PORT AUGUSTA MEDICAL CENTRE PTY LTD v COMMISSIONER OF STATE TAXATION (SA)

Judges:
Anderson J
Kelly J
Kourakis J

Court:
Supreme Court of South Australia, Full Court

MEDIA NEUTRAL CITATION: [2012] SASCFC 7

Judgment date: 16 February 2012

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Anderson J

Introduction

1. The appellant company Port Augusta Medical Centre Pty Ltd ( " PAMC " ) is appealing from a decision of a judge of this Court who dismissed an appeal pursuant to s 92 of the Taxation Administration Act 1996 (SA). The Commissioner of State Taxation had earlier refused to exclude the appellant from a " group " for the purposes of payroll tax pursuant to s 18I of the Pay-roll Tax Act 1971 (SA) ( " the old Act " ). That Act has now been replaced by the Payroll Tax Act 2009 (SA) ( " the current Act " ).

2. The wording of the section giving the Commissioner power to exclude persons from groups has been significantly changed in the current Act. The whole scheme for the grouping of employees has been significantly revised.

3. The equivalent of s 18I of the old Act is s 79(1) and (2) in the current Act. There are subtle but significant changes in the criteria for exclusion, the most obvious being that the word " substantially " no longer prefaces the words " independently " or " connected " .

4. The other significant change is that in s 79 of the current Act, in relation to the control of the business, the words used are " having regard to the nature and degree of ownership and control " compared with " ownership or control " in the old Act. (My underlining.)

5. To that extent this appeal has limited application to the interpretation of the current Act. Kourakis J deals in some detail with the grouping provisions of the now repealed Act in his reasons.

6. The grouping provisions were contained in Part 4A of the old Act. Section 18A defines business. It stated:

" 18A - Interpretation

In this Part -

Business includes -

• (a) a trade or profession; and
• (b) any other activity carried on for fee, gain or reward; and
• (c) the activity, carried on by an employer, of employing one or more persons where that person performs or those persons perform duties for or in connection with another business. "

7. Section 18D provided for grouping of commonly controlled businesses. It is not in dispute that the entities in question were properly grouped by the Commissioner pursuant to this provision.

8. The issue is whether the Commissioner was correct in not excluding the appellant from the group. Section 18I of the old Act deals with that aspect.

9. Section 18I(1) reads:

• " (1) 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 the Commissioner 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 notice in writing served on that first mentioned member, exclude that member from that group. "

10. The Commissioner of State Taxation, the Treasurer in reviewing the Commissioner ' s decision, and the judge of this Court appealed from, were all of the view that the test under s 18I was not met by the appellant. The appellant bore the onus of satisfying the test.

11. The old Act prescribes a total of $504,000 as the threshold for employers that pay wages for financial years after 1 July 2002. The period under review is from 1 July 2002 to 21 January 2007. Where the paid taxable wage exceeds the threshold amount, pay-roll tax is payable. To avoid an employer escaping the operation of the provisions by the use of different legal entities, the grouping provisions enable certain businesses to be grouped together to ascertain if the threshold has been breached.

The relevant group in this matter

12. Both Doctors Yeung and Bhola operated their respective medical practices under incorporated bodies Dr V.K.P. Yeung Pty Ltd and Dr R. Bhola Pty Ltd. This was pursuant to the provisions of the Medical Practice Act 2004 (SA). The companies Vay Nominees Pty Ltd and Guyram Pty Ltd were in turn the trustees respectively of the Victor Yeung Family Trust Fund and the Bhola Family Trust Fund. Each of these four legal entities were grouped by the Commissioner with PAMC.

13. Vay Nominees Pty Ltd was owned jointly by Dr Yeung and his wife and Guyram Pty Ltd was owned jointly by Dr Bhola and his wife. Doctors Yeung and Bhola were the sole directors and shareholders of PAMC.

14. The judge appealed from has described the relationship between the members of the group in more detail in his reasons at [ 3 ] to [ 7 ] inclusive.

