Queensland Judgments
Authorised Reports & Unreported Judgments
Exit Distraction Free Reading Mode
  • Unreported Judgment

Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue[2019] QCAT 199

Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue[2019] QCAT 199

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL

CITATION:

Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue [2019] QCAT 199

PARTIES:

TELGROVE PTY LTD t/as P & E FRANCIS PLANT HIRE

(Telgrove)

 

v

 

COMMISSIONER OF STATE REVENUE

(Commissioner)

APPLICATION NO/S:

GAR219-18

MATTER TYPE:

General administrative review matters

DELIVERED ON:

15 July 2019

HEARING DATES:

9 May 2019; 10 May 2019

HEARD AT:

Brisbane

DECISION OF:

Member Paratz, Presiding

Member Norling

ORDERS:

  1. The decision of the Commissioner of State Revenue, refusing to make an Exclusion Order, made on 5 July 2017, is set aside. 
  2. An Exclusion Order is made pursuant to Section 74(1) of the Payroll Tax Act 1971 (Qld), effective from 1 July 2010, excluding Telgrove Pty Ltd t/as P & E Francis Plant Hire from any group with:
    1. Postville Pty Ltd;
    2. CFS Hire Pty Ltd;
    3. Custom Forklift Sales Pty Ltd;
    4. Gnurhan B Pty Ltd as trustee for the Nahrung Family Trust; and
    5. Blue Ibis Pty Ltd as trustee for CFS Discretionary Trust
  3. The Payroll Tax assessments made against Telgrove Pty Ltd t/as P & E Francis Plant Hire in relation to the group are set aside.
  4. The Payroll Tax paid by Telgrove Pty Ltd t/as P & E Francis Plant Hire in relation to the group is to be remitted in full. 
  5. The Penalty Tax paid by Telgrove Pty Ltd t/as P & E Francis Plant Hire in relation to the group is to be remitted in full. 
  6. The Unpaid Tax Interest paid by Telgrove Pty Ltd t/as P & E Francis Plant Hire in relation to the group is to be remitted in full. 
  7. The Commissioner of State Revenue is to issue reassessments of Payroll Tax consistent with these Orders.
  8. The Commissioner of State Revenue must pay interest on the overpaid amounts of Payroll Tax, Penalty Tax and Unpaid Tax Interest to Telgrove Pty Ltd t/as P & E Francis Plant Hire; to be calculated on a daily basis at the prescribed rate pursuant to Section 61(3) of the Taxation Administration Act 2001 (Qld) from the date the overpaid amount was paid to the Commissioner to the date the refund is made by the Commissioner.

CATCHWORDS:

TAXES AND DUTIES – PAYROLL TAX – LIABILITY TO TAXATION – GROUPING OF EMPLOYERS – where an application to exclude a member from a group was refused – where there was an overlap of ownership of entities in the group – whether unpaid dividends were a loan – whether the applicant carried on business independently of, and was not connected with, members of the group

Corporations Act 2001 (Cth), s 9, s 254T, s 254U,

 

s 254V, s 254W

Payroll Tax Act 1971 (Qld), s 9, s 10, s 11, s 12, s 29,

s 33, s 34, s 69 s 70, s 71, s 72, s 74, s 74A, s 74B, s 74C, s 74D, s 74E, s 74F, s 74G

Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 19, s 20, s 21, s 24, s 100

Taxation Administration Act 1996 (NSW), s 22

Taxation Administration Act 2001 (Qld), s 61, s 61A,

s 69, s 71, s 73

Taxation Administration Regulation 2012 (Qld), r 48

Boston Sales and Marketing Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 139

Crusher Holdings Pty Ltd v Commissioner of Taxes (NT) [1994] 29 ATR 156

Deane v Commissioner of Stamp Duties (Qld) (No 2) [1996] 2 Qd R 557

Denham Constructions Pty Ltd & Anor v Chief Commissioner of State Revenue [1998] 40 ATR 416

Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42

Phian Pty Ltd v Commissioner of State Revenue [2016] QCAT 191

Port Augusta Medical Centre Pty Ltd v Commissioner of State Taxation [2012] SASCFC 7

Scotford Cameron & Middleton Pty Ltd v Commissioner of State Taxation (WA) (1981) 12 ATR 406

Scott and Bird and Ors v Commissioner of State Revenue [2016] QSC 132

Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242

Shadforth Lythgo Pty Ltd v Commissioner of State Revenue; Platinum 224 Pty Ltd v Commissioner of State Revenue; Irish McGann’s Partnership v Commissioner of State Revenue [2016] QCAT 539

Starr Partners Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 51

Wu v Chief Commissioner of State Revenue [2018] NSWCATAD 292

APPEARANCES & REPRESENTATION:

 

Telgrove:

H G Lakis of Counsel, instructed by PPM Tax & Legal

Commissioner:

F Chen of Counsel, instructed by Clayton Utz

REASONS FOR DECISION

Introduction

  1. [1]
    Telgrove is one of several entities that have been grouped for payroll tax purposes (collectively, ‘Group Members’):
    1. (1)
      Telgrove Pty Ltd (‘Telgrove’);
    2. (2)
      Postville Pty Ltd (‘Postville’);
    3. (3)
      CFS Hire Pty Ltd (‘CFS Hire’);
    4. (4)
      Custom Forklift Sales Pty Ltd (‘CF Sales’);
    5. (5)
      Gnurhan B Pty Ltd as trustee for the Nahrung Family Trust (‘Trustee of the NFT’); and
    6. (6)
      Blue Ibis Pty Ltd as trustee for CFS Discretionary Trust (‘Trustee of CFSDT’). 
  2. [2]
    On 24 February 2016, the following companies applied for exclusion orders to exclude them from being grouped with other Group Members:
    1. (1)
      Telgrove;
    2. (2)
      Postville;
    3. (3)
      CFS Hire; and
    4. (4)
      CF Sales. 
  3. [3]
    On 5 July 2017, the Commissioner advised Telgrove that its exclusion application had been refused. In the Exclusion Decision, the Commissioner rejected the exclusion applications made by each of the Group Members from each other and revoked a previous de-grouping decision between Telgrove and Postville. 
  4. [4]
    On 18 August 2017 and 21 August 2017, the Commissioner issued default assessment and reassessment notices, assessing Telgrove and other Group Members for payroll tax, penalty tax and unpaid tax interest (‘UTI’) for the financial years of 2011/2 to 2016/7 and a periodic assessment for the month of July 2017. The Notices for Telgrove are summarised below:

Assessment Period

Payroll Tax

Penalty Tax

UTI

Total

1/7/2011-30/6/2012

$30,510.85

$3,120.14

$8,305.95

$41,936.94

1/7/2012-30/6/2013

$34,102.11

$3,568.16

$7,515.07

$45,185.34

1/7/2013-30/6/2014

$38,570.86

$4,701.67

$6,016.48

$49,289.01

1/7/2014-30/6/2015

$49,338.68

$6,836.77

$2,995.92

$59,171.37

1/7/2015-30/6/2016

$47,348.12

$6,794.32

$0.00

$54,142.44

1/7/2016-30/6/2017

$48,109.55

$6,765.45

$0.00

$54,875.00

1/7/2017-31/7/2017

$8,015.10

$515.83

$0.00

$8,530.93

Total

$255,995.27

$32,302.34

$24,833.42

$313,131.03

  1. [5]
    In October and November 2017, each Group Member lodged objections with the Commissioner objecting against their assessments. 
  2. [6]
    On 2 May 2018, the Commissioner made a decision to disallow each of the Group Members Objections. 
  3. [7]
    On 29 June 2018, Telgrove applied to QCAT for a review of the decision of the Commissioner to disallow its objection against the assessments and reassessments. 
  4. [8]
    Telgrove is the only Group Member to have proceeded with this review. 
  5. [9]
    Telgrove now seeks the following orders from the Tribunal:
    1. (1)
      The Commissioner’s decision on Telgrove’s Objection is set aside;
    2. (2)
      Telgrove’s Objection is allowed in full;
    3. (3)
      An exclusion order is issued under section 74(1) of the Payroll Tax Act 1971 effective from 1 July 2010, excluding Telgrove from any group involving the Group Members;
    4. (4)
      Telgrove’s payroll tax assessments are set aside;
    5. (5)
      The penalty tax is remitted in full;
    6. (6)
      The uplift component of the UTI is remitted in full;
    7. (7)
      The Commissioner to issue reassessments consistent with the Tribunal’s findings;
    8. (8)
      The Commissioner must refund all overpaid payroll tax, penalty tax and UTI; and
    9. (9)
      The Commissioner must pay interest on the overpaid amounts

