Consideration
24The issue for determination is essentially whether the Chief Commissioner should exercise his discretion under s 79 of the Act to exclude the Applicant from the group of the other companies.
25There is no dispute that the companies have been properly grouped by the Chief Commissioner.
26The critical issue in this matter involves the proper exercise of the discretion given to the Chief Commissioner under s 79 of the Act. Section 79 gives the Chief Commissioner a power to exclude a person from a group 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 on of, a business carried on by any other member of that group".
27It was the Applicant's submission that s 79(2) "requires that the decision maker determine whether or not the Applicant's business is 'independent' and 'not connected with' the other companies or businesses" and "presupposes that the businesses have been grouped but provides an avenue for de-grouping having regard to whether, on objective criteria, the businesses are 'carried on' in the relevant way". In this regard it was submitted that the Tribunal should adopt "the approach of the Victorian Civil and Administrative Tribunal (VCAT) in GTS Industries Pty Limited v Commissioner of State Revenue [2004] VCAT 21 at [37] where it was pointed out that the law as to the de-grouping discretion does not require there to be a complete absence of connection" and "what is required is a 'finding of substantial independence and substantial absence of connection'".
28On behalf of the Chief Commissioner it was contended that s 79(2) of the Act "is different to its predecessors in that it no longer uses a test of 'substantial independence'" and that the "current wording would mean that insubstantial (although perhaps not de minimus) independence would be covered by the provision whereas it would not have been covered by its predecessor". It was submitted that the Explanatory Note to the Payroll Tax Bill 2007 which, introduced s 79, also did not make any reference to the previous test. It merely stated that:
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, 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.
29Against that background, it was submitted that "the cases dealing with the earlier statutory provisions may not be directly on point".
30In my view having regard to the plain wording of s 79(2) of the Act this submission is correct insofar as it relates to the degree of independence or connection the business seeking de-grouping is required to have with the business conducted by any other member of the group.
31A great deal of reliance was placed by the Applicant on the decision of the Victorian Civil Administrative Tribunal in GTS Industries Pty Limited v Commissioner of State Revenue. The Tribunal in that case had in turn sought to argue the outcome on the basis of what was said by its predecessor, Administrative Appeals Tribunal of Victoria in Triline Homes Pty Ltd and Others v Commissioner of State Revenue (Victoria) (1994)(unreported) (AAT (VIC) 3.3.95).
32In Triline Homes and GTS Industries Pty Limited the de-grouping provision under consideration was similar to s 79(2) of the Act. But in reaching its conclusion in Triline Homes, the Presiding Member relied on what had been said by Rath J in Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) [1978] 78 ATC 4164 in relation the then de-grouping provision in the Pay-roll legislation, s 16H(1), which provided as follows:-
(1) Where the Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that he considers relevant, that a business carried on by a member of a group is carried on substantially independently of, and is not substantially connected with the carrying on of, a business carried on by any other member of that group, the Commissioner may, by order in writing served on that first-mentioned member, exclude him from that group. (emphasis added)
33His Honour provided the following construction to the provision -
Section 16H requires two findings to be made, namely (1) that a business carried on by the plaintiff (as a member of a group) is carried on substantially independently of a business carried on by any other member of that group; and (2) that the business is not substantially connected with the carrying on of the business carried on by the other member of the group. The first limb appears to relate to the independence of the business, and requires an examination of the connection between the business activities. The second limb appears to relate to connection in management. At all events the composite expression used in the subsection requires a consideration of the businesses and their control, and a finding of substantial independence and substantial absence of connection.
34His Honour when using the term "substantial" to describe the required degree of independence or connection was, of course, merely relying on the precise language used in the legislation. His Honour was not suggesting that it was necessary for the independence or connection to be substantial in the absence of the use of the term substantial in the legislation.
35The reason for the absence of the substantial "quantitative" requirement in the current de-grouping provision was not explained in the Explanatory Note. The provision has also not been considered in its present form by the Tribunal or the courts. In my view, the absence of the additional requirement is quite significant because the discretion in its present form can only be exercised where there is complete independence of, and complete absence of any connection between the person seeking de-grouping and the other member or members of the group. The additional question of determining whether the independence or connection is substantial is not, therefore, an issue in its current application. The exercise will, of course, depend on all relevant matters on an objective basis.
