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

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL CITATION: Beaumont Constructions Pty Ltd & Ors v Commissioner of State Revenue [2020] QCAT 52 PARTIES: BEAUMONT CONSTRUCTIONS PTY LTD KATARZYNA GROUP PTY LTD SOUTH BANK SURF CLUB PTY LTD AS TRUSTEE FOR SOUTH BANK SC TRUST FAMILY QLD PTY LTD AS TRUSTEE FOR BEAUMONT ENTERTAINMENT TRUST EMPIRE HOLDINGS (QLD) PTY LTD BUNK (QLD) PTY LTD AS TRUSTEE FOR BUNK DISCRETIONARY TRUST BEAUMONT CREATIONS PTY LTD (applicants) v COMMISSIONER OF STATE REVENUE (respondent) APPLICATION NO/S: GAR138-16; GAR139-16; GAR140-16; GAR141-16; GAR142-16; GAR143-16; GAR 144-16 MATTER TYPE: General administrative review matters DELIVERED ON: 14 February 2020 HEARING DATE: 6 November 2017, 7 November 2017 HEARD AT: Brisbane DECISION OF: Member Fitzpatrick ORDERS: GAR 141 – 16 Southbank Surf Club Pty Limited ATF South Bank SC Trust 1. The decision of the Commissioner of State Revenue refusing to make an Exclusion Order with respect to South Bank Surf Club Pty Ltd as Trustee for Southbank SC Trust made on 4 April 2015 is confirmed. 2. The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed. GAR 138 – 16 Beaumont Construction Pty Ltd -- 1 of 60 -- 2 The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed. GAR 139-16 Family QLD Pty Ltd ATF Beaumont Entertainment Trust The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed. GAR 140-16 Empire Holdings (QLD) Pty Ltd The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed. GAR 142-16 Katarzyna Group Pty Ltd The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed. GAR 143-16 Bunk (QLD) Pty Ltd The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed. GAR 144-16 Beaumont Creations Pty Ltd The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed. CATCHWORDS: TAXES AND DUTIES – PAYROLL TAX – LIABILITY TO TAXATION – GROUPING OF EMPLOYERS – REMISSION OF PENALTY TAX AND UNPAID TAX INTEREST – exercise of discretion to remit penalty tax and unpaid tax interest – whether penalty – whether intentionally misleading conduct – onus of proof – exercise of discretion to exclude member from a group – whether a connection with the group in a real and meaningful business sense – whether joint supply agreement showed connection Payroll Tax Act 1971 (Qld), s 52, s 53, s 58, s 59, s 60, s 68, s 69, s 70, s 71, s 72, s 73, s 74 Property Law Act 1974 (Qld), s 55 Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 19, s 20, s 21, s 24 -- 2 of 60 -- 3 Taxation Administration Act 2001 (Qld), s 11(2)(a), s 13(1)(a), s 13(2), s 14(a), s 17, s 19(1), s 30, s 37, s 54, s 58, s 60, s 61, s 66, s 69, s 71, s 73, s 81 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] ATC 20-134 Boston Sales and Marketing Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 139 Briginshaw v Briginshaw (1938) 60 CLR 336 Case 10/2005 (2005) ATC 197 Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd (2012) ATR 880 John French Pty Ltd v Commissioner of Pay-roll Tax [1984] 1 Qd R 125 Commissioner of State Revenue (WA) v Artistic Pty Ltd [2008] ATC 20-004 Commissioner of State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd (1981) 12 ATR 406 Commissioner of Taxation (Cth) v Consolidated Media Holding Ltd (2012) 250 CLR 503 Conder Towers Pty Ltd v Commissioner of State Revenue [2012] VSC 107 Deane v Commissioner of Stamp Duties [1996] 2 Qd R 557 Denham Constructions Pty Ltd v Chief Commissioner of State Revenue (NSW) (1998) 40 ATR 416 Denver Chemical Manufacturing Co v Commissioner of Taxation (1949) 79 CLR 296 Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287 Grist v Commissioner of State Revenue [2014] QCAT 259 Hart v Commissioner of Taxation (2003) 131 FCR 203 Harvey v Commissioner of State Revenue [2014] QSC 183 Hay v Commissioner for ACT Revenue [2014] ACAT 23 Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42 Luxton v Vines (1952) 85 CLR 352 Mead Packaging (Aust) Pty Ltd Commissioner of Pay- roll Tax (NSW) (1978) 8 ATR 477 Minister for Immigration and Citizenship v Li [2013] 249 CLR 332 Muir Electrical Co Pty Ltd & Ors v Commissioner of State Revenue (Vic) (2001) 47 ATR 283 Neal v Chief Commissioner of State Revenue [2014] NSWCADAT 26 Orica IC Assets Pty Ltd & Anor v Commissioner of State Revenue [2011] QSC 1 -- 3 of 60 -- 4 Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50 Scott and Bird 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 ATF the BTL (Qld) Unit Trust 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 Theophilas v Chief Commissioner of State Revenue [2014] NSWCATAD 100 Toveety Maintenance Services Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 137 Trust Company of Australia v CCSR [2002] NSWADT 21 United Group Resources Pty Ltd v Calabro No 5 [2011] FCA 1408 Re William Vazquez & Associates Pty Ltd and FCT [2005] 58 ATR 1357 APPEARANCES & REPRESENTATION: Applicants: B O’Brien, of Counsel, instructed by Cooper Grace Ward Lawyers Respondent: F Chen, of Counsel, instructed by Sparke Helmore Lawyers REASONS FOR DECISION Background [1] The applicants conduct the following businesses: (a) Katarzyna Group Pty Ltd (‘Katarzyna’) – Accounting and administrative services provider; (b) South Bank Surf Club Pty Ltd ATF South Bank SC Trust (‘SBSC’) – South Bank Surf Club restaurant; (c) Family Qld Pty Ltd ATF Beaumont Entertainment Trust (‘Family’) – Family nightclub; (d) Empire Holdings (Qld) Pty Ltd (‘Empire’) – Empire Hotel, Cloudland and Press Club; (e) Bunk (Qld) Pty Ltd ATF Bunk Discretionary Trust (‘Bunk’) – Bunk Backpackers and Birdees bar; (f) Beaumont Creations Pty Ltd (‘Beaumont Creations’) – Building; and -- 4 of 60 -- 5 (g) Beaumont Constructions Pty Ltd (‘Beaumont Constructions’) – previously televised racing services. No longer trading. [2] The applicants are grouped for the purposes of payroll tax under the provisions in Part 4, Division 2 of the Payroll Tax Act 1971 (Qld) (‘PTA’). The applicants have been assessed for penalty tax and unpaid tax interest (‘UTI’) on payroll tax for certain periods. [3] The applicants seek a review of the Commissioner’s decision of 4 April 2016 disallowing their objections relating to assessments of penalty tax and UTI. SBSC also seeks a review of the decision refusing to grant it an exclusion order as a member of a group of Katarzyna entities. [4] I have referred to an agreed statement of facts filed by the parties as a chronology of events.1 I have added information from the material before me. The relevant events are: (a) 29 July 2013 – the respondent issued initial entry audit letters to Beaumont Constructions, Bunk, Empire, Family, Katarzyna and SBSC notifying it that the respondent would be commencing a payroll investigation. A Form AQ1 was sent requiring information about companies potentially within a group. The form was never completed. (b) 2013 to 2015 – the respondent conducted an investigation of over 30 companies and trust entities, including the applicants. The investigation looked at whether the applicants were liable to pay for payroll tax as a group under s 71 of the PTA and if they were, whether the respondent should exercise her discretion under s 74 of the Act to exclude some members of the group. (c) 4 October 2013 – the applicants responded to the initial entry audit letters. (d) Applications for exclusion from grouping under s 74 of the PTA were lodged by the applicants at different stages during the ongoing investigation: (i) on 19 December 2013, by Beaumont Constructions, Bunk, Empire and Family (‘the initial audited entities’); (ii) on 5 June 2014, by SBSC; and (iii) on 10 September 2014, by Beaumont Creations (‘the exclusion applications’). (e) CBD Golf applied for an exclusion order on 27 February 2015. (f) All of the entities, with the exception of SBSC, applied for an exclusion order from 1 July 2008. SBSC applied for an exclusion from 27 November 2009, being the date of its incorporation. (g) All exclusion applications attached a Form OSR – PT1 which sets out a list of questions to be addressed in an exclusion application including: commonly 1 Bundle of Key Documents – Tab 27. -- 5 of 60 -- 6 controlled businesses (questions 1-4); whether any business in the group exists solely or predominantly to provide services or goods to the other group members (including the business or businesses seeking exclusion) (question 25); the nature and extent of any group purchasing or supply arrangements (question 28); any shared resources for example a website (question 31); and whether there are or have been any intra group loans or financing arrangements between members of the group (question 36). Each Form OSR – PT1 was signed by a Director of the relevant company seeking exclusion declaring that the information submitted is true and correct. (h) On 7 January 2014, the respondent sent an email to PPM the applicants’ legal and tax advisor, identifying Beaumont Creations Pty Ltd as an employer in the 2010 financial year and payroll group member. (i) 30 January 2014 – the respondent sent an email to PPM progressing the investigation: (j) 7 February 2014 – PPM provided requested further information. (k) 12 February 2014 – the respondent emailed PPM requesting further information about specific entities and attaching a ‘draft’ grouping chart. (l) 7 March 2014 – the applicants provided responses to the respondent’s request for information on 12 February 2014 and provided the respondent with a draft document entitled ‘Katarzyna Group – Company Particulars’. The Katarzyna Group – Company Particulars document disclosed 30 entities, being investment trusts or companies. Beaumont Creations and CBD Golf were included in that document. The document provided that CBD Golf was not a trustee company. (m) Between March 2014 and July 2014 – the respondent requested further information to determine the exclusion applications and the applicants responded. (n) 7 July 2014 – the respondent requested information from the applicants, in particular whether Katarzyna organised the purchase of goods such as alcohol or beverages on behalf of the group and further asked about any group purchasing or supply arrangements. (o) 12 August 2014 – the applicants responded denying that Katarzyna organised the purchase of alcohol or that group purchasing agreements existed. It was asserted all alcohol was ordered separately and rebates were calculated separately without reference to other entities purchases. (p) Between August 2014 and February 2015 – the applicants responded to various requests for information, including a request on 30 September 2014 for further information and documents in relation to CBD Golf, which the Commissioner had discovered at that time was a trustee company. (q) 6 February 2015 – the respondent sent correspondence to the applicants about supply agreements regarding CUB, Asahi and Schweppes signed by Katarzyna and invited a response. Copies of the supply agreements were provided to PPM. -- 6 of 60 -- 7 (r) 17 February 2015 – the applicants responded that answers given were partially incorrect, given the CUB Agreement. Its existence was said to be an oversight. Individual ordering, payment and rebates was re-iterated. (s) Between 17 February 2015 and 25 March 2015 – the Commissioner determined the exclusion order applications. (t) 25 March 2015 – the respondent issued reassessment notices to Bunk, Empire, Family, Katarzyna and SBSC. (u) 26 March 2015 – the respondent issued default assessment notices to Beaumont Constructions, Beaumont Creations and SBSC and reassessment notices to SBSC. (v) 27 March 2015 – the respondent sent a letter (the exclusion decision) to the applicants refusing the exclusion applications and attaching the various default assessments and reassessments, except for Beaumont Constructions. This decision determined that the respondent would not exercise her discretion under s 74 of the Act to exclude members of the group. Relevant to SBSC, the Commissioner considered that: (i) Family and SBSC constitute a group because the businesses are taken to be controlled by the same persons: sections 71(1), 71(2)(g) and 71(6) of the PTA; (ii) SBSC is subsumed into a larger group because Family is common to both groups: s 73(1) of the PTA; (iii) Section 74 of the PTA provides that an exclusion may be granted on certain grounds. Public Ruling 031.2 provides a number of factors that are taken into account. In summary, the following factors counted against the grant of an exclusion order: A. SBSC received administrative services from Katarzyna Group Pty Ltd; B. ad hoc building services were received from Beaumont Creations, not provided at market rates; C. the degree of common ownership and control of the business by the Bickle family was 50% for the period up to 21 March 2013; D. control under the grouping provisions includes a right to control whether or not a Director or owner exerts that right; E. the Commissioner was not satisfied that Directors who did not possess managerial control were not also involved in managerial decisions and day to day administration of the business. F. whilst in the period up to 21 March 2013 the Bickle family level of ownership and control of the business was not high, exclusion is not justified in light of the significant connection which exists as a result -- 7 of 60 -- 8 of the joint supplier agreements with CUB and Asahi/Schweppes during the relevant periods; and the commercial convenience of accessing Katarzyna’s administration services and related transactions upon start up. G. After 21 March 2013 the nature and extent of ownership and control by the Bickle family is over the threshold, which increases the importance of this factor.2 Associated entities controlled by the Bickle family hold more than 75% of the units in the trust. Louis, Bevan and Raphael Bickle collectively control the trustee corporation. H. Each of SBSC, Family, Empire, Bunk and CBD Golf are involved in the hospitality industry and each derives income from bars, restaurants and selling alcohol. (w) 27 March 2015 – by further letter (‘the penalty decision’) – the respondent sent a letter to the applicants implementing her decision by: (i) registering the applicants as a group for payroll tax (some of the applicants were already registered to pay payroll tax); (ii) appointing Katarzyna as the designated group employer; (iii) registering Beaumont Constructions and Beaumont Creations for payroll tax (as these entities were not already registered); (iv) advising that the standard rate of penalty tax is 75%. Total penalty tax payable is $732,376.59; (v) advising of her decision not to remit the penalty tax (except in the case of Beaumont Constructions and CBD Golf) and the reasons for that decision. The penalty decision recorded the Commissioner’s belief that up to the date of the investigation, the group did not take reasonable care in determining their taxation obligations under the PTA. The Commissioner also concluded that upon commencement of the investigation the group intentionally provided false or misleading information primarily in an attempt to receive a favourable outcome to their exclusion order request. The areas of concern to the Commissioner were in relation to failure to disclose the composition of the group, a shared website, joint supplier agreements, the ongoing nature of building and maintenance service provided by Beaumont Creations to the group and falsely stating the services were provided at “arm’s length” Penalty tax was remitted from 75% to 25% for Beaumont Constructions and CBD Golf, because the Commissioner did not think they had provided false and misleading information. 2 John French Pty Ltd v Commissioner of Pay-roll Tax [1984] 1 Qd R 125. -- 8 of 60 -- 9 (vi) advising of UTI and periods where UTI has been remitted. At the date of the letter the UTI was $327,541.26. (x) 23 April 2015 – the respondent issued reassessment notices to SBSC. (y) Between 20 June 2015 and 30 June 2015 – the applicants objected to the exclusion order decision and penalty decision and sought a reassessment. (z) 4 April 2016 – the respondent issued the applicants with her objection decision (‘the Decision’) rejecting the Objections and providing a Statement of Reasons. The Decision is the subject of this review. (aa) All penalty tax and UTI has been paid. Statutory basis for the Commissioner’s Decision [5] I have extracted the following explanation from the Decision: (a) an employer who pays taxable (Queensland) wages, and whose total wages exceed $21,153.00 per week during a month (or $19,230.00 prior to 1 July 2012) or who is a group member, is required to register for payroll tax within 7 days after the end of the month: ss 52 and 53 of the PTA. (b) An employer who is registered, or required to be registered, for payroll tax is required to lodge a periodic return with the Commissioner, and pay the applicable payroll tax, within 7 days after the end of each month (subject to any variations of these requirements by the Commissioner): ss 58, 59, 60 of the PTA and s 30 of the Taxation Administration Act 2001 (Qld) (‘TAA’). (c) When an employer lodges a payroll tax return, a self-assessment is taken to have been made of the employer’s liability for payroll tax: s 14(a) of the TAA. (d) Where a self-assessment is not made, the Commissioner may make a default assessment for the amount the Commissioner reasonably believes to be the taxpayer’s liability: ss 13(1)(a) and 13(2) of the TAA. Alternatively, the Commissioner may make a Commissioner Assessment: s 11(2)(a) of the TAA. (e) Further, the Commissioner may make a reassessment of a taxpayer’s liability: s 17 of the TAA. (f) In assessing a taxpayer’s annual liability, the Commissioner may treat the taxpayer as if they had been exempt from lodging periodic returns during the year: s 81 of the TAA. Basis of penalty tax (g) Where the Commissioner makes a default assessment, penalty tax must be imposed at a rate of 75% of the payroll tax assessed: ss 58(1)(a) and (2)(a) of the TAA. (h) The Commissioner may remit the whole or part of the penalty tax otherwise payable: s 60 of the TAA. Public Ruling TAA s 60.2 – Penalty Tax (PRTAA060.2) provides guidance on how penalty tax is imposed and the circumstances in which the discretion to remit penalty tax may be exercised. -- 9 of 60 -- 10 Basis of UTI (i) UTI is imposed on amounts of primary tax (payroll tax) payable by a taxpayer and unpaid from time to time: s 54 of the TAA. (j) UTI accrues daily at a prescribed annual rate on unpaid primary tax for the period starting on a date determined under s 54(4) of the TAA (the start date) and ending when the primary tax is paid in full. (k) The Commissioner may remit the whole or part of UTI: s 60 of the TAA. Public Ruling TAA 060.1 – Remission of Unpaid Tax Interest (PRTAA060.1) provides guidance on how UTI is imposed and states the discretion to remit UTI will only be exercised in exceptional circumstances. [6] No objection is taken by the applicants to these statements of the legal position. Relief Sought [7] The applicants seek that the tribunal exercise its powers under s 24 of the Queensland Civil and Administrative Tribunal Act 2009 Qld (‘QCAT Act’) to set aside the Decision and to substitute its own Decision. [8] The applicants, other than SBSC, seek that the tribunal: (a) decide that the applicants: (i) took reasonable care to determine their liability for tax and meet their obligations under the tax laws and did not intentionally disregard or avoid the tax laws, and remit the whole of the penalty tax; and (ii) alternatively, that the applicants either: A. failed to comply with their obligations under the tax laws due to carelessness or recklessness; or