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The Ballarat Brewing Company Limited v. Commr. of Pay-roll Tax (Vic.).

Judges:
Gray J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 28 August 1979.

Gray J.: By an assessment dated 31 August 1977 the Commissioner of Pay-roll Tax decided that the appellant and Parkview Motel Pty. Ltd. (hereinafter referred to as ``Parkview'') constituted a ``group'' within the meaning of sec. 9A(1) of the Pay-roll Tax Act 1971 (hereinafter referred to as ``the Act'').

The appellant and Parkview had each claimed separate exemptions under the Act which would result in less tax being payable than if one exemption was claimed by the two companies as a ``group''. The exemptions claimed apply to wages paid since November 1974.

By notice dated 25 October 1977, the appellant objected to the assessment of 31 August 1977 upon a number of grounds. By notice dated 28 November 1977, the Commissioner wholly disallowed the

ATC 4454

objection. By letter dated 23 December 1977, the appellant requested the Commissioner to treat the objection as an appeal and to cause it to be set down for hearing in the Supreme Court. Pursuant to sec. 32(2) of the Act, the Commissioner set the appeal down for hearing in the Supreme Court by notice dated 14 September 1978.

Before turning to consider the contentions of the parties, it is necessary to refer to the relevant provisions of the Act.

Section 6 makes certain Victorian wages liable to pay-roll tax. It is common ground in this appeal that the wages paid by the appellant and Parkview are liable to pay-roll tax.

Section 7 fixes the rates at which the tax shall be paid and sec. 8 makes the employer liable to pay the tax. Section 9 provides for a general exemption from tax to the extent of a fixed amount per month for each employer.

When the Act was first introduced in 1971, a practice developed whereby a large company used its subsidiary companies to employ labour and thus reduce the incidence of pay-roll tax by obtaining multiple exemptions under sec. 9.

To meet this device, the grouping provisions of the Act were introduced in 1974. It is these provisions with which this appeal is concerned.

The first relevant provision is sec. 9A and it is necessary to set out subsection (1) in full.

``9A(1) A reference in section 9 or section 9B to taxable wages does not include a reference to any wages paid or payable by an employer -

  • (a) where the employer is related, within the meaning of sub-section (5) of section 3, to another corporation (in this section called a `related person');
  • (b) where an employee of the employer, performs, or two or more employees of the employer perform, duties for or in connexion with a trade, business or profession carried on by the employer and another person (in this section called an `associate') whether or not also with another person or other persons; or
  • (c) where -
    • (i) an employee of the employer is, or two or more employees of the employer are, employed solely or mainly to perform duties for or in connexion with a trade, business or profession carried on by another person or other persons (which other person is, or other persons are, in this section, called an `associate'); or
    • (ii) the employer has, in respect of the employment of, or the performance of duties by, one or more of his employees, an agreement, arrangement or undertaking, whether formal or informal and whether expressed or implied, with another person or other persons (which other person is, or other persons are, in this section, called an `associate') relating to a trade, business or profession carried on by the associate or by the associate and another person or other persons -

    unless the employer satisfies the Commissioner that the trade, business or profession in which the employee is, or the employees are, employed is carried on independently of, and is not connected with, the carrying on of a trade, business or profession carried on by the associate (whether or not with another person or other persons) and that the trade, business or profession in which the employee is, or the employees are, employed is not carried on with an intention either directly or indirectly of avoiding or evading the payment of tax whether by the employer or by another person -

and for the purposes of this section, the employer, the related persons and the associates are together called a `group' and the employer, each related person and each associate is a member of that group.''

It is also necessary to set out the relevant parts of sec. 3(5) and (6).

``3(5) For the purposes of this Act, an employer that is a corporation is related to another corporation (whether or not that other corporation is an employer) -

ATC 4455

  • (a)...
  • (b)...
  • (c)...
  • (d)...
  • (e)...
  • (f) if the other corporation has a share capital and the directors of the employer may (whether directly or indirectly) exercise, control the exercise of or substantially influence the exercise of, 50 per centum or more of the voting power attached to voting shares issued by the other corporation; or
  • (g)...

