The NSW Payroll Tax Act 2007 has very wide grouping provisions. The Act also has a de-grouping provision which enables the Chief Commissioner to determine that a person who would, but for his determination, be a member of a group is not a member of the group. Under the current Act, the Chief Commissioner may only make such a determination if satisfied, having regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other matters the Chief Commissioner considers relevant, that a business carried on by the person, is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group.
The Supreme Court recently considered the operation of similar provisions under the former Payroll Tax Act 1971. In this case, the Chief Commissioner held that businesses carried on by separate companies and a partnership were not carried on substantially independently of one another, and were substantially connected with each other. Therefore he would not exercise his discretion under the then section to de-group the entities. There was some connection between the various entities in that:
the partnership carried on the business of processing and supplying chicken meat products to wholesale customers
one of the companies which was grouped with the partnership provided secretarial, accounting, sales, marketing and clerical services to the partnership and was owned by a former employee of the partnership and her husband who were both directors of the company
another company which was grouped with the partnership was owned by the son of the partners and who was also the sole director of the company which provided transport services to the partnership, the partnership being the company’s major customer.
There was also a company which was owned by the partners that owned the premises from which the partnership and the other two companies carried on their businesses and which leased separate parts of the premises to each of the partnership and the two companies.
The Chief Commissioner would not exercise his discretion to de-group because in his view the different group members complemented each other’s businesses and when viewed as a whole it was apparent that the business activities are structured in such a way that each business performs an integral role in the whole process i.e. the procurement, processing, sale and transportation of chicken meat products to customers including the management of this whole process.
The Court held that for the purpose of the previous provision the independence of the person or the business conducted by the person required by the statute is to be judged in terms of ownership, control and nature of the businesses concerned. In terms of ownership, in the case of a company, this was the shareholders. The shareholders of both companies were different from each other and the partnership.
In terms of control, in the case of a company, this was the directors of the company. The directors of both companies were different for both companies and were different from the partnership.
In terms of the nature of the businesses, the Court considered the businesses as individual businesses and not in terms as to whether they were an integral part of a whole as determined by the Chief Commissioner. The Court held that the businesses were separate and distinct. The partnership processed chicken meats. One company provided administrative services. The second company provided the services of a fleet of refrigerated vehicles and drivers.
Therefore in the Court’s view, there was a substantial independence of the two companies or the businesses they conduct from the business of the partnership. There was nothing to prevent the Commissioner from exercising his discretion to de-group.
The Court also held that it had power to replace the decision of the Chief Commissioner with its own determination notwithstanding the power was an exercise of discretion by the Chief Commissioner.
This case means that all may not be lost in relation to payroll tax even where there is some connection between the businesses which are grouped under the wide provisions of the Payroll Tax. The Court has not applied the discretion as widely as the Chief Commissioner did in this particular case. It is not known whether an appeal will be lodged against this decision.