Commissioner of State Revenue v Telgrove Pty Ltd [2022] QCA 132 [2022] 31 QLR

SUPREME COURT OF QUEENSLAND CITATION: Commissioner of State Revenue v Telgrove Pty Ltd [2022] QCA 132 PARTIES: COMMISSIONER OF STATE REVENUE (applicant) v TELGROVE PTY LTD ACN 010 626 034 (respondent) FILE NO: Appeal No 7368 of 2021 QCATA No 218 of 2019 DIVISION: Court of Appeal PROCEEDING: Application for Leave Queensland Civil and Administrative Tribunal Act ORIGINATING COURT: Queensland Civil and Administrative Appeal Tribunal at Brisbane – [2021] QCATA 67 (Senior Member Aughterson, Member Lumb) DELIVERED ON: 29 July 2022 DELIVERED AT: Brisbane HEARING DATE: 24 November 2021 JUDGES: Mullins and Bond JJA and Boddice J ORDERS: 1. Application for leave to appeal refused with costs. 2. Application for leave to cross appeal refused with costs. CATCHWORDS: ADMINISTRATIVE LAW – ADMINISTRATIVE TRIBUNALS – QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL – where the respondent is one of six entities that had been grouped for payroll tax purposes by the applicant – where the applicant refused to make an exclusion order pursuant to s 74 of the Payroll Tax Act 1971 (Qld) (the Act) and issued default tax assessment notices – where the respondent was successful in its application to QCAT (the Tribunal) for review of the decision – where the applicant appealed to the appeal tribunal and the Tribunal’s decision was set aside and the matter was to be returned to the Tribunal for reconsideration – where the applicant applies for leave to appeal on a question of law from part of the appeal tribunal’s decision – where the question of law identified by the applicant is the proper construction of s 74 of the Act – where the applicant’s submissions focused on aspects of the Tribunal’s reasons which suggested the Tribunal had not applied the two step process in s 74(1) and (2) and the appeal tribunal failed to correct this error – whether the appeal tribunal -- 1 of 17 -- 2 misinterpreted and misapplied s 74 of the Act in considering the determination to be made under s 74(2) of the Act ADMINISTRATIVE LAW – ADMINISTRATIVE TRIBUNALS – QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL – where the respondent is one of six entities that had been grouped for payroll tax purposes by the applicant – where the applicant refused to make an exclusion order pursuant to s 74 of the Payroll Tax Act 1971 (Qld) (the Act) – where the respondent succeeded before the Tribunal on a review of the decision – where the applicant appealed to the appeal tribunal and the matter was to be returned to the Tribunal for reconsideration – whether the appeal tribunal erred in failing to find as a matter of law that the finding of fact of the Tribunal meant that the Tribunal and appeal tribunal could not be satisfied that the prerequisites for the grant of an exclusion order in s 74(2) of the Act had been met and as such a discretion to grant the exclusion order was not enlivened Corporations Act 2001 (Cth), s 254T, s 254V Payroll Tax Act 1971 (Qld), s 74 Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 135, s 150 Crusher Holdings Pty Ltd v Commissioner of Taxes (NT) (1994) 29 ATR 156; [1994] NTSC 82, cited Pivovarova v Michelsen (2019) 2 QR 508; [2019] QCA 256, cited Scott and Bird v Commissioner of State Revenue (2016) 103 ATR 411; [2016] QSC 132, considered Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242, considered COUNSEL: M Brennan QC, with G C Hartridge, for the applicant H G Lakis for the respondent SOLICITORS: Clayton Utz for the applicant PPM Tax & Legal for the respondent [1] MULLINS JA: On 5 July 2017 the Commissioner of State Revenue made a decision refusing to make an exclusion order pursuant to s 74 of the Payroll Tax Act 1971 (Qld) (the Act) excluding the respondent Telgrove Pty Ltd from a group of identified companies or entities. The Commissioner issued default assessment and reassessment notices against Telgrove for payroll tax of $255,995.27, penalty tax of $32,302.34 and unpaid taxation interest of $24,833.42 for the financial years 2011/12 to 2016/17 and a periodic assessment for the month of July 2017 (the assessments). Telgrove had previously paid $40,646.47, so that its dispute with the Commissioner at the outset was over the sum of $272,484.56. Telgrove objected to the assessments, but did not succeed on its objection. Telgrove was successful in its application for the review of the decision of the Commissioner to disallow the assessments by the Queensland Civil and Administrative Tribunal: Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue [2019] QCAT 199 (the Tribunal’s reasons). -- 2 of 17 -- 3 [2] The Commissioner had some success in appealing the Tribunal’s decision to the appeal tribunal: Commissioner of State Revenue v Telgrove Pty Ltd [2021] QCATA 67 (the reasons). The grounds on which the Commissioner appealed are set out in the reasons (at [13]): “1. Whether the Tribunal erred in not construing s 74(2) of the Act as requiring the Tribunal to be first satisfied that the businesses of the entities were substantially independent and not substantially connected before the discretion to exclude was enlivened under s 74(1) of the Act… 2. Whether the Tribunal erred in construing s 74 of the Act as involving the weighing up of factors for and against grouping and exclusion… 3. Whether the Tribunal erred in not finding that the involvement of Mr Boyce Nahrung … in the businesses of and the transactions between the businesses of Telgrove, Postville and the Trustee of the NFT … satisfied the Tribunal that the businesses of those entities were not substantially independent and were substantially connected with each other… 4. Whether the Tribunal erred in not finding that the existence of dividends created financial inter-dependencies between Telgrove and ‘members of the group’, especially in circumstances where there was no evidence as to when the payment of the dividends was to occur… 5. Whether the Tribunal, upon concluding at [81] and [84] of its decision that there were ‘frequent and material purchases of parts by Telgrove from Postville’, erred in failing to go on to consider whether