3(6) Notwithstanding the provisions of sub-section (5), an employer that is a corporation is not related, for the purposes of this Act, to another corporation (whether or not that other corporation is an employer) where -

  • (a) the employer and the other corporation are not, by reason of sub-section (5) of section 6 of the Companies Act 1961, to be deemed to be related to each other; and
  • (b) the Commissioner is satisfied that neither the employer nor the other corporation carry on a trade, business or profession with an intention, whether direct or indirect, of avoiding or evading the payment of tax.''

The Act goes on to provide that where one or more employers are a ``group'', the tax is levied as if there was only one employer. Accordingly it can be seen that the appellant is caught by the grouping provisions:

  • (i) if it is ``related'' to Parkview within the meaning of sec. 3(5)(f) and cannot bring itself within sec. 3(6)
  • (ii) if Parkview is an ``associate'' within the meaning of sec. 9A(1)(b)
  • (iii) if Parkview is an ``associate'' within the meaning of sec. 9A(1)(c)(ii).

The Commissioner decided against the appellant on all three grounds:

  • (i) He decided that the appellant was ``related'' to Parkview because it fell within sec. 3(5)(f) (which is not disputed) and does not fall within sec. 3(6) because the Commissioner was not satisfied that neither the appellant nor Parkview carried on business with the intention of avoiding the payment of tax.
  • (ii) He decided that employees of the appellant perform duties for or in connection with a business carried on by the appellant and Parkview and that Parkview was therefore an ``associate'' of the appellant.
  • (iii) He decided that the appellant has in respect of the employment of, or the performance of duties by one or more of its employees, an arrangement with Parkview relating to the trade or business of Parkview and he was not satisfied that the business in which the employees of the appellant are employed is not connected with the carrying on of the business carried on by Parkview and that neither the appellant nor Parkview carries on a business with an intention of avoiding the payment of tax.

So far as appears, the factual material which was before the Commissioner is contained in an exchange of letters, which it is necessary to set out in full:

``VP 62626

Pay-Roll Tax Branch

3.2.76

The Secretary,

The Ballarat Brewing Co. Ltd.,

P.O. Box 109,

Ballarat, 3350

Dear Sir,

Re Pay-roll Tax - Park View Motel Pty. Ltd.

Further to your letter of 9th October 1975, it is noted that it is contended that Park View Motel Pty. Ltd. is not a member of a `group of employers'.

It is also noted that your company holds a substantial number of shares in Park View Motel Pty. Ltd. and also that your company has answered all correspondence directed to Park View Motel Pty. Ltd. Both companies also have the same postal address.

The two companies therefore appear to be connected and in order to satisfy this Office that Park View Motel Pty. Ltd. is

ATC 4456

not a member of a group, the following information should be furnished: -

1. The names of the shareholders of each company and the number and nature, including voting rights, of the shares so held together with, in the case of any nominee shareholders, the names of the beneficial owners or, in the case of a shareholding company, the names and shareholdings of the shareholders of that company.

2. The names of the directors, the manager, the secretary and the accountant of each company and, in the case of the directors, whether they are a governing director, a managing director or a salaried working director, and if so, of which company.

3. The degree, if any, of family relationships between the shareholders and/or the directors of the companies.

4. The nature or type of business and the location of the business premises of each company.

5. The number of employees in each company and whether and to what extent the employees of one company are used in the business of the others.

6. The nature of any business conducted by one company with the others, for example, the supply of raw materials for processing or of finished goods for sale or distribution, or the provision of services. Also, the extent or percentage of the business so conducted between the companies compared with total business.

7. The date of incorporation of each company and the reason for separate incorporation.

8. Whether separate books of account and wages records are maintained for each company and if so where and by whom they are kept.

Until this matter is finalised, please ensure that a reference to this correspondence is inserted on all current returns of each of these employers.

Yours faithfully......''

``February 6th, 1976.