B. did not take reasonable care to determine their liability for tax and meet their obligations under the tax laws, And remit penalty tax to the extent that the applicants are liable for 25% of the shortfall payroll tax amount in the assessments. (b) decide that there were exceptional circumstances and remit the whole or part of the UTI for the relevant period; (c) direct the respondent to give effect to this decision, by setting aside all of the assessments for the relevant period; (d) direct the respondent, pursuant to s 19(1) of the TAA to issue reassessments of penalty tax and UTI for the relevant period, consistent with the tribunal’s order; and (e) direct the respondent, pursuant to s 37 of the TAA to refund any overpaid penalty tax and UTI for the relevant period, consistent with the reassessments and the tribunal’s order. -- 10 of 60 -- 11 [9] Alternatively, the applicants seek that the tribunal exercise its powers under s 24 of the QCAT Act to set aside the decision and return the matter for reconsideration to the respondent, with directions that the respondent must: (a) pursuant to s 19(1) of the TAA, issue reassessments for penalty tax and UTI for the relevant period; and (b) pursuant to s 37 of the TAA, refund any overpaid penalty tax and UTI for the relevant period, consistent with the reassessments. [10] SBSC seeks that the tribunal: (a) decide that SBSC should be issued with an exclusion order under s 74 of the PTA, excluding the applicant as a member of a group with the Katarzyna entities on and from 27 November 2009, or another relevant date, as permitted by s 74(6) of the PTA; (b) direct the respondent to give effect to that exclusion order, by setting aside all of the assessments for the relevant period; (c) direct the respondent, pursuant to s 19(1) of the TAA to issue reassessments of payroll tax for the relevant period, consistent with the exclusion order; (d) direct the respondent, pursuant to s 37 of the TAA, to refund any overpaid payroll tax, penalty tax and UTI for the relevant period, consistent with the reassessments and the exclusion order; and (e) direct the respondent, pursuant to s 61 of the TAA, to pay the applicant interest on the amounts of overpaid payroll tax. [11] Alternatively, SBSC seeks that the Tribunal exercise its powers under s 24(1)(c) of the QCAT Act to set aside the decision and return the matter for reconsideration to the respondent, with directions that the respondent must: (a) issue an exclusion order under s 74(1) of the PTA, excluding SBSC from being a member of a group with the Katarzyna entities on and from 27 November 2009, or another relevant date, as permitted by s 74(6) of the Act; (b) give effect to the exclusion order, by setting aside the assessments for the relevant period; (c) pursuant to s 19(1) of the TAA, issue reassessments of payroll tax for the relevant period, consistent with the exclusion order; (d) pursuant to s 37 of the TAA, refund any overpaid payroll tax, penalty tax and UTI for the relevant period, consistent with the reassessments and the exclusion order; and (e) pursuant to s 61 of the TAA, pay SBSC interest on the amounts of overpaid payroll tax. Material before the tribunal -- 11 of 60 -- 12 [12] The parties have filed an agreed bundle of key documents. This bundle contains some of the many documents filed as a result of disclosure pursuant to s21 of the QCAT Act. The s21 disclosed documents are also relied upon by the parties. [13] The applicants rely upon: (a) statement of Philip Magoffin dated 14 October 2016 – Exhibit 1 in the proceedings; (b) affidavit of Philip Magoffin dated 3 November 2017 – Exhibit 2 in the proceedings; (c) affidavit of Bevan Bickle dated 12 July 2017 – Exhibit 3 in the proceedings; (d) affidavit of Louis Bickle dated 7 April 2017 – Exhibit 4 in the proceedings; (e) affidavit of Raphael Bickle dated 7 April 2017 – Exhibit 5 in the proceedings; (f) affidavit of Raphael Bickle dated 2 November 2017 – Exhibit 6 in the proceedings. [14] The applicants rely upon amended submissions filed 29 May 2017 and supplementary and reply submissions dated 3 November 2017. The respondent relies upon its submissions dated 29 June 2017. [15] In relation to the affidavits and statement tendered by the applicants, the applicants submit that this tribunal must conduct its review on the basis of the evidence before the respondent at the time of the Decision, unless the tribunal considers it necessary in the interests of justice to allow new evidence. The applicants submit that the affidavits and statement in support of evidence before the respondent at the time of the Decision should be allowed in the interests of justice. [16] Counsel for the respondent did not object to the applicants’ affidavits and statement being admitted into evidence. Counsel for the respondent indicated that she would deal with the evidence in submissions. [17] At the hearing I accepted that the evidence is necessary in the interests of justice. Witnesses [18] Evidence was given at the hearing by Philip Magoffin, legal and tax adviser of PPM Tax & Legal Pty Ltd, Bevan Bickle, Director of SBSC, Louis Bickle, Director of the Empire, Bunk, SBSC, Beaumont Constructions and Beaumont Creations and Raphael Bickle, Director of Katarzyna, Empire, Bunk and SBSC. Applicants’ contention SBSC [19] It is asserted that the respondent erred in deciding that: (a) SBSC’s business was not carried out independently of the remaining applicants’ businesses; and -- 12 of 60 -- 13 (b) that there is a real or meaningful connection in a commercial sense between SBSC’s business and the businesses of the remaining applicants. All applicants [20] It is asserted that the respondent erred in deciding that the applicants committed a deliberate tax default or intentionally disregarded their obligations under the tax laws. [21] The applicants say that the respondent should have remitted the whole or part of the penalty tax and UTI under s 60(1) of the TAA. [22] Further, the respondent should have been satisfied in relation to the remission of penalty tax, that: (a) the applicants took reasonable care to determine their liability for tax and meet their obligations under the tax laws and did not intentionally disregard or avoid the tax laws, and on this basis remitted the whole of the penalty tax; or (b) the applicants either: (i) failed to comply with their obligations under the tax laws due to carelessness or recklessness; or (ii) did not take reasonable care to determine their liability for tax and meet their obligations under the tax laws; and (iii) remitted penalty tax to the extent that the applicants were liable for 25% of the shortfall payroll tax amount in the assessments. [23] The respondent should have been satisfied that there were exceptional circumstances and remitted the whole or part of the UTI for the relevant period. Nature of this review [24] By s 71 of the TAA, the grounds on which the application for review is made are limited to the grounds of the relevant objection, unless QCAT otherwise orders. [25] Under s 71 of the TAA, QCAT must: (a) hear and decide the review of the decision by way of a reconsideration of the evidence before the Commissioner when the decision was made, unless QCAT considers it necessary in the interests of justice to allow new evidence; and (b) decide the review of the decision in accordance with the same law that applied to the making of the original decision. [26] As noted earlier, I have allowed new evidence. Onus of Proof [27] By s 73 of the TAA, on the review, the applicants have the onus of proving the applicants’ case. -- 13 of 60 -- 14 [28] With respect to the penalty tax and UTI review, the respondent submits that the onus is on the applicants to show that on the balance of probabilities, they did not knowingly mislead the Commissioner or cause the Commissioner to be misled. [29] The respondent submits that the decision of Neal v Chief Commissioner of State Revenue3 is relevant and that: ...The taxpayer must positively satisfy the tribunal that the “state of mind circumstance” (as to whether the taxpayer intentionally disregarded a taxation law) circumstance did not exist. Otherwise the decision under review must be affirmed. That is because, unless the burden of proof is discharged, a decision consistent with the Chief Commissioner’s original decision is the only possible decision the tribunal can make and is therefore the “correct and preferable” decision. [30] The respondent referred to Orica IC Assets Pty Ltd & Anor v Commissioner of State Revenue,4 where the Court considered ss 58 and 60 of the TAA. Relevantly, McMurdo J said: [93] ... There are no expressed considerations for the exercise of the discretion under s 60...it is relevant and indeed necessary to consider the facts and circumstances which contributed to an assessment which had to be the subject of a reassessment. ... If the taxpayer was at fault, by misstating the facts or not stating all of the relevant facts...then the case for remission would be weaker...It would be relevant to consider whether that misstatement or nondisclosure was made knowingly or was instead inadvertent...whether it was made by the taxpayer in reasonable reliance upon professional advice. ... [31] The respondent also referred to Re William Vazquez & Associates Pty Ltd and FCT5 where the Tribunal said: [14] … Apart from circumstances peculiar to the individual offending taxpayer the threefold purposes of punishment must be kept in line. Those purposes are retribution, deterrence and reformation… [32] The applicants say that s 73 is not expressed to be an onus to disprove the taxpayer intentionally or knowingly misled the Commissioner. Unlike in Neal this case does not concern an express legislative discretion to impose additional penalty tax for ‘intentional disregard by the taxpayer’. [33] The applicant says that penalty tax is imposed automatically without the exercise of any discretion, the discretion to remit is a broad discretion, limited by purpose, subject matter and scope of the legislation and must be exercised reasonably, impartially and not capriciously.6 A plainly unjust decision will constitute a failure to properly exercise the discretion7 and a relevant question is whether the outcome is ‘harsh’ given the circumstances of the taxpayer.8 3 [2014] NSWCADAT 26, [54]. 4 [2011] QSC 1. 5 [2005] 58 ATR 1357. 6 Minister for Immigration and Citizenship v Li [2013] 249 CLR 332, 349, 351, 362, 364, 367, 371. 7 Ibid 367, (Hayne, Kiefel and Bell JJ.) 8 Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287; [2008] FCAFC 54, [17]; Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50, [249]. -- 14 of 60 -- 15 [34] The applicants also refer to the decision of McMurdo J in Orica at [93] where his Honour observed that the facts and circumstances regarding the assessment including the conduct of the Commissioner and taxpayer will be relevant. Relevant conduct of the taxpayer can be any misstatement or omission made up to the time of assessment. [35] The applicants submit that in exercising the discretion in s 60(1) the Commissioner ordinarily applies public ruling TAA060.2.4 (Penalty Tax). That includes a consideration of Category 3 as to whether the taxpayer’s conduct has been ‘intentional’ or ‘deliberate’ and whether the taxpayer has ‘knowingly’ misled the Commissioner ‘about the taxpayer’s liability for tax’. The public ruling indicates that there must be some deliberate conduct in circumstances where the taxpayer understands and appreciates the effect of the legislation and how it applies to their circumstances. [36] In this regard, the gravity and seriousness of an allegation or conclusion of intentional, deliberate or knowingly misleading conduct must be borne in mind in considering whether the applicants’ onus has been discharged. [37] The applicants submit that the Briginshaw9 principles are relevant. Further, while the onus is on the taxpayer, the degree of satisfaction for which the civil standard of proof calls may vary according to the gravity of the fact to be proved.10 [38] I conclude that I must determine whether the grounds on which the application for review is made, are established on the balance of probabilities. The grounds on which this application for review is made are the grounds of the relevant objection to the penalty decision together with further admissible evidence. [39] I accept that the decision in Orica provides guidance as to appropriate considerations when, as part of this review, I exercise the discretion otherwise vested in the Commissioner under s 60 of the TAA. [40] I accept the applicants’ submission that s 73 of the TAA is not expressed as an onus to disprove the taxpayer intentionally or knowingly misled the Commissioner. Because of the different legislation, Neal’s case is of limited assistance. The applicants’ onus is to establish by reference to the grounds of objection that penalty tax and UTI should have been remitted. [41] Consistent with Orica, the facts and circumstances regarding the refusal to remit penalty tax and UTI, including the conduct of the Commissioner and taxpayer will be relevant. Relevant conduct also relates to any misstatement or omission by the taxpayer, up to the time of assessment. [42] I must be reasonably satisfied that the applicants have established their grounds of objection on the evidence. It will be necessary to make a finding as to whether, on the facts, the applicants knowingly misled the Commissioner. I accept given the seriousness of that issue, it is relevant to bear in mind the principle in Briginshaw11 that: 9 Briginshaw v Briginshaw (1938) 60 CLR 336, 361-2 (Dixon J.) 10 Theophilas v Chief Commissioner of State Revenue [2014] NSWCATAD 100, [33]. 11 Briginshaw v Briginshaw (1938) 60 CLR 336, 362 (Dixon J.) See also the observations of Member Beacroft in Hay v Commissioner for ACT Revenue [2014] ACAT 23, 64-67. -- 15 of 60 -- 16 … The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences. [43] As my role under s 24 of the QCAT Act is to reach the correct and preferable decision, that involves the exercise of my own discretion under s 60 of the TAA as to whether I would remit any of the penalty tax or UTI upon the grounds of objection and evidence advanced by the applicants. [44] In relation to the SBSC review, I must determine upon the grounds of objection advanced by SBSC whether it has satisfied me on the balance of probabilities, in the stead of the Commissioner, that the factors in s 74 of the PTA and PR031.2 have been met. Questions for the tribunal [45] At the hearing, Counsel for the applicants submitted that the following are questions for determination. SBSC (a) is there a connection in a real and meaningful business sense between SBSC and the remaining group; (b) should SBSC be excluded from the group; and (c) should SBSC be excluded from the group at least from 1 October 2015 when it had its own arrangements with CUB? Remission of penalty tax and UTI – all applicants (d) should the exercise of the Commissioner’s discretion pursuant to s 60 be exercised in a different way with respect to remission of penalty tax; (e) did the applicants intentionally and deliberately deceive the Commissioner; (f) were the applicants careless rather than intentionally misleading of the Commissioner; (g) if so, should penalty tax be remitted to 25% on the basis that the applicants were careless; (h) how is the onus of proof to be met; and (i) on the balance of probabilities, is the tribunal satisfied the taxpayers deliberately intended to mislead the Commissioner? In this regard, findings in relation to the credibility of the witnesses are necessary. [46] I agree that these are the relevant issues for determination. Penalty tax and UTI – all applicants -- 16 of 60 -- 17 Objections [47] An objection appears as a sample, given the commonality of objections, in the bundle of key documents at Tab 16. That is the document to which I have referred. It is the SBSC objection dated 29 June 2015. [48] The applicants’ objections are set out below. Assessments excessive [49] The penalty tax assessments are excessive because, as part of the decision or conduct leading up to the penalty tax assessments, the Commissioner should have exercised the discretion under s 60 of the TAA to remit the whole or part of the penalty tax assessments imposed under the TAA. [50] The UTI assessments are excessive because, as part of the decision or conduct leading up to the UTI assessments, the Commissioner should have exercised the discretion under s 60 of the TAA to remit the whole or part of the penalty that is inherent in the uplift component included in the rate of UTI assessment imposed under the TAA. [51] The UTI assessments are excessive because, as part of the decision or conduct leading up to the UTI assessments, the Commissioner should have exercised the discretion under s 60 of the TAA to remit the whole or part of the UTI assessment imposed under the TAA. Decision arrived at on a wrong basis [52] If, as the basis for justifying the reassessments, the Commissioner has purported to form any opinion adverse to the objector, then the Commissioner has made a decision: (a) based upon a mistaken or inadequate understanding of the relevant facts or law; (b) arrived at through taking into account and not giving proper weight to matters which she should not have taken into account; (c) arrived at through not taking into account and not giving proper weight to matters which should have been taken into account; (d) incorrect and unjustified; (e) arbitrary, capricious, erroneous or unreasonable; and/or (f) not made in good faith and not a bona fide exercise of any discretion or power and that decision should now be reviewed and corrected and substituted with an exercise favourable to the objector. [53] Further detailed grounds are set out in Schedule 1 to the Objection, being: (a) Where the automatic imposition of penalty tax and UTI creates results that are not just and reasonable, the law compels the favourable exercise of the power to remit. (b) The rate of UTI for the financial year 2014-15 is 10.69% which includes an 8% uplift. The uplift is clearly a penalty in character, if not in name. The UTI falls -- 17 of 60 -- 18 for regulation and remission in accordance with the common law rules that apply to other penalties, as prescribed by the Courts. The applicants rely upon observations made by Fryberg J in Deane v Commissioner of Stamp Duties12 that the fact a statute refers to a ‘penalty’ suggests that the imposition of such an additional tax is intended to be penal, and that fault is the most important consideration. (c) The applicants also rely upon Commissioner of State Revenue (WA) v Artistic Pty Ltd13 in relation to factors to be taken into account to ensure that a discretion is exercised on a just and reasonable basis: (a) … the fact that there was no suggestion that the taxpayer had engaged in a mechanism to avoid the imposition of payroll tax; and (b) that the expression just and reasonably included considerations personal to the taxpayer… (d) In relation to remission of UTI, the Commissioner’s self-imposed restriction that she will only reduce UTI in ‘exceptional circumstances’ is contrary to the legislation and contrary to the common law.14 Supply agreements misunderstood [54] The Commissioner has misunderstood the form and substance of supplier agreements. [55] In this regard, Katarzyna entered into supply agreements with: (a) Carlton and United Breweries (‘CUB’) relating to Bunk, CBD Golf, Empire, Family and SBSC for the period 1 September 2012 to 31 August 2015, for the period 1 July 2010 to 30 June 2015 for the same companies and for 1 January 2007 to 31 December 2011 for the same companies except SBSC; (b) Asahi Premium Beverages Pty Ltd (‘Asahi’) relating to Bunk, Empire, Family and SBSC for the period 7 April 2014 to 6 April 2015 and for the period 1 December 2013 to 30 November 2016 for the same companies; and (c) Schweppes Australia Pty Ltd (‘Schweppes’) relating to the same companies for the period 13 August 2010 to 13 August 2013. [56] The agreements provided for rebates based on volumes of alcohol and soft drink purchased, business support benefits and for a degree of exclusivity and minimum volume of purchases in favour of the supplier. [57] The objections relating to the supply agreements are: (a) the third party supplier agreements are entirely irrelevant to the question whether the business of the objector is connected with or dependent on the business of any other entity; 12 [1996] 2 Qd R 557. 