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Latitude North Hotels Pty Ltd v Commissioner of State Revenue[2021] QCAT 16

Latitude North Hotels Pty Ltd v Commissioner of State Revenue[2021] QCAT 16

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL

CITATION:

Latitude North Hotels Pty Ltd v Commissioner of State Revenue [2021] QCAT 16

PARTIES:

latitude north hotels pty ltd

(applicant)

v

commissioner of state revenue

(respondent)

APPLICATION NO/S:

GAR330-18

MATTER TYPE:

General administrative review matters

DELIVERED ON:

20 January 2021

HEARING DATES:

10 October 2019

11 October 2019

HEARD AT:

Brisbane

DECISION OF:

Member Deane

ORDERS:

  1. The decision of the Commissioner of State Revenue made 25 July 2018 to disallow Latitude North Hotels Pty Ltd’s objection is confirmed.
  2. The Application to review a decision filed 21 September 2018 is dismissed.

CATCHWORDS:

TAXES AND DUTIES – PAYROLL TAX – LIABILITY TO TAXATION – GROUPING OF EMPLOYERS – where application to exclude a member from a group was refused – whether the business carried on by the applicant was carried on independently of and was not connected with the carrying on of a business carried on by any other member of the group – whether financial connections between the applicant and other members of the group were immaterial, insignificant or inconsequential – whether financial connections were no more than casual, irregular or occasional

TAXES AND DUTIES – PAYROLL TAX – LIABILITY TO TAXATION – GENERALLY - remission of penalty tax and unpaid tax interest – exercise of discretion to remit penalty tax and unpaid tax interest – whether taxpayer took reasonable care to comply with obligations

Payroll Tax Act 1971 (Qld), s 9, s 10, s 11, s 12, s 29,
s 33, s 34, s 42, s 51A, s 63, s 66, s 71, s 73, s 74

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

Taxation Administration Act 2001 (Qld), s 58, s 60, s 63,

s 69, s 71, s 73

Beaumont Constructions Pty Ltd & Ors v Commissioner of State Revenue [2020] QCAT 52

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

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

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

Kehl v Board of Professional Engineers of Queensland [2010] QCATA 58

Kivelos Nominees Pty Ltd v Commissioner for State Revenue (Vic) (1997) 37 ATR 1025

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

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

Quadric Pty Ltd & Ors v Commissioner of Pay-Roll Tax (Vic) (1992) 24 ATR 1159

Scott and Bird & 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 [2016] QCAT 539

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

Toveety Maintenance Services Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 137

APPEARANCES &

REPRESENTATION:

Applicant:

M Ballans instructed by Tax + Law

Respondent:

HG Lakis instructed by HWL Ebsworth

REASONS FOR DECISION

  1. [1]
    Latitude North Hotels Pty Ltd (‘Latitude’) operates two hotels on Thursday Island. Mrs Leigh Lemke is the sole director of Latitude. Members of the Lemke family, including her husband, Chris, and sons, Jared and Wyatt, hold directorships and other interests as shareholders and what might be regarded as indirect or potential interests as beneficiaries of trusts in various other entities in what was termed the Opal Group. There is no dispute as to the composition of the Opal Group by operation of section 71 of the Payroll Tax Act 1971 (Qld) (‘the Act’).[1]
  2. [2]
    Part 4 of the Act sets out provisions relating to grouping.
  3. [3]
    Section 71(1) of the Act provides:

If a person or set of persons has a controlling interest in each of 2 businesses, the persons who carry on those businesses constitute a group.

  1. [4]
    Section 71(2) of the Act sets out various criteria for when a person or set of persons is regarded as having a controlling interest in a business for the purposes of section 71.
  2. [5]
    Payroll tax is a tax on wages, being amounts paid by an employer to employees in relation to services performed during each financial year.[2] It is levied on the employer.[3] If total wages paid during a financial year are below the designated threshold then no payroll tax is payable for that year.[4] A group’s payroll tax is calculated on the total combined taxable wages and only one tax-free threshold is claimable.[5] One employer from the group, referred to as the designated group employer, claims the deduction and is liable for the group’s payroll tax.[6] However, all group members are jointly and severally liable for any unpaid payroll tax whether or not the member was actually an employer during the relevant period.[7] Latitude is the designated group employer.
  3. [6]
    Previous judicial commentary has noted that the broad application of the grouping provisions addresses potential tax avoidance by employers splitting their payroll over several entities and each claiming the tax-free threshold. The ability to apply to be excluded from a group deals with anomalies that can arise by the broad application.
  4. [7]
    Latitude and five other Opal Group entities, including Lemke Hotels Pty Ltd (‘Lemke Hotels’), applied to the Commissioner of State Revenue (‘the Commissioner’) to be excluded from the Opal Group under the Act.[8] A copy of Latitude’s application[9] and Lemke Hotels’ application[10] were in evidence before me. Both applications requested exclusion as from 1 July 2011.
  5. [8]
    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.[11]
  6. [9]
    The following are mandatory considerations when deciding whether to make an exclusion order:[12]
    1. (a)
      the nature and degree of ownership and control of the businesses carried on by the person and the other members of the group;
    2. (b)
      the nature of the businesses;
    3. (c)
      any other matters the commissioner considers relevant.
  7. [10]
    In considering the nature and degree of ownership and control of the businesses, for the purposes of section 74, a relevant consideration is not only legal ownership but also beneficial ownership.
  8. [11]
    Unlike section 71(2) which is expressed to only apply to section 71, other provisions in Part 4 apply more broadly to Part 4. These include:
    1. (a)
      section 66 of the Act, which defines the term ‘business’ in Part 4. The term includes the carrying on of a trust.[13]
    2. (b)
      section 71(6) of the Act, which provides:

A 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 or 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.

  1. [12]
    I accept that section 74(3)(c), as previously observed:

… confers a discretion to look beyond the specifically mentioned matters to other factors bearing on the existence or absence of independence and connection between the carrying on of the relevant businesses.[14]

  1. [13]
    The Commissioner has issued Public Ruling PTA 031.2 (‘Exclusion Ruling’) in relation to the Commissioner’s discretion to exclude, which outlines a non-exhaustive list of considerations.[15] The Exclusion Ruling is not binding upon the Tribunal.
  2. [14]
    The non-exhaustive list includes:
    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 members of the group;
    2. (b)
      the extent to which members share resources, facilities or services, including premises, staff, management and accounting services;
    3. (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;
    4. (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;
    5. (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;
    6. (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
    7. (g)
      the extent to which there is a connection between the ultimate owners of the employer and other members of the group.
  3. [15]
    The Tribunal[16] has previously accepted that the Exclusion Ruling is consistent with section 74 of the Act and elaborates on ‘any other matters the commissioner considers relevant’.[17]
  4. [16]
    There is no power to make an exclusion order ‘if the person and another body corporate that is a member of the group are related bodies corporate’.[18] It is uncontroversial that Latitude is not a related body corporate to any other corporation in the Opal Group.
  1. [17]
    The Commissioner made an exclusion order in respect of two entities, which formed part of the Opal Group.[19] The Commissioner refused to exclude Latitude and three others from the group by decision dated 9 October 2017 and issued default payroll tax assessments including for penalty tax and unpaid tax interest (‘UTI’).
  2. [18]
    Relevantly the Commissioner:
    1. (a)
      was not satisfied that there was not a continuous course of active and significant relationship, in a business or commercial sense, between the carrying on of the business of Latitude and the businesses conducted by other members of the Opal Group.
    2. (b)
      found that the connections between Latitude and other members of the Opal Group which existed are more than casual, irregular or occasional.
  3. [19]
    On 19 December 2017 Latitude objected to the assessment (‘the Objection’).[20] On 25 July 2018 the Commissioner disallowed the objection (‘the Decision’).[21] Latitude sought the Tribunal’s review of the Decision by filing an Application to review a decision on 21 September 2018.[22]
  4. [20]
    On a review, the Tribunal has power to confirm or amend the decision, set aside the decision and substitute its own or set aside the decision and return it for reconsideration.[23] The Tribunal’s function is to reach the correct and preferable decision after a fresh hearing on the merits.[24] There is no presumption that the decision under review is correct.[25]
  5. [21]
    Under the Taxation Administration Act 2001 (Qld) (‘TA Act’)[26] the Tribunal is required to make its decision on the basis of the material before the Commissioner unless leave to present new evidence is given and upon the same law that applied at the time the decision was made.
  6. [22]
    Latitude sought leave to rely upon additional evidence.[27] The Commissioner did not object. I granted leave at the commencement of the oral hearing, in the interests of justice.
  7. [23]
    On such a review Latitude has the onus of proving its case.[28]
  8. [24]
    An objection to a decision can only be made if it is a decision leading up to or forming part of the process of making an assessment and only as part of an objection to the assessment.[29] Latitude’s objection was directed to the refusal of the Commissioner to exclude it from the Opal Group as well as the consequential assessments.
  9. [25]
    The grounds for review are limited to the grounds of the objection unless the Tribunal otherwise orders.[30]

Is the business of Latitude carried on independently of and not connected with the carrying on of a business carried on by any other member of the group?

  1. [26]
    I am not satisfied that Latitude has established, on the balance of probabilities, that there was a substantial absence of connection and substantial independence between the business carried on by Latitude and the businesses carried on by each other member of the Opal Group during each of the financial years in the period commencing on 1 July 2011 and ending 30 June 2016. I am not satisfied that the connections which existed between Latitude and other members of the Opal Group are no more than casual, irregular or occasional.
  1. [27]
    Latitude contends that it should be excluded from the Opal Group as its business operated substantially independently from all other businesses of the entities that form the Opal Group during the period 1 July 2011 to 30 June 2016. It submits that having regard to the nature and degree of control of the relevant business, the separate and independent nature of the businesses and other relevant factors I should be satisfied that there is no continuous course of active and significant business or commercial relationship between the carrying on of the businesses and that any connections are not material.
  2. [28]
    Alternatively, it contends that it is open to me to find that it should be excluded for various financial years during the period 1 July 2011 to 30 June 2016. The Commissioner submits the Tribunal does not have the power to make such an order.
  3. [29]
    Whether the Tribunal has power to make such an order was the subject of written submissions filed after the two-day oral hearing. Those submissions were filed on 1 November 2019 by Latitude and on 15 November 2019 by the Commissioner. The delay in finalising these proceedings since receipt of the submissions is regrettable and relates to resourcing issues.
  4. [30]
    It is unnecessary for me to make findings about whether the Tribunal has such a power as I am not satisfied that Latitude has discharged its onus in respect of any financial year during the relevant period.
  5. [31]
    Where, as here, the group comprises more than two businesses it is necessary for Latitude to satisfy the statutory test in respect of each other business carried on by a group member.[31]
  6. [32]
    I accept that:

the matters to be taken into account must go to the issue of whether a business carried on by the [Applicant] is carried on substantially independently of and is not substantially connected with the carrying on of a business carried on by [another member of the group].[32]

  1. [33]
    Much of the evidence and submissions focussed upon the businesses operated by Lemke Hotels and businesses operated by Ekmelco Pty Ltd (‘Ekmelco’), particularly in its capacity as trustee of the Lemke Family Settlement Discretionary Trust (‘Trust’).

What is the nature and degree of ownership and control of the businesses carried on by Latitude and other members of the group? What is the nature of the businesses?

Latitude

  1. [34]
    As stated earlier in these reasons Latitude operates two hotels on Thursday Island. The evidence is that Latitude acted as a financier to Lemke Hotels and to the Trust during the relevant period.
  2. [35]
    The nature of the businesses is not required to be the same across all businesses to make a finding of dependence or connectedness.[33]
  3. [36]
    Latitude’s shareholding is as follows:
    1. (a)
      200 shares held by Ekmelco as trustee for the Trust – 33.3%. The beneficiaries of the Trust include Chris and Leigh Lemke and their four children, Jared, Wyatt, Taryn and Danica.[34]
    2. (b)
      200 shares held by Ekmelco as trustee for the Tardan Property Discretionary Trust – 33.3%. The beneficiaries of the trust include Chris and Leigh Lemke’s daughters, Taryn and Danica.[35]
    3. (c)
      100 shares held by Jared Lemke – 16.7%.
    4. (d)
      100 shares held by Wyatt Lemke – 16.7%.
  4. [37]
    The evidence is and I accept that Mrs Leigh Lemke is the sole director of Latitude and she makes the day to day decisions for Latitude.
  1. [38]
    There was a degree of conflict in the evidence of Mrs Leigh Lemke and her husband. Her evidence was that she was the only person who transacted on Latitude’s bank account. However, there is evidence that Mr Chris Lemke and Mrs Leigh Lemke are both signatories to Latitude’s bank accounts[36] and that Mr Chris Lemke transacts on Latitude’s bank account.
  2. [39]
    On balance, I accept that Mr Chris Lemke provides minor assistance to his wife in the operations of Latitude’s business such as in operating a forklift to move stock and on occasions assisting with staffing matters and paying bills through internet banking, if Mrs Lemke requests he do so.[37]
  1. [40]
    Mrs Lemke’s oral evidence was that the forklift was owned by Latitude. The only forklift appearing in depreciation schedules forming part of the financial statements in evidence before me, which I have located, is contained in the Trust’s financial statements.[38] Contrary to Latitude’s submissions that there are no sharing of assets between it and other Opal Group members, it appears that there is minor sharing of this asset between Latitude and the Trust.
  2. [41]
    Latitude contends that Mrs Leigh Lemke makes the strategic decisions for Latitude. There was some conflicting evidence before me. In Latitude’s application for exclusion dated 2 May 2017 it was stated that Chris and Leigh Lemke make the strategic and financial decisions.[39] Mrs Lemke’s oral evidence was that she authorised the answers in the application for exclusion. I accept that Mrs Lemke makes at least some of the strategic and financial decisions.
  3. [42]
    I am not satisfied that the conflict in evidence has been satisfactorily explained.

Lemke Hotels

  1. [43]
    Lemke Hotels operated two hotels during the relevant period.
  2. [44]
    One of the hotels, the Torres Strait Hotel (TSH) is located on Thursday Island. The other hotel was the Railway Hotel, Cairns (Railway Hotel). It ceased operation in late 2015.
  3. [45]
    The evidence is and I accept that during the period 1 July 2011 to 30 June 2016:
    1. (a)
      Mr Jared Lemke and Mr Wyatt Lemke were both directors of Lemke Hotels until 13 January 2016 and since that time Mr Jared Lemke has been the sole director;
    2. (b)
      Mr Jared Lemke was primarily responsible for the day to day operations of the TSH;
    3. (c)
      Mr Wyatt Lemke was primarily responsible for the day to day operations of the Railway Hotel until it ceased operation in about August 2015 due to uneconomic trading;
    4. (d)
      Mr Jared Lemke was not privy to the details of the loan or the loan terms ‘between his brother and his mother’ and did not speak with Mr Ibbotson about matters concerning the Railway Hotel;
    5. (e)
      Mrs Lemke did not sit down with either of her sons to discuss the terms of the loan from Latitude to Lemke Hotels;[40]
    6. (f)
      the amounts lent by Latitude to Lemke Hotels were repaid at times determined by Lemke Hotels;[41]
    7. (g)
      although the businesses carried on by Lemke Hotels are the same type of business as that carried on by Latitude and the TSH is geographically close to the hotels operated by Latitude there were no joint contracts for supply of goods or services;
    8. (h)
      Lemke Hotels’ shareholder is Ekmelco as bare trustee for Jared and Wyatt Lemke.

Ekmelco and the Trust

  1. [46]
    The evidence is and I accept that during the period 1 July 2011 to 30 June 2016:
    1. (a)
      Ekmelco acted as trustee for various trusts, including the Trust, the Tardan Property Discretionary Trust (both of which are shareholders in Latitude) and as bare trustee for Jared and Wyatt Lemke (as shareholder of Lemke Hotels);
    2. (b)
      Mr Chris Lemke and Mrs Leigh Lemke are equal shareholders of Ekmelco;
    3. (c)
      Mr Chris Lemke was the sole director of Ekmelco;
    4. (d)
      Mr Chris Lemke made the day to day and at least some of the strategic and financial decisions for Ekmelco in its roles as trustee;
    5. (e)
      Mr Chris Lemke would discuss major decisions in respect of the Trust with Mrs Leigh Lemke;[42]
    6. (f)
      the Trust acted as a financier to Latitude and to other members of the Opal Group during the relevant period.[43]
  2. [47]
    Ekmelco was under fiduciary duties in undertaking its roles as trustee and Mr Chris Lemke was under fiduciary duties in undertaking his role as director of Ekmelco.
  3. [48]
    By operation of section 71(6) of the Act, each of Mr Chris Lemke and Mrs Leigh Lemke are separately regarded as having a greater than 50% interest in the Trust.
  4. [49]
    There was a degree of conflicting evidence about who makes decisions for Ekmelco and the Trust. The Objection stated that ‘Chris and Leigh Lemke make decisions with respect to Ekmelco Pty Ltd and the Lemke Family Settlement Discretionary Trust.’[44] Mrs Lemke’s evidence was that she had ‘no dealings with or involvement in Ekmelco’ and that she had ‘no involvement with the Lemke Family Settlement Trust on a day to day level or even at a more strategic level’.[45]
  5. [50]
    However, Mrs Lemke’s evidence was that ‘on occasion, monies were needed to be transferred from or to Ekmelco, which I understood to be for the Lemke Family Settlement Trust’.[46]
  6. [51]
    I am not satisfied that the conflict in evidence has been satisfactorily explained.
  7. [52]
    Ekmelco through its director, Mr Chris Lemke, and through its shareholders, Mr Chris Lemke and Mrs Leigh Lemke, was in a position to exercise control over:
    1. (a)
      400 of the 600 shares in Latitude; and
    2. (b)
      all of the shares in Lemke Hotels.
  1. [53]
    Ekmelco was in a position to at least influence each of Latitude and Lemke Hotels, as under the constitutions of each of them, it had a right to increase or decrease the number of directors and to remove or appoint directors to Latitude and Lemke Hotels.
  2. [54]
    I accept that section 74 of the Act requires a consideration of the actual conduct of a business to determine who exercises control.[47]
  3. [55]
    The Commissioner identifies that the businesses in the Opal Group are all owned and controlled by members of a single family comprising parents, Chris and Leigh Lemke, and their adult children, Jared, Wyatt, Taryn and Danica. The Commissioner contends, and I accept, that this is a factor which bears upon the connections between Latitude and certain other members of the Opal Group, discussed later in these reasons.
  4. [56]
    As identified earlier, the evidence is that Mr Chris Lemke is a signatory to Latitude’s bank account.[48] Mr Chris Lemke’s oral evidence was that he would move money around amongst members of the Opal Group to ‘balance the books’ and ensure that unprofitable entities were ‘trading in a solvent manner’.
  5. [57]
    This evidence does not favour exercise of the discretion to make an exclusion order as it suggests during the relevant period:
    1. (a)
      Mr Chris Lemke had control to apply financial resources across the Opal Group to address financial difficulties for entities receiving loans or management fees and ensure the recipient entity was not at risk of insolvent trading;
    2. (b)
      without taking such steps the recipient entities would have had financial difficulties and been at risk of insolvent trading;
    3. (c)
      the withdrawal of the financial support would have placed the recipients in financial difficulty and therefore the amounts were material.
  1. [58]
    I consider the specific connections evidenced by the financial statements.

Are there material or substantial dependencies or connections?

  1. [59]
    I am not satisfied that the dependencies and connections between Latitude and other members of the Opal Group are immaterial, insignificant or inconsequential nor am I satisfied that they are no more than casual, irregular or occasional.
  2. [60]
    There was evidence before me that Latitude would have continued to operate even if the amounts lent by it were not repaid by Lemke Hotels. This evidence appears to rely upon the course of conduct by members of the Opal Group in obtaining funding from other group or family members and by Opal Group members ‘moving money around’ to ensure solvency of other Opal Group members.

Financial connections

  1. [61]
    I am not satisfied that the financial connections between Latitude and:
    1. (a)
      an unidentified entity or entities, apparently a member or members of the Opal Group, in the financial year ending 30 June 2012 constituted by the internal management fee recorded as paid by Latitude, are immaterial, insignificant or inconsequential because there is insufficient evidence to find otherwise.
    2. (b)
      Lemke Hotels in the financial year ending 30 June 2013 are immaterial, insignificant or inconsequential.
    3. (c)
      an unidentified entity or entities, apparently a member or members of the Opal Group, in the financial year ending 30 June 2013 constituted by the internal management fee recorded as paid by Latitude, are immaterial, insignificant or inconsequential because there is insufficient evidence to find otherwise.
    4. (d)
      Lemke Hotels in the financial year ending 30 June 2014 are immaterial, insignificant or inconsequential.
    5. (e)
      an unidentified entity or entities, apparently a member or members of the Opal Group, in the financial year ending 30 June 2014 constituted by the internal management fee recorded as paid by Latitude, are immaterial, insignificant or inconsequential because there is insufficient evidence to find otherwise.
    6. (f)
      Lemke Hotels in the financial years ending 30 June 2015 and 30 June 2016 are immaterial, insignificant or inconsequential.
    7. (g)
      Ekmelco as trustee of the Trust in the financial years ending 30 June 2015 and 30 June 2016 are immaterial, insignificant or inconsequential.
    8. (h)
      an unidentified entity or entities, possibly a member or members of the Opal Group, in the financial years ending 30 June 2012, 30 June 2013, 30 June 2014 and 30 June 2015 constituted by the internal interest paid by Latitude, are immaterial, insignificant or inconsequential because there is insufficient evidence to find otherwise.
  1. [62]
    In view of the number and regularity of the financial connections I am not satisfied that they are no more than casual, irregular or occasional.
  1. [63]
    I accept that not every connection will justify refusing to make an exclusion order. The dependencies or connections with the business of another member of the group must be material, not insignificant or inconsequential.[49]
  2. [64]
    Financial arrangements between group members are relevant as they may indicate that there is a connection or continuous course of active and significant relationship in a business or commercial sense between them.
  3. [65]
    The focus is on:

the “carrying on” of the business: to be relevant, the connection must affect the business in some real or practical sense…..there must be a finding of substantial absence of connection and substantial independence between the businesses to warrant the exercise of the discretion.[50]

  1. [66]
    Latitude contends that the loans provided by it to other group members or received by it from other group members are not such as to justify refusing to make the exclusion order.
  2. [67]
    Crusher Holdings Pty Ltd v Commissioner of Taxes (NT)[51] held that the financial connection was material where the call for repayment of a loan would place the debtor’s business in financial difficulty.
  3. [68]
    The Tribunal has previously accepted that while a loan was a connection it was not a material connection if there is no dependence by the debtor on the loan.[52]
  4. [69]
    Some balance sheets are in evidence before me. By their nature they provide information as to assets and liabilities as at 30 June of the relevant financial year. They do not provide transparency as to transactions occurring during the financial year. The evidence as to the transactions occurring during each of the years is very limited.

Loans between Latitude and Lemke Hotels

  1. [70]
    I am not satisfied that the loans between Latitude and Lemke Hotels in the financial years ending 30 June 2013, 30 June 2014, 30 June 2015 and 30 June 2016 are immaterial, insignificant or inconsequential.
  2. [71]
    Lemke Hotels’ balance sheet and Latitude’s balance sheet record the loans somewhat differently. On the face of the Lemke Hotels’ documents it appears that there are loans to and from Latitude. Latitude contends that there is only one loan being the net amount.
  3. [72]
    The evidence is that entities in the Opal Group engaged the same accountant, Mr Ibbotson. Mr Ibbotson and Mr Jared Lemke, director of Lemke Hotels, gave evidence that Lemke Hotels operated two divisions during the relevant period and the loans were accounted for divisionally but that at an entity level there was one loan. I accept that evidence.
  4. [73]
    Mrs Lemke’s recollections about her instructions to Mr Ibbotson regarding the treatment of loans in the financial statements, including loans from Latitude and to Latitude, were very limited. Her oral evidence was that the loans ‘would have been because of a cashflow issue’ and essentially that she relied upon and trusted Mr Ibbotson implicitly including to determine whether assets and liabilities should be classified as current or non-current.
  5. [74]
    Cashflow issues indicate an issue with working capital to operate the borrower’s business.
  6. [75]
    Latitude submits that there was no loan and therefore no financial connection between it and Lemke Hotels during the year ending 30 June 2012. The balance sheet shows there was no amount owing as at 30 June 2012. Of itself, for the reason stated earlier in these reasons, that does not constitute evidence that there was no loan during the year. Mr Ibbotson gave evidence that there was no loan between Latitude and Lemke Hotels. The basis of this evidence appears to solely rely upon the balances as at 30 June 2012 rather than any other information or knowledge.[53] I have been unable to identify any other evidence supporting this contention. There is little to no evidence as to when amounts were advanced or when amounts were repaid during the relevant period.
  7. [76]
    There is insufficient evidence upon which I can rely to make a finding that there were in fact no transactions between Latitude and Lemke Hotels during the year ending 30 June 2012.
  8. [77]
    Latitude concedes there was no documented loan agreement and contends the amount of the loan was to be repaid. There is some conflicting evidence as to when the loan was repayable, which is not altogether surprising where loans are undocumented. The application for exclusion indicated it was repayable upon sale of the Railway Hotel. Latitude points to the reduction by $367,814 from the balance as at 30 June 2013 to the balance as at 30 June 2014 to contend that this demonstrates it was not repayable on the sale of assets on the closure of the Railway Hotel.
  9. [78]
    Latitude contends that the loan of $27,336 as at 30 June 2014 is not a material connection and notes that although the loan amount increased by 30 June 2015 to $141,441 it was fully repaid by 30 June 2016, so that this is strong evidence of Lemke Hotels’ capacity to repay its loans. It contends that Lemke Hotels was always able to repay the loans, as it did so, which supports a finding that Lemke Hotels was not reliant upon Latitude in not calling in the loan and therefore not dependent upon the loan to operate its business.
  10. [79]
    Latitude contends that the actual repayment was provided by funds personally contributed by Jared and Wyatt Lemke. In my view, this tends to indicate that the Lemke Hotels’ business was dependent upon the loan(s) as the loaned funds were not repaid from the business’ funds but rather from alternative sources. Repayment from funds contributed by Jared and Wyatt Lemke is consistent with the business experiencing cashflow issues and raises doubt as to whether Lemke Hotels’ business was capable of servicing the loan(s) without recourse to alternative sources.
  11. [80]
    Latitude contends that the financial connections in 2014 and 2015 did not create a material financial dependency given the entities’ turn over and actual net asset position rather than the balance sheet book value net asset position.[54] It points to the actual values of Lemke Hotels’ property in particular, the market value of the freehold commercial property as being greater than the book value and submits this would have enabled Lemke Hotels to refinance.
  12. [81]
    The only evidence of ‘market value’ before me is a schedule prepared for the purpose of providing to external lenders by Mr Ibbotson upon instructions from Mr Chris Lemke ‘sometime after the 2014 financial year end’.[55] The document appears to be dated October 2014. Mr Ibbotson states that it reflects the estimated market value at the time it was prepared.[56] His recollection is that the financial institutions, which were provided with the schedule, did not raise any issues with the valuations adopted.[57] This evidence is vague and is not particularly persuasive. Mr Ibbotson provides no detail as to the process by which the estimates were reached. Whilst I accept Mr Ibbotson is an experienced accountant there is no evidence before me as to his expertise in valuing freehold property.
  13. [82]
    Even if I accept that the actual net asset position was greater than the book value, about which there may be some doubt given the state of the ‘valuation’ evidence, this proposition relies upon the Lemke Hotels’ business substituting the loan(s) from Latitude with funds obtained from an alternative source.[58]
  14. [83]
    Much of the evidence related to loans between Latitude and Lemke Hotels. Mr Jared Lemke, a director of Lemke Hotels, gave evidence that his focus was on the management of the TSH and his brother, Mr Wyatt Lemke, the then other director of Lemke Hotels, focused on the management of the Railway Hotel in Cairns until it ceased operation in 2015. The evidence was that the Railway Hotel caused an economic drain on the cash reserves of Lemke Hotels and that the loans from Latitude were primarily in respect of the Railway Hotel. Despite these loans being primarily in respect of the Railway Hotel, Mr Wyatt Lemke did not give evidence in these proceedings.
  15. [84]
    Mr Ibbotson conceded that Lemke Hotels required cashflow support in 2014 and 2015 to continue its business. I accept Mr Ibbotson’s evidence in this regard.
  16. [85]
    Latitude points to the financial resources of other entities within the group and the personal financial resources of Mr Chris Lemke and Mrs Leigh Lemke and their sons and contends that as other sources of funds either from within the group or the family or externally could have been obtained to repay the loans to Latitude this supports a finding that the financial connections were not a dependency.
  17. [86]
    I am not satisfied that just because there were other hypothetical transactions, which could have been undertaken, but were not, that this lessens the materiality of the actual financial connections between the businesses.
  18. [87]
    The test applied in Shadforth[59] was whether the business could have repaid the loans from its own funds.
  19. [88]
    The evidence is that:
    1. (a)
      the total loan amount as at 30 June 2013, recorded as a non-current asset in Latitude’s accounts,[60] from Latitude to Lemke Hotels was $394,150. The loan was recorded as a current liability in Lemke Hotels’ accounts.[61] The loan was not insignificant or inconsequential compared to Latitude’s net profit after tax of $121,808[62] nor Lemke Hotels’ net profit after tax of $119,040.[63] The loan is also significant compared to Lemke Hotels’ net assets of ($100,201).[64] I am not satisfied Lemke Hotels would have been able to repay the amount owing from its own funds if Latitude had called for repayment. I find this connection was material.
    2. (b)
      the total loan amount as at 30 June 2014, recorded as a non-current asset in Latitude’s accounts,[65] from Latitude to Lemke Hotels was $27,336. The loan was recorded as a current liability in Lemke Hotels’ accounts, when the recorded amounts were netted off.[66] The loan was not entirely insignificant or inconsequential compared to Latitude’s net profit after tax of $150,173[67]and when compared to Lemke Hotels’ loss from ordinary activities of $59,069[68] and operating deficit after income tax of $63,382.[69] It remains so even when taking into account Lemke Hotels’ non-cash expense of depreciation, which on my calculation is $126,527.[70] The loan is also significant compared to Lemke Hotels’ net assets of ($163,584).[71] Although Lemke Hotels may have been able to repay the amount owing as at 30 June from its own funds if Latitude had called for repayment, it is likely this would have caused difficulties. In any event, given the lack of detail in the evidence as to the amounts of advances and repayments and when they were made, I am not satisfied that the 30 June balance necessarily reflects the magnitude of the connection during the year. I am not satisfied that Latitude has discharged its onus to satisfy me that the connection in this year was immaterial.
    3. (c)
      the total loan amount as at 30 June 2015, recorded as a non-current asset in Latitude’s accounts,[72] from Latitude to Lemke Hotels was $141,441. The loan was recorded as a current liability in Lemke Hotels’ accounts, when the recorded amounts were netted off.[73] It was not entirely insignificant or inconsequential compared to Latitude’s net profit after tax of $649,136[74] and was not insignificant or inconsequential when compared to Lemke Hotels’ loss from ordinary activities of $59,439[75] and operating deficit after income tax of $80,087.[76] It remains so even when taking into account Lemke Hotels’ non-cash expense of depreciation, which on my calculation is $112,940.[77] The loan is also significant compared to Lemke Hotels’ net assets of ($243,669).[78] I am not satisfied Lemke Hotels would have been able to repay the amount owing from its own funds if Latitude had called for repayment. I find this connection was material.
    4. (d)
      the total loan amount as at 30 June 2016 from Latitude to Lemke Hotels was nil.[79] This is evidence that at least the previous year’s balance of $141,441 had been repaid during the year. As stated earlier in these reasons, balance sheets do not provide transparency of transactions during the year and do not reveal whether additional amounts were advanced during the year but repaid by 30 June. I am not satisfied that the movement of the 30 June balances necessarily reflects the magnitude of the connection. Final financial statements for Lemke Hotels are in evidence before me.[80] The loan repayment of at least $141,441 was not insignificant when compared to Lemke Hotels’ loss from ordinary activities of $652,416[81] and remains so when taking into account the capital loss adjustment of $656,060 and Lemke Hotels’ non-cash expense of depreciation, which on my calculation is $106,581.[82] The loan repayment is also significant compared to Lemke Hotels’ net assets of ($875,439).[83] Although Lemke Hotels was able to repay the amount owing, the evidence is that it did not do so from its own funds. I am not satisfied Lemke Hotels would have been able to repay the $141,441 from its own funds. I find this connection was material.
  20. [89]
    Even if I was satisfied that the loan(s) as evidenced by balances as at 30 June in a particular year were immaterial, the changing loan balances evidence a continuing course of active and significant relationship in a business or commercial sense.
  21. [90]
    These transactions weigh against the exercise of the discretion to make an exclusion order.

Loans between Latitude and Ekmelco as trustee for the Trust

  1. [91]
    I am not satisfied that the loans between Latitude and Ekmelco as trustee for the Trust in the financial years ending 30 June 2013, 30 June 2014, 30 June 2015 and 30 June 2016 are immaterial, insignificant or inconsequential.
  2. [92]
    Latitude contends that it could have obtained loan funds from sources other than the Trust, so it was not dependent upon the loans made. It also contends that the Trust could have sourced loan funds from sources other than Latitude. For the reasons stated above, I am not satisfied that this detracts from a consideration of the actual financial connections. There is little evidence as to the terms of the loans between Latitude and the Trust and the amounts of advances and repayments and when they were made.
  3. [93]
    The evidence is that:
    1. (a)
      in the financial year ending 30 June 2013 Latitude had a need for cashflow and obtained a not insignificant loan from the Trust, as set out below.
    2. (b)
      the total loan amount as at 30 June 2013 to Latitude from the Trust was $514,606. The loan was recorded as a non-current asset in the Trust’s accounts and a non-current liability in Latitude’s accounts.[84] The loan was not insignificant compared to the Trust’s net profit before tax of $1,077,420[85] and significantly exceeded Latitude’s net income after tax of $121,808.[86] It remains significant when taking into account Latitude’s non-cash expense of depreciation, which on my calculation was $56,908.[87] For the year ended 30 June 2013 the majority of the Trust’s gross income was derived from internal management fees and internal interest.[88] I am not satisfied Latitude would have been able to repay the amount owing from its own funds if the Trust had called for repayment. I find this connection was material.
    3. (c)
      the total loan amount as at 30 June 2013 from Latitude to Lemke Hotels, which also had a need for cashflow, was $394,150.[89] Mrs Lemke’s oral evidence was that she ‘didn’t know’ whether Latitude would have been able to make the loan to Lemke Hotels if Latitude had not received the loan from the Trust. I am not satisfied that Latitude would have been able to make the loan to Lemke Hotels if it had not received loan funds from the Trust.
    4. (d)
      the total loan amount to Latitude from the Trust as at 30 June 2014, recorded as a non-current liability,[90] was $204,998. The loan was not insignificant compared to the Trust’s net profit before tax of $331,434[91] and exceeded Latitude’s net income after tax of $150,173.[92] It remains significant when taking into account Latitude’s non-cash expense of depreciation, which on my calculation was $71,966.[93] Although Latitude may have been able to repay the amount owing as at 30 June from its own funds if the Trust had called for repayment, it is likely this would have caused difficulties. In any event, given the lack of detail in the evidence as to the amounts of advances and repayments and when they were made, I am not satisfied that the 30 June balance necessarily reflects the magnitude of the connection. I am not satisfied that Latitude has discharged its onus to satisfy me that the connection in this year was immaterial.
    5. (e)
      in the financial year ending 30 June 2015 Latitude had repaid at least the previous year’s balance of the loan from the Trust and had advanced a not insignificant loan to the Trust.
    6. (f)
      the total loan amount as at 30 June 2015, recorded as a non-current asset, from Latitude to the Trust was $850,488.[94] The loan exceeded Latitude’s net income after tax of $649,136[95] and significantly exceeded the Trust’s net profit before tax of $383,566.[96] It remains significant when taking into account the Trust’s non-cash expense of depreciation, which was only $7,900.[97] For the year ended 30 June 2015 the majority of the Trust’s gross income was derived from internal management fees and internal interest.[98] I am not satisfied the Trust would have been able to repay the amount owing from its own funds if Latitude had called for repayment. I find this connection was material.
    7. (g)
      the loan amount as at 30 June 2016 from Latitude to the Trust was $815,184, which is not insignificant when compared to Latitude’s net income after tax of $1,188,825. The loan exceeded the Trust’s net profit before tax of $522,973.[99] It remains significant when taking into account the Trust’s non-cash expense of depreciation, which was only $6,273.[100] I am not satisfied the Trust would have been able to repay the amount owing from its own funds if Latitude had called for repayment. I find this connection was material.
  4. [94]
    Even if I was satisfied that the loans as evidenced by balances as at 30 June in a particular year were immaterial, the changing loan balances evidence a continuing course of active and significant relationship in a business or commercial sense.
  5. [95]
    These transactions weigh against the exercise of the discretion to make an exclusion order.

Management fees

  1. [96]
    I am not satisfied that internal management fees recorded as paid by Latitude:
    1. (a)
      to an unidentified entity or entities, apparently a member or members of the Opal Group, in the financial years ending 30 June 2012, 30 June 2013 and 30 June 2014 are immaterial, insignificant or inconsequential because there is insufficient evidence to find otherwise. There is no specific evidence as to the identity nor the financial position of the recipient to allow a determination of the materiality of the transaction to the recipient.
    2. (b)
      to the Trust in the financial year ending 30 June 2015 are immaterial, insignificant or inconsequential.
    3. (c)
      in four consecutive years could be said to be no more than casual, irregular or occasional connections.
  2. [97]
    The copies of financial statements in evidence before me showed, in addition to intra-group loans, transactions described as internal management fees. In some group entities internal management fees were treated as expenses and in others they were treated as revenue. Mr Ibbotson’s oral evidence, as I understand it, is that at least some, if not all of these transactions, were recorded by way of journal entries rather than an actual transfer of cash. The oral evidence was that in fact no services were performed for these fees. This was ‘a way of balancing the books’ and ensuring that entities were ‘trading in a solvent manner’ even when they may not have been.[101]
  3. [98]
    The evidence is that Latitude recorded that it paid internal management fees in the financial years ending 30 June 2012,[102] 2013,[103] 2014[104] and 2015.[105]
  4. [99]
    Given that there were no actual services provided to Latitude in consideration for the management fees it seems likely that the recipients were businesses operated by members of Mrs Lemke’s family and quite possibly members of the Opal Group.
  1. [100]
    In 2012, Latitude recorded that it paid $150,000 to an unidentified entity or entities, possibly an unidentified group member or members, which on any view was very significant compared to Latitude’s profit from ordinary activities before tax of $10,747 and the operating loss after income tax of $4,867[106] and remains significant even when factoring in Latitude’s non-cash expense of depreciation, which on my calculation amounted to $38,082.[107] The payment is also significant compared to Latitude’s net assets of ($4,267).[108] I find the payment was material. It put the business into a loss after tax had been paid.
  2. [101]
    I am not satisfied that this financial connection in the financial year ending 30 June 2012 is immaterial, insignificant or inconsequential nor am I satisfied that the recipient was not another member of the Opal Group as there is insufficient evidence before me.
  3. [102]
    In 2013, Latitude recorded that it paid $120,000 to an unidentified entity or entities, possibly an unidentified group member or members, which was significant compared to its profit from ordinary activities before tax of $176,988 and the net profit after income tax of $121,808[109] and remains significant even when factoring in Latitude’s non-cash expense of depreciation, which on my calculation amounted to $56,908.[110] The payment is also significant compared to Latitude’s net assets of $117,541.[111]
  4. [103]
    I am not satisfied that this financial connection in the financial year ending 30 June 2013 is immaterial, insignificant or inconsequential nor am I satisfied that the recipient was not another member of the Opal Group as there is insufficient evidence before me.
  5. [104]
    In 2014, Latitude recorded that it paid $320,000 to an unidentified entity or entities, possibly an unidentified group member or members, which was very significant compared to its profit from ordinary activities before tax of $233,382 and the net profit after income tax of $150,173[112] and remains significant even when factoring in the non-cash expense of depreciation, which on my calculation amounted to $71,966.[113] The payment is also significant compared to Latitude’s net assets of $267,714.[114]
  6. [105]
    I am not satisfied that this financial connection in the financial year ending 30 June 2014 is immaterial, insignificant or inconsequential nor am I satisfied that the recipient was not another member of the Opal Group as there is insufficient evidence before me.
  1. [106]
    In respect of the years ending 30 June 2012 to 30 June 2014, Latitude has failed to discharge its onus that these connections were not with other Opal Group members and do not meet the materiality test.
  2. [107]
    In 2015, Latitude recorded that it paid $240,000, which was not insignificant compared to its profit from ordinary activities before tax of $900,542[115] and the net profit after income tax of $649,136[116] and remains not insignificant even when factoring in Latitude’s non-cash expense of depreciation, which on my calculation amounted to $82,541.[117] The payment is also not insignificant compared to Latitude’s net assets of $916,849.[118]
  3. [108]
    Although the financial statements do not identify the recipient, Latitude concedes that it paid the $240,000 management fee to the Trust.[119] Mr Chris Lemke’s evidence was that the Trust was the recipient of these fees.[120]
  1. [109]
    The internal management fees received by the Trust were not insignificant compared to the Trust’s profit from ordinary activities before tax of $383,566 and remain not insignificant even when factoring in the Trust’s non-cash expense of depreciation, which amounted to only $7,900.[121]
  2. [110]
    Latitude has attempted to describe the 2015 management fee as a distribution of profit. However, the evidence shows that it was reported as wages as were the other internal management fee payments in response to the Commissioner’s enquiry as to wages paid.[122]
  3. [111]
    Latitude has failed to discharge its onus that the ‘payments’ of management fees were not material business transactions between Latitude and other group members. I am not satisfied that the financial connection between Latitude and the Trust in the financial year ending 30 June 2015 is immaterial, insignificant or inconsequential.
  4. [112]
    Mr Chris Lemke gave evidence about certain internal management fees paid to the Trust from members of the Opal Group.[123] From a review of the Trust’s Financial statements in evidence before me the level of management fees recorded as received varied considerably from year to year and were greater in years when other sources of income were lower.[124] This is consistent with Mr Chris Lemke’s evidence that he moved money around to ensure entities were trading solvently.
  5. [113]
    The evidence in relation to management fees ‘paid’ by Latitude does not favour exclusion as it suggests during the relevant period:
    1. (a)
      Mr Chris Lemke or Mrs Leigh Lemke on advice from Mr Ibbotson, had control to apply financial resources to address financial difficulties for entities in the Opal Group by paying or recording the payment of management fees to ensure the recipient entity was not at risk of insolvent trading;
    2. (b)
      without taking such steps the recipient entities would have had financial difficulties and been at risk of insolvent trading;
    3. (c)
      the withdrawal of the financial support would have placed the recipients in financial difficulty and therefore the amounts were material.
  1. [114]
    These regular financial connections weigh against the exercise of the discretion to make an exclusion order.

Interest

  1. [115]
    I am not satisfied that transactions between Latitude and other entities, possibly Opal Group members, which resulted in Latitude paying ‘internal’ interest in the years ending 30 June 2012, 30 June 2013, 30 June 2014 and 30 June 2015 are immaterial, insignificant or inconsequential.
  2. [116]
    The copies of Latitude’s financial statements in evidence before me show that Latitude incurred both ‘internal’ and ‘external’ interest expenses during the relevant period. Internal interest expenses were stated to be $48,682 for the financial year ending 30 June 2012,[125] $89,662 for the financial year ending 30 June 2013,[126] $152,014 for the financial year ending 30 June 2014[127] and $148,365 for the financial year ending 30 June 2015.[128]
  3. [117]
    It is difficult to reconcile these expenses with the loan(s) from the Trust, which were in evidence. Expenses in the financial statements provide some transparency as to transactions, which occurred during a year and are presented as a cumulative amount of those transactions whereas loan balances provide information only as at 30 June.
  4. [118]
    The copies of Latitude’s financial statements in evidence before me show no interest income entries in respect of the loans to Lemke Hotels or the Trust.
  5. [119]
    In 2014, Latitude paid $152,014 in internal interest, which was significant compared to its profit from ordinary activities before tax of $233,382 and the net profit after income tax of $150,173 and remains significant even when factoring in the non-cash expense of depreciation, which on my calculation amounted to $71,966. There is insufficient evidence as to the identity of the entity to which the interest was paid to allow a determination of materiality to the recipient.
  6. [120]
    In 2015, Latitude paid $148,365 in internal interest, which was not insignificant compared to its profit from ordinary activities before tax of $900,542 and the net profit after income tax of $649,136 and remains not insignificant even when factoring in the non-cash expense of depreciation, which on my calculation amounted to $82,541. There is insufficient evidence as to the identity of the entity to which the interest was paid to allow a determination of materiality to the recipient.
  7. [121]
    These unexplained transactions weigh against the exercise of the discretion to make an exclusion order.

Accounting services

  1. [122]
    This is a factor which weighs against the exercise of the discretion to make an exclusion order.
  2. [123]
    One of the factors listed in the Commissioner’s Exclusion Ruling is the extent to which members of the group share accounting services.
  3. [124]
    Latitude submits, and I accept, that it does not pay for other entities’ accounting fees. I accept that such a commonality of itself would not be sufficient to justify refusing an exclusion order. However, the nature of the services provided, and the way Mr Ibbotson provided the services are in my view a relevant consideration.
  4. [125]
    Mrs Lemke’s recollections about her instructions to Mr Ibbotson regarding completing the Application for exclusion, the loans from Latitude and to Latitude and the management fees ‘paid’ by Latitude were very limited. Her oral evidence was that she relied upon and trusted Mr Ibbotson implicitly.
  5. [126]
    Mr Ibbotson’s oral evidence was essentially because of his overview of the financial positions of each entity that he could see where there was a need for cash and he would make recommendations to relevant directors that they should make or arrange loans or pay or receive management fees and he would prepare journal entries.
  6. [127]
    In my view, this sharing of a common professional advisor reflects in the carrying on of the businesses within the Opal Group as without it, entities may have been insolvent trading and may not have been able to continue to carry on business for lack of working capital. As noted earlier in these reasons working capital has previously been accepted by the Tribunal as relevant to the carrying on of a business.[129]
  7. [128]
    His evidence is that he prepared the financial statements based on the transactions including the loans shown in each entity’s bank statements. Whilst his recollection was not clear, his evidence was that the loan as between Latitude and Lemke Hotels was advanced over time in a number of instalments rather than in one or a few large amounts.
  8. [129]
    The use of a common professional accounting advisor in these circumstances weighs against the exercise of the discretion to make an exclusion order.

Summary

  1. [130]
    I am not satisfied that there was not a continuous course of active and significant relationship in a business or commercial sense between the carrying on of the business of Latitude and the businesses of other Group members.
  2. [131]
    The financial connections between the businesses appear to demonstrate decision making at a strategic level and connections between the businesses which are not immaterial, insignificant or inconsequential and which are more than casual, irregular or occasional created by a common ownership and control. Latitude has failed to discharge its onus to demonstrate otherwise.

Should there be remission of penalty tax and unpaid tax interest (‘UTI’)?