" The entities comprising the relevant ' group '

• [ 3 ] The appellant Port Augusta Medical Centre Pty Ltd (hereafter PAMC P/L) was grouped with four other corporate entities, Dr V.K.P. Yeung Pty Ltd, Dr R. Bhola Pty Ltd, Vay Nominees Pty Ltd, and Guyram Pty Ltd. The appellant does not contend that this initial grouping was invalid. A brief overview of these entities and their relationships inter se is as follows.
• [ 4 ] Dr V.K.P. Yeung Pty Ltd ( ' Yeung P/L ' ) which carried on the business of a medical practitioner under the Medical Practice Act 2004 (SA) and was owned and controlled by Dr Yeung and his wife; Dr R. Bhola Pty Ltd ( ' Bhola P/L ' ) which carried on the business of a medical practitioner under the Medical Practice Act 2004 (SA) and was owned and controlled by Dr Bhola and his wife; Vay Nominees Pty Ltd ( ' Vay P/L ' ) which was the trustee of the Victor Yeung Family Trust Fund; and Guyram Pty Ltd ( ' Guyram P/L ' ) which was the trustee of the Bhola Family Trust Fund.
• [ 5 ] Dr Yeung and Dr Bhola were the sole directors and the sole shareholders of the appellant which in turn was trustee of both the PAMC Unit Trust (which was originally the owner of the land and buildings of PAMC and Beulah Park medical centres) and PAMC Unit Trust No 2 which owned the business of PAMC.
• [ 6 ] All of the profits from the operations of the appellant were required to be paid to the PAMC Unit Trust No 2 which in turn distributed those profits to the unit trust holders, Vay P/L and Guyram P/L which in turn made distributions to the beneficiaries of the Yeung Family Trust and the Bhola Family Trust who were all members of the Yeung and Bhola immediate families respectively.
• [ 7 ] Vay P/L and Guyram P/L originally had equal holdings in both the PAMC Unit Trust and PAMC Unit Trust No 2, but had transferred their units in PAMC Unit Trust to Dr Yeung ' s and Dr Bhola ' s respective superannuation funds which then came to own the land and buildings of PAMC. "

[ Note: There is a typographical in the top right hand box of the diagram. The words " Trustee of Bhola Family Trust " should read " Trustee of Yeung Family Trust " . ]

15. The appellant carried on the business of providing a service company to various medical practitioners including Doctors Yeung and Bhola through either their incorporated companies or as individuals. The appellant operated the business of service companies to medical practitioners at both Port Augusta and Beulah Park.

The Commissioner ' s decision

16. The Commissioner refused to exclude the appellant company from the group. His reasons for decision in July 2007 were by way of a letter which included the following:

• 1. Vay Nominees Pty Ltd as trustee for the Yeung Family Trust and Guyram Pty Ltd as trustee for the Bhola Family Trust each held 50 % of the units in the Port Augusta Medical Centre Unit Trust No 2.
• 2. Vay Nominees Pty Ltd as trustee for the Yeung Family Trust and Guyram Pty Ltd as trustee for the Bhola Family Trust each received 50 % of the profits made by the Port Augusta Medical Centre.
• 3. The directors of Port Augusta Medical Centre were Doctors Yeung and Bhola.
• 4. Doctors Yeung and Bhola were cheque signatories of the Port Augusta Medical Centre.

17. Later the Commissioner expanded on his earlier reasons and said they also included:

• 1. Doctors Yeung and Bhola had been responsible for hiring the practice managers.
• 2. The Bhola Superannuation Trust and the Yeung Superannuation Fund jointly owned the property on which Port Augusta Medical Centre was located.
• 3. Doctors Yeung and Bhola signed the agreement between Port Augusta Medical Centre and the medical practitioners as directors of Port Augusta Medical Centre.

18. The Treasurer, when reviewing the matter following a notice of objection pursuant to s 82 of the Taxation Administration Act 1996 (SA), said that, " I consider the reasoning of Doyle CJ in
Commissioner of Stamps v Garrett F. Hunter Pty Ltd 97 ATC 4787 ; (1997) 69 SASR 275 to be applicable in the present case and I do not think the present circumstances can be sufficiently distinguished " . I will refer to that decision later in these reasons.

