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- Unreported Judgment
Phian Pty Ltd v Commissioner of State Revenue  QCAT 191
Phian Pty Ltd
Commissioner of State Revenue
General administrative review matters
27 October 2014
His Honour Judge Horneman-Wren SC, Deputy President
16 June 2016
ADMINISTRATIVE LAW – ADMINISTRATIVE TRIBUNALS – GENERALLY – QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL – APPLICATION FOR REVIEW – whether the Commissioner ought exercise discretion to exclude applicant from group for payroll tax purposes – whether business is substantially independent of and not substantially connected with business carried on by other group members – where question of fact and degree – where nature of business completely different – where connections between ownership and management of companies – where financial interdependency between group members – where connection and interdependency relevant in commercial sense – where connection and interdependency not immaterial or inconsequential.
Payroll Tax Act 1971 (Qld)
Taxation Administration Act 2001 (Qld)
Queensland Civil and Administrative Tribunal Act 2009 (Qld) s 66, s 230
APPEARANCES and REPRESENTATION (if any):
Mr H Lakis
PPM Tax and Legal
Ms M Brennan
The Office of State Revenue
REASONS FOR DECISION
- The applicant, Phian Pty Ltd (Phian), applies for the review of a decision of the Commissioner of State Revenue of 20 August 2013 whereby objections raised by Phian and Australian Wings Academy Pty Ltd (AWA) against payroll tax assessments issued under the Payroll Tax Act 1971 (Qld) from 1 July 2006 to 30 September 2012, were disallowed. The objections had been against:
- (a)The assessments in the Commissioner Default Assessment Notices, imposing payroll tax issued to the applicant on 24 September 2012 for the financial years ended 30 June 2007, 30 June 2008, 30 June 2009, 30 June 2010 and 30 June 2011;
- (b)The assessments in the Commissioner Default Assessment Notices, imposing payroll tax issued to AWA on 24 September 2012 for the financial years ended 30 June 2007, 30 June 2008, 30 June 2009, 30 June 2010 and 30 June 2011;
- (c)The assessments in the Commissioner Assessment Notices, imposing payroll tax issued to the applicant on 16 October 2012 for the financial year ended 30 June 2012 and for the periods ended 31 July 2012, 31 August 2012 and 30 September 2012;
- (d)The assessments in the Commissioner Assessment Notices, imposing payroll tax issued to AWA on 16 October 2012 for the financial year ended 30 June 2012 and for the periods ended 31 July 2012, 31 August 2012 and 30 September 2012; and
- (e)The decision or conduct leading up to or forming part of the process of making those assessments imposing payroll tax, namely:
- (i)the respondent’s refusal to exclude the applicant from being a member of a payroll tax group with AWA for the periods prior to 18 January 2010, dated 13 April 2011; and
- (ii)the respondent’s revocation of the respondent’s earlier determination excluding the applicant from being a member of a payroll tax group with AWA from 18 January 2010, dated 24 August 2012; and
- (iii)the respondent’s refusal to make a determination excluding the applicant from being a member of a payroll tax group with AWA, taking effect for every period affected by the assessments, and for the future.
- The issue central to each of those objections, and the central issue on the review, is whether the Commissioner ought to have exercised his discretion so as to exclude Phian and AWA from being members of a group for payroll tax purposes. That issue must be determined in these proceedings in respect of two distinct periods. The first, period 1, is the period between 1 July 2006 and 30 June 2008; the second, period 2, is the period from 1 July 2008 to 30 September 2008. Those two periods must be considered separately because of different statutory prescriptions which governed the Commissioner’s discretion in respect of each of them.
- Pursuant to s 71 of the Taxation Administration Act 2001 the tribunal must hear and decide the review by way of a reconsideration of the evidence before the Commissioner when the decision was made unless it considers it necessary in the interests of justice to allow new evidence. The evidence which was before the Commissioner in considering the applicant’s objections was before the tribunal. In addition, there were affidavits filed on behalf of the applicant. For the applicant it was contended that this was not further evidence in that, in effect, it simply placed in a solemn form certain matters which had been otherwise before the Commissioner. In any event, the respondent did not object to that evidence, it going to the sole issue of whether the businesses carried on by the applicant and AWA were carried on independently and not connected with each other.
- To the extent that it may be necessary to rule upon the issue, I consider it necessary in the interest of justice to allow that evidence. The deponents, Mr Sweeney and Mr Mundey, each were cross-examined.
- Section 73 of the Taxation Administration Act provides that on the review, the applicant has the onus of proving the applicant’s case.
Payroll tax grouping generally
- In general terms, the Payroll Tax Act 1971 provides for the grouping together, for payroll tax purposes, of related corporations. For period 1, s 69 of the Payroll Tax Act, relevantly, provided:
“(2) For the purposes of this Act, where the same person has or the same persons have together a controlling interest as referred so in subsection (3) in respect of two businesses the persons who carry on those businesses constitute a group.
(3) For the purposes of subsection (2), the same person has or the same persons have together a controlling interest in each of two businesses if that person has or those persons have together a controlling interest under any of the following paragraphs in one of the businesses and a controlling interest under the same or another of the following paragraphs in the other business –
- (a)a person has or person have together controlling interest in a business, being a business carried on by a corporation, if the directors or a majority of the directors or one of more of the directors, being a director or directors who is or are entitled to exercise majority in voting power at meetings of the directors, of the corporation are or is accustomed or under an obligation (whether formal or informal) to act in accordance with the directions, instructions or wishes of that person or of those persons acting together;
- (b)a person has or persons have together a controlling interest in a business, being a business carried on by a corporation that has a share capital, if that person or those persons acting together may (whether directly or indirectly) exercise, control the exercise of or substantially influence the exercise of 50% or more of the voting power attached to voting shares issued by the corporation;
(8) In subsection 3(a) and (b), a reference to a business carried on by a corporation includes a reference to a business carried on by a corporation under a trust.”
- Section 73 of the Payroll Tax Act provided:
“A person who, as the result of the exercise of a power or discretion by the trustee of a discretionary trust or by any other person or by that trustee and another person, may benefit under that trust shall be deemed, for the purposes of this part, to be a beneficiary in respect of 50% or more of the value of the interests in that trust.”
- For period 2, s 71 of the Payroll Tax Act, relevantly, provided:
“(1) If a person or set of person has a controlling interest in each of two businesses, the persons who carry on those businesses constitute a group.
(2) For this section, a person or set of persons has a controlling interest in a business if any of the following applies –
(c) for a business carried on by a corporation –
- (i)the person or each person in the set of persons is a director of the corporation, and the person or set of persons is entitled to exercise more than 50% of the voting power at meetings of the directors of the corporation; or
- (ii)a director or set of directors of the corporation that is entitled to exercise more than 50% of the voting power at meetings of the directors of the corporation is under an obligation, whether formal or informal, to act in accordance with the direction, instructional wishes of the person or set of persons;
- (e)for a business carried on by a corporation with a share capital – the person or set of persons can, directly or indirectly, exercise, control the exercise of, or substantially influence the exercise of, more than 50% of the voting power attached to the voting shares, or a class of voting shares, issued by the corporation;
(6) The person who may benefit from a discretionary trust as a result of the trustee or another person, or the trustee and another person, exercising or failing to exercise a power of discretion, is taken for this part to be a beneficiary of the trust in respect of more than 50% of the value of the interests in the trust.”
