Winlina Pty Ltd v Chief Commissioner of State Revenue

1. [1]

   PAYNE J: These proceedings concern assessments issued by the Chief Commissioner of State Revenue to Winlina Pty Ltd (“Winlina”) in respect of payroll tax liabilities in the period from 15 November 2010 to 17 July 2012. The total amount of tax and penalties payable by reason of the assessments is $127,209.48.

2. [2]

   The assessments were issued to Winlina on the basis that it was a member of a payroll tax group with Panlirn Pty Ltd (“Panlirn”) and other entities pursuant to Division 2 of Part 5 of the Payroll Tax Act 2007 (NSW) and was therefore jointly and severally liable for Panlirn’s unpaid tax liabilities under s 81 of the Payroll Tax Act.

3. [3]

   Winlina seeks review of those assessments, pursuant to s 97 of the Taxation Administration Act 1996 (NSW). Somewhat unusually, Mr Steven Soong, the sole director of Winlina, was joined to the proceedings on his own motion as the second plaintiff. As this order was made prior to the matter being allocated to me and in the absence of submissions from either party about the joinder I will proceed on the basis that the joinder of Mr Soong was appropriate.

4. [4]

   The proceedings in this Court are an “appeal” for the purposes of s 19(2) of the Supreme Court Act 1970 (NSW) and s 97(4) of the Taxation Administration Act. An appeal under these provisions is a de novo review not limited to the materials before the Chief Commissioner: Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (2011) 245 CLR 446; [2011] HCA 41 at [12]-[22]; Grain Growers Ltd v Chief Commissioner of State Revenue [2015] NSWSC 925 at [7].

5. [5]

   Winlina bears the onus of proving its case on the balance of probabilities: Taxation Administration Act, s 100(3).

Evidence

1. [6]

   Winlina read the affidavit of Steven Andrew Soong sworn on 14 May 2015. The affidavit sets out the operations and trading activities of Winlina and Panlirn and the interactions between Winlina and Panlirn. Various assertions made by Mr Soong about Winlina “operating solely in Queensland” were rejected. Winlina also read the affidavit of Steven Andrew Soong sworn on 12 August 2019. An attempt to lead evidence about a new issue (the employees of two related companies, Yelturn Pty Ltd and Larsay Pty Ltd) was rejected. The defendant read the affidavit of Rebecca Sui Ming Lim Kiu affirmed on 13 February 2019. Annexed to the affidavit were various notices, objections, determinations, correspondence between the parties, ASIC records, profit and loss statements, balance sheets, internal ledgers, intra-group tax invoices, intra-group contracts, and bank documents produced under subpoena. There was no cross-examination. The Court Book comprised three volumes and was marked Exhibit A. [1]

Relevant facts

1. [7]

   In this part of the judgment I will describe my principal findings of fact. I will, where necessary, make additional findings of fact when addressing the submissions of the parties.

2. [8]

   In the relevant period from 15 November 2010 to 17 July 2012, Winlina was associated with the following companies:

   1. (1)

      Panlirn Pty Ltd (“Panlirn”);

   2. (2)

      Banfirn Pty Ltd (“Banfirn”);

   3. (3)

      Fyna Nuform Pty Ltd (“Fyna Nuform”) (now M&M Bros Concreting Pty Ltd);

   4. (4)

      Formforce (NSW) Pty Ltd (“Formforce”);

   5. (5)

      Wyreach Pty Ltd (“Wyreach”) and its related bodies corporate:

   6. (6)

      Norton Developments Pty Ltd (“Norton”);

   7. (7)

      Lafari Pty Ltd (“Lafari”);

   8. (8)

      Larsay Pty Ltd (“Larsay”);

   9. (9)

      Powerform Equipment Pty Ltd (“Powerform”);

   10. (10)

       SAS Holdings Australia Pty Ltd (“SAS”);

   11. (11)

       Talmag Pty Ltd (“Talmag”);

   12. (12)

       Ticaart Pty Ltd (“Ticaart”); and

   13. (13)

       Yelturn Pty Ltd (“Yelturn”).

3. [9]

   In the relevant period from 15 November 2010 to 17 July 2012, Mr Steven Soong was the sole director of Winlina and was a resident of NSW. [2] Mr Steven Soong was responsible for the day-to-day management of Winlina.

4. [10]

   Mr Steven Soong was also a director of the following companies, whose registered offices and principal places of business were each located in NSW:

   1. (1)

      Fyna Nuform from 7 October 2011;

   2. (2)

      Formforce from 14 March 2005;

   3. (3)

      Wyreach from 7 October 2011;

   4. (4)

      Fyna Constructions (Hire and Sales) from 7 October 2011;

   5. (5)

      Lafari from 22 May 2012 to 25 April 2014;

   6. (6)

      Larsay from 22 May 2012 to 25 April 2014;

   7. (7)

      Powerform from 7 October 2011;

   8. (8)

      SAS from 28 September 2006; and

   9. (9)

      Talmag from 8 March 2004.

5. [11]

   At all material times, the sole shareholder of Winlina was Mr Warren Soong, who is the brother of Mr Steven Soong. Mr Warren Soong was at all relevant times a resident of NSW.

6. [12]

   At all material times, Winlina’s registered office and principal place of business were located in NSW. Winlina’s registered office today is in Granville, NSW. ASIC was notified that Winlina’s principal place of business moved to Queensland in May 2013, after the period covered by the assessments.

