance and were somewhat positive for the Applicant. Mr Panizza declined to acknowledge that the facilities provided by Alpine to the Applicant were a "substantial benefit". 99The financial statements of the Applicant show that at the commencement of the Relevant Period the debt owing to Alpine was $5.6 million and the company had a deficiency in assets of $2.1 million. At 30 June 2008, 2009 and 2010 the respective figures for the Alpine debt were $6.7 million, $7.5 million and $8.7 million and the net assets of the Applicant at those dates were respectively deficiencies of $2.5 million, $1.9 million and $1.2 million. 100Mr Panizza said the Applicant was not financially dependent on Alpine. That statement is an opinion which is not supported by objective evidence and is not an opinion I share, particularly in relation to the whole of the Relevant Period.

[27]

Business of Alpine 101Each of Mr Panizza, Mr Mark Panizza and Ms Panizza said that Alpine was established to be an investment vehicle for buying and selling shares. It also owned shares in a construction company at one time. Mr Panizza and Mr Mark Panizza both said that its share portfolio was traded by Ord Minnett and trades were infrequent. 102Financial statements provide additional information concerning Alpine's business. They show that throughout the Relevant Period the Applicant owed Alpine an amount which increased from $5.6 million to $8.7 million (and at 30 June 2012 was in excess of $10 million) on which interest was allowed to accrue and capitalise. 103During the Relevant Period Alpine loaned money to Beath (the Applicant's holding company) for the purpose of a residential development activity of Beath. The loan, which at one time exceeded $6,000,000 was interest-bearing and interest accrued and was capitalised. The liability of Beath grew from $3,566,548 to $5,233,972 during the Relevant Period. 104Alpine's financial statements show that its gross income in 2008 was in the order of $1,660,000 comprising $750,000 of interest income and $910,000 of dividend income. The gross income in 2009 was in the order of $1,490,000 comprising $800,000 of interest income and $690,000 of dividend income. The gross income in 2010 was again in the order of $1,490,000 comprising interest income of $520,000, dividend income of $240,000 and a gain on disposal of assets (possibly shares) of $720,000. The majority of the company's assets as at 30 June 2008, 2009 and 2010 were "non current trade and other receivables", being respectively $23.3 million, $22.9 million and $23.7 million compared to shares in listed companies (at cost) of $7.1 million, $8.7 million and $7.8 million. The evidence does not indicate if all the non current receivables of Alpine were interest bearing. However the loans to Beath and the Applicant, which the evidence for the Applicant asserts bear interest at commercial rates, comprised not less than 47% and up to 58% of the total non current receivables during the Relevant Period. 105I note that submissions of Ms Tsekouras, who appeared for the Applicant at the ADT hearings, included: "Our evidence is that, apart from Lombard, Alpine doesn't make any loans to the other entities, because the other entities are doing very well and they are extremely profitable...The evidence that we have put on so far is to the effect that Alpine has extended loans, this certainly is the case, substantial loans to Lombard, and the basis of those loans is not a uncommercial basis, it's a rational basis based upon the fact that Albert Panizza as the director of Lombard has been able to convince his siblings, in particular his mother who controls Alpine, that it's in Alpine's interest, which is in turn in her interest and in the interests of the beneficiaries of which she is the trustee, that Lombard has the benefit of those loans in circumstances where it's had a history with partnership breakup and then the drought intervening." 106Ms Tsekouros also submitted at page 14 in T1: "our evidence is that Alpine is not artificially propping up Lombard Farms, there's a rational and there's a very cogent commercial reasons for those loans to be out there". 107It seems to me that the evidence shows a substantial commercial connection between Alpine and the Applicant. In addition to being in the business of share trading, albeit infrequently, and deriving income from dividends, Alpine was during the Relevant Period also in the business of lending money and deriving interest from those loans, particularly loans to the Applicant and Beath. 108The substantial documentation of Alpine's financing of the Applicant indicates that, at least while the Applicant had a partnership with Phelps Aquaculture, risk management was taken into account by the board of Alpine. The evidence was that Alpine had no employees, and the threat by Alpine to exercise its contractual power in relation to defaults resulted in the Phelps Group ceasing to be involved in the aquaculture business and its interest being taken over, partly by the Applicant for the purpose of that business and partly by Panizza family members who were directors of the Applicant (Mr Panizza) and all the Siblings, who were directors of all other Group Members. This appears to be meaningful in a commercial sense and not immaterial or inconsequential to the carrying on of the businesses of both Alpine and the Applicant. 109Mr Panizza effectively acknowledged the commercial and material interdependence of these businesses and the strength of the connections between the businesses during the Relevant Period at [48] in his November statement where he said: "it would have made no commercial sense to charge the loss-making Lombard Farms' interest, while incurring a tax debt in the profitable Alpine. Now that Lombard Farms is liable to pay income tax (following a return to profitability), interest is now being charged by Alpine ..." 110The importance of the loan to Alpine was acknowledged by Mr Panizza when he said in the ADT hearing that his mother was concerned about the loan from Alpine to the Applicant because "the loan is a very - is a very significant asset of- of Alpine Pty Ltd".