- The Payroll Tax Act as in force in each of the periods also conferred a discretion upon the Commissioner to exclude a member of a group from that group for payroll tax purposes.
- For period 1, s 69(7) of the Payroll Tax Act provided:
“Where the Commissioner is satisfied, having regard to the nature and degree of ownership or control of businesses that constitute a group and to any other matters that the Commissioner considers relevant, that –
- (a)a business carried on by a member of that 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; and
- (b)it is just and reasonable that the first mentioned member be excluded from that group;
the Commissioner may, by order in writing served on the first mentioned member, exclude that member from that group.”
- For period 2, s 74 of the Payroll Tax Act provided:
“(1) The Commissioner may, by order in writing (an exclusion order), exclude a person form a group.
(2) The Commissioner may make an exclusion order only if the Commissioner is satisfied 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 the group.
(3) For deciding whether to make an exclusion order, the Commissioner must have regard to –
- (a)the nature and degree of ownership and control of the businesses carried on by the person and the other members of the group; and
(b) the nature of the businesses; and
(c) any other matters the Commissioner considers relevant.
(4) Despite subsection (1), the Commissioner cannot make an exclusion order if the person and another body corporate that is a member of the group are related bodies corporate.”
- Sweaton Investments Pty Ltd (Sweaton) is a proprietary company limited by shares. At all material times, its sole director, secretary and shareholder was Mr Phillip Russell Sweeney (Mr Sweeney).
- The Sweeney Family Trust is a discretionary trust established on 28 August 2001, with Sweaton as trustee. Mr Sweeney is among the primary beneficiaries.
- Phian is a proprietary company limited by shares. At all relevant times, its sole director was Mr Sweeney. At all relevant times, its sole shareholder was Sweaton as trustee for the Sweeney Family Trust.
- AWA is a proprietary company limited by shares. At all material times, Mr Sweeney was a director. The shareholders in AWA, as stated by the applicant, were as follows:
- (a)For period 1:
- (i)Sweaton as trustee for the Sweeney Family Trust (held non-beneficially as sole shareholder); and
- (b)For period 2 were:
- (i)Sweaton (two ordinary shares held beneficially and 49 ordinary shares held non-beneficially as trustee for the Sweeney Family Trust); and
- (ii)Jervis Holdings Pty Ltd as trustee for the Mundey Family Trust (49 ordinary shares held non-beneficially).
- Jervis Holdings is a proprietary company limited by shares. From 1 July 2008 until 16 and 17 November 2009, Kingsley Mundey and Robyn Mundey were shareholders and directors of Jervis, after which time Robyn Mundey became the sold director and shareholder.
- It is common ground that for each of the periods, given the facts set out above, the applicant and AWA constituted a group under s 69 of the Payroll Tax Act in period 1 and s 71 of the Payroll Tax Act for period 2. The issue for determination is whether the discretion to exclude the applicant from the group ought be exercised.
The carrying on of the businesses of the corporations
- The business activities of Phian and AWA were never carried on by one entity, such that they were not split into two separate business activities as a mechanism to take advantage of the general exemption from payroll tax.
- Phian carries on a software development business.
- Phian’s business trades as Magenta Retail. That business was carried on from Beenleigh, then later from Springwood.
- Phian carries on its software development business, providing software development services to retailers across Australia, New Zealand and South East Asia.
- For both period 1 and period 2, the managerial decisions and day to day administration of Phians business have been conducted by Mr Bevan Howie (development manager) and Mr Bill Johnson (business development manager). On 3 September 2012, Mr Johnson resigned from the Phian’s business and his role has been performed by Mr Howie since that date.
- As a principle of Phian’s sole shareholder, Mr Sweeney has oversight of those managerial decisions, but he is not involved in the day to day administration of the carrying on of Phian’s business.
- Mr Mundey has no involvement in Phian, or the business conducted by it.
- On 1 July 2005, AWA purchased a pilot training business. The business trades as “Australian Wings Academy” and specialises in flight training for the commercial pilot license and instrument rating qualifications.
- AWA’s pilot training business is carried on at 19 Lores Bonney Circuit, Bilinga, at the Gold Coast Airport.
- For period 1, the day to day administration of AWA’s business was conducted by Mr Sweeney, assisted by Mr Gannon Hemple (chief flight instructor) and Ms Carolyn Thoburn (general manager).
- For period 2, entities associated with Mr Mundey acquired 49% of the issued shares in AWA, with Mr Sweeney through Sweaton retaining 51% of the issued shares in AWA.
- Mr Sweeney is not related in any way to Mr Mundey or to his wife, Robyn Mundey.
- The shareholders in AWA, comprising interests associated with Mr Sweeney and interests associated with Mr Mundey, are unrelated third parties who have acted at arm’s length.
- Likewise, the potential beneficiaries of the Sweeney Family Trust and the Mundey Family Trust are unrelated third parties who have acted at arm’s length.
- Mr Sweeney brought Mr Mundey into the AWA business on the basis of Mr Mundey’s extensive background in aviation, having been a senior executive in Ansett Australia and in TNT Air Freight.
- Mr Mundey has a lifelong passion and involvement in aviation. He is also a keen investor and is passionate about business and insists in taking a very hands on role in every business he has invested in.
- Mr Mundey and entities associated with him carry on investment activities. He takes a keen and active role in the strategic direction and financial strength of AWA.
- For period 2, the agreement between the shareholders was that Mr Sweeney’s interests would not exercise majority control over AWA and the business carried on by it. Consequently, the shareholders made strategic and financial decisions for AWA “in tandem.”
- This understanding amongst the shareholders was formalised in an agreement dated 6 May 2010.
- Prior to the agreement, during period 2 Mr Mundey and Mr Sweeney were co-directors of AWA.
- The agreement was entered into the day after Mr Mundey retired from his directorship of AWA. The reason for that retirement was a protracted personal dispute between Mr Mundey, and an external financier. Mr Mundey re-joined the board of AWA on 26 August 2012, after that dispute had been settled.
- For period 2, the day to day administration of AWA was conducted by Mr Sweeney and Mr Mundey, again with the assistance of Mr Hemple and Ms Thoburn. For period 2, the managerial decisions were made by both Mr Sweeney and Mr Mundey.
- Mr Mundey’s activities in the carrying on of the business of AWA included:
- (a)Meeting with Mr Sweeney at least twice per month, where they:
- (i)reviewed the performance of the business;
- (ii)reviewed the accounts; and
- (iii)discussed strategy and tactics;
- (b)Visiting prospective airline customers in Australia and overseas to present AWA’s business credentials and submit proposal for cadet training;
- (c)Visiting aircraft suppliers overseas, to assess the options for fleet replacements;
- (d)Following up fleet replacement options with discussions with prospective lenders;
- (e)Regular meetings with a number of airport owners to discuss AWA opening a second training base away from the Gold Coast;
- (f)Holding full day planning sessions each year to review strategies and plan marketing thrust for the coming year.