7. [13]

   At all material times:

   1. (1)

      Winlina held a bank account with CBA at its Belmore, NSW branch and account statements were sent to a post office box in Belmore and later in Granville;

   2. (2)

      Winlina held a bank account with ANZ at its Campsie, NSW branch and account statements were sent to the post office box in Belmore and later in Granville; and

   3. (3)

      Winlina held a bank account with Suncorp at its branch located in Brisbane, Queensland. The account statements record a nil balance at all times.

8. [14]

   During the relevant period, a series of transactions occurred between Winlina and Yelturn, Fyna Nuform, Banfirn, Larsay, Norton and Fyna Constructions (Hire and Sales). Each of those companies’ registered offices and principal places of business were located in NSW.

9. [15]

   In respect of Fyna Nuform, the transactions were loans made during FY2011 by which:

   1. (1)

      Winlina transferred to Fyna Nuform the total amount of $731,470.00; and

   2. (2)

      Fyna Nuform transferred to Winlina the total amount of $824,767.75.

10. [16]

    During FY2012, the loan accounts between Winlina, Fyna Nuform and Banfirn record that:

    1. (1)

       Winlina transferred to Fyna Nuform the total amount of $204,410.18;

    2. (2)

       Fyna Nuform transferred to Winlina the total amount of $287,415.00; and

    3. (3)

       Winlina lent $59,700 to Banfirn, which was repaid during the course of that financial year.

11. [17]

    During FY2012, Fyna Nuform had a loan account with Banfirn by which:

    1. (1)

       Banfirn transferred to Fyna Nuform the total amount of $166,205.70; and

    2. (2)

       Fyna Nuform transferred to Banfirn the total amount of $130,403.55.

12. [18]

    Fyna Nuform and Banfirn both used the labour hire services of Panlirn. Mrs Desley Soong was the director of Panlirn and Mrs Desley Soong and Mr Warren Soong were the shareholders of Panlirn until that company was deregistered on 4 February 2013.

13. [19]

    In FY2011, a substantial majority of Panlirn’s contract income was earned from Fyna Nuform. In FY2011, Panlirn issued tax invoices to Fyna Nuform for labour hire services and management fees in the amount of $1,023,972.63. In FY2012, Panlirn issued invoices to Fyna Nuform and Banfirn in the adjusted amount of $1,029,918.12, being 100% of its income for that year.

14. [20]

    I find that Winlina transacted with a group of companies, including Panlirn, on a routine basis. In the case of the now-deregistered labour hire companies all based in NSW, Yelturn, Larsay and Panlirn, the majority, if not all, of their revenue was derived from other companies in the group. These companies all operated from the same registered offices and principal places of business, which were located in NSW. Their directors and shareholders were all members of the Soong family and all resided in NSW.

15. [21]

    In these proceedings, Winlina does not challenge the decision by the Chief Commissioner to refuse to exclude Winlina from a payroll tax group of which Panlirn was a member under s 79 of the Payroll Tax Act.

Issues

1. [22]

   In their outline of submissions filed on 19 July 2019, Winlina contended that the issues to be determined by the Court are as follows:

   1. (1)

      whether, on a proper construction of the Payroll Tax Act and the Taxation Administration Act, Winlina is not relevantly a member of a group with Panlirn, as the grouping provisions of the Act do not apply to corporations who do not carry on business in NSW; and

   2. (2)

      if the Payroll Tax Act, on its proper construction, applies to corporations that do not carry on business in NSW, whether the Act is invalid to the extent that it purports to apply to the extraterritorial activities of Winlina, because it exceeds the power of the State Government to make laws “for the peace, welfare, and good government of New South Wales”.

2. [23]

   In their submissions in reply filed on 10 August 2019, Winlina accepted that it was critical to the case it wished to advance before me that Winlina first establish that it did not carry on business in NSW in the relevant period within the meaning of Part 5 of the Payroll Tax Act.

Submissions of the parties

1. [24]

   Winlina submitted that Part 5 of the Payroll Tax Act, or alternatively those sections in Part 5 of the Payroll Tax Act which relate to or concern the grouping of Winlina with Panlirn, do not apply to Winlina. This is because Winlina is a business wholly based in Queensland which lacks any meaningful nexus with NSW.

2. [25]

   It was submitted that on a proper construction of the Payroll Tax Act, Winlina could not be liable to pay payroll tax assessed to Panlirn as Winlina did not “carry on business” in NSW as it did not employ any person to perform work in NSW or pay wages for work performed in NSW. Winlina was not, it was submitted, relevantly a member of a group with Panlirn under s 81(1) of the Payroll Tax Act pursuant to ss 72(1), 72(2)(c)(i) and 72(2)(e) of the Payroll Tax Act.

3. [26]

   It was submitted that Winlina “carries on business” in Queensland and that at no relevant time, did Winlina carry on business in NSW. Winlina asserted that another company was the tenant at the address notified to ASIC in Granville, NSW as Winlina’s principal place of business.

4. [27]

   Winlina submitted that each of ss 72(1), 72(2)(c)(i) and 72(2)(e) of the Payroll Tax Act refers to “carrying on” of a business. Winlina submitted that for the purposes of the Payroll Tax Act, the “businesses” referred to are necessarily businesses “carried on” in NSW.

