Complete Wardrobes and Shower Screens Pty Ltd v Chief Commissioner of State Revenue

The law 6For the period 1 July 2006 to 30 June 2007 relevant legislation imposing payroll tax was the Pay-roll Tax Act 1971 ("the 1971 Act") now repealed, and from 1 July 2007 the relevant legislation is the Payroll Tax Act 2007 ("the 2007 Act") (collectively "the payroll tax legislation"). 7Payroll tax is a tax on employers in respect of New South Wales wages paid to employees during each financial year. In accordance with the payroll tax legislation "wages" includes amounts paid by an employer for or in relation to work performed in accordance with a "relevant contract". Any part of the amount paid by the employer in accordance with a relevant contract which is not attributable to the performance of work is not included in the definition of wages. Certain contracts for service are exempted from the definition of "relevant contract" and amounts paid for services provided under those contracts are not included in the definition of wages for the purpose of calculating payroll tax. 8Once the Chief Commissioner has made an assessment of a tax liability, including a liability to pay payroll tax, the Chief Commissioner may only make a reassessment of that liability under particular circumstances. 9Below are relevant excerpts from the payroll tax legislation and the TA Act. 10Pay-roll Tax Act 1971 "3A Application of this Act to certain contracts (1) A reference in this section to a relevant contract in relation to a financial year is a reference to a contract under which a person (in this subsection referred to as the designated person), during that financial year, in the course of a business carried on by the person: ... (b) is supplied with the services of persons for or in relation to the performance of work, (1A) For the purposes of this section, a contract under which: (a) a person is supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them, is not a relevant contract, unless the Chief Commissioner determines that the contract was entered into with an intention either directly or indirectly of avoiding or evading the payment of tax by any person. (1B)... (2) For the purposes of this Act: (a) a person: ... (ii) to whom during a financial year, under a relevant contract, the services of persons are supplied for or in relation to the performance of work, or ... shall be deemed to be an employer in respect of that financial year, (b) a person who during a financial year: (i) performs work for or in relation to which services are supplied to another person under a relevant contract, or ... shall be deemed to be an employee in respect of that financial year, (c) amounts paid or payable by an employer...during a financial year for or in relation to the performance of work relating to a relevant contract ... shall be deemed to be wages paid or payable during that financial year, and (d) where an amount referred to in paragraph (c) is included in a larger amount paid or payable by an employer under a relevant contract during a financial year, that part of the larger amount which is not attributable to the performance of work relating to the relevant contract or the re-supply of goods by an employee under the relevant contract may be prescribed by the regulations,..." Payroll Tax Act 2007 Part 3 Wages Division 7 - Contractor provisions 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: .... (d) is supplied with: (i) services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them, 33 Persons taken to be employers (1) For the purposes of this Act, a person: (b) to whom during a financial year, under a relevant contract, the services of persons are supplied for or in relation to the performance of work, is taken to be an employer in respect of that financial year. 34 Persons taken to be employees For the purposes of this Act, a person who during a financial year: (a) performs work for or in relation to which services are supplied to another person under a relevant contract, is taken to be an employee in respect of that financial year. 35 Amounts under relevant contracts taken to be wages (1) For the purposes of this Act, amounts paid or payable by an employer 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. (2) If an amount referred to in subsection (1) is included in a larger amount paid or payable by an employer under a relevant contract during a financial year, that part of the larger amount which is not attributable to the performance of work relating to the relevant contract or the re-supply of goods by an employee under the relevant contract is as determined by the Chief Commissioner. Taxation Administration Act 1996 Section 9 Reassessment (1) The Chief Commissioner may make one or more reassessments of a tax liability of a taxpayer. (2) A reassessment of a tax liability is to be made in accordance with the legal interpretations and assessment practices generally applied by the Chief Commissioner in relation to matters of that kind at the time the tax liability arose except to the extent that any departure from those interpretations and practices is required by a change in the law (whether legislative or non-legislative) made after that time.