- In evidence are the financial statements for Phian for the year ended 30 June 2009. The balance sheet as at 30 June 2009 lists the following loans as noncurrent assets:
- (a)Sweaton Investments Pty Ltd - $1,203,397.00
- (b)Cooly Holdings Pty Ltd - $238,180.00
- (c)Peregrine Aviation Pty Ltd - $48,791.00
- (d)Zenith Zodiac Australia Pty Ltd - $17,646.00
- The balance sheet as at 30 June 2009 also shows the balances of each of those loans at the end of the preceding financial year, 2008, as follows:
- (a)Sweaton Investments Pty Ltd - $1,309,039.00
- (b)Cooly Holdings Pty Ltd - $238,180.00
- (c)Peregrine Aviation Pty Ltd - $17,000.00
- (d)Zenith Zodiac Australia Pty Ltd - $115,646.00
- Also in evidence are the financial statements for AWA for the year ended 30 June 2010. The balance sheet as at 30 June 2010 records, as a noncurrent asset, trade and other receivables in the sum of $211,970.61. The notes to the financial statements record those receivables as comprising loans to various entities as follows:
- (a)Cooly Holdings Pty Ltd - $61,190.61
- (b)Australia Asia Flight Training Pty Ltd - $150,000.00
- (c)Australian Wings Simulation Pty Ltd - $209.00
- (d)Sweaton Investments Pty Ltd - $571.00
- The balances for each of those loans for the preceding financial year, 2009, were:
- (a)Cooly Holdings Pty Ltd - $26,754.00
- (b)Australia Asia Flight Training Pty Ltd - $150,000.00
- (c)Australian Wings Simulation Pty Ltd - $209.00
- There was no loan balance for Sweaton Investments Pty Ltd at the conclusion of the prior period.
- The balance sheet also records, as a noncurrent liability, trade and other payables in the sum of $178,925.34. The notes to the financial statements disclose that this liability comprised the following loans from various entities:
- (a)International Art Services Pty Ltd - $50,000.00
- (b)Phian Pty Ltd - $68,403.25
- (c)PR Sweeney - $60,522.09
- Each of those liabilities were incurred in the 2009-2010 financial year as there were no balances for any of those loans as at the close of the 2008-2009 financial year.
- Australian Wings Simulation Pty Ltd is a company in which Sweaton has 51% shareholding with the other 49% held by Jervis Holdings. Australian Wings Simulation owns the simulator which is provided to AWA.
- Cooly Holdings Pty Ltd, in which Jervis Holdings is also a shareholder, held the building and building lease of a hangar at Coolangatta Airport. In his evidence, Mr Mundey described the reason for having Cooly Holdings and Australian Wings Simulation was simply for asset protection; they were asset holding companies. Similarly, Mr Sweeney gave evidence that separate companies were set up to hold assets. He said:
“So we set up separate companies to hold major assets. AWS simulation held the simulator we purchased. Cooly Holdings, the building and building lease, etcetera. So it was a decision that – to keep AWA, Australian Wings Academy, thin and not have it holding a lot of assets.”
- Peregrine Aviation Pty Ltd was a company which owned aircrafts, a number of which were hired by AWA. When a shareholder of that company, who was a friend of Mr Sweeney, got into financial difficulties during the global financial crisis Mr Sweeney took over the company, effectively, to secure continuity of supply of aircraft to AWA. Mr Sweeney recalled that he was “in the process of trying to keep the thing afloat in 2010”, so dated his involvement with Peregrine Aviation to 2008 to 2010.
- As to how Phian came to lend money to Peregrine Aviation, Mr Sweeney said:
“Well, for want of a better term, Ms Brennan, Phian is a cash cow and while in hindsight I might have done it another way, by lending the money to Sweaton and then investing it through, it was a matter of convenience to invest direct from Phian.”
- When asked the purpose of the loan from Phian to Sweaton which stood in the books at just over $1.3 million as at year end 2008 and just over $1.2 million at year end 2009, Mr Sweeney said:
“Well, that would be the initial capital for AWA – establishing AWA – buying the business, buying the simulator aircraft.”
- That evidence suggests that with funds lent by Phian to Sweaton an aircraft simulator was purchased which was to be held by Australian Wings Simulation Pty Ltd and utilised in the business of AWA. It also suggests that through funds borrowed from Phian, Sweaton provided the initial capital for the establishment of AWA.
- In respect of the loan from Phian to Zenith Zodiac, Mr Sweeney identified the purpose as:
“Same reason – investment in the capital to set it up. By some kit aircraft, working capital.”
- That evidence suggests that the provision of working capital for AWA may have been part of the purpose of the loan from Phian to Sweaton given that this was part of the “same reason” identified in respect of the loan to Zenith Zodiac.
- The involvement with Zenith Zodiac was explained by Mr Sweeney in this way:
“Yeah. We got involved through AWA – we have a maintenance department and, in fact, the maintenance department is actually held by Sweaton, not by AWA. AWA pays at arm’s length to Sweaton for the staff and the materials that are consumed and used. Our head maintenance guy at the time had a passion for kit aircraft – that’s sort of like home built aircraft, and there’s a – there was a particular aircraft called a Zenith Zodiac, so we bought the rights to have the kit aircraft and that’s where the company came from.”
- Later, when asked to explain why the loan to AWA of $68,403.25 which was recorded in its balance sheet as at 30 June 2010 was in the name of Phian rather than Sweaton he replied:
“Simply the route the money came from.”
- This question was asked of him in the context of his having identified that loan and those from International Arts Services Pty Ltd in the sum of $50,000.00 and that from himself of $60,522.09 as at 30 June 2010 as being the “shareholder loans” about which there had been some discussion of the possibility of converting them into equity. On 6 May 2010 Mr Mundey had written to Mr Sweeney to confirm details of a telephone conversation which they had had earlier that day and their “previous handshake agreement”. Their agreement as recorded in the letter was:
“Whilst we may agree in the future to convert the current shareholder loans to equity, you will afford me the opportunity to equalise my shareholding at my election any time in the next three years.”
- International Art Services Pty Ltd was described by Mr Mundey as:
“International Art Services is again owned by my wife, Robyn Mundey, and by Jervis Holdings as trustee for the Mundey Family Trust and that is a business of which I am the managing director. International Art Services is an art logistics company providing specialised art logistics, museums, galleries, commercial organisations throughout Australia.”
- The description of loans to AWA from Phian and International Art Services, and indeed from Mr Sweeney personally, as “shareholder’s loans”, and which might be converted to equity, demonstrates, in my view, some imprecision on the part of Mr Sweeney and Mr Mundey as to how they regarded the distinction between the various entities and the ownership of them.
- That impression is, in my view, reflected in their evidence, set out above, in relation to how Phian came to lend money directly to Peregrine, rather than through Sweaton.
- That imprecision extended, in my view, to matters concerning the carrying on of the various businesses.