5. [28]

   It was submitted that the purpose of s 12(1)(b) of the Interpretation Act 1987 (NSW) is to require the words of a statute to be read as if the words “in and of New South Wales” are incorporated within that statute unless the contrary intention appears. The prima facie rule is that references are to places within the jurisdiction: Tobacco Leaf Marketing Board v Corte [1983] 3 NSWLR 10.

6. [29]

   It was submitted that Winlina did not “carry on business” in NSW within the meaning of either ss 72(2)(c)(i) or 72(2)(e) of the Payroll Tax Act. Nor was Winlina one of two “businesses” within the meaning of s 72(1). It was submitted to be “extraordinary” if ss 72 and 81 of the Payroll Tax Act were to be construed as imposing liability on corporations that conduct no business, employ no one and pay no wages for work performed in NSW.

7. [30]

   It was submitted that if the grouping provisions were not construed in the manner for which Winlina contends, an entity with no presence, business or employees in NSW could be assessed for tax in NSW. Such persons or companies would become taxpayers within the meaning of s 3 of the Taxation Administration Act and be subject to payroll tax assessments under s 8.

8. [31]

   Winlina submitted that if the Chief Commissioner were correct in his construction, s 5 of the Constitution Act 1902 (NSW) prevented Part 5 of the Payroll Tax Act, or alternatively those sections in Part 5 of the Payroll Tax Act that relate to or concern the grouping of Winlina with Panlirn, from having extraterritorial application.

9. [32]

   Winlina submitted that, pursuant to s 31(1) of the Interpretation Act, an Act is to be construed as “operating to the full extent of, but so as not to exceed, the legislative power of Parliament”. This is relevant in this case where limitations on the operation of State laws apply. Section 5 of the Constitution Act provides that the NSW legislature has the power to make laws “for the peace, welfare, and good government of New South Wales”. The words “of New South Wales” indicate that there must be a territorial connection between the law and NSW.

10. [33]

    It was submitted that the legislative powers of the Parliament of each State include full power to make laws for the “peace, order and good government” of that State which have extraterritorial operation. However, it was submitted, in order to have extraterritorial operation, there must be a connection between the law and the territory in which it was enacted. The principle is encapsulated by the decision of the High Court in Union Steamship Co of Australia Pty Ltd v King (1988) 166 CLR 1 at 13-14; [1988] HCA 55:

11. [34]

    McHugh and Gummow JJ held in State Authorities Superannuation Board v Commissioner of State Taxation (WA) (1996) 189 CLR 253 at 288; [1996] HCA 32 “that there is no prohibition placed upon one State imposing upon another State a tax with respect to property of the other State within the area of the first State or with respect to dealings by the other State in such property”. Winlina submitted that there must be a relevant connection between the State enacting the tax and the subject matter of the tax.

12. [35]

    It was submitted that the NSW Parliament “has no general power to make strangers to its territory liable in its courts to judgments or sentences by way of enforcing contributions to the revenue of the State”: Welker v Hewett (1969) 120 CLR 503 at 512; [1969] HCA 53 (Kitto J). In Balajan v Nikitin (1994) 35 NSWLR 51 at 61, Windeyer J held that, on its face, the relevant provision there being considered would empower the court in any action commenced in NSW to make an order in respect of property outside NSW, whether or not there was any link with NSW. His Honour determined that the necessary nexus with the State was absent insofar as the section purported to give power to make orders affecting property outside NSW of a deceased person domiciled outside NSW and, to the extent the law was not within the competence of the NSW legislature, it should be read down, pursuant to the Interpretation Act, to operate as it was intended to operate.

13. [36]

    Balajan v Nikitin was referred to by Brereton J in Hitchcock v Pratt (2010) 79 NSWLR 687; [2010] NSWSC 1508. In Hitchcock v Pratt, his Honour determined that the statute in question was invalid to the extent it purported to authorise a family provision order in respect of property outside NSW of a testator who died domiciled outside NSW. His Honour stated at [8]:

14. [37]

    It was only in written submissions in reply that Winlina squarely confronted the critical factual underpinning of its case, namely, even assuming that its construction of the Payroll Tax Act was correct, it bore the onus of demonstrating that during the relevant period Winlina did not carry on business in NSW.

15. [38]

    Winlina submitted that it trades under the name of “Fyna Constructions Qld”. Therefore, it was submitted, Winlina carries on business in Queensland. It was submitted that the evidence established that, in the period from 15 November 2010 to 17 July 2012, Winlina’s sole income was derived from formwork contracts for construction projects in Queensland.

16. [39]

    Winlina submitted that it does not occupy its registered office at Granville, NSW and that another company is the tenant at the address that Winlina had notified ASIC was its registered office. Winlina’s principal place of business is currently at Beenleigh, Queensland although Winlina conceded that during the whole of the relevant period it had notified ASIC that it had a principal place of business in NSW. Winlina submitted that this registration in NSW was “for administrative purposes only”.

17. [40]

    Winlina submitted that the Court should not consider this (unexplained) internal arrangement as determinative. It was submitted that s 21(3)(b) of the Corporations Act 2001 (Cth) provides that merely because a body corporate “holds meetings of its directors or shareholders or carries on other activities concerning its internal affairs” in Australia will not indicate that the company is carrying on business in Australia.

