Australian Post-Tel Institute Pty Ltd, Re [1998] QSC 91 [2001] 2 Qd R 8

IN THE SUPREME COURT OF QUEENSLAND Brisbane Appeal No. 72, 73 and 74 of 1995 IN THE MATTER OF PAY-ROLL TAX ACT 1971- 1984 -and- IN THE MATTER OF AN APPEAL AGAINST ASSESSMENTS OF PAY-ROLL TAX BY AUSTRALIAN POST-TEL INSTITUTE PTY LTD AGAINST THE COMMISSIONER OF PAY-ROLL TAX -and- IN THE MATTER OF AN APPEAL AGAINST ASSESSMENTS OF PAY-ROLL TAX BY API TRAVEL PTY LTD AGAINST THE COMMISSIONER OF PAY-ROLL TAX -and- IN THE MATTER OF AN APPEAL AGAINST ASSESSMENTS OF PAY-ROLL TAX BY API PROMOTIONS PTY LTD AGAINST THE COMMISSIONER OF PAY-ROLL TAX REASONS FOR JUDGMENT - CHESTERMAN J. Judgment Delivered 14 May 1998 CATCHWORDS: Taxation - appeal against assessment of pay-roll tax - "grouping" of appellant companies under Pay-Roll Ta:'( Act 1971 - whether exclusion order made by Commissioner of Pay-Roll Tax in favour of appellants valid - whether revocation of exclusion order by Commissioner of Pay-Roll Tax valid Counsel: Mr P Hackett for the appellants. Mr R Gotterson Q.c. and Mr P Flanagan for the respondent. Solicitors: Anderssen & Company for the appellants. Crown Law for the respondent. Hearing Date: 30 April 1998 -- 1 of 13 -- IN THE SUPREME COURT OF QUEENSLAND Brisbane Appeal No. 72, 73 and 74 of 1995 IN THE MATTER OF PAY-ROLL TAX ACT 1971 - 1984 -and- IN THE MATTER OF AN APPEAL AGAINST ASSESSMENTS OF PAY-ROLL TAX BY AUSTRALIAN POST-TEL INSTITUTE PTY LTD AGAINST THE COMMISSIONER OF PAY-ROLL TAX -and- IN THE MATTER OF AN APPEAL AGAINST ASSESSMENTS OF PAY-ROLL TAX BY API TRAVEL PTY LTD AGAINST THE COMMISSIONER OF PAY-ROLL TAX -and- IN THE MATTER OF AN APPEAL AGAINST ASSESSMENTS OF PAY-ROLL TAX BY API PROMOTIONS PTY LTD AGAINST THE COMMISSIONER OF PAY-ROLL TAX REASONS FOR JUDGMENT - CHESTERMAN J. Judgment Delivered 14 May 1998 The appellants, API Pty Ltd ("API Travel") and API Promotions ("API Promotions") are both wholly owned subsidiaries of the third appellant, Austr",}ian Post-Tel Institute Pty Ltd ("the -- 2 of 13 -- 2 Institute"). Each appellant is and at all times since November 1987 was, related to both the others by virtue of section 7 (5) of the Companies (Queensland) Code 1981. Early in 1994 the respondent, the Commissioner of Pay-Roll Tax (lithe Commissioner"), assessed the appellants to Pay-roll tax in respect of various periods between November 1987 and November 1993. The amounts of tax assessed were calculated on the basis that the appellants together constituted a group (ie. one employer) and not on the basis that the appellants were individual employers with its own separate workforce. The appellants object to the assessments on the ground that they should have been assessed separat,ely and not as a group. Part 4A of the Pay-Roll Tax Act 1971 deals with the concept of II Grouping" employers to constitute them as one taxing entity. Section 16C provides: "Grouping where employees used in another business. (1) For the purposes of this Act, where- (a) an employee of an employer ... performs .. duties solely or mainly for or in connexion with a business carried on by that employer and another person ... ; or (b) an employer has, in respect to the employment of or the performance of duties by ... his employees, an agreement, arrangement or undertaking (whether formal or informal, whether expressed or implied and whether or not the agreement, arrangement or undertaking includes provisions in respect of the supply of goods or services or goods and services) with another person... relating to a business carried on by that person ... that employer and - ( c) each such other person; or (d) both or all of those other persons, constitute a group. (2) Where the Commissioner is satisfied, having regard to the nature and degree of the duties referred to in subsection (1) and to any other matters that he considers relevant, that it would not be just and reasonable to include as a member of a -- 3 of 13 -- 3 group a person or persons carrying on a business, the Commissioner may, by order in writing served on that person or those persons, exclude him or them from the group." Section 16D provides:- "Grouping of commonly controlled businesses ... (2) For the purposes of this Act, where the same person has or the same persons have together a controlling interest as referred to in subsection (3) in each of two businesses the persons should carry on those businesses constitute a group ... (7) Where the Commissioner is satisfied, having regard to the nature and degree of ownership or control of businesses that constitute a group and to any other matters that he considers relevant, that - (a) a business carried on by a member of that group is carried on substantially independently of and is not substantially connected with the carrying on of a business carried on by any other member of that group; and (b) that it is just and reasonable that the firstmentioned member be excluded from that group, the Commissioner may, by order