How PAMC operated

19. Doctors Bhola and Yeung were clearly in a position to legally exercise control over the employees who were the practice managers at the medical centres at Port Augusta and Beulah Park. They had the right to appoint and dismiss such employees and engaged in reviews of their performance.

20. Both doctors had set up the business from the time of selecting the site at Port Augusta and designing the centre. It was they who had decided to implement the arrangement whereby 40 % of the fees earned by each doctor in the centres were paid to PAMC. It was they who decided to expand and purchase the Parade Medical Centre at Beulah Park. They selected the doctors who would work in the centres and who would be offered the service contracts by PAMC.

21. Whilst it is correct that practice managers ran the respective centres, there can be no doubt that the doctors, apart from their legal ability to control PAMC, also had input in the day to day practical running of the service provider.

The financial links

22. PAMC as the trustee for PAMC Unit Trust No 2 distributed its profit to the family trusts of both doctors. Those profits were entirely distributed to the family trusts. The trustees, Vay and Guyram, invested the funds obtained from PAMC and distributed those profits to beneficiaries, being members of the respective families.

23. The actual payments made by Vay and Guyram were therefore dependent on the receipt of the profits of PAMC. In the case of Vay the payments from PAMC during the relevant period were between 90 % and 95 % of its total income. In the case of Guyram the percentages varied from as low as 40 % to as high as 70 % .

The judgment appealed from

24. After setting out the provisions of s 18I of the Act, His Honour analysed the test upon which the Commissioner must be satisfied. The analysis was on the basis that there were two tests, or limbs, which had to be satisfied. The first limb was characterised by the judge as relating to the independence of the businesses. In the case of the second limb, the test was characterised as being more concerned with the connection in the management of the businesses.

25. Whilst it is correct that both limbs of the test had to be satisfied by the appellant, in my view there is really just one test. The concepts in each limb of the test appear to be intrinsically linked with each other. It is difficult to see how, on an analysis of whether a business is carried on " substantially independently " of any business carried on by any other member of the group, there would not be considerations of " substantial connection " with the carrying on of any such business.

26. The judge decided to concentrate on what he regarded as the second test, namely, the connection in management. His Honour first analysed the connection between the businesses of PAMC, Vay Pty Ltd and Guyram Pty Ltd.

27. The judge ' s reasons are instructive of how he analysed the question of substantial connection. His Honour said at [ 46 ] :

• " [ 46 ] The business of the appellant was highly important to the businesses of both Vay P/L and Guyram P/L in that the activities of PAMC P/L were directed to maximising its own profit with the sole objective of maximising the payments it made to the businesses of Vay P/L and Guyram P/L. "

28. His Honour then went on to say at [ 49 ] :

• " [ 49 ] In my view, the business of the appellant was essentially to maximise its profit which, because of the linkages and method of distribution referred to above, had the intended and inevitable consequence of maximising the payments to Vay P/L and Guyram P/L. "

29. Finally His Honour concluded at [ 50 ] :

• " [ 50 ] I consider that the present facts clearly demonstrate that this matter of profit distribution in combination with the other matters referred to above including the common shareholdings and directorships, prevents me having satisfaction that the business carried on by the appellant was not substantially connected with the carrying on of the businesses carried on by Vay P/L and/or Guyram P/L. "

30. Having reached his decision on the connection between the businesses of PAMC and Vay and Guyram, and because the appellant was required to show that there was no connection with each one of the other four corporate entities, the appellant had failed in its appeal to the judge.

31. His Honour then went on to look at whether the business of PAMC was carried on independently of and was not substantially connected with the business of Bhola Pty Ltd and Yeung Pty Ltd.

32. There followed an analysis by His Honour of the decision of Doyle CJ in Garrett F. Hunter , in the context of the submissions made by both parties as to whether that decision was distinguishable from this matter.

33. Garrett F. Hunter was a case in which the Commissioner of Stamps assessed a group of three companies for payroll tax purposes as if they were comprised in one group. The respondents were companies associated with two medical practices. The first two respondents were medical practice companies in competition with each other. The third respondent was the trustee of a unit trust which employed staff to provide administrative, secretarial and other services to the two medical practice companies. The respondents appealed the decision of the Commissioner to assess the companies as a group to the Payroll Tax Appeal Tribunal. The Tribunal found the companies should not be assessed as a group and ordered the Commissioner to reassess their tax liabilities. The Commissioner appealed to the Supreme Court.