the discretion under s 74(1) of the Act was enlivened in the manner described in Scott and Bird & Ors v Commissioner of State Revenue [2016] QSC 132 at [19] and [39] to [41]… .” [3] The effect of the appeal tribunal’s decision was that the Commissioner’s appeal in respect of grounds 1, 2 and 5 was dismissed, leave to appeal in respect of ground 3 was refused, leave to appeal in respect of ground 4 was granted and the appeal on that ground was allowed in part. The Tribunal’s decision dated 15 July 2019 was also set aside. Order 5 made by the appeal tribunal returned the matter to the Tribunal for reconsideration in the following terms: “The matter is returned to the Tribunal for reconsideration, but limited to the issue of whether or not the Tribunal is satisfied that s 74(2) of the Payroll Tax Act 1971 (Qld) is engaged having regard to the circumstances concerning the unpaid dividends (a subject of ground 4 of the appeal) and, if so satisfied, whether or not an exclusion order under s 74(1) of that Act should be made.” [4] The matter is then complicated by events that occurred since the orders were made by the appeal tribunal on 31 May 2021. Telgrove applied to the appeal tribunal under s 135 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act) for correction of order 4 (which set aside the Tribunal’s decision dated 15 July -- 3 of 17 -- 4 2019) to exclude from that order the orders made by the Tribunal as to penalty tax (order 5), unpaid tax interest (order 6) and interest on overpayment amounts (order 8). On 19 October 2021 the appeal tribunal delivered further reasons refusing Telgrove’s application to exclude from the orders made by the appeal tribunal the operation of orders 5, 6 and 8 made by the Tribunal, but did accept the Commissioner’s submission that order 5 made by the appeal tribunal could be construed in a way that had unintended consequences and corrected order 5 in the terms proposed by the Commissioner: Commissioner of State Revenue v Telgrove Pty Ltd (No 2) (unreported, 19 October 2021, Application No APL218-19, Senior Member Aughterson, Member Lumb) (the unreported reasons). Amended orders were issued by the appeal tribunal on 20 October 2021 consistent with that further decision. Order 5 is now in the following terms: “The matter is returned to the Tribunal for reconsideration in accordance with the Appeal Tribunal’s reasons for decision.” [5] The Commissioner applies for leave under s 150(3) of the QCAT Act to appeal under s 150(2) of the QCAT Act on a question of law from that part of the appeal tribunal’s decision which dismissed the Commissioner’s appeal in respect of grounds 1, 2 and 5. [6] There are two grounds of appeal in the draft notice of appeal which are being pursued by the Commissioner. (On 9 November 2021 the Commissioner advised Telgrove that grounds 3 and 4 in the draft notice of appeal were abandoned.) The first ground asserts that the appeal tribunal misinterpreted and misapplied s 74 of the Act in considering it relevant to the determination to be made under s 74(2): (a) as to the “reasons for the purchases or sales” or whether there was a “viable commercial alternative” to such purchases or sales (referred to in [30] of the reasons); and (b) as to whether the commercial dealings between Telgrove and other entities in the group are related to the “rationale and criteria for the grouping” in the first place (referred to in [29] of the reasons). [7] The second ground asserts that the appeal tribunal erred in failing to find as a matter of law that the findings of fact of the Tribunal (at [81] and [84] of the Tribunal’s reasons) meant that the Tribunal and the appeal tribunal could not be satisfied that the prerequisites for the grant of an exclusion order in s 74(2) of the Act had been met, such that a discretion to grant the exclusion order was not enlivened. [8] After being advised the Commissioner had abandoned grounds 3 and 4 of the draft notice of appeal, Telgrove on 16 November 2021 filed an application for leave to cross appeal the appeal tribunal’s decision, as corrected by the orders dated 20 October 2021. The draft notice of appeal sets out one ground of appeal: “In making Order 5 (and, as a consequence, also Orders 2 and 4) the Appeal Tribunal misapplied section 74 of the Payroll Tax Act 1971 (Qld), in that it failed to have regard to relevant matters, in particular that: (a) there is no evidence that the respondent would fall into financial difficulty if an unpaid dividend was required to be paid (as found by the Queensland Civil and Administrative Tribunal (Tribunal) at first instance); and -- 4 of 17 -- 5 (b) consistent with observance of relevant legislation, dividends were only declared and paid on the advice of an external accountant (as found by the Tribunal at first instance).” [9] It is common ground that both applications should be considered on the basis that the orders of the appeal tribunal are in the terms of the amended orders issued by the appeal tribunal on 20 October 2021. Background facts [10] To give some context to the errors of law that were the focus of the Commissioner’s submissions, it is useful to refer briefly to some factual matters. [11] Telgrove is one of six entities that had been grouped for payroll tax purposes by the Commissioner. One of those entities was Postville Pty Ltd. The other entities were CFS Hire Pty Ltd, Custom Forklift Sales Pty Ltd (CF Sales), Gnurhan B Pty Ltd as trustee for the Nahrung Family Trust (NFT) and Blue Ibis Pty Ltd as trustee for CFS Discretionary Trust (CFS Trust). [12] Mr B Nahrung who is the son Mr C Nahrung is the majority shareholder of Telgrove and the primary beneficiary of the NFT (at [50]-[51] of the Tribunal’s reasons) and has been the sole director of Telgrove since 2012 (at [52] of the Tribunal’s reasons). The trustee of the NFT holds the single C class share in Telgrove which is non-voting and Mr B Nahrung holds 75 per cent of the remaining issued shares (at [51] of the Tribunal’s reasons). [13] Telgrove carries on the business of machinery hire. 