- When asked if he could explain how it was that Cooly Holdings was indebted to Phian in the sum of $238,180.00 Mr Mundey said:
“The – and in terms of Cooly owning – owing Phian $238,000, no I can’t, at that point in time, tell you exactly what the accounting transaction was there. But that would appear to me to be the cost of the redevelopment of the building at Coolangatta Airport. And Cooly is the – is the owner of that building.”
- That evidence suggests that Phian was lending to Cooly Holdings capital to be used in the redevelopment of the hangar at the Coolangatta Airport owned by Cooly Holdings, but used in the business of AWA.
- When asked whether he could explain why AWA would be lending to Phian, Mr Mundey said:
“In the simple – I can’t give you a specific answer. No. But, in the course of business where people have multiple companies, multiple entities, they are forever moving you know, one entity will pay a bill for another, because of cash flow reasons or whatever the case may be. And the directors sign off on that for tax purposes and I [indistinct] they have to be repaid over a period of time. And, in my own case, where I have acquired a number of companies, there are intercompany loans between the entities, all the time.”
- Other than the financial statements of Phian for the year ended 30 June 2009, and for AWA for the year ended 30 June 2010, there are no other financial statements for those companies, nor for any of the other entities, in evidence.
- There is no evidence of the terms of any of the loans to, or from, Phian or AWA. Nor is there evidence beyond that which I have set out as to the circumstances in which any of those loans were made, or of the purposes for them.
The proper approach to the exercise of the de-grouping discretion
- Although the statutory provisions applicable to the two periods are in different terms, each contain common considerations. Each require the Commissioner to be satisfied that a business carried on by the person to be excluded from the group is carried on independently of, and is not connected with, the carrying on of a business carried on by any other member of the groups.
- In respect of period 1, the statutory language in s 69(7)(a) of the Payroll Tax Act is that the business of the group member to be excluded is carried on substantially independently of, and is not substantially connected with, the business carried on by another group member. However, neither party submits that a materially different approach should be taken to the consideration of independence of, and connection between, the businesses carried on by the respective members of the group under s 74 for period 2 to that taken in respect of period 1 where “substantially” qualified each of those considerations under s 69(7). Each party refers to the decision of the Appeal Panel of the Administrative Decisions Tribunal of New South Wales in Lombard Farms Pty Ltd v Chief Executive of State Revenue in which s 79 of the Payroll Tax Act 2007 (NSW) was considered. Of that provision, which is similar to ss 74(2) and (3) of the Payroll Tax Act as it applies to period 2, the Appeal Panel said at  to :
“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 judgement based on facts objectively determined. It is not the case that any connection between businesses will disentitle an applicant from de-grouping. 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 ,  and  and GTS Industries at . We agree with this approach because it directs the focus to the “carrying on” of the business: to be relevant, the connection must effect the business in some real or practical sense.
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  VCAT 2492 at . To disentitle an applicant to de-grouping, 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  there must be a finding of substantial absence of connection and substantial independence between the businesses to warrant the exercise of the discretion.”
- The legislation in respect of each of the periods requires the Commissioner, in considering whether he is satisfied of that independence and lack of connection, to have regard to the nature and degree of ownership or control of the businesses carried on by the members of the group.
- For period 2, s 74(3)(b) also required the nature of the businesses to be considered. It is submitted for Phian that although s 69(7) did not require consideration of the nature of the businesses in the first period, it would be a relevant matter which the Commissioner might consider, and that it should be considered. I accept that submission.
- Indeed, it is a matter which can be dealt with briefly. The nature of the businesses of Phian and AWA are completely different. Phian’s business is software development. AWA’s business is pilot training. The respective distinctive natures of the businesses favours independence of, and a lack of connection between, them.
- Each of the statutory prescriptions applying to the two periods required the Commissioner to have regard to any other matters which the Commissioner considered relevant.
- In considering an analogous provision contained in earlier payroll tax legislation, McPherson J (as his Honour then was) in John French Pty Ltd v The Commissioner of Payroll Tax said:
“The real question is whether ‘a business carried on by a member of a group is carried on substantially independent of and is not substantially connected with the carrying on of a business carried on by any other member of a group’. The comparison to be undertaken is, it will be noted, of a business, on the one hand, and on the other hand, the carrying on of a business. It is not of two businesses as such, although ‘business’ being itself necessarily an activity involving a repetition of acts the distinction is more theoretical than real.
It follows that it is necessary to be satisfied that the business carried on by Mrs French is so carried on substantially independently of the carrying on of the business carried on by John French Pty Ltd or the business carried on by Mr French; and (not ‘or’) that the business carried on by Mrs French is not substantially connected with the carrying on of the business carried on by either of those two persons.”
- In the course of his reasons, McPherson J referred to an example used by counsel in argument in that case illustrating circumstances in which businesses which might be grouped because of a common controlling interest in ownership might nonetheless be de-grouped because of their distinctive business activities. His Honour said:
“The purpose of the provision is sufficiently evident and may be illustrated by reference to an example mentioned by counsel in the course of argument of an ice cream parlour in Brisbane, and a prawn processing plant in Karumba. If there is a number of owners, one of whom has a controlling interest in both businesses, those persons will together constitute a group, but the conduct of the two businesses may be quite separate; and the Commissioner, if satisfied of this, may make an order excluding one of the members from that group.”
- In his submissions on behalf of Phian, Mr Lakis of counsel sought to adopt such reasoning in this case given the distinction between the software development business of Phian and the pilot training business of AWA, notwithstanding Sweaton had a controlling interest in each and that Mr Sweeney might ultimately be able to exercise control of both through that interest.
- In that regard, Mr Lakis was critical of the submissions for the Commissioner which, he submitted, erroneously focused upon the concept of “controlling interests” and the potential or capacity for Mr Sweeney to exercise control. In respect of “controlling interests” he submitted that this was a concept relevant to the initial grouping of entities but was not the expression used, and indeed was an expression avoided, by the legislature in prescribing considerations relevant to de-grouping.
- In that regard, he submitted that the Commissioner fell into the same error as was exposed in Scotford Cameron & Middleton Pty Ltd v Commissioner of Taxation wherein Wallace J referred to the Commissioner’s preoccupation with factors relevant to common control which resulted in the initial grouping having “bedevilled his thought processes” in respect of de-grouping considerations.
- It is submitted for Phian that the Commissioner’s focus upon, and application of, the defined term “controlling interest” led the Commissioner to address the wrong question; the correct question being what actually occurs in the carrying on of the businesses. It is submitted that the correct approach “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”.
- Phian further submits that to prevent de-grouping “the connection must be meaningful in a commercial sense and not immaterial or inconsequential to the carrying on of the business”.
- In respect of Mr Sweeney’s potential or capacity to exercise control, Mr Lakis criticised the Commissioner for unduly focusing upon this matter rather than what, on the evidence, actually occurred in the carrying on of the respective businesses, particularly, the agreement reached between Mr Sweeney and Mr Mundey that the former would not exercise control notwithstanding Sweaton having a majority shareholding, and that management decisions for AWA were taken “in tandem”.