The Legal Framework

  1. [10]
    Payroll tax is a tax on wages paid by an employer to employees for services rendered in Queensland during each financial year.[1] Payroll tax is levied on the employer.[2] If total wages paid by an employer during a financial year are below the payroll tax threshold of $1.1 million, referred to as a deduction, then no payroll tax is payable for that financial year.[3] 
  2. [11]
    The process is more complicated in circumstances where a number of employers are grouped together for payroll tax purposes. In those circumstances:
    1. (1)
      A group’s payroll tax amount is calculated on the members’ total combined taxable wages;[4]
    2. (2)
      Only a single payroll tax threshold deduction is allowed per group, rather than for each member of the group;[5]
    3. (3)
      One employer from the group, referred to as the designated group employer (DGE), claims the deduction and is liable for the group’s payroll tax;[6] and
    4. (4)
      All group members are jointly and severally liable for any unpaid amounts of payroll tax, whether or not the group member was an employer during the relevant period.[7] 
  3. [12]
    The grouping provisions are wide in scope and include:
    1. (1)
      Companies comprise a group if they are ‘related bodies corporate’ within the meaning of s 9 of the Corporations Act 2001 (Cth);[8]
    2. (2)
      Groups may arise from the use of common employees that perform duties in more than one business;[9]
    3. (3)
      Groups may arise where a person or set of persons has a controlling interest in more than one business;[10] and
    4. (4)
      Groups may arise from the tracing of interests in corporations that results in a person or set of persons having a controlling interest in the corporation.[11] 
  4. [13]
    Section 74 of the Payroll Tax Act 1971 (Qld) (‘the Act’) provides the Commissioner with the power to exclude a person from a group, by an Exclusion Order, which typically occurs in response to its receipt of an application for an Exclusion Order.  This section, sometimes referred to as the “de-grouping” provision, provides:

74 Exclusion of persons from groups

  1. (1)
    The commissioner may, by order in writing (an exclusion order), exclude a person from a group. 
  2. (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. (3)
    For deciding whether to make an exclusion order, the commissioner must have regard to-
    1. The nature and degree of ownership and control of the businesses carried on by the person and the other members of the group; and
    2. The nature of the businesses; and
    3. Any other matters the commissioner considers relevant. 
  4. (4)
    Despite subsection (1), the commissioner can not make an exclusion order if the person and another body corporate that is a member of the group are related bodies corporate. 
  5. (5)
    The commissioner may, by order in writing, revoke an exclusion order if the commissioner is satisfied the circumstances in which an exclusion order may be made do not apply to the person. 
  6. (6)
    An exclusion order or order revoking an exclusion order takes effect on the date stated in it, which may be a date earlier than the date of the exclusion order. 
  1. [14]
    The discretion to make an exclusion order is only enlivened if the Commissioner is satisfied of the matters referred to in s 74(2), that is, a business is carried on independently of and not connected with the carrying on of a business carried out by another member of the group.[12] 
  2. [15]
    Bond J in Scott and Bird provided a useful discussion of the extrinsic material relevant to s 74, noting that:[13]
  1. The grouping provisions were aimed at a particular mischief namely the tax avoidance which might occur if employers split their payroll over several entities each claiming the (now $1.1 million) deduction/threshold;
  2. In order to ensure that purpose was achieved, the grouping provisions were expressed in broad language; and
  3. The purpose of conferring on the Commissioner a discretion to make an exclusion order was to enable the Commissioner to grant relief against the inappropriate operation of the broadly expressed grouping provisions.
  1. [16]
    Bond J pointed out that the legislative purpose of the grouping provisions does not give rise to the conclusion that the discretion to exclude would necessarily be exercised if the evidence in any particular case revealed that the parties had not engaged in the avoidance behaviour to which the provisions were directed.[14] 
  2. [17]
    It is relevant to note that the Commissioner has issued Public Ruling PTA031.2 Commissioner’s Discretion to Exclude from a Group as a means of guidance, setting out the matters it considers in making Exclusion Order decisions. This Public Ruling is consistent with the provisions of s 74 and, in particular, elaborates on s 74(3)(c): any other matters the Commissioner considers relevant. 
  3. [18]
    It is relevant to set out paragraphs 9, 10 and 11 of the PTA031.2, which are operative paragraphs that do not replicate the provisions of s 74:
  1. The Commissioner must be satisfied that:
  1. (a)
    there is not a continuous course of active and significant relationship, in a business or commercial sense, between the carrying on of the employer’s business and the carrying on of businesses conducted by any other member of the group and
  1. (b)
    the connections which do exist are no more than casual, irregular or occasional occurrences. 
  1. In making a decision, the Commissioner will consider the nature and extent of all relevant agreements and dealings between the employer and other members of the group, including:
  1. (a)
    the nature and extent of any commercial transactions between the members, including the value and percentage of the employer’s total business which is conducted with other member of the group
  1. (b)
    the extent to which members share resources, facilities or services, including premises, staff, management and accounting services
  1. (c)
    the extent to which the employer controls or is involved in managerial decisions and day to day administration of the other members and the extent to which other members control or are involved in managerial decisions and day to day administration of the employer
  1. (d)
    the extent to which there are financial interdependencies, including intra-group loans or guarantees and common banking facilities, and the terms and conditions attached to such agreements
  1. (e)
    the degree to which there is a connection between the employer and other members of the group in the purchase or sales of goods and services
  1. (f)
    the extent to which there is a connection between the nature of the businesses of the employer and other members of the group and
  1. (g)
    the extent to which there is a connection between the ultimate owners of the employer and other members of the group. 
  1. 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 of the basis of all of the relevant facts and circumstances. 
  1. [19]
    Application of the s 74 test is a question of fact and degree. Courts and Tribunals have consistently distinguished between dependencies and connections that are material or substantial on the one hand, or are insignificant and inconsequential, on the other hand. 
  2. [20]
    The NSW Civil and Administrative Tribunal, in considering the NSW version of the Act (which is similar to the current Queensland provision) stated:[15]

It 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 … we agree with this approach because it directs the focus to “carrying on” of the business: to be relevant the connection must affect the business in some real or practical sense.  To say that there can be absolutely no connection between businesses sets the bar too high.  The question is of fact and degree.  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 Trilene at [25] there must be a finding of substantial absence of connection and substantial independence between the businesses, to warrant the exercise of the discretion. 

  1. [21]
    For an exclusion order to be made where a group comprises more than two entities, ‘that business and each other business in the group vis-a-vie the first mentioned business must satisfy the statutory test.’[16] 
  2. [22]
    It is clear from the language used in s 74 that it is the nature and degree of ownership and control of the businesses, and not of entities, that is important to the consideration as to whether an exclusion order is to be granted. This is consistent with the approach adopted in Shadforth Lythgo[17] and Scotford Cameron.[18] 
  3. [23]
    The courts have rejected submissions suggesting that in examining the management control in the carrying on of a business, one need only examine day to day management of the businesses.[19] Strategic decision-making and management oversight represent relevant elements of control in the carrying on of a business. 
  4. [24]
    Bond J set out the steps to be undertaken by the decision maker in relation to s 74 in Scott and Bird:[20]

Section 74(2) requires a decision maker to take these steps:

  1. identify the business(es) carried on by the person seeking the exclusion order;
  2. identify relevant business(es) carried on by the other members of the group;
  3. consider whether the decision maker should be satisfied that a business carried on by applicant –
  1. is carried on independently of; and
  2. is not connected with the carrying on of,

a business carried on by any other member of the group. 