36The Applicant's submission was that "the statutory enquiry is directed at the actual way in which the businesses in question are 'carried on', not the theoretical way in which they could be carried on". The Applicant relied upon Commissioner of State Revenue (WA) v Scotford Cameron and Middleton Pty Ltd (1981) 81 ATC 4576, where Burt CJ in the Full Court of the Supreme Court of Western Australia said at 4579 that:
"The question to be answered with reference to that business is whether it is carried on substantially independently of a business carried on by any other member of that group and whether it is or is not substantially connected with the carrying on of a business carried on by any other member of that group... The fact that both companies were owned and controlled by the same eight persons collectively ... on the facts of this case had no bearing upon the manner in which each businesses was carried on and established no connection 'with the carrying on' of one business with the other. Nor does the legal power to control either company establish any relevant connection between 'carrying on' of the two businesses." [original emphasis]
37The Chief Commissioner's contention was that s 79(2) of the Act applies broadly. It was submitted that "'independence' is a word of broad meaning" as suggested by the Court of Appeal in Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181 at [51] -
The ordinary meaning of independent includes not depending on the existence or actions of others and not being influenced by others in matters of conduct. A business may not be carried on independently of another business if its existence or continued operation depends upon the existence or custom of that other business.
38It was further submitted by the Chief Commissioner that -
15. The word connected is also one of broad meaning. In dealing with a similar phrase the Federal Court held that:
"in connection with" are words of wide import; and the meaning to be attributed to them depends on their context and the purpose of the statute in which they appear (Burswood Management Limited v The Attorney-General of the Commonwealth of Australia 23 FCR 144 at 146.7).
39In Tasty Chicks the Court of Appeal agreed with the Chief Commissioner's submission that the judge, at first instance, had failed to address whether the businesses were carried on independently by merely focussing upon ownership and control of each of the businesses. In reaching this conclusion, the Court of Appeal cited with approval the following observations made by the Queensland Court of Appeal when considering a similar de-grouping provision -
57 In John French Pty Ltd v Commissioner of Pay-roll Tax (Qld), McPherson J (with whom Campbell CJ and Matthews J agreed) considered (at 141- 142) that an inquiry as to whether a business was carried on substantially independently, and was not substantially connected with another business, made it necessary to consider the inter-relation of the activities of the businesses and the ability of a principal of one business to influence the management and decision-making of the other. The provision there under consideration was in the same terms as s 16H(1) of the Pay-roll Tax Act as it applied in the first period. Notwithstanding the absence in s 16C(3) of the "substantially connected" consideration in s 16H(1), the matters referred to were said to be relevant to each part of s 16H(1) and to prevent a conclusion that the relevant business was carried on substantially independently of the other business. The same approach was adopted by Doyle CJ in Garrett F Hunter (at 285). He concluded that the corporate trustee providing the secretarial and other services to the three medical practice companies could not be said to be carried on "substantially independently of" the business of each medical practice company. That was because each was one of only two or three clients of the corporate trustee and because its business was so closely connected with that of each practice that decisions by the practice company as to the manner in which its business would be conducted necessarily influenced the conduct of the trustee's business of providing services to the practice (at 285-286).
58 In failing to address in this way whether the Tasty Chickens and Angelo Transport businesses were carried on substantially independently of M&J Chickens, the primary judge applied the test too narrowly and as a result did not take into account matters which he was bound to consider with respect to the "nature" or activities of the various businesses.
40The relevant inquiry in the exercise of the powers given to the Chief Commissioner under s 79(2) of the Act requires two factual findings - (1) independence of the business seeking degrouping from the businesses of the other members of the group and (2) absence of any connection between the business and the other businesses in the group. In particular, it is "necessary to consider the inter-relation of the activities of the businesses and the ability of a principal of one business to influence the management and decision-making of the other".
41In this matter the Applicant had on the facts contended that -
39. Here the parallels with the GTS decision are striking. In the first place the Applicant conducts its business in the agricultural sector whereas the remainder of the group are essentially in the building industry.
40. The Businesses of the Applicant and the remainder of the group are carried on in separate premises, indeed, in separate jurisdictions. The Applicant carries on business in New South Wales and the Northern Territory and the rest of the group essentially conduct their business in Queensland. Unlike GTS there is no trade whatsoever between the Applicant and the other entities in that the Applicant does not sell products to the other group entities.
