The Qld Civil and Administrative Tribunal has effectively refused an application by taxpayers for exclusion orders that would have created 4 separate groups for payroll tax purposes. ‘Groups’ are relevant in payroll tax because there is a substantial tax free amount of wages that don’t attract tax, and payroll tax could be avoided by carrying on each business in a separate entity, or even splintering a single business, into separate parts.
The scheme of the Qld Payroll Tax law (like most) is to create a potentially wide class of ‘groups’ and then give the Commissioner a power to regroup a taxpayer, if need be. In Qld, this is set out in Part 4 of the Payroll Tax Act 1971:
- Employers can be grouped if they are ‘related bodies corporate’ under the Federal Corporations Act 2001 (s69); there are common employees (s70); there are commonly controlled businesses (s71); and groups through tracing controlling interests (s72). Also, smaller groups must be subsumed into larger groups (s68 & s73).
- The Commissioner can exclude a person from a group, under s74 of the Act, if he or she “is satisfied 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 the group”.
The Tribunal was reviewing a decision made by the Commissioner of State Revenue on 18 January 2018, disallowing the taxpayers’ objection to a decision made on 10 April 2017. The Commissioner had assessed on the basis that there was one group of 14 member companies. In summary, the taxpayers had applied for exclusion orders that would have had the effect of creating 4 separate groups for payroll tax purposes, namely the Chrome Group, the Fidler Family Group, the Tacoma Group and AP Hotel 1. The Commissioner refused the application for exclusion orders.
This case related to the Commissioner’s refusal to make exclusion orders that would have left the members of the so called “Tacoma Group” as a Payroll Tax group.
- The form of the orders requested, was, for each of the 4 members of this Tacoma Group, be excluded from the group, comprised by the 10 other members of the prima-facie ‘group’, but not from the other members of the putative Tacoma Group, allowing the Commissioner to treat those companies as a new Payroll Tax ‘group’.
The Tribunal determined that this relatively sensible objective was not possible, because of the language of the Act.
- Crucially, it noted that s74 (quoted above) only allowed a company to be excluded from a ‘group’ if its business was independent from “any other member of the group”. In other words, the business of the subject employer had to be relevantly independent from those of ALL of the other 13 companies, end not just, from the businesses of the 10 others.
- The Tribunal could see no way around this, because of s68, which precludes there being ‘groups’ within larger ‘groups’. Section 68 says: “A group is constituted by all the persons forming a group that is not part of a larger group.” This, the Tribunal said, prevented it finding that a sub-group, of the 10 other companies, was the relevant ‘group’ for the purposes of the regrouping provision in s74 (referred to above).
- The Tribunal said that the taxpayers’ argument depended on s74 being read as if the exclusion provision had the following words added:
” … 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 the group that they seek to be excluded from.”
The taxpayers sought to distinguish this case from the precedent in Comr of Payroll Tax (Qld) v John French Pty Ltd & Ors [1984] 1 Qd R 125, which had decided the issue against them (under legislation that was materially identical). The Tribunal, however, decided that this case could NOT be distinguished.
There is a further ‘wrinkle’ to this. Counsel in the case tells me that, following the French case, there was a unique Qld amendment to the law, to alleviate this problem. This relief was then lost, when the states ‘harmonised’ their Payroll Tax law in 2008. This case has the effect of confirming that the reinstated ‘pre-amendment’ law, has the same unsatisfactory effect, as the French case had established. I’m not aware of whether any other State authorities, are allowing ‘sub-groups’ to de-group, without regard to the French case, or this new Xede case.
In any event, this case ought make it clear that the harmonised statutes all need to be changed, to allow the eminently reasonable result, that a ‘sub-group’ can de-group.
(Xede Pty Ltd & Ors v Comr of State Revenue [2018] QCAT 362, Qld Civil and Administrative Tribunal, Cranwell M, 30 October 2018.)
FJM 6.1.19
[LTN 233, 12/18; Tax Month – December 2018]
CPD (comprehension) questions
- Is the scheme of the Payroll Tax law, to allow ‘groups’ to be widely defined, and then give the Commissioner a structured power to exclude companies that are sufficiently independent?
- Under what section, in the Queensland law, is this exclusion power?
- Does this provision allow a single company to be excluded (because it is relevantly independent of all the other members of the ‘prima-facie’ group)?
- Does this provision allow a sub-group (of relevantly dependent employers) to be excluded from other members of the prima-facie group (from whom they are relevantly ‘independent’)?
- Why?
- Do you think this is a satisfactory state in which to leave the law?