34. Doyle CJ allowed the appeal and found the companies should have been assessed as a group as per the Commissioner ' s original ruling. He found that an employee of company A who performs duties or services for Company B under Company B ' s guidance will be performing duties for or in connection with the business of Company B for the purposes of the old Act: see page 278. This is so even if the employee has not been employed by Company A for the specific purpose of providing those duties or services to Company B.

35. Doyle CJ further found that where any employees of Company A work almost entirely for Company B an agreement, undertaking or arrangement for the provision of duties or services can be inferred to exist between Companies A and B, such that A and B constitute part of the one group for the purposes of s 18C of the old Act.

36. His Honour the Chief Justice at page 285 held that the following factors were relevant when assessing whether businesses are being carried on substantially independent of each other:

• • The participation by a person in a position of influence in one business in the decision making and management of another; and
• • The interrelation of the business activities of the companies.

37. The trial judge, having analysed the way in which PAMC operated its business, said at [ 61 ] :

• " [ 61 ] In my view, while there may be some force in these various submissions in relation to the ' independence test ' , I consider that the increased number of doctors in this case as compared with the position in Garrett F Hunter does not negate or diminish the true extent of ' connection ' in the present case as between the appellant and Bhola P/L and/or Yeung P/L. I consider that the mere fact that each of the medical practices other than those of Bhola P/L and Yeung P/L had their own independent relationship with the appellant does not alter the closeness of the connections between the appellant and Bhola P/L and/or Yeung P/L arising from the structure of, and relationship between, the various corporate entities as analysed above. "

38. In determining that the business of PAMC and Bhola Pty Ltd and/or Yeung Pty Ltd were " substantially connected " , His Honour referred to the capacity of Doctors Bhola and Yeung to control the business. His Honour said at [ 62 ] - [ 66 ] :

• " [ 62 ] It is true that the doctors ' management meetings displayed considerable input by the other doctors on matters of day-to-day practice and included examples of instances where the course preferred by Dr Bhola or Dr Yeung was not adopted. However, in my view, this rather demonstrates that Dr Bhola and Dr Yeung chose a consultative approach to the management of the business of the appellant rather than that they did not retain substantial control of the business. It can readily be appreciated that a policy of acceptance of a consensus of the views of the other practitioners on non-critical matters over their own views from time to time was a sound business approach in keeping with maintaining good relations with the appellant ' s client medical practices and hence a high rate of occupancy of the available rooms.
• [ 63 ] I consider that Dr Bhola and Dr Yeung did continue to exercise substantial control over the appellant despite the fact that other doctors had input in relation to various matters. Dr Bhola and Dr Yeung remained the sole directors and shareholders of the appellant and clearly made all " long term " decisions. While the day to day management was no doubt undertaken by the respective practice managers, all employees, both legally and practically, were subject to the directions of Dr Bhola and Dr Yeung in relation to matters of importance to the long term interests of Dr Bhola and Dr Yeung.
• [ 64 ] In my view, while in some cases de facto control of the day-to-day business may be important, I consider that in the present case the retaining of the capacity to control the business is of greater importance, particularly in relation to the " connection " question. In this regard, I note that in Garrett F Hunter , Doyle CJ recognised that although the day-to-day running of the practice in that case was left to another doctor, nevertheless Dr Vercoe, one of the directors of the company, was in a position to influence the conduct of the business.
• [ 65 ] Similarly, in
  Crusher Holdings Pty Ltd v Commissioner of Taxes 94 ATC 4646 , Martin CJ recognised the primary importance of the capacity to control the affairs of the business even though de facto control of day-to-day business was vested elsewhere and stated:

  Further, should the occasion arise, it would be open to Mr Kennon to exercise his powers as a life governor of that company to inhibit its demand upon the appellant.