The Commissioner of Payroll Tax,

436 Lonsdale Street,

Melbourne, 3000.

Dear Sir,

Re: VP62626

We acknowledge receipt of your letter dated 3rd February, 1976 and supply the following answers to the questions contained therein: -

  • 1. The Shareholders are: - 
          S.B. & A.E. King
                   50% of the issued capital
      The Ballarat Brewing Co. Ltd.
                   50% of the issued capital
      Voting rights are equal.
  • 2. A. The Directors are: -
  • Mr. J.N. Coghlan
  • Mr. T.J. Byrne

Nominees of The Ballarat

Brewing Co. Ltd.

  • Mr. S.B. King
  • Mrs. S.B. King
  • B. Mr. Coghlan and Mr. Bryne are also Directors of The Ballarat Brewing Company.
  • C. None of the Directors holds the position of Managing Director or Governing Director.
  • D. Manager of the Company is Mrs. S.J. Roach.
  • E. Company Accountant (unsalaried) is Mr. J.P. Griffin, Manager of the Ballarat Brewing Company Limited.
  • 3. Mr. and Mrs. King are husband and wife; there are no other family relationships.
  • 4. A. The Park View Motel operates a Motel at 1611 Sturt Street, Ballarat.
  • B. The Ballarat Brewing Company is a Hotel owner and investor and its Head Office is located at 309 Dans Street, Ballarat.
  • 5. A. The Ballarat Brewing Company has 14 employees.
  • The Park View Motel Pty. Ltd. has approximately 22 employees.

    ATC 4457

  • B. The Motel Company renders no services to the Ballarat Brewing Company. The Ballarat Brewing Company maintains administrative and accounting records for the Motel Company and an annual fee of $1,125 is charged for this service.
  • 6. No business is conducted between the two companies.
  • 7. A. The Ballarat Brewing Company Ltd. was incorporated on 2-12-1895.
  • The Park View Motel Pty. Ltd. was incorporated in 30-8-1960.
  • B. The reasons for separate incorporation was the joint venture with Mr. & Mrs. King aspect of the project.
  • 8. A. Separate book of account and wages records are maintained.
  • B. Both sets of books are maintained by the Staff of the Ballarat Brewing Company Ltd. at 309 Dans Street, Ballarat.
  • The Motel Company books are maintained under the terms of the answer to 5B above.

Yours faithfully,

J.P. Griffin

Manager.''

By a letter dated 16 February 1977 the Commissioner indicated to the appellant that he regarded the appellant and Parkview as constituting a ``group''. However, he invited the appellant to submit any further information upon which it desired to rely.

The appellant then wrote to the Commissioner the following letter dated 15 March 1977.

``15th March, 1977.

The Deputy Commissioner of Payroll Tax,

436 Lonsdale Street,

Melbourne, 3000.

Your Reference: VP 62626

Dear Sir,

The Ballarat Brewing Co. Ltd. - VP 92394 Payroll Tax - Groups of Employers

We refer to our letter of 28th February, 1977 and provide the following further information in relation to the matters raised in your letter of 16th February, 1977.

The company accepts your contention that it is deemed, for payroll tax purposes, to be related to Park View Motel Pty. Ltd. pursuant to the provisions of sec. 3(5)(f) and 9A(1)(c)(ii) of the Payroll Tax Act. Although the company rejects your further assertion that the two companies are deemed to be related persuant to the provisions of sec. 9A(1)(b) of the Act, no argument will be raised in relation to this point at the present time.

Notwithstanding the above, the companies will not be deemed to be related, if,

  • (a) in relation to sec. 3(5)(f) - the Commissioner of Payroll Tax is satisfied that neither company is carrying on a business with an intention of avoiding or evading the payment of payroll tax, or
  • (b) in relation to sec. 9A(1)(c)(ii) - the company satisfies the Commissioner that -
    • (i) the business in which the relevant employee is employed is carried on independently of, and is not connected with, the carrying on of a business by the other company, and
    • (ii) that the business in which the employee is employed is not carried on with an intention of avoiding or evading the payment of payroll tax by any person.