- In my view, there is some merit in these criticisms. However, the Commissioner’s dismissal of the objections, and his submissions on this review, are not based solely upon those matters.
- Phian’s submissions also refer to the anti-avoidance purpose of the grouping provisions and that the mischief to which they are directed being the attempts by larger businesses to obtain payroll tax relief by splitting their businesses into a number of smaller or separate businesses thus reducing the wages paid by the businesses to amounts below the tax threshold. Phian emphasises that its business and that of AWA were never carried on by the one entity such that they have been split as a mechanism to take advantage of the general exemption from payroll tax.
- In Private Ruling PTA 031.2 issued on 3 July 2009, the Commissioner of State Revenue has stated that in making a decision on exclusion from a group for payroll tax purposes, he “will consider the nature and the extent of all relevant agreements and dealings between the employer and other members of the group”. The Commissioner sets out a number of particular matters which he will take into consideration in that regard. In its submissions, Phian states that it does not concede that those considerations set out by the Commissioner are the only factors to be considered in this review.
- In making that submission, Phian incorrectly attributes to the Commissioner, in his submissions, a contention limiting the factors relevant to the review to those matters set out by the Commissioner in the private ruling. No such contention is made by the Commissioner. The Commissioner merely contends that it is common ground between the parties that those factors are to be considered. That contention seems uncontroversial because the applicant goes on to address those factors in its submissions. Furthermore, even in its terms, the private ruling does not purport to restrict the relevant considerations to those matters. It expressly states that “none of the matters listed above are determinative in isolation from the other matters listed, nor are they an exhaustive list of the relevant issues. Each case will be considered on the basis of all of the facts and circumstances”.
- The written submissions of the applicant addressed those matters set out in the Commissioner’s private ruling. The submissions which accompanied the applicant’s notice of objection to the Commissioner’s default assessments similarly addressed those matters.
- It is convenient for the purposes of this decision to adopt the structure of the applicant’s submissions.
Nature and degree of ownership or control of the businesses of the applicant in AWA
- Phian submits that although the shares in the applicant company were solely the subject of ownership and control by Mr Sweeney and interests associated with him in both periods 1 and 2, such ownership and control of the applicant entity does not translate to ownership and control of its underlying business. It submits that this is particularly the case where specialist technical skills are required for carrying on that business.
- In that regard, Phian’s written submissions contend that for both periods the managerial decisions and day to day administration of the applicant’s business had, up until 3 September 2012, been conducted by Mr Bevan Howie and Mr Bill Johnson. Those persons were, respectively, the applicant’s development manager and business development manager. The submissions contend that after that date, upon Mr Johnson’s resignation, his former role was performed also by Mr Howie. The evidence cited in support of those contentions is the submissions made in the Schedule in support of Phian’s grounds of objection.
- In my view, those contentions should be rejected for several reasons.
- First, Phian does not develop its submission that ownership and control of the corporate entity does not translate to ownership and control of the underlying business of the entity, other than by the broad, and otherwise undeveloped, assertion that this is particularly so where specialist technical skills are required for carrying on the business.
- Usually, one would expect that ownership and control of a corporation would bring with it ultimate ownership and control of the business conducted by the corporation. There is, in my view, some support for this usual expectation in Mr Sweeney’s evidence. He said that as a director and shareholder (in fact the sole director and shareholder) he “absolutely” kept an oversight of the Phian business.
- Secondly, even if one were to accept Phian’s submission in that regard, there is no evidence of how it is that specialist technical skills are required to carry on the business conducted by the applicant. It would seem, on the evidence, doubtful that such specialist technical skill is required to carry on Phian’s business, or to the extent that it may be, that Mr Sweeney as the person also with ultimate ownership and control of the corporation, does not possess such skills. He deposes to having acquired the earlier form of the business conducted by Phian from KPMG, New Zealand when he retired from that partnership around 1995. He deposes to relocating that business to Australia in that year. He further deposes that by August 2001 the business was being conducted by Phian, and that prior to 1 July 2005 he worked fulltime in the business.
- Thirdly, there is very little evidence of either Mr Howie or Mr Johnson possessing such specialist technical skills. Mr Sweeney described Mr Howie, who had been with him since 1993, as “an imminently capable gentleman”. Mr Sweeney described himself as being “completely non-technical” and that whilst Mr Howey would call him for advice, for that reason, it would not be for technical advice. There is, however, no evidence that any such technical expertise resides in Mr Howie. As for Mr Johnson, Mr Sweeney said that Mr Johnson was responsible for sales and marketing and that “really, Business Development Manager is a fancy title”.
- Even if it were accepted that these gentlemen possessed such specialist skills, in my view, the application of specialist skills does not place control, let alone ownership, of the business in the hands of those persons with those skills.
- Phian’s written submissions further contend in this regard that for both periods “the managerial decisions and day to day administration of the applicant’s business has been conducted by Mr Bevan Howie (Development Manager) and Mr Johnson (Business Development Manager)”. This submission does not fully accord with the evidence. Insofar as it is intended to argue that control of the business rested with those gentlemen, rather than Mr Sweeney, it should be rejected.
- In addition to those matters which I have already set out concerning Mr Howie and Mr Johnson, the evidence as contained in the objection stated:
“… we are instructed that the day to day administration of Phian has been conducted since at least 1 July 2006 by Bevan Howie (Development Manager) and Bill Johnson (Business Development Manager). The management decisions for Phian are also made by Bevan Howie and Bill Johnson with ultimate oversight by Phillip Sweeney.” (emphasis added)
- Furthermore, in his oral evidence, Mr Sweeney said that in performing the day to day management of the company Mr Howie reported to him, and that even in his sales and marketing role Mr Johnson reported to him.
- On that evidence, it is not open to conclude that Mr Howie and Mr Johnson were responsible for the management of the business of the applicant to the exclusion of Mr Sweeney, as Phian’s written submissions suggest.
- In respect of AWA, the written submissions acknowledged that, for period 1, its shares were solely owned and controlled by Mr Sweeney and interest associated with him. However, Phian repeats its submission that ownership and control of the AWA entity does not translate to ownership and control of AWA’s business. Again, it submits that this is particularly so where specialist technical skills are required for carrying on that business. It submits that the day to day administration of AWA’s business in period 1 was conducted by Mr Sweeney assisted by the Chief Flight Instructor, Mr Gannon Hempel, and the General Manager, Ms Carolyn Thoburn.
- However, the written submissions do not reflect the evidence in the objection which identifies Mr Hempel and Ms Thoburn as assisting Mr Sweeney (and Mr Mundey in respect of period 2) with the day to day administration of AWA, but not in the making of any management decisions. That evidence identifies that it was Mr Sweeney (together with Mr Mundey in period 2) who made those managerial decisions.
