Novus Capital Ltd v Chief Commissioner of State Revenue [2018] NSWCATAD 72

Date of judgement 29 March 2018 Proceeding No. 2016/377933
Judge(s) NS Isenberg, Senior Member
Court or Tribunal New South Wales Civil and Administrative Tribunal
Legislation cited Administrative Decisions Review Act 1997

Corporations Act 2001 (Cth)

Evidence Act 1995

Income Tax Assessment Act 1997 (Cth)

Interpretation Act 1987

Pay-roll Tax Act 1971

Payroll Tax Act 2007

Taxation Administration Act 1996
Catchwords REVENUE LAW – Payroll Tax Act 2007 – Division 7 contractor provisions – grouping - payments to third persons - interest – penalties – evidence of reasonable care – credit of witnesses
Cases cited B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187

B & L Linings Pty Ltd v Chief Commissioner of State Revenue (NSW) (No. 3) [2007] NSWADTAP 32

Boston Sales and Marketing Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 139

Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788

Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor (RD) [2004] NSWADTAP 19 revised

Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184

Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184

Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25

Ferella & Anor v Chief Commissioner of State Revenue [2014] NSWCA 378

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

Re Zuccala Homes Pty Ltd and Commissioner of State Revenue (Victoria) (1994) 94 ATC 2084

Trust Co. of Australia Ltd -v- Chief Commissioner of State Revenue [2002] NSWADT 21

Background

Following an audit, the Chief Commissioner of State Revenue issued assessments on 28 November 2014 for the 2009 to 2014 financial years (Relevant Years). On 15 April 2015, Novus objected to the assessments.  On 12 January 2016, the Chief Commissioner issued an Objection Determination, which partly allowed and partly disallowed the assessments.  Replacement assessments were issued at that time (the Assessments).  A review application was lodged with NCAT on 9 March 2016.

The assessed payroll tax fell into 2 categories:

  1. Payments for services provided to Novus by Authorised Representatives, which the Chief Commissioner found were deemed wages under the relevant contract provisions in s. 32 of the Payroll Tax Act 2007 (PT Act);

  2. Payments made by Novus to Cennlen Pty Ltd for services provided by Wayne Gooley (a director of both Novus and Cennlen), which the Chief Commissioner found were deemed wages as third party payments under s. 46(2)(b) and ss. 6, 7, 8 and 13(1)(b) of the PT Act.

The imposition of interest and penalty tax was also reviewed by the Tribunal.

Novus sought to rely on the “90 day exemption” provisions in s. 32(2)(b)(iii) and the “two-person exemption” in s. 32(2)(c), to argue that the arrangements were exempt from the relevant contracts provisions.

The Chief Commissioner argued that this case was relevantly indistinguishable from the circumstances outlined in Bridges Financial Services v Chief Commissioner (2006) 222 ALR 599 (Bridges), with respect to the relevant contracts issue.

The Assessments included 25% penalty tax and interest calculated at the market rate.  Novus contended that no interest or penalties are payable [744] and, even if they are, the Chief Commissioner should remit all interest and penalties in full.

Decision

1. Payments for services provided to Novus by Authorised Representatives

The Senior Member findings included:

  1. Novus was not able to claim the 90 day exemption under s. 32(2)(b)(iii) in respect of any of its Authorised Representatives. The Tribunal accepted the Chief Commissioner’s submission that whether the 90 day exemption applies depends on Novus discharging its onus of proof, under s. 100(3) of the TAA, that its Authorised Representatives provided services for Novus for a period not exceeding 90 days in any of the relevant financial years” (see [89]).Novus cannot satisfy its onus merely by relying on unsubstantiated submissions without probative evidence [50].

  2. Novus was not able to rely on the exemption under s.32(2)(c) (services performed by 2 or more persons) where Authorised Representatives used services provided by “third party Execution, Clearing and Settlement Service Providers”, as those service providers had been engaged by Novus and not the Authorised Representatives [209].

  3. The provisions of services by one Authorised Representative to another on a reciprocal basis or under a fee-splitting arrangement can constitute consideration [233], and such arrangements could qualify for the two-person exemption;and Novus could claim the two-person exemption for 7 contractors (in respect of specified financial years) where work relating to a client of Novus was carried out by an Authorised Representatives at the request of another Authorised Representative, applying the reasoning in Zuccala Homes and Bridges [227].

  4. Having regard to the different methods of carrying on business by the Authorised Representatives and the substantial variance in remuneration paid by Novus for their services, the percentage of payments that was not attributed to the performance of work (“the non-labour component”) and not taxable under s. 35(2) may vary among the Authorised Representatives [727].

  5. However Novus had not provided probative evidence for the purposes of s. 35(2) to support its claim that 10% of payments to Authorised Representatives was not attributable to the performance of work [728].

  6. Therefore Novus had not satisfied its onus of proving the 5% “discount” already determined by the Chief Commissioner was incorrect [730].

2. Payments made by Novus to Cennlen Pty Ltd

The Senior Member findings included

  1. The reference in the heading of s.46 to payments by or to third party did not mean the section could not apply to transactions between members of a payroll tax group [601].

  2. payments to Cennlen during the Relevant Period were not made or accrued pursuant to a Licence Agreement, but were a continuation of payments in respect of services provided to Novus by Mr Gooley [688].

  3. However, the calculation of wages relied on by the Chief Commissioner were not correct [720].

Interest and penalties

The Tribunal found [788] that:

  • Novus failed to demonstrate any exceptional circumstances to justify the remission of the market rate of interest;

  • Novus may be able to rely on the advice it received from KB Legal on 4 September 2013 to claim that it had taken reasonable care after, but not before that date.

Order

  1. The payroll tax assessments for the years 2009 and 2014 inclusive were revoked.

  2. The parties were directed to bring in Short Minutes of Order within 21 days, reflecting the findings in the reasons for the decision.

Note:  Novus has lodged an appeal with the Appeal Panel.

Link to decision

Novus Capital Ltd v Chief Commissioner of State Revenue [2018] NSWCATAD 72

Last updated: 16 May 2018