41. Next the actual management of the Applicant is in the hands of Mr Albert Panizza. The other siblings and their mother have no role in the day to day management of the businesses. Indeed Mr Benedict Panizza is an ear nose and throat specialist.
42. Similarly to GTS Mr Albert Panizza has a managerial role in relation to the Contec group but Mark Panizza is the person actually engaged in the day to day running of the Contec group.
43. The fact that there is a loan arrangement between the Applicant and Alpine, as in GTS, is not an unusual feature of family groups (see GTS at [32]). In this case, unlike GTS there is no evidence that group guarantees have been given to support external borrowings. Further the Applicant's evidence is that the loan in question was established to support its fledgling aquaculture which was, for a time, carried on with a third party. This loan is now in the process of being repaid.
42The Applicant also submitted that the "the holding/operating company structure was devised for asset protection purposes" and that although all siblings "became directors of the various companies" their controlling roles in the companies and in particular in Beath is merely "theoretical only".
43It was submitted by the Chief Commissioner that the facts before the Tribunal lead to the following conclusions -
34. There are some relationships that fall within s 50 of the Corporations Act 2001 (being the relationship between Con-Tec and Con-Tec Investments, the relationship between Alpine and Albem, and the relationship between Shire Hill and Albem Operations). Those companies could not be degrouped in any event.
35. As to the others; the determination of the test of 'independence' and 'connection' is not always a simple one. The words are broad and can give rise to different interpretation of the same facts. There is no mathematical formula that can be used. It can be a question of impression and judgment that people could reasonably disagree over.
36. To return to the test of independence as outlined in Tasty Chicks, the questions to ask are: is there an inter-relation of the activities of the businesses and is there an ability of a principal of one business to influence the management and decision-making of the other? Further, is there an association between the companies with the group?
37. As to the former question, there is a clear link of business activities between Lombard Farms and Alpine through a very substantial loan. The provision of services by Albem to the Group members, the hire of equipment from Albem to Albem Operations hire and the supply by Albem Operations by Con-Tec are all evidence of an interrelationship.
38. As to the second question, the taxpayer states that there is no intercompany control as a matter of fact. The evidence shows that this control did exist, even if at a very informal level. But in any case, that is not the test. The test as set out by the Court of Appeal is whether one principal has the ability to control the other business. In this case, there is certainly an ability for one group member to control others. It would be astonishing to think that Alpine did not have the capacity to influence the Applicant in circumstances where it could call in the loan or where the siblings could not use their shareholdings or directorships to influence the other group members.
39. More broadly the companies share common ownership and control. They share staff resources.
40. Finally as to the question of connection, it would be counter factual to submit that there was not an association between the companies in the group when regard is had to the ownership and control of the companies within the group. They are largely owned by the Panizza family. Administratively, the companies operate as a group.
44The fact that the ultimate owners and controllers of the various businesses are the closely connected members of the Panizza family is very significant. The evidence also suggests that the Panizza siblings and their mother, as a family, are not concerned with the strict administration of the various companies and are prepared to have one or two informal family get togethers each year to be briefed on the health of the companies. There is also a great deal of trust between the siblings and their mother to rely on Albert and Mark Panizza to ensure that the companies are managed on a day-to-day basis on a proper commercial basis.
45Whether the discretion found in s 79(2) of the Act should be exercised in this matter depends entirely on whether the Applicant conducts its business activities quite independently from any of the other companies in the group and without any connection or the influence of any of the other companies or their principals.
46The Applicant had contended, that in considering the business management of a company for degrouping, "the statute focuses on the actual position and not the theoretical position". I do not think there is anything in the legislation to suggest that the inquiry should be so restricted as contended by the Applicant. The inquiry for purposes of making a determination under s 79(2) of the Act to exclude a company from a group requires a proper consideration of "the conduct of the activities of that business and its inter-relationship, if any, with the conduct of the activities of the businesses of the other members of the group" and the "ability of a principal of one business to influence the management and decision-making of the other" (Tasty Chicks).