[28]

Supply of administrative services by Albem 111Ms Helen Panizza's statement included: (1)At [10] "I am employed by Albem on a part-time basis in a financial and treasury role. I undertake tasks such as payroll administration, accounts payable and receivable, banking and other general administrative tasks for Albem and its clients." (2)At [11] "Lombard Farms is a client of Albem's and is charged fees by Albem in exchange for its administration services. These fees are the subject of negotiation between Albem and the businesses for which it provides these services and the charge charges reflect the time taken to perform them, the complexity of specialised nature of the tasks and considerations of reasonableness and fairness. I estimate that employees of Albem would spend approximately 40 to 45 hours a week in total in undertaking administration on behalf of Lombard Farms. and (3)At [12] "there is no formal agreement in place between Albem and Lombard Farms. The tasks which Albem performs for Lombard Farms are of the kind described in paragraph 10 of this statement, tailored to the particular business and circumstances of Lombard Farms." 112Mr Panizza's evidence was that Albem employed staff who provided administrative services to the rest of the group. He said the services provided to the Applicant were "very minimal administrative services"; "administration, treasury and banking services" and data entry and preparation of cheques which he signed. Mr Panizza agreed that the services were provided for between 40 and 45 hours per week. In his opinion the services were fairly inconsequential in the scheme of the Applicant's business. 113Mr Panizza said the fees were the subject of negotiation between Albem and the businesses for which it provided the services and the charges reflected the time taken to perform them, the complexity or specialised nature of the tasks and considerations of reasonableness and fairness. Until recently, the fee "was being paid by the incorrect entity". 114From [17] to [19] in his November statement Mr Panizza said that his late father was responsible for calculating and levying the administration fees to allow Albem to recover the costs of providing administrative services to other entities owned by the Panizza family. He was unsure as to the approach his late father used to determine the fees but believes that the policy was to charge fees only if the entity to which services had been provided had profit available to pay the fees. As a result the family partnership which owned the two New South Wales properties farmed by the Applicant and which received rental income from the Applicant paid the fees to Albem for services provided by Albem to the Applicant. Mr Panizza said that since 1 July 2011 the fees had been paid by the Applicant to Albem. I observe that, notwithstanding the above statements concerning whether the recipient of services should pay fees, which seems somewhat uncommercial, apparently the Applicant was not charged any fees before July 2011 even though its financial statements show that it had made profits in both the 2009 and 2010 financial years. 115The Objection states that the cost of the services for the Applicant and the partnerships was not a significant percentage of total outgoings and that may well be the case. The amounts apparently charged by Albem (but not to the Applicant) were, for 2008, 2009 and 2010 respectively $15,000, $16,000 and $16,000. No evidence was led on the point, however having regard to the nature of the work performed, I am not satisfied that these amounts would recover all relevant costs including the salary of a competent employee working a 40 to 45 hour week. 116Accordingly I am not satisfied that the services were provided on an arm's length basis. This indicates a non-commercial connection between Albem and the Applicant directly relevant to the businesses of both parties. 117The actual services provided and the fee charged by Albem, whether or not paid by the Applicant, may not be material or commercial for the purposes of s 79(2) if that was the only connection between the business of the Applicant and the businesses of other Group Members. However it is but one strand of what appears to be a web of connections and I am not satisfied that banking, treasury and payroll services are inconsequential to the carrying on of the Applicant's business. Mr Panizza said that the services could have been performed by the Applicant. This may well be correct. However the evidence is that throughout the Relevant Period the services were performed by Albem not the Applicant and were provided at no cost to the Applicant.