in writing served on the first mentioned member, exclude him from that group." Section 16 DA provides: "Grouping of head and branch businesses. (1) For the purposes of this Act, two businesses constitute a group if - (a) one of the businesses is a branch, agency or subsidiary of a head or parent business; and (b) the head or parent business exercises managerial controL .. over the branch, agency or subsidiary. (2) Where the Commissioner is satisfied, having regard to the nature and the degree of managerial control exercised by the head or parent business and to any other matters that he considers relevant, that it would not be just and reasonable to include as a member of a group a person or persons carrying on a business, the Commissioner may, by order in writing served on that person or persons, exclude him or them from the group." Section 16 E provides: -- 4 of 13 -- 4 "Small groups subsumed into larger groups. (1) Notwithstanding any other provision of this Part (except subsection 2), where a person is ... a member of two or more groups (each of which is in subsection (2) referred to as a smaller group), all of the members of those groups constitute, for the purposes of this Act, one group. (2) Except for the purpose of determining whether a group is constituted under subsection (1), a group which but for the subsection, would be a smaller group, ceases to be a group if its members are members of a group cqnstituted under subsection (1). (3) Where the Commissioner is satisfied, having regard to any matters that he considers relevant, that it would not be just and reasonable to include as members of one group the members of two or more groups, the Commissioner may, by order in writing served on the person or persons who are members of those groups, exclude them from that one group." The issues which divide the parties on these appeals are whether: (1) The appellants have the benefit of an exclusion order made by the Commissioner pursuant to the provisions of the Pay-Roll Tax Act. (2) The appellants constitute a "group" for the purposes of the Pay-Roll Tax Act in relation to the Notices of Assessment of Pay-Roll Tax issued on 1 February 1994. It is conceded by the appellants that if the finding in respect of the first issue is adverse to them, the second issue must likewise go against them. It is, in other words, conceded by the appellants that together they constitute a group for the purposes of the Pay-Roll Tax Act and, unless they have the benefit of an exclusion order made pursuant to Part 4A of the Act,they are to be taxed as one entity. The Institute is an incorporated association having, on 5 November 1987, become incorporated pursuant to the Associations and IncOlporations Act 1981 (Victoria). As a result of incorporation it became a corporation for the purposes of the Companies (QueenslitndJ Code. Its purpose is to provide social, educational, recreational and sporting activities for employees of Australia Post and Telecom Australia. Members of -- 5 of 13 -- 5 the Institute had a demonstrated need for commercial services which it was thought the Institute could not or should not undertake. To provide for the needs of members in the spheres of commerce, the companies API Travel and API Promotions were incorporated, though precisely when is not apparent from the material put before the court. With one exception the directors of API Promotions and API Travel are common. The shares in both are beneficially wholly owned by the Institute. The appellants claim to have the benefit of an exclusion order made by the Commissioner pursuant to which the appellants are not to be regarded as a group for the purposes of the Pay-Roll Tax Act. The Commissioner disputes that he made any such order effective after November 1987, the date of incorporation of the Institute. The appellants point to two letters, schedules A and D respectively to the Statement of Agreed Facts. The first is dated 10 September 1980 from the Commissioner addressed to the Institute which relevantly said: fly ou are further advised that consideration has been given to the question of "grouping" with API Promotions Pty Limited, and it has been decided that it is not intended to group the Australian Post-Tel Institute with the other employers." The second letter is dated 15 July 1992 from the Commissioner to the accountants for all three appellants which were specifically referred to in the letter. This letter has to be understood in its context. It was written in reply to a letter of 14 April 1992 from the accountants to the Commissioner. It said, having identified the three appellants, "Your opinion is sought in relation to exclusion of the above employers from "grouping" provisions of the Pay-Roll Tax Act ... Your department had previously given written advice to the Institute that it would not be grouped with the other employers. We believe this exclusion to have been granted under Section 16D (7) of the