    It is considered unreasonable for the Commissioner to deem the company and Park View Motel Pty. Ltd. to be related for payroll tax purposes, and the following information is provided in support of this contention.

  • (1) The business of Park View Motel Pty. Ltd. is managed and partially owned by Mr. and Mrs. S.B. King, and is not carried on as a joint-venture with The Ballarat Brewing Company Limited. Mr. & Mrs. King initiated the plan to form the company and operate the motel and then approached The

    ATC 4458

    Ballarat Brewing Company Limited in an attempt to obtain a portion of the equity capital required to fund the proposed operations. After investigating the proposal The Ballarat Brewing Company Limited decided to invest in the company but has played no part in the day to day business operations and management decisions of the company.
  • (2) The fact that both companies are claiming payroll tax exemptions is not proof of an intention to avoid or evade the payment of payroll tax.
  • (3) The businesses of the two companies are carried on independently and there are no business dealings, with the one exception noted below, between the two companies.
  • (4) The only link between the two companies, with the exception of the equity shareholding referred to in (1) above, is the fact that the Manager of The Ballarat Brewing Company Limited (Mr. J.P. Griffin) maintains the accounting records of Park View Motel Pty. Ltd. The accounting records of Park View Motel Pty. Ltd. were maintained by a public accountant (Mr. R. Joshua) for a number of years. The company ultimately decided that the accounting reports being prepared were unsatisfactory, and as the Manager of The Ballarat Brewing Company Limited had available time it was determined to use his services in maintaining the company's accounting records. These services are being provided on a completely arm's-length basis, and a commercially realistic accounting fee is charged.

In our opinion the above information clearly demonstrates that: -

  • (i) the business operations of the two companies are carried on independently of each other, and are not connected in any way, and
  • (ii) the two companies are being used for reasons of commercial practicality, not in order to avoid or evade the payment of payroll tax.

We should be pleased to provide you with any further information that you may require in relation to the above matters.

Yours faithfully.....''

On 31 August 1977, the Commissioner wrote to the appellant, stating that the appellant's submissions had been considered. The Commissioner then proceeded to make the formal assessment which is the subject of this appeal.

On the hearing of this appeal, the appellant sought to lead further evidence. The evidence was objected to by Mr. Sundberg of Counsel, who appeared for the Commissioner. Subject to that objection, I allowed evidence to be led from Mr. James Griffin, the manager-secretary of the appellant.

His evidence, which was not questioned, added little to the material which had been placed before the Commissioner. Mr. Griffin swore that he was a qualified accountant and was employed by the appellant who paid his salary. He said that he received no remuneration from Parkview, although he has attended to the books of Parkview and kept its accounting records since June 1968. Prior to that date, the accounting records had been kept by Robert Joshua & Co., a firm of public accountants.

Mr. Griffin said that a fee for his services is charged by the appellant to Parkview. He said the fee was $11,500 per annum which was a realistic fee, but conceded that it had remained unchanged for ten years. He said that there were about 1,130 shareholders in the appellant, which did not include Parkview.

He said that the appellant was incorporated in 1895 and until 1958 carried on the business of a brewer. Since 1958, the appellant has been an investor and a lessor of about sixty-three hotels. Parkview was incorporated in 1961 and has its registered office at the same place as the appellant. There are four directors of Parkview, two of them being nominees of the appellant.

Mr. Griffin said that the appellant played no part in the day to day management of Parkview, which is purely a motel business. He said that in the early stages, Mr. and Mrs. King were the managers and part owners of the motel business, but now the motel is

ATC 4459

conducted by a manageress appointed by the board of Parkview. In about 1965, when it was decided to expand Parkview's operations, the appellant contributed $75,000 to the share capital of Parkview and holds 50% of the issued shares. The appellant and Parkview have separate banking facilities and there are no common employees of the two companies. Mr. Griffin conceded that Messrs. Coughlan and Byrne are directors of the appellant and Parkview and that the operations of Parkview have expanded markedly since the appellant's investment in the business.