• [ 66 ] I therefore find that the business carried on by the appellant and the respective businesses of Bhola P/L and/or Yeung P/L were substantially connected for the above reasons. "

[ Footnotes omitted ]

Grounds of appeal

39. The grounds of appeal are:

" Connection between the businesses carried on by the Appellant, Vay Pty Ltd and Guyram Pty Ltd

• 1. The Learned Judge erred in concluding that the ' business ' of the Appellant was essentially to maximise its profit, which business had the consequence of maximising the payments to its unit holders Val Pty Ltd ( ' Vay ' ) and Guyram Pty Ltd ( ' Guyram ' ) [ paragraph 49 ] . On the whole of the evidence, the Learned Judge should have applied section 18I of the Pay-roll Tax Act 1971 (SA) ( ' the Act ' ) on the basis that:
  • 1.1 the ' business ' of the Appellant was the provision of administration and support services to approximately twenty two doctors at two medical centres owned and operated by the Appellant in accordance with the Learned Judge ' s earlier findings [ paragraphs 27, 41 ] ;
  • 1.2 section 18I of the Act requires the decision maker to determine whether the ' business ' carried on by the Appellant was carried on substantially independently of, and was not substantially connected with the carrying on of, a business carried on by Vay or Guyram [ emphasis added ] ;
  • 1.3 the fact that Vay and Guyram held units in the Appellant which entitled them to receive distributions of profits of the Appellant does not alter the fact that the ' business ' carried on by the Appellant (namely, the provision of administration and support services to approximately twenty two doctors at two medical centres) was carried on substantially independently of, and was not substantially connected with the carrying on of, the businesses carried on by Vay and Guyram respectively.
• 2. The Learned Judge erred in concluding that the matter of profit distribution, in combination with common shareholdings and directorships between the Appellant, Vay and Guyram, prevented the Appellant from satisfying the requirement that the business carried on by the Appellant was not substantially connected with the carrying on of the businesses carried on by Vay and/or Guyram [ paragraph 50 ] . The Learned Judge should have concluded that:
  • 2.1 although common shareholdings and directorships are relevant to control, it is only one factor to be taken into account;
  • 2.2 common shareholdings and directorships are the reason why the Appellant is grouped with Vay and Guyram in the first place;
  • 2.3 as grouping is based on control, and control is based on ownership, there must always be a degree of common ownership or control between members of a group before the power to exclude in section 18I can be exercised;
  • 2.4 section 18I expressly allows a member of a group to be excluded where, although the group is commonly owned or controlled, the ' business ' of that member is carried on substantially independently of, and is not substantially connected with, the carrying on of businesses carried on by other members of the group;
  • 2.5 section 18I requires consideration of how each business is ' carried on ' ; and
  • 2.6 on the whole of the evidence including, without limitation, the Learned Judge ' s findings that the ' business ' of Vay was managed by Mrs Yeung and the ' business ' of Guyram was managed by Mrs Bhola [ paragraph 45 ] , the ' business ' of the Appellant was carried on substantially independently of, and was not substantially connected with the carrying on of, the businesses carried on by Vay and Guyram respectively.

Connection between the businesses carried on by the Appellant, Bhola P/L and Yeung P/L

• 3. The Learned Judge erred in finding that the business carried on by the Appellant and the respective businesses of Bhola Pty Ltd and/or Yeung Pty Ltd were substantially connected [ paragraph 66 ] . The Learned Judge should have concluded that:
  • 3.1 section 18I requires the decision maker to determine whether the ' business ' carried on by the Appellant is carried on substantially independently of, and is not substantially connected with the carrying on of, a business carried on by Bhola Pty Ltd or Yeung Pty Ltd [ emphasis added ] ;
  • 3.2 the ' business ' of Bhola Pty Ltd was that of a medical practitioner under the Medical Practice Act ;
  • 3.3 the ' business ' of Yeung Pty Ltd was that of a medical practitioner under the Medical Practice Act ;
  • 3.4 the ' business ' of the Appellant was the provision of administration and support services to approximately twenty two doctors at two medical centres, including Bhola Pty Ltd and Yeung Pty Ltd;
  • 3.5 in carrying on its business, the Appellant thereby took into account the needs of twenty unrelated doctors, in addition to Bhola Pty Ltd and Yeung Pty Ltd;
  • 3.6 on the whole of the evidence, the business of the Appellant was carried on substantially independently of, and was not substantially connected with the carrying on of, the medical practice businesses of Bhola Pty Ltd and Yeung Pty Ltd respectively.
• 4. The Learned Judge erred in concluding that the increased number of doctors in the present case, as compared with the position in
  Commissioner of Stamps v Garrett F Hunter 97 ATC 4787 ; (1997) 69 SASR 275 , does not negate or diminish the true extent of ' connection ' as between the Appellant and Bhola Pty Ltd and/or Yeung Pty Ltd [ paragraph 61 ] . "