Act. There has been no change to the structure or operation of these entities since the issue of such exclusion. We seek your confirmation that the previously issued exclusion remains valid for -- 6 of 13 -- 6 these entities ... " The commissioner replied: "I would like to confirm that my exclusion order dated 10 September 1980 remains valid for these entities and is unaffected by references, .. to sections of the Corporations Law, which came into force on 1 January 1991." The appellants submit that the letter of 10 September 1980 was an exclusion order made under section 16C (2) and/or section 16D (7) of the Act. The letter of 15 July 1992 makes explicit the fact that the earlier letter of 10 September 1980 applied to the three appellants. The second letter, having referred to all three appellants, confirms that the "exclusion order dated 10 September 1980 remains valid for these entities ... " It is also submitted that the second letter is itself an exclusion order which on its proper construction specified 10 September 1980 as the date from which the order should have effect. The Commissioner's submission is that the letters cannot be read as constituting an exclusion order which operated after the date of the Institute's incorporation in November 1987. This is for the reason that upon its incorporation, provisions of Part 4A of the Act precluded the making of an exclusion order. Secondly, it is submitted that the letters do not apply to the "grouping" of API Travel and API Promotions but only to the "grouping" of the Institute and API Promotions. It will be noted that API Travel is not specifically referred to in the first letter. It is convenient to defer discussion of whether the Commissioner had power to make an exclusion order. The submission presently under discussion is that the letters should be construed as not operating after November 1987 because of the Commissioner's belief that he did not have power to make an exclusion order in respect of the appellants after that date. On the matter of construction the Commissioner's submissions cannot be accepted. There is nothing in the letters which points to the conclusion that any exclusion was to terminate on the Institute's incorporation. On the contrary, the letter of 15 July 1992, almost five years after , . -- 7 of 13 -- 7 incorporation, confirmed the exclusion order of September 1980 remained valid. It should be noted that the first of the appellants named in the letter was "Australian Post-Tel Institute (Q) Inc." It is impossible to accept that the Commissioner did not intend to grant exclusion to the three appellants with knowledge that the Institute was incorporated. The Commissioner's second submission is equally flawed. It is true that the letter of 10 September 1980 refers expressly only to the Institute and API Promotions but it does state the Commissioner's intention not to group the Institute "with other employers". The use of the plural should be noticed. The matter is put beyond doubt by the second letter which, having identified the three appellants, the Institute, API Travel and API Promotions, confirmed the continuing validity of the exclusion order "for these entities". It is not possible to contend that the Commissioner did not intend to grant exclusion to each of the appellants from being in a group. Nor, assuming for present purposes the point which is next to be considered, that the Commissioner did not have power to exclude the appellants from being grouped together after November 1987, is there anything in the letters to indicate that the Commissioner appreciated his lack of capacity. According to their tenor the letters granted an exclusion from grouping and confirmed, after the Institute's incorporation, that the exclusion had been made and remained current. There seems to me nothing in the letters to provide a basis for implying that the Commissioner had intended to grant exclusion only to years in respect of which he had the power to grant the exclusion. It is now necessary to consider whether the Commission had the power to make an order of exclusion. To resolve this point it is necessary to have regard to more provisions of Part 4A. Section 16B provides:- "Grouping of corporations. For the purposes of this Act, two corporations constitute -- 8 of 13 -- 8 a group if they are, by reason of section 7(5) of the Companies (Queensland) Code, to be deemed for the purposes of that Code to be related to each other. " It will be noted that section 16B does not confer on the Commissioner a power to exclude a corporation from a group which comes into being because corporations are related by virtue of the Code. Section 16H is of particular relevance. It provides:- "Designated Group Employer. (1) The Commissioner shall not under section 16C, 16D, 16DA or 16E make an order so as to exclude a person from a group on and from a date if that person is or was on that date a corporation which, by reason section 