Case: J Hammond Investments Pty Ltd v Federal Commissioner of Taxation (1977) 31 FLR 349
Outcome: cited
The fact that Enterprises Australia carried out its obligations under the Management Agreement on Lilyvale's account does not mean that the 'agency' was such that its activities must be attributed to Lilyvale, nor that its business was Lilyvale's business. The question of what business Lilyvale carried on before the sale is a question of fact, the answer to which depends on the characterisation of the activities in which Lilyvale was actually engaged (i.e. what Sheppard J in J Hammond Investments Pty Ltd v Federal Commissioner of Taxation (1977) 31 FLR 349 at 357 referred to as "the real nature of the taxpayer's business"), not on its legal relationship to Enterprises Australia and its activities. 69 I am satisfied from the evidence before me that Mr Tang's "seamless transition" was achieved; I accept that a guest in the hotel or indeed the hotel's employees, would not have discerned any material difference between the way the hotel was operated and managed before and after August 2002 until about the time when the name of the hotel was changed to the Shangri-La Hotel. The written submissions for Lilyvale summarised the applicant's evidence comparing the operation of the hotel after the sale. I accept this evidence and adopt the summary which is as follows: (a) the hotel business was conducted by the Applicant under the same name; (b) the same get-up and style, trademarks and presentation were used; (c) the management team (including in particular the general manager) continued unchanged; (d) the staff engaged in the conduct of the business continued unchanged except for normal turnover, which was lower in the Applicant's case than was normal in the industry; (e) the contracts for the provision of services by external contractors continued unchanged; (f) the services and facilities provided by the Applicant in the conduct of the hotel business were unchanged; (g) the hotel was marketed in the same way, to the same markets and using the same agents and representatives; (h) the signature restaurant (Unkai) and other restaurants continued to operate in the same way; (i) the Applicant continued to derive the (assessable) income from the provision of the same hotel services and facilities; (j) the same manuals and procedures continued to be used under licence from the same (ANA) group; (k) the same computer management and reservation systems continued to be used, obtained from the same independent suppliers; (l) the same reports continued to be supplied to the ultimate shareholders in the Applicant (albeit that the identity of the shareholders changed); (m) the owner's representative (whose identity changed from time to time) continued to perform the same role; (n) a "guest relationship manager" was retained to present a "Japanese face" to the hotel guests; (o) the management of the hotel was to the same extent (and with no greater degree of supervision) entrusted to the general manager and the executive committee; it "remained the same throughout the entire period." (p) in the period from the test time in August 2002 to April 2003, the Applicant undertook and achieved a "seamless transition," whereby it carried on its business in the same fashion as it had done before August 2002, such that no change resulting from the change in ownership was perceptible to its customers. 70 The same business test requires however, not merely that the same business be carried on, but that it be carried on by the taxpayer, in this case Lilyvale. I accept that after the share sale Lilyvale carried on the business of managing the hotel. The critical question remaining is whether the business that Lilyvale carried on before the share sale is properly characterised as the business of managing the hotel in the same way that the business it carried on after the share sale can be characterised.