BSA Ltd v Chief Commissioner of State Revenue

NCAT Appeal Panel|2022-11-25|Before: Dr J

REASONS FOR DECISION

This appeal concerns the question of whether payroll tax is payable on payments made by the appellant company to subcontractors. The payments were made under contracts providing for the supply and installation of pay TV and broadband equipment, and the making of service calls to pay TV and broadband users.
We have found, for the reasons which follow, that these contracts are captured by the definition of "relevant contract" in the Payroll Tax Act 2007 (NSW) and that the exceptions to that definition are not applicable. It follows that the appellant is liable for payroll tax.

Relevant legislative provisions

Payroll tax is imposed on all taxable wages (Payroll Tax Act, s 6). The term "wages" includes an amount that is included as or taken to be wages (Payroll Tax Act, s 13(1)(e)).
Amounts paid during a financial year for or in relation to the performance of work relating to a relevant contract are taken to be wages paid or payable during that financial year (Payroll Tax Act, s 35(1)).
A "relevant contract" is relevantly defined in s 32 of the Payroll Tax Act as follows: 32 What is a relevant contract? (1) In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person - … (b) has supplied to the designated person the services of persons for or in relation to the performance of work, or … (2) However, a relevant contract does not include a contract of service or a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person - (a) is supplied with services for or in relation to the performance of work that are ancillary to the supply of goods under the contract by the person by whom the services are supplied or to the use of goods which are the property of that person, or … (d) is supplied with services solely for or ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them. … (2B) Subsection (2) (a), (b), (c) or (d) does not apply to a contract under which any additional services or work (of a kind not covered by the relevant paragraph) are supplied or performed under the contract.
A "contract" includes an agreement, arrangement or undertaking, whether formal or informal and whether express or implied (Payroll Tax Act, s 31).
A taxpayer may apply to the Tribunal for an administrative review of the assessment if it has been the subject of an objection (Administrative Decisions Review Act 1997 (NSW), ss 9 and 55; Taxation Administration Act 1996 (NSW), s 96). The taxpayer has the onus of proving its case in a review by the Tribunal (Taxation Administration Act, s 100(3)).

Grounds of appeal

The appeal grounds were expressed discursively. However, as we understood them, from the grounds themselves and from the appellant's submissions, they were, in summary, as follows: 1. The Tribunal erred in finding that the fact that some service calls (those not involving supply or conveyance of goods) were performed by a subcontractor other than the subcontractor who had previously supplied or conveyed the goods being serviced causes them to cease being ancillary services under s 32(2)(a) or s 32(2)(d) of the Payroll Tax Act and therefore attract s 32(2B). The errors were as follows: 1. The Tribunal misconstrued s 32(2)(a) in giving the linking term "ancillary to" too restrictive a meaning. It should have held, rather, that it is sufficient that, under the contract with BSA Ltd, the subcontractor both supplied goods and performed service calls in relation to the effective working of goods of the same kind, regardless of whether the premises or consumer was the same each time; and 2. misconstrued s 32(2)(d) of the Payroll Tax Act in holding, expressly or impliedly, that the services referred to in that provision have to be performed by the same person who conveys the goods. 1. The Tribunal erred in not concluding that the subcontracts under which change orders involving new goods (such as an additional outlet) being supplied or conveyed by the subcontractor who uses those goods in their installation services were within ss 32(2)(a) and (d) and outside s 32(2B). 2. The Tribunal erred in concluding that it was not entitled to take the second reading speech into account when construing s 32 of the Payroll Tax Act.

History of s 32 and its construction

Before turning to each of the appellant's appeal grounds, it is convenient to set out the recent history of s 32 of the Payroll Tax Act, and significant decisions which have considered its construction. Both parties relied upon the history of the provision, and it is relevant to resolving the issues in this appeal.

Smith's Snackfood appeal

Both parties relied upon Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 470 (the Smith's Snackfood appeal) in support of their construction of the term "ancillary" in s 32(2) of the Payroll Tax Act. The relevant facts of that case were as follows.
Smith's Snackfood Company Ltd (Smith's Snackfood) sold snack foods and drinks in vending machines throughout Australia. The company engaged independent contractors to service the machines. The contractors were required to supply their own vehicles. They were required under their contracts to transport goods, fill the vending machines with the goods, remove spoiled products, collect cash and clean and maintain the vending machines.
The main issue in the Smith's Snackfood litigation was whether the contracts between Smith's Snackfood and the independent contractors were subject to the exception to the definition of "relevant contract" in s 32(2)(d)(i) of the Payroll Tax Act (as it then stood). This turned on whether the services supplied by the contractors were ancillary to the conveyance of goods by means of a vehicle.
Section 32(2)(d)(i), in the form considered in the Smith's Snackfood appeal, provided as follows: (2) However, a relevant contract does not include a contract of service or a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person: ... (d) is supplied with: (i) services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them,…
Gleeson JA (Beazley P agreeing) held, when considering whether the services provided by the contractors were ancillary to the conveyance of goods, that "de minimis activity compared to the conveyance of goods by a vehicle would not preclude the engagement of the exemption" (at [81]). His Honour was of the view that "the exemption can be engaged even where multiple services exist under a relevant contract, not all of which are ancillary to the conveyance of goods" (at [83]).
Gleeson JA characterised the principal matter or subject of the relevant contracts as being the conveyance of goods (at [92]). His Honour stated (at [92]): "It is not to the point that some of the services, whether of a de minimis character or otherwise, are in and of themselves not ancillary to the conveyance. The engagement of the exemption does not require that the services supplied to Smith's be exclusively or solely ancillary to the conveyance."
Gleeson JA rejected the Chief Commissioner's argument that the word "ancillary" necessarily includes a concept of subservience (at [111]). His Honour found that various services provided by contractors were ancillary to the conveyance of goods. These included: 1. placing orders for goods and storage of goods (services which facilitate the contractor commencing the conveyance of goods in a timely fashion: at [141]); 2. carrying out minor repairs and making service repair calls if unable to repair vending machines (in circumstances where the conveyance is to be taken as including restocking the vending machines, these services are closely related to keeping the machines in good working order, which is incidental to the restocking: at [144]); 3. stocktaking, given that it is the conveyance of goods by the contractor which is the reason why the contractor has goods in its possession and why there is a need for stocktaking (at [155]-[156]).
Placing promotional material on vending machines, cleaning the machines and looking for business opportunities were not ancillary to the conveyance, as they did not relate to or in any way assist the contractor in delivering Smith's products to the vending machines, but they were services of a de minimis character (at [146], [147], [152], [153]).
As the non-ancillary services were all of a de minimis character, the exemption was engaged (at [94], [233]).