18. [41]

    It was submitted that the fact that Mr Steven Soong resides in NSW should similarly not be considered to be determinative of the question of where Winlina was carrying on business during the relevant period. Mr Hale SC accepted that it was one factor that the Court may consider, but submitted that it was not a decisive one. It was submitted that there was a meaningful distinction between a situation where a company was carrying on business in NSW as opposed to circumstances where an individual associated with a company, such as Mr Soong, engages in business activities in NSW unrelated to Winlina.

19. [42]

    Winlina submitted that just because Mr Soong resides in NSW, and arguably himself “carries on business” in NSW, does not mean that Winlina itself “carries on business” in NSW for the purposes of the Payroll Tax Act.

20. [43]

    Winlina submitted that two of the companies whose dealings with Winlina were identified by the Chief Commissioner as being relevant, Yelturn and Larsay, are labour hire companies with operations based in Queensland. It was submitted that neither Yelturn nor Larsay provided any services in respect of construction projects based in NSW or have ever traded in NSW. It was conceded that, for reasons not explained in the evidence, each had a registered office in NSW.

21. [44]

    It was submitted that Winlina’s agreements with Yelturn and Larsay under which each company provided services and labour to Winlina to enable Winlina to complete formwork subcontracts were carried out solely in Queensland.

22. [45]

    Winlina submitted that the presence of a bank account does not indicate that a body corporate is carrying on business in a particular State or Territory: Corporations Act, s 21(3)(c). It was submitted that the fact that Winlina has previously transferred funds to Fyna Nuform, a company with a registered office and carrying on business in Sydney, does not illustrate that Winlina was carrying on business in NSW.

23. [46]

    When Mr Hale SC was asked about what test Winlina submitted the Court should apply to determine if Winlina was “carrying on business” in NSW during the relevant period the following exchange occurred:

24. [47]

    The essence of the submission was that carrying on a business has been generally understood to mean to “conduct some form of commercial enterprise, systematically and regularly, with a view to profit”: Hyde v Sullivan (1955) 56 SR (NSW) 113 at 119. It was submitted that what is absent from the evidence is any indication that Winlina has ever undertaken activities in NSW that: (a) constitute a commercial enterprise (i.e. are undertaken for the purpose of profit); and (b) are performed on a continuous and repetitive basis.

25. [48]

    In Hope v Bathurst City Council (1980) 144 CLR 1; [1980] HCA 16, the High Court considered the meaning of the words “carrying on the business of grazing”. Mason J (Gibbs, Stephen, Murphy and Aickin JJ agreeing) commented at 8:

26. [49]

    It was submitted that Mason J’s comments were consistent with the conclusion that a company may engage in some commercial activity in the jurisdiction, but still not carry on business in that jurisdiction.

27. [50]

    Winlina accepted that it “may also be correct” that a company may be found to be carrying on business “in” a particular geographic area even though the bulk of its business is conducted elsewhere. Barrett J made such a finding at [39] in Gebo Investments (Labuan) Ltd v Signatory Investments Pty Ltd [2005] NSWSC 544. However, Winlina submitted that his Honour did not identify circumstances where a business has a limited number of financial connections to a jurisdiction but does not conduct any activities that are undertaken as a commercial enterprise on a continuous and repetitive basis.

28. [51]

    It was submitted that Winlina’s corporate architecture in NSW is not nearly so established as that of other companies in other decided cases. It was submitted (without reference to any evidence) that Winlina has never undertaken systematic capital-raising in NSW and its registered address is in NSW “for administrative purposes only”.

29. [52]

    For the period from 15 November 2010 to 7 October 2011, the Chief Commissioner contends that Winlina formed part of the same payroll tax group with Panlirn on the following grounds:

    1. (1)

       Mr Warren Soong, as sole shareholder of Panlirn, Winlina, Banfirn, Formforce, Lafari, Larsay, Powerform, Talmag and Yelturn, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(e) of the Payroll Tax Act;

    2. (2)

       Mrs Desley Soong, as sole director of Panlirn, Banfirn, Fyna Nuform, Wyreach, Norton, Lafari, Larsay, Powerform, Ticaart, Yelturn, Fyna Constructions (Hire and Sales), Ashworth, Ashworth (Vic), Parkwind and Wellnora, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(c)(i) of the Payroll Tax Act;

    3. (3)

       Mrs Desley Soong, as sole shareholder of Wyreach, had a relevant “controlling interest” in the business carried on by that company: s 72(2)(e) of the Payroll Tax Act;

    4. (4)

       Mr Steven Soong, as sole director of Winlina, Formforce, SAS and Talmag, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(c)(i) of the Payroll Tax Act;

    5. (5)

       Mr Steven Soong, as sole shareholder of Fyna Nuform and SAS, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(e) of the Payroll Tax Act; and

    6. (6)

       because Panlirn formed a payroll tax group with Winlina, Banfirn, Fyna Nuform, Formforce, Wyreach, Norton, Lafari, Larsay, Powerform, SAS, Talmag, Ticaart, Yelturn, Fyna Constructions (Hire and Sales), Ashworth, Ashworth (Vic), Parkwind and Wellnora on at least the bases of ss 72(2)(e) and/or 72(2)(c)(i), by operation of s 74 (Panlirn being the relevant person referred to in s 74(1)), the members of each smaller group became members of a single larger group, which included both Panlirn and Winlina.