  1. [25]
    Section 69 of the Taxation Administration Act 2001 (Qld) provides that taxpayers who are dissatisfied with a decision of the Commissioner and have fully paid their tax assessments to which the decision relates, may apply to QCAT for a review of the Commissioner’s decision.
  2. [26]
    The Commissioner advises that Telgrove has fully paid the Assessment to which this review relates.
  3. [27]
    Section 71 of the Taxation Administration Act 2001 (Qld) provides that the Tribunal must hear and decide the review of the decision by way of a reconsideration of the evidence before the Commissioner when the decision was made, unless QCAT considers it necessary in the interests of justice to allow new evidence.  In this matter, the Tribunal has admitted new evidence in accordance with this section. This is a fresh hearing on the merits. 
  4. [28]
    Telgrove has the onus of proving its case,[21] and the standard of proof is on the balance of probabilities.[22] 
  5. [29]
    The Tribunal’s review is to be decided in accordance with the same law that applied to the making of the original decision.[23] The purpose of the hearing is to make the correct and preferable decision,[24] and the Commissioner’s role is to assist the Tribunal.[25] 
  6. [30]
    In exercising its review jurisdiction, the Tribunal has all the functions of the decision-maker for the reviewable decision being reviewed.[26] In addition, section 24(1) of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) confers on the Tribunal the power to:
  1. Confirm or amend the decision; or
  2. Set aside the decision and substitute its own decision; or
  3. Set aside the decision and return the matter for reconsideration to the decision-maker for the decision, with the directions the Tribunal considers appropriate. 

The Decision to Refuse

  1. [31]
    By letter dated 2 May 2018, the Commissioner disallowed the objections lodged by Group Members, providing a Notice of Decision and Statement of Reasons.  It is noted that the Commissioner had before it at the time of this decision, six volumes of evidence, which were provided to the Tribunal. 
  2. [32]
    Of relevance to Telgrove’s objection, the Commissioner’s decision to disallow the objection was based upon the following key reasons:
    1. (1)
      Main factors in favour of exclusion comprised:
      1. No shared resources or employees;
      2. Premises located at least 5km from the other businesses conducted by Group Members;
      3. Separate day-to-day administration;
      4. No group sales or purchases, despite the similar nature of the businesses;
    2. (2)
      Main factors against exclusion comprised:
      1. Purchase of minor workshop consumables from CF Sales until June 2015 (when it ceased trading);
      2. Hire of construction equipment to CFS Hire and occasional purchase of workshop consumables, parts and fuel from CFS Hire, estimated at 10% of sales/purchases, and all at market rates;
      3. Mr B Nahrung is:
        1. The sole Director and 85% shareholder of Telgrove.  He makes its strategic and final business decisions and retains authority for certain transactions and payments.  He is also owed approximately $2.5 million of unpaid dividends by Telgrove;
        2. One of three Directors of Postville, has input into Postville’s business where there are disagreements in important day to day business decisions and occasionally speaks with certain staff;
        3. The sole Director, sole shareholder and primary beneficiary in the 50% shareholder of Postville (Trustee for the NFT) and actively involved in NFT’s day to day business operations.  NFT is also a 65% shareholder in CFS Hire;
        4. One of three Directors of CFS Hire;
        5. One of three Directors of CF Sales and is the primary beneficiary in the trust under which the 75% shareholder of CF Sales holds its shares;
      4. The large unpaid dividend loan from NFT to Telgrove over the relevant period represented a high proportion of Telgrove’s assets and liabilities and a considerable proportion of NFT’s assets; and
    3. (3)
      On balance, the Commissioner was not satisfied that Telgrove’s business:
      1. Was not connected with the carrying on of the business carried on by CFS Hire because the trade between the two companies and Mr B Nahrung’s involvement in both businesses outweighed the absence of shared resources or administration; and
      2. Was not connected with the carrying on of the business carried on by NFT because the proportionally high loan, in the context of Mr B Nahrung’s involvement in Telgrove and NFT, outweighed the absence of shared resources and relevant transactions;
    4. (4)
      The Commissioner was satisfied that there was a continuous course of active and significant relationship in the carrying on of the businesses of Group Members and the connections that exist are more than casual, irregular or occasional occurrences. 
  3. [33]
    The Commissioner decided that penalty tax would not be further remitted, considering that Telgrove’s conduct in not taking reasonable care fell within Category 2 Case B of Public Ruling TAA060.2 and recognising that the penalty tax had already been remitted down to 20%. 
  4. [34]
    The Commissioner also decided the UTI would not be further remitted on the basis that it was incurred due to Telgrove not being sufficiently aware of or sufficiently attending to its payroll tax obligations and to do so would represent a departure from the Commissioner’s consistent practice as set out in Public Ruling TAA060.1. 

Telgrove’s Submissions

  1. [35]
    Telgrove’s primary submissions on the Exclusion Point may be summarised as follows:
    1. (1)
      The existence of a grouping criterion, namely the actual and/or deemed ownership, should not also be invoked to deny exclusion;
    2. (2)
      The Commissioner has confused and merged Telgrove with its director, Mr B Nahrung, on multiple occasions;
    3. (3)
      It is the businesses that should be analysed, not the entities, following Scotford Cameron;[27]
    4. (4)
      Only substantial or material dependencies or connections should deny exclusion rather than insignificant or inconsequential dependencies or connections, following Scott and Bird;[28]
    5. (5)
      It is relevant to note that the s 74 test involves ownership and control rather than previous tests involving ownership or control. 
    6. (6)
      The focus of the exclusion test should be how the businesses are actually carried on, which may also be referred to as day to day management of the businesses, not what might potentially occur, following Scotford Cameron;
    7. (7)
      The unpaid dividends from Telgrove to the NFT should not be a material financial connection to deny exclusion: relying on Crusher Holdings to claim that, if called upon, the payment of the unpaid dividends would not have placed Telgrove into financial difficulty;[29] and Port Augusta Medical Centre to claim that the mere receipt of distributions from an entity was said not to be decisive on its own;[30] and claiming that unpaid dividends are not a loan;
    8. (8)
      The extent of trade between Telgrove and other entities in the group are not material and should not be used to deny exclusion;
    9. (9)
      The fact that Postville’s bookkeeper was the notified contact person on Telgrove’s payroll tax returns was a direct result of group payroll tax compliance and does not demonstrate a shared resource upon which an Exclusion Order should be based;
    10. (10)
      The new evidence before the Tribunal is more precise than the evidence before the Commissioner at the time of her decision and supports Telgrove’s contention that the original decision to deny exclusion should be reversed;
    11. (11)
      The Commissioner’s claim of inconsistency in the evidence can be explained by Telgrove applying more significant resources to the payroll tax issue as the matter progressed from initial queries by the Commissioner, through the Objection process and now through the Tribunal process; and
    12. (12)
      The evidence falls short of finding that the Exclusion Order should be denied. 
  2. [36]
    Telgrove submits that the penalty tax and the ‘penalty component’ of the interest rate, being the 8% added to the bank bill yield rate,[31] should be remitted in full due to it:
    1. (1)
      Having taken reasonable care in the performance of its tax liabilities;
    2. (2)
      Having a reasonably arguable case, pointing to a first draft of the Exclusion Order prepared by an officer of the Commissioner having reached a position in favour of Telgrove;
    3. (3)
      Providing voluntary disclosure; and
    4. (4)
      The quantum is excessive, relying upon Deane.[32] 
  3. [37]
    Telgrove submits that the 8% component of the UTI represents a ‘penalty component,’ relying upon the NSW case of Wu.[33] 

Commissioner’s Submissions

  1. [38]
    The Commissioner’s primary submissions on the exclusion point may be summarised as follows:
    1. (1)
      The common directorship, shareholdings, ownership and actual management of the businesses in the Group are relevant to considering the nature and degree of ownership and control.  In particular, Mr B Nahrung is substantially involved in all Group Members through ownership and control;
    2. (2)
      Mr B Nahrung exercised substantial control in the business of Telgrove, as evidenced by his involvement in banking, machinery purchase decision-making, operating decisions, employee decisions, business location decisions, distribution of profits and mentoring the General Manager. He also exercised substantial control over Postville and NFT;
    3. (3)
      The unpaid dividends from Telgrove to NFT comprised undocumented loans, indicating that there was a material connection and lack of independence between these entities;
    4. (4)
      In comparison to either total assets or current assets net of current liabilities, the unpaid dividends are significant and were unable to be repaid in full during the relevant period if the Trustee for NFT had demanded immediate payment;
    5. (5)
      The quantum of purchases between Group Members is material and demonstrates that there is a connection between Telgrove and other Group Members;
    6. (6)
      The businesses of the Group Members are fairly similar given that they all sell, repair and hire out equipment and machinery and the business locations are fairly close, all pointing to a lack of independence; and
    7. (7)
      Care should be taken in relying upon the evidence of Mr B Nahrung in that some of his evidence appeared to be self-serving, evasive and not consistent with other evidence, such as the oral evidence that neither the sole director (Mr B Nahrung) nor the General Manager gave instructions to apply to QCAT to review the Commissioner’s decision. 
  2. [39]
    The Commissioner did not submit that the inconsistencies in the evidence amounted to fraud or evasion. 
  3. [40]
    The Commissioner does not submit that Telgrove is a related body corporate to another Group Member.[34] 
  4. [41]
    The Commissioner submits that the penalty tax and the ‘penalty component’ of the interest rate, being the 8% added to the bank bill yield rate, should not be remitted due to:
    1. (1)
      Telgrove not acting with reasonable care;
    2. (2)
      Telgrove did not provide all relevant facts to the Commissioner;
    3. (3)
      Telgrove has failed to prove that there were circumstances beyond its control;
    4. (4)
      The first draft of the Exclusion Order did not reflect the position of the Commissioner and should be given little to no weight; and
    5. (5)
      The 8% component of the interest rate should not be interpreted as a ‘penalty component’, with the Regulation not using the words ‘premium,’ ‘uplift’ or ‘penalty’, as implied by Telgrove. 

The Evidence

  1. [42]
    The evidence considered by the Tribunal comprises the six volumes of material that were before the Commissioner when it decided on the Objection (s 21 documents) and the new evidence allowed by the Tribunal pursuant to s 71 of the Taxation Administration Act 2001.  The new evidence comprised:
    1. (1)
      First Affidavit of Mr B Nahrung dated 30 October 2018;
    2. (2)
      Second Affidavit of Mr B Nahrung dated 20 December 2018;
    3. (3)
      First Affidavit of Mr Ledez dated 30 October 2018;
    4. (4)
      Second Affidavit of Mr Ledez dated 20 December 2018;
    5. (5)
      Affidavit of Ms McLean dated 7 December 2018;
    6. (6)
      First Affidavit of Mr Magoffin dated 19 December 2018;
    7. (7)
      Second Affidavit of Mr Magoffin dated 3 April 2019;
    8. (8)
      Oral evidence of Mr B Nahrung; and
    9. (9)
      Oral evidence of Mr Ledez. 
  2. [43]
    We accept the Commissioner’s submission that there are several inconsistencies within the written documents.  We also accept Telgrove’s submission that these can largely be explained by Telgrove applying greater resources and diligence to the preparation of the material as the matter progressed through the Objection and Review processes.  However, the inconsistencies within the written documents are not considered of great moment as, by the end of the Hearing, both parties agreed to the accuracy of several documents that summarised the written material and were handed to the Tribunal. 
  3. [44]
    We see some strength in the Commissioner’s submission that parts of the oral evidence of Mr B Nahrung appeared self-serving, evasive and inconsistent with other evidence.  In particular, we find it difficult to understand his oral evidence that neither he as the sole Director, nor Mr Ledez, the General Manager, gave instructions to lodge the QCAT Review. 
  4. [45]
    On this inconsistency, we prefer the evidence of Mr Ledez, General Manager of Telgrove.  He impressed as a person who was experienced in the day to day operation of Telgrove.  He frankly admitted to not understanding the financial aspects of the business. It is unlikely that he would undertake such a step without direction from Mr B Nahrung. On the balance of probabilities, we find that Mr B Nahrung gave instructions to lodge the QCAT Review. 
  5. [46]
    On the whole however, we generally accept the evidence of Mr B Nahrung, especially with regard to the conduct of the businesses.

Key Issues to be Determined

  1. [47]
    The key issues to be determined by this Tribunal are:
    1. (1)
      Whether the Commissioner’s decision to refuse the Exclusion Order should be upheld (the Exclusion Point);
    2. (2)
      Whether, if the Tribunal upholds the Commissioner’s decision on the Exclusion Point, the penalty tax should be remitted; and
    3. (3)
      Whether, if the Tribunal upholds the Commissioner’s decision on the Exclusion Point, the uplift component of the UTI should be remitted. 
  2. [48]
    These issues are dealt with separately below. 

The Exclusion Point

  1. [49]
    Following Scott and Bird,[35] it is necessary to describe the nature of Telgrove’s business, describe the nature of the businesses of the other Group Members and consider whether Telgrove’s business is carried on independently of, and is not connected to the carrying on of, the businesses of each of the other Group Members. 
  2. [50]
    We note that Mr C Nahrung is the son of Mr B Nahrung. 
  3. [51]
    Telgrove is a proprietary company in which 85% of the Ordinary shares are owned by Mr B Nahrung and 15% by Ms Shelley. Ms Shelley owns all of the B Class shares and the Trustee of the NFT owns the single C Class share. In terms of the total share capital, Mr B Nahrung owns 75%, Ms Shelley owns 25% and the Trustee of the NFT owns 0.01%.  Mr B Nahrung is the primary beneficiary of the NFT and of Telgrove. 
  4. [52]
    Mr B Nahrung has been the sole Director since 2012. Mr Shelley was a second director prior to his passing in 2012. We find that prior to his passing, Mr Shelley was the active director in the business of Telgrove. Since 2012, we find that Mr B Nahrung has taken a more active interest in Telgrove as its sole director.  He holds the banking token and processes the majority of wages and creditors, after having been prepared by the bookkeeper. He is responsible for the hiring and firing of General Managers and is the only person to sign financing documents, such as hire purchase agreements and guarantees. He communicates frequently with the bookkeeper, ‘looks at the financials all the time’[36] and communicates with the General Manager from time to time. 
  5. [53]
    The day to day operations of Telgrove are managed by Mr Ledez, the General Manager.  Mr Ledez makes the decisions, but consults with Mr B Nahrung on significant equipment purchases and overall strategy. 
  6. [54]
    Telgrove carries on the business of P&E Francis Plant Hire at 55 Wacol Station Road, Wacol. It hires out machinery (bobcats, excavators, tip trucks and track loaders) to the earthmoving sector of the construction industry, primarily on a ‘wet hire’ basis (machinery hired together with experienced staff and fuel), but occasionally also on a ‘dry hire’ basis (machinery hire only) when business was slow. 
  7. [55]
    Telgrove purchased 17 machines over the six-year relevant period, and parts for machinery on a more regular basis, from Postville during the relevant period. These purchases amounted to 7.48% of its total expenses and 1.05% of Postville’s total sales (percentages agreed between the parties).  Telgrove also hired some equipment to CFS Hire in four of the six relevant years that amounted to 0.09% of its total sales overall and 0.16% in the four years in which equipment was hired (percentages agreed between the parties). This level of equipment hire amounted to 0.39% of CFS Hire’s total expenses overall and 0.71% in the four years in which equipment was hired (percentages agreed between the parties). There is reference to Telgrove also purchasing forklift parts from CF Sales, although not quantified. However, there was evidence that forklifts did not comprise a significant component of Telgrove’s suite of equipment available for hire. 
  8. [56]
    Telgrove shared an external accountant with other Group Members and there is evidence that Postville’s bookkeeper was the person responsible for Payroll Tax matters of Telgrove. There was no other evidence of Telgrove sharing resources with other Group Members. 
  9. [57]
    At all relevant times, amounts of unpaid dividends were recorded as a liability in Telgrove’s financial accounts to the Trustee of NFT. 