13 [2008] ATC 20-004. 14 Conder Towers Pty Ltd v Commissioner of State Revenue [2012] VSC 107. -- 18 of 60 -- 19 (b) the Commissioner describes them as ‘joint’ supplier agreements, when in substance and in form they are agreements entered by the relevant third party supplier only with Katarzyna alone; (c) the rules of privity of contract mean that no entity other than Katarzyna can enforce any right against the supplier; (d) similarly, the rules of privity of contract means that a supplier cannot enforce any rights under the agreements against any entity other than Katarzyna; (e) under the supplier agreements there is no binding obligation on Katarzyna or on any person to acquire a particular volume of product from the suppliers or in fact to acquire any product at all; (f) the supplier agreements are essentially “on call arrangements”, where the suppliers stand ready to make their products available on the terms in the agreement; (g) properly construed, it is the suppliers who seek and attain benefits under their agreements, comprising: (i) exclusivity of display of their products; (ii) exclusivity of sale of their products; and (iii) collaborative promotion of their products; (h) properly construed, the arrangement between the relevant supplier and Katarzyna does not include an agreement to confer any ‘discount’ as the Commissioner wrongly asserts. They only contemplate paying a rebate, and only to Katarzyna and not to any other entity; (i) consequently, so far as any contractual relations might arise between a purchaser entity (apart from Katarzyna) and a supplier, they: (i) do not arise under Katarzyna’s supplier agreements; (ii) can only arise on the terms of the individual invoices issued between the supplier and each separate purchaser; and (iii) have no ‘joint’ character whatsoever; (j) consequently, the supplier agreements are not evidence of any connection or dependency between the business carried on by the objector and the business carried on by any other entity. The invoicing arrangements confirm the contrary – that the businesses are carried on independently and are not connected; (k) it is the awkward wording in the Commissioner’s own requisition and the Commissioner’s pre-conceived conclusions that have led to the Commissioner’s own misunderstanding and confusion in respect of the Objector’s answers. As worded, the requisition contemplated members of the group offering to supply items to other members of the group at a discount. Clearly on the evidence of the supplier agreements and the invoices, purchases are made without a group -- 19 of 60 -- 20 member being offered assistance by way of a discount from other members of the group; (l) in any event, no discount is obtained under the terms of a supplier agreement, and the Commissioner simply misunderstands the different character of a rebate, and the fact that the rebate is not paid to each member of the group but is due only to Katarzyna.; (m) it is the Commissioner’s requisition that has given rise to the ambiguity and confusion. The requisition is essentially confined to purchasing arrangements and discounts. The purchasing arrangements are clearly separate for each entity, and there are no discounts available under the supplier agreements; (n) the Commissioner seizes on a degree of particularity (which is absent in the requisition) to then accuse the Objector of being misleading, when the Objector in fact provides accurate responses to the questions posed so imprecisely. The Objector’s response to the Commissioner’s requisition is entirely correct and not misleading; (o) the Commissioner has reached a conclusion that allegedly joint supplier agreements were entered into on a group basis for the purpose of obtaining benefits (including increased rebate) which would only be available to larger customers. There are no joint supplier agreements that operate in the terms alleged. The supplier agreements are only with Katarzyna and the Commissioner already acknowledges that the purchasers all order separately and pay separately; (p) in relation to the Commissioner’s assertion that the cents per litre rebate is calculated on the overall group purchasing relationship with CUB, the Objectors say that properly construed, the CUB supplier agreement is only with Katarzyna Group Pty Ltd. It is only Katarzyna that is entitled to rebates under the terms of that agreement. On the other hand, if an entity other than Katarzyna creates a separate contract with CUB by placing orders and receiving invoices, and if it is conferred a rebate by CUB, then that outcome arises under that individual contract; General factors set out in paragraph 7 of Public Ruling TAA060.2.4 [58] Having regard to the general factors mentioned in paragraph 7 of the Ruling (what is reasonable in light of all relevant facts and circumstances), the Commissioner should be satisfied that: (a) there is no culpability on the part of the Objector, in that there was never a deliberate intention or plan to avoid payroll tax; (b) there is significant complexity in the Act generally and particularly the technical application of the grouping provisions as purported here; (c) there is no history of any previous non-compliance with tax laws by the Objector; and (d) the Objector has offered a high level of co-operation with the Commissioner. -- 20 of 60 -- 21 [59] The Commissioner should also be satisfied that: (a) the Objector should not incur any penalties for an administrative interpretation, or oversight that was outside its particular knowledge; (b) the Objector has taken reasonable care in the conduct of its tax affairs, including by engaging a tax advisor to oversee their compliance with taxes; (c) the Objector has a good history of compliance with all other State and Federal taxation obligations; (d) any underpayment of payroll tax has been a consequence of an unknown administrative interpretation, or an innocent mistake that was outside its particular knowledge in respect of the Commissioner’s administration of the grouping provisions, and the Objector has co-operated to clarify the situation; and (e) the Objector has co-operated with the Commissioner and devoted extensive and scarce resources in meeting the Commissioner’s enquiries in relation to the matter. The Decision [60] The Decision is set out in a letter from the Commissioner of State Revenue to Mr Magoffin, PPM Tax and Legal, advisor to the applicants, dated 4 April 2016. 15 [61] The Commissioner remitted some or all of the penalty tax on some Assessments but did not consider that there were any grounds to remit penalty tax from the prescribed statutory rate of 75% on other Assessments. Annexure C to the Decision sets out for each Assessment whether penalty tax applied, whether it was remitted (that is, the rate imposed) and the reasons for the Decision. [62] The Decision records that the Commissioner exercised the discretion to assess annual liabilities as if periodic returns were not required. Therefore, UTI for the annual return Assessments accrued from after the end of each financial year. This resulted in less UTI than if monthly periods had been assessed separately, each accruing UTI from a start date after the end of the relevant month. [63] The Commissioner considered that the only circumstance warranting remission of UTI was the time taken by the Commissioner to process the applicants’ disclosures and exclusion applications. UTI was therefore remitted from the following dates in the Assessments dated 25 or 26 June 2015: (a) 19 December 2013 (exclusion applications) – Beaumont Constructions, Bunk, Empire and Family; (b) 19 December 2013 (disclosure of grouping) – Katarzyna and SBSC; (c) 4 June 2014 (disclosure of grouping) – Beaumont Creations; 15 Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 21; Disclosure documents – Folder 3 document 19, page 581-637. -- 21 of 60 -- 22 (d) 27 February 2015 (exclusion application) – CBD Golf. [64] The Commissioner also remitted the UTI which subsequently accrued due to late payment of the Assessments dated 25 or 26 March 2015. [65] All later Assessments, that is, all periodic returns for March 2015 onwards, were self- assessed and no UTI applied however, in the case of SBSC’s Assessments for January to March 2015, the Commissioner was prepared to remit UTI if the company lodged the returns by 21 April 2015. UTI was remitted in full by reassessment. Further, in the case of Beaumont Creations’ self-assessment for July to December 2014, the Commissioner was prepared to remit UTI in full if the company lodged the return by 21 April 2015. The company did not self-assess its liability for this period until 24 April 2015, so no UTI was remitted. Commissioner’s findings and conclusions in relation to penalty tax [66] The Commissioner says in her Decision that she applied the principles in PRTAA060.2 which she considered to be consistent with general principles relating to penalty remission discussed by the Supreme Court of Queensland in obiter dicta under different legislation.16 [67] The Commissioner accepted that whether a taxpayer intended to avoid payroll tax and other considerations personal to the taxpayer are relevant to the discretion to remit penalty tax as discussed in PRTAA060.2.4. The Commissioner agreed with the applicants that such circumstances must relate to fault and culpability as causes of the non-compliance. [68] TAA060.2.4 describes general remission categories which outline how the Commissioner will generally remit penalty tax in particular cases. The Commissioner considered by reference to the categories set out in the Ruling, whether the applicants had taken reasonable care, whether they had been careless or reckless and whether they had knowingly misled her. Reasonable care – Category 1, Case B [69] The Commissioner had regard to the following in determining whether the applicants had taken reasonable care to determine their tax liability and meet their tax law obligations and did not intentionally disregard or avoid the tax laws, that is, whether they: (a) kept complete and accurate records; (b) made diligent efforts to understand and comply with the law; (c) sought expert advice on uncertain or complex matters; (d) were honest and open in their dealings with the Commissioner; and (e) set in place appropriate processes to ensure compliance with the tax laws. 16 Deane v Commissioner of Stamp Duties (Qld) (No 2) [1996] 96 ATC 4382, 4390-4392. -- 22 of 60 -- 23 [70] The Commissioner was satisfied in relation to all criteria except for the criteria of seeking expert advice and being honest and open in their dealings with the Commissioner. [71] In relation to seeking expert advice on uncertain or complex matters, the Commissioner referred to PRTAA060.2 which provides: Where expert advice was sought, the remission under this category will only apply where the Commissioner is satisfied that all of the following conditions have been met: (i) the taxpayer provided satisfactory documentary evidence such as the advisor’s written confirmation that advice or self-assessment services were sought on the matter in question. For example, a general request for advice on issues to be considered when establishing a business will not be specific enough to satisfy the Commissioner that advice was sought on State tax implications of such an establishment. (ii) The taxpayer provided sufficient information, which was not misleading or incorrect, to the agent for the agent to accurately provide tax advice or self-assess the taxpayer’s liability for tax. (iii) In the circumstances, it was reasonable for the taxpayer to believe that, in engaging the agent, the taxpayer had taken all necessary steps to comply with any relevant obligations under the tax laws. (iv) The advice or service must not have involved the taxpayer entering into an arrangement to which Category 3, paragraph 11 of this public ruling applies. [72] The Commissioner could not find anything to suggest that the applicants sought specific advice from their accountant on payroll tax obligations during the relevant periods. The Commissioner said that merely relying on an accountant without specifically requesting or receiving advice on the particular matter is not sufficient to demonstrate reasonable care has been taken.17 [73] The Commissioner was not satisfied that the applicants’ failure to register for or accurately self-assess payroll tax was due to reliance on their accountant. [74] The Commissioner’s view is that the onus is on an employer to stay informed about its liability for State taxes and register for payroll tax when the liability arises. Not having known about the relevant tax law does not establish the applicants took reasonable care. The Commissioner accepted that the applicants were unaware of the Commissioner’s approach to the grouping provisions but concluded this does not mean the applicants took reasonable care. [75] The Commissioner noted its extensive information about payroll tax available through a variety of channels including its website and telephone service. [76] The Commissioner was satisfied that the applicants’ conduct did not fall within Category 1, Case B. 17 Boston Sales and Marketing Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 139, 68. -- 23 of 60 -- 24 [77] The Commissioner concluded that all but one of the companies knowingly provided misleading information to the Commissioner and that they therefore were not honest and open in their dealings with the Commissioner. Carelessness or Recklessness – Category 2, Case B [78] In relation to Category 2, Case B, the Commissioner considers remitting penalty tax to 25% where: The taxpayer either: (i) failed to comply with their obligations under the tax laws due to carelessness or recklessness or (ii) did not take reasonable care to determine their liability for tax and meet their obligations under the tax laws. For this category to apply, it is not necessary to establish that the taxpayer acted dishonestly or with intentional disregard of their tax law obligations, as this is addressed in the next category. Ignorance of the tax law will suffice. [79] The Commissioner considered the conduct of CBD Golf fell within Category 2, Case B. I note that CBD Golf is not an applicant in these proceedings. [80] The Commissioner asserts that all companies, including CBD Golf and Beaumont Constructions did not take reasonable care. Knowingly misleading the Commissioner – Category 3, Case A [81] Under Category 3, Case A, the Commissioner may decide not to remit any penalty tax where the taxpayer committed a deliberate tax default or intentionally disregarded their obligations under the tax laws. A deliberate tax default may take the form of fraud or evasion of tax or knowingly misleading the Commissioner, or causing the Commissioner to be misled about the taxpayer’s liability for tax. Knowingly misleading the Commissioner may include deliberately omitting information when providing information to the Commissioner. [82] The Commissioner considered that six of the applicants (apart from Beaumont Constructions and CBD Golf) knowingly mislead the Commissioner while seeking exclusion orders. Penalty tax was therefore not remitted. [83] The finding that six companies knowingly misled the Commissioner while seeking exclusion orders was based on information supplied, or not supplied, in the exclusion applications and other correspondence during the Commissioner’s investigation. [84] The Commissioner referred to her letter to the applicants’ advisor PPM Tax and Legal Pty Ltd, dated 27 March 2015 (‘the penalty decision’). That decision records the Commissioner’s view that she had been misled by: (a) the applicants not disclosing all employers in the group in their exclusion applications dated 19 December 2013, namely Beaumont Creations Pty Ltd and CBD Golf Pty Ltd; (b) the false statement in the Katarzyna Group – company particulars that the CBD Golf was not a trustee of a trust and therefore not an employer in the group; -- 24 of 60 -- 25 (c) the applicants omitting to note in the Katarzyna Group – company particulars, the entities that CBD Golf was/is grouped with, being CBD Discretionary Golf Trust and CBD Academy Unit Trust; (d) in a submission/letter from PPM Tax and Legal to the Commissioner dated 4 June 2014, the applicants again did not disclose that CBD Golf was an employer in the group; (e) not disclosing in the exclusion applications dated 19 December 2013 the fact the applicants share a common website; (f) not disclosing in the original exclusion application dated 10 September 2014 that services were provided by Beaumont Creations Pty Ltd to SBSC. Further, the statement that Beaumont Creations charged arm’s length commercial rates to its customer group members, when the rates were based on actual costs; and (g) statements in the exclusion applications dated 19 December 2013 and in the provision of further information about supply agreements. Supply agreements [85] The Commissioner found that the applicants misled her by making the following false or misleading statements in relation to the existence of CUB, Asahi and Schweppes supply agreements: (a) in the exclusion order applications dated 19 December 2013, Empire, Family, Bunk and Katarzyna stated that: There are no common purchases or sales of goods and services by each entity and members of the Katarzyna Group...as such, we submit that this factor should strongly favour the granting of an exclusion order... (b) The Commissioner requested on 7 July 2014: Does Katarzyna organise the purchase of goods on behalf of other members in the group (for example alcohol, beverages, glassware etc). (c) In response to the request, the applicants stated on 12 August 2014: Apart from one transaction (refer item 2.3), Katarzyna does not organise the purchase of any goods on behalf of client entities. Each client entity has its own requirements for the purchase of goods such as tobacco, alcohol and glassware. Furthermore, each client entity conducts its own periodical stocktakes and has its own purchasing personnel. (d) In the Commissioner’s request for information dated 7 July 2014, the Commissioner requested: The nature the extent of any group purchasing or supply arrangement. For example, purchase of alcohol, beverages, food and glassware. If no group purchasing arrangements exist, to avoid doubt, confirm each business purchases their own alcohol, beverages and glassware directly, without the assistance (including any type of discount) of other members in the group. -- 25 of 60 -- 26 (e) In response on 12 August 2014, the applicants provided separate invoices issued to each applicant and stated: Apart from the isolated transaction mentioned in item 2.3, each client entity purchases its own alcohol, beverages and glassware directly, without the assistance (including any type of discount) of other members in the group. All goods are ordered and paid for separately, with separate invoices being issued to different members of the group. In addition, rebates are calculated separately for each client entity without any reference to other entities’ purchases. [86] The applicants’ advisor Mr Magoffin only became aware of the supply agreements when the Commissioner emailed them to him on 6 February 2015. [87] The Commissioner noted that in Mr Magoffin’s letter to the Commissioner dated 17 February 2015, he acknowledged on behalf of the applicants that the response of 12 August 2014 was ‘partially incorrect given the CUB agreement’. An apology was proffered stating it was an honest oversight that caused the applicants not to disclose the existence of that particular agreement. [88] The Commissioner decided that the CUB, Asahi and other agreements fell within the description of a ‘group purchasing arrangement’. PRPTA031which sets out factors the Commissioner takes into account in considering exclusion. They include: (a) The nature and extent of any commercial transactions between the members. … (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. [89] The Commissioner considered a rebate after purchase is so similar to a discount at the time of purchase that this distinction is unlikely to be the reason the agreements were not disclosed. [90] The Commissioner considered that the applicants’ statement that rebates are calculated separately suggests misleadingly that each relevant company had separate rebate agreements with suppliers.18 [91] In relation to the further statement that rebates are calculated separately, the Commissioner could not agree that any rebate received from CUB arises solely under separate contracts, rather than requiring an overarching agreement. The Commissioner considered the statement was misleading. [92] The Commissioner had earlier in her Decision addressed the applicants’ submission about the nature and effect of the agreements as follows: (a) The supply agreements were not only for the benefit of the suppliers. The businesses received support benefits and price setting. 18 The Commissioner notes that impliedly suggesting a false answer is sufficient to constitute misleading the Commissioner: Orica IC Assets Pty Ltd v Commissioner of State Revenue [2011] QSC 1, 121. -- 26 of 60 -- 27 (b) Just because there may be no obligation to purchase the volumes stated, that does not make the agreements irrelevant to connection and reliance in carrying on of businesses. The incentives to purchase certain volumes brought by compliance with volume targets, increases the weight of the connection and reliance. (c) Rebates were only available due to the joint agreement negotiated through Katarzyna. Although the rebate entitlement was Katarzyna’s under the agreements, they were in fact paid to the purchasing companies. Katarzyna’s entitlement is in reality the entitlement of the relevant purchasing entity, even if it can only be enforced by Katarzyna under privity of contract (subject to s55 of the Property Law Act 1974 (Qld)). (d) Although it is submitted that separate contracts were formed between each purchaser company and the relevant supplier when orders were made and invoices issued, the Commissioner considered that the contracts were subject to the overarching agreements negotiated through Katarzyna. (e) Katarzyna was acting as agent for the other companies. Katarzyna assisting the others’ sales of beverages constitutes an ongoing connection and dependence in how the companies carry on business. (f) The agreements demonstrate an ongoing connection between the businesses of the companies and a reliance on Katarzyna by the others in conducting the business. [93] The statement by the applicants that ‘there are no common purchases or sales of goods and services’ is misleading in its immediate context since it related to whether there was any ‘connection’. The applicants had the benefit of advice as to what was relevant when instructing the advisor as to the facts. [94] In the CBD Golf exclusion application made after the Commissioner had located the supply agreements, supply of beverages to CBD Golf and relevant entities was acknowledged. [95] The statement that Katarzyna does not organise the purchase of any goods on behalf of client entities, is misleading since Katarzyna arranged agreements under which purchases of alcohol were made. [96] The applicants have submitted that the request for information about ‘any group purchasing or supply agreements’ was misleading in itself in that it is worded to relate to group members offering each other goods at a discount. The Commissioner considered it unlikely the applicants would have understood the Commissioner’s request for information to be limited solely to transactions between group members. [97] The Commissioner considered the agreements were relevant to statements in the exclusion applications and should have been disclosed. Other factors [98] The Decision notes that the applicants did not make any submissions in relation to the factors relied on by the Commissioner as showing misleading conduct, apart from the beverage supply agreements. Other factors included not disclosing certain group -- 27 of 60 -- 28 members, not disclosing the shared website, not disclosing services provided by Beaumont Creations to SBSC and stating that Beaumont Creations charged commercial rates to its customer group members. [99] The Commissioner thought non-disclosure of CBD Golf as an employer within or potentially within the group and the non-disclosure of its trust through which it may be grouped was a significant reason against remission of penalty tax for the rest of the companies, but not relevant to CBD Golf’s own penalty tax remission. [100] The non-disclosure benefitted CBD Golf because it was not reassessed for the 2008- 09 financial year which was outside the statutory reassessment limitation period. [101] The Commissioner considered the applicants were aware prior to July 2014 that CBD Golf may be part of the group because: (a) they were being advised about grouping during the investigation; (b) CBD Golf was listed in the 7 March 2014 draft document; and (c) the shareholders, directors and beneficiaries of the company have always been members of the Bickle family. PRTAA060.2 [102] PRTAA060.2 provides: The Commissioner decides whether or not to remit penalty tax on a case by case basis, determining what is reasonable in light of all relevant facts and circumstances including: (a) the nature and extent of the taxpayer’s culpability; (b) the complexity of the matter giving rise to the taxpayer’s liability for tax; (c) the reasons for the taxpayer’s failure to meet their obligations, including: (i) the nature of attempts made by the taxpayer to comply with their obligations; (ii) the processes the taxpayer has in place to ensure compliance with the tax laws (such as staff training, regular external audits and sampling); (d) the nature and circumstances of any voluntary disclosure made by the taxpayer concerning a liability the taxpayer’s previous failure (if any) to comply with the tax laws or any statutes repealed by a tax law; (e) the taxpayer’s previous failure (if any) to comply with the tax laws or any statutes repealed by a tax law; (f) where an investigation has been, or is being conducted, in relation to the taxpayer’s liability, the level of cooperation by the taxpayer with the Commissioner. [103] In relation to these factors, the Commissioner decided that the applicants did not take reasonable care and knowingly misled the Commissioner by omitting or -- 28 of 60 -- 29 misrepresenting information they knew to be relevant (in relation to CBD Golf – there was not sufficient information for the Commissioner to conclude that a statement was made knowingly). [104] The Commissioner acknowledged that grouping is one of the more complex areas of payroll tax law, however, information readily available from the Commissioner mentions grouping through discretionary beneficial interests and this should have caused the applicants to seek expert advice specifically on the topic. [105] The applicants had failed to take reasonable care if they were unaware of the relevant law. [106] There has been a lack of voluntary disclosure. [107] In relation to previous history of compliance it was conceded that there was a level of compliance through registration and payment of payroll tax. [108] In relation to cooperation with the investigation, the Commissioner noted that, apart from the issues relating to her being misled, she has no information to suggest the applicants were not truthful and helpful, both in documentation supplied and in the interviews. The Commissioner accepted the submission that the applicants cooperated with the Commissioner and devoted extensive and scarce resources in answering the Commissioner’s enquiries. [109] The Commissioner pointed out that in view of the total penalty tax payable, she has decided not to reconsider remission although there have been periods of full remission of penalty tax resulting in a more favourable outcome. [110] Further, in view of the total penalty tax payable, the Commissioner decided not to reconsider the Commissioner’s decision not to increase the amount of penalty tax by any percentage. [111] The Commissioner decided not to reduce penalty tax for voluntary disclosure, because of delays outside the required timeframes. [112] The Commissioner concluded that to further remit penalty tax would be inequitable by not distinguishing those taxpayers who register for payroll tax and self-assess their liability accurately from those who require default assessments and reassessments to be made. The Commissioner’s findings and conclusions in relation to UTI [113] The applicants sought remission of UTI. They submitted that the rate is actually a penalty and that remission of the component is subject to the same considerations as penalty tax. [114] The Commissioner referred to the explanatory notes to the Taxation Administration Bill 2001 (Qld): ...the policy objective in imposing interest is to encourage payment of tax on time and to compensate the state for the period that tax has been unpaid... In addition to the imposition of interest on unpaid tax amounts, there are also cases where administrative sanctions are necessary...such sanctions act as an -- 29 of 60 -- 30 incentive for compliance with the tax laws and also recognise that it may not always be feasible or cost effective to institute prosecution action for non- compliance. Part 5...therefore provides for the imposition of penalty tax... [115] The Commissioner determined that submissions in relation to penalty tax are not relevant to UTI. The reasons for UTI are to encourage payment on time and to compensate the State. [116] The Commissioner concluded that the applicants had not satisfied her that UTI should have been further remitted. In particular: (a) the applicants had not demonstrated circumstances outside their control that may have prevented them from lodging payroll tax returns and paying payroll tax at the time their liability arose; and (b) the applicants did not object to the dates chosen for remission of UTI as set out in Annexure C to the decision. [117] The Commissioner concluded that the delay in paying the correct amount of payroll tax in the time required was primarily attributable to the applicants’ lack of knowledge about the law to do with grouping and exclusion. The Commissioner said that is not a sufficient reason to remit UTI.19 The Commissioner did not consider the applicants’ submissions warranted the exercise of discretion beyond the Commissioner’s published practice. The Evidence [118] In summary, the Commissioner believes the applicants intentionally provided false or misleading information, primarily in an attempt to receive a favourable outcome to their exclusion order request. [119] The grounds of objection do not expressly refer to the Commissioner’s assertion that the applicants did not disclose all employers in the group, nor do the applicants’ grounds of objection deal with other factors relied on by the Commissioner as showing misleading conduct, apart from the beverage agreements. Other factors included not disclosing the shared website, not disclosing services provided by Beaumont Creations to SBSC and stating that Beaumont Creations charged commercial rates to its customer group members. [120] The Commissioner submits that the affidavits of Louis Bickle sworn 7 April 2017 – Exhibit 4, the statement of Raphael Bickle made 7 April 2017 – Exhibit 5, and the affidavit of Bevan Bickle sworn 10 April 2017 – Exhibit 3, are silent in relation to how misleading statements were made to the Commissioner and how relevant information was not provided to the Commissioner. [121] The recent affidavits attempt an explanation. Did the applicants intentionally and deliberately mislead the Commissioner? Failure to disclose all employers in the group 19 Grist v Commissioner of State Revenue [2014] QCAT 259, 36-37. -- 30 of 60 -- 31 [122] At the outset, I accept the submission on behalf of the applicants that by the time the exclusion decision was made on 27 March 2015, the Commissioner was apprised of all relevant information, so that it is not possible to say that the Commissioner was misled at that time. However, relevant to exercise of the discretion under s 60, guided by PRTAA060.2 of the TAA is whether a person has engaged in conduct which is knowingly misleading, rather than whether the Commissioner was actually misled. [123] I accept Mr Magoffin’s evidence that he did not deliberately mislead the Commissioner. As an advisor Mr Magoffin can only act on instructions. I accept his evidence that indicating CBD Golf was not a trustee company, in the 7 March 2014 table of companies, was a mistake for which he takes responsibility. [124] The fact is that it was the Commissioner who located information about Beaumont Creations and CBD Golf. It was not provided in a timely way by the Directors of the applicants. That was acknowledged by Mr Magoffin in cross examination. [125] As Directors seeking advice from Mr Magoffin and giving him instructions, Louis and Raphael Bickle were responsible for checking documents before submission and confirming the correctness of the information disclosed. They had the advantage of internal and external advice. They are sophisticated businessmen with significant business interests operated through many companies and trusts. It is not unreasonable to expect that with advice they are cognisant of their own affairs. [126] The evidence of Raphael Bickle is unsatisfactory. It is not an answer to the question of why he did not identify Beaumont Creations and CBD Golf as a possible group members to say that he was focussing on the companies the subject of the audit. Part of the audit’s function is to identify members of the group. The Form AQ1 first sent to the companies the subject of the audit raises questions intended to bring companies such as Beaumont Creations and CBD Golf to light. Raphael Bickle asserts he has no recollection of the Form. He deals with the issue of non-disclosure by saying that he relied upon Mr Magoffin. Mr Magoffin’s evidence is that he raised relevant questions with the representatives of the applicants seeking his advice, prepared drafts on their instructions and sent the drafts to them for checking and approval. [127] The applications for exclusion by companies of which Raphael was a Director attach a Form OSR PT1. The Form asks if there are any other members of the group. The Form is marked ‘No’ in relation to this question. That is not correct. The Form sets out questions required to be answered in the application, including whether any business in the group exists solely or predominantly to provide goods or services to the other group members (question 25). Beaumont Creations provided construction services to the group, including to businesses conducted by companies of which Raphael Bickle was a Director. The Form is signed with a Declaration that all information submitted is true and correct. Plainly the information in the application was not true and correct. [128] I find that Raphael Bickle was at best careless and reckless in his response to the Commissioner’s requests for information as set out in the applications for exclusion from grouping and subsequent correspondence sent on the applicants behalf. I accept that the Commissioner conducted the investigation in a collaborative way. I do not think however that excuses the giving of incomplete information to the Commissioner, when with proper attention to the matter complete information could have been provided. -- 31 of 60 -- 32 [129] The evidence of Louis Bickle is also unsatisfactory. His affidavits do not address the matter. His evidence in cross-examination is that he did not seek advice as to other potential members of the group, he had no recall of any questionnaire and he had no recall of any document prepared on his behalf. Louis Bickle is a Director of Beaumont Creations. He is a beneficiary of the CBD Discretionary Golf Trust. His evidence is barely credible given that he and Raphael were largely responsible for seeking advice and giving instructions. [130] I find Louis Bickle to have been careless. He also recklessly made a false declaration in the exclusion applications he signed. I note that he signed the Bunk application for exclusion and gave the Declaration on the Form OSR PT1. [131] Bevan Bickle as Director of SBSC gave no evidence in relation to the issue. He gave additional oral evidence at the hearing that he did not personally give any instructions to Mr Magoffin on behalf of SBSC. That was done by his partners Louis and Raphael Bickle. [132] The effect of non-disclosure of CBD Golf as an employer within or potentially within the group and non-disclosure of its trust through which it may be grouped was that it fell outside the statutory reassessment limitation period for the 2008-09 financial year. The non-disclosure occurred in the 19 December 2013 exclusion applications, the 7 March 2014 Katarzyna Group company particulars document and in a letter dated 4 June 2014 from PPM Tax and Legal to the Commissioner. I agree with the findings of the Commissioner set out in her penalty decision, that the applicants were aware prior to July 2014 that CBD Golf may be part of the group, because they were being advised during the investigation, it was listed in the 7 March 2014 draft document and the shareholders, directors and beneficiaries of the company have always been members of the Bickle family. [133] The question is whether I should go further than a finding of carelessness and find, as the Commissioner submits, that these witnesses intentionally misled the Commission by failing to disclose Beaumont Creations and CBD Golf at an earlier stage. The respondent submits that I might infer that the applicants intentionally omitted the information in order to lessen their primary tax. [134] An inference is available if according to common experience a fact is the more probable inference.20 [135] I agree with the respondent’s submission that the adjectives ‘intentional’ and ‘deliberate’ appear to mean something more than reckless disregard of or indifference to a taxation law. [136] An intention to withhold information unless the Commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct 20 Luxton v Vines (1952) 85 CLR 352. See also United Group Resources Pty Ltd v Calabro No 5 [2011] FCA 1408, [71]-[72]. -- 32 of 60 -- 33 which if the result is to avoid tax would justify finding of evasion.21 Intentional behaviour is the directing of the mind, having a purpose or design.22 [137] A person’s intention is a question of fact. It may be proved by direct evidence of a person’s state of mind but may also be inferred from the circumstances or conduct of the person.23 [138] I am unable to conclude on the evidence that Raphael, Louis and Bevan Bickle had the requisite intention to mislead the Commissioner by deliberately omitting information. Nor do I think the applicants intentionally disregarded their obligations under the tax laws. [139] I do not think the applicants through Bevan, Raphael or Louis Bickle were sufficiently knowledgeable about payroll tax to not only deliberately withhold information about Beaumont Creations and CBD Golf in particular, but to do so in order to achieve a better tax outcome for the benefit of the applicants. I accept their evidence that they did not know anything about payroll tax. I am unable to infer any dishonesty or intentional disregard of the tax law insofar as non-disclosure of Beaumont Creations and CBD Golf is concerned. [140] I find that the applicants, through their Directors Bevan, Raphael and Louis Bickle, were careless or reckless as contemplated by Category 2 Case B described in TAA060.2.4. The Public Ruling describes the concept of recklessness as: ‘where the person’s conduct shows disregard of, or indifference to, consequences foreseeable by a reasonable person.’24 [141] I think that description aptly describes the failure to disclose all companies in the group, despite their knowledge of the companies and the fact that they should have been aware of requests to identify those companies. Website [142] I accept the applicants’ submission that there was no deliberate intention to mislead the Commissioner by failing to disclose the shared website. [143] The website is in the public domain and is referred to on many pieces of correspondence from the parties. There is no way of hiding the fact of its existence. On this basis I do not think it was not disclosed in order to gain a tax advantage by doing so. [144] I accept Mr Magoffin’s evidence that the important information for the purpose of the grouping exercise is that administrative services were provided by Katarzyna. That was disclosed. The fact that one of those services – the shared website was not disclosed is of lesser importance. [145] The Commissioner’s forms requiring information, expressly referred to a shared website. It could have been disclosed and should have been disclosed, but was not. That is an example of carelessness or recklessness in declaring that all information 21 Denver Chemical Manufacturing Co v Commissioner of Taxation (1949) 79 CLR 296, 313 (Dixon J.) 22 Case 10/2005 (2005) ATC 197, 24 (Member Hunt.) 23 Taxation Ruling TR94/4 (TR94/4), 21. 24 Hart v Commissioner of Taxation (2003) 131 FCR 203, [43]. -- 33 of 60 -- 34 provided is true and correct. I find that the applicants were careless or reckless as contemplated by Category 2 Case B described in TAA060.2.4. Not disclosing services provided by Beaumont Creations to SBSC and asserting that Beaumont Creations charged commercial rates to its customer group members [146] The table prepared in Beaumont Creations application for exclusion from grouping which purports to set out the extent of services provided by it was not accurate. That should have been obvious to Louis Bickle when he gave instructions to Mr Magoffin. At best the failure to provide correct instructions was careless and reckless. [147] The information would always have come to light as it was reflected in SBSC’s financial statements. On this basis I do not think Louis Bickle, as the person giving instructions in relation to Beaumont Creations deliberately withheld information in order to gain a tax advantage. I have previously found that he did not have a sufficiently good understanding of payroll tax and the grouping provisions to attempt to manipulate a result by withholding information. I find that failing to accurately describe the services provided by Beaumont Creations was careless and reckless as contemplated by Category 2 Case B described in TAA060.2.4. [148] As to whether the description of Beaumont Creations services having been carried out on an arm’s length basis was accurate, I find in accordance with the evidence that the services were not carried out at ‘actual cost’, but rather at cost plus 5%. No satisfactory evidence was given as to whether that level of charge enabled the categorisation of the provision as ‘arm’s length’. Louis Bickle’s evidence in cross examination is that if Beaumont Creations makes a loss another company in the group has benefitted. On that basis, I find that Beaumont Creations was intended to provide services to the group in a way that was most beneficial to the group. [149] I find that the description in the application was careless or reckless as contemplated by Category 2 Case B described in TAA060.2.4. Supply agreements [150] I accept the submissions of the Commissioner that the applicants deliberately attempted to mislead the Commissioner in relation to the existence of the supply agreements, in order to avoid a grouping decision and higher primary tax assessment. [151] I have made this finding on the basis of an inference I have been prepared to draw as a result of the circumstances surrounding the provision of information to the Commissioner and the conduct of Raphael, Louis and Bevan Bickle. Mr Magoffin’s evidence [152] Mr Magoffin’s evidence is that at the time of providing answers to questions raised by the Commissioner in relation to purchase of goods such as alcohol and beverages on behalf of the group, he did not know about the CUB, Asahi and Schweppes agreements or any other similar agreements. I accept that evidence. The Commissioner provided the agreements to Mr Magoffin on 6 February 2015. The supply agreements were never raised with Mr Magoffin by the applicants and copies were not provided to him. -- 34 of 60 -- 35 [153] Mr Magoffin agreed in cross-examination that the answer given in the 12 August 2014 letter to the Commissioner’s question numbered as 7 – was not correct with respect to the supply agreements. To recap, the question is: ‘Does Katarzyna organise the purchase of goods on behalf of other members in the group (eg alcohol, beverages, glassware etc)’ The answer given is: ‘…Katarzyna does not organise the purchase of any goods on behalf of Client Entities…’ [154] Mr Magoffin also agreed that the answer given in the 12 August 2019 letter to question numbered 32 was incorrect, if rebates are based on the whole minimum purchase requirements of the group. The question is: ‘The nature and extent of any group purchasing or supply arrangements. For example, purchase of alcohol, beverages, food, and glassware. If no group purchasing arrangements exist, to avoid doubt, confirm each business purchases their own alcohol, beverages and glassware directly, without the assistance (including any type of discount) of other members in the group.’ [155] The answer given is: …each Client Entity purchases its own alcohol, beverages and glassware directly, without the assistance (including any type of discount) of other members in the group All goods are ordered and paid for separately, with separate invoices being issued to different members of the group (refer..sample of invoices…) In addition, rebates are calculated separately for each Client Entity without any reference to other entities’ purchases. Entry into supply agreements [156] As to how the agreements came to be negotiated, Raphael Bickle raised for the first time in his affidavit sworn 2 November 2017 that he negotiated the supply agreements on behalf of Empire alone. He asserts that it was CUB, Asahi and Schweppes who approached other venues to see if they also wanted to take advantage of the price structure. If they agreed, the relevant entities were put on the venue list. [157] That evidence is different to the evidence given by Bevan Bickle that he authorised Raphael Bickle to enter into the CUB agreement dated 12 October 2012 on behalf of SBSC. Bevan Bickle said the rebates were negotiated on behalf of SBSC and that Katarzyna was able to negotiate better rebates than a single venue. [158] He also said that Raphael Bickle talked to him about the agreement, but only gave bare details. Bevan Bickle said that he was only interested in the numbers. [159] Raphael Bickle’s evidence is inconsistent with the fact that the agreements record the ‘customer’ as Katarzyna, not Empire; and that Raphael Bickle is recorded as signing agreements as a Director of Katarzyna. [160] Raphael Bickle’s evidence is also inconsistent with the terms of the various supply agreements. [161] For example, the CUB Business Support and Supply Agreement dated 12 October 2012 describes the customer as Katarzyna Group Pty Ltd and sets out a list of venues the agreement applies to. The agreement contemplates that Katarzyna controls the venues so that it could implement the terms of the agreement at the venues. At paragraph 3, Schedule C – Standard Terms and Conditions, the agreement provides -- 35 of 60 -- 36 that the Agreement applies to each Venue operated or otherwise controlled by the Customer. If the Customer ceases to operate or otherwise control one or more of the venues and this adversely affects the volume of CUB products sold, CUB may reduce the Customer’s benefits and may require repayment of rebates. ‘Control’ is defined to mean in relation to a venue: ‘direct or indirect control of the management or policies of the Venue, including control that is exercisable as a result or by means of arrangements or practices, and “controlled” shall be construed accordingly.’ [162] The Asahi and Schweppes agreements also treat the customer as part of a group, referring throughout to Katarzyna Group and the combined corporate entities trading as Empire, Cloudland, Family, Bunk and SBSC as ‘you’ when referring to benefits and obligations under the agreement. [163] I do not accept Raphael Bickle’s evidence that he did not negotiate the terms of the agreements on behalf of the applicants. I find, on the basis of Bevan Bickle’s evidence and the terms of the agreements, that Raphael Bickle in his capacity as Director of Katarzyna negotiated and entered into the agreements on behalf of the relevant businesses. [164] I find that Raphael Bickle’s evidence as to how the supply agreements came to be entered was an attempt to minimise the group nature of the supply agreements. His suggestion that individual entities were separately approached to take advantage of rates negotiated by and for Empire, and that no negotiations had been undertaken on their behalf by Katarzyna Group is not supported by the terms of the agreements nor the evidence of Bevan Bickle. It also goes to Raphael Bickle’s credit that this assertion was not made as part of the objections. Discussions between the witnesses in relation to instructions to be given to Mr Magoffin [165] Bevan Bickle did not instruct Mr Magoffin directly in relation to responses to the Commissioner’s questions. He relied upon Louis and Raphael Bickle to do so. However, he agreed in cross-examination that he was asked by Louis Bickle about common suppliers. He was evasive when he responded to a question as to whether he told Louis Bickle to give the supply agreements to Mr Magoffin. He said that was a matter for Louis. [166] Bevan Bickle gave evidence that he spoke to Louis Bickle or Raphael Bickle in relation to the answer to the questions addressed in the 12 August 2014 letter. He said he did not read the 12 August 2014 letter before it was sent out. [167] In cross-examination Louis Bickle gave evidence that he did not know of the existence of the supply agreements until after they were sent to Mr Magoffin on 6 February 2015. That is inconsistent with the evidence given in his affidavit sworn 7 April 2017. In that affidavit Louis Bickle says that he, Raphael Bickle, Rahul Rana, internal accountant and Stephen Garland external accountant, gave instructions to Mr Magoffin in relation to responses to the Commissioner’s questions. He says that he did not intentionally leave out the existence of the supply agreements. That strongly suggests that he knew of the supply agreements at the time of the 12 August 2014 letter. Louis Bickle’s evidence is consistent with him leaving details of business arrangements such as negotiation of supply agreements to his son Raphael in whom he expressed faith to look after matters for Bunk. Louis Bickle disclaimed any -- 36 of 60 -- 37 knowledge of rebates and said that he relied on his son in that regard. His expressed understanding of the supply agreements, when asked about the Schweppes agreement negotiated on behalf of 6 companies, is that the companies do not negotiate as 6 individuals, rather they send one person to work out a price and then the individuals start ordering. [168] Raphael Bickle’s evidence on this issue is also unsatisfactory. When asked in cross- examination if he recalled thinking of the supply agreements when responding to the Commissioner’s questions, Raphael Bickle said that he did not know what a ‘supply agreement’ meant. He later said that he did not recall signing the agreements, despite having done so. That evidence is not credible. [169] Given the importance of the sale of alcohol in all the businesses and given the scope of the supply agreements in terms of exclusivity of supply, discounted prices and rebates, it is not credible that the agreements would not have been considered in terms of relevance in answering the Commissioner’s questions. I note that an Asahi agreement was signed by Raphael Bickle as a Director of Katarzyna on 22 April 2014, shortly before the 12 August 2014 letter was sent on behalf of the applicants. [170] The excuse given by Bevan, Louis and Raphael Bickle for not raising the supply agreements with Mr Magoffin is that they did not think the questions were directed to the supply agreements, furthermore wording of the question numbered 32 was ambiguous. All witnesses also stressed the individual arrangements for purchase of alcohol and beverages from suppliers. Reasons for not raising the supply agreements [171] At the time of the applicants’ applications for exclusion from grouping they were directed to questions about the nature of any group purchasing or supply arrangements in the Form OSR-PT1. Negotiation of supply agreements setting discounts and rebates was not mentioned in the applications for exclusion. One might reasonably think that the question would prompt a consideration of the supply agreements. Later, questions in relation to the nature of group purchasing or supply arrangements were asked on 7 July 2014, including a question which referenced any discount achieved in the purchase of alcohol with the assistance of other members of the group. The Commissioner asked these questions as part of her consideration of the applications for exclusion from grouping made by the applicants. [172] The questions were directed to determining if the applicants’ businesses were carried on independently or whether there was a material connection with businesses carried on by any other member of the group. The applicants had taken appropriate advice on the issue of payroll tax and grouping. They had instructed their lawyer and tax advisor to make applications for exclusion. The applicants assert in their applications for exclusion that there was no material connection between the businesses. Having made that assertion I find that the Directors of the applicants who instructed Mr Magoffin understood the significance of the issue of connection between the businesses. The supply agreements bear directly on that issue. Despite that, no-one on behalf of the applicants raised the matter with Mr Magoffin, for his advice as to relevance of the agreements. [173] The witnesses all attempted to minimise the group nature of the agreements and to suggest that each entity’s relationship with the suppliers was an individual one. I -- 37 of 60 -- 38 acknowledge that each entity purchased according to its own requirements and that each entity enjoyed a rebate remitted to it alone. That however ignores the fact that the type of products offered for sale, the price of products, discounts applied and rebate entitlements were all referable to the supply agreements negotiated on their behalf. Other than Raphael Bickle, in relation to Empire, no witness has given evidence that they alone negotiated rates and rebates for their own businesses. No witness has given evidence that they did not abide by the exclusive supply arrangements prescribed by the agreements. [174] The applicants submit that they understood the Commissioner’s questions in the 7 July 2014 letter was to ask whether a group or individuals purchased goods. That is said to be consistent with invoices addressed to each entity, the invoices including their own terms and conditions, remittance advice showing rebates paid to individual entities and financial statements listing alcohol and soft drink rebates as income, and expenses that include purchases of alcohol and soft drinks. No rebate income for alcohol is mentioned in the Katarzyna financial statements and no alcohol or soft drink purchases are listed as expenses. [175] The evidence given by the witnesses as to how they construed the Commissioner’s questions is different to the objection made on behalf of the applicants. The objection asserts that the requisition contemplated members of the group offering to supply items to other members of the group at a discount. The witnesses’ evidence is that they read the question by the Commissioner as to whether all of the entities purchased goods as a group rather than individually and whether each entity purchased its own goods, rather than another entity paying for those goods. [176] I do not consider the questions to be ambiguous or directed only to examples of the group purchasing alcohol as a group. Question 7 asks if Katarzyna ‘organises’ the purchase of goods. Plainly it has organised the exclusive supply of certain products for purchase by the venues. The venues were not free to and there is no evidence that they did purchase outside the exclusive arrangements organised for them. Katarzyna organised the minimum volumes across all venues which drove the price of products and the rebates available to the venues. [177] Any fair reading of the question should reasonably have brought to mind the supply agreements. [178] In relation to question 32, I accept that a superficial reading of the first sentence of the question might suggest that the applicants were being asked if they purchase alcohol as a group, rather than individually. However, the question probes further. It directs the applicants to confirm that each business purchases their own alcohol without the assistance, including any type of discount, of other members of the group. [179] The 12 August 2014 letter expressly addresses the issue of rebates and asserts that rebates are calculated separately for each client entity without any reference to other entities’ purchases. The statement is responsive to that part of question put by the Commissioner as to discounts achieved with the assistance of other members in the group. The answer given is wrong in fact. I find that Raphael Bickle and Louis Bickle knew that the answer was wrong. [180] As was well known to at least Bevan Bickle and Raphael Bickle, rebates were calculated by reference to a minimum volume commitment. In the case of