Legislative amendment

The Payroll Tax Act was amended by the State Revenue Legislation Further Amendment Act 2014 (NSW) (the 2014 Amendment Act), as a result of the decision in the Smith's Snackfood appeal. In the second reading speech to the bill, which the parties both relied upon, Mr Dominic Perrottet, then the Minister for Finance and Services, said: "The relevant contracts provisions currently provide an exemption from payroll tax for remuneration paid to an owner-driver for services that are ancillary to the conveyance of goods. The exclusion applies to contracts under which the driver provides a vehicle to transport goods. The reason for the exemption is that a large proportion of the consideration paid to owner-drivers is for the provision of a vehicle and its running costs. The value of the personal services of the driver represents a relatively small proportion of the payments to owner-drivers. The bill makes it clear that the exemption for owner-drivers is limited to a contract that provides solely for the conveyance of goods, and ancillary services such as loading and unloading the vehicle. The legislation has been administered by the Chief Commissioner on this basis since 1986. However, recent decisions of the New South Wales Supreme Court and Court of Appeal indicate the exemption can be claimed for contracts under which other types of services or other kinds of work are provided. This has opened up significant tax avoidance opportunities. In an overwhelming proportion of cases, owner-driver contracts relate solely to the provision of the vehicle and ancillary services, including the driver's services in driving the vehicle as well as loading and unloading. Therefore the amendments will not have a significant effect on current industry arrangements, but they will prevent the manipulation of contracts that are not specifically for the conveyance of goods but which may require the incidental use of a vehicle."
Section 32(2B) of the Payroll Tax Act was inserted by item 6 of Sch 3 to the 2014 Amendment Act and took effect that year.
Section 32(2)(d)(i) was amended, temporarily, to include the words "solely for". Then section 32(2)(d) was replaced entirely with the provision in its current form, with the new provision commencing on 1 January 2016 (2014 Amendment Act, Sch 4, items 3 and 4).

Downer decision at first instance

The legislation, prior to its amendments (as it applied in the 2010 to 2013 financial years), was again the subject of judicial consideration in Downer EDI Engineering Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 743 (the Downer first instance decision).
The taxpayer (Downer) contracted with Foxtel to deliver and install equipment at the premises of Foxtel customers. Downer engaged subcontractors under subcontracts to perform work in relation to the head contract. The subcontractors were required to deliver the Foxtel equipment to a customer's premises, install it, ensure that the equipment is working, demonstrate its use to the customer and clean up afterwards.
Downer was assessed for payroll tax on the basis that its subcontracts with the subcontractors were "relevant contracts" within s 32 of the Payroll Tax Act.
Downer applied to the Supreme Court for a review of the assessment. It was common ground that the subcontracts fell within the definition of "relevant contracts" under s 32(1)(b) of the Payroll Tax Act. The question Payne J had to consider was whether the subcontracts were excluded from being "relevant contracts" by ss 32(2)(a) or 32(2)(d)(i) of the Payroll Tax Act (as it stood between 2010 and 2013), with the result that the payments were exempted from payroll tax.
The first issue was whether Downer was supplied by subcontractors with services under the subcontract which were ancillary to the supply of goods under that subcontract within s 32(2)(a) of the Payroll Tax Act. Payne J concluded (at [149]) that the supply of installation services was ancillary, in the sense of supplemental or auxiliary or accessory, to the supply of goods (being the Foxtel equipment) within s 32(2)(a) of the Payroll Tax Act. Section 32(2)(a) therefore provided an exception to the "relevant contract" definition in Downer's case and it was not subject to payroll tax.
Payne J's conclusion about s 32(2)(a) made it strictly unnecessary to address s 32(2)(d)(i), but his Honour did so in any event "on a contingent basis" (at [150]). His Honour found that the "conveyance" in s 32(2)(d)(i) was not limited to vehicular transport, but included further steps to make the conveyance complete (such as placing the goods in a particular location) (at [151]). Activities such as unpacking materials and putting Foxtel equipment in the customer's premises were part of the conveyance (at [152]). Services such as conducting a safety inspection of the premises and demonstrating the use of Foxtel equipment to the customer, were ancillary to the conveyance (at [154]). Accordingly, the exception in s 32(2)(d)(i) applied and, on this basis as well as the basis of the exception in s 32(2)(a), the subcontracts were not relevant contracts and Downer was not liable for payroll tax.

Downer appeal

The Chief Commissioner appealed from Payne J's decision (Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd (2020) 103 NSWLR 772 (the Downer appeal)). One of the grounds of appeal was that the trial judge had erred in holding that the installation services were ancillary to the supply of goods under the subcontract.
Bathurst CJ, with whom Macfarlan and Meagher JJA agreed, found that the installation services were ancillary to the supply of goods under the subcontract (at [132]), saying: "Put simply, the goods supplied would provide no benefit to the customer until they were installed. To adopt what was said by Jessup J in Navy Health Ltd v Federal Commissioner of Taxation, the installation was something which tended to assist, or which naturally went with, the supply of the goods necessary to receive the Foxtel service. To use an imperfect analogy, work necessary to make a piece of household equipment operate will be incidental to the supply of that piece of equipment."
His Honour considered that "the installation tasks were in substance bound up with the supply of goods required to access the Foxtel service" (at [133]). It followed that the installation services were ancillary to the supply of goods under the contract and the exclusion in s 32(2)(a) of the Payroll Tax Act applied.
Bathurst CJ also agreed with the primary judge's conclusion that the subcontracts fell within the exclusion in s 32(2)(d)(i) of the Payroll Tax Act, noting that the installation tasks appeared to be of "a repetitive mechanical nature" (at [140]-[142]).