30. [53]

    For the period from 8 October 2011 to 15 May 2012, the Chief Commissioner contends that Winlina formed part of the same payroll tax group with Panlirn on the following grounds:

    1. (1)

       Mr Warren Soong, as sole shareholder of Panlirn, Winlina, Banfirn, Formforce, Lafari, Larsay, Powerform, Talmag and Yelturn, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(e) of the Payroll Tax Act;

    2. (2)

       Mrs Desley Soong, as sole director of Panlirn, Banfirn (until 1 May 2012), Norton, Lafari, Larsay, Ticaart, Yelturn, Ashworth, Ashworth (Vic), Parkwind and Wellnora, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(c)(i) of the Payroll Tax Act;

    3. (3)

       Mrs Desley Soong, as sole shareholder of Wyreach had a relevant “controlling interest” in the business carried on by that company: s 72(2)(e) of the Payroll Tax Act;

    4. (4)

       Mr Steven Soong, as sole director of Winlina, Fyna Nuform, Formforce, Wyreach, Powerform, SAS, Talmag and Fyna Constructions (Hire and Sales), had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(c)(i) of the Payroll Tax Act;

    5. (5)

       Mr Steven Soong, as sole shareholder of Fyna Nuform and SAS, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(e) of the Payroll Tax Act; and

    6. (6)

       because Panlirn formed a payroll tax group with Winlina, Banfirn, Fyna Nuform, Formforce, Wyreach, Norton, Lafari, Larsay, Powerform, SAS, Talmag, Ticaart, Yelturn, Fyna Constructions (Hire and Sales), Ashworth, Ashworth (Corp), Parkwind and Wellnora, on at least the bases of ss 72(2)(e) and/or 72(2)(c)(i), by operation of s 74 (Panlirn being the relevant person referred to in s 74(1)), the members of each smaller group became members of a single larger group, which included both Panlirn and Winlina.

31. [54]

    For the period from 16 May 2012 to 17 July 2012, the Chief Commissioner contends that Winlina formed part of the same payroll tax group with Panlirn on the following grounds:

    1. (1)

       Mr Warren Soong, as a shareholder of Panlirn and sole shareholder of Winlina, Banfirn, Formforce, Lafari, Larsay, Powerform, Talmag and Yelturn, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(e) of the Payroll Tax Act;

    2. (2)

       Mrs Desley Soong, as sole director of Panlirn and Norton, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(c)(i) of the Payroll Tax Act;

    3. (3)

       Mrs Desley Soong, as a shareholder of Panlirn and sole shareholder of Wyreach, had a relevant “controlling interest” in the business carried on by that company: s 72(2)(e) of the Payroll Tax Act;

    4. (4)

       Mr Steven Soong, as sole director of Winlina, Fyna Nuform, Formforce, Wyreach, Lafari, Larsay, Powerform, SAS, Talmag and Fyna Constructions (Hire and Sales), had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(c)(i) of the Payroll Tax Act;

    5. (5)

       Mr Steven Soong, as sole shareholder of Fyna Nuform and SAS, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(e) of the Payroll Tax Act;

    6. (6)

       Mr Jim Soong, as sole director of Banfirn, Ticaart, Ashworth, Ashworth (Vic), Parkwind and Wellnora, had a relevant “controlling interest” in the businesses carried on by those companies: s 72(2)(c)(i) of the Payroll Tax Act; and

    7. (7)

       because Panlirn formed a payroll tax group with Winlina, Banfirn, Fyna Nuform, Formforce, Wyreach, Norton, Lafari, Larsay, Powerform, SAS, Talmag, Ticaart, Yelturn, Fyna Constructions (Hire and Sales), Ashworth, Ashworth (Vic), Parkwind and Wellnora on at least the bases of ss 72(2)(e) and/or 72(2)(c)(i), by operation of s 74 (Panlirn being the relevant person referred to in s 74(1)), the members of each smaller group become members of a single larger group, which included both Panlirn and Winlina.

32. [55]

    The Chief Commissioner noted that, aside from the arguments regarding the geographical limitations on the application of the grouping provisions, Winlina and Mr Steven Soong do not dispute the Chief Commissioner’s approach to grouping Winlina and Panlirn under Part 5 of the Payroll Tax Act. The Chief Commissioner also noted that Winlina does not challenge the decision to refuse to exclude Winlina from a group of which Panlirn was a member under s 79 of the Payroll Tax Act.

33. [56]

    The Chief Commissioner submitted that, were the Court to conclude that the fundamental factual premise of Winlina’s argument that it did not carry on business in NSW was not made out, it was unnecessary and undesirable to address the construction and constitutional issues raised by Winlina as they were predicated on a factual basis that did not arise here.

34. [57]

    If the Court were to consider construction issues the Chief Commissioner submitted that:

    1. (1)

       the proper construction of the text of Part 5 of the Payroll Tax Act, considered in light of its context and purpose, requires the conclusion that no geographical limit be placed on its application, to the effect that group members must carry on a business in NSW; and

    2. (2)

       Part 5 of the Payroll Tax Act was within the constitutional competence of NSW.