the CUB -- 38 of 60 -- 39 agreement the minimum volume is 660,000 litres during the term, which is the total volume of draught beer and cider purchased across all venues listed. Like benefits are conferred in the other agreements. [181] Bevan Bickle conceded in cross-examination that one venue could not sell 660,000 litres in a 3-year term. He said that the minimum volume was exceeded with three or four businesses operating. He agreed that Katarzyna was able to negotiate better rebates than a single venue. He agreed that the CUB agreement was a group supply agreement, although he said that each business operated independently of one another. [182] Bevan Bickle agreed that no one venue could purchase the agreed forecast sales volume of 65,400 litres of post-mix syrup and 18,300 cases of packaged products referred to in the Schweppes agreement dated 13 August 2010. [183] The supply agreements plainly fall for consideration as relevant to the questions asked by the Commissioner. Findings [184] On the basis of: (a) the knowledge of Bevan, Louis and Raphael Bickle as to the significance of a connection between businesses in the group; (b) the fact that Raphael Bickle negotiated supply agreements as a Director of Katarzyna for the benefit of businesses conducted by the applicants; (c) the supply agreements providing umbrella terms as to exclusivity of certain products, discounts and rebates based on minimum volume sales across all venues; (d) the questions raised by the Commissioner as to group purchase or supply agreements being clear as to the information sought; (e) the questions being such that a reasonable person would have brought the supply agreements to mind and sought advice as to their relevance; (f) no person on behalf of the applicants seeking advice from Mr Magoffin on the supply agreements; and (g) incorrect answers being given to the Commissioner (admitted to be so by Mr Magoffin); I infer that the applicants through Raphael and Louis Bickle intentionally misled the Commissioner by failing to disclose the supply agreements during the course of the Commissioner’s investigation. I find that they did so in order to avoid a grouping decision and to improve their primary tax liability. I find that Raphael and Louis Bickel also acted on behalf of Bevan Bickle in providing instructions to Mr Magoffin in relation to the Commissioner’s questions and that Bevan Bickle is fixed with their conduct. [185] I note that SBSC entered into an individual supply agreement with CUB, dated 26 November 2015. That agreement provides for a fixed amount of allowances and -- 39 of 60 -- 40 discounts per keg. Bevan Bickle’s evidence is that SBSC has exceeded all targets and could now negotiate a better deal. [186] Mr Magoffin expressed the view that the Commissioner has misconstrued the terms of the supply agreements and their relevance. That accords with the thrust of the objections made on this point. [187] I agree with the Commissioner’s decision when addressing the objections. [188] I will not again address the objections based on the asserted ambiguity and confusion said to arise from the Commissioner’s question. That issue has been dealt with. [189] Contrary to the applicants’ objections, I find that the supply agreements are relevant for disclosure because they are evidence of connection and dependency between the businesses. In this regard the decision of Shadforth Lythgo Pty Ltd ATF the BTL (Qld) Unit Trust v Commissioner of State Revenue25 is relevant. I reject the applicants’ submission that this decision is only relevant to the question of SBSC’s exclusion from the group, for the following reasons. [190] Shadforth Lythgo concerned the exercise of discretion to exclude a member from a group for the purpose of payroll tax. Consideration was given to a supply agreement, with CUB which was cast in very similar terms to the CUB supply agreement under consideration in this case. The agreement provided for the supply of alcohol to venues controlled by the customer – Platinum. The agreement was signed by a Director of Platinum. As in this case, ‘control’ in the CUB agreement was defined to mean in relation to a venue, direct or indirect control of the management or policies of that venue, including control that is exercisable as a result or by means of arrangements or practices. CUB supplied alcohol to venues operated by two entities, McGann’s Partnership and Platinum. Alcohol was ordered, invoiced and paid for separately. Rebates were available as a result of the combined sales of the businesses. [191] Member Allen found in Shadforth Lythgo that the decision to enter the supply agreement was made at a strategic level and purports to bind both Platinum and Irish McGann’s Partnership. He found that sale of alcohol is a major part of both entities businesses. The decision to enter the agreement meant each hotel is bound to sell a large proportion of CUB alcohol and that there is a particular rebate arrangement which both businesses are bound to as a result of the agreement. On this basis he was satisfied that this created a material connection between the businesses. [192] On the same reasoning as applied in Shadforth Lythgo, given the similarities between the agreements under consideration and the circumstances, I find that the supply agreements are evidence of connection or dependency between the businesses so as to make them relevant for disclosure to the Commissioner. [193] The applicants submit that the Bickles and Mr Magoffin were not aware of the decision at the time of answering the Commissioner’s questions. A precedent may have been a useful signpost to the applicants, but absent a precedent, fundamental issues about the significance of the supply agreements still needed to be addressed by them. 25 [2016] QCAT 539. -- 40 of 60 -- 41 [194] The objections assert that the supply agreements are entered with Katarzyna alone, such that, by the rules of privity of contract, the supplier cannot enforce the agreement against the entities carrying on the businesses listed in the agreements and the entities cannot enforce the agreements against the suppliers. [195] I do not accept those submissions. I find on the terms of the supply agreements they were entered by Katarzyna as agent for the entities carrying on the businesses covered by the agreements. I find that the agreements were ratified by those entities in observing their obligations under the agreements and taking the benefits of the agreements. Alternatively the contracts governed by the law of Queensland fall within the terms of s 55 of the Property Law Act 1974 (Qld) as a contract for the benefit of third parties. [196] The 2012 CUB agreement is illustrative. Katarzyna warrants at paragraph 9 of the standard terms and conditions that it has the legal capacity and power to enter the agreement. Paragraph 3 of the standard terms and conditions provides that the agreement applies to each venue listed, operated or controlled by Katarzyna. “Controlled” includes indirect control of the management or policies of the venue, including control exercisable by arrangements or practices. On the evidence, the arrangement or practice is for the venues to abide by the exclusive supply arrangements and receive the rebates calculated in accordance with the group minimum volume requirements organised for them. [197] If it were necessary to determine the terms of any contract between the suppliers such as CUB and the applicants, the purchase orders, invoices and supply agreement would all stand together as forming the contract between the parties. Clause 1.5 of the CUB agreement provides that supply of CUB products under the agreement will be subject to CUB’s standard terms and conditions of sale. In other words the supply agreement contemplates other documents forming part of the contract between the parties. [198] There is some clumsiness in the drafting of the supply agreements which on one reading suggest Katarzyna itself is the purchaser of alcohol and beverages and that it receives the rebate. That clumsiness stems from the description of Katarzyna as a company trading as the various venues and businesses listed in the agreements. Katarzyna is not licensed. In construing the contract it is necessary to adopt a reading which gives commercial sense to the document and to give effect to the intention of the parties. I find that the supply agreements were intended to operate, as they have in fact operated, by means of the individual venues abiding by the obligations in the agreements, making individual purchases and receiving the benefits of the agreements in terms of prices and rebates as set out in the agreements. The agreement is intended to apply to all of the businesses listed in the agreement. The agreement would serve no commercial purpose if it was to apply to Katarzyna in its own right. [199] The objections assert that the supply agreements do not oblige any person to acquire a particular volume of product, that the suppliers merely stand by to make their products available and it is the suppliers who seek and attain benefits under the agreements in relation to exclusivity of display and sale of their products and collaborative promotion of their products. [200] I do not accept that submission. The CUB agreement provides for mutual benefits. To be eligible for a volume rebate the venues must purchase the total minimum volume of CUB Products during the term. The agreement provides for payment of -- 41 of 60 -- 42 compensation to CUB for failure to purchase the minimum volume commitment target in certain circumstances. [201] The objections assert that the agreements do not confer a discount, only a rebate and only to Katarzyna, not to any other entity. I do not accept that submission. The evidence is that a rebate was paid by CUB monthly, directly into a venue’s bank account. That is consistent with the terms of the CUB agreement which provides at Schedule A1 that: ‘Volume rebates will be calculated by CUB monthly and will be paid via, at CUB’s election, electronic funds transfer or set off against any Customer’s account after a credit adjustment note detailing the rebate calculation is prepared by CUB.’ The agreement was not entered into by the parties to confer a rebate on Katarzyna which operates as a provider of administrative services. It was intended to reward all the businesses covered by the agreement for purchasing CUB products at a given scale. Finally, the definitions of ‘rebate’ and ‘discount’ are sufficiently similar26 for there to be no justification for failing to disclose the supply agreements to the Commissioner on the basis of a fine distinction of language. [202] The objections conclude that any contractual relations between a purchaser entity and a supplier arise only on the terms of individual invoices issued between the supplier and each purchaser. Further, that any contract does not arise under Katarzyna’s supplier agreements and that the supply agreements have no joint character. [203] I do not accept those submissions for the reasons set out in the preceding paragraphs. Remission of penalty tax - conclusion [204] I have found that the applicants’ conduct falls within Category 3 Case A of PRTAA060.2, as a result of failure to disclose the supply agreements. That finding means it would not be usual for the Commissioner to consider remitting any penalty tax. I have taken that into account in the exercise of my discretion under s 60 of the TAA.27 [205] Consistent with McMurdo J’s view in the Orica decision, the case for remission is weak because the applicants were at fault by failing to disclose the supply agreements. That is set in the context of their carelessness or recklessness in relation to the other reasons for the imposition of penalty tax. It is also relevant that I have drawn an inference that non-disclosure of the supply agreements was done deliberately. [206] I am not satisfied on the grounds of objection and the further evidence that the applicants have discharged their onus so that there are good reasons for remission of penalty tax. [207] The applicants submit and I agree that the purpose of the penalty regime is to strongly encourage taxpayers and their representatives to provide information to the Commissioner, to allow the Commissioner to accurately assess the primary tax liability. That has not occurred in this case. On the basis of the findings made in this matter, I do not consider that the position under s 58 of the PTA should be displaced by remission of penalty tax. 26 Lexis Nexis, Encyclopaedic Australian Legal Dictionary (at 9 December 2019) (‘rebate’)(‘discount’). 27 PRTAA060.2.4 – Attachment 2 -- 42 of 60 -- 43 [208] I do not consider the penalty tax to be harsh and excessive in the applicants’ circumstances, falling as it does in accordance with the statutory penalty for the circumstances as found. I also consider it relevant that the object of deterring misleading conduct would be undermined if I were to exercise my discretion in favour of remission where I have found that the applicants deliberately omitted information when providing information to the Commissioner. [209] Relevant to General Principle 7 of PR TAA060.2.4 the applicants submit the evidence is that: (a) the initial reassessments arose out of the applicants being unaware of the grouping provisions of the Act; (b) the applicants instructed a legal practitioner with over 20 years’ experience to advise them; (c) the investigation involved 30 entities from an early stage in the process and ran over the course of two years; (d) the investigation involved three different responsible officers; and (e) due to the complex nature and size of the investigation, the respondent allowed a collaborative process to identify entities; [210] I accept those submissions, however they do not excuse careless and reckless conduct and the deliberate omission of relevant material in providing information to the Commissioner. [211] The applicants make the further submissions that: (a) the respondent asked questions which the applicants answered truthfully (acknowledged by the Commissioner); (b) the applicants misunderstood a question asked by the respondent during the investigation in relation to purchasing arrangements and responded by reference to their day to day conduct. They did not provide copies of supply agreements because they did not believe the questions referred to those supply agreements; (c) the applicants still do not understand how the respondent expected a response relating to the supply agreements based on the requests made; (d) the applicants do not understand how the supply agreements can be relevant to the grouping of the entities; (e) the applicants did not intend to mislead the Commissioner and did not intentionally omit the existence of the supply agreements; and (f) the applicants’ advisor believes that the respondent has misconstrued the terms of the supply agreements and the relevance of those agreements to the question of whether an exclusion order should be granted. -- 43 of 60 -- 44 [212] I note the Commissioner qualified her comment about truthful answers by referring to earlier findings that she had been misled.28 Findings have been made that the applicants deliberately failed to provide the supply agreements to the Commissioner. For the reasons set out earlier in this decision. I do not accept that Raphael Bickle or Louis Bickle misunderstood the Commissioner’s questions about purchasing arrangements nor that they did not believe the questions referred to those supply agreements. [213] It does not advance the applicants’ position to assert ignorance in relation to the information sought by the Commissioner or as to how the supply agreements can be relevant to grouping of the entities. The applicants have access to expert advice. Mr Magoffin has conceded that the agreements are relevant. I have found that once the applicants took advice they were aware of the tests relevant to the grouping provisions of the legislation. I have also found that the questions put by the Commissioner were plain on their face and should reasonably have brought the supply agreements to mind. [214] I have found that the applicants deliberately failed to provide the supply agreements to the Commissioner. I have found that the supply agreements on their terms are relevant to the question of whether an exclusion order should be granted. [215] For these reasons, none of the circumstances raised by the applicants alters my conclusion that it is reasonable for the applicants to pay penalty tax as assessed by the Commissioner. [216] The decision of the Commissioner refusing to remit penalty tax made on 4 April 2015 is confirmed. Remission of UTI Applicants’ submissions [217] The applicants submit that the discretion under section 60(1) of the TAA is an absolute discretion to remit an amount of penalty tax or UTI. [218] Similar considerations in the exercise of the discretion to remit UTI apply as in the case of penalty in tax. The UTI rate for the 2015 income year of 10.69% calculated as the base rate of interest (bank rates) plus an 8% uplift amounts to a form of penalty. [219] In New South Wales it has been found that the premium rate of interest is imposed where there is some culpable conduct on the part of the taxpayer.29 There is no evidence in these proceedings that the tax shortfall was as a result of some intentional or culpable conduct on the part of the applicants. [220] The respondent should have exercised the broad discretion in the TAA to remit part of the UTI, to assess UTI at the base rate by reference to the monthly average yield of 90 day bank accepted bills for the previous May. UTI should be remitted to the extent of the 8% uplift factor. Respondent’s submissions 28 Paragraph 216 f. Decision of the Commissioner of State Revenue, dated 4 April 2016. 29 Trust Company of Australia v CCSR [2002] NSW ADT 21, [27]. -- 44 of 60 -- 45 [221] The Commissioner submits that she has a discretion to remit the whole or part of the UTI under s 60(1) of the TAA. Public Ruling TAA060.1 provides guidance and states that the discretion will only be exercised in exceptional circumstances. The Commissioner remitted UTI for the time taken by the Commissioner to process the applicants’ disclosure and exclusion applications. UTI was remitted for late payment of assessments as set out in Annexure C to the Objection Decision. [222] The Commissioner concluded that it was not appropriate to remit UTI because the applicants did not demonstrate circumstances outside their control that might have prevented them from lodging payroll tax returns and paying payroll tax at the time that liability arose; they did not object to the dates that the respondent chose to remit UTI and the delay in paying the correct amount of payroll tax was primarily attributable to the lack of knowledge about the law to do with exclusion and grouping. [223] The submission that a rate of 10.69% was a form of penalty fails to engage with the need to demonstrate some circumstance that would warrant remitting UTI as outlined above. Penalty tax and UTI serve different purposes. Relevantly, imposing interest encourages payment of tax on time and to compensate the State for the period that tax has been unpaid.30 Conclusion - UTI [224] I note a recent decision of the Tribunal in Telgrove Pty Ltd t/as P & E Francis Plant Hire v Commissioner of State Revenue31 where the Members considered submissions similar to those made by the applicants in this case. [225] First, the point is fairly made that New South Wales decisions relate to a different statutory regime. The Queensland legislation does not speak in terms of a ‘market rate component’ and a ‘premium component’. The Members noted the Explanatory Notes to the TAA Bill which sets out the policy objective in imposing interest to encourage payment of tax on time and to compensate the State for the period that tax has been unpaid. In addition, the imposition of interest on unpaid tax amounts is a necessary sanction to encourage compliance with the tax laws. [226] The observation was made that the addition of 8 percentage points to the bank bill yield rate provides a commercial incentive for taxpayers to pay their tax obligations on time. Without the uplift component, many taxpayer might find it attractive to pay interest at bank bill yield rates because they have to borrow at rates much higher than that.32 [227] I agree with the observation of the Members in Telgrove. I accept the Commissioner’s submissions that 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. [228] I decline to order remission of UTI. 30 Explanatory Notes to the Taxation Administration Bill 2001 (Qld). 