Background
The plaintiffs, Loan Market Group (‘LMG’) and Loan Market Pty Ltd (‘LML’) had sought a review in these proceedings of payroll tax assessments issued by the Chief Commissioner of State Revenue (‘Chief Commissioner’) in relation to the financial years ending 30 June 2012 to 30 June 2018.
Previously, the NSW Supreme Court had delivered a decision in this proceeding, finding that broker agreements entered into by the plaintiffs with brokers constituted ‘relevant contracts’ within the meaning of s.32(1) of the Payroll Tax Act 2007, and had stood the matter over to deal with the issues of penalty tax, interest, and costs.
On 4 November 2024, the NSW Supreme Court delivered its decision in respect of these outstanding matters, finding that there should be a remission of penalty tax for the period 1 December 2014 to 30 June 2016 (but otherwise no remission of penalty tax for the remainder of the period in dispute), a remission of premium interest for the 2017 and 2018 financial years, and ordering that the plaintiffs pay 60% of the Chief Commissioner’s costs.
The Crown Solicitor acted for the defendant, the Chief Commissioner.
The key issues the subject of this decision were:
- whether penalty tax for the 2014 to 2015 financial years should be reduced to nil under s.27(3)(a) of the Taxation Administration Act 1996 (‘TAA’);
- whether all or part of any remaining penalty tax for the 2012 to 2016 financial years should be remitted in whole or part under s.33 of the TAA;
- whether the premium component of the interest otherwise payable in respect of the 2017 and 2018 financial years should be remitted under s.25 of the TAA; and
- the appropriate order as to the costs of the proceeding.
The key provisions of the TAA under consideration were section 25, which relates to interest, and section 27(3)(a) and 33 relating to penalty tax.
Plaintiffs’ Submissions
The plaintiffs submitted, in relation to penalty tax, there should be a reduction to nil under section 27(3)(a) of the TAA as they took ‘reasonable care to comply with the taxation law’ between September 2013 to 30 June 2018. This was on the basis that they were provided legal advice that commissions paid to brokers did not give rise to payroll tax liability, and they relied on that advice.
In addition, it was submitted that the Court should remit the full penalty tax remaining after any reduction under section 27(3)(a) for the 2012 to 2016 financial years due to the complexity of the relevant contract provisions, the harshness of the outcomes as the brokers were independent contractors, and because they dealt with the Chief Commissioner’s audit in a responsive and compliant manner.
In relation to interest, it was submitted that the premium component (imposed for the 2017 and 2018 financial years) should be remitted as there was no wilful default in relation to the primary tax as lodgement was consistent with the legal advice obtained.
In relation to costs, it was submitted that LMG should not have been assessed and therefore there was wastage. The argument was made that the plaintiffs should receive all of their costs of the consolidated proceedings because they had been successful in reducing the payroll tax payable by a significant amount.
It was also submitted that, while LML did not succeed on the threshold question as whether the broker agreements were ‘relevant contracts’ under section 32 of the Payroll Tax Act 2007, it was not possible to sever the issues for costs purposes.
Defendant’s Submissions
The Chief Commissioner submitted that the plaintiffs could not be said to have taken reasonable care to comply with the law between 1 July 2011 to 30 June 2014, as the advice received only related to the new broker agreement in place from 1 July 2014. Previous legal advice received by the plaintiffs was that payroll tax would be payable.
Further, the Chief Commissioner submitted that it was not established that LML took ‘reasonable care’ to comply with the law in respect to commissions paid to brokers between 1 July 2014 to 30 June 2016 because the advice remained that payroll tax may be applicable.
In addition, it was submitted that there were no special circumstances to warrant remission of penalty tax under section 33 of the TAA, as complexity of provisions and cooperation during the audit were not sufficient.
In relation to interest, it was argued that there should be no remission of the premium component as there was wilful default in the 2017 and 2018 financial years, where the Chief Commissioner and the plaintiffs’ legal team advised that payroll tax was payable.
In relation to costs, it was submitted that the plaintiffs pay 80% of the Chief Commissioner’s costs as generally, the Courts have ordered the plaintiffs pay a portion of the Chief Commissioner’s costs in cases where the plaintiffs have argued that no tax is payable, lost on most of the issues, but succeeded in reducing the amount payable.
In addition, whilst the plaintiffs demonstrated that the assessments were excessive, the primary argument that payroll tax was not payable failed. As the primary issue, this consumed most of the costs. It was also argued that the Chief Commissioner succeeded on seven out of the ten disputed issues.