  1. [132]
    I am not satisfied that any further remission of penalty tax and UTI should be made.
  2. [133]
    Latitude contends that penalty tax and UTI should be remitted as:
    1. (a)
      Latitude has a good compliance history in respect of other taxes, engaged advisors and relied upon them for the proper conduct and compliance of its tax responsibilities;
    2. (b)
      Mrs Lemke did not discuss payroll matters with other family members and was not involved in other entities’ businesses to be aware of other entities’ payroll information and believed Latitude did not have to pay payroll tax because its wages were less than the threshold amount and it operated its business separately from other businesses operated by her husband and sons.[130]
  3. [134]
    Latitude objected to the imposition of penalty tax and UTI as it contended that the default assessments ought not to have been made because Latitude ought to have been excluded and no payroll tax liability ought to arise. Latitude points to the Objection particularly at [18].[131] It submitted that both penalty tax and UTI ought to have been remitted to nil or a lesser amount than assessed, stating:
  1. (a)
    The Taxpayers have co-operated fully with the investigation, and frankly disclosed all relevant and material items in the investigation;
  2. (b)
    The Taxpayers’ directors are not tax experts and have diligently sought to apply the payroll tax laws correctly to the best of their knowledge and ability and cannot be expected, as lay people, to know all the complexities of the payroll tax laws.
  3. (c)
    The Taxpayers have a good tax compliance history and had no intention to avoid tax and have not shown any disregard for the payroll tax laws.
  1. [135]
    Where the Commissioner makes a default assessment penalty tax must be imposed at a rate of 75% of the payroll tax assessed. [132]
  2. [136]
    The Commissioner may remit penalty tax fully or in part.[133]
  3. [137]
    Public Ruling TAA060.2.4[134] sets out information as to the manner in which the Commissioner will determine whether or not to remit penalty tax and the extent of the remission. Factors to be considered include the nature and extent of the taxpayer’s culpability, the complexity of the issues, attempts by the taxpayer to comply, processes in place to ensure compliance, the nature and circumstances of any voluntary disclosure, the level of co-operation and previous compliance history. The Commissioner contends that Latitude’s conduct falls within Category 2 case B, being a failure to comply due to carelessness or recklessness or by not taking reasonable care to determine its liability and meet its obligations and remitted the penalty tax from 75% to 25%.[135]
  4. [138]
    Category 1 sets out the circumstances where the Commissioner will consider remitting penalty tax in full. Essentially there must be circumstances beyond the taxpayer’s control, or the taxpayer must demonstrate that it took reasonable care to comply with its tax obligations and has not intentionally disregarded the tax laws. The Ruling sets out matters to be considered in determining whether reasonable care was taken.[136]
  5. [139]
    There is insufficient evidence before me to make any findings as to the income tax or other tax consequences of the treatment of management fees as an expense in Latitude’s accounts, where there were no services actually received in return.
  6. [140]
    UTI is imposed on the amount of payroll tax payable and unpaid from time to time.[137]
  7. [141]
    The Commissioner may also remit UTI fully or in part.[138]
  8. [142]
    Public Ruling TAA060.1.7[139] sets out information as to remission of UTI. The Public Ruling sets out relevant considerations including:[140]
    1. (a)
      the circumstances that caused the delay in payment and actions taken to mitigate the circumstances;
    2. (b)
      the actions taken by the taxpayer to inform themselves and comply with their obligations;
    3. (c)
      the extent to which the circumstances giving rise to the imposition of UTI were within the taxpayer’s control;
    4. (d)
      whether the circumstances giving rise to the imposition of UTI were due to the Commissioner’s delay or error;
    5. (e)
      whether remission of UTI would provide an unfair advantage over other taxpayers in similar circumstances.
  9. [143]
    Interest is imposed to encourage payment of tax on time and compensate for the period the tax has been unpaid.
  10. [144]
    Latitude contends that taking into account all the facts and circumstances I should be satisfied that reasonable care was taken and that it is reasonable to remit all or a greater part of the penalty tax and UTI. It is submitted that Latitude retained professional advisers to assist it in dealing with its tax and other regulatory obligations.
  11. [145]
    Mrs Lemke’s oral evidence was that she did not specifically ask Mr Ibbotson for payroll tax advice.
  12. [146]
    Mr Chris Lemke’s evidence was that prior to the Commissioner’s investigation he was aware of payroll tax and considered payroll tax would not have been payable as Latitude’s wages would have been below the minimum threshold and the business was operated separately from his businesses.[141]
  13. [147]
    Latitude contends such a conclusion was reasonable in the circumstances.
  14. [148]
    Latitude points to complexity of the law and contends that they are difficult for business owners and advisers to comprehend. Observations as to the level of complexity of grouping provisions, which are substantially similar to those in the Act, have been made in other jurisdictions.[142] I accept they are quite complex.
  15. [149]
    The evidence is that by correspondence dated 5 February 2016, the Commissioner requested Outback Opal Mine Pty Ltd to review the grouping structure to ensure payroll registrations were accurate and requested a response by 26 February 2016. The matter was referred for compliance activity as no response had been received by 27 June 2016.
  16. [150]
    There is little to no evidence as to Latitude’s attempts to inform itself and to comply with its tax obligations prior to the Commissioner’s correspondence in 2016. There is no specific evidence before me about any processes Latitude had in place to ensure compliance with its payroll tax obligations. There is no evidence before me that Latitude specifically asked any professional advisor for payroll tax advice prior to the Commissioner’s correspondence in 2016.
  17. [151]
    The application for exclusion was clearly made in response to the investigation.
  18. [152]
    I am not satisfied that Latitude took reasonable care to determine its payroll tax liability and meet its obligations.
  19. [153]
    The Tribunal has accepted that:[143]

some circumstances, other than ignorance of the law, must have caused delay in payment of the tax liability so as to justify remission. There is no evidence of any such circumstances.

  1. [154]
    I am not satisfied that any further remission of either penalty tax or UTI would be appropriate; to do so would be unfair to taxpayers who take reasonable care to self-assess their liability correctly.

Summary

  1. [155]
    For the reasons set out above, I confirm the Decision.
  2. [156]
    The Application to review the Decision is therefore dismissed.

Footnotes

[1]Exhibit 13.

[2]Payroll Tax Act 1971 (Qld), s 9 – s 11 (‘the Act’).

[3]Ibid, s 12.

[4]Ibid, s 29(1) (definition of ‘annual payroll tax amount’).

[5]Ibid, s 33 (definition of ‘annual payroll tax amount’ for the designated group employer for a group).

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

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

[8]Ibid, s 74.

[9]Exhibit 6, Tab 48. A copy was extracted and appeared in the Bench Folder, commencing at p70.

[10]Exhibit 6, Tab 49. A copy was extracted and appeared in the Bench Folder, commencing at p81.

[11]The Act, s 74(2).

[12]Ibid, s 74(3).

[13]The Act, s 66 (definition of ‘business’ para (d)).

[14]Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242, [26].

[15]Exhibit 8, Tab 160, [10] and [11].

[16]Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue [2019] QCAT 199, [17].

[17]The Act, s 74(3)(c).

[18]Ibid, s 74(4).

[19]Exhibits 14 and 15.

[20]Taxation Administration Act 2001 (Qld), s 63 (‘TA Act’). A copy of the Objection forms Exhibit 6, Tab 24. A copy was extracted and appeared in the Bench Folder, commencing at p17.

[21]A copy of the Decision forms Exhibit 6, Tab 1. A copy was extracted and appeared in the Bench Folder, commencing at p1.

[22]TA Act, s 69(2).

[23]Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 24 (‘QCAT Act’).

[24]Ibid, s 20.

[25]Kehl v Board of Professional Engineers of Queensland [2010] QCATA 58, [9].

[26]TA Act, s 71(3).

[27]Affidavit of Christopher Lemke (Exhibit 1), Affidavit of Leigh Lemke (Exhibit 2), Affidavit of Jared Lemke (Exhibit 3) and Affidavit of Philip Ibbotson (Exhibit 4) all filed 28 June 2019 and affidavit of Christopher Lemke (Exhibit 5) filed 23 August 2019.

[28]TA Act, s 73.

[29]Ibid, s 63(4).

[30]Ibid, s 71(2).

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

[32]Crusher Holdings Pty Ltd v Commissioner of Taxes (NT) (1994) 29 ATR 156, 166.

[33]Toveety Maintenance Services Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 137, [49].

[34]Exhibit 8, Tab 142. A copy was extracted and appeared in the Bench Folder at p 287.

[35]Exhibit 8, Tab 139.

[36]Latitude’s application for exclusion dated 2 May 2017, Exhibit 6, Tab 48. A copy was extracted and appeared in the Bench Folder at p 78.

[37]Exhibit 1, p 10 and p 13.

[38]Exhibit 1, CML6, p 134, p 156 and p 176.

[39]Exhibit 6, Tab 48. A copy was extracted and appeared in the Bench Folder at p 77.

[40]Exhibit 2, p12.

[41]Ibid.

[42]Exhibit 1, p 16. Exhibit 2, p 5.

[43]Exhibit 1, CML6. A copy was extracted and appeared in the Bench Folder at p 313, p 335.

[44]Exhibit 6, Tab 24. A copy was extracted and appeared in the Bench Folder at p 26, [12](k).

[45]Exhibit 2, p 5.

[46]Exhibit 2, p 12.

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

[48]Exhibit 1.

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

[50]Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42, [50] – [51].

[51](1994) 29 ATR 156.

[52]Shadforth Lythgo Pty Ltd v Commissioner of State Revenue [2016] QCAT 539.

[53]Exhibit 4, [28], [29].

[54]Tab 124. A copy is extracted and appeared in the Bench Folder commencing at p169.

[55]Exhibit 4, [46] and PAI 3.

[56]Exhibit 4, [48].

[57]Exhibit 4, [50].

[58]The notes to the financial statements, note 1 (c) sets out that the accounting policies adopted by the directors of Lemke Hotels are that the property plant and equipment are carried at cost, independent or director’s valuation and that any increase in the carrying value on revaluation is credited to a revaluation reserve in shareholder’s equity. The evidence is that the value of the freehold properties recorded remained the same as at 30 June for each of 2012, 2013, 2014 and 2015 and that no revaluation reserve is recorded in shareholder’s equity. See Exhibit 7, Tab 124 and Tab 127. A copy was extracted and appeared in the Bench Folder commencing at p 169 and p 207 respectively. The evidence is that the value of the freehold for the Railway Hotel was reduced significantly as at 30 June 2016 and the value of the TSH remained unchanged. See Exhibit 3, JML 1, p 82.

[59][2016] QCAT 539, [85], [86].

[60]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 251. The loan is recorded as being entirely to the Railway Hotel. Mr Ibbotson’s evidence was that a non-current liability was one that was not expected to be repaid within 12 months from the balance date. A non-current asset therefore is one not expected to be received within 12 months from the balance date.

[61]Exhibit 7, Tab 127. A copy was extracted and appeared in the Bench Folder at p 216. Mr Ibbotson’s evidence was that a current liability was one that was expected to be repaid within 12 months from the balance date.

[62]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 249.

[63]Exhibit 7, Tab 127. A copy was extracted and appeared in the Bench Folder at p 213.

