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Smith’s Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 470

Date of judgement 23 December 2013 Proceeding No. 2012/296415
Judge(s) Beazley P, Gleeson JA and Sackville AJA
Court or Tribunal NSW Court of Appeal
Legislation cited Pay-roll Tax Act 1971, ss. 3(1), 3A, 3AA, 6(1)(a), 7 & 8
Payroll Tax Act 2007 ss. 6, 7, 10(1), 13(1), 32 & 35
Payroll Tax Amendment Act 1985
Payroll Tax Amendment Act 1986
Supreme Court Act 1970, s. 101
Taxation Administration Act 1996, s. 101(1)(d)
Catchwords TAXES AND DUTIES – payroll tax – liability to taxation – Payroll Tax Act 2007 – Payroll Tax Act 1971 – contractor provisions – whether contractors engaged under a “Relevant contract” – whether appellant was supplied services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them – whether apportionment provisions of the Payroll Tax Act should apply
Cases cited Accident Compensation Commission v Odco Pty Ltd [1990] HCA 43; 64 ALJR 606

Arnold v Minister Administering the Water Management Act 2000 [2008] NSWCA 338; 73 NSWLR 196

Baterham v Makeig [2010] NSWCA 86

Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788; 222 ALR 599

Central Asbestos Co Ltd v Dodd [1973] AC 518

Certain Lloyd's Underwriters Subscribing to Contract No IHOOAAQS v Cross [2012] HCA 56; 293 ALR 412

Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 293 ALR 257

Commissioner of Taxation v Unit Trend Services Pty Ltd [2013] HCA 16; 297 ALR 190

Dungowan Manly Pty Ltd v McLaughlin [2012] NSWCA 180

Heperu Pty Ltd v Patricia Belle (No 3) [2013] NSWSC 1088

Koala Motels Pty Ltd v Chief Licensing Inspector (1977) 18 ALR 12

Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390

Kuru v State of New South Wales [2008] HCA 26; 236 CLR 1

Macquarie International Health Clinic Pty Ltd v University of Sydney (1988) 98 LGERA 218

McFarlane v Kelly (1986) 85 FLR 357

Minister for Local Government v South Sydney Council [2002] NSWCA 288; 55 NSWLR 381

New South Wales Crime Commission v Ollis [2006] NSWCA 76; 65 NSWLR 478

Nix and Dunn v Pittwater Council (1994) 84 LGERA 199

NTL Australia Pty Ltd v Minister for Land and Water Conservation [2001] NSWLEC 5

O'Grady v Northern Queensland Co Ltd [1990] HCA 16; 169 CLR 356

Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72

Regina v Her Majesties' Treasury; ex parte Smedley [1985] QB 657

R v McMahon; ex parte Darvall [1982] HCA 56; 151 CLR 57

Repatriation Commission v Law (1980) 31 ALR 140

Roncevich v Repatriation Commission [2005] HCA 40; 222 CLR 115

The Noordam (No 2) [1920] AC 904

Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256; 288 ALR 385

Waters v PC Henderson (Aust) Pty Ltd [1994] NSWCA 338; 254 ALR 328

Summary

The Taxpayer appealed against a decision of the Supreme Court that Goods Distribution Agreements were only partially excluded from payroll tax under the relevant contracts provisions of the payroll tax legislation.

The Court of Appeal held that the exclusion provisions cannot apply to part of a "relevant contract", only to the contract as a whole.  The Court of Appeal held that the Agreements covered services ancillary to the conveyance of goods by means of a vehicle provided by the contractors and were wholly exempt.

Background

Smith’s Snackfood Company (“the Taxpayer”) engaged contractors under Goods Distribution Agreements ("GDAs") to convey snack foods and drinks to vending machines. The Chief Commissioner of State Revenue (“the Chief Commissioner”) assessed the Taxpayer as liable for payroll tax, penalty and interest with respect to the 2005-2009 tax years, save for a 25% allowance for the non-labour component of the GDAs, on the basis that the commissions paid to the contractors were made under a “relevant contract” pursuant to s. 3A(1A)(a) of the Payroll Tax Act 1971 and s. 32(2)(d)(i) of the Payroll Tax Act 2007 (as the relevant Notices of Assessment spanned both acts).

Taxpayer’s position

The Taxpayer argued that the payments were wholly exempt from payroll tax on the basis that the Taxpayer is supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the contractors. Consequently, the GDAs were not "relevant contracts" for the purposes of the relevant legislation, or in the alternative, the Taxpayer was entitled to a larger discount that the 25% granted by the Chief Commissioner. 

Chief Commissioner’s position

The Chief Commissioner argued that whilst some of the services supplied to the Taxpayer were ancillary to the conveyance of goods by means of a vehicle provided by the contractors, the majority of the services were not and the evidence did not support the discount being greater than 25%.

Supreme Court decision

At first instance, Gzell J held that some of the services provided by the contractors under the GDAs fell within the exclusion under s. 3A(1A)(a) of the Payroll Tax Act 1971 and s. 32(2)(d)(i) of the Payroll Tax Act 2007, and that other services provided did not. As a result, the Chief Commissioner should split the contract and only apply payroll tax to that proportion of the payments for services provided under the GDAs that were ancillary to the conveyance of goods.

Grounds of Appeal

The Taxpayer appealed, contending there is no “relevant contract” pursuant to the above sections. The Chief Commissioner cross-appealed, contending that the primary judge erred in dividing or slicing the “relevant contract” into excluded and non-excluded parts.

The issues for determination by the Court of Appeal were:

  1. Whether the contractors were engaged under a “relevant contract”, so that the Taxpayer is liable for payroll tax (s. 3A(1A)(a) of the Payroll Tax Act 1971 and s. 32(2)(d)(i) of the Payroll Tax Act 2007);

  2. Whether, if there is found to be a “relevant contract”, there should be a reduction in taxable wages for the non-labour component of the payments to the contractors (s. 35(2) of the Payroll (s. 3A(2)(d) of the Payroll Tax Act 1971 and s. 35(2) of the Payroll Tax Act 2007).

Court of Appeal decision

The Court of Appeal found that the GDAs are contracts under which the Taxpayer had supplied to it the services of persons for or in relation to the performance of work. However, the Court held that the GDAs are excluded from the definition of "relevant contract" because they covered services ancillary to the conveyance of goods by means of a vehicle provided by the contractors.

The Court held that the owner-driver exclusions in the relevant sections of both Acts cannot apply to part of a "relevant contract", only to the contract as a whole.  The focus of the exclusions is on an entire and indivisible “relevant contract”.

The Court allowed the appeal and set aside the notices of assessment for the 2005 - 2009 years.  Costs were awarded to the Taxpayer.  

Link to decision

Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 470

Attachments

  1. Koala Motels Pty Ltd v Chief Licensing Inspector (1977) 18 ALR 12
  2. Macquarie International Health Clinic Pty Ltd v University of Sydney (1988) 98 LGERA 218
  3. Nix and Dunn v Pittwater Council (1994) 84 LGERA 199
Last updated: 18 May 2016