Decision
His Honour found that penalty tax should be remitted for 1 December 2014 to 30 June 2016 but the penalty tax from 1 July 2011 to 30 November 2014 should remain. A remission of premium interest for the 2017 and 2018 financial years was also found to be warranted. In relation to costs, it was found that the plaintiffs should pay 60% of the Chief Commissioner’s costs.
Penalty tax
His Honour found that LML took reasonable care to comply with the taxation law in relation to commission payments made to the assessed brokers in the period from 1 December 2014 to 30 June 2016.
This determination was made as LML implemented a form of agreement on which it had legal advice that no payroll tax should be payable under that form of agreement by December 2014, and that despite the Chief Commissioner commencing the audit in October 2014, it was not until November 2016 that the Chief Commissioner’s view was indicated.
It was determined that even though advice indicated that payroll tax may be payable and there were disputes with the Chief Commissioner, LML did take reasonable care to comply with the taxation law by obtaining said advice and acting upon it.
However, His Honour found that the plaintiffs had not established that they took reasonable care for the period from July 2011 to November 2014. This was determined as the legal advice obtained at this time contained the recommendation that LML seek a ruling from the Chief Commissioner, which was not done.
Upon considering section 33 of the TAA, his Honour found that none of the matters raised by the plaintiffs warranted a remission of penalty tax in the period 1 July 2011 to 30 November 2014. It was found that the complexity of the relevant contract provisions was not a reason for remitting penalty tax, nor was the fact that the application of the law may appear harsh.
Interest
His Honour found that the plaintiffs had discharged their onus of proof that remission of the premium component of interest under s. 25 of the TAA was warranted for the 2017 and 2018 financial years.
This was determined as, during that time, the plaintiffs continued to exercise reasonable care by relying on legal advice until they received the September 2018 assessments, and that the plaintiffs were not culpable for the delay in the payment of tax for the 2017 and 2018 financial years, given they complied with the Chief Commissioner’s audit requirements and entered into a payment plan once the assessments were issued..
Costs
His Honour determined that the appropriate costs order was that the plaintiffs pay 60% of the Chief Commissioner’s costs of the proceedings from 21 July 2020. This was determined as the ‘excessiveness’ of the assessments were not the ‘relevant event’ in the case – that is, the threshold question was dominant and decided in favour of the Chief Commissioner.
The Chief Commissioner established that a significant payroll tax liability existed, however did not succeed on all issues, meaning that he could not recover full costs as ‘costs follow the event’. His Honour considered that if even if he was wrong, and the plaintiffs were the ‘successful party’, it was still appropriate to apportion costs, particularly due to the threshold issue, as this was the dominant issue.
The Chief Commissioner’s costs were reduced by application of a discount, and the reduction in primary tax was appropriate as a guide (that reduction being approximately 45%), and the Chief Commissioner’s success on the bulk of the questions in the case.
It was also determined that the plaintiffs had a disproportionate evidentiary burden, but that this was a burden imposed under section 100(3) of the TAA, and therefore was not relevant to costs.
His Honour accepted the plaintiffs’ argument that there had been some wastage of costs due to the assessments issuing to LMG, then LML, in respect of the same underlying liability. On this basis, His Honour ordered the Chief Commissioner pay LMG’s costs up to 21 July 2020 thrown away by reason of the issuing to LMG, then LML.
Orders
- The assessments issued to Loan Market Group Pty Ltd (‘LMG’) for the 2012 to 2018 financial years dated 7 and 8 January 2020 be revoked.
- The assessments issued to Loan Market Pty Ltd (‘LML’) for the 2012 to 2018 financial years dated 11 June 2020 be revoked.
- The matter be remitted to the defendant to make reassessments of the liability of LML for payroll tax for the 2012 to 2018 financial years in accordance with column (4) of the table at [4] of these reasons.
- The penalty tax and the premium component of interest on the primary tax under the revoked assessments referred to in orders (1) and (2) be reduced to the extent set out in these reasons.
- Subject to order (6), the plaintiffs to pay 60% of the defendant’s costs of the consolidated proceedings (2020/00027826 and 2020/00212582) from 21 July 2020, as agreed or assessed.
- The defendant to pay LMG’s costs of the LMG proceedings number 2020/00027826 up to 21 July 2020 thrown away by reason of the defendant issuing new assessments to LML which were the subject of the review in the LML proceedings number 2020/00212582, as agreed or assessed.
- Liberty to apply.
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