[64]Exhibit 7, Tab 127. A copy was extracted and appeared in the Bench Folder at p 217. Figures in brackets indicate a negative value.

[65]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 157. The amount is split into a loan to TSH in the amount of $2,428 and to the Railway Hotel in the amount of $24,908.

[66]Exhibit 7, Tab 124. A copy was extracted and appeared in the Bench Folder at p 176 and p 178.

[67]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p155.

[68]Exhibit 7, Tab 124. A copy was extracted and appeared in the Bench Folder at p174.

[69]Exhibit 7, Tab 124. A copy was extracted and appeared in the Bench Folder at p175.

[70]Exhibit 7, Tab 124. A copy was extracted and appeared in the Bench Folder at p 172 and p 173.

[71]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 179.

[72]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p157. The amount is split into a loan to Lemke Hotels in the amount of $17,043, TSH in the amount of $24,591 and to the Railway Hotel in the amount of $99,807.

[73]Exhibit 7, Tab 124. A copy was extracted and appeared in the Bench Folder at p 176 and p 178.

[74]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p155.

[75]Exhibit 7, Tab 124. A copy was extracted and appeared in the Bench Folder at p174.

[76]Exhibit 7, Tab 124. A copy was extracted and appeared in the Bench Folder at p175.

[77]Exhibit 7, Tab 124. A copy was extracted and appeared in the Bench Folder at p 172 and p 173.

[78]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 179.

[79]Exhibit 2, LAL 2. A copy was extracted and appeared in the Bench Folder at p 377.

[80]Exhibit 3, JML 1, commencing at p 75.

[81]Exhibit 3, JML 1, p 79.

[82]Exhibit 3, JML 1, p 78. If not for the capital loss adjustment on my calculation the net profit before tax would have been only $3,644.

[83]Ibid, p 80.

[84]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 252.

[85]Exhibit 1, CML6. A copy was extracted and appeared in the Bench Folder at p 311.

[86]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 249.

[87]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 246.

[88]Exhibit 1, CML6. A copy was extracted and appeared in the Bench Folder at p 311. Total income was $1,423,516, including $950,000 from internal management fees and $173,141 from internal interest.

[89]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 251.

[90]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p158.

[91]Exhibit 1, CML6. A copy was extracted and appeared in the Bench Folder at p 333.

[92]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p155.

[93]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 153.

[94]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p157.

[95]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p155.

[96]Exhibit 1, CML6. A copy was extracted and appeared in the Bench Folder at p 333.

[97]Exhibit 1, CML6. A copy was extracted and appeared in the Bench Folder at p 333.

[98]Exhibit 1, CML6. A copy was extracted and appeared in the Bench Folder at p 333. Total income was $531,280, including $262,000 from internal management fees and $56,568 from internal interest.

[99]Exhibit 1, CML6. A copy was extracted and appeared in the Bench Folder at p 353.

[100]Exhibit 1, CML6. A copy was extracted and appeared in the Bench Folder at p 333.

[101]Oral evidence of Mr Chris Lemke, 10 October 2019.

[102]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 247.

[103]Ibid.

[104]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 154.

[105]Ibid.

[106]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 249.

[107]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 246.

[108]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 252.

[109]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 249.

[110]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 246.

[111]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 252.

[112]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 155.

[113]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 153.

[114]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 159.

[115]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 154.

[116]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 155.

[117]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 153.

[118]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p 159.

[119]Submissions in Reply, [119].

[120]Exhibit 5, [8].

[121]Exhibit 1, CML6. A copy was extracted and appeared in the Bench Folder at p 333.

[122]Exhibit 6, Tab 66 and Exhibit 8, Tab 147. A copy of the latter was extracted and appeared in the Bench Folder at p 300.

[123]Exhibit 5.

[124]Exhibit 5, CML6, p 123, p 145 and p 165.

[125]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 247.

[126]Exhibit 8, Tab 128. A copy was extracted and appeared in the Bench Folder at p 247.

[127]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p153.

[128]Exhibit 7, Tab 123. A copy was extracted and appeared in the Bench Folder at p153.

[129]Phian Pty Ltd v Commissioner of State Revenue [2016] QCAT 191, [147].

[130]Exhibit 2, p 15.

[131]Exhibit 6, Tab 24. A copy was extracted and appeared in the Bench Folder at p 29 - p 30.

[132]TA Act, s 58(2)(a).

[133]Ibid, s 60.

[134]Exhibit 8, Tab 159, commencing at p 1346.

[135]Ibid, p 1351.

[136]Ibid, p 1349 – p 1350.

[137]TA Act, s 54(1).

[138]Ibid, s 60.

[139]Exhibit 8, Tab 158, commencing at p 1342.

[140]Ibid, [9].

[141]Exhibit 1, p 21.

[142]Quadric Pty Ltd & Ors v Commissioner of Pay-Roll Tax (Vic) (1992) 24 ATR 1159; Kivelos Nominees Pty Ltd v Commissioner for State Revenue (Vic) (1997) 37 ATR 1025.

[143]Beaumont Constructions Pty Ltd & Ors v Commissioner of State Revenue [2020] QCAT 52, [227] agreeing with Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue [2019] QCAT 199.

Close

Editorial Notes

  • Published Case Name:

    Latitude North Hotels Pty Ltd v Commissioner of State Revenue

  • Shortened Case Name:

    Latitude North Hotels Pty Ltd v Commissioner of State Revenue

  • MNC:

    [2021] QCAT 16

  • Court:

    QCAT

  • Judge(s):

    Member Deane

  • Date:

    20 Jan 2021

Appeal Status

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

Cases Cited

Case NameFull CitationFrequency
Beaumont Constructions Pty Ltd v Commissioner of State Revenue [2020] QCAT 52
2 citations
Jump To
Cite 1 - [2020] QCAT 52
Cite 2 - [2020] QCAT 52
Crusher Holdings Pty Ltd v Commissioner of Taxes (NT) (1994) 29 ATR 156
3 citations
Jump To
Cite 1 - (1994) 29 ATR 156
Cite 2 - (1994) 29 ATR 156
Cite 3 - (1994) 29 ATR 156
Kehl v Board of Professional Engineers of Queensland [2010] QCATA 58
2 citations
Jump To
Cite 1 - [2010] QCATA 58
Cite 2 - [2010] QCATA 58
Kivelos Nominees Pty Ltd v Commissioner for State Revenue (Vic) (1997) 37 ATR 1025
2 citations
Jump To
Cite 1 - (1997) 37 ATR 1025
Cite 2 - (1997) 37 ATR 1025
Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSW ADTAP 42
2 citations
Jump To
Cite 1 - [2013] NSW ADTAP 42
Cite 2 - [2013] NSW ADTAP 42
Marketing Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 139
2 citations
Jump To
Cite 1 - [2014] NSWCATAD 139
Cite 2 - [2014] NSWCATAD 139
Phian Pty Ltd v Commissioner of State Revenue [2016] QCAT 191
2 citations
Jump To
Cite 1 - [2016] QCAT 191
Cite 2 - [2016] QCAT 191
Quadric Pty Ltd & Ors v Commissioner of Pay-Roll Tax (Vic) (1992) 24 ATR 1159
2 citations
Jump To
Cite 1 - (1992) 24 ATR 1159
Cite 2 - (1992) 24 ATR 1159
Scott v Commissioner of State Revenue [2016] QSC 132
2 citations
Jump To
Cite 1 - [2016] QSC 132
Cite 2 - [2016] QSC 132
Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242
2 citations
Jump To
Cite 1 - [2015] NSWCA 242
Cite 2 - [2015] NSWCA 242
Shadforth Lythgo Pty Ltd v Commissioner of State Revenue [2016] QCAT 539
3 citations
Jump To
Cite 1 - [2016] QCAT 539
Cite 2 - [2016] QCAT 539
Cite 3 - [2016] QCAT 539
State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd (1981) 12 ATR 406
2 citations
Jump To
Cite 1 - (1981) 12 ATR 406
Cite 2 - (1981) 12 ATR 406
Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue [2019] QCAT 199
3 citations
Jump To
Cite 1 - [2019] QCAT 199
Cite 2 - [2019] QCAT 199
Cite 3 - [2019] QCAT 199
Toveety Maintenance Services Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 137
2 citations
Jump To
Cite 1 - [2015] NSWCATAD 137
Cite 2 - [2015] NSWCATAD 137

Cases Citing

Case NameFull CitationFrequency
XTN v Director-General, Department of Justice and Attorney-General [2025] QCAT 121 citation
1

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