Ground 1 - service calls by different subcontractor

The main issue raised by the first ground of appeal is whether the Tribunal erred in finding that services provided by a different subcontractor from the subcontractor who supplied or conveyed the goods were not services "ancillary to the supply of goods" within s 32(2)(a) of the Payroll Tax Act or services "ancillary to the conveyance of goods" within s 32(2)(d). The sub-grounds are framed as if they concern the construction of s 32(2)(a) and (d). However, in substance the ground concerns the question of whether the facts, as found, come within a statutory provision.

Questions of law

BSA Ltd has not sought leave to appeal. In its reply to the Notice of Appeal, the Chief Commissioner stated that to the extent that the Grounds of Appeal seek to challenge errors of fact, leave to appeal is required, but has not been sought (Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act), s 80(2)(b)). The Chief Commissioner did not, however, identify a particular ground for which leave was needed.
The Appeal Panel's jurisdiction to hear and determine the appeal depends upon BSA Ltd identifying a question of law in a ground of appeal, or otherwise upon the Appeal Panel giving leave to BSA Ltd to appeal on other grounds. Because it is a question of the Appeal Panel's jurisdiction, the Appeal Panel needs to be satisfied that there is a question of law raised, even in the absence of a challenge by the respondent to the appeal: Federal Commissioner of Taxation v Crown Insurance Services Ltd (2012) 207 FCR 247; [2012] FCAFC 153, Lander and Foster JJ at 250 [10], citing HP Mercantile Pty Ltd v Federal Commissioner of Taxation (2005) 143 FCR 553 at 570-571; Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378; 96 ATR 875 at [6] and [22]; Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40 at [31]. The question of law should be stated with precision, because it is the question of law that enlivens the jurisdiction: Federal Commissioner of Taxation v Crown Insurance Services Ltd (2012) 207 FCR 247; [2012] FCAFC 153, Lander and Foster JJ at 250 [13]; Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378; 96 ATR 875 at [22].
The first ground of appeal uses language consistent with raising a question of law. The ground asserts that the Tribunal "misconstrued" s 32(2)(a) and (d) of the Payroll Tax Act. The question of whether the Tribunal misconstrued a statutory provision is a question of law, for which leave to appeal is not needed (NCAT Act, s 80(2)(b)). On one view, however, the ground is not, in substance, about whether the Tribunal misconstrued a provision. That is important because "[a]n appellant cannot convert a challenge which is wholly or partly factual to one which is on a 'point of law' merely by including those words in the formulation of a ground" (Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40 at [32]). Similarly, stating that the ground is about misconstruing a provision, when the argument in support of the ground concerns a question of fact, does not render the appeal one on a question of law. This may be why the Appeal Panel has observed that "[i]t is not enough to simply assert … that the Tribunal erred in its construction and application of certain provisions of the PTA without also identifying how that purportedly occurred" (Thomas and Naaz Pty Ltd (ACN 101 491 703) v Chief Commissioner of State Revenue [2022] NSWCATAP 220 at [59]).
BSA Ltd does not say that the Tribunal erred in its exposition of what the word "ancillary" in s 32(2)(a) and (d) means. Rather, its argument is that the Tribunal was wrong to find that services supplied in a particular factual scenario (where they are supplied by a second subcontractor) are not ancillary to the supply or conveyance of goods. It contends that the Tribunal misconstrued s 32(2)(a) in giving the words "ancillary to" too restrictive a meaning (because it did not find that they applied to the facts as found) and that it misconstrued s 32(2)(d) "in holding… that the services referred to in that provision have to be performed by the same person who conveys the goods." This raises the question of whether the facts, as found, fall within s 32(2) of the Payroll Tax Act and, in our view, is not concerned with the construction of that provision.
At the conclusion of its submissions in reply, the appellant describes its position as follows: "[BSA Ltd] does not contend that all services under any contract will be ancillary, rather that within the factual context before the Tribunal in these proceedings, the services are ones which are properly characterised as ancillary." Framed in that way, there must be some doubt as to whether the appellant has appealed on a question of law.
The question whether facts fully found fall within the provision of an Act properly construed is generally a question of law: Hope v Bathurst City Council (1980) 144 CLR 1 at 7 per Mason J with whom Gibbs, Stephen, Murphy and Aickin JJ agreed. However, when an Act uses words according to their ordinary meaning and the question is whether the facts as found fall within those words, and it is reasonably open to hold that they do, then the question whether they do or not is one of fact: Hope v Bathurst City Council at 7; Sharp Corporation of Australia Pty Ltd v Collector of Customs (1995) 59 FCR 6 at 12; Federal Commissioner of Taxation v Crown Insurance Services Ltd (2012) 207 FCR 247; [2012] FCAFC 153, Lander and Foster JJ at 256 [39].
In Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40 at [39], [48] and [58], Leeming JA (Meagher JA and Griffiths AJA agreeing) found that the question of whether medical practitioners in a taxpayer's medical centre supplied services to the taxpayer within s 32(1)(b) of the Payroll Tax Act did not raise a question of law. One of the taxpayer's grounds of appeal, to the Appeal Panel, was that the Tribunal had erred in law in finding, for the purpose of s 35(1) of the Payroll Tax Act, that doctors provided services to the taxpayer and in finding that the agreement between each doctor and the taxpayer was a "relevant contract" within s 32(1)(b). The Appeal Panel described the submissions in support of this argument as "nothing more than an attack on the Tribunal's findings of fact and are directed to the conclusion that the contract was a relevant contract, which is a conclusion of fact" (Thomas and Naaz Pty Ltd (ACN 101 491 703) v Chief Commissioner of State Revenue [2022] NSWCATAP 220 at [68]). The Court of Appeal took a similar view.
It is a question of fact and degree as to whether the connection between the provision of services and the supply or conveyance of goods is sufficient to be "ancillary" (Smith's Snackfood appeal at [109]; Downer first instance decision at [60]; Downer appeal at [141]). However, the meaning of "ancillary" is not simply its "ordinary" meaning, as the term takes its meaning partly from the statutory context. In the Smith's Snackfood appeal, Gleeson JA observed (at [78]) that the dictionary definitions of "ancillary" were not determinative of its meaning and his Honour took into account the statutory context when construing the term (see, for example, at [110]).
The distinction between what is or is not a question of law is vexed and context dependent (Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40 at [52]). In these proceedings, the question of whether the appellant has raised a question of law is not straightforward. We consider, however, in light of Gleeson JA's remarks about the meaning of 'ancillary" in the Smith's Snackfood appeal, that the question of whether the supplied services are "ancillary" to the supply or conveyance of goods within s 32(2)(a) and (d) of the Payroll Tax Act, raises a question of law. BSA Ltd may therefore appeal on the first ground as of right.