The arguments of the appellant

40. Dr Bleby, who appeared for the appellant, argues that the judge erred in his finding at [ 49 ] . I have set out the finding earlier in these reasons.

41. Dr Bleby argues that the finding that the business of PAMC was essentially to maximise its profit, was wrong. He submitted that what was required was an analysis of the business activities. He submits that the business of PAMC was that of owner and operator of the two medical centres, with the object of providing support services to 22 individual medical practices.

42. As I have indicated, the judge dealt first with what has been regarded as the second limb of the test under s 18I. Dr Bleby submits that the second limb of the test requires an analysis of whether there is the requisite connection in the management of the medical centre business and the investment activities of Vay and Guyram. He emphasised that part of the definition of " business " in s 18A which dealt with activities. He submitted that the emphasis on activity is to be distinguished from the object or purpose of such activity.

43. Dr Bleby refers to Doyle CJ in Garrett F. Hunter at 285 which I set out earlier. His Honour said, " An interrelation of business activities, and particularly by a person in a position of influence in one business, in the management and decision making of the other business, [ were ] relevant matters " . Again, he submitted, an emphasis on the activities of a business.

44. The arguments advanced by counsel for the appellant can be conveniently gathered under three main headings. The first complaint is that the trial judge erred in categorising the businesses of Vay and Guyram together with that of the appellant company as the business of making or generating profits.

45. The second area of complaint is that the judge did not go beyond what Dr Bleby called the formal structure of the companies. In other words, the matters looked at by the judge were, he said, simply those matters which had led to the grouping in the first place and therefore it was wrong not to go beyond the company structures.

46. The third main ground of complaint is that His Honour erred in relation to the matters which he did take into account as a matter of fact. It is suggested that that was because His Honour failed to take into account the way the business actually operated " on the ground " .

47. As can be seen, the third of those general complaints concerning the judgment is purely related to findings of fact whereas the two other main heads of argument relate to questions of mixed law and fact.

48. The complaint made in relation to profit generation and/or maximisation can be summarised in that profit generation itself is an objective of a business and not the activity of the business which leads to the profit generation. Dr Bleby argues that the judge infers a substantial connection between the businesses by linking what he calls their profit making activities. In simple terms he argues that the business of PAMC was to manage and service the needs of 22 medical practitioners.

49. In relation to the factual matters relating to the day-to-day management, Dr Bleby in his written outline sets out these matters:

• 1. All practitioners ' name appeared on the letterhead stationery of each business;
• 2. All practitioners participated in the management of the business;
• 3. Decision making on the activities of the business occurred at doctors ' meetings, with formal agendas;
• 4. The business continued to operate even in the absence of Doctors Yeung and Bhola;
• 5. Doctor Yeung and Bhola never vetoed a decision affecting the business activities of PAMC;
• 6. The meetings included debating future directions of PAMC;
• 7. Once the second practice was acquired, Doctors Yeung and Bhola spent less time at Port Augusta and were part time at the Beulah Park practice also;
• 8. Dr McQuistan had a management role involving day-to-day decision making in conjunction with the practice manager at Port Augusta; and
• 9. The practice managers both at Port Augusta and at Beulah Park did make day-to-day decisions in connection with the running of the business.

50. Dr Bleby submits that in combination with the suggested error by His Honour in focussing on the profit making aspect of the business rather than the activities of the business, the failure to take into account the various matters mentioned above in day-to-day management was an error. It is submitted that if they were properly taken into account the conclusion must be that the business of PAMC was carried on substantially independently of the businesses of Vay, Guyram, Yeung and Bhola. Likewise it would be concluded that PAMC was not substantially connected with the carrying on of those businesses.