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 (which means the machinery is hired together with experienced staff and fuel), but occasionally on a dry hire basis (machinery hire only). See [54] of the Tribunal’s reasons. [14] Postville’s ordinary shares are held by the trustee of the NFT (50 per cent), Mr C Nahrung as trustee for the Nunga Family Trust (25 per cent) and Mr and Ms Arndell as trustee for the Arndell Family Trust (25 per cent). All the D class shares (which are non-voting) in Postville are held by the trustee of the NFT which means that, in terms of the total issued shares, the trustee for the NFT owns almost 67 per cent, the trustee for the Nunga Family Trust owns almost 17 per cent and the trustee of the Arndell Family Trust owns almost 17 per cent. See [58] of the Tribunal’s reasons. Mr B Nahrung is one of three directors of Postville. See [77] of the Tribunal’s reasons. [15] Postville carries on the business of selling and servicing construction equipment. It has the exclusive rights to sell and service the Kubota brand of machinery in Queensland. See [61] of the Tribunal’s reasons. [16] Telgrove purchased 17 machines over the period of six years relevant to the Commissioner’s decision and parts for machinery on an almost daily basis from Postville. These purchases amounted to 7.48 per cent of its total expenses and 1.05 per cent of Postville’s total sales. See [55] of the Tribunal’s reasons. The annual percentages of Telgrove’s purchases of machinery and parts from Postville in each of the relevant years was set out at [80] of the Tribunal’s reasons and ranged from 4.2 per cent in 2013/2014 to 11.95 per cent in 2014/2015. -- 5 of 17 -- 6 [17] All transactions between Telgrove and Postville were undertaken at market rates. See [82] of the Tribunal’s reasons. The legislation [18] The nature of payroll tax as a tax on wages paid by an employer to employees, the concept of grouping of employers for payroll tax purposes, and a summary of the grouping provisions in the Act are explained at [10]-[12] of the Tribunal’s reasons. [19] The grouping of entities for the purpose of payroll tax occurs by operation of law under part 4 of the Act, and particularly pursuant to s 66 to s 73 of the Act, and does not require a decision of the Commissioner: Scott and Bird v Commissioner of State Revenue (2016) 103 ATR 411 at [17]. When the Commissioner notifies group members of the Commissioner’s view that they form part of a group for the purpose of the Act, group members may apply for an exclusion order pursuant to s 74 of the Act. [20] Section 74 of the Act provides: “(1) The commissioner may, by order in writing (an exclusion order), exclude a person from a group. (2) The commissioner may make an exclusion order only if the commissioner is satisfied a business carried on by the person is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of the group. (3) For deciding whether to make an exclusion order, the commissioner must have regard to— (a) the nature and degree of ownership and control of the businesses carried on by the person and the other members of the group; and (b) the nature of the businesses; and (c) any other matters the commissioner considers relevant. (4) Despite subsection (1), the commissioner 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) 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) 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.” [21] Section 74 was inserted into the Act by the Pay-roll Tax (Harmonisation) Amendment Act 2008 (Qld) when other substantial amendments were also made to the Act. After considering the relevant Explanatory Note, Bond J (as his Honour then was) in Scott and Bird (at [24]) noted that the grouping provisions were aimed at tax avoidance -- 6 of 17 -- 7 which might occur if employers split their payroll over several entities each of which claimed the benefit of the deduction/threshold before being liable for payroll tax, the grouping provisions were expressed in broad language, and the Commissioner was conferred a discretion to make an exclusion order to enable the Commissioner to grant relief against the inappropriate operation of the broadly expressed grouping provisions. Despite this recognition of the purpose of the exclusion provision, Bond J noted (at [27]) that it could not be concluded from the text of s 74 that group members should be excluded “if there is no suggestion of the avoidance behaviour at which the grouping provisions were aimed”. [22] It is beneficial to a taxpayer to be excluded from a group for payroll tax purposes, as the taxpayer which is excluded from the group then has the full benefit of the deduction for its threshold amount of employees’ wages before liability for payroll tax is calculated. [23] The proper construction of s 74 of the Act was not in issue in the Tribunal or the appeal tribunal. Both parties agreed that Scott and Bird (which applied Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242 at [20]-[22]) summarised the approach to the construction of s 74 of the Act (at [19]-[20] and [39]-[42]) which neither party sought to challenge. [24] Rather than restating the reasons of Bond J, it is convenient to set out [40]-[42] of Scott and Bird: “[40] For the reasons mentioned at [19] above, the discretion to make an exclusion order is that which is conferred by s 74(1) and that discretion is only enlivened if the Commissioner is satisfied of the matters referred to in s 74(2), namely that ‘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.’ The formation of that state of satisfaction does not involve an exercise of a discretion, rather it requires the formation of an evaluative judgment. The formation of the specified evaluative judgment is a pre- condition to the existence of power to exercise the discretion. [41] It is only if the decision maker forms the evaluative judgment referred to in s 74(2), that the discretion referred to in s 74(1) is enlivened. If the discretion is enlivened, the decision maker will be obliged to take into account the matters referred to in s 74(3), although there will be some necessary crossover between at least some of the first two considerations there referred to and the considerations which were relevant to the formation of the evaluative judgment referred to in s 74(2). It is nevertheless clear from Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242 that the discretion does not arise until s 74(2) is satisfied. [42] Section 74(2) requires a decision maker to take these steps: (a) identify the business(es) carried on by the person seeking the exclusion order; (b) identify relevant business(es) carried on by the other members of the group; -- 7 of 17 -- 8 (c) consider whether the decision maker should be satisfied that a business carried on by the applicant – (i) is carried on independently of; and (ii) is not connected with the carrying on of, a business carried on by any other member of the group.” [25] Bond J in Scott and Bird identified (at [45]) the questions made critical by s 74(2) of the Act as: “(1) whether an applicant’s business is carried on independently of another business, and (2) whether an applicant’s business is not connected with the carrying on of another business.” (emphasis in original) [26] The Commissioner had issued on 3 July 2009 Public Ruling PTA031.2 – Commissioner’s Discretion to Exclude from a Group which explains the exclusion discretion under s 74 of the Act, including the matters the Commissioner takes into account in determining whether the Commissioner is satisfied of the preconditions in s 74(2) of the Act before exercising the discretion under s 74(1). This Public Ruling remained current during the period relevant to the assessments. The Public Ruling refers to the factors set out in s 74(3) of the Act as relevant to determining whether the preconditions in s 74(2) are satisfied. In accordance with the terms of s 74(3), the factors set out in that provision must be considered by the Commissioner in deciding whether to make an exclusion order which means that they are also relevant to the exercise of the discretion by the Commissioner under s 74(1), if the Commissioner’s evaluative judgment required under s 74(2) has resulted in satisfaction as to the preconditions under s 74(2): Scott and Bird at [41]. It is noteworthy that the Public Ruling does not endeavour to draw any distinction between the matters considered for the purpose of making the evaluative judgment under s 74(2) and the matters then considered for the purpose of exercising the discretion under s 74(1). [27] By way of explanation of what would satisfy the preconditions under s 74(2) of the Act, they are expressed in another way in paragraph 9 of the Public Ruling: “The Commissioner must be satisfied that: (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 members of the group and (b) the connections which do exist are no more than casual, irregular or occasional occurrences.” [28] As s 74(3)(c) is in the general terms of “any other matters the commissioner considers relevant”, paragraph 10 of the Public Ruling lists specific matters which are broadly described as “the nature and extent of all relevant agreements and dealings between the employer and other members of the group” that the Commissioner will consider in “making a decision”. Paragraph 11 of the Public Ruling notes in respect of the matters set out in paragraph 10: “None of the matters listed above are determinative in isolation from the other matters listed, nor are they an exhaustive list of the relevant -- 8 of 17 -- 9 issues. Each case will be considered on the basis of all of the relevant facts and circumstances.” [29] The officer on behalf of the Commissioner who refused Telgrove’s exclusion application analysed the application by reference to the matters set out in paragraph 10 of the Public Ruling. A similar approach was followed by the officer who then made the objection decision. The Tribunal noted (at [17] of the Tribunal’s reasons), that the Public Ruling is consistent with s 74 of the Act and neither party demurred from that view on the application in this court. The appeal tribunal also referred (at [38] of the reasons) to the Public Ruling without criticism, noting that paragraph 10 lists some of the factors that should be considered by the Commissioner in making an assessment under s 74(2) of the Act and the qualification set out in paragraph 11. [30] The discretion given to the Commissioner under s 74(1) of the Act is the second step in the process of deciding whether to exclude a taxpayer from the group for payroll tax purposes after the Commissioner, as a first step under s 74(2) of the Act, has been satisfied of the two preconditions set out in s 74(2) that must exist before the Commissioner can consider the second step. Perhaps it is not appropriate to describe exclusion from a group as a two step process, as it will end at the first step, if the preconditions in s 74(2) are not satisfied. In other words, the use of the description of two step process under s 74 of the Act is apt only where the first step which requires an evaluative judgment has resulted in the Commissioner’s satisfaction as to the two preconditions. [31] There is potential for the conflation of the two steps, where the matters to which the Commissioner must have regard under s 74(3) of the Act for the purpose of s 74(1) have been taken into account by the Commissioner in reaching an evaluative judgment on whether the taxpayer has satisfied the preconditions in s 74(2) of the Act. In circumstances where that has occurred and the preconditions are satisfied, it is difficult to see how the Commissioner would then justify the exercise of the discretion under s 74(1) against exclusion. [32] Both the Tribunal and the appeal tribunal recited accurately the approach to the construction of s 74 of the Act applied in Scott and Bird. See [14]-[16] of the Tribunal’s reasons and [31]-[32] and [90] of the reasons. The point agitated by the Commissioner is that, despite purporting to apply Scott and Bird, both the Tribunal and the appeal tribunal failed to do so. It is therefore necessary to analyse the respective reasons. The Tribunal’s application of s 74(2) of the Act [33] In dealing with the relationship between Telgrove and Postville, the Tribunal noted (at [76] of the Tribunal’s reasons) that the common shareholder in both