Legislative provisions

1. [58]

   Section 3 of the Payroll Tax Act relevantly defines “employer”:

2. [59]

   Sections 6 and 7 of the Act impose an obligation to pay payroll tax as follows:

3. [60]

   Division 2 of Part 2 deals with “Taxable wages”. Section 10(1) states that, for the purposes of the Act, “taxable wages are wages that are taxable in this jurisdiction”. Section 11(1) sets out the circumstances in which wages are “taxable in this jurisdiction” by reference to a series of criteria as follows:

4. [61]

   These sections appear in substantially identical form in the payroll tax legislation of all States and Territories in Australia: Payroll Tax Act 2011 (ACT), Pt 2, Div 2.2; Payroll Tax Act 2009 (NT), Pt 2, Div 2; Payroll Tax Act 1971 (Qld), Pt 2, Div 1; Payroll Tax Act 2009 (SA), Pt 2, Div 2; Payroll Tax Act 2008 (Tas), Pt 2, Div 2; Payroll Tax Act 2007 (Vic), Pt 2, Div 2; Pay-roll Tax Assessment Act 2002 (WA), Pt 2, Div 1.

5. [62]

   Part 5 of the Payroll Tax Act relevantly provides:

6. [63]

   Section 45 of the Taxation Administration Act provides:

7. [64]

   Section 12(1) of the Interpretation Act provides:

Consideration

1. [65]

   The fundamental precondition to Winlina’s case is that a “business” in Part 5 of the Payroll Tax Act is a “matter or thing” within the meaning of s 12 of the Interpretation Act and that those references to a “business” must be to a business “in and of” NSW. Winlina submits that this means that Part 5 of the Payroll Tax Act only applies to a business carried on in NSW. I will first address Winlina’s case on the hypothesis that a “business” in ss 72(1) and 72(2) of the Payroll Tax Act must be understood to refer to a business “in and of” NSW.

2. [66]

   Making that assumption about the construction of Part 5 of the Payroll Tax Act in Winlina’s favour, I have concluded that Winlina carried on business in NSW throughout the relevant period.

3. [67]

   The grouping provisions in Part 5 of the Payroll Tax Act are an anti-avoidance measure designed to protect the revenue. In Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue, in the context of the Pay-roll Tax Act 1971 (NSW) and the Taxation Administration Act (which at the relevant time contained the grouping machinery), the High Court said at [8]:

4. [68]

   In Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184, the Court of Appeal identified a further purpose of the grouping provisions in light of s 81 of the Act; namely to facilitate the collection of tax, by making non-employer group members jointly and severally liable for the payroll tax liabilities of employer group members in the event of a relevant default. In Smeaton Grange, Sackville JA (with whom Leeming and Gleeson JJA agreed) said at [25]:

5. [69]

   By imposing joint and several liability on all members of a payroll tax group, s 81 of the Payroll Tax Act achieves an anti-tax avoidance purpose, namely to preclude a group of companies from shielding assets from taxation liabilities by placing those assets in the hands of group companies that have not incurred a primary obligation to pay payroll tax. In the present case, the wages which are the subject of the assessments are in respect of services performed by employees of Panlirn, a company that carried on business in NSW. The wages paid by Panlirn to its employees were “taxable in this jurisdiction”, namely NSW, under s 11(1)(a) of the Payroll Tax Act and are not subject to payroll tax in any other State or Territory in Australia. Panlirn went into liquidation without paying the tax it was liable to pay and has been deregistered. But for its jurisdictional argument, Winlina accepts that it is a member of a payroll tax group with Panlirn and liable under s 81 of the Payroll Tax Act to pay the amount identified in the assessments.

6. [70]

   Winlina’s submission about identifying the geographic scope of where a company carries on business has too narrow a focus. It was submitted that what is absent from the evidence is any indication that Winlina has ever undertaken activities in NSW that: (a) constitute a commercial enterprise, being undertaken for the purpose of profit; and (b) are performed on a continuous and repetitive basis. Winlina relied for the test it propounded on s 67 of the Payroll Tax Act. That provision is a very broad and inclusive definition of a “business”. To the extent that s 67 suggests any geographic limitation, it is a limited one. A “business” within the meaning of s 67 is much broader than the general law conception and may include a single activity such as “employing one or more persons who perform duties in connection with another business” or “holding any money or property” used for or in connection with another business. That rather suggests that the nature of any connection with NSW may be slight for that enterprise to be regarded as carrying on business in NSW.

7. [71]

   A critical fallacy that pervaded Winlina’s submission was to misunderstand the onus of proof. It was Winlina’s burden to demonstrate that it did not carry on business in NSW. Repeated references in the submissions to points raised as crucial or problematic “for the Defendant’s case” at best confused the issues and more generally failed to engage with what Winlina was required to prove. I accept that reliance by revenue authorities on the onus of proof provisions can be overdone in some cases, but this was not such a case. It was Winlina’s obligation to prove that it did not carry on business in NSW. Winlina failed to do so.

8. [72]

   Another fallacy that pervaded Winlina’s written submissions is that a company can only carry on business in one State in Australia. That submission simply ignores the statutory language. Even when the language is construed in the way Winlina suggests it does not assist Winlina. Winlina’s submissions seemed at various times to confuse the question of whether Winlina carried on business in Queensland with the critical question of whether Winlina carried on business in NSW. A company may be found to be carrying on business “in” a particular geographic area even though the bulk of its business is conducted elsewhere: Gebo Investments at [39].