51. Dr Bleby complains that the judgment appealed from does not acknowledge the full details of what in fact happened on a day-to-day basis in the managing of the business.

52. As I understand the argument on this aspect, it is that, although the judge acknowledges what does happen as a matter of fact in the day-to-day management of the business, he comes back to the legal structure of the company to decide the connection question. Dr Bleby ' s complaint is that it is a circular process of reasoning because the structure of the companies is the very reason that they were grouped in the first place.

Respondent ' s argument

53. Mr Evans QC for the respondent argued that the judge had correctly applied the test under s 18I. He submitted that both limbs of the test involved factors which overlapped. Mr Evans submitted that the ultimate question, namely whether the relevant businesses are substantially independent and not substantially connected, must be answered having regard to the criteria set out in the section.

54. That means that the Court must look at the nature and degree of ownership or control, the nature of the businesses and any other factors the Court considers fit. Mr Evans submitted that the judge did precisely that. He submitted that he cannot be criticised for looking at the nature and degree of ownership and control because he is obliged to do so under the section.

55. Mr Evans therefore submitted that matters relating to ownership and control, which are relevant to whether the businesses are grouped in the first instance, are also relevant in determining the test under s 18I.

56. Mr Evans submitted that it is not correct to say that the judge misdirected himself as to the nature of the businesses. He submitted that the judge clearly understood the fact that PAMC operated as a service provider for a number of medical practice companies. The judge took into account not only the issue of profitability and distribution of profits but also looked correctly to matters such as the common ownership, the business activities of PAMC, the business activities of the investment companies and the employees of the investment companies.

57. Mr Evans submitted that, reading the judgment as a whole, it is not correct to isolate those parts of the reasons dealing solely with profit maximisation.

58. When looking at the connection between PAMC and Bhola Pty Ltd and Yeung Pty Ltd, it is submitted that the same matters were relevant but in addition the element of actual control by Doctors Bhola and Yeung over PAMC and their capacity to control in any event were relevant factors.

59. Mr Evans submitted that the evidence does not support the appellant ' s contention that the individual doctors and the respective practice managers controlled the PAMC business. He submitted that the finding of the judge that the businesses of the practice companies were substantially connected with the business of PAMC was a finding which was clearly open on the evidence. It was not a finding that the Court could interfere with. He gave examples from the evidence of Dr Bhola where he made concessions as to the ultimate ability he had to control the decision making aspects of the PAMC business. Dr Bhola conceded that he would use his ability to control the decision making process if that had become necessary. Mr Evans emphasised the ability to control or influence decisions rather than the actual use of such control.

The relevant authorities

60. As I have indicated earlier the Treasurer relied on the decision of Doyle CJ in Garrett F. Hunter . The judge in his reasons at [ 53 ] included this passage from the reasons of Doyle CJ in Garrett F. Hunter .

" The medical practice conducted by Geoffrey S Vercoe Pty Ltd is conducted solely for the benefit of that company. There is no reason to think that decisions about the conduct of that business are in any way influenced or affected by considerations related to the success of the business of Meldrick. In that sense, the business of the practice company is conducted quite independently of Meldrick ' s business. However, the practice company is provided with all secretarial and administrative services that are required for the practice by Meldrick, as well as its premises. In that sense there is a connection between the business of the practice company and the carrying on of business by Meldrick, but I do not regard that as a substantial connection. It is simply the connection between a service provider and a client . "

[ Judgment author ' s emphasis ]

[ Footnote omitted ]