companies was the trustee of the NFT and on the basis that Mr B Nahrung was the primary beneficiary of the NFT and the majority shareholder in Telgrove, Mr B Nahrung is the “majority beneficiary owner” of both Telgrove and Postville. The Tribunal noted (at [77] of the reasons) that Mr B Nahrung was a common director of both companies, but did not exercise management control of the business of Postville in a material or significant manner. The Tribunal also noted there was no evidence of the companies’ sharing resources, facilities or services other than the same external accountant and that the bookkeeper of Postville is the nominated payroll tax representative for Telgrove. See [78] of the Tribunal’s reasons. -- 9 of 17 -- 10 [34] The Tribunal considered (at [81] of the Tribunal’s reasons) that “the quantum of equipment and parts purchased from Postville as a percentage of total equipment and parts purchased by Telgrove” was “significant and material” and the high frequency of the parts transactions supported the view that these transactions were more than casual, irregular or occasional and demonstrated an active and significant relationship between Telgrove and Postville. [35] Telgrove had argued before the Tribunal that the transactions between Telgrove and Postville were forced upon Telgrove in the sense that Postville had the exclusive rights in Queensland to sell Kubota equipment and parts and Telgrove needed to utilise Kubota equipment in providing earthmoving services. The Tribunal found (at [82] of the Tribunal’s reasons) that “Postville’s holding of exclusive rights is a matter of weight to apply to the overall balancing exercise”. [36] The Tribunal then continued (at [83]-[86] of the Tribunal’s reasons): “[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. [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. [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). [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.” [37] In the section of the Tribunal’s reasons dealing with the relationship between Telgrove and the trustee of the NFT, the Tribunal considered the issue of dividends declared by Telgrove that were unpaid during the period relevant to the assessments. The amount of the unpaid dividends are set out in the reasons at [63] and were $2,351,691 in 2011 and reduced by around $200,000 in each successive year until the amount of declared and unpaid dividends was $1,219,191 in 2016. [38] The Tribunal noted (at [114] of the Tribunal’s reasons) that Mr B Nahrung’s evidence to the effect that dividends were only declared and paid by Telgrove on the advice of the external accountant was consistent with observance of s 254T and s 254V(2) of -- 10 of 17 -- 11 the Corporations Act 2001 (Cth). The Tribunal rejected (at [115] of the Tribunal’s reasons) the Commissioner’s submission that the unpaid dividend was a loan and the shareholders have the power to demand its immediate payment. The Tribunal accepted (at [116] of the Tribunal’s reasons) that the proper characterisation of the unpaid dividends was that they were material in amount in the relevant period but that their payment solely rested with the sole director of Telgrove who was under an obligation to pay those dividends in a manner that was consistent with Telgrove being able to continue to pay its creditors. The Tribunal then set out (at [117]-[118] of the Tribunal’s reasons) the conclusion in relation to the unpaid dividends by applying the decision in Crusher Holdings Pty Ltd v Commissioner of Taxes (NT) (1994) 29 ATR 156: “[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, 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. [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.” (footnote omitted) [39] It is not necessary for dealing with this application to summarise the Tribunal’s reasons in relation to Telgrove’s relationship with the other three members of the group. [40] The Tribunal concluded (at [123] of the Tribunal’s reasons) that “the correct and preferable decision is that Telgrove has discharged its onus” and an exclusion order should be granted. The Tribunal noted (at [124] of the Tribunal’s reasons) 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”. Those were listed as 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. The finding was then made (at [125] of the Tribunal’s reasons) that the carrying on of the business of Telgrove is independent of, and not connected to, the carrying on the businesses of other group members (which addresses both conditions set out in s 74(2) of the Act). It is implicit, rather than explicit, in the Tribunal’s reasons that, upon satisfaction of the preconditions in s 74(2) being established by Telgrove to the satisfaction of the Tribunal, the discretion under s 74(1) was exercised in favour of Telgrove. The appeal tribunal’s application of s 74(2) of the Act [41] The appeal tribunal recorded (at [20] of the reasons) that the Commissioner submitted that the Tribunal erred in construing s 74(2) of the Act as involving the weighing up -- 11 of 17 -- 12 of factors for and against grouping and exclusion. The appeal tribunal also recorded (at [22] of the reasons) that the parties accepted (appropriately) that there were qualifications to the terms “independently” and “not connected” in s 74(2) of the Act in that satisfaction of those preconditions does not require a conclusion of complete independence or an absence of any connection. The appeal tribunal then referred to the Commissioner’s submission that any connection that is “material” would exclude satisfaction of the preconditions under s 74(2) and Telgrove’s submission that the terms should be read as incorporating the qualifier “substantial”. This resulted in the appeal tribunal’s conclusion (at [26] of the reasons) that, in the context of s 74(2) of the Act which does not expressly incorporate the words “substantial” or “material”, there is no practical distinction between those terms. [42] In relation to the Commissioner’s argument in support of grounds 1 and 5 that the significant and frequent purchases by Telgrove from Postville was itself sufficient to establish a