|Date of judgement||1 July 2020|
|Judge(s)||Bathurst CJ at ; Macfarlan JA at ; Meagher JA at |
|Court or Tribunal||NSW Court of Appeal|
Payroll Tax Act 2007 (NSW) – ss 32(2)(a) and 32(2)(d)(i) – relevant contract – supply of goods – conveyance of goods – ancillary” – Taxation Administration Act 1996 (NSW) – ss 25 and 33 – whether the power to remit penalty tax and interest is limited
Adams Bidco Pty Ltd v Chief Commissioner of State Revenue  NSWSC 702
Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue  NSWSC 657
Chief Commissioner of State Revenue v Paspaley  NSWCA 184
Commissioner of Taxation v Energy Resources of Australia Ltd (1994) 54 FCR 25
Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503;  HCA 55
Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520;  HCA 35
Inghams Enterprises Pty Ltd v Hannigan  NSWCA 82
Lloyd’s UDT Finance Ltd v Chartered Finance Trust Holdings plc  STC 1652
Macquarie International Health Clinic Pty Ltd v University of Sydney (1988) 98 LGERA 218
Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541;  HCA 30
Navy Health Ltd v Federal Commissioner of Taxation (2007) 163 FCR 1;  FCA 931
Norbis v Norbis (1986) 161 CLR 513;  HCA 17
R v Her Majesty’s Treasury; Ex parte Smedley  QB 657
Rinehart v Hancock Prospecting Pty Ltd  HCA 13; 93 ALJR 582
Smith’s Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW)  NSWCA 470
SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362;  HCA 34
Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (NSW) (2011) 245 CLR 446;  HCA 41
TRM Copy Centres (UK) Ltd v Lanwall Services Ltd  1 WLR 1375
Warren v Coombes (1979) 142 CLR 531;  HCA 9
Yearworth v North Bristol NHS Trust  QB 1
The Respondent entered into an agreement with Foxtel to deliver and install equipment for Foxtel customers so that the customers could receive Foxtel Subscription Television (“the Foxtel contract”). The Respondent entered into subcontracts to fulfil its obligations under the Foxtel contract, and it is those subcontracts that fell for consideration. The subcontracts were generally engaged under one of two forms of contract, which can be described as “the Satellite Agreement” and “the Cable Agreement” (together, “the subcontracts”).
In broad terms, the subcontractors would be allocated tickets for work; they would attend the Respondent’s warehouse if they did not already have the necessary materials for the work, then attend at the customer’s location, conduct a risk assessment on arrival at the location for health and safety requirements, install the set top box, check that the set top box was functioning, demonstrate its use to the customer, clean up, have the customer sign for delivery and mark the job as complete. If necessary, other equipment was installed, such as satellite dishes, walls mounts and cables. The Foxtel set top box remained the property of Foxtel at all times.
On 13 April 2016, the Chief Commissioner issued reassessments for the financial years ended 30 June 2010, 2011, 2012 and 2013. The Chief Commissioner assessed 75% of the payments made by the Respondent to the subcontractors, on the basis that the payments were made “for or in relation to the performance of work relating to a relevant contract” under s. 35(1) of the PTA. The Chief Commissioner imposed penalty tax pursuant to Div 2 of the TAA, but reduced the default penalty of 25% of the amount of tax unpaid to 20% by virtue of s. 29 of the TAA (disclosure during investigation). The Chief Commissioner also imposed the market rate component of interest under s. 22 of the TAA. The premium component of the interest pursuant to s. 25 of the TAA was remitted.
Prior to the hearing before the Primary Judge, the parties came to an agreement that 57.7% of the amounts payable under the subcontracts were not attributable to the performance of work and were not subject to payroll tax.
The question for the Primary Judge was whether the subcontracts were excluded from the definition of a “relevant contract” pursuant to s. 32(2)(a) (provision of goods) and s. 32(2)(d)(i) (ancillary to the conveyance of goods) of the PTA. The Primary Judge found that the exclusions applied, and set aside the assessments of payroll tax in relation to the payments. His Honour stated that had he not taken such a view, he would nevertheless have remitted the amounts of the penalty by 50%, and the interest payable in the same proportion.