47Essentially, the Applicant relied on four factual matters to submit that the Applicant was entitled to be degrouped from their companies in the group. Firstly, the important point was made that the "Applicant conducts its business in the agricultural sector whereas the remainder of the group are essentially in the building industry". Secondly, that the Applicant conducts its business in separate premises and in a separate jurisdiction from the rest of the companies. Next, the Applicant case was that the "Applicant is in the hands of Mr Albert Panizza" and that the "other siblings and their mother have no role in the day to day management of the business". Fourthly, it was submitted that the "fact that there is a loan arrangement between the Applicant and Alpine, as in GTS, is not an unusual feature of family groups".
48The decision in GTS is of little or no assistance because, as indicated earlier, the Tribunal fell into a similar error as Triline Homes by adopting a test now not available in making a determination under s 79(2) of the Act. The Senior Member had, in fact, concluded in GTS on the balance of a number of points put to her that she was "not persuaded on a consideration of the above points, that a substantial connection has been made out". (emphasis added)
49The business, as correctly contended by the Applicant, is conducted by the Applicant in the agricultural/aquacultural sector whereas Albem Operations is in civil construction/engineering business and Con-Tec is in concrete manufacturing business. The business location of the Applicant's business is quite independent from the location of the Queensland-based businesses. The evidence also established that the actual management of the Applicant is solely with Albert Panizza. These clearly are strong factors to persuade the decision-maker to exercise the discretion in favour of the Applicant. But there are other more significant matters that need to be considered in order to make a proper inquiry for purposes of s 79(2) of the Act.
50A significant and critical matter on the facts before the Tribunal is the role of Alpine to the existence of the business of the Applicant. The Alpine relationship cannot be dismissed by merely describing the outstanding loan to the Applicant as:"not an unusual feature of family groups". The evidence of Albert Panizza was that, without Alpine's financial support and its decision not to enforce the debt owed to it, has "possibly" avoided any liquidation of the Applicant. The Applicant leases both Wambandry and Eumorella farms from Albert Panizza's siblings, his mother and the estate of his late father. Besides the farm machinery and equipment the only known major asset owned by the Applicant is the Crown lease of the land on which it farms seafood in the Northern Territory. At the time Albert Panizza made the written statement in this matter, the Applicant had an outstanding loan of $9,567,174 from Alpine. Some mention was made in the oral evidence that the Northern Territory fixed term lease upon a conversion to a lease in perpetuity will have some commercial value, but no evidence was produced to indicate that it would be substantial enough to satisfy the outstanding loan and allow the Applicant financial independence from Alpine. The financing arrangements between the Applicant and Alpine have created a very strong link between the two. It clearly allows the Applicant to carry out its business activities with Alpine as its financier. The substantial connection of Alpine alone prevents a finding necessary for both limbs of s 79(2). Namely, a finding of independence and a finding of absence of any connection with the other companies in the group.
51Albem also has a very significant role. It essentially undertakes the entire treasury, banking and administrative services for the Applicant and all the other companies in the group. Albem employs a financial controller for the group and other staff to deal with all the financial matters relating to the companies and also with the external accountants and tax agents of the companies.
52The Applicant and all other companies in the group do not have individual meetings of the directors/shareholders. There is one annual or two biannual meetings collectively of all the companies when the siblings and their mother are briefed. The companies including the Applicant do not have meetings on an independent basis to set future directions or make independent business decisions.
53The Applicant's holding company is Beath, which is owned equally by the siblings and they are all directors of the Beath. Collectively the siblings, other than Albert Panizza, have the ability to decide and provide directions to the Applicant. The fact that Albert Panizza is given the authority to solely manage the Applicant does not take away the ability of the other siblings from exerting their rights as co-owners and directors of the holding company. As no minutes are kept of the joint family meetings it is difficult to assume that the financial health of the Applicant or any of the other companies is not discussed at these meetings.
54On the evidence, it is difficult not to conclude that the Applicant did not operate independently of Alpine and Albem. In the context of family ownership of all the companies, the ability of the other siblings to exercise their powers as shareholders and directors of the Applicant's holding company and most importantly the Applicant's significant dependence on Alpine and Albem, the Applicant's application to be excluded from the group under s 79(2) of the Act must fail. The prerequisites for an exclusion order have clearly not been met.
55The assessments must therefore be affirmed.