relevant connection and lack of independence, the appeal tribunal recorded (at [29] of the reasons) that this approach of the Commissioner would result in businesses being connected and not independent for the purposes of s 74(2) of the Act because of the extent of their commercial dealings with each other which was unrelated to the rationale and criteria for the grouping of entities in the first place. The Tribunal then noted (at [30] of the reasons) that would have the effect that, even where there are compelling commercial reasons for the significant and material purchases or sales and where the dealings are at arms length, the preconditions of s 74(2) of the Act could never be established and that “would remain the case even where there was no viable commercial alternative”. These observations by the appeal tribunal at [29]-[30] of the reasons are general observations that are unobjectionable when they were made to show the lack of logic of the Commissioner’s submissions that transactions between two entities (otherwise completely unrelated by ownership, management, employees, or sharing of facilities and services) took place because one entity was the only supplier of the particular commodity. [43] The appeal tribunal stated (at [35]-[36] of the reasons): “[35] In the present case, one part of the picture, referred to in the Commissioner’s submissions noted above, is that there were frequent and material purchases of parts by Telgrove from Postville, while another part of the picture is that Postville had exclusive rights in Queensland to sell Kubota equipment and parts (at market rates). Those factors, along with other factors, were weighed by the Tribunal at first instance in determining that the business of Telgrove was ‘carried on’ independently and was not connected with ‘the carrying on’ of a business of another member of the group. [36] That approach is consistent with the approach taken in other cases, where there are not infrequent references to ‘weighing’ various factors, or the ‘weight’ to be given to particular factors, and to the conduct of a ‘balancing’ exercise.” (footnote omitted) [44] The appeal tribunal therefore recognised that the Tribunal’s use of language in describing the task it undertook in balancing or weighing up relevant factors in considering whether the preconditions in s 74(2) of the Act were satisfied did not mean that the Tribunal had not formed an evaluative judgment as required by s 74(2). -- 12 of 17 -- 13 [45] In fact, the appeal tribunal recognised that the Tribunal may have taken its lead in identifying factors for and against exclusion, as a result of the approach of the relevant officer on behalf of the Commissioner in refusing Telgrove’s application for exclusion and the approach of the relevant officer on behalf of the Commissioner in disallowing the objection where there was reference to factors in favour of exclusion and factors against exclusion and the “weighing up” of the factors. As the appeal tribunal noted (at [38] of the reasons), the Commissioner’s written submissions before the Tribunal repeated the approach taken in the objection decision of referring to factors in favour of, and against, exclusion in the “balancing exercise” in deciding that the preconditions in s 74(2) of the Act were not satisfied by Telgrove. [46] The appeal tribunal therefore considered the substance of the decision-making undertaken by the Tribunal in respect of s 74 of the Act in the context of the submissions made to the Tribunal and, despite the use of language by the Tribunal that was arguably more consistent with the exercise of a discretion rather than the evaluative judgment required for the first step of the process under s 74(2), concluded (at [40] of the reasons) that grounds 1, 2 and 5 should be dismissed. [47] In response to the Commissioner’s submission both before the Tribunal and before the appeal tribunal that the material and frequent purchases by Telgrove from Postville were sufficient to demonstrate a relevant connection and lack of independence that meant that the preconditions in s 74(2) of the Act could not be satisfied, the appeal tribunal concluded (at [39] of the reasons) that this was not a case where one factor alone dictated whether the preconditions were satisfied: “In a given case, a judgment or opinion may be formed that, having regard to all relevant factors, one factor alone establishes (or two or more factors establish) that there is the requisite absence of (substantial) independence or presence of (substantial) connection for the purpose of s 74(2) of the Act, regardless of the number or weight of separate factors consistent with independence or an absence of connection. However, that is not the case here.” [48] It is apparent from the reasons that grounds 1, 2 and 5 before the appeal tribunal were directed at the first step of the process under s 74(2) of the Act. In the way in which the appeal tribunal disposed of those grounds in response to the Commissioner’s submissions before the appeal tribunal, it was not necessary for the appeal tribunal to review the Tribunal’s approach to the second step of the process under s 74(1) of the Act. [49] It is not necessary to review the appeal tribunal’s analysis of ground 3 as the Commissioner abandoned the proposed ground 3 in the draft notice of appeal to this Court which focussed on the appeal tribunal’s reasons for refusing leave to appeal on ground 3 before the appeal tribunal. [50] The appeal tribunal dealt with the unpaid dividends issue when dealing with ground 4 which challenged the Tribunal’s finding that the existence of unpaid dividends declared by Telgrove did not create financial interdependency between Telgrove and at least the trustee of the NFT. [51] The Commissioner had argued before the appeal tribunal that the Tribunal erred in finding that the outstanding unpaid dividends were not loans and that, even if not -- 13 of 17 -- 14 characterised as loans, the Tribunal erred in not finding that the unpaid dividends created a financial dependency between Telgrove and the trustee of the NFT. See [51] of the reasons. The appeal tribunal noted (at [53]) that the Commissioner relied on the recognition of the unpaid dividends as loans in the financial statements of Telgrove and the NFT. The appeal tribunal accepted (at [54]) that Telgrove’s submission that the recording of an unpaid dividend as a loan was not conclusive of its true legal character and, on the basis the Commissioner’s challenge to that aspect of the Tribunal’s reasons raised a question of fact only, refused leave to appeal on that aspect of ground 4. [52] In relation to the Tribunal’s conclusion (at [118] of the Tribunal’s reasons) that the unpaid dividends reflected an ownership connection between Telgrove and its shareholders and did not constitute a financial dependency, the appeal tribunal stated (at [56] of the reasons): “While we accept Telgrove’s submission that the declaration of a dividend is an ‘integer of ownership’, that does not, of itself, provide an answer to the question of whether or not the failure of the Trustee of the NFT to press for and recover payment of the (significant) outstanding amounts meant that the preconditions under s 74(2) of the Act could be satisfied.” (footnote omitted) [53] The appeal tribunal analysed the parties’ contentions based on s 254T and s 254V(2) of the Corporations Act and reconciled the operation of s 254V and s 254T of the Corporations Act (at [77]-[83] of the reasons). In summary, the appeal tribunal concluded that upon the declaration of the dividend a debt immediately arises in favour of the shareholder and a liability arises on the books of the company which remains, unless and until a court order is made declaring the declaration to be invalid, but s 254T imposes a statutory prohibition on the payment of the dividend, if one or more of the conditions in that provision are not satisfied, but that provision does not affect the existence of the liability. On giving that effect to s 254T, the appeal tribunal considered (at [86] of the reasons) that whether Telgrove was entitled to withhold payment of the unpaid dividends pursuant to s 254T did not dictate the answer as to whether any financial dependency existed between the businesses of Telgrove and the trustee of the NFT. The appeal tribunal also considered (at [86]) that the finding of the Tribunal that dividends were only declared and paid on the advice of the external accountant consistent with the Corporations Act provisions fell short of establishing that the condition in s 254T(1)(c) (that the payment of the dividend does not materially prejudice the company’s ability to pay its creditors) was not met from time to time during the period the outstanding amounts of the dividends remained unpaid and the Tribunal therefore erred in finding that “the shareholders had no power to enforce” the payment of the unpaid dividends which was material to the conclusion reached at [118] of the Tribunal’s reasons. The appeal tribunal pointed out (at [87] of the reasons) the consequence of this error: “In our view, the issue of the payment of the unpaid dividends not being pursued raised the question of whether the Tribunal could be satisfied as to the preconditions in s 74(2), having regard to factors such as, the nature and degree of ownership and control of the respective businesses of Telgrove and the Trustee of the NFT and the extent to which the unpaid dividends amounted to financial interdependencies. In our view, the Tribunal erred in approaching the question as the Members did.” (footnote omitted) -- 14 of 17 -- 15 [54] The appeal tribunal therefore concluded (at [89] of the reasons) that the appeal should be allowed and the matter returned to the Tribunal for reconsideration. It is patent from [90] of the reasons that the appeal tribunal recognised that the focus of the appeal before the appeal tribunal had been on the first step of the process under s 74(2) of the Act. That is why the appeal tribunal recorded (at [90]) the Commissioner’s acknowledgement that on remission of the matter to the Tribunal for reconsideration of the matters in ground 4, the Tribunal would have to exercise the discretion under s 74(1) of the Act should it be satisfied as to the preconditions in s 74(2). [55] Although the only error identified by the appeal tribunal in the Tribunal’s reasons was in relation to the unpaid dividends issue, the appeal tribunal appropriately recognised in the unreported reasons (at [8]) that limiting the Tribunal’s reconsideration to the issue of whether or not the Tribunal was satisfied that s 74(2) of the Act was engaged having regard to the circumstances concerning the unpaid dividends which was the subject of ground 4 of the appeal to the appeal tribunal may have unintended consequences in precluding the Tribunal from a proper reconsideration of the matter, including any need for consequential orders. That was therefore rectified by correcting order 5 made by the appeal tribunal to return the matter to the Tribunal for reconsideration in accordance with the reasons. Question of law [56] In general terms, the question of law identified by the Commissioner as the subject of the appeal in ground 1 of the draft notice of appeal is the proper construction of s 74 of the Act. [57] As the above analysis of the appeal tribunal’s reasons shows, the appeal tribunal did not, in any way, depart from the orthodox construction of s 74 of the Act (applied in Scott and Bird at [39]-[42]) in determining the appeal from the Tribunal. When the reasons of the appeal tribunal are read in the context of the focus of the submissions before the appeal tribunal on the first step in the process of the satisfaction of the preconditions in s 74(2) of the Act, there could be no misunderstanding on the part of the Tribunal when the matter is remitted to it that it has to make factual findings in relation to the unpaid dividends issue having regard to the reasons of the appeal tribunal on the application of s 254T and s 254V(2) of the Corporations Act (and any further evidence that is permitted to be adduced pursuant to s 71(3)(a) of the Taxation Administration Act 2001 (Qld) in relation to that issue) and then reconsider in an evaluative judgment whether, in the light