The issues to be decided on appeal are: whether the subcontracts fell within the exclusions in s. 32(2)(a) and s.32(2)(d)(i) of the PTA, and whether the remission powers in respect of penalty and interest under the TAA are constrained.
Section 32(2)(a)- the supply exclusion
The Court of Appeal held that the subcontracts fell within the exclusion under s. 32(2)(a). It stated that s. 32(2)(a) essentially poses five questions:
There was no need to consider the first question, as the parties agreed that services were being supplied to the Respondent to enable it to fulfil its obligations to Foxtel.
The Court of Appeal found that there was a relevant supply of goods. The Court held there was no requirement for legal title to pass to attract the exclusion, as the Appellant had urged; in support of that interpretation, the Court of Appeal noted the definition of “supply” in s. 31 of the PTA is an inclusive definition which refers to “hire”, which did not require title to pass.
The Court also considered the provisions of the Foxtel Contract and the terms of the subcontracts concluding that Foxtel’s intention was always to retain title to the set top boxes and other Foxtel equipment. The subcontractors were bailees until the equipment was installed.
The Court of Appeal concluded that to transfer the right to possession of the set top boxes to the customers for a stated period would therefore constitute a supply for the purpose of the exclusion. Additionally, there was also other equipment supplied in respect of which legal title passed.
The Court of Appeal stated that the supply of the goods was “by” the subcontractor. This is because the subcontractor was a sub-bailee who would, on installation, lawfully pass possession of the goods on behalf of Foxtel to the customers. Further, there was also a supply of other goods by the subcontractor where title was transferred.
The Court of Appeal said that the supply of equipment (to the Foxtel customers) took place “under” the subcontract. A narrow interpretation of under the contract would have required the supply to be made pursuant to a contract between the subcontractor and the customer. However, similar to the Primary Judge, the Court of Appeal preferred a broader meaning, and stated that the supply occurred under the contract because it was performed in fulfilment of an obligation to the Respondent.
The Court of Appeal also found that the installation services to be ancillary to the supply of goods. The Court cited Smith’s Snackfood for the proposition that ancillary does not necessarily mean a subordinate or subservient use. The Court emphasised that the goods supplied would provide no benefit to the customers until installed. The installation was therefore, “something which tended to assist, or which naturally went with, the supply of the goods necessary to receive the Foxtel service”.
The Court of Appeal rejected the Appellant’s submission that the installation services were discrete, holding that the services were in substance inextricably linked to the supply of goods required to access the Foxtel service. It accepted the Primary Judge’s description of the installation services as mechanical and menial, pointing to the essentially repetitive nature of the tasks, the minimal training involved and the lack of any requirements as to trade qualifications.
Therefore, the Court of Appeal held that the subcontracts fell within s. 32(2)(a) PTA exclusion.
Section 32(2)(d)(i) exclusion the conveyance exclusion
The Court of Appeal also agreed with the Primary Judge that the exclusion in s. 32(2)(d)(i) applies. While the Court saw some merit in the argument that conveyance involves mere transportation and installation could not be said to be ancillary to such transportation, the Court also noted the case’s similarities to Smith’s Snackfoods. The Court of Appeal did not agree with the Primary Judge that the installation tasks could be described as “menial”, but agreed they were repetitive and mechanical (as in Smith’s Snackfoods) and hence on balance, fell within the exclusion.
The Court of Appeal did not accept the Appellant’s submission that the Primary Judge’s interpretation of s.32(2)(a) left s.32(2)(d)(i) with no work to do: the Court of Appeal did acknowledge that there might be an overlap where goods are supplied under a contract by use of a vehicle when there was no change in the right to possession of the goods.
Penalty and Interest
The Court stated that it was strictly unnecessary to consider these questions given the finding that the Respondent was not liable for payroll tax.
Nevertheless, the Court indicated its view that the power of remission under s. 33 is not limited by the mandatory reductions required by ss. 28 and 29. While the Commissioner may take them into account when considering whether to exercise the power under s. 33, this “was a matter of discretion not power”.
Similarly, the Court of Appeal did not think that the power to remit interest under s. 25 is limited.
The Court dismissed the appeal and ordered that the Appellant pay the Respondent’s costs of the appeal.