31 [2019] QCAT 199. 32 Ibid [134]. -- 45 of 60 -- 46 [229] The decision of the Commissioner of State Revenue refusing to remit unpaid penalty tax made on 4 April 2015 is confirmed. SBS grouping Background [230] Broad deeming provisions operate under sections 69-73 of the PTA. By s 71(1), persons with a controlling interest in two or more businesses constitute a group. By s 71(2)(g), persons who are the beneficiary of more than 50% of the value of the interest in the trust have a controlling interest in the business carried on by the trust. By s 71(6) a person who is the beneficiary of a discretionary trust is taken to be the beneficiary of more than 50% of the value of the interest in the trust and to therefore have a controlling interest in the business carried on by the trust. [231] In the exclusion decision the Commissioner found that the Bickle Family Trust Deed and the Beaumont Entertainment Trust Deed contained clauses in which members of the Bickle family became discretionary beneficiaries. The beneficiaries are taken to have more than 50% of the value of the interest in the trust. Thereby all beneficiaries under a discretionary trust are deemed to have a controlling interest. These clauses in conjunction with s 71(2)(g) and 71(6) of the Act deem each of the Bickle family and any entity in which they have an interest to have a controlling interest in the trust. [232] On this basis, SBSC and Family formed ‘Group 15’. Group 15 was subsumed into a larger group (Groups 1 to 14) because Family was common to both groups. Groups 1 to 14 were subsumed into a larger group because Bickle Investments Pty Ltd as trustee for the Bickle Family Trust was common to each group. The Commissioner also considered Bunk and Family could have been utilised to group the businesses in the same manner as the Bickle Family Trust. [233] By s 74 of the PTA the Commissioner may make an exclusion order, excluding a person from a group if satisfied a business 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 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; (b) the nature of the businesses; and (c) other relevant matters. [234] Public Ruling PTA031.2 provides that an exclusion order is available to avoid anomalies which may arise from the strict application of the grouping provisions. The matters which the Commissioner must have regard to under s 74 include: (a) there is not a continuous course of active and significant relationship, in a business or commercial sense, between the carrying on of the employer’s business and the carrying on of businesses conducted by any other member of the group; and (b) the connections which do exist are no more than casual, irregular or occasional occurrences. -- 46 of 60 -- 47 [235] A non-exhaustive list of relevant issues includes: (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; (b) the extent to which members share resources, facilities or services, including premises, staff, management and accounting services; (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; (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; (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; (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 (g) the extent to which there is a connection between the ultimate owners of the employer and other members of the group. Commissioner’s grouping decision [236] The Commissioner concluded that SBSC should not be excluded from the group. She was not satisfied that a business carried on by SBSC: (a) was not connected with the carrying on of the businesses carried on by each of Beaumont Creations, Empire and Katarzyna from 27 November 2009 (incorporation) until July 2010 – because the financial connections, with the intra group transactions for Katarzyna only, outweigh the different business nature (except regarding Empire) and different control; and (b) was not carried on independently of the businesses carried on by each of Empire and Katarzyna from July 2010 onwards – because the purchase arrangements from that time (regarding CUB and the other suppliers) together with the high degree of common ownership from March 2013 for Katarzyna only, outweigh the different business nature (except regarding Empire) and different control. [237] The factors relevant to the conclusions are: (a) between November 2012 and June 2010, during SBSC’s start-up phase, SBSC benefitted from small loans for capital goods from Beaumont Creations, Empire and Katarzyna; (b) until July 2010 and in the 2011-12 financial year or just prior, having used the services of Katarzyna to a relatively small extent; -- 47 of 60 -- 48 (c) from 1 July 2010 onwards, benefiting from Katarzyna’s agreements, involving Schweppes Australia Pty Ltd, CUB and Asahi, in common with Bunk, CBD Golf, Empire and Family; (d) a high level of shareholders and beneficiaries (50% until 21 March 2013 then 75%) being unassessed group members, with unpaid distributions as loans to SBSC as at 30 June 2010 and later; and (e) a high level of directorships and underlying shareholdings and beneficiaries (50% until 21 March 2012 then 75%) in common with: Bunk directorships, shareholdings and beneficiaries (75%); Family shareholdings and beneficiaries (83.3%) and Katarzyna shareholdings (indirectly 100%). [238] Finally, the Commissioner concluded that the nature of SBSC’s business is similar to that of Bunk, Empire and Family, although the business of SBSC is geographically separate. [239] The Commissioner decided that she did not support any of the following grounds of objection raised by the applicants: (a) jurisdictional error; (b) failing to take into account or to give proper weight to relevant considerations; (c) deciding on a mistaken understanding of facts or law; (d) arbitrariness and unreasonableness; or (e) lack of good faith. [240] The Objections were disallowed. SBSC’s Objections [241] SBSC’s grounds of objections are: (a) the purpose and intent of the PTA is to group entities for the purpose of calculating payroll tax so as to avoid businesses splitting the wage for employees between two or more entities, so that no single entity’s payroll exceeds the $1.1 million threshold. (b) the Commissioner has relied on the widest possible basis for asserting that SBSC is included in a group with other entities, namely s 71(2)(g) and s 71(6) which constitutes a group by reference to whether persons are co-beneficiaries in a discretionary trust. (c) the effect of using s 71(2)(g) and s 71(6) of the PTA, is to result in a very large group of 17 entities, including 9 entities which are not employers and which do not carry on any business other than the conduct of a trust. These consequences fall outside the purpose and intent of the legislation, cannot on the principle of legality be taken to have been intended by the legislature and lead to an absurd result and should be read down. -- 48 of 60 -- 49 (d) the operation of grouping provisions must as a paramount consideration look to the purpose and object of the provisions.33 [242] The first ground of objection is that, at the outset, the Commissioner should have had regard to the purpose and objects of the grouping provisions, and only invoked grouping where the relevant entity exhibited at least some (if not all) of the criteria that attract the operation of the grouping provisions: (a) the actual conduct of a business by the entity; (b) the actual engagement of employees, so that the entity was an employer; and (c) the grouped business had been split from an existing business. [243] SBSC asserts that the Commissioner’s exercise of discretion was not reasonable or just and gave rise to an absurd result because: (a) SBSC commenced with its separate ownership and control and was not established for the purpose of avoiding payroll tax. Specifically SBSC’s business was not owned in a previous structure and then split into SBSC for the purpose of reducing or eliminating payroll tax. SBSC was duly registered and remitting payroll tax prior to the reassessments and the determinations; (b) Casting a wide net in order to group as many entities as possible (irrespective of whether those entities employ or conduct a business in the ordinary sense) was expressly disapproved of in Muir Electrical Co Pty Ltd & Ors v Commissioner of State Revenue.34 [244] The second ground of objection is that by not having regard to the purpose and objects of the PTA, the Commissioner has acted unreasonably by giving disproportionate weight to irrelevant factors, as a result the reassessments are ultra vires and invalid because of jurisdictional error.35 Discussion [245] Similar arguments were put and addressed in Shadforth Lythgo. I respectfully adopt the reasoning of the Member in that decision:36 (a) unlike other similar legislation, there is no requirement in the Queensland legislation to exclude a member from a group because it is just and reasonable. (b) There is no requirement that the discretion must be exercised beneficially in any case of an anomaly or injustice. Section 74 is silent in regard to intention to avoid the imposition of payroll tax. Accordingly a decision to exclude should not be made on the basis that there has been no intention to split businesses in 33 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] ATC 20-134. 34 (2001) 47 ATR 283, [14]. 35 Harvey v Commissioner of State Revenue [2014] QSC 183. 36 Shadforth Lythgo Pty Ltd ATF the BTL (Qld) Unit Trust v Commissioner of State Revenue [2016] QCAT 539, [14]-[15], [18]-[22]. -- 49 of 60 -- 50 order to avoid payroll tax. It is not necessary for the Tribunal to find an intention to avoid payroll tax.37 (c) While splitting of businesses is the mischief that the grouping provisions are designed to remedy, that mischief can occur as a result of a business being broken into smaller parts as well as new businesses being created which are dependent on and connected to an existing business.38 (d) If there was evidence of an anti-avoidance purpose this may be a relevant factor under the general catch all criteria. [246] Also relevant is the analysis by Bond J in Scott and Bird v Commissioner of State Revenue39 of propositions similar to the objections put by SBSC, set out at [24]: …the grouping provisions were aimed at a particular mischief namely the tax avoidance which might occur if employers split their payroll over several entities … the purpose of …a discretion to make an exclusion order was to enable the Commissioner to grant relief against the inappropriate operation of the broadly expressed grouping provisions. [247] His Honour cited the decision of the High Court in Commissioner of Taxation (Cth) v Consolidated Media Holding Ltd40 to the effect that statutory construction begins and ends with a consideration of the statutory text. The context including legislative history and extrinsic materials is relevant to fix the meaning of statutory text, but cannot displace the meaning of the text. Nor is their examination an end in itself. [248] His Honour then concluded at [27]: Accordingly, acceptance of the proposition that the legislative purpose of the grouping provisions was that to which I have referred at [24] above does not give rise to the conclusion that the discretion to exclude would necessarily be exercised if the evidence in any particular case revealed that the parties had not engaged in the avoidance behaviour to which the provisions were directed. That must be so as a matter of principle. It also seems to me that the text supports that conclusion. It cannot have been the overriding intention of the legislature that group members should be excluded if there is no suggestion of the avoidance behaviour at which the grouping provisions were aimed. If that were so the legislature would not have made the blanket determination that the discretion could not be exercised at all where the group members were related corporations. [249] SBSC has objected that some members of the group are not employers and do not carry on any business other than the conduct of a trust. I adopt the statement of his Honour Justice Bond that the PTA does not require a person to have employees to be a group member or to be regarded as carrying on a business.41 Further, the legislature intended that a person acting as a trustee was to be regarded as carrying on a business for the purpose of, amongst other things, s 74.42 37 Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242. 38 Denham Constructions Pty Ltd v Chief Commissioner of State Revenue (1998) 40 ATR 416. 39 [2016] QSC 132. 40 (2012) 250 CLR 503, 519. 41 Scott and Bird & Ors v Commissioner of State Revenue [2016] QSC 132, [45]. 42 Ibid [49]-[50]. -- 50 of 60 -- 51 [250] On the basis of the reasoning set out above in Shadforth Lythgo and Scott and Bird, I reject SBSC’s first and second grounds of objection. [251] The third ground of objection is that SBSC should have been granted an exclusion order because the SBSC business is carried on independently of, and is not sufficiently connected with, the carrying on of a business by any other entity. Steps involved in applying s 74 of the PTA [252] In determining whether the business of SBSC is carried on independently of and is not connected with businesses in the group, I intend to proceed by reference to the steps described by Bond J in Scott and Bird as follows: (a) identify the business carried on by SBSC and the businesses of other members of the group; (b) by means of an evaluative judgment determine if SBSC’s business 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: (i) the case law offers ways to give meaning to the concepts of independence and lack of connection, including a consideration of the businesses and their control;43 to look for absence of a present substantial relationship in a business sense with any other member of the group where any connections are no more than casual, irregular or occasional occurrences;44 an examination of both business activities and management;45 and a consideration of the interrelation of the activities of the businesses and the ability of the principal of one business to influence the management and decision-making of the other.46 (ii) The terms of PTA031.2 are relevant and consistent with the factors taken into account by the Courts in determining if independence and lack of connection are present on the facts; (iii) The nature and extent of dealings between SBSC and other members of the group are part of the enquiry, including such matters as: A. the nature and degree of ownership and control of the businesses carried on by SBSC and other members of the group; B. the extent of shared resources, facilities and services; C. any financial interdependencies; D. group purchasing and sales of goods and services; 43 Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) (1978) 8 ATR 477, 486. 44 Denham Constructions Pty Ltd v Chief Commissioner of State Revenue (NSW) (1998) 40 ATR 416, 424. 45 John French Pty Ltd v Commissioner of Pay-roll Tax [1984] 1 Qd R 125, 141. 46 Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd (2012) ATR 880, 898. -- 51 of 60 -- 52 E. any connection between the nature of the business of SBSC and other members of the group; and F. any connection between the ultimate owners of SBSC and other members of the group. (c) If I am satisfied that the business carried on by SBSC 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, my discretion is enlivened under s 74(1) to exclude SBSC from the group. (d) In the exercise of my discretion I must take into account the matters set out in s 74(3), noting that there will be some necessary cross-over between the issues of ownership and control and the nature of the business which were relevant to the formation of the evaluative judgment.47 Identifying the businesses [253] The exclusion decision records that the Commissioner was not satisfied in terms of s 74 of the PTA that the following businesses are carried on independently of and not connected to each other: (a) Bunk(Qld) Pty Ltd ATF Bunk Discretionary Trust; (b) Family Qld Pty Ltd ATF Beaumont Entertainment Trust; (c) Empire Holdings (Qld) Pty Ltd; (d) South Bank Surf Club Pty Ltd ATF South Band SC Trust; (e) Beaumont Constructions Pty Ltd (from 1 July 2008); (f) Katarzyna Group Pty Ltd; (g) Beaumont Creations Pty Ltd; (h) CBD Golf Pty Ltd ATF CBD Discretionary Golf Trust. Ownership and Control A. SBSC objections and submissions [254] In relation to the third ground of objection SBSC contends that the Commissioner has relied on the deemed grouping concept of hypothetical control as a reason to deny exclusion while ignoring the judicially prescribed factors of actual control, actual business activities and actual management decisions.48 [255] As to actual ownership and control of the SBSC business: 47 Scott and Bird & Ors v Commissioner of State Revenue [2016] QSC 132, [60]-[62]. 48 Commissioner of State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd (1981) 12 ATR 406, 4578. -- 52 of 60 -- 53 (a) Louis Bickle with his sons Raphael and Bevan Bickle started the business with Philip Rhodes and Ben O’Donoghue as a business separate from any other business of the other entities; and (b) The intention and effect was always for the SBSC business to be self- determining and self-sufficient. [256] SBSC says the Commissioner has not recognised or addressed this last point. In fact the Commissioner did recognise this point and I agree with her conclusion that this carries little weight in ascertaining how the businesses have actually been carried on at relevant times.49 [257] SBSC goes on to say that the shareholdings in a company only represents potential or hypothetical control of a business conducted by that company. Such control is relevant only to the initial question of deemed grouping. As to the question of exclusion, the shareholdings in a company are not relevant unless it is shown that the circumstances of the particular business, the role of a particular shareholding manifested in actual control. [258] Likewise, the directorships in a company only represent potential or hypothetical control of a business and are relevant only to the question of grouping. The directorships in a company are also not relevant to the question of exclusion unless it is shown that in the circumstances of the particular business, the role of a particular director manifested in actual control. [259] SBSC refers to the exclusion decision, where the Commissioner stated: …The right to control exists whether or not a director or owner exerts that right. [260] In this case, Philip Rhodes actually controls the SBSC business. SBSC says that a clause in a constitution does not determine what practically happens in relation to actual control and therefore is not a relevant consideration for exclusion. [261] SBSC says that the exclusion order provisions are not expressed to operate by reference to ‘negative control’ and the right to control, or that right not necessarily ever being exerted. [262] SBSC says that the existence of the ultimate owners of SBSC activated the grouping provisions in the first place. It is not open to the Commissioner to deny an exclusion order by relying on these threshold factors that relate to hypothetical control only. [263] SBSC’s submissions in relation to ownership and control are that Shadforth Lythgo is relevant in that the factor of ‘nature and degree of ownership and control’ requires a consideration of connections in management of the businesses.50 [264] It is submitted that SBSC is grouped with the Katarzyna applicants because it is deemed to be a discretionary beneficiary of Family, because one or more of the discretionary beneficiaries of Family have an interest in SBSC. 49 Decision of the Commissioner of State Revenue dated 4 April 2016, para 76. 