- For period 2, the written submissions acknowledged the change in ownership with entities associated with Mr Mundey having acquired 49% of the issued shares with Mr Sweeney retaining the balance. They refer to the fact that the shareholders entered into a formal agreement whereby “Mr Sweeney’s interests would not exercise majority control over AWA and the business carried on by it”, and that this “reflected the way the business of AWA was conducted” for period 2 from the time Mr Mundey became involved on 1 July 2008. (emphasis added)
- The applicant’s submissions contend that the grouping of AWA with Phian arises only from Mr Sweeney’s interests holding only the barest majority and emphasise that “the dergrouping discretion requires consideration of how the owners and controllers actually exercise their rights in the business that is carried on by AWA”. In that regard, they again assert that “ownership and control of the AWA entity does not translate into ownership and control of its underlying business” and that such “is particularly the case where specialist technical skills are required for carrying on that business”. (original emphasis)
- As already observed, the applicant’s submissions do not further develop that contention. As I have also already observed, one might expect that ownership and control of the corporation would bring with it ownership and control of the business carried on by that corporation. In my view, further support for that expectation which one might usually expect is found in the appellant’s submissions at paragraphs 9.29 to 9.30 referred to in paragraph  above. Those submissions demonstrate that control of the business operated by AWA did rest with those who owned and controlled AWA: the entities associated with Mr Sweeney and Mr Mundey. Indeed, the submissions also make plain that in the absence of an agreement between Mr Sweeney and Mr Mundey, formal or informal, as to how control was to be exercised, Mr Sweeney’s interests, by virtue of majority shareholding in AWA, would be able to exercise “majority control over AWA and the business carried on by it.” (emphasis added)
- In respect of AWA, the applicant’s written submissions do not identify what specialist technical skills are required for carrying on the “underlying business of” the corporation, or who may possess those skills such that ownership and control of the business would not rest with Mr Sweeney and Mr Mundey. Indeed, the submissions identified that Mr Sweeney and Mr Mundey conducted the day to day administration of AWA, albeit assisted by Mr Hempel and Ms Thoburn, and that the managerial decisions were made by Mr Sweeney and Mr Mundey and that “all strategic and financial decisions for the business of AWA” were made by Mr Sweeney and Mr Mundey in tandem. (emphasis added)
- In my view, this analysis demonstrates that for period 1 Mr Sweeney and entities associated with him owned and controlled both Phian and AWA and the businesses conducted by them. For period 2, Mr Sweeney and entities associated with him owned the majority of the shares in AWA and he and Mr Mundey together controlled AWA and the business which it conducted.
- I would not accept the applicant’s submissions that the nature and degree of ownership and control of the business of the applicant weighs entirely in favour of de-grouping for both periods 1 and 2, or that the nature and degree of ownership of the business for AWA weighs entirely in favour of de-grouping for each of periods 1 and 2.
Involvement in managerial decisions and day to day administration of the businesses of the applicant and AWA
- Phian submits that the factors that apply to the nature and degree of ownership and control of the businesses also apply to this criterion. It submits that the evidence is that for both periods the managerial decisions and day to day administration of Phian’s business had been conducted by Mr Howie and Mr Johnson until 3 September 2012, and subsequently by Mr Howie.
- However, as discussed above, the evidence does not, in fact, make good that submission. Rather, the evidence establishes that Mr Sweeney had, for both periods, “ultimate oversight”, of the managerial decisions of Phian’s business.
- Having observed that Mr Sweeney conducted the day to day administration of the business of AWA for period 1, and that Mr Sweeney and Mr Mundey conducted it for period 2, in each instance with the assistance of Mr Hempel and Ms Thoburn, the applicant submits that:
“The evidence is that no one person or group of persons is involved in the management and day to day administration of both the business carried on by the applicant and the business carried on by AWA.
There is no relevant interdependence or connection (substantial or otherwise) between the separate businesses on account of their management and day to day administration.
This matter (the management and day to day administration of both businesses) weighs entirely in favour of de-grouping for period 1 and for period 2.”
- Those submissions seem to assert that there will be no relevant involvement unless there is a person or persons who are involved in both the management and the day to day administration of each of Phian and AWA.
- In my view, the reference in Private Ruling PTA 031.2 to the Commissioner’s consideration of the nature and extent of all relevant agreements and dealings between the employer and other members of the group as including the extent to which one member of a group controls or is involved in the managerial decisions and day to day administration of other members of the group, should not be read in such a limited way. The focus of the consideration is the extent to which there is such involvement. Consideration of extent of involvement may include that one member (or those who control it) are involved in the management of another member, but not it’s day to day administration.
- The evidence demonstrates that Mr Sweeney was involved in the management of both the applicant and AWA during each period, in my view to a substantial extent. He was in both periods the person with ultimate oversight of the management of Phian. For period 1 he was the person who both made the managerial decisions for AWA and conducted its day to day administration. For period 2 he shared those responsibilities with Mr Mundey.
- In my view, contrary to the applicant’s submissions, there is a relevant connection, substantial in both periods, between the separate businesses on account of their management.
- The applicant’s submission which is to the effect that there can be no relevant connection between members of a group where a person or persons are involved in the management of both members unless that person or persons is also involved in the day to day administration of each, should be rejected.
Connection in management between the business of Phian and AWA
- In respect of this consideration, Phian submits that there is no connection between the management of the business carried on by it and the management of the business carried on by AWA; each separate and distinct business being “managed by separate groups of specialist employees”. On that basis Phian contends that this matter weighs entirely in favour of de-grouping for each period.
- For reasons already set out, Phian’s submissions in respect of this matter should too be rejected. The evidence does not establish that either Phian or AWA is managed by groups of specialist employees. In respect of Phian, although management decisions may have been taken by Mr Howie and Mr Johnson, and to the extent that they may be considered specialist employees, such decisions where ultimately overseen by Mr Sweeney. In respect of AWA, the evidence is that it was managed by Mr Sweeney in period 1 and Mr Sweeney and Mr Mundey in period 2.
Connection in business activities between the business of Phian and AWA
- In respect of this consideration, the respondent Commissioner relies upon the fact that Phian and AWA engaged the same accountants and tax consultants and that these service providers had access to the financial records of both companies. I am not persuaded that such commonality, of professional advisors, without more, would demonstrate a connection which would defeat a de-grouping application. Such a proposition was rejected in John French Pty Ltd v The Commissioner of Payroll Tax and Artistic Pty Ltd v Commissioner of State Revenue (WA).
- I accept Phian’s submission that there is no evidence that the sharing of these common professional advisors reflects in the carrying on of the businesses of either Phian or AWA.
Nature and extent of commercial transactions between the businesses
- In period 1 there were no commercial transactions between the businesses. In period 2 Phian provided information technology, network and support services for AWA. It did so at commercial rates. The revenue earned by Phian from the provision of those services equated to approximately 1.7% of Phian’s total revenue.
- Phian submits that these commercial transactions between the corporations are entirely immaterial when viewed as either income to Phian or as an expense to AWA.
- I am not sure that transactions which amount to 1.7% of total revenue can be regarded as entirely immaterial. Nonetheless, I would not consider that the extent of those commercial transactions would lead to the conclusions that the businesses of each were not carried on substantially independently of each other or were substantially connected.