Postville

  1. [58]
    Postville is a proprietary limited company in which 50% of the Ordinary shares are owned by the Trustee of the NFT, 25% by Mr C Nahrung as Trustee for the Nunga Family Trust and 25% by Mr and Ms Arndell as trustee for the Arndell Family Trust.  All of the D Class shares are owned by the Trustee of the NFT. In terms of share capital, the Trustee for the NFT owns almost 67%, Mr C Nahrung as Trustee for the Nunga Family Trust owns almost 17% and Mr and Ms Arndell as trustee for the Arndell Family Trust own almost 17%. Mr B Nahrung is the primary beneficiary of the NFT and therefore of Postville. 
  2. [59]
    During the relevant period, Mr B Nahrung, Mr C Nahrung and Mr Arndell were directors of Postville. We find from the evidence that Mr C Nahrung is the director responsible for the day to day management and operation of Postville, with Mr Arndell looking after sales. Mr B Nahrung holds a banking key for this business, but is only called upon to authorise payments when other directors are unavailable.
  3. [60]
    The evidence establishes that Mr B Nahrung had property interests in Cairns and would regularly visit that city during the relevant period. During those visits, he would visit the Cairns manager of Postville to ensure that all was going well (there was mention of the Cairns manager not getting on with other Postville directors). Otherwise, the evidence shows that Mr B Nahrung played no significant role in the management of this business. 
  4. [61]
    Postville carries on the business of ‘Allclass Construction Equipment’ at 16 Parade Ground Place, Wacol, as well as at Brendale, Nambour, Townsville and Cairns. It sells and services construction equipment (especially mini excavators). It holds the exclusive rights to sell and service the Kubota brand of machinery in Queensland. 

CFS Hire

  1. [62]
    CFS Hire was a proprietary company in which 65% of the Ordinary shares were held by the Trustee for NFT, 25% were held by Mr and Ms Arndell as trustee for the Arndell Family Trust and 10% were held by Mr Campbell as trustee for the Campbell Family Trust.  Mr B Nahrung was the primary beneficiary of the NFT and therefore of CFS Hire. 
  2. [63]
    Directors during the relevant period were Mr B Nahrung, Mr Arndell and Mr Campbell.  Management and day to day administration of this business is carried out by Mr Campbell, with Mr Arndell assisting in sales and authorisation of equipment purchase. The evidence was to the effect that Mr B Nahrung was the Managing Director of this business up to 2010, when he retired and has subsequently remained as a minority Director. 
  3. [64]
    CFS Hire carried on a business during the relevant period in that name at 1b Spine Street, Sumner Park. It hired out an extensive range of machinery (forklifts, scissor lifts, booms, telehandlers, small excavators and skid steers) on a dry hire basis, focussing on ‘access machinery’. 
  4. [65]
    CFS Hire purchased forklift parts from CF Sales until the latter ceased trading in 2015. 
  5. [66]
    Subsequent to the relevant period, CFS Hire was sold to FlexiHire. 

CF Sales

  1. [67]
    CF Sales was a proprietary company with 75% of the shares owned by the Trustee of CFSDT and 25% owned by Mr and Ms Arndell as trustee for the Arndell Family Trust.  All of the Trustee of CFSDT shares were owned by Mr C Nahrung. Mr B Nahrung is the primary beneficiary of the CFSDT and therefore of CF Sales. 
  2. [68]
    Directors are Mr B Nahrung, Mr C Nahrung and Mr Arndell. Mr Arndell had full business management control of this business. 
  3. [69]
    CF Sales operated a business selling forklifts. It operated from premises it shared with Postville, sharing telephone and facsimile numbers.  It ceased trading on 30 June 2015. 

Trustee of the NFT

  1. [70]
    The Trustee of the NFT is a proprietary company in which all of the shares are owned by Mr B Nahrung.  He is also the primary beneficiary. 
  2. [71]
    Mr B Nahrung is the sole director, with the financial accounts indicating that there were no employees during the relevant period. We find that Mr B Nahrung has total management and day to day control of the business of this entity. 
  3. [72]
    The Trustee of the NFT carries on the business of investing in a range of enterprises from which dividends are derived. 

Trustee of CFSDT

  1. [73]
    The Trustee of the CFSDT is a proprietary company in which all of the shares are owned by Mr C Nahrung. The primary beneficiary of the CFSDT is Mr B Nahrung. 
  2. [74]
    The sole director is Mr C Nahrung. 
  3. [75]
    The Trustee of the NFT carried on the business of investing in CF Sales from which dividends were derived. 

Telgrove and Postville

  1. [76]
    The common shareholding in these two companies is the Trustee for the NFT, owning the single C Class share in Telgrove and all of the D Class shares in Postville. These classes of shares are non-voting and, in the case of Telgrove, represents only 0.01% of the share capital. With Mr B Nahrung being the primary beneficiary of the Trustee for the NFT and being the majority shareholder in Telgrove, Mr B Nahrung is the majority beneficial owner of Telgrove and Postville. 
  2. [77]
    There is a common director of the two companies; Mr B Nahrung is the sole director of Telgrove and is one of three directors of Postville. We find that the evidence to demonstrate that during the relevant period, Mr B Nahrung was a minority director of Postville and did not exercise management control of the business of Postville in a material or significant manner. 
  3. [78]
    Both companies share the same external accountant and there is evidence that the bookkeeper of Postville is the nominated payroll tax representative for Telgrove.  Otherwise, there is no evidence of shared resources, facilities or services. We agree with Telgrove’s submission that it is not surprising that at times when several companies were being investigated for payroll tax matters that one bookkeeper amongst those companies be appointed to liaise with the external accountant and Commissioner on this issue. 
  4. [79]
    The evidence demonstrates that Telgrove purchased equipment on an occasional basis (17 items over six years) from Postville and purchased parts for equipment on an almost daily basis (for example, there were more than 400 separate invoices for parts from Postville in 2015/6). Over the relevant period the quantum of these purchases amounted to 1.05% of Postville’s sales and 7.48% of Telgrove’s total expenses.
  5. [80]
    The Commissioner pressed the Tribunal to find that these percentages were material.  We find that from Postville’s perspective, the 1.05% of total sales is not considered material, but is effectively inconsequential. When looking at these sales from Telgrove’s perspective, we note that the annual percentages were: 5.98% in 2011/2; 8.30% in 2012/3; 4.22% in 2013/4; 11.95% in 2014/5; 11.88% in 2025/6; and 4.75% in 2016/7. 
  6. [81]
    If one were to compare the quantum of equipment and parts purchased from Postville as a percentage of total equipment and parts purchased by Telgrove (rather than total expenses), the resulting percentage is considered significant and material. The high frequency of the parts transactions supports the view that these transactions are more than casual, irregular or occasional. It demonstrates an active and significant relationship between Telgrove and Postville. 
  7. [82]
    Telgrove submitted that the Tribunal should take into consideration in assessing these commercial transactions between Telgrove and Postville, the fact that these transactions were forced upon Telgrove in the sense that Postville had the exclusive rights in Queensland to sell Kubota equipment and parts, that Kubota was the leader in mini-excavators, and that if Telgrove was to be successful in providing earthmoving services, it needed to utilise Kubota equipment. It is noted that all transactions between Telgrove and Postville were undertaken at market rates. Whilst the extent of commercial transactions between these companies should not be dismissed outright for these reasons, we find that Postville’s holding of exclusive rights is a matter of weight to apply to the overall balancing exercise. 
  8. [83]
    We find that the nature of the businesses to be quite different from each other, despite the submissions of the Commissioner that they were fairly similar. Whilst both businesses could be categorised as being involved in the construction industry, the provision of machinery services (wet hire) to the earthmoving sector of the construction industry is quite different from the selling of construction equipment and associated parts. 
  9. [84]
    Matters favouring grouping these companies include the common beneficial owner, the frequent and material purchases of parts by Telgrove from Postville and the sharing of an external accountant. 
  10. [85]
    Matters favouring exclusion include the lack of direct controlling ownership, the absence of common management control, the general lack of shared resources, facilities or services, the lack of financial interdependencies, the lack of similarity in the nature of the businesses, and the fact that Postville had an exclusive right to sell Kubota equipment and parts in Queensland (and thus preventing Telgrove from sourcing Kubota equipment and parts from another business). 
  11. [86]
    After weighing up these issues, on balance, we are satisfied that the business of Telgrove was carried on independently of, and not connected with, the carrying on of the business of Postville, to the extent that they should not be grouped together. 

Telgrove and CFS Hire

  1. [87]
    Telgrove and CFS Hire share a common shareholder: the Trustee of NFT is the majority shareholder of CFS Hire at 65%; and is a minority shareholder of Telgrove, owning all of Telgrove’s C class shares, which are non-voting, and representing 0.01% of the share capital. Mr B Nahrung is the primary beneficiary of the Trustee of NFT and is the major shareholder in Telgrove. Consequently, Mr B Nahrung is the majority beneficial owner of Telgrove and CFS Hire. 
  2. [88]
    Mr B Nahrung is the sole director of Telgrove, but one of three directors of CFS Hire.  We find that the evidence demonstrates that Mr Arndell had management control of CFS Hire and that Mr B Nahrung did not have a significant role in its day to day operations or management. There is evidence of Telgrove supplying equipment to CFS Hire, representing 0.09% of Telgrove’s sales during the relevant period and 0.39% of CFS Hire’s total expenses over the relevant period. We find this level of transactions between these two businesses to be no more than casual, irregular or occasional occurrences. Telgrove shared the same external accountant with CF Sales. 
  3. [89]
    Whilst CFS Hire focussed on the dry hire of access machinery, it is noted that it also hires out small excavators, which represents a potential duplication of Telgrove’s business model of servicing the earthmoving sector.  The oral evidence explained that, in this instance, the provision of earthmoving services via wet hire was still quite different to the dry hire of earthmoving equipment.  Whilst the Commissioner submitted that the businesses were fairly similar, we consider that there is only a minor overlap in the business operations of Telgrove and CFS Hire, with Telgrove primarily involved in the provision of services to the earthmoving sector and CFS Hire primarily involved in the dry hire of access equipment to the industrial and construction sector. 
  4. [90]
    Matters favouring the grouping of these companies include the common majority beneficial owner and the sharing of an external accountant.  We find that these businesses do not share direct controlling ownership, different persons exercise management control, do not otherwise share resources, facilities or services, are financially independent from each other, and are primarily involved in different businesses. 
  5. [91]
    After weighing up these issues, on balance, we consider that the business of Telgrove was carried on independently of, and not connected with, the carrying on of the business of CFS Hire, to the extent that they should not be grouped together.   

Telgrove and CF Sales

  1. [92]
    There were no common shareholders in Telgrove and CF Sales.  However, with Mr B Nahrung being the primary beneficiary of Telgrove and CF Sales, these two entities shared a common majority beneficial owner. 
  2. [93]
    The sole director of Telgrove, Mr B Nahrung, was one of three directors of CF Sales.  We find the evidence to demonstrate that Mr Arndell had management control of CF Sales and that Mr B Nahrung did not have a significant role in its day to day operations or management.  There is evidence of Telgrove purchasing minor forklift parts from CF Sales, although not quantified.  There was evidence that forklifts did not comprise a significant component of Telgrove’s suite of equipment available for hire and it can be inferred that the level of transactions was not significant either for Telgrove or CF Sales.  Telgrove shared the same external accountant with CF Sales. 
  3. [94]
    However, we find that these businesses have different direct owners, different persons exercising management control, do not otherwise share resources, facilities or services, are financially independent from each other and have different businesses.  Whilst the Commissioner submitted that the businesses were fairly similar, we find the wet hire of construction equipment (bobcats, excavators, tip trucks and track loaders) to be quite different from the sale of forklifts. 
  4. [95]
    After weighing up these issues, on balance, we consider that the business of Telgrove was carried on independently of, and not connected with, the carrying on of the business of CF Sales, to the extent that they should not be grouped together.  

Telgrove and the Trustee of the NFT

  1. [96]
    The Trustee of the NFT is a minority owner of Telgrove, owning all of Telgrove’s C class shares, which are non-voting, and representing 0.01% of the equity.  However, it appears to be a major recipient of dividends declared by Telgrove.  Mr B Nahrung is the majority shareholder in both companies and the majority primary beneficiary of Telgrove and the NFT. 
  2. [97]
    Telgrove and the Trustee of the NFT also share sole directors: Mr B Nahrung. We find that the evidence demonstrates that he has total management and day to day control of the Trustee of the NFT and ultimate management control of Telgrove.
  3. [98]
    Ultimate management control is demonstrated by Mr B Nahrung being the sole director, being responsible for the hiring and firing of general managers, being responsible for the payment of all wages and creditors (via a banking key and based upon payments prepared by the bookkeeper, which did not involve a great deal of time and often conducted remotely from the business premises), being consulted on all financing decisions (requiring his signature and his guarantees) and strategic discussions with the General Manager regarding the type of machinery to purchase when the market turned down.
  4. [99]
    The evidence demonstrates that he did not attend the premises of Telgrove very often (weekly or monthly) and that these tasks did not take up much of Mr B Nahrung’s time. We consider that the evidence indicates that the minimal time devoted by Mr B Nahrung to the business of Telgrove appears to be a result of the success of the business under the General Manager.
  5. [100]
    Applying the tests in Denham Constructions[37] and Phian[38] we find that Mr B Nahrung has actual ultimate management oversight, and therefore control, of the carrying on of the business, but that this level of control does not extend to day to day management control of the business of Telgrove. 
  6. [101]
    We find that the day to day management of Telgrove rests with Mr Ledez. The evidence of Mr Ledez demonstrated his skills and experience in operating the business of Telgrove.  However, his evidence also revealed that financial expertise was not his specialty, hence the reporting of the bookkeeper to Mr B Nahrung, who was more financially attuned. 
  7. [102]
    There were no commercial transactions between these entities, with the declaration and subsequent payment of dividends reflecting the ownership structure, and not reflecting commercial transactions. 
  8. [103]
    A great deal of the hearing was spent on the relevance and characterisation of the unpaid dividends from Telgrove to the Trustee of the NFT. The Commissioner submitted that the unpaid dividends comprised undocumented loans; that they were significant in comparison to either total assets or current assets nett of current liabilities; and that they would have been unable to be repaid in full during the relevant period if the Trustee for NFT had demanded immediate payment. 
  9. [104]
    Telgrove submitted that the unpaid dividends should not be a material financial connection to deny exclusion on the basis that:
    1. (1)
      they are not a loan and,
    2. (2)
      if called upon, the payment of the unpaid dividends would not have placed Telgrove into financial difficulty. 
  10. [105]
    A loan is broadly defined as ‘something lent, especially a sum of money to be returned normally with interest.’[39] In the case of dividends there is no act of lending on behalf of the shareholder. 
  11. [106]
    Section 254V(2) of the Corporations Act 2001 (Cth) states that ‘if the company has a constitution and it provides for the declaration of dividends, the company incurs a debt when the dividend is declared.’ In the case of Telgrove, its constitution provides for the declaration of dividends.[40] The unpaid dividends are therefore not a loan, but are a debt or a liability created at the time of declaration. 
  12. [107]
    It is also relevant to describe the process of declaring and paying dividends under the Corporations Act 2001 (Cth) in order to understand their proper characterisation in comparison to a loan.
  13. [108]
    The Corporations Act 2001 (Cth) provides when a company may pay a dividend:[41]
  1. (1)
    A company must not pay a dividend unless:
  1. the company’s assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend; and
  2. the payment of the dividend is fair and reasonable to the company’s shareholders as a whole; and
  3. the payment of the dividend does not materially prejudice the company’s ability to pay its creditors. 
  1. [109]
    The determination of a dividend under the Corporations Act 2001 (Cth) is made as follows[42]:
  1. The directors may determine that a dividend is payable and fix:
  1. the amount; and
  2. the time for payment; and
  3. the method of payment.
  1. Interest is not payable on a dividend. 
  1. [110]
    The directors have broad discretion as to payment of dividends:[43]

Subject to the terms on which shares in a proprietary company are on issue, the directors may pay dividends as they see fit. 

  1. [111]
    The Constitution of Telgrove provides as to dividends that:[44]

86(1) The company in general meeting may declare a dividend if, and only if the directors have recommended a dividend. 

86(2) A dividend shall not exceed the amount recommended by the directors. 

87 The directors may authorize the payment by the company to the members of such interim dividends as appear to the directors to be justified by the profits of the company.

  1. [112]
    The effect of these provisions for Telgrove is that:
    1. (1)
      it is the sole director who makes a recommendation to declare a dividend,
    2. (2)
      it is shareholders with voting rights in the general meeting who have the power to declare a dividend, provided that it does not exceed the quantum recommended by the sole director, and
    3. (3)
      it is the sole director who is to determine when and how the dividend is to be paid and no interest is payable on unpaid dividends. 
  2. [113]
    All of these actions are to take place within the constraint that the quantum of dividends paid cannot exceed certain criteria designed to ensure that the company may be able to continue to trade and pay its creditors. These actions are also subject to the more general obligations of a director to ensure that all actions taken by the director result in the company remaining solvent (being able to pay all of its debts as they fall due) with heavy penalties in force.[45] 
  3. [114]
    The oral evidence of Mr B Nahrung, as sole director of Telgrove, to the effect that dividends were only declared and paid on the advice of his external accountant, is consistent with observance of these provisions. 
  4. [115]
    We therefore reject the Commissioner’s submission that the unpaid dividend is a loan and the shareholders have the power to demand its immediate payment, potentially threatening financial difficulties for Telgrove.
  5. [116]
    The proper characterisation of the unpaid dividends in this matter is that they are material in amount during the relevant period (for three of the years exceeding total assets less total liabilities [total equity] and at other times representing between 20% and 90% of total assets less total liabilities [total equity]), but that their payment solely rests with the sole director of Telgrove, who is under an obligation to only pay these dividends in a manner that is consistent with Telgrove being able to continue to pay its creditors.
  6. [117]
    The evidence is that the unpaid dividends were progressively paid in the period July 2010 to May 2018 and fully paid in May 2018. There is no evidence that this has resulted in Telgrove falling into financial difficulties as described in Crusher Holdings,[46] where a debt, if called in would put the company into financial difficulty such that the company was dependent upon the continuing goodwill of the creditor.
  7. [118]
    We find that the unpaid dividends were not loans, that they were material in amount, but that the shareholders had no power to enforce their payment, and provisions of the Corporations Act 2001 (Cth) ensured that there would be no danger of the company facing financial difficulties from this source. Accordingly, the unpaid dividends simply reflect an ownership connection between Telgrove and its shareholders, but do not constitute a financial dependency in the terms expressed in Crusher Holdings
  8. [119]
    Overall, matters favouring grouping these companies include the common majority shareholder, the common majority primary beneficiary, common management control (strategic and day to day management control of the Trustee of the NFT and ultimate management oversight control of Telgrove) and the sharing of an external accountant.  Matters favouring exclusion include the lack of commercial transactions between the businesses, the otherwise lack of shared resources, facilities or services, the lack of financial interdependencies and the lack of connection in the nature of the businesses. 
  9. [120]
    After weighing up these issues, on balance, we are satisfied that the business of Telgrove was carried on independently of, and not connected with, the carrying on of the business of the Trustee of the NFT, to the extent that they should not be grouped together.   

Telgrove and the Trustee of the CFSDT

  1. [121]
    Telgrove and the Trustee of the DFSDT share the same primary beneficiary, Mr B Nahrung, and share the same external accountant.  However, we find that they have different shareholders, different directors, different persons exercising management control, do not otherwise share resources, facilities or services, are financially independent from each other, do not sell goods between each other and have fundamentally different businesses. 
  2. [122]
    After weighing up these issues, on balance, we consider that the business of Telgrove is carried on independently of, and not connected with, the carrying on of the business of the Trustee of the CFSDT, to the extent that they should not be grouped together.   

Conclusion

  1. [123]
    We find that the correct and preferable decision is that Telgrove has discharged its onus, and an Exclusion Order should be granted. 
  2. [124]
    In making this Order we are satisfied that matters favouring grouping (management control of Telgrove and the Trustee for the NFT and commercial transactions between Telgrove and Postville) are significantly outweighed by matters favouring exclusion (lack of other material commercial transactions, lack of shared resources, facilities or services, different management structures, lack of financial interdependencies and lack of a connection between the nature of the businesses). 
  3. [125]
    We find that the carrying on of the business of Telgrove is independent of, and not connected to, the carrying on of the businesses of other Group Members. 
  4. [126]
    Consequently, the Payroll Tax paid by Telgrove in relation to the group should be remitted in full.
  5. [127]
    As we have found in favour of Telgrove on the Exclusion Point, the Penalty Tax which was imposed by the Commissioner should also be remitted in full. 
  6. [128]
    Similarly, as we have found in favour of Telgrove on the Exclusion Point, the Unpaid Tax Interest which was imposed by the Commissioner should be remitted in full. 
  7. [129]
    Whilst we do not consider that Unpaid Tax Interest should be imposed in this matter, we do consider it to be useful to discuss the submission put on behalf of Telgrove as to whether the 8% added to the bank bill yield rate (the ‘uplift factor’) represents a ‘penalty rate’ as discussed in the NSW case of Wu.[47]
  8. [130]
    Telgrove relied upon Wu in claiming that the uplift factor of UTI represents a ‘penalty component’, essentially penalising the taxpayer a second time (in addition to the penalty tax). 
  9. [131]
    In Wu, the NSW Civil and Administrative Tribunal referred to other NSW Tribunal findings that distinguished between the market rate component of interest where ‘only exceptional circumstances would justify any remission’, and the premium rate component of interest that ‘is a rate imposed by way of penalty for the “tax default” in question.’ 
  10. [132]
    However, these references in Wu are to a different statutory regime, where s 22 of the Taxation Administration Act 1996 (NSW) specifies the ‘market rate component’ and the ‘premium component’ of the interest rate to be imposed.  This language is not shared by the Queensland statute:[48]

For section 54(2) of the Act, the prescribed rate of unpaid tax interest is an annual rate equal to the sum of the bank bill yield rate, rounded to the nearest second decimal point, and 8%. 

  1. [133]
    The Commissioner referred to the Explanatory Notes to the Taxation Administration Bill 2001:[49]

The policy objective in imposing interest is to encourage payment of tax on time and to compensate the State for the period that tax has been unpaid …

In addition to the imposition of interest on unpaid tax amounts, there are also cases where administrative sanctions are necessary … such sanctions act as an incentive for compliance with the tax laws …

  1. [134]
    In practice, at any one point in time, interest rates are levied at a wide range of percentages, with the lowest rates applying to risk-free debts and the highest rates applying to high risk debts. Governments are usually able to borrow at low interest rates, with businesses typically borrowing at higher interest rates, depending upon the risk profile of the business and the security offered. Most (if not all) taxpayers would necessarily borrow funds at rates above the bank bill yield rate. Whilst the bank bill yield rate of interest may be sufficient to compensate the Commissioner for not having the benefit of the tax payment at the time it was due, the addition of 8 percentage points to that rate provides a commercial incentive for taxpayers to pay their tax obligations on time. Without the uplift component, many taxpayers might find it attractive to pay interest at bank bill yield rates because they have to borrow at rates much higher than that. 
  2. [135]
    Telgrove did not draw our attention to any Queensland precedents of the uplift factor having been remitted, and has failed to satisfy us that the uplift factor represents a ‘penalty component’ of UTI. 
  3. [136]
    Should we have found against Telgrove on the Exclusion Point, we would also have found against Telgrove on the remission of the uplift component of UTI. 
  4. [137]
    To enable remission of the relevant amounts, the Commissioner should issue appropriate re-assessments.
  5. [138]
    Telgrove has sought interest on the amounts to be remitted.
  6. [139]
    Section 61 of the Taxation Administration Act 2001 (Qld) provides that the Tribunal may order interest as follows:

