|Date of judgement||23 December 2013|
|Court or Tribunal||NSW Court of Appeal|
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
Koala Motels Pty Ltd v Chief Licensing Inspector (1977) 18 ALR 12
Macquarie International Health Clinic Pty Ltd v University of Sydney (1988) 98 LGERA 218
McFarlane v Kelly (1986) 85 FLR 357
Nix and Dunn v Pittwater Council (1994) 84 LGERA 199
The Noordam (No 2)  AC 904
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.
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).
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.
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%.
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.
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:
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.