9. [73]

   In Gebo Investments Barrett J addressed the question of whether a corporation, which was incorporated under the Offshore Companies Act 1990 (Malaysia) and was based in a designated “International Offshore Financial Centre” in Labuan, carried on business in Australia. His Honour said:

10. [74]

    In Valve Corporation v Australian Competition and Consumer Commission (2017) 258 FCR 190; [2017] FCAFC 224 the Full Federal Court observed:

11. [75]

    I conclude, on the basis of these authorities and analysis of the authorities contained therein, that for the purposes of Part 5 of the Payroll Tax Act (on the assumption that it refers only to a business carried on in NSW), a corporation will carry on business “in” NSW in circumstances where, at least:

12. [76]

    It is clear that a company may be carrying on business “in” NSW even though it has no employees in NSW and pays no wages in NSW.

13. [77]

    I reject the submission which pervaded Winlina’s case, that “[j]ust because Mr Soong resides in NSW, and arguably himself ‘carries on’ business in NSW”, does not mean that Winlina itself “carries on” business in NSW for the purposes of the Payroll Tax Act. Mr Steven Soong was the sole director of Winlina in the relevant period. His acts, on behalf of Winlina, were Winlina’s acts. It was Winlina’s burden to prove that Mr Soong did not perform acts on behalf of Winlina “in” NSW. Winlina did not even attempt to do so.

14. [78]

    It will be recalled that at all relevant times Winlina’s registered office and principal place of business were located in NSW. Winlina chose not to explain how that came about, and merely asserted in submissions that the registration in NSW was for “administrative purposes only”. It was implied, although not proven, that the identification by Winlina of Winlina’s principal place of business as being in NSW during the relevant period was a mistake.

15. [79]

    The Corporations Act 2001 (Cth) deals with the requirements upon a corporation to notify its registered office and principal place of business. It is a strict liability offence to fail to notify ASIC of a change in the registered office and a further strict liability offence to fail to notify a change of a company’s principal place of business. The applicable penalty for each offence is 60 penalty units: Corporations Act, Sch 3. [3] The Corporations Act provides:

16. [80]

    Winlina chose not to explain in the voluminous evidence tendered in this case how it was that the Court could conclude that Winlina did not carry on business in NSW in the face of the clear admission by Winlina that the corporate regulator had been told, on pain of penalty, that Winlina’s registered office and principal place of business were “in” NSW throughout the relevant period. As Winlina chose not to explain that matter in evidence, Winlina fails at the first hurdle in demonstrating that it did not carry on business “in” NSW.

17. [81]

    I am, in any event, comfortably satisfied on the basis of all of the evidence that Winlina did carry on business in NSW throughout the relevant period. Throughout the period addressed by the assessments:

    1. (1)

       the directors and shareholders of Winlina were resident in NSW. Winlina’s sole director, Mr Steven Soong, who was responsible for the day-to-day management of the company, was resident in NSW and conducted business on Winlina’s behalf from NSW. Mr Warren Soong, the sole shareholder in Winlina (and in the deregistered Panlirn), resided in NSW. Winlina chose not to prove where the official acts of the company, such as general meetings, took place;

    2. (2)

       Winlina’s operative trading bank accounts were held with bank branches located within NSW and the statements were sent to post office boxes also located in NSW. While the existence of a bank account in NSW, of itself, would not necessarily be sufficient to prove that Winlina carried on business “in” NSW, the only evidence of bank transactions on behalf of Winlina before me was that those transactions occurred “in” NSW. If financial transactions on behalf of Winlina were not conducted in NSW, Winlina failed to prove that matter. Further, s 67 of the Payroll Tax Act is expressed inclusively. Winlina carried on business in NSW by virtue of having its office and its bank accounts in NSW supporting its operations in Queensland;

    3. (3)

       Winlina engaged in a systematic and continuous course of dealings with Yelturn and Larsay, by which it provided administrative services to those companies for a fee, gain or reward. At all material times, Yelturn and Larsay were registered and trading in NSW, had their registered office and principal place of business in NSW and their directors and shareholders were resident in NSW. Despite proving that Yelturn and Larsay also carried on business in Queensland, Winlina failed to prove that its systematic and continuous course of dealings with Yelturn and Larsay did not take place “in” NSW; and

    4. (4)

       Winlina loaned monies to Fyna Nuform and Banfirn. I infer that the location of those debts was in NSW, as Fyna Nuform and Banfirn were both companies registered and trading in NSW. In any event, Winlina failed to prove that those debts with Yelturn and Larsay were not located “in” NSW.

18. [82]

    Even on Winlina’s construction of the Payroll Tax Act, during the relevant period Winlina carried on business “in” NSW.

19. [83]

    That conclusion is sufficient to affirm the assessments and dismiss Winlina’s summons.

20. [84]

    If, contrary to my principal findings set out above, Winlina did not carry on business in NSW during the relevant period, it is then necessary to consider whether the relevant expressions in s 72 should be read subject to a geographical restriction to the effect that the relevant business must be carried on within NSW.

21. [85]

    There is much to commend the Chief Commissioner’s submission that as a state of facts does not exist which makes it necessary to decide such questions I should not do so. However given the history of litigation by members of this payroll tax group, [4] I will address this issue.

22. [86]

    Section 72 of the Payroll Tax Act is the key provision. As noted above, it constitutes as a “group” the persons who carry on two “businesses”, if the same person or group of persons has a “controlling interest” in both businesses. The other provisions of s 72 define the circumstances in which a person or persons have a “controlling interest” in a business. The consequence of a person being part of a “group” is, relevantly here, potential liability under s 81 for amounts payable by other members of the group.

