Crusher Holdings Pty Ltd v Commissioner of Taxes [ATR]

• Jurisdiction: Northern Territory
• Judge: Martin CJ
• Judgment Date: 05 September 1994
• Court: Supreme Court
• Date: 05 September 1994
• Docket Number: No. 179 of 1991

(1994) 29 ATR 156

(1994) 94 ATC 4646

IN THE SUPREME COURT OF THE NORTHERN TERRITORY OF AUSTRALIA

Martin CJ

No. 179 of 1991

Crusher Holdings Pty Ltd

and

Commissioner of Taxes

Counsel for appellant: Mr Close

Counsel for respondent: Mr Spargo

Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd (1976) 135 CLR 616 at 621, applied. Ex parte Australian Sporting Club Ltd; Re Dash (1947) 47 SR (NSW) 283, applied. Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353, applied. Federal Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Ltd (1972) 128 CLR 28, distinguished. Kolotex Hosiery (Australia) Pty Ltd v Federal Commissioner of Taxation (1975) 132 CLR 535, applied. Kolotex Hosiery (Australia) Pty Ltd v Federal Commissioner of Taxation (1975) 130 CLR 64 at 84, referred to. MacCormick v Federal Commissioner of Taxation (1945) 71 CLR 283, referred to. Commissioner of Stamp Duties (Q) v Beak (1931) 46 CLR 585, distinguished. Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) (1978) 78 ATC 4164, considered. Ballarat Brewing Co Limited v Commissioner of Pay-roll Tax (Victoria) (1979) 10 ATR 228, considered. John French Pty Ltd v Commissioner of Pay-roll Tax (1984) 1 Qd R 125, distinguished. Cannon and Peterson v Commissioner of Pay-roll Tax (1975) Qd R 177, referred to.

Tillmans Butcheries Pty Ltd v Australasian Meat Industry Employees Union (1979) 42 FLR 331 at 348, applied.

‘substantially independently of’, ‘substantially connected with’.

Pay-Roll Tax Act (NT), s35, Supreme Court Rules, O.83.

Pay-Roll Tax Act, s17H(1),

Pay-roll tax — objections and appeals — appeal from decision of Commissioner of Taxes — Nature of the appeal —

Pay-roll Tax — Liability to taxation — Nature and degree of ownership or control of the businesses —

JUDGE1

1 Martin CJ The appellant is dissatisfied with a decision of the Commissioner of Taxes on an objection made by the appellant to his not ordering that the appellant be excluded from its grouping with another company for the purposes of the grouping provisions contained in Part IVA of the Pay-roll Tax Act. The Commissioner disallowed the objection. The appellant appeals.

2 It is common ground that the appellant and S G Kennon and Co Pty Ltd constitute a group for the purposes of the grouping provisions which, in broad terms, have the effect of aggregating the wages paid by each member of the group for the purposes of assessment of pay-roll tax under the Act. Without such provisions it would be open to employers to so arrange a business or businesses conducted by the employer through separate companies, and thus avoid or minimise liability to taxation under the Act. The grouping provisions may, however, produce unjust results, and thus, notwithstanding that a group may be constituted under the Act, if the Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that he considers relevant, that a business carried on by a member of a group is carried on substantially independently of, and is not substantially connected with the carrying on of, a business carried on by any other member of that group, the Commissioner may by order in writing served on that first mentioned member, exclude him from that group (s17H(1)). The Commissioner's refusal to exercise that discretion in its favour forms the grounds of appeal brought pursuant to s35. By subs(2) of that section the objector is limited to the grounds stated in his objection upon the appeal, and the burden of proving that any assessment objected to is excessive lies on the objector. Additional questions have been raised in the context of this appeal, in particular, whether or not it was open to the objector to call evidence before the Court on the appeal which was not before the Commissioner when he disallowed the objection, and, if so, the procedure that should be adopted in that regard.