[29]

Independence of businesses and lack of connection between businesses 118Mr Panizza expressed his opinion at page 70 of T1 that the Applicant operated entirely independently of all the other Group Members. This opinion was given notwithstanding his acknowledgement as to the services provided by Albem and the fact that Applicant had owed a multimillion dollar debt to Alpine to finance certain of its business operations since 2003. 119Mr Panizza's expression of his opinion may well be genuine. However that opinion is not supported by the evidence. 120I observe that in relation to the control of the businesses carried on by the Group Members other than the Applicant, there are substantial discrepancies in the evidence, both documentary and from the Applicant's witnesses in relation to board meetings of Group Members including, whether there were any (formal) meetings, when they were held, where they were held, what documents were tabled or read, who was present, what occurred at the meetings and what, if any, decisions were made. 121Documentary evidence in terms of both signed and unsigned minutes of meetings of the Group Members and the correctness of critical factual statements in the Objection are expressly refuted by the Applicant's witnesses who should be in a position to know the truth of what occurred. 122Evidence by the Applicant's witnesses was at times contradictory as between each other. At times witnesses gave oral evidence which contradicted both their own statements and their earlier oral evidence. 123The extent to which the Siblings as directors of Beath, the holding company of the Applicant, were aware of the finances of both Beath and the Applicant is not clear, any more than is their awareness of the finances of other Group Members of which they were directors. 124The evidence is that Mr Panizza, the sole director of the Applicant and the person responsible for its major business decisions, had throughout the Relevant Period a role in making business decisions for Alpine, Albem and Albem Operations. In the case of Albem Operations the evidence is that Mr Panizza was a director because it made commercial sense. The oral evidence of both Mr Panizza and Mr Mark Panizza, the persons who either separately or together controlled the business decisions of the Applicant and the 3 other companies was not clear or consistent. Their oral evidence contradicted part of their written statements and they each refuted the validity of documents they signed which form part of the statutory records of companies of which they are directors. I find that the extent of Mr Panizza's role in the businesses of Alpine, Albem and Albem Operations is unclear. I am not satisfied that Mr Panizza did not play a significant role in those businesses and in particular in the businesses of Alpine and the ongoing decisions throughout the whole of the Relevant Period to permit the Applicant to accrue and capitalise the unpaid interest on its multi-million dollar debt to Alpine. 125I have regard to the decision in of the Court of Appeal in Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181 in which Meagher JA, with whom Barrett JA and Sackville AJA agreed, said at [59] that one of the relevant matters to be considered in determining whether two businesses, which were separately owned and controlled, were being carried on substantially independently of each other was that the persons carrying on one business were in a position to influence the ongoing conduct of the other business. 126The s 58 documents and Mr Panizza's evidence are that Alpine issued a demand for repayment of its loan to the Applicant and Phelps Aquaculture. A major effect, whether directly or indirectly was that there was a change in ownership and control of the partnership assets for the benefit of the Applicant (and the Siblings). No evidence was presented as to the intention behind the issuing of the demand by Alpine nor as to whether the resultant windfall benefit to the Applicant (and the Siblings) was planned or fortuitous and I make no findings in that regard. Alpine wrote off $3,738,187.20 of a debt otherwise owing by the Applicant to Alpine. There is no evidence of any commercial benefit to Alpine for this action. I accept that these events occurred prior to the start of the Relevant Period. However there is no evidence that the influence of Mr Panizza over Alpine was any less during the Relevant Period than it was at the time of these events. 127The commonality of directors of Beath and the Group Members other than the Applicant, and the lack of clear evidence concerning the manner in which strategic decisions were made by these companies for their businesses do not assist the Applicant in satisfying its onus to prove the business of the Applicant is carried on independently of and is not connected with the carrying on of any business of any other Group Member during each or any year in the Relevant Period. 128Discrete links between the businesses of other Group Members and that of the Applicant, such as the provision of services by Albem to the Applicant and occasional involvement by Mr Panizza in individual business decisions for Albem, Albem Operations and Alpine may not of themselves evidence a commercially relevant connection and lack of independence. However those links should not be considered in isolation. They must be considered in the context of the overall relationship between the business of the Applicant and the businesses of other Group Members.

