|Date of judgement||6 March 2019|
|Court or Tribunal||Supreme Court of New South Wales|
Non-profit organisation, Payroll Tax
Grain Growers Ltd v Chief Commissioner of State Revenue (NSW) (2016) 93 NSWLR 415;  NSWCA 359
KinCare Community Services Limited (KinCare) is a company limited by guarantee which was incorporated in 1998. KinCare has since that time been a provider of home care services to aged people, people with disabilities and more recently Aboriginal and Torres Strait Islander people.
From 1 April 2014, KinCare was subject to a significant restructuring and ceased from that day to employ any staff or pay any taxable wages. Accordingly, no question of payroll tax, including the operation of any exemption, arises after 1 April 2014.
On 4 Nov 2015 the Chief Commissioner assessed Kincare for payroll tax for the period of 1 July 2009 to 30 June 2014. Following disallowance of its objections, Kincare appealed against the assessment to the Supreme Court on the basis that it was entitled to the exemption under clause 12 of Schedule 2 of the Payroll Tax Act 2007 (“the current Act”). This clause preserves an exemption previously available under the former Pay-roll Tax Act 1971 (the former Act) to an organisation in existence when the former Act was replaced by the new Act on 1 July 2007. The exemption is available to a public benevolent institution and to a non-profit organisation having objects which include at least 1 charitable purpose. Wages are exempt to the extent that a person is engaged in charitable, benevolent, philanthropic or patriotic work.
The Chief Commissioner of State Revenue accepted that one of Kincare’s objectives was charitable. The central issues to be determined were:
There were two subsidiary issues which arose if Kincare was not a non-profit organisation:
KinCare received the bulk of its income during the relevant period from Commonwealth Government contracts under which it provided services or support, predominantly in connection with the Commonwealth Home Support Programme and Home Care Packages. Towards the end of the relevant period KinCare also received funding under agreements with the NSW Department of Ageing, Disability and Home Care.
KinCare devised care plans for aged and disabled people. Related “for profit” entities provided most of the field staff that KinCare used to give effect to the home care plans it had devised.
Kincare submitted that the mere fact of transacting with associated entities in the Kincare Group was insufficient to disturb the non-profit status of an organisation under Sch. 2 cl. 12(1)(c) of the PTA. Further, its engagement with associated entities was undertaken to the extent necessary to carry on its activities of providing care services. On this basis, Kincare argued that the wages of its field staff providing the services were exempt.
The Chief Commissioner submitted that Kincare was not a non-profit organisation because it had not discharged its onus of proving that its dealings with the associated entities were at arm’s length and on commercial terms. This included the provision of administrative services by Kincare to the related entities, inter-company loans, a guarantee over a large commercial loan and favourable terms on the payment of interest for loans advanced.
The Chief Commissioner argued that as a result, benefits were conferred upon the profit-seeking entities of the Kincare Group to the detriment of Kincare or which were above and beyond the type of benefits that may flow in the context of an arm’s length relationship. It followed that the Court could not be satisfied that Kincare had been operated in a manner that precluded any portion of its profits from flowing to the other Kincare Group entities.
Kincare submitted that wages for administrative and other ancillary services provided by its employees for other Kincare entities were intrinsically related to its charitable purpose and was work of a public benevolent nature and, therefore, wages for those services were also exempt.
The Chief Commissioner submitted that Kincare had not discharged its onus of proving that the carrying out of work for other Kincare entities was for the charitable work and work of a public benevolent nature of Kincare where those other entities were profit making and engaged in work with other organisations.
His Honour decided that: