Scotford Cameron & Middleton Pty. Ltd. v. Commissioner of State Taxation (W.A.).

Judges:
Wallace J

Court:
Supreme Court of Western Australia

Judgment date: Judgment handed down 13 March 1981.

Wallace J.

This is an appeal pursuant to sec. 33 of the Pay-roll Tax Assessment Act, 1971 against the disallowance by the respondent of an objection to a decision made by him under sec. 16H(1) of the Act. Pay-roll tax is imposed on all taxable wages


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(sec. 7), and is to be paid by the employer by whom the taxable wages are paid or payable (sec. 8). Taxable wages are defined in sec. 3 to mean ``wages that, under section 6 of this Act, are liable to pay-roll tax'', and fall into two categories. For the purposes of this appeal it is not disputed that the appellant and Cameron & Middleton (Australia) Pty. Ltd. constitute a group pursuant to the provisions of sec. 16D of commonly controlled businesses for the purpose of the Act but the appellant claims to be entitled by virtue of the provisions of sec. 16H(1) to be excluded from such a group.

Section 16H(1) of the Act provides:

``Where the Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that he considers relevant, that a business carried on by a member of a group is carried on substantially independently of, and is not substantially connected with the carrying on of, a business carried on by any other member of that group, the Commissioner may, by order in writing served on that firstmentioned member, exclude him from that group.''

The facts giving rise to the appellant's application for exclusion are as follows.

The managing director of the appellant, Andrew Scotford, is a quantity surveyor by profession. In 1969, he commenced practice in Western Australia on his own account and so practised until 1974 under the style of Andrew Scotford & Associates. In 1974, he sought the benefit of association with a firm of quantity surveyors operating in the eastern States. He approached a partnership known as Cameron & Middleton. It subsequently became Cameron & Middleton Pty. Ltd. In 1975, Scotford changed the name of his practice to Scotford Cameron & Middleton but continued as the sole principal of the practice therein conducted. In 1975, Scotford Cameron & Middleton was incorporated and thereafter that company ran the practice with Scotford as managing director. The directors of Cameron & Middleton Pty. Ltd. became directors and nominal shareholders in the appellant in order to comply with the ethical requirements of their profession.

The corporate structure of the appellant and Scotford Cameron & Middleton Pty. Ltd. is as follows. Scotford holds 90 per cent of the voting capital of the appellant and by virtue of its articles of association may remove any one of the directors of Cameron & Middleton Pty. Ltd. from the board of the appellant by an ordinary resolution. All such directors are therefore obliged to act in accordance with Scotford's directions though he has never found it necessary to exercise such a power for reasons which will become apparent. Conversely Scotford, whilst a director of his associate professional company, has no controlling interest therein, owning but two per cent of the capital and again being represented on the board for professional, ethical reasons.

Otherwise the association between the two limited companies is evidenced only by the linking of the names of the directors on the respective boards and the style of each practice. No partnership was formed and no written agreement of any sort existed. The income of the appellant was solely that of Scotford and the income of Cameron & Middleton Pty. Ltd. solely that of its directors and shareholders save Scotford. Each, however, received commission for work conveyed to the other and the entitlement thereto is evidenced in writing before me in terms which are not relevant. On the evidence it is clear that the two companies represented two professional practices carrying on business to their separate accounts associated, to use the appellant's own terminology, without the adverse comment placed thereon by the respondent, ``for their mutual benefit by the reference of clients one to the other, the facility that that afforded and the receipt of commissions for so doing''.

Because of the interlocking of directors, however, and the provisions of sec. 16D(3) of the Act, I repeat the appellant conceded the respondent's right to group the two companies. The respondent determined originally ``that this is not a case where I am prepared to exercise my discretionary power under sec. 16H of the Act, to exclude Scotford Cameron & Middleton Pty. Ltd. from the grouping provisions''. Apart from an opinion expressed as to the right to group the two companies pursuant to sec. 16D of


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the Act, no reason for the respondent's determination pursuant to sec. 16H(1) was then given.

On 27 August 1979, the appellant gave notice of objection to the respondent against his refusal ``to exercise his discretion'' under sec. 16H to exclude the company from a designated group. The grounds upon which the objection was lodged were based upon the statutory test that the appellant's business ``is and has at all relevant times been carried on substantially independently of and is not and has not at any relevant time been substantially connected with the carrying on of a business by any other member of the group''. Particulars of this argument were provided and involved the contention that the business of the appellant was an independent business and was not carried on jointly with the other member of the designated group. It employed its own staff and such staff are not employed jointly by the other member of the designated group. Managerial decisions on and control of the operation of the running of the appellant's business are and at all times have been taken independently of the management and control of the other member of the designated group. The appellant has a completely independent accounting system and operates its own bank account. There is insignificant pooling of resources between the appellant and the other member of the designated group, and the degree of ownership of the appellant is not a significant factor.