61. His Honour then said at [ 55 ] and [ 56 ] :

• " [ 55 ] First, it must be remembered that a ' substantial connection ' may be constituted by the amalgam of a number of cumulative matters, none of which by itself would be sufficient. In the above passage, his Honour was saying no more than that the matter of connection under consideration did not constitute, by itself, a substantial connection. By contrast, in the present case, Drs Yeung and Bhola are the common factor by which PAMC P/L is closely connected, directly and indirectly, in a number of ways with both the businesses of Yeung P/L and Bhola P/L and also the businesses of Vay P/L and Guyram P/L.
• [ 56 ] Second, although it might be thought that Doyle CJ was saying that the connection between Meldrick and the practice companies was simply ' a connection between a service provider and a client ' , his Honour ' s words must be seen in their broader context. Immediately before the above passage, his Honour had noted that the practice company in Garrett F Hunter was provided with all secretarial and administrative services that were required for the practice by Meldrick, as well as its premises, and it was this fact that his Honour said could not be taken by itself to be a substantial connection. However, later in his judgment, his Honour did find that there was a substantial connection between Meldrick and the practice company when one considered the matter from the opposite perspective of the position of Meldrick. Thus, his Honour there stated:

  ' At first sight it may seem contradictory to say that the business of the practice company is independent of that of Meldrick, but that the business of Meldrick is substantially connected with the business of the practice company. But what I mean is, as I have already said, that in my opinion decisions about the business of the practice company can and would be made independently of any consideration of the business of Meldrick, because Meldrick is simply a service provider to the practice company. But decisions about the business of Meldrick are closely involved with and must take account of the needs of the business of the practice company, and the manner in which its business is conducted having regard to their relationship .

  From that point of view, in my opinion it is not possible to say that the business of Meldrick is carried on substantially independently of the business of the practice company and not possible to say that it is not substantially connected with the carrying on of the business of the practice company. '

  [ Judgment author ' s emphasis ]

  "

62. His Honour concluded that although there may be distinctions between the situation in Garrett F. Hunter and this matter when looking at the " independence test " , there were no relevant distinctions in considering the " connection " test. I have set out paragraph [ 61 ] of His Honour ' s reasons earlier.

63. In my view the decision of Doyle CJ in Garrett F. Hunter is of more assistance to the respondent than the appellant in this matter.

64. I agree with the judge ' s analysis of the decision in Garrett F. Hunter and I agree that so far as " connection " is concerned the comments of Doyle CJ are apposite to this case.

Conclusion

65. It is my view that the way in which the judge instructed himself as to the application of the test under s 18I was a legitimate and practical method of dealing with this matter. In simple terms, if one limb of the test could not be made out by the appellant then the appellant would fail. I agree with the judge ' s conclusion on the second limb.

66. The judge in my view covers both aspects of the test in any event. He cannot be shown to have erred in his approach to the test.

67. As to the arguments of the appellant, I consider the judge has adequately dealt with each of them. First, he clearly understood and described the nature of the PAMC business. It may be that, taken out of context, His Honour appears to place too much emphasis or reliance on the profit generation of the businesses. However, in my view the judge is clearly aware of the activities of the businesses, and read as a whole his reasons for judgment make this clear. It is not simply the aspect of profit generation which the judge considers. He deals with profit in relation to its distribution and to whom and in what proportion. In my view the criticism levelled at the judge ' s reasons is not valid. Profit and its distribution to other business entities must be a relevant matter under s 18I of the Act. The judge properly took these matters into account.

68. Second, he was required to take account of the formal structure of the companies pursuant to the section. In my view, his analysis went beyond the formal structures and His Honour weighed them along with the other relevant criteria which he considered. He specifically looked at the nature and degree of ownership and control as required by s 18I.

69. Third, in his analysis of the facts as to how the PAMC business was run and operated, His Honour did not, as submitted by Dr Bleby, fail to appreciate how it ran " on the ground " . To the contrary, he explained accurately in my view how the day to day management of PAMC proceeded, but bearing in mind the capacity of Doctors Bhola and Yeung to control at all times the direction of the business. His Honour did properly take into account those matters set out earlier at [ 51 ] .

70. In my view, when analysing this matter and applying the test in s 18I as it was considered by Doyle CJ in Garrett F. Hunter , the inescapable conclusion is that the appellant is unable to show that the business of PAMC was carried out substantially independently of, and was not substantially connected with the carrying on of the businesses of Bhola Pty Ltd, Yeung Pty Ltd, Vay Pty Ltd and Guyram Pty Ltd.

71. For these reasons it is my view that the appeal should be dismissed.