|Date||10 February 2020|
|Judge(s)||AR Boxall, Senior Member|
|Court or Tribunal||NSW Civil and Administrative Tribunal|
PAYROLL TAX – relevant contract – exemptions to relevant contracts – tax default - penalty tax – market rate interest – premium rate interest - costs – exceptional circumstances
B&L Linings Pty Ltd v Chief Commissioner of State Revenue (2008) 74 NSWLR 481
Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor  NSWADTAP 19
Trust Co of Australia v Chief Commissioner of State Revenue  NSWADT 21
The Chief Commissioner grouped the Fleet Repairs and Maintenance Pty Ltd (“Fleet”), Transtar Linehaul Pty Ltd (“Transtar”) and Edgely Pty Ltd (“Edgely”) for payroll tax purposes. The three companies were grouped because Mr Ronald Wesley Searle, a director in all three companies, was entitled to exercise greater than 50% of the voting power at the board meetings of all 3 companies.
During the relevant period, RJK Logistics Pty Ltd (“RJK”) provided services to Transtar pursuant to an agreement. The services were performed by Mr Robert Keel, the director of RJK. These services included: the generation of business, management of client relationships and introduction of new clients. The Chief Commissioner assessed the payments for these services as relevant contracts payments made by Transtar to RJK as RJK serviced the main business of Transtar in the relevant period, and no exemption under the relevant contracts provisions was therefore available.
The Applicant (Fleet) disputed the liability for payroll tax on payments made by Transtar to RJK; and the assessment of penalty tax and interest. Fleet also challenged the decision to group the three companies, and the assessment of payroll tax on superannuation contributions, but did not pursue these objections in the proceedings.
Were payments made to RJK assessable as contractor payments?
The Applicant submitted that while the payments made to RJK in each of the relevant years were for the supply of a service, the second limb of s. 32(1) of the PTA was not satisfied, that being: the service must be ‘for or in relation to the performance of work’. It was argued that the words ‘performance of work’ limited the ambit of s. 32(1) and that a contract to refer or to identify potential customers was not a contract in relation to the performance of work in the business carried on by Transtar.
In the alternative, the Applicant submitted that if the contract between Transtar and RJK was to be found to be in service ‘for or in relation to the performance of work’, then the relevant contract was excluded under s. 32(2). The Applicant relied on evidence that the services that RJK provided to Transtar were not services provided for 180 days during the financial year, as required. Additionally, the Applicant claimed it was unlikely that RJK had provided services to Transtar for 90 days in any year.
The Applicant also submitted that RJK was not the sole or primary source of business for Transtar and consequently the contract was not a relevant contract by way of s. 32(b)(i),(ii) and (iii) of the PTA.
The Chief Commissioner argued that the work carried out by Mr Keel constituted services in the course of Transtar’s business and were integral to that business. RJK was paid $100,000 per year in fortnightly payments in return for the services Mr Keel provided to Transtar since 2004. Accordingly, the contract constituted a relevant contract for the purpose of s. 32(1) of the PTA. As the contract was ‘for or in relation to the performance of work’, Mr Keel’s performance of that work discharged the contract.
In relation to the exemptions under s. 32(2) of the PTA, the Chief Commissioner argued that as the contract was expressed to run for 12 months with remuneration set at $100,000 per annum to be paid fortnightly, it could not be said that RJK’s services were required for less than 180 days in any of the years of the relevant period. The Chief Commissioner also submitted that s. 32(2)(b)(ii) is not satisfied where the services are performed for less than 180 days in a year, when they are required to be provided for more than 180 days per year.
The Chief Commissioner also argued that the activities which Mr Keel carried out for Transtar, including: generating business, managing relationships with Transtar clients, introducing new clients and providing his experience where necessary, was not demonstrated to be ancillary and not merely associated with the conveyance of goods by drivers of trucks. The Chief Commissioner relied on Gleeson JA’s observation in Smith’s Snackfood Co Pty Ltd v Chief Commissioner of State Revenue (2013) 97 ATR 904 (“Smith’s Snackfood”), that the identification and pursuit of business opportunities are not part of the transportation and delivery of goods. Therefore, Mr Keel’s activities could not be said to constitute the conveyance of goods by Transtar drivers.