During the hearing of the appeal, I heard interesting argument as to the true nature of an appeal of this kind.

The appeal is brought pursuant to sec. 33 of the Act which provides that an employer who is dissatisfied with the decision of the Commissioner may request the Commissioner to refer the decision to the Board of Review or to treat his objection as an appeal to this Court. In the latter event, the section requires the Commissioner to set the appeal down for hearing. This procedure was duly carried out in this case.

The Act does not specify the nature of the appeal which is provided for. Nor are there any rules of court which throw light on this question.

There is now a procedure provided for in the Rules of the Court but these provisions do not, in my opinion, apply to this appeal.

The Taxation Appeals Act 1972 (Act 8274) has three parts. Part I, which sets up the Board of Review, came into operation on 1 January 1977. Part II, which amends the various taxation Acts to provide for a uniform procedure, did not come into operation until 1 September 1978. Part III, contains transitory provisions which preserves the operation of sec. 33 of the Act until 1 September 1978 when Part III came into operation. In this case. the notice of appeal was dated 23 December 1977 and the other critical steps preceded that date.

In 1973 the Judges made Rules to regulate the procedure for appeals under Act 8274. The question is whether these Rules cover an appeal under sec. 33 of the old Act. Mr. Stott contended that they do and that they justify the reception of fresh evidence on the appeal.

In my opinion, the 1973 Rules (which are to be found in S.R. 368 of 1973) are obviously intended to cover only appeals brought under Act 8274. For example, the Rules contain a reference to sec. 33B which was not in operation until after these proceedings were commenced.

The Rules provide a procedure for the filing of affidavits and taking out a summons for directions, neither of which steps were taken in this appeal. Thus, the nature of the appeal provided for in sec. 33 of the Act has to be considered without reference to the 1973 Rules of Court.

A consideration of the reported cases concerning appeals under Federal taxing legislation to the High Court or to State Supreme Courts suggest that the character of the appeal may depend upon the nature of the finding made by the Commissioner. It may also be influenced by whether the appeal is taken direct from the Commissioner or comes via a Board of Review. See
McCormack v. F.C. of T. 77 ATC 4543.

The practice in Federal cases of considering fresh evidence in some instances has been characterised by Sir Owen Dixon as owing more to usage than to logic. See
MacCormick v. F.C. of T. (1945) 71 C.L.R. 283 at 307.

In my opinion, the right of appeal given by sec. 33 of the Act should be regarded as bestowing a right of appeal in the strict sense. This requires the appellant to establish that the decision appealed against was wrong at the time it was given upon the material before the tribunal.

It may be that in cases where error on the part of the Commissioner can be shown to have occurred, fresh evidence can be admitted so that the Commissioner can deal with the matter upon amplified evidence when it is sent back to him. Problems of this sort may arise in cases where it is not clear upon what evidentiary material the Commissioner acted:
F.C. of T. v. Brian Hatch Timber Co. (Sales) Pty. Ltd. 71 ATC 4093; (1971) 128 C.L.R. 28 or where it can be seen that, through error of law, the Commissioner has failed to perform his statutory function.
Kolotex Hosiery (Australia) Pty. Ltd. v. F.C. of T. 75 ATC 4028; (1975) 132 C.L.R. 535.

ATC 4460

However, it is clearly established that in cases where the taxpayer's liability depends upon whether the Commissioner is or is not ``satisfied'' of a particular state of facts, the appellant must show that the Commissioner's discretion miscarried upon the material before him.

The question which arises in such a case was stated by Dixon J. in:
Avon Downs Pty. Ltd. v. F.C. of T. (1949) 78 C.L.R. 360 at 360.

``But it is for the Commissioner, not for me, to be satisfied of the state of the voting power at the end of the year of income. His decision, it is true, is not unexaminable. If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from his consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review.''