61.Interest on particular overpayments following court’s or QCAT’s decision

  1. (1)
    This section applies if a taxpayer is entitled to a refund of tax or late payment interest (the overpaid amount) because of—
  1. (a)
    a reassessment giving effect to a decision of the Supreme Court under section 70C on an appeal by the taxpayer; or
  1. (b)
    an order of the Supreme Court on an application, under the Judicial Review Act 1991, by the taxpayer for a decision under a tax law; or
  1. (c)
    a reassessment giving effect to a decision of QCAT on an application for review made by the taxpayer under section 69.
  1. (2)
    The court or QCAT may order the commissioner to pay interest on the overpaid amount.
  1. (3)
    The interest must be calculated on a daily basis at the prescribed rate from the date the overpaid amount was paid to the commissioner to the date the refund is made by the commissioner.
  1. [140]
    As a reassessment will give effect to this decision for review, the Tribunal may therefore order the Commissioner to pay interest at the prescribed rate in accordance with s 61(3).
  2. [141]
    The prescribed amount is the bank bill rate.
  3. [142]
    We note that s 61A provides that the Commissioner must pay interest where it issues a reassessment itself:

61A Interest on particular overpayments following commissioner’s decision

  1. (1)
    This section applies if a taxpayer is entitled to a refund of tax or late payment interest (the overpaid amount) because of a reassessment giving effect to a decision of the commissioner under section 67(1).
  1. (2)
    The commissioner must pay interest on the overpaid amount.
  1. (3)
    The interest must be calculated on a daily basis at the prescribed rate from the date the overpaid amount was paid to the commissioner to the date the refund is made by the commissioner.
  1. [143]
    We consider that the Commissioner should similarly pay interest at the prescribed rate where the reassessment arises as a result of the decision of the Tribunal, and where there are no bases of fairness or reasonableness to cause the Tribunal to exercise its discretion not to make a similar order.
  2. [144]
    As the amounts of payroll tax paid by Telgrove in respect of the grouping are to be remitted, together with penalty tax and interest, and we do not find any basis to exercise our discretion against the ordering of interest, we consider that it is fair and reasonable that Telgrove should also be paid interest on those monies which it has been deprived of for the relevant periods, and will order accordingly.

Orders

  1. [145]
    The orders of the Tribunal are as follows:
    1. (1)
      The decision of the Commissioner of State Revenue, refusing to make an Exclusion Order, made on 5 July 2017, is set aside. 
    2. (2)
      An Exclusion Order is made pursuant to Section 74(1) of the Payroll Tax Act 1971 (Qld), effective from 1 July 2010, excluding Telgrove Pty Ltd t/as P & E Francis Plant Hire from any group with:
      1. Postville Pty Ltd
      2. CFS Hire Pty Ltd;
      3. Custom Forklift Sales Pty Lt);
      4. Gnurhan B Pty Ltd as trustee for the Nahrung Family Trust; and
      5. Blue Ibis Pty Ltd as trustee for CFS Discretionary Trust. 
    3. (3)
      The Payroll Tax assessments made against Telgrove Pty Ltd t/as P & E Francis Plant Hire in relation to the group are set aside.
    4. (4)
      The Payroll Tax paid by Telgrove Pty Ltd t/as P & E Francis Plant Hire in relation to the group is to be remitted in full. 
    5. (5)
      The Penalty Tax paid by Telgrove Pty Ltd t/as P & E Francis Plant Hire in relation to the group is to be remitted in full. 
    6. (6)
      The Unpaid Tax Interest paid by Telgrove Pty Ltd t/as P & E Francis Plant Hire in relation to the group is to be remitted in full. 
    7. (7)
      The Commissioner of State Revenue is to issue reassessments of Payroll Tax consistent with these Orders.
    8. (8)
      The Commissioner of State Revenue must pay interest on the overpaid amounts of Payroll Tax, Penalty Tax and Unpaid Tax Interest to Telgrove Pty Ltd t/as P & E Francis Plant Hire; to be calculated on a daily basis at the prescribed rate pursuant to Section 61(3) of the Taxation Administration Act 2001 (Qld) from the date the overpaid amount was paid to the Commissioner to the date the refund is made by the Commissioner.

Footnotes

[1]Sections 9-11 of the Payroll Tax Act 1971 (Qld).

[2]Ibid s 12.

[3]Ibid s 29.

[4]Ibid s 33.

[5]Ibid s 33.

[6]Ibid ss 34(1), 42(1).

[7]Ibid ss 34(2), 42(2), 51A.

[8]Ibid s 69.

[9]Ibid s 70

[10]Ibid s 71

[11]Ibid ss 72, 74A-74G.

[12]Scott and Bird & Ors v Commissioner of State Revenue [2016] QSC 312, [19], Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242, [20]-[22]

[13]Scott and Bird & Ors v Commissioner of State Revenue [2016] QSC 312, [24]

[14]Ibid [27].

[15]Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42, 326 and followed by Shadforth Lythgo Pty Ltd v Commissioner of State Revenue; Platinum 224 Pty Ltd v Commissioner of State Revenue; Irish McGann’s Partnership v Commissioner of State Revenue [2016] QCAT 539, [12]

[16]Boston Sales and Marketing Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 139, [24]

[17]Shadforth Lythgo Pty Ltd v Commissioner of State Revenue; Platinum 224 Pty Ltd v Commissioner of State Revenue; Irish McGann’s Partnership v Commissioner of State Revenue [2016] QCAT 539, [29]-[36].

[18]Commissioner of State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd [1981] 12 ATR 406, [411], [412].

[19]Denham Constructions Pty Ltd & Anor v Chief Commissioner of State Revenue [1998] 40 ATR 416, [425], Phian Pty Ltd v Commissioner of State Revenue [2016] QCAT 191, [112]-[115].

[20]Scott and Bird & Ors v Commission of State Revenue [2016] QSC 132, [42].

[21]Section 73 of the Taxation Administration Act 2001 (Qld).

[22]Starr Partners Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 51, 23.

[23]Section 71(3)(b) of the Taxation Administration Act 2001 (Qld).

[24]Section 20 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld).

[25]Ibid s 21.

[26]Ibid s 19(c).

[27]Commissioner of State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd [1981] 12 ATR 406, 411, 412.

[28]Scott and Bird & Ors v Commissioner of State Revenue [2016] QSC 132, 66, 67.

[29]Crusher Holdings Pty Ltd v Commissioner of Taxes (NT) 29 ATR 156, 167.

[30]Port Augusta Medical Centre Pty Ltd v Commissioner of State Taxation [2012] SASCFC 7, 22.

[31]Regulation 8 of the Taxation Administration Regulation 2012 (Qld).

[32]Deane v Commissioner of Stamp Duties [1996] 2 Qd R 557, 570.

[33]Wu v Chief Commissioner of State Revenue [2018] NSWCATAD 292, 379, 380.

[34]Which would trigger s 74(4) of the Payroll Tax Act 1971 (Qld), where an Exclusion Order cannot be issued.

[35]Scott and Bird & Ors v Commissioner of State Revenue [2016] QSC 132, 42.

[36]Oral evidence of Mr B Nahrung.

[37]Denham Constructions Pty Ltd & Anor v Chief Commissioner of State Revenue [1998] 40 ATR 416, 425.

[38]Phian Pty Ltd v Commissioner of State Revenue [2016] QCAT 191, 112-115.

[39]The Australian Concise Oxford Dictionary.

[40]Rule 86(1) of the Constitution of Telgrove Pty Ltd.

[41]Section 254T of the Corporations Act 2001 (Cth).

[42]Section 254U of the Corporations Act 2001 (Cth).

[43]Section 254W of the Corporations Act 2001 (Cth).

[44]The Constitution of Telgrove Pty Ltd.

[45]Sections 588G, 588K and 588M of the Corporations Act 2001 (Cth).

[46]Crusher Holdings Pty Ltd v Commissioner of Taxes (NT) [1994] 29 ATR 156, 167.

[47]Wu v Chief Commissioner of State Revenue [2018] NSWCATAD 292, 379, 380.

[48]Regulation 8(1) of the Taxation Administration Regulation 2012 (Qld).

[49]Page 6.

Close

Editorial Notes

  • Published Case Name:

    Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue

  • Shortened Case Name:

    Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue

  • MNC:

    [2019] QCAT 199

  • Court:

    QCAT

  • Judge(s):

    Member Paratz, Member Norling

  • Date:

    15 Jul 2019

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Require Technical Assistance?

Message sent!

Thanks for reaching out! Someone from our team will get back to you soon.

Message not sent!

Something went wrong. Please try again.