of all the relevant factual findings made by the Tribunal, the preconditions in s 74(2) of the Act are satisfied. The appeal tribunal expressly embraced (at [90] of the reasons) the correct interpretation of s 74 of the Act that the exercise of the s 74(1) discretion by the Tribunal would only follow upon the Tribunal being satisfied as to the preconditions in s 74(2). [58] The Commissioner’s submissions on this application focused on aspects of the Tribunal’s reasons which suggested the Tribunal had not applied the two step process required by s 74 of the Act and the failure of the appeal tribunal to correct those aspects of the Tribunal’s reasons which was relied on to submit that the appeal tribunal itself had failed in the application of the proper construction of s 74 of the Act. The appeal tribunal’s reasons show that it undertook the process of disposing of the appeal by reference to the grounds of appeal before the appeal tribunal. The above analysis of the Tribunal’s reasons shows that the Tribunal may have elided the two steps in the process under s 74 of the Act, but that it took its lead in doing so from the -- 15 of 17 -- 16 way the Commissioner applied the Public Ruling in decisions made on behalf of the Commissioner in relation to Telgrove and the Commissioner’s submissions to the Tribunal. This was not surprising when there was no suggestion in the circumstances of this case that the factors relevant to an evaluative judgment of whether the preconditions in s 74(2) of the Act were satisfied differed in any way from the factors relevant to the exercise of the discretion under s 74(1) to exclude Telgrove as a group member upon satisfaction of the preconditions in s 74(2). There was no error made by the appeal tribunal in the construction of s 74 of the Act. [59] The specific question of law identified by the Commissioner in ground 1 of the draft notice of appeal refers to the general observations made at [29]-[30] of the reasons concerning the approach of the Commissioner. In framing this ground of appeal, the Commissioner has placed emphasis on observations that were made to show, in general terms, the lack of logic in the Commissioner’s approach by reference to the hypothetical example of businesses being connected or not independent merely due to the extent of their commercial dealings. The general observations of the appeal tribunal cannot be used to found a ground of appeal based on the misapplication of s 74(2) of the Act when the circumstances of Telgrove were not the same as the hypothetical example at [29]-[30] of the reasons. [60] Ground 2 of the draft notice of appeal is framed in terms of a failure of the appeal tribunal to make a finding as a matter of law, but the question of whether one factor can determine the outcome of whether the preconditions of s 74(2) of the Act are satisfied depends on the significance of that factor in conjunction with other factors that are relevant to whether the decision maker is satisfied as to the preconditions under s 74(2). The question raised by ground 2 of the notice of appeal could only be answered by considering the finding made at [81] of the Tribunal’s reasons against the other factors that might bear on the satisfaction of the preconditions. Ground 2 therefore raises a mixed question of fact and law and therefore cannot be the basis of an appeal to the Court which must raise a pure question of law. This is the limitation that applies to an appeal from the appeal tribunal to this Court pursuant to s 150(3)(a) of the Act: Pivovarova v Michelsen (2019) 2 QR 508 at [4], [14] and [37]. [61] As neither ground in the draft notice of appeal can succeed, it is not appropriate to grant the Commissioner leave to appeal. The cross appeal [62] The application for leave to cross appeal was instituted at a late stage before the hearing in this Court and after the Commissioner’s abandonment of grounds 3 and 4 of the draft notice of appeal and, according to the frank concession made by Mr Lakis of counsel who appeared for Telgrove, meant that Telgrove’s submissions on the unpaid dividends issue in its outline in response to all grounds in the draft notice of the appeal would not otherwise be considered by this Court. [63] The ground for the cross appeal is based on an asserted failure by the appeal tribunal in having regard to “relevant matters” one of which was factual (there was no evidence that Telgrove would fall into financial difficulty if an unpaid dividend was required to be paid) and the other was a mixed question of law and fact that the Tribunal had found that dividends were only declared and paid by Telgrove on the advice of an external accountant which was consistent with the observance of s 254T and s 254V(2) of the Corporations Act. The former aspect ignores that Telgrove had -- 16 of 17 -- 17 the onus of putting material before the Tribunal that addressed relevant factual matters arising from the unpaid dividends. The latter aspect ignores the analysis undertaken by the appeal tribunal (at [72]-[89] of the reasons) to show that the Tribunal was in error in applying s 254T and s 254V(2) to find that the declaration and payment of dividends by Telgrove on the advice of an external accountant was consistent with the observance of relevant legislation or, in other words, the explanation offered for the lack of payment of the dividends was not sufficient to deal with whether the legislative provisions bound Telgrove not to pay the declared dividends. [64] The ground relied on for the cross appeal is therefore misconceived and it is apparent from the terms in which it is framed that it is also not limited to a pure question of law. It is therefore not appropriate to grant Telgrove leave to cross appeal. Orders [65] There is no reason why costs should not follow the event of each application. The following orders should be made: 1. Application for leave to appeal refused with costs. 2. Application for leave to cross appeal refused with costs. [66] BOND JA: I agree with the reasons for judgment of Mullins JA and with the orders proposed by her Honour. [67] BODDICE J: I agree with Mullins JA. -- 17 of 17 --