I am satisfied that in order to attack the Commissioner's ``satisfaction'' or the lack of it on a particular matter, no fresh evidence can be looked at until it is shown by the appellant that the Commissioner's judgment miscarried in one of the ways stated by Dixon J. in the Avon Downs case.

For the same reasons, I consider that where the taxpayer's liability depends upon the Commissioner making a particular finding of fact, the same result follows. If the evidence before the Commissioner justified his finding, the Appeal Court cannot interfere. If the Commissioner's judgment is not shown to have miscarried, the Appeal Court cannot substitute its own opinion for that of the Commissioner and nor can it entertain further evidence.

Accordingly, I am of opinion that the evidence led upon this appeal can only be looked at (if at all) if it can be shown that the Commissioner's finding involves a miscarriage of judgment.

This is not a case where there is any difficulty in determining what evidence was considered by the Commissioner. The correspondence makes it clear that the Commissioner invited the appellant to furnish such material as it wished to rely upon and that this invitation was accepted. I should add that I do not consider that the evidence led on this appeal made any significant or relevant addition to the material before the Commissioner.

I only find it necessary to consider one of the grounds relied upon by the Commissioner, namely the ground based upon sec. 9A(1)(c)(ii).

In my opinion it was perfectly open to the Commissioner to conclude that there was an agreement between the appellant and Parkview in respect of the performance of duties by the appellant's employee (Griffin) with Parkview relating to a business carried on by Parkview.

This part of the Commissioner's finding was challenged by Mr. Stott, of Counsel, who appeared for the appellant. He also contended that, upon the evidence before him, the Commissioner could not be other than satisfied that the businesses of the appellant was carried on independently of the business carried on by Parkview.

In my opinion, it cannot be said that the Commissioner was bound to be so satisfied. In the result, the Commissioner was not satisfied of the independence of the businesses of the appellant and Parkview. Upon the evidence before him, the Commissioner was justified in making the following findings of fact:

The appellant was a hotel owner and investor which had been persuaded by Mr. and Mrs. King to contribute equity capital to fund the formation of Parkview. Thereafter the appellant took a 50% interest in Parkview and nominated two of its directors to be two of the four directors of Parkview. Once the business of Parkview was on foot, the appellant appointed its manager and some of its staff to maintain the accounting records of Parkview.

These basic facts justified the Commissioner in concluding that the activities of the appellant went far beyond the mere investment of money in a company conducted independently of the appellant. I accept Mr. Sundberg's submission that the independence of the two companies is not established merely because the nature of the business of each company is different.

ATC 4461

The Commissioner was justified in concluding that the appellant had not only advanced money, but had secured control by holding 50% of the shares, appointing half the directors and maintaining control over the accounting and administrative services.

The Commissioner did not have to make an affirmative finding about these matters although, in my opinion, it would have been open to him. It follows that it was clearly open to the Commissioner to be not satisfied of the independence of the businesses of the appellant and Parkview.

Mr. Stott contended that although there was an agreement between the appellant and Parkview, such an agreement did not relate to the business of Parkview, because the agreement was confined to the hiring of an accountant upon the same basis as the accounting firm had been hired earlier. He contended that Mr. Griffin was not involved in the business of Parkview in any real sense. As to the proviso, Mr. Stott contended that the businesses of the appellant and Parkview were entirely independent of each other. He submitted that Mr. Griffin was engaged in the business of the appellant who paid his wages and employed him.

Mr. Stott submitted that because the two companies have a separate corporate structure and that Parkview is not a shareholder in the appellant, there is no sufficient basis for a finding other than that of complete independence of the two companies.

No doubt a factual situation such as this can be analysed in different ways, with the emphasis being placed on either independence or the lack of it. Nevertheless, for the reasons I have endeavoured to express, I can detect no error in the Commissioner's finding under sec. 9A(1)(c)(ii) nor his failure to be satisfied of the independence of the two companies under the first part of the proviso to that subsection.

Having regard to the opinion I have reached, I do not find it necessary to consider the other bases upon which the Commissioner rejected the appellant's claim to an exemption.

The appeal will be dismissed with costs to be taxed.


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