50 Shadforth Lythgo Pty Ltd ATF the BTL (Qld) Unit Trust v Commissioner of State Revenue [2016] QCAT 539. -- 53 of 60 -- 54 [265] It is said that the Commissioner accepted in the objection decision that: (a) between 27 November 2009 to 21 March 2013 the day to day operation and management of the SBSC business was controlled by Ben O’Donoghue, a third party not connected or involved with the Bickle family; and (b) from 21 March 2013 ongoing, the day to day operation of the business is controlled by Philip Rhodes, a third party not connected or involved with the Bickle family. [266] Further, the Commissioner has ignored the express terms of the grouping provisions that require greater than 50% control as well as the purpose and object of the exclusion provision. The fact that the Bickle family only held 50% of the units in SBSC up until 20 March 2013 carried no weight with the Commissioner to allow an exclusion order. [267] With regard to Period 2, the Commissioner considered the nature and extent of ownership and control the Bickle family collectively possess to be significantly over the threshold with increases the importance of the factor so that it may outweigh other relevant matters. [268] In this regard, SBSC challenged the Commissioner’s reliance on John French Pty Ltd v Commissioner of Payroll Tax.51 [269] It is submitted that although there is a common ownership connection between SBSC and the Katarzyna applicants, this does not have the effect that the management of SBSC business is dependent on any of the Katarzyna applicants or the management of the SBSC’s business is connected with any of the Katarzyna applicants’ businesses – or vice versa. [270] The nature of the connection that resulted in the grouping in the first instance as beneficiaries of a discretionary trust is tenuous at best as to the question of actual ownership and control under s 74(3)(a), as opposed to the deemed control under s 71(6). B. The Commissioner’s submissions [271] In relation to the shareholding, directorship, voting power and beneficial interest of SBSC held by Louis, Raphael and Bevan Bickle, the Commissioner notes that they are closely related family members.52 They have a history of working together in various ventures and investments. SBSC has significant common directors, shareholders and beneficiaries (indirectly) with Bunk, Family and Katarzyna shareholders. [272] The Commissioner says that where the percentage commonality of directors, shareholders and beneficiaries exceeds the minimum threshold requirement for common ownership and control, the importance of the factor may outweigh other relevant matters.53 51 83 ATC 4283, 4293-4294. 52 Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42, 75. 53 John French Pty Ltd v Commissioner of Pay-roll Tax [1984] 1 Qd R 125. -- 54 of 60 -- 55 [273] Insofar as SBSC has submitted that its control was independent of and not connected to other members of the group because it has separate management, daily management, does not share the group website and has a separate accountant – it is not correct to equate day to day management of a business with control.54 SBSC’s constitution states that the business is managed by its directors.55 [274] Further, although there was a day to day manager, the Bickle family and other members of the group did control aspects of the business, the most obvious example being the joint supply agreements, sources of funding from other members of the group and Raphael and Bevan also being managers and directors of hospitality businesses in the group – Bunk, Family and Empire. The significance of supply agreements is more than merely ‘casual, irregular or occasional’.56 [275] The Commissioner submits that on balance, a consideration of the nature and degree of ownership and control of SBSC favours a finding that SBSC was dependent and connected to other members of the group. C. Discussion [276] I accept SBSC’s submission that the relevant enquiry should not rely on deemed controlling interests. The Member in Shadforth Lythgo addressed this argument and I agree that actual control rather than a deemed ‘controlling interest’ should form the basis of the enquiry under s 74(2). The Member said: I accept that section 74(2) as submitted by the applicants, talks of carrying on the business, which indicates that consideration is to be given to the factual nexus in regard to the businesses. Importantly, s74(3)(a) talks of the nature and degree of ownership and control of the businesses and the actual relationship if any between the various persons who may own and control the business and not simply a reconsideration of the deemed controlling interests. This will include both statutory considerations such as who the directors are but also how the business is operated on a day-to-day basis. It will not include any deemed considerations from the grouping provisions.57 [277] The objection decision sets out tables and commentary describing the common shareholding, beneficiaries and appointors, and directors and managers in the group.58 Those facts are not contested. [278] There is no direct ownership of SBSC by any other company in the group, nor by SBSC of any other company in the group. [279] Until 21 March 2013 shares were held as to one sixth each by entities associated with Louis, Raphael and Bevan and one quarter each by entities associated with Philip Rhodes and Ben O’Donoghue. That gave the Bickle family members an interest of 50%. When Ben O’Donoghue withdrew his quarter interest from 21 March 2013, the Bickle family members’ interest adjusted to 75%. 54 Denham Constructions Pty Ltd & Anor v Chief Commissioner of State Revenue (1998) 40 ATR 416. 55 South Bank Surf Club Pty Ltd Constitution, clause 5. 56 Denham Constructions Pty Ltd v Chief Commissioner of State Revenue (1998) 40 ATR 416. 57 Shadforth Lythgo Pty Ltd ATF the BTL (Qld) Unit Trust v Commissioner of State Revenue [2016] QCAT 539, [33]. 58 Decision of the Commissioner of State Revenue dated 4 April 2016 at paras 67, 68 -- 55 of 60 -- 56 [280] Louis, Raphael and Bevan Bickle were until 21 March 2013 beneficiaries in the SBSC unit trust, via investment trusts, holding units aligned with shareholding and the shareholder agreement as to one sixth each. That gave the Bickle family members an interest of 50%. When Ben O’Donoghue withdrew his quarter interest from 21 March 2013 the Bickle family members interest adjusted to a controlling interest of 75%. [281] As to Directorships, Louis, Raphael and Bevan Bickle hold common Directorships across the group. Under the shareholders’ agreement, voting power of Directors was aligned with shareholding. Until 21 March 2013 Louis, Raphael and Bevan held 50% of the voting power and Ben O’Donoghue and Philip Rhodes held 25% each. Philip Rhodes was and remains the Chairman. He does not have a casting vote. [282] It has been previously noted that the Commissioner assessed a high level of directorships and underlying shareholdings and beneficiaries (50% until 21 March 2013 then 75%) in common with: Bunk directorships, shareholding and beneficiaries (75%); Family shareholdings and beneficiaries (83.3%) and Katarzyna shareholding (indirectly 100%). [283] Bevan Bickle’s evidence at the hearing was that the day to day management of the business of SBSC was conducted by a venue manager. Philip Rhodes was appointed the Manager. [284] The constitutions of each of the companies which carry on the relevant businesses provided that the businesses are managed by the directors. [285] Consistent with the observations in Shadforth Lythgo set out above, the relevant consideration is the nature and degree of ownership and control of the businesses, and not of entities. That is also consistent with Commissioner of State Taxation (WA) v Scotford Cameron & Middleton Pty Ltd.59 [286] On the facts in this case, I find that up until 21 March 2013 there is significant common ownership between SBSC and other group members. Despite the threshold for control not being met up to this date, there is a real opportunity for the common Directors Louis, Raphael and Bevan Bickle to exercise their management control of SBSC and other group members. The circumstances are such that a proper enquiry is enlivened as to whether any common control has been exercised which results in a connection between the businesses in the conduct of their businesses. [287] After 21 March 2013 with the increase in ownership to 75% I find that the Bickle family have a controlling interest in SBSC, there is significant common ownership as well as the opportunity for the common Directors to exercise management control. Has common control been exercised – what is the extent and nature of the dealings between members of the group? [288] SBSC’s submissions are: (a) with regard to Period 1, the Commissioner refused to exclude SBSC from being grouped because of: 59 [1981] 12 ATR 406, [411], [412]. -- 56 of 60 -- 57 (i) the significant connection as a result of the joint supply agreements with CUB and Asahi/Schweppes; (ii) the commercial convenience (albeit involving small values) enjoyed by SBSC accessing Katarzyna’s administration services and other related transactions upon commencement of the business. (b) In relation to shared resources, SBSC did not share the same accountant as other members of the group and did not share staff, a common website or branding with other members of the group. The Commissioner did not make any conclusions specific to SBSC but noted the factor favoured denial of the exclusion application for Katarzyna, Family, Empire and Bunk. The factor carried no weight with the Commissioner to allow an exclusion order for SBSC. (c) In relation to financial interdependencies, the Commissioner acknowledged that there was no history of interrelated loans between SBSC and the other entities. She noted that the unpaid present entitlements appeared to be in proportion with the unit holdings of the ultimate owners of SBSC. (d) In relation to Katarzyna’s supply agreements, SBSC relies on the matters previously considered. That is, the Commissioner has misconstrued the agreements. The agreements are not joint because in substance and form they are agreements entered by the relevant third party supplier with Katarzyna alone, no entity other than Katarzyna can enforce any right against the supplier, the supplier cannot enforce rights against any entity other than Katarzyna; there is no obligation on Katarzyna or any person to acquire a particular volume of product or to acquire product at all; the agreements are essentially on call arrangements; it is the suppliers who seek and obtain benefits under their agreements; the arrangement between the relevant supplier and Katarzyna does not include an agreement to confer any discount. The agreements only contemplate paying a rebate and only to Katarzyna, not to any other entity. Any contractual relations arise on the terms of individual invoices. The supplier agreements are not evidence of any connection or dependency between the business carried on by SBSC and the business carried on by any other entity. The invoicing arrangements confirm that the businesses are carried on independently and are not connected. [289] It is concluded that applying the reasoning of Meagher JA in Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd,60 SBSC’s business is carried on independently. Any connections between SBSC’s business and the businesses operated by the Katarzyna applicants are immaterial and inconsequential. This is because, on the evidence: (a) the loans provided to SBSC during its start-up phase were not real and meaningful connections. The Commissioner acknowledges that the loans were small and in the start-up phase; (b) the services provided by Katarzyna were relatively small. The Commissioner acknowledges this; 60 [2012] NSWCA 181. -- 57 of 60 -- 58 (c) the supply agreements did not have any impact on the day to day operation of SBSC’s business. SBSC completed its own ordering, received separate invoices and paid those invoices separately; and (d) the common shareholders and beneficiaries are not a real and meaningful connection in the management of the business. The relevant consideration is that the businesses were managed by third parties (who also had investment interests). Discussion [290] Evidence of connections between the businesses includes: (a) Between November 2009 to June 2010 during SBSC’s start, SBSC borrowed: (i) $13,636.00 from Beaumont Creations; (ii) $53,261.00 from Empire; and (iii) $12,260.00 from Katarzyna. The loans have been repaid. (b) Between November 2009 and June 2010, SBSC also received administrative and accounting services to a value of $8,650.00 from Katarzyna. (c) From 1 July 2010 onwards, benefitting from Katarzyna’s agreements involving Schweppes Australia Pty Ltd, CUB and Asahi, in common with Bunk, CBD Golf, Empire and Family. From 1 October 2015, SBSC has contracted separately with CUB. [291] I do not consider the start-up loans and administrative assistance to be so material and significant that on their own they justify a finding the businesses are not independent and not connected. [292] Of all the connections I consider participation in the supply agreements to be material and significant. [293] I agree with the Commissioner in relation to the relevance of the Shadforth Lythgo case,61 which similarly involved companies that the Commissioner grouped for the purpose of payroll tax where there were supply agreements with beverage companies such as CUB which covered a number of businesses. It was held in that case, that a decision had been made at a strategic level which meant that hotels were bound to sell a large proportion of one type of alcohol product. While there may be separate ordering, invoicing and payment, there was a particular rebate arrangement in place, which the businesses were bound to as a result of the agreement. The member concluded a material connection was established between the businesses which could have only been created at the level of common ownership or control. [294] I find that the supply agreements entered into by Raphael Bickle as a Director of Katarzyna, as agent for SBSC and the other businesses, demonstrates decision making 61 [2016] QCAT 539. -- 58 of 60 -- 59 at a strategic level and a material connection between the businesses created by a common ownership and control. [295] I agree with the Commissioner’s decision that the supply agreements are a significant factor as the terms go to the degree of connection between SBSC and other members of the group in the purchase of goods and services. The supply agreements provided rebates, exclusivity and volume purchase targets which on the evidence would not have been negotiable if the members of the group contracted separately. Katarzyna signed and become jointly and severally liable under the agreements with and on behalf of other members of the group. [296] Alcohol is a significant income generator and expense for licenced premises and the joint supply agreements negotiated by Katarzyna over several years show there was dependence and material, commercial connection between SBSC and other members of the group. [297] SBSC has not provided the terms and conditions of any new agreement entered into after 1 October 2015. Nature of the businesses [298] I agree with the Commissioner that the businesses of SBSC, Family, Empire, Bunk and CBD Golf have strong common elements. [299] SBSC carries on the business of a restaurant and bar at South Bank. The Katarzyna applicants operate nightclubs, hotels and a backpacker and bar establishment in Fortitude Valley. The businesses are all in the hospitality industry. The sale of food and alcohol is common to all businesses and is a very significant part of the conduct of all the businesses. [300] The nature of the businesses is not required to be the same across all businesses to make a finding of dependence or connectedness.62 Several of the businesses have taken the benefit of joint alcohol and beverage supply agreements. The businesses are similar enough that members of the Bickle family are able to make strategic decisions for other businesses in the group. Conclusion [301] I conclude that the common ownership and control of SBSC, the joint supply agreements and the nature of the businesses in the group demonstrate that SBSC is not independent of and is connected with the businesses carried on by the other members of the group. [302] I consider that these factors outweigh the fact that SBSC does not share offices, accountancy services or a website with other members of the group. [303] Accordingly, I am not prepared to exercise my discretion to exclude SBSC from the group as determined by the Commissioner or to make orders setting aside all of the assessments for the relevant period. 62 Toveety Maintenance Services Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 137, 149. -- 59 of 60 -- 60 [304] The onus is on SBSC to establish that it carried on its business independently and not connected with the carrying on of business by other members of the group. I do not consider SBSC has discharged its onus. [305] It was submitted by the Commissioner at the hearing that SBSC may wish to apply to the Commissioner for a decision in relation to exclusion relating to the period after it ceased to be bound by the joint supply agreement with CUB and entered into its own arrangement from 1 October 2015. Alternatively it was submitted that this Tribunal may remit the issue to the Commissioner. In the absence of any information about the new agreement or its context I decline to remit the matter to the Commissioner. It is a matter for SBSC if it wishes to make the application. Orders [306] In relation to GAR 141-16 South Bank Surf Club Pty Limited ATF South Bank SC Trust: (a) the decision of the Commissioner of State Revenue refusing to make an Exclusion Order with respect to South Bank Surf Club Pty Ltd as Trustee for Southbank SC Trust made on 4 April 2015 is confirmed. (b) The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed. [307] In relation to GAR 138-16 Beaumont Construction Pty Ltd; GAR 139-16 Family QLD Pty Ltd ATF Beaumont Entertainment Trust; GAR 140-16 Empire Holdings (QLD) Pty Ltd; GAR 142-16 Katarzyna Group Pty Ltd; GAR 143-16 Bunk (QLD) Pty Ltd ATF Bunk Discretionary Trust and GAR 144-16 Beaumont Creations Pty Ltd: The decision of the Commissioner of State Revenue refusing to remit penalty tax and unpaid tax interest made on 4 April 2015 is confirmed. -- 60 of 60 --