Submissions of appellant

BSA Ltd submitted in support of its first ground of appeal that the Tribunal gave the word "ancillary" too restrictive a meaning, which was not in accordance with the meaning given to the term in the Smith's Snackfood appeal or the Downer appeal. It said that the term "ancillary" does not mandate that the service be performed by the same person who supplied or conveyed the goods (although it accepted, in the case of the s 32(2)(a) exception, that the text required that the ancillary services be performed by the same person who supplied goods). Rather, in its submission, it is sufficient that the service is of a kind which is in substance bound up with the supply or conveyance of goods. It also submitted that the Tribunal erred in finding that an exemption cannot arise if services are performed that are not themselves the supply or conveyance of goods.
BSA Ltd said that the Tribunal had erred in accepting the Chief Commissioner's submission that s 32(2)(a) requires that the same person performs the services and supplies the specific goods serviced. This, it said, restricts "ancillary" unduly. On its proper construction, in BSA Ltd's submission, the provision is satisfied where the services are performed on goods of the same relevant kind that the person supplies and where the services are necessary to make the goods function according to the customer's needs.
As for s 32(2)(d), BSA Ltd submitted that it clearly does not require that the person performing the services be the same person who conveyed the goods. It is sufficient that the nature of the services is ancillary to the conveyance of goods. BSA Ltd submitted that the Tribunal unduly narrowed the construction of "ancillary", which on the Smith's Snackfood appeal, the Downer first instance decision and the Downer appeal authorities focuses on the nature of the services, not who performed them.

Submissions of respondent

The Chief Commissioner submitted that the Tribunal correctly set out the meaning it gave to the term "ancillary" as being services which tended to assist, or which naturally went with, the supply or conveyance of the goods and services supplemental or auxiliary or accessory to the supply or conveyance of goods. The Chief Commissioner further submitted that the factual conclusion that the additional services (after the initial installation) were not ancillary to the initial supply or conveyance of goods under the contract was clearly open to it on the proper construction of ancillary.