Parties

Applicant/Plaintiff:

Lombard Farms Pty Ltd

Respondent/Defendant:

Chief Commissioner of State Revenue

Legislation Cited (3)

Payroll Tax Act 1971(NSW)

Payroll Tax Act 1971(Vic)

Taxation Administration Act 1996(NSW)

Cases Cited (14)

Background 1This matter is an application under s96 of the Taxation Administration Act 1996 ("the TA Act") for a review of the Respondent's decision not to exercise his discretion to determine that the Applicant is not a member of a group for payroll tax purposes. 2The matter commenced in the Administrative Decisions Tribunal (ADT) in 2012 in accordance with the then Administrative Decisions Tribunal Act 1997("ADT Act") (now the Administrative Decisions Review Act 1997 ("ADR Act")). The matter was heard by me in the Civil and Administrative Tribunal ("Tribunal") in accordance with the Civil and Administrative Tribunal Act 2013 ("CAT Act") following the merger of the ADT and other tribunals into the Tribunal. 3A brief chronology is as follows: (1)22 July 2010 the Applicant requested that the Chief Commissioner exclude the Applicant from a payroll tax group comprising the Applicant, Con-Tec Pty Ltd ("Con-Tec"), Albem Operations Pty Ltd ("Albem Operations"), Albem Pty Ltd ("Albem") and Alpine Pty Ltd ("Alpine"), collectively called "the Companies" or "the Group Members". The request was for the period "from 21 May 1997 onwards". (2)16 June 2011, after the provision by the Applicant of information concerning the Companies and an investigation by the Chief Commissioner, the latter informed the Applicant that: (a)he had no discretionary power to exclude the Applicant from grouping during the period prior to 1 July 2007; and (b)in relation to the exclusion request for the period from 1 July 2007 he was not satisfied that (the business of) the Applicant was carried on independently and not in connection with (the businesses of each of) Con-Tec, Albem, Alpine and Albem Operations. Accordingly he disallowed the application for exclusion under s 79(2) the Payroll Tax Act 2007 ("the Act"). (3)18 August 2011 the Applicant objected to the decision of the Chief Commissioner not to exclude the Applicant from grouping for the tax years from "1 July 2007 onwards". (4)25 January 2012 the Chief Commissioner informed the Applicant that the objection was disallowed ("the Decision"). (5)23 March 2012 the Applicant filed with the ADT an Application for Review of the Decision. (6)The matter was heard in the ADT ("the ADT hearing") by a Judicial Member whose decision was that the prerequisites for the exercise of the discretion under s 79(2) of the Act had not been met and accordingly the Applicant was not entitled to be de-grouped, Lombard Farms Pty Ltd v The Chief Commissioner of State Revenue [2013] NSWADT 17. (7)The Applicant appealed and on 6 September 2013 the Appeal Panel of the ADT allowed the appeal, set aside the decision of the Judicial Member and remitted the matter to the ADT: Lombard Farms Pty Ltd v The Chief Commissioner of State Revenue [2013] NSWADTAP 42 ("the Appeal Decision"). All references in this decision to "Appeal Panel" are, unless stated to the contrary, references to the Panel which made the Appeal Decision.

[2004] VCAT 868

[2007] VCAT 2492

(2008) 74 NSWLR 481

(1999) 46 NSWLR 681

(1997) 191 CLR 85

(2003) 216 CLR 277

(2011) 245 CLR 446

Cited By (2)

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