The Commissioner of State Revenue has suffered two defeats in the State Administrative Tribunal this year, with taxpayers successfully challenging payroll tax and stamp duty assessments.
The Commissioner of State Revenue has suffered two defeats in the State Administrative Tribunal this year, with taxpayers successfully challenging payroll tax and stamp duty assessments.
Wilson & Atkinson partner Teague Czislowski, who represented the taxpayers in both cases, believes the decisions are important breakthroughs.
In one case, the tribunal over-ruled the commissioner’s interpretation of the ‘grouping’ rules, which have been used to widen the coverage of payroll tax.
In the second case, the tribunal ruled that stamp duty was effectively not payable on the transfer of a property between two related trustee companies.
Mr Czislowski said the payroll tax decision may impact thousands of businesses.
“The payroll tax grouping provisions are very complex but taxpayers who have been grouped due to family or discretionary trusts should consider making an application for exclusion from grouping,” he said.
Mr Czislowski believes the second case could also affect the liability of many small businesses using a trust structure.
Norton & Smailes partner Chris Smailes agreed that the two decisions were significant developments.
Mr Smailes said the stamp duty decision was particularly important in estate planning, where families often used trusts to transfer assets between generations.
A spokesperson for the Office of State Revenue said both decisions would be appealed to the Supreme Court. This was not surprising, since the two decisions handed down by Judge John Chaney could be seen as delivering precedents that may substantially reduce the state’s tax base.
The payroll tax case related to the grouping of two family businesses whose controlling individuals, a husband and wife, were beneficiaries of a family trust.
The wife, Jennifer Rowson, ran a hairdressing company, Artistic Pty Ltd, which operated two salons.
For payroll tax purposes it had been grouped with two other companies: an electrical contractor run by her husband, Peter Rowson, and a trustee company that held share and property investments.
Mr Czislowski said the structure used by the Rowsons was common for many family businesses, suggesting the ruling would be widely applicable.
The commissioner’s original decision to group the businesses was based on several factors, including inter-party loans, common directorships, common registered offices, the use of the same accountants, and the nature of the shareholdings.
The court also accepted that the inter-party financial transactions were “undoubtedly designed to minimise the tax position of family members”.
Despite this, Artistic argued successfully that the hairdressing business was substantially independent of the other businesses. Judge Chaney noted several factors to establish the independence of Artistic.
It did not share clients, staff or supplier relationships with the other companies, it had separate bank accounts and it rented its premises from independent parties.
“The nature of the businesses is entirely separate,” Judge Chaney said in his judgement.
As a result of the decision, it has been excluded from the ‘group’ and will therefore not be liable for payroll tax since July 1997.
The stamp duty case concerned the transfer of a property in Bibra Lake by Serana Pty Ltd, which held the property as trustee for a Western Australian family.
The property was transferred to Grier Nominees, which was trustee for, effectively, the same beneficiaries.
The commissioner assessed that $30,710 in stamp duty was payable on the transfer.
Serana successfully argued that the transfer did not pass any beneficial interest in the underlying property. Accordingly, Judge Chaney ordered that the stamp duty assessment should be reduced to the nominal rate of $20.