Consideration

BSA Ltd's argument is that the term "ancillary" in s 32(2)(a) and (d) "does not mandate that the service be performed by the same person who made the relevant supply or conveyance of goods." As indicated above, that is not an argument about the construction of "ancillary" per se; it is an argument that a particular factual scenario (where a person provides goods then a different person provides services) may be captured by the term "ancillary."
In its submissions before the Tribunal, BSA Ltd submitted that "ancillary" meant "supplementary or auxiliary or accessory." It cited that definition again in its submissions on the appeal. At first instance and on appeal, it also relied upon Bathurst CJ's comment in the Downer appeal that the installation tasks were "something which tended to assist, or which naturally went with the supply of goods to receive the Foxtel service." BSA Ltd did not submit, on appeal, that the Tribunal had rejected that definition, although it said that the Tribunal had given the term a meaning which was not in accordance with the Downer first instance decision, the Downer Appeal or the Smith's Snackfood appeal (without explaining what meaning the Tribunal had given the term).
The Tribunal did not plainly identify in its reasons for decision the meaning it gave to the term "ancillary."
The Tribunal set out (at [27]) the submission of BSA Ltd that the word "ancillary," as used in s 32(2)(a) and (d), has the meaning given in the Smith's Snackfood appeal and in the Downer appeal. That is, it set out the submission that the amendments made to the Payroll Tax Act did not change that meaning.
The Tribunal also stated (at [39]) that BSA Ltd had submitted that the word "ancillary" meant "supplementary or auxiliary or accessory". It noted that BSA Ltd relied upon Payne J's judgment in the Downer first instance decision, where his Honour said (at [140]): "The question posed by s 32(2)(a) is relatively simple to state: are the services supplied ancillary, in the sense of supplemental or auxiliary or accessory, to an identified circumstance or event, being the supply of goods under the contract?"
The Tribunal referred (at [38]) to the Chief Commissioner's summary of the decision in Downer appeal, including the Court of Appeal's conclusion that the installation of set top boxes was "ancillary" to the supply of goods because "the installation was something which tended to assist, or which naturally went with, the supply of the goods necessary to receive the Foxtel service" (citing the Downer appeal at [132]).
Although the Tribunal did not expressly state what meaning of "ancillary" it had adopted, in circumstances where it was bound by the decisions in the Downer and Smith's Snackfood litigation, and in which it cited the parties' submissions about the meaning of that term as derived from those cases, it may be inferred that it adopted the meaning given to the term in those cases. In any event, the appellant has not established that the Tribunal did not adopt the meaning of the term as established in the cases to which it referred.
That leaves the question of whether the Tribunal erred in finding that services supplied by way of service calls made by a different subcontractor from the subcontractor who had supplied goods to a customer were services which were not ancillary to the supply of goods.
The appellant's first ground of appeal challenges a "finding" at [47], [58] and [66] of the Tribunal's reasons that the fact that some service calls were performed by a subcontractor (the second subcontractor), being a different subcontractor from the subcontractor who had previously supplied or conveyed the goods being serviced (the original subcontractor), causes the services to cease being ancillary services under s 32(2)(a) or s 32(2)(d) of the Payroll Tax Act and therefore attracts s 32(2B) of that Act. One difficulty with this ground is that the Tribunal made no express finding that a service which is not provided by the same person who made the relevant supply or conveyance of goods is not "ancillary" to the provision of goods.
In paragraph 47 of the Tribunal's reasons (the first paragraph in which the appellant says the Tribunal made that finding), the Tribunal referred to evidence that subcontractors - other than the subcontractor who conveyed the original goods for installation - had provided services under the subcontracts. It treated this as a circumstance supporting its conclusion that there were some services provided by the subcontractors which were not ancillary to the supply or conveyance of goods. That is different from making a finding that the supply of services by a second subcontractor of itself rendered the service one which was not ancillary to the supply of goods by the first subcontractor.
In paragraph 58 of its reasons (the second paragraph in which the appellant says the Tribunal made the finding), the Tribunal stated that it accepted certain of the respondent's submissions which it cited at paragraph 56. The submissions it accepted included that "s 32(2)(a) only covers cases where the contractor providing the ancillary services is the same contractor who supplies the Foxtel or Optus equipment." That was not, however, a finding that the making of service calls was not an ancillary service if the service calls were made by a different subcontractor from the subcontractor who had supplied or conveyed the goods. Rather, the Tribunal accepted the respondent's submission that the words "by the person by whom the services are supplied" in s 32(2)(a) had the effect that the paragraph only applied if the person who supplied goods was the same person who supplied ancillary services.
The Tribunal also stated at paragraph 58 that it accepted the following submission of the Chief Commissioner, which the Tribunal had set out in paragraph 56 of its reasons: Again, s 32(2)(a) could not be satisfied in circumstances where different people supply the goods and the ancillary services, because none of those services are then ancillary to the supply of goods by the person by whom the services were supplied. In other words, even if service calls and outlet change orders could be otherwise characterised as ancillary to the supply of goods (which is disputed), they are not covered by s 32(2)(a), because the person who supplies the services is (often) different from the person who supplied the goods.
The first sentence of the Chief Commissioner's submission, as reproduced by the Tribunal, denies that services provided by a person other than the person supplying the goods could be "ancillary to the supply of goods by the person by whom the services were supplied" (our emphasis). It again turns on the terms of s 32(2)(a), rather than the meaning of "ancillary" in isolation.
Paragraph 66 of the Tribunal's reasons (the third paragraph in which the appellant says the Tribunal made a finding) refers to the evidence of Mr Lithgow. Mr Lithgow is a witness who gave evidence for the appellant. The Tribunal recorded (at [60]) the Chief Commissioner's submission that Mr Lithgow had stated, in oral evidence, that in one service call, a cable technician attended a customer's premises without supplying or conveying goods. The Tribunal expressly accepted this submission (at [61]). It then stated (at [66]), partly in reliance upon Mr Lithgow's oral evidence, that it rejected the appellant's submission that there were no "additional services or work" within s 32(2B) of the Payroll Tax Act.
The Tribunal did not expressly find in paragraph 66 (or at all) that the supply of services by a second subcontractor causes the services to "cease being" ancillary services under s 32(2)(a) or s 32(2)(d) of the Payroll Tax Act. It did not consider every situation in which this might occur and did not purport to lay down a rule of universal application (that the terms of s 32(2)(a) and (d) "mandate" that the service be performed by the same person who supplied or conveyed the goods). The appellant has not persuaded us that the Tribunal held, expressly or impliedly, that the services referred to in s 32(2)(d) have to be performed by the same person who conveys the goods (as it stated in its first ground of appeal). The Tribunal found, in the circumstances of this case, that services provided by a second subcontractor were not ancillary to the supply of goods by a first subcontractor.
It is plain that the Tribunal considered, in this case, that the circumstance that services were provided by a second subcontractor supported the conclusion that those services were not ancillary to the original supply or conveyance of the goods. We will consider whether that involved error, even though that is not the way the appellant pleaded the first ground.

Services provided in relation to goods of the same kind

BSA Ltd accepted that, for s 32(2)(a) of the Payroll Tax Act, the text required that the ancillary services be performed by the same person who supplied goods. However, it said that the ancillary services do not have to be in relation to the specific goods, as long as they are in relation to goods of the same kind.
BSA Ltd used the example of a person who supplied pay TV equipment in customers' homes and performed service calls to ensure that equipment of that kind worked satisfactorily. BSA Ltd said that if that person made a service call in relation to such equipment, even if he or she had not installed it at the particular customer's home, the services would be "services of a kind" that are ancillary to the supply of goods by him or her, within s 32(2)(a).
The phrase "services … of a kind" is found in s 32(2B) of the Payroll Tax Act, not in s 32(2)(a) or (d) of that Act. There is no basis for reading the words "of the same kind" into s 32(2)(a) or (d).
It is not necessary, however, to decide whether BSA Ltd is correct to construe s 32(2)(a) as being engaged where a person supplies services in relation to goods of a kind the person has supplied under the contract (but not in relation to the specific goods supplied by the person under the contract). That is because BSA Ltd did not establish that the technicians supplying services under the subcontracts had, in every case, also supplied goods of the same kind under the subcontracts. Further, it did not establish that the services supplied required the use of goods conveyed under a subcontract. The Tribunal stated at [47]: The evidence before the Tribunal includes several examples of work by subcontractors who are not the subcontractor who conveyed the original goods for installation, and work which did not require the use of goods conveyed under a relevant agreement. There is also a lack of evidence that all work carried out occurred pursuant to the terms of the original contract with a client of the Applicant such as Foxtel or Optus.
Where no goods were supplied or used in a service call, made some time after the initial supply of goods, it was open to the Tribunal to find that the supply of the service was not ancillary to the supply of goods.
BSA Ltd raised a related issue about the proper construction of the word "kind" in s 32(2B) of the Payroll Tax Act. It submitted that "the services on which the respondent relies are 'of a kind' which is 'covered by the relevant paragraph' because the kind of services - service calls to fix the relevant TV or broadband equipment - are ancillary to the supply of that equipment regardless of whether it had been supplied by that subcontractor or one of the other subcontractors." We consider that the words "of a kind not covered by the relevant paragraph" in s 32(2B) are intended to pick up services or work not captured by paragraphs 2(a), (b), (c) and (d). We do not accept the appellant's submission that the proper approach is to look at the "kind" of services in question at a broad level of generality (here, service calls to fix the relevant equipment) and to consider whether that kind of service generally is covered by one of the paragraphs in s 32(2).
As indicated earlier, the question of whether services are ancillary to the supply or conveyance of goods is a question of fact and degree. It was open to the Tribunal to find that services supplied at a later point in time than the supply or conveyance of goods, by a different person, were not ancillary to the supply or conveyance of goods in this context. Such services could reasonably be regarded as not being "supplementary or auxiliary or accessory" to the initial supply of goods. It could reasonably be concluded that services provided by a different technician at a later date than the date of installation of goods were not something which tended "to assist, or which naturally went with, the supply of the goods necessary to receive the Foxtel [or Optus] service."
BSA Ltd put weight on Bathurst CJ's comment in the Downer appeal (at 802 [133]), being that "the installation tasks were in substance bound up with the supply of goods required to access the Foxtel service." BSA Ltd submitted that the service could be performed by a different person from the person who supplied or conveyed the goods, and still be ancillary to the supply or conveyance of the goods, if the service was of a kind which was "in substance bound up with" the supply or conveyance of goods. In our view, it was open to the Tribunal to conclude that a service performed by a different person, at a later point in time, was not in substance bound up with the original supply or conveyance of goods. Disconnection services, for example, are not properly characterised as being "supplementary or auxiliary or accessory" to the supply or conveyance of a set-top box.
It is important to bear in mind that BSA Ltd had the onus of persuading the Tribunal that the contracts were not relevant contracts. The Tribunal was alert to this, stating (at [47]) that "the Applicant bears the onus of proving its case by probative evidence, not merely by submissions and unsourced generalisations." It was incumbent upon BSA Ltd to establish, by probative evidence, that all the services provided under the contracts were ancillary to the supply of goods, as a matter of fact.

Are later repairs ancillary services?

The appellant submitted that the facts in the Smith's Snackfood appeal and the Downer appeal were not limited to initial installation type scenarios, but extended to services of repairing the goods supplied or conveyed. By analogy, it argued that service calls (which the Tribunal found could occur years after the installation of a set top box) involved the supply of services ancillary to the initial supply or conveyance of goods.
The judicial observations in the Smith's Snackfood appeal and the Downer appeal do not support that conclusion. In the Downer appeal, Bathurst CJ referred to "installation tasks" which "could not be described as discrete" and which "were in substance bound up with the supply of goods required to access the Foxtel service" (at [133]). They were thereby ancillary to the supply of goods. There is no indication in that decision that "services … ancillary" to the supply or conveyance of goods would generally include all subsequent repair work to the goods. Unlike the installation tasks considered in the Downer appeal, such services could properly be described as "discrete."
In the Smith's Snackfood appeal, Gleeson JA held (at [144]) that the carrying out of minor repairs to the vending machines were services closely related to keeping the machines in good working order. The supply of those services was "incidental to the delivery of the goods which included the restocking, because as Smith's correctly submits, the contractor would not otherwise be able to restock the machine" (at [144]). In other words, the repairs were ancillary to the conveyance of goods, where the conveyance included restocking the vending machines. The Court of Appeal did not indicate that a repair to the vending machine, years after it had been installed, would have been ancillary to the original conveyance of the vending machine, in circumstances where goods were not supplied on an ongoing basis. As the Chief Commissioner submitted, in this case "the service calls in question - where no goods are ·supplied or conveyed - are not necessary to complete any supply or conveyance of goods, which distinguishes them from the repair services in Smith's appeal."

Temporal component to what is "ancillary"

The appellant also submitted in support of this ground that "[t]he notion of 'ancillary' in ss.32(2)(a) and (d) of the PTA, as construed in Smiths Appeal, Downer and Downer Appeal, does not have any specific time or sequence restriction." We accept that those cases do not establish that a service must be supplied at the same time as the supply of goods in order for the supply of services to be ancillary to the supply of goods. But nor do they establish that the passage of time is not relevant to whether a service is ancillary to the supply of goods. The more time which has passed since goods have been supplied, the less likely it is that the supply of services will be "supplementary or auxiliary or accessory" to the supply of those goods. The circumstance that a service could be provided under the subcontracts years after the supply of goods, without a further supply of goods, tends to support the Tribunal's conclusion that the supply of such a service is not ancillary to the supply of goods.

Services not involving the supply of goods

We do not accept the appellant's submission, made in reply, that "there was one basis for the Tribunal's decision, being that the services in question were performed by a technician different from the one who originally installed the equipment." Another basis for the Tribunal's decision was that some service calls did not involve the supply of goods. That is important because even if the Tribunal erred in finding that the involvement of a second subcontractor denied the service the character of being ancillary to the supply of goods by the original contractor (contrary to our view), the second basis for its decision that s 32(2B) of the Payroll Tax Act applied was available to it.
The finding that some services supplied under the subcontracts were not ancillary to the supply or conveyance of the goods was made in the context where BSA Ltd had submitted (as noted by the Tribunal at [59]) that the terms of the subcontracts demonstrated that a consumable was supplied on every occasion. The Tribunal found that this submission was not supported by the evidence. It was inconsistent with the evidence of the witness of BSA Ltd, Mr Reid (referred to at [54] of the Tribunal's reasons), that for a pure disconnection there was no installation, supply or conveyance of goods.
The Tribunal reasoned as follows, with reference to the Respondent's Submissions (RS) and the Applicant's Closing Submissions in Reply (ACSR), concerning the supply of services by a second subcontractor (at [59]-[61]): "59 I observe that at ACSR [71], in its discussion of the Respondent's submission concerning work by technicians other than the subcontractor who initially conveyed goods to a customer's location, the Applicant submitted: The terms of the Foxtel Subcontracts and the Optus Subcontractors demonstrate that for service calls and outlet change orders, while Foxtel Issue Equipment may not be supplied on every occasion, a consumable is. This makes the Respondent's argument otiose. 60 The above submission is challenged at RS [46A] by the following submission concerning Mr Lithgow: … Mr Lithgow took detailed notes of a service call during his "time and motion study" in 2019 CB6 4525. In cross-examination, he confirmed that during this particular service call, the cable technician attended the customer's premises, tested signals and then left. There was no supply or conveyance of goods involved T1.87 (transcript day 1. page 87). Mr Lithqow explained that for service calls such as this, there would be no work to do (other than signal testing and reporting a fault), because the fault was a network fault which Telstra would need to fix T1.88. 61 I have checked the references used in the above extract and confirm their accuracy.
The Tribunal then discussed the evidence given by Mr Lithgow and observed at [63] that it was not satisfied that any one of the hypothetical events described by Mr Lithgow (such as replacing parts) occurred in the actual work under consideration. It then rejected the submission of BSA Ltd at ACSR [71] (that is, that goods were supplied on every occasion that a service call was made or a technician attended for an outlet change order). In other words, it found, as a matter of fact, that BSA Ltd had not established that goods were supplied on every occasion on which a service was supplied. That was one basis upon which it found that the contracts were relevant contracts (see at [66] and [67]).
BSA Ltd did not seek leave to appeal from that factual finding which was plainly open to the Tribunal. That finding alone was sufficient to justify the Tribunal's conclusion that "additional services" were provided under the subcontracts, being services which were not ancillary to the supply or conveyance of goods.