7(5) of the Companies (Queensland) Code, is to be deemed for the purposes of that Code to be related to another corporation which is a member of that group. (2) A person who is excluded from a group by order of the Commissioner under section 16C, 16D, 16DA or 16E shall inform the Commissioner in writing immediately if the circumstances which were prevailing at the time of the exclusion order, as made known to the Commissioner prior to the making of the order, change in a material respect. (3) The Commissioner may at any time, by order in writing served on the person or persons excluded from a group, revoke an order under section 16C, 16D, 16DA or 16E. (4) Notwithstanding any other provision ofthis Part, an order under section 16C (2), 16D (7), 16DA (2) or 16E (3) shall have effect according to its tenor on and from the date specified in the order (being a date that is the date of the order or before the date of the order) as the date on and from which the person referred to in the order is or shall be deemed to have been excluded from the group so referred to." The argument focussed on subsection 4. For the appellants it was submitted that the introductory exception, "Notwithstanding any other provision of this Part ... " operated so as to give validity to an exclusion order which would otherwise be invalid through failure to comply with requirements of subsection 1. The contention is that the limitation upon making exclusion orders set out in section 16H(1) is over ridden by subsection 4 which mandates the effectiveness of orders made on and from the dates specified in the order notwithstanding anything else contained in Part 4A of the Act. This is not a sensible construction of the section and I think this submission should be rejected. · . -- 9 of 13 -- 9 It is clear enough, I think, that the subject matter of subsection 4 is the time from which an exclusion order is to be effective. As Mr Gotterson Q.C. pointed out the subsections identified in section 16H (4) made it possible for anyone of three dates to be that from which the order should take effect. They are: the date the order is made by the Commissioner; the date the order is served; and any date specified in the order as its time of commencement. Subsection 4 settles on the third of these. It is true that it was scarcely necessary for the draftsman to preface the subsection so powerfUlly if it was intended to do no more than settle a possible controversy about commencement dates. This is, however, what I think is meant by the subsection. "Notwithstanding any other provision of this Part" means that despite whatever suggestions as to commencing date may be found in other provisions (and there seem to be none apart from the identified subsections) an exclusion order is to take effect from the date specified in it. The construction contended for by the appellants would be, to say the least, curious. An express prohibition contained in section 16H (1) against making an exclusion order in respect of persons who constitute a group because they are related corporations is, nonetheless, overridden by a subsection the subject matter of which is an ancillary concern. There are other reasons why I think the appellant's arguments cannot be sustained. It is to be noticed that section 16H (4) provides:- "Notwithstanding any other provision of this part, an order under section 16C (2), 16D (7), 16DA (2), or 16E (3) ... " Section 16H (1) contains an express prohibition:- "The Commissioner shall not under section 16C, 16D, 16DA or 16E make an order so as to exclude a person from a group .. .ifthat person is ... a corporation ... related to another corporation which is a member of that group." The Commissioner is not to make an order under any of the designated sections excluding related corporations from a group. It follows that an order which excludes such related corporations -- 10 of 13 -- 10 from membership of a group is not an order under any of sections 16C, 16D, 16DA or 16E. Section 16H (4) applies only to an order made under one of those other sections. Put differently, an order made excluding a person from a group in circumstances defined in section 16H (1) is not an order under any other ofthe relevant sections. It is not, therefore, an order to which section 16H (4) refers. Perhaps another way of expressing the point is that an order under any of sections 16C, 16D, 16DA, 16E when referred to in section 16H (4) is a reference to an order that may lawfully be made under any of those sections. An order which purports to exclude from membership of a group companies related by reason of section 7(5) of the Code is not an order lawfully made. Acceptance of the appellant's submissions would lead to a further anomaly. The terms of section 16B have been noticed. The operation of the section in relation to the appellants is that they would constitute three groups. Each of the appellants is related to the others by reason of section 7(5) of the Companies (Queensland) Code. Two corporations constitute a group if they are, by reason of that section, related to each other. Therefore the Institute and API Travel constitute a group; the Institute and API Promotions would constitute a second group; and API Travel and API Promotions would constitute a third group. It is clear that the Commissioner has no power to exclude any of the appellants from membership of the groups constituted by section 16B. Section 16E operates to aggregate those three groups into one. If the appellant's construction of section 16H is correct the Commissioner may exclude the appellants from membership of the single, larger group pursuant to section 16E (3) leaving, however, the three smaller groups. Each of these would haveto be taxed as a group pursuant to section 161. In my opinion section 16H (1) is to be construed so as to preclude the Commissioner from making an exclusion order under section 16E that has this untidy result. Section 16F operates so that the "grouping provisions" operate independently so that even , , -- 11 of 13 -- 11 if the operation of section 16E were nullified by an exclusion order the effect of section 16B would remain extant. It follows, in my opinion, that the Commissioner did not have the power to make an order excluding the appellants, or any of them, from the group constituted pursuant to sections 16B and 16E. The order, purporting to be an exclusion order, found in the letters of 10 September 1980 and 15 July 1992, is of no effect; see Maxwell on the Interpretation oj Statutes, 12th edition, pages 258-62. The consequence is that the appellants constituted a group for the purposes of the Act at all times in respect to which the assessments in question have issued. A third point was argued which, for completeness sake, I should mention briefly. It is unnecessary to the result because of my opinion in relation to the second point. The argument is that the Commissioner revoked his exclusion order by letter of 18 January 1994 (Schedule E to the Statement of Agreed Facts) and that the revocation takes effect from 5 November 1987 the date ofthe Institute's incorporation. The appellants contend that the Commissioner has no power to revoke retrospectively, any revocation taking effect only from the date of the writing revoking the order. I think the context in which the power of revocation appears as well as the ordinary meaning of the word "revoke" favours the appellant's submissions. Section 16H (3) immediately follows the subsection which obliges a person with the benefit of an exclusion order to inform the Commissioner straight away of a change in the circumstances which persuadeQ the Commissioner to exclude him from a group. See section 16H (2). There follows the power of the Commissioner "by order in writing served on a person excluded from a group" to revoke the exclusion order. Although section 16H (3) is not in terms limited to allowing revocation where the Commissioner is notified of a change in circumstances any other construction could lead to -- 12 of 13 -- 12 capricious results. Having assessed individual employers on the basis of an exclusion order, the Commissioner could years later revoke the order with retrospective effect. The employers would be exposed to additional payment of tax for those years in retrospect. A construction is to be preferred which allows the Commissioner to revoke an exclusion order upon learning of a change in circumstances material to his decision whether to make the order, but only from the date of acting to revoke. Ordinarily, revocation does not carry the connotation of annulling or setting aside from inception. "Revoke" normally means to act so as to take away some right or power prospectively. The revocation of the Edict of Nantes provides perhaps the best historical example. A more commonplace one is the revocation of an agent's authority. This does not operate so that the agent never had authority to transact business on his principal's behalf It deprives him of authority after the revocation. I would accordingly have come to the view that the letter of 18 January 1994 did not revoke the exclusion orders from a date earlier than January 1994. The appellants do not object to the asse.ssments save on the ground that they have the benefit of an exclusion order. As I have found against them on this point the appeals must be dismissed. I order the appellants to pay the respondent's taxed costs of the appeals. Although it was, in a sense, the Commissioner's actions in making exclusion orders he had no power to make which was the cause of this litigation, he made his position clear before the appeals were instituted. The Commissioner was by then asserting that he had no power to make such orders after 1987. The appellants chose to fight the appeals on that point. Having lost, there is no unfairness in requiring them to abide by the usual order as to costs. -- 13 of 13 --