The Applicant submitted that penalties imposed by the Chief Commissioner should be remitted in full as the payments made under the contract were not wages at common law but rather by way of div. 7 of the PTA. The Applicant argued that the drafting of ss. 32, 33 and 34 were so arcane that the Applicant should not be culpable for misreading the provisions.
The Chief Commissioner argued that the Applicant failed to demonstrate that it took any reasonable care to comply with the PTA and Taxation Administration Act 1997 (NSW) (“TAA”), and/or that the tax default occurred solely because of circumstances beyond its control. Additionally, the Chief Commissioner submitted that there was no demonstration of any exceptional circumstances by the Applicant to justify the remission of the market rate component of interest.
Were payments made to RJK assessable as contractor payments?
The Tribunal upheld the Chief Commissioner’s decision to include payments under the contract between Transtar and RJK in the assessments for the relevant period. It was not disputed by either party that Mr Keel’s services were provided under the contract, or that Transtar and RJK were designated persons within the meaning of s. 32(1) of the PTA, and that Mr Keel’s services were for or in relation the performance of the work.
The Tribunal also found that the contractual arrangements did not fall within any of the exemptions provided for under s. 32(2) of the PTA. The Tribunal identified ss. 32(2)(a) (ancillary to the supply of goods), (b)(i) (contractor providing similar services to the public generally) and (c) (work performed by 2 or more persons) as clearly inapplicable to the contractual arrangements.
The Tribunal held that s. 32(2)(d) did not apply as the service provided by Mr Keel lacked the degree of direct connection required to be “ancillary to the conveyance of goods” by Transtar. The Tribunal referred to the decision of the NSW Court of Appeal in Smith’s Snackfood which indicated that determining what constituted “ancillary” is “… ultimately a question of fact and degree”. The services provided by Mr Keel in the current case were held to fall short of that degree of direct connection, per Smith’s Snackfood.
The Tribunal also found that Mr Keel’s services lacked the volume, frequency, repetition and promiscuity sufficient to engage the exemption in s. 32(2)(b)(iv) of the PTA. RJK provided Mr Keel’s services only very occasionally and to a very limited group of clients. This was found to be insufficient to support the conclusion that it did so “ordinarily to the public generally” as per s. 32(2)(b)(iv) of the PTA.
Lastly, the Tribunal found that although Mr Keel had worked for less than 180 days (136 days worked), the Applicant had failed to demonstrate that the services of the kind provided by Mr Keel were not ordinarily required by Transtar for less than that 180 days.
Therefore, the Tribunal found that the services provided by RJK to Transtar by Mr Keel were liable contractor payments for payroll tax.
The Respondent is only authorised under s. 27(3) of the TAA to waive penalty tax if the Applicant or Transtar took reasonable care to comply with the legislation, or if their non-compliance was due to a circumstance beyond their control.
The Tribunal held that apart from the Applicant’s opinion about the complexity of the drafting of ss. 32 to 34 of the PTA, the Applicant provided no evidence or argument to suggest that either of the conditions in s. 27(3) of the TAA had been satisfied.
The Tribunal affirmed the Assessments in this regard.
In relation to the issue of costs, the Tribunal rejected the Chief Commissioner’s application for costs on the basis that the statutory setting is clearly ‘unfavourable to the award of costs’. Senior Member Boxall found that the relevant provisions were complex in both their drafting and practical application to particular factual circumstances and are therefore likely to lead to divergent views of what is reasonable and honest. Additionally, although the Applicant only refined its claims at a late stage in the proceedings, SM Boxall found that the alternative, that being a full-day hearing, was inconsistent with the Tribunal’s guiding principles.
Link to decision