Paragraph 32(2)(d)

Paragraph 32(2)(d) provides an exception to the definition of "relevant contract" where a person such as BSA Ltd "is supplied with services solely for or ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them."
BSA Ltd was critical of the Tribunal's "unduly narrow" reading of s 32(2)(d) in paragraph 47 of its decision, saying that the Tribunal misread the provision by "restricting it to cases where the subcontractor performing the service call is the same individual who had conveyed the original goods." The Tribunal did not expressly do this in paragraph 47. To the extent that it may be inferred from that paragraph that the Tribunal considered that, in the circumstances of this case, services supplied by a subcontractor who was not the subcontractor who originally conveyed the goods were not ancillary to the conveyance of the goods, we consider that that conclusion was open to it. It was a factor when, taken with other factors, was indicative of a lack of the close connection needed for the service to be ancillary to the conveyance of goods.
BSA Ltd also submitted that the "Tribunal's construction of 'ancillary' as requiring identity of the individual worker would also give rise to anomalous outcomes." Those outcomes were said to be that if a single subcontractor performed a service in relation to goods conveyed by a different subcontractor once in a financial year, or another service was provided on a single occasion which was not ancillary to the supply or conveyance of goods, then all payments under the subcontract would be denied the exemption.
We do not consider this to be an anomaly. In order for an exemption in s 32(2)(a) or (d) of the Payroll Tax Act to apply, the services must be supplied under a contract. The exemptions are directed towards contracts which provide for services which are ancillary to the supply or conveyance of goods. The number of times which a non-ancillary service is provided under the contract is not the focus of the provision. If a contract provides for the supply of services which are not ancillary to the supply or conveyance of goods, and those services are in fact supplied in the relevant financial year, then the exceptions in s 32(2)(a) and (d) may not apply on their face or, if they do, those "additional services" will attract the operation of s 32(2B).
The second reading speech to the State Revenue Legislation Further Amendment Bill 2014 (NSW) indicates that the legislature intended to reverse the effect of the Smith's Snackfood appeal, with its finding that the exemption in s 32(2)(d) could apply when "de minimis" services which were not ancillary to the conveyance of goods were supplied under a contract. That intention is evinced in s 32(2D) of the Payroll Tax Act. To borrow the words of Black CJ and Sundberg J in Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 83 FCR 511 at 518-519, "the plain language of the [provision] is confirmed by the only directly relevant extrinsic material, which shows that parliament intended the consequence that is said by the appellant to be anomalous."
For these reasons, we are not persuaded that the Tribunal erred as alleged in Ground 1.

Ground 2 - outlet change orders

The second ground of appeal is that the Tribunal erred in not concluding that the subcontracts under which change orders involving new goods were performed were within ss 32(2)(a) and (d) and outside s 32(2B).
As noted earlier, this ground involves a consideration of the question as to whether particular services are "ancillary" to the supply or conveyance of goods. For reasons given above, we are satisfied that this ground raises a question of law and leave to appeal is not required.
The Chief Commissioner contended before the Tribunal that change orders were "additional services" not covered by s 32(2)(a) or (d) (and thus within s 32(2B) of the Payroll Tax Act). The Tribunal set out some of the Chief Commissioner's submissions at [48] of its decision. Those submissions included the following: 40 The question raised by s 32(2B) of the PTA is whether any "additional services" (of a kind not covered by ss 32(2)(a) and (d)) are supplied or performed under the arrangements between BSA and its contractors for Foxtel and Optus work 41 The Chief Commissioner contends that such "additional services" are supplied or performed under those arrangements. The "additional services" are (a) service calls (at least where no new equipment is supplied or conveyed by the technician), and (b) "change orders" involving only the installation of an additional outlet (not a new set top box or satellite dish)
At paragraph 49, the Tribunal commented: I have difficulty accepting the submission at [41(b)] above to the extent that it involves new goods being supplied or conveyed by a technician who uses those goods to install an additional outlet.
The appellant submitted that, in respect of outlet change orders, the Tribunal found at [49] that these did involve the supply or conveyance of new goods by the subcontractor. That is not an accurate summary of the Tribunal's finding. The Tribunal's finding was in respect of a change order involving new goods being supplied or conveyed for the purpose of installing an additional outlet. For this type of change order, it found that no "additional services" of a kind not covered by s 32(2)(a), (b), (c) or (d) were supplied under the contract. However, it also referred at paragraph 44 of its reasons to "a change order which merely relocates goods originally located in accordance with the initial installation agreement." The Tribunal did not find that this type of change order involved the supply of new goods (and it is plain that it did not).
The appellant submitted that the Tribunal erred in not concluding, consistently with this finding, that the subcontracts under which change orders of this nature were performed were within ss 32(2)(a) and (d) and outside s 32(2B). The difficulty with this argument is that the circumstance that one particular type of service supplied under a contract is ancillary to the supply or conveyance of goods, and so not an "additional service" within s 32(2B), does not necessarily preclude the application of s 32(2B). If another service supplied under the contract is not ancillary to the supply or conveyance of goods, the contract will be one to which s 32(2B) applies. Supplying the service of relocating goods under a contract as part of a change order, if not ancillary to the supply or conveyance of goods, would have the effect of attracting s 32(2B).
In these circumstances, the Tribunal was not obliged to conclude, as the appellant contends that it should have done, that the subcontracts under which change orders were performed were within ss 32(2)(a) and (d) of the Payroll Tax Act and outside s 32(2B). It was open to the Tribunal to conclude, as it did, that services were provided which were not ancillary to the supply or conveyance of goods, such that s 32(2B) applied. No error has been demonstrated.
The second ground is dismissed.

Ground 3 - error in treatment of second reading speech

The appellant claims that the Tribunal erred in concluding that it was not entitled to take the second reading speech to the State Revenue Legislation Further Amendment Bill 2014 (NSW) into account when construing s 32 of the Payroll Tax Act. This ground raises a question of law and the appellant may appeal as of right on this ground.
The Tribunal quoted from the judgment of Spigelman CJ in Harrison v Melhem (2008) 72 NSWLR 380; [2008] NSWCA 67 where his Honour said: "Statements of intention as to the meaning of words by ministers in a second reading speech may be of use in determining matters of purpose but are seldom available for ascertaining the meaning of the later-enacted text." The Tribunal also cited Mason P's words in that case that "a minister's understanding of the effect of a statute or the state of the common law cannot give the Bill he or she is promoting an effect inconsistent with its terms as construed by the court."
Having referred to those passages in Harrison v Melhem, the Tribunal did not state that it was not entitled to take the second reading speech into account. Rather, it said that, having regard to the guidance given by their Honours in that case, it had decided to "focus on the wording of the PT Act, including that introduced in 2014, rather than the text of the Minister's speech" (at [32]). A focus on the text is consistent with the approach to statutory interpretation currently endorsed by the High Court (see, for example, R v A2 (2019) 269 CLR 507; [2019] HCA 35 at [35]).
That is sufficient to dispose of this ground. However, for completeness, we add that, even if the Tribunal had erred in the way the appellant claimed, we do not consider that the second reading speech supports the appellant's case.
First, the appellant submitted that "the Tribunal's unduly narrow reading of 'ancillary' as requiring the same subcontractor is inconsistent with the second reading speech which provided that the amendments will not have a significant effect on current industry arrangements" (appellant's emphasis). It is not, in our view, legitimate to use the Minister's prediction of the effect of the amendments on industry arrangements to construe the legislation. That is not to identify the mischief the legislation was designed to address, or the purpose of the legislation.
Whilst a second reading speech can be referred to in some circumstances, it is ordinarily for the limited purpose of identifying the object of the legislation (Miles v SAS Trustee Corporation [2017] NSWCA 86, Sackville AJA (Payne JA agreeing) at [90]). The appellant acknowledged, in its written submissions, that the second reading speech could be considered in order to identify the mischief sought to be addressed.
We do not consider that the Minister's comment about the likely effect of the amendments on industry arrangements assists in the construction of the term "ancillary" (the meaning of which term, as the appellant acknowledges, was not affected by the 2014 amendments).
Secondly, to the extent that the appellant relied upon the second reading speech in order to identify the mischief which the 2014 amendments were intended to address, we do not consider that the appellant has identified that mischief correctly or, to the extent that it has done so, that the construction assists it. The appellant contended that s 32(2B) of the Payroll Tax Act "was clearly introduced to avoid the 'mischief' of taxpayers combining exempt services and other services together into the one contract in order to bring the other services into an exemption they would not otherwise enjoy" (appellant's emphasis). That particular identification of the mischief is not immediately apparent from the second reading speech. The appellant also submitted that s 32(2B) "is not directed at contracts for services that all relate to each other, where the services that are additional to the relevant supply or conveyance of goods are of a kind that is ancillary to the supply or conveyance, on the construction of 'ancillary' in authorities such as Smiths Appeal, Downer and Downer Appeal." Again, that view does not appear to be referrable to the second reading speech.
The primary mischief identified in the second reading speech was as follows: The bill makes it clear that the exemption for owner-drivers is limited to a contract that provides solely for the conveyance of goods, and ancillary services such as loading and unloading the vehicle. The legislation has been administered by the Chief Commissioner on this basis since 1986. However, recent decisions of the New South Wales Supreme Court and Court of Appeal indicate the exemption can be claimed for contracts under which other types of services or other kinds of work are provided. This has opened up significant tax avoidance opportunities.
The "mischief" identified by the Minister was that the courts had interpreted the exemption in s 32(2)(d) to extend to contracts providing for the supply of services which were not services ancillary to the conveyance of goods. In other words, Parliament was legislating to reverse the effect of the Smith's Snackfood appeal, where the Court found that the exemption could apply where some services supplied under a contract were not ancillary to the supply of goods, but were of a de minimis character.
The appellant submitted that the Tribunal ought to have found that the facts of the present case did not resemble the mischief against which s 32(2B) of the Payroll Tax Act was directed. However, that begs the question of whether the services supplied by technicians in situations where no goods were supplied were ancillary to the original supply of goods. In the Smith's Snackfood litigation, services such as cleaning the vending machines were found not to be ancillary to the conveyance of goods, because they did not relate to or assist the contractor in delivering the products, but they were services of a de minimis character which did not affect the operation of the exemption. Services such as disconnecting a pay TV service could reasonably be considered to be in the same category. For reasons given above, it was open to the Tribunal to find that some of the services supplied under the subcontracts were not ancillary to the supply of goods.
Ground 3 must accordingly be dismissed.

Conclusion

It follows that the appellant has not established any of its grounds of appeal and the appeal should be dismissed.

Orders

We make the following order: 1. Appeal dismissed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 June 2023

State Revenue Legislation Further Amendment Act 2014(NSW)

(Administrative Decisions Review Act 1997(NSW)

(Civil and Administrative Tribunal Act 2013(NSW)

(2020) 103 NSWLR 772

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