Extent of financial interdependencies between the businesses
- Phian submissions in respect of this consideration are as follows:
“For period 1 and for period 2, the evidence is that there are no financial interdependencies between the business carried on by the applicant and the business carried on by AWA.
The $68,403.25 loaned by the applicant to AWA is entirely immaterial. This obvious immateriality means that the loan does not represent an “interdependency”.
Loans made by the applicant or by AWA to other entities are irrelevant to the detection of financial interdependencies between the business carried on by the applicant and the business carried on by AWA.
This matter “extent of financial interdependencies between the businesses” weighs entirely in favour of de-grouping for period one and for period two.”
- The basis upon which Phian submits that the $68,403.25 loaned by it to AWA is entirely immaterial is that at the time it had cash assets on its balance sheet of $904,735.88.
- That level of analysis is, in my view, too simplistic.
- As already noted above, the terms and conditions of the loan from Phian are not in evidence. Nor is there any particular evidence of the circumstances in which it was made. In the absence of such evidence, a loan which amounts to some 7.56% of those total cash assets would not appear to be “entirely immaterial”.
- In any event, the analysis upon which Phian asserts such immateriality is in my opinion, too superficial and unrefined. A deeper and more refined analysis of AWA’s balance sheet position as at 30 June 2010 reveals that those cash assets of $904,735.88 were part of overall current assets of $1,244,177.88. The balance comprised $331,849.58 in trade and other receivables and $7,592.42 for pre-payments.
- Against that, AWA’s current liabilities totalled $1,482,117.52 which comprised $513,566.15 in trade and other payables; $37,520.71 in provision for employee entitlements; $929,919.66 income in advance and $1,111.00 in pilot accommodation bonds.
- Thus, AWA’s current liabilities as at balance date exceeded its current assets by $237,939.64, or some 19%. Its trade and other payables exceeded its trade and other receivables by $181,716.57, or 54.76%. Its total cash assets were $26,294.78 less than the income it had been paid in advance.
- On this further analysis, a loan of $68,403.25 appears substantially more material. Particularly when it is considered in the context of AWA borrowing $178,925.34 from directors or entities associated with them in the course of the 2010 financial year, and it having in the previous year made a loss of $439,342.00 before tax.
- In my view, on the evidence which the applicant has placed before the tribunal, it cannot be said that the loan from the applicant to AWA is entirely immaterial. If necessary, I would conclude that on the basis of that loan alone, the applicant has failed to demonstrate an independence and lack of connection in carry on each of the businesses.
- I also do not accept the applicant’s submission that loans from either the applicant or AWA to other entities are irrelevant. I have earlier in these reasons set out the evidence concerning the financial relationships between the applicant, AWA, Sweaton Investments, various other entities associated with either Mr Sweeney or Mr Mundey, and Mr Sweeney himself. I have also earlier observed that this evidence suggests that with funds loaned by Phian to Sweaton Investments, initial capital was provided for the establishment of AWA, and that this included the purchase of an aircraft simulator to be used in the business of AWA, but the asset being held in Australian Wings Simulation, and that this provision of initial capital may have included working capital. I have also referred to Mr Sweeney’s evidence in which he described the applicant as a “cash cow”.
- In his oral submissions, Mr Lakis for Phian contended that it ought not be prejudicial for Sweaton “to use its portfolio profits from one business”, and that portfolio profits might flow up to Mr Sweeney’s family trust which he was then “at liberty to disperse and invest as he likes, and they do not manifest in the carrying on of the business”, and that in such circumstances no relevant connection and interdependency arose.
- Those submissions, of themselves, may be correct as statements of principle; but they do not accurately reflect the facts revealed on the evidence. This is not a case in which there was a distribution of profits from Phian to Sweaton Investments which Sweaton Investments than used to finance the establishments of AWA. The moneys which moved from Phian to Sweaton investments which were used in the establishment of AWA were advanced as a loan from Phian to Sweaton investments: a loan with a balance of $1,309,039 as of 30 June 2008 and $1,203,397 at 30 June 2009 (suggesting that $105,642 was paid, or written, off the loan in the financial year 2009).
- Sweaton was not the recipient of a distribution of profits or “upward portfolio rewards” from Phian. It was indebted to Phian.
- The evident purpose of the moneys loaned by Phian to Sweaton was for the provision of initial capital (perhaps including working capital) for AWA and the purchase through other entities of assets required for the carrying on of AWA’s business.
- The total amount of the funds loaned by Phian to Sweaton investments for the establishment of AWA is not disclosed on the evidence. Phian has not chosen to place that evidence before the Tribunal. All that is known, as a starting point, is that as at 30 June 2008 the loan balance exceeded $1,300,000. What is also known is that whatever was the total amount loaned by the applicant to Sweaton for the initial capital of AWA, it was advanced at a time at which Mr Sweeney owned 100% of both Phian and AWA, and both were under his ultimate management.
- This further demonstrates, at least for period 1, not only the connection between the applicant and AWA through ownership and control of each, but also through the management of each. It also highlights that these considerations are not entirely separate and distinct. There can be a degree of overlap.
- I do not accept the applicant’s submission that loans by Phian or AWA to other entities are irrelevant. It assumes, wrongly in my view, that financial interdependencies can only be established through direct means. If AWA was financially dependent upon the moneys advanced by Phian, it was no less so because the loan from the applicant was to Sweaton who then provided the funds to AWA.
- Furthermore, Mr Sweeney’s evidence concerning Phian lending money direct to Peregrine and that alternatively he could have done it another way, that is by lending it to Sweaton and then investing it through, rather demonstrates that there is no practical distinction to be made, in terms of financial interdependency, by the investment of $1,300,000 in AWA from Phian via a loan to Sweaton rather than it having been a direct loan from Phian to AWA.
- In Triline Holmes Pty Ltd v Commissioner of State Revenue Victoria, a case cited by the applicant in its submissions as applying the relevant test for connection in the carrying on of the business, the Administrative Appeals Tribunal considered circumstances in which the agreed facts included that there was intercompany lending between members of the group with no formal loan agreements. A further agreed fact was that there were common finance arrangements involving the members of the group and a third party company which provided all the companies in the group with ongoing facilities to finance working capital requirements and major capital purchases, as well as acting as an investment vehicle for surplus funds. That third party was described as the financial arm, or financer, of the group, using the group’s assets to obtain finance. The third party would obtain loans from outside sources which were able to be drawn upon by members of the group. This was overseen by a Mr Denis.
- The Tribunal concluded that the role of the third party alone prevented a finding of substantial absence of connection, or of substantial independence, notwithstanding however many of the day to day activities performed by one company in the group may have been independent of those activities of others in the group.
- The Tribunal stated that the power to order de-grouping:
“Is directed to demonstrable cases of objective independence and absence of connection. There may be a discretion in the decision maker about what may be considered when deciding whether there is independence and absence of connection, but what must be shown objectively is that there is independence and an absence of connection”
- Whilst the financial connections between the third party and the group members in Triline were apparently somewhat more complex then is the case here, the decision does not support the contention that loans made by Phian or AWA to other entities are irrelevant to the detection of finical interdependencies between their respective businesses. It supports the conclusion that the advancing of funds from the applicant to AWA via Sweaton may be entirely relevant to the detection of financial interdependencies. It also supports the conclusion that Phian being the “cash cow” from which funds were ultimately directed to the acquisition of assets held in other corporations, but used in the carrying on of the business of AWA, may also be relevant.
- This conclusion is also supported by both the decision of the NSW Administrative Decisions Tribunal Appeal Panel in Lombard Farms Pty Ltd v Chief Commissioner of State Revenue (NSW) citing Triline, in which was said :
“…the fact that an entity is provided alone from a group member is not an irrelevant consideration; see for instance Triline at  that the role of one entity as an internal banker precluded the exercise of the discretion to degroup; see to Network Clothing at . 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  and .”
- A further submission advanced by Mr Lakis in oral argument was that the loan from the applicant to Sweaton Investments which stood at approximately $1,300,000 as at 30 June 2008 and $1,200,000 at 30 June 2009 is not relevant to a consideration of financial interdependency between Phian and AWA because it was used in the establishment of AWA at a time when it was yet to carry on business.
- I do not accept that submission for two reasons. First, because of the limited evidence put before the Tribunal, the details of time, purpose and use of the moneys loaned by Phian are unknown. However, from the evidence of Mr Sweeney referred to above, it may have included working capital. Working capital would certainly be relevant to the carrying on of the business rather than its establishment.
- However, the second, and in my view the more substantial, reason is that a consideration of a relevant connection between the carrying on of respective businesses of group members should not be approached as narrowly as the applicant’s submission suggests. If one group member provided a substantial amount of establishment capital to, or for, another group member that may demonstrate a substantial dependence of the latter upon the former. In Lombard Farms v Chief Commissioner of State Revenue (NSW). The New South Wales Administrative Decisions Tribunal Appeal Panel said:
“The carrying on of a business in the context of s 79(2) of the Act extends to the very existence of the business.”
- The applicant, Phian, has failed to establish that the business carried on by AWA was carried on substantially and dependently, and was not substantially connected with, the carrying on of its own business in either period 1 or period 2.
- There are connections between the ownership and management of each. There are financial interdependencies. In my view, those connection and interdependencies are meaningful in the commercial sense. They are not immaterially or inconsequential.
- The applicant has not discharged its onus or proving its case.
- The application for review must be dismissed and the original decision confirmed.
 T1-3 lines 24-32.
 Page 171 of the respondent’s section 21 documents.
 The descriptions of both Phian’s and AWA’s businesses are taken from, respectively, paragraphs 3.25 to 3.31 and 3.9 to 3.24 of the applicant’s response filed 28 February 2014.
 T1-17 line 40 – T1-18 line 19.
 T1-18 lines 23-25; T1-35 line 21.
 T1-18 lines 25-28.
 T1-35 lines 20-24.
 T1-35 lines 25-46.
 T1-36 lines 1-5.
 T1-36 lines 41-42.
 T1-36 lines 25-31.
 Exhibit 3, p 60.
 T1-18 lines 43-47.
 T1-26 lines 21-25.
 T1-27 lines 3-10.
  NSWADTAP 42.
 It is to be noted that for period 1, s 69(7) refers to “the nature and degree of ownership or control” whereas, for period 2, s 74(3)(a) refers to “the nature and degree of ownership and control”. The submissions of neither party address this distinction in statutory language. Each proceeded on the basis that “or” was used in both provisions. In my view, “and” as used in s 74(3)(a) ought be read disjunctively, which is the effect of the approach adopted by each of the parties.
  1 Qd R 125 at 140.
 Ibid at 137-138.
 81 ATC 4144 at 4146.
 Lombard Farms Pty Ltd v Chief Commissioner of State Revenue  NSW ADTAP 42 at  citing with approval Triline Homes Pty Ltd v Commissioner of State Revenue (Vic) (1994) unreported AAT Victoria 3.3.95 at ,  and  and GTS Industries Pty Limited v Commissioner for State Revenue  VCAT 21 at .
 Ibid at  citing with Approval Network Clothing Company v Commissioner of State Revenue  VCAT 2492 at .
 Commissioner of Payroll Tax v R G Elsegood & Co Pty Ltd  1 NSWLR 223 at 229-230.
 PTA 031.2 at para 10. Respondent’s documents p 51.
 At para 32 of his submissions.
 PTA 031.2 at para 11.
 The applicant’s objection was provided under letter of 23 November 2012 from PPM Tax and Legal Pty Ltd. That objection was to the determination made by the Commissioner as evidenced by his letter of 13 April 2011; the Commissioner’s determination as evidenced by his letter of 24 August 2011; and the Commissioner’s default assessments as evidenced by default assessment notices issued on 24 September 2012 and 16 October 2016. The objection was made on six grounds. Those grounds were further detailed in Schedule 1 to the objection. The private ruling was set out at s 4.0 of the Schedule and the matters identified in the Schedule were addressed at ss 4.1 to 4.9. See respondent’s documents, pp 59 to 80.
 See applicant’s response, paras 9.16 to 9.18.
 Particularly, that which appears at p 15 of 33; folio 73 of the respondent’s documents.
 T1-30 lines 9-10.
 Affidavit of Phillip Sweeney at paras 4-10.
 T1-30 line 1.
 T1-30 lines 3-4.
 Respondent’s documents, p 13 of 33, folio 17 and 15 of 33, folio 73.
 T1-3 lines 15-16 and lines 35-37.
 Respondent’s documents at pp 13 and 15 of 33, folios 71 and 73.
 Applicant’s response at para 9.29.
 Ibid at para 9.30.
 Ibid at para 9.32.
 Ibid at para 9.33.
 Applicant’s response at para 9.28.
 Ibid at para 9.34.
 Ibid at para 9.35.
 Ibid at para 1.2.1.
 Ibid at paras 9.2.6 and 9.3.8.
 Ibid at para 9.39.
 Ibid at paras 9.43 – 9.45.
 Ibid at paras 9.47 – 9.49.
  1Qd R 125 at 143.
 (2006) 62 ATR 372 at  (affirmed in Commissioner of State Revenue (WA) v Artistic Pty Ltd (2008) 70 ATR 818).
 Applicant’s response at paras 9.63 – 9.66.
 A matter I identified in para 10(d) of PTA 031.2 as being a relevant part of the consideration.
 T1-64 lines 18-19.
 T1-64 lines 33-37.
 T1-75 line 38.
 Unreported, AAT Vic, 3 March 1995.
 Ibid para 3, setting out para 23 of the agreed facts, and para 23 of the decision.
 Ibid at para 24 of the decision.
 Ibid at para 30.
  NSW ADTAP 42; a case also cited by the applicant as applying the correct approach to the issue.
 T1-48, lines 1-15; and T1-61, lines 17-18.
 Supra at .
- Published Case Name:
Phian Pty Ltd v Commissioner of State Revenue
- Shortened Case Name:
Phian Pty Ltd v Commissioner of State Revenue
 QCAT 191
16 Jun 2016