On 26 February 1980, the respondent confirmed his original decision not to exclude the appellant from the grouping provisions under sec. 16H of the Act. On 25 March 1980, the appellant gave notice to the respondent to treat its objection as an appeal and forward it to the Supreme Court. By sec. 33 of the Act, an employer who is dissatisfied with a decision of the respondent on an objection may request the respondent to treat his objection as an appeal and put it to the Supreme Court which shall hear and determine the appeal. Rules of Court may be made regulating the procedure and practice to be followed on such an appeal but no such rules of procedure and practice have to date been provided.

Some argument has been addressed to me as to the nature of the appeal, whether it is de novo or an appeal in the strict sense. As there is no dispute as to the evidence before me and in the conclusion which I have reached, it is not necessary to resolve that problem. Nor am I of the opinion that the respondent was in the position of exercising a statutory discretion when he was called upon to administer sec. 16H in the facts of this case. That section simply calls upon the Commissioner to be satisfied having regard to the nature and degree of ownership or control of businesses within a designated group, the nature of such businesses and any other matters that he considers relevant for the purpose of determining whether an applicant business 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. To be so satisfied is to determine a question of fact. See Windeyer J. in
F.C. of T. v. Brian Hatch Timber Company (Sales) Pty. Ltd. 72 ATC 4001 at pp. 4009-4010; (1972) 128 C.L.R. 28 at p. 56.

In my opinion the first part of sec. 16H refers to the position brought about by the application of sec. 16D(3). It is only having regard to such findings that the respondent applies the tests set out in the latter part of sec. 16H(1). The respondent's preoccupation with sec. 16D(3) of the Act has bedevilled his thought process as evidenced in the affidavit filed upon the direction of Brinsden J. See para. 31 and 34 wherein the respondent expressed an opinion with respect to the provisions of sec. 16D(3)(a) of the Act which was not in issue. Therein confusion is confounded when one has regard to the expressed nature and degree of ownership or control of the businesses as opposed to the two companies. And yet the findings reached in those two paragraphs ground the respondent's decision in para. 35 wherein he could not accept that the business carried on by the appellant company was carried on substantially independently of Cameron & Middleton (Australia) Pty. Ltd. The Commissioner's conclusion is based upon error.

The matters upon which the respondent had to be satisfied for the purpose of arriving at a decision under sec. 16H(1) of the Act are that a business carried on by a member of a designated group is carried on substantially independently of and is not substantially connected with the carrying on of a business


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carried on by it. The only evidence before the respondent was that of Scotford and clearly it establishes the substantial independence of the appellant and conversely the fact that it was not substantially connected with the carrying on of the business of Cameron & Middleton Pty. Ltd. The fact that the two professional businesses had an association with each other does not sustain proof of substantial dependence one upon the other or, for that matter, substantial connection. The respondent had the opportunity of perusing the appellant's books or seeking any information in that regard. He accepted that for the day to day management of the affairs of each company it could be said that there was an appreciable degree of independence and separateness: para. 56. That, upon the evidence before him, should have been the end of the matter.

Unfortunately, because of the belief that his decision once reached was then subject to an opinion based upon sec. 16D(3) forced him into error. The decision to be reached upon whether or not a business is carried on by a member of a group substantially independent of another and is not substantially connected therewith is not dependent upon the nature and degree of ownership or control of the business but arises from that common ownership and common profession, to use the respondent's terms. That is the reason for the statutory right to exclusion. Having reached the opinion adverted to in the first sentence of para. 56 of his affidavit, the respondent is not in a position to resile therefrom.

This appeal therefore succeeds. It does so with costs to be taxed against the respondent inclusive of the interlocutory proceedings before Brinsden J. I say that because of the responsibility upon the respondent to publish reasons for his opinion: see Barwick C.J. in
Kolotex Hosiery (Australia) Pty. Ltd. v. F.C. of T. 75 ATC 4028 at p. 4031; (1974-75) 132 C.L.R. 535 at p. 541, which reasons were not published until the interlocutory proceedings were taken. It is unfortunate that such publication did not avoid the hearing herein.


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