3 The appellant claims exclusion from the group for the period 1981 to 1987, being the period covered by default assessments issued on 20 September 1989. The assessments to pay-roll tax were made in respect of both the appellant and S G Kennon and Co Pty Ltd. Prior to that time there had been some investigation of the affairs of the two companies by the Commissioner, and notice had been given of the Commissioner's intention to assess pay-roll tax. The response from the appellant was a letter of 10 February 1989 from its solicitor. In that letter, the solicitor first set out details of the directorship and shareholding of each of the companies. Mr S G Kennon held nearly all of the issued shares in, and controlled more than 50% of the voting power at a shareholdings meeting of Crusher Holdings Pty Ltd. The other shareholder was Mr P S Kennon, his son. As to S G Kennon and Co Pty Ltd, the directors were, again, Mr S G Kennon together with his wife, Mrs A A Kennon. Mr Kennon owned one hundred shares out of the total number of shares issued of 550, however, one of those shares was a life governor's share. Pursuant to the Articles of Association of the company, that life governor's share carries with it 76% of the total of votes cast at a general meeting. It was rightly conceded that Mr Kennon, therefore, alone controlled more than 50% of the voting power at a shareholders meeting of S G Kennon and Co Pty Ltd, and it was acknowledged that because of that mutuality of control, the two companies may be grouped by operation of s17D(2) and 17D(3)(b) of the Act.

4 The representation then proceeded to draw attention to the provisions of s17H, and it was contended that the businesses carried on by the two companies were sufficiently different in character and were carried on substantially independently of each other, such that the Commissioner should be satisfied to make an order that the appellant be excluded from the group. Details were provided as to the separate arrangements made for the keeping of the books of account of the two companies. It was pointed out that the appellant carried on the business of a crushing plant at Mount Bundy (some distance from Darwin) and that the day to day running of that company was the responsibility of Mr S G Kennon. As to the company S G Kennon and Co Pty Ltd, its businesses were carried on in Darwin, and the day to day running was said to be in the hands of family members other than Mr S G Kennon. The businesses operated by it comprised property management under the control of Mrs A Kennon, a retail section which was said to be by far the largest part of the operations of that company which was under the control of Mr Robert Kennon, and the engineering/welding workshop of which Mr S G Kennon was the foreman. It was said that Mr Kennon had never made use of his life governor's share at any meeting in order to outvote the other shareholders. There were approximately 14 employees (other than family) employed by S K Kennon and Co Pty Ltd and there were 5 to 10 employees working for Crusher Holdings Pty Ltd. They were employed solely to do work for the respective employer and were paid their wages by the employing company. Apart from Mr S G Kennon, there were two members of the Kennon family who did work for both companies. One of them was employed by the appellant, but did clerical work for S G Kennon and Co Pty Ltd and another worked for S G Kennon and Co Pty Ltd, and his wages were paid by that company, but he undertook bookkeeping for the appellant.

5 Some months later the Commissioner for Taxes sought considerable information in detail from each of the companies for the period from 1 July 1981 to the date of the request, September 1989, and a response was made in mid-October. On 16 July 1990, the Commissioner informed the appellant that he had determined that an order for exclusion from grouping would not be granted and in a contemporaneous document appearing on the Commissioner's file appears the following:

‘Having considered the nature and degree of ownership, or control of the businesses, the nature of the businesses and other relevant matters, I am not satisfied that the business of S G Kennon and Co Pty Ltd is or was carried on substantially independently of, and is or was not substantially connected with the carrying on of, business carried on by Crusher Holdings Pty Ltd. I therefore make no order to exclude S G Kennon and Co Pty Ltd from the group.’

(There does not appear to be any similar document regarding the appellant).

THE OBJECTION

6 The appellant forwarded a Notice of Objection to the Commissioner's determination within the time limited by the Act, the relevant grounds being:

‘1. That the Commissioner should have exercised his discretion pursuant to S.17H of the Act to exclude the company from the grouping provisions in that the company's business is substantially independent of and not substantially connected with the carrying on of the business carried on by S.G. Kennon and Co. Pty. Limited.

2. That the Commissioner should have been satisfied with the information and matters supplied to him by the Company in its application being the letter of David de Winter dated 10 February 1989, and the letter and enclosure from the company dated 13 October 1989, that the business carried on by the company is substantially independent of and not substantially connected with the carrying on of the business carried on by S.G. Kennon and Co. Pty. Limited.’

7 It will be noted that in that Notice of Objection there was incorporated by reference the letter from the solicitor, Mr de Winter of February 1989, and the response made by the company to the Commissioner's enquiries in October: ‘That the business carried on by the company is substantially independent of and not substantially connected with the carrying on of the business carried on by S. G. Kennon and Co Pty....