Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215

Background

The Taxpayer, Levitch Design Associates Pty Ltd , sought review of the Chief Commissioner’s payroll tax assessments for the years ended 30 June 2008 to 2012 (“tax period”).The Taxpayer carries on a business designing and branding dental surgeries and healthcare centres. It engages architectural consultants, interior designers and graphic designers to provide services under contract. Mr Thom Wright is an architect, who during the tax period, provided ‘architectural services’ to the Taxpayer.

The Taxpayer was assessed for payroll tax on the basis that under s32(1) of the Payroll Tax Act 2007 (“the Act”) the arrangement between the Taxpayer and Mr Wright was a ‘relevant contract’, and the arrangement did not fall under any exception set out in s32(2) of the Act.

The Taxpayer and Mr Wright were party to an Independent Contractor Agreement (“agreement”). This agreement set out various terms regarding engagement, performance of work and payment of work. During the tax period Mr Wright provided services to other entities besides the Taxpayer. However, in proportion to Mr Wright’s total income during the tax years, the income received from the Taxpayer always exceeded 50% of that total. The year with the highest proportion of income received from the Taxpayer was the 2009 financial year which comprised of 93% of total income.

Primary Decision

Was there a ‘relevant contract’ pursuant to s 32(1)(b)?

1. The Tribunal found that the arrangement between TAXPAYER and Mr Wright for architectural services is a ‘relevant contract’ pursuant to s32(1)(b) of the Act. The Tribunal rejected the Taxpayer’s submissions, that the agreement is not a relevant contract because Mr Wright is an independent contractor and he provides architectural services to the Taxpayer’s clients. What was at issue was whether the agreement answered the description of a ‘relevant contract’. The Tribunal rejected the Taxpayer’s narrowing of the definition of ‘services’ to exclude professional services. Section 31 of the Act defines services to include “results (whether goods or services) of work performed”. The Tribunal identified that this definition of services is all inclusive, with the legislature giving the word its ordinary and wide meaning. In addition, the agreement referred to the work to be undertaken as ‘services’. For this reason the Tribunal concluded that the work carried out by Mr Wright under the agreement was a ‘service’ pursuant to s 32 of the Act. In summary, by serving the needs of the Taxpayer’s clients, Mr Wright supplied architectural services under the contract, these services being work-related and supplied in the course of carrying out the Taxpayer’s business.

Do one of the exceptions under s 32(2)(b) apply?

2. To qualify for the exception in s32(2)(b)(i), the Taxpayer must establish that architectural services are ‘not ordinarily required’. The Tribunal determined that the tax invoices issued by Mr Wright established that for those periods, architectural services were required. The Tribunal was not satisfied that the Taxpayer qualified for the exception in s32(2)(b)(ii), as it did not have any records of how many hours Mr Wright worked and accordingly, had not established that the architectural services supplied to the Taxpayer, by Mr Wright or some other contractor, are of a kind ordinarily required for less than 180 days of the financial year. To qualify for the exception at s32(2)(b)(iii), the Taxpayer must establish that architectural services supplied to the Taxpayer did not exceed 90 days. As above, the Tribunal found there was no evidence as to the hours expended by Mr Wright, therefore this exception does not apply. The exception at s 32(2)(b)(iv) is discretionary and operates when the Chief Commissioner is satisfied that the ‘services are performed by a person who ordinarily performs services of that kind to the public generally in that financial year’.⁵ It may be exercised when no other exception applies. The Tribunal was satisfied that Mr Wright did provide and charge for architectural services he supplied to persons/entities other than the Taxpayer. It is not a requirement to find that these persons/entities represent a large class of the public. In these circumstances the 2009 financial year did not attract the exemption as the services rendered represented 95% of Mr Wright’s total income. However the exemption did apply for the 2008, 2010, 2011 and 2012 financial years.

The issue of penalty and interest

In light of the above conclusion, the Tribunal considered interest and penalty tax in relation to the 2009 financial year.

The Tribunal was not satisfied that the Taxpayer had demonstrated there were exceptional circumstances warranting a remission of market interest.

In relation to the penalty tax, the Tribunal concluded that the Taxpayer failed to demonstrate that it had taken reasonable care to comply with the Act or that the tax default occurred solely because of circumstances beyond its control.⁶

Orders

1. In respect to the 2008, 2010, 2011 and 2012 financial years the matter was remitted to the Chief Commissioner for determination in accordance with the Tribunal's decision.
2. Confirm the assessment for the 2009 financial year.

Link to decision

Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215

Footnotes

1. Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215, [50].
2. Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215, [41].
3. Payroll Tax Act 2007 s 31.
4. See for example IW v City of Perth 191 CLR at 11 per Brennan CJ and McHugh J; at 41 per Gummow J; at 70 per Kirby J:”It has a wide and varied meaning”.
5. ^ Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215, [82].
6. ^ Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215, [113].