23. [87]

    In addressing this question of construction I propose to proceed on the basis that in Federal Commissioner of Taxation v Consolidated Media Holdings (2012) 250 CLR 503; [2012] HCA 55 at [39], the High Court, quoting Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; [2009] HCA 41 at [47] (Hayne, Heydon, Crennan and Kiefel JJ), stated:

24. [88]

    Although statutory construction must begin with a consideration of the text, the statutory text must be considered in its context, that context including legislative history and extrinsic materials.

25. [89]

    The issue raised by Winlina is whether the class of “businesses” capable of engaging s 72(1) is geographically limited. The subject matter, scope and purpose of the Payroll Tax Act strongly suggest no such limitation.

26. [90]

    Section 12(1)(b) of the Interpretation Act is the statutory manifestation of a common law presumption that statutes are prima facie read as being restricted in their operation within territorial limits. However, s 12(1)(b) only applies subject to any contrary intention in the relevant Act or instrument: Interpretation Act, s 5(2). The common law presumption is similarly rebutted when an intention to do so is clearly apparent from the object, subject matter or history of the relevant Act.

27. [91]

    In the present case, the proper construction of the text of Part 5 of the Act, considered in light of its context and purpose, requires the conclusion that no geographical limit be placed on its application to the effect that group members must “carry on” a business “in” NSW.

28. [92]

    Division 2 of Part 2 of the Payroll Tax Act contains its own comprehensive geographic limitation. Section 10 of the Payroll Tax Act provides that “taxable wages are wages that are taxable in this jurisdiction”. Thus, by operation of Division 2 of Part 2 of the Payroll Tax Act and substantially similar provisions in other jurisdictions, [5] no employer or group member may be liable for payroll tax in more than one State or Territory in respect of the same wages.

29. [93]

    Mr Hale SC accepted that the geographic limitation in s 12 of the Interpretation Act did not apply to Division 2 of Part 2 of the Payroll Tax Act:

30. [94]

    Part 5 of the Payroll Tax Act contains a further relevant limitation. A company which carries on its business independently of, and in a manner unconnected with, the carrying on of businesses by the other group members can apply to be excluded from the payroll tax group under s 79 of the Payroll Tax Act. It will be recalled that Winlina in the present case applied for exclusion under s 79. The Chief Commissioner refused Winlina’s application and Winlina did not submit in this case that the Chief Commissioner erred in so concluding. The extravagant submissions made by Winlina about the potential reach of the grouping provisions must be considered in that context. The text of the Payroll Tax Act tends strongly against the construction of Part 5 proffered by Winlina.

31. [95]

    I have concluded that Winlina’s construction is also inconsistent with the anti-tax avoidance purpose of Part 5 of the Payroll Tax Act as explained in Tasty Chicks and Smeaton Grange. The suggested additional geographical limitations Winlina advances would be inconsistent with ensuring the collection of payroll tax from members of the group, simply because a group member is based in another State. The Payroll Tax Act could readily be avoided by establishing a related corporate entity outside NSW and ensuring that the assets of the NSW-based members of the group were vested in that entity. The entities with the primary obligation to pay payroll tax would be allowed, as were the entities with the primary obligation to pay payroll tax here, to be wound up in insolvency, not having met their payroll tax obligations, and deregistered.

32. [96]

    Neither the text nor context of the Payroll Tax Act supports Winlina’s construction of Part 5.

33. [97]

    Section 5 of the Constitution Act 1902 (NSW) provides:

34. [98]

    Section 2 of the Australia Act 1986 (Cth) provides:

35. [99]

    For a law to be “for the peace, welfare, and good government of New South Wales”, there must be a connection between the persons or circumstances upon which the legislation operates and the State. The history of the connection required and its relationship with the Australia Act is explained by Professor Twomey in her classic text, The Constitution of New South Wales (2004, Federation Press). At pages 53 to 54 of Professor Twomey’s text there is a discussion of the historical position and the older cases. At page 55, Professor Twomey explains that the rationale for the test and its manner of application have been reassessed in recent years and refers to Pearce v Florenca (1976) 135 CLR 507 at 518; [1976] HCA 26 where Gibbs J at 519 noted: “The principle that legislation enacted by a State and operating outside its territory must be connected in some relevant way with the State if it is to be valid may have been appropriate to the so-called dependent and inferior legislatures of colonial times, but its only modern justification is that it may avoid conflicts with other rules of law applicable to the area in which the legislation is intended to operate.” After explaining the decision of the High Court in Mobil Oil Australia Pty Ltd v State of Victoria (2002) 211 CLR 1; [2002] HCA 27 Professor Twomey addresses the Australia Act, and at page 56 concludes:

36. [100]

    In the present case, I have already determined (on the contingent hypothesis that Winlina’s construction of the Payroll Tax Act is correct) that Winlina was carrying on a business in NSW. That conclusion provides a sufficient basis to dismiss Winlina’s case. To address Winlina’s constitutional argument I would need to assume that different facts applied. It is undesirable to address the constitutional validity of a law when the facts necessary to address such an argument have not been proved. This is all the more so in circumstances where the grouping provisions of the Payroll Tax Act are part of a national scheme and any conclusion I reach may have an effect on those provisions.

Orders

1. [101]

   For the foregoing reasons the orders of the Court are:

   1. (1)

      Summons dismissed.

   2. (2)

      Plaintiffs to pay the costs of the defendant as agreed or assessed.