The Applicant's Case 11The Applicant carries on business at Kirrawee in New South Wales as a manufacturer and installer of shower screens and wardrobes. It utilises the services of contract sales agents and installers and usually engages such services by agreement with companies used or controlled by those agents and installers. 12Following a previous audit ("the earlier audit") the Chief Commissioner and the Applicant agreed that for the 2003 - 2005 payroll tax years, for the purpose of calculation of wages subject to payroll tax, payments for installers' services would be reduced by 40% and payments for sales persons' services would be reduced by 10%. The Assessments for the Relevant Period provided for a reduction of 25% for installers and no reduction for sales persons. 13The evidence submitted by the Applicant comprised two statements by Mr S.P. McDonald, director and shareholder of the Applicant, respectively dated 31 October 2012 ("SPM1") and 10 April 2014 ("SPM2"); a statement by each of Mr L.A. Phillips, Mr B Hayward, Mr N.L. Bayley and Mr W.J. Tucker (collectively called "the Workers")(who were each directors of companies which provided services for the Applicant during the Relevant Period ("the Contractors")) and 12 pages of documents obtained by the Applicant from the Office of State Revenue ("OSR"). Mr McDonald, Mr Phillips and Mr Haywood gave evidence before the Tribunal. For the reasons set out below Mr Bayley and Mr Tucker were not called for cross examination. 14The submissions for the Applicant were set out in the Objection, proposed amended grounds of objection ("AGO"), the Application for Review to the ADT, written submissions by Mr Lonergan received by the Tribunal on 27 May ("AS1") and 5 June 2014 ("AS2") and oral submissions by Mr Lonergan during the hearing. 15In summary the case for the Applicant, expressed in the alternative, was that: (1)The reduction allowed for payments for the services of sales agents should be 14.28% having regard to expenses incurred in providing their own motor vehicles and mobile phones. (Objection) (2)The Chief Commissioner had previously allowed a deduction of 10% for sales agents' services pursuant to a previous audit. The Chief Commissioner's determination to not allow any deduction for such services is wrong in fact and law.(AS1 at [1] and AGO at [1]) (3)The installers should be in the same category of contractors as kitchen fitters and a reduction of 30% is more appropriate than 25% (Objection). (4)The Chief Commissioner had previously allowed a deduction of 40% for installers' services pursuant to a previous audit. The Chief Commissioner's determination to allow a 25% deduction for such services is wrong in fact and law.(AS1 at [2] and AGO at [2]) (5)The contracts pursuant to which the services were supplied are exempt from the definition of relevant contracts pursuant to s32(1) and (2) of the 2007 Act or where applicable s3A(1A) of the 1971 Act and the Assessments must be revoked(AS1 at [4]) and no question of apportionment arises. (AS1 at [4] and [6] and AGO at [4]) (6)The contracts pursuant to which the services were supplied are contracts for the conveyance of goods and are not relevant contracts pursuant to s32(2)(d)(i) of the 2007 Act or where applicable s3A(1A)(a) of the 1971 Act. (AS1 at [5] and AGO at [5]) (7)The services supplied to the Applicant by sales commission agents and installers are ancillary to the conveyance of goods in accordance with s32(2)(d)(i) of the 2007 Act or where applicable s3A(1A)(a) of the 1971 Act. Accordingly the services were supplied in accordance with contracts which are not relevant contracts for the purposes of s32(1) of the 2007 Act. (AS1 at [7] and AGO at [6]). (8)If some of the services supplied to the Applicant by sales commission agents and installers are not ancillary to the conveyance of goods, then the non-labour component of payments to such entities was greater than that presently allowed by the respondent and the apportion provisions should be utilised so as to allow a greater amount than that already allowed by the respondent (AS1 at [8] and AGO at [8]). (9)In reporting, disclosing and discharging its payroll tax liability the Applicant has been assessed. The Assessments are reassessments. Accordingly s9 of the TA Act applies and the previous reductions of 40% and 10% should apply for the Relevant Period.(AS1 at [13] - [15], AS2, and AGO at [9]) (10)Each Assessment should be reassessed and the previously allowed reductions of 40% and 10% or some greater reduction than that allowed in the Assessments should be allowed. (AGO at [10] and [11]). 16Brief written submissions were made in relation to the remission of penalty tax. Oral submissions were made to the effect that the issue of penalty tax should be left until the Tribunal had determined the liability, if any, of the Applicant in relation to applicable payroll tax. The Respondent's Case 17The Respondent relied on documents filed pursuant to section 58 of the then ADT Act contained in a tabbed volume of 239 pages and an email sent on 30 May 2014 by Mr Twohill of the Crown Solicitors Office to Mr Gabriel of Gabriel Partners responding to Mr Gabriel's request of 30 May 2014 that a named officer of the OSR attend the hearing for cross examination. 18The Respondent's case is set out in written submissions dated 2 June 2014 received by the Tribunal during the hearing ("RS1"), further submissions dated 9 June 2014 received by the Tribunal on 13 June 2014 ("RS2") and oral submissions made by Mr Latham during the hearing. 19The Respondent's submissions were to the effect that: 1)The onus is on the Applicant to prove its case and it has not done so. 2)There is inadequate evidence to enable the Tribunal to determine that the relevant contracts are contracts for conveyance. 3)Neither self assessing by the Applicant nor its payment of payroll tax constitutes an assessment. Accordingly the Notices of 4)Assessment are assessments not reassessments. 5)The Applicant has provided no evidence as to the non labour component of contract payments for services or of expenses incurred by contractors in providing the services. 6)Submissions as to penalty tax and interest should be deferred until after the principal decision as to applicable payroll tax.

Issues 20The issues for the Tribunal to determine relate to the Contractor Provisions of the payroll tax legislation; the decision of the Respondent to disallow the objection of the Applicant to its assessed payroll tax liability in respect of the Relevant Period; and the imposition of penalties and interest in accordance with the Assessments.

Onus of proof 21In accordance with S100(3) of the TA Act "The applicant has the onus of proving the applicant's case in an application for review." 22The requisite standard of proof in reviews by the Tribunal is the "balance of probabilities". Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [31] and B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187, (2008) 74 NSWLR 481 at [104].

Conveyance of goods 23In accordance with s3A(1A) of the 2001 Act and s32(2)(d) of the 2007 Act a contract by which a person is supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them is exempted from being a relevant contract. 24The Applicant's submissions outlined at (5) to (7) in [15] above are to the effect that the contracts that gave rise to the amounts it paid to sales commission agents and installers during the Relevant Period are contracts for the conveyance of goods which are exempt from the definition of a "relevant contract" and the services supplied under those contracts were ancillary to the conveyance of goods. Accordingly the amounts paid for those services should not be included as wages subject to payroll tax payable by the Applicant. 25Counsel for both parties referred to the recent decision of the Court of Appeal in Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 470 ("Smith's case") in support of their clients. 26Smith's case concerned the sale of food and drink products from vending machines. Smith's engaged contractors to service the machines, distribute goods, collect cash and remove spoiled products. The contractors were required, by the terms of a Goods Distribution Agreement ("GDA") signed each year by the contractors, to supply their own vehicles. 27Smith's contended in the alternative that: 1)The services provided under the GDA comprised solely the conveyance of goods by means of a vehicle provided by the person conveying them. Accordingly the GDA was not a relevant contract and payments made under the GDA were not wages for the purpose of calculating Smith's payroll tax liability. 2)The services provided were ancillary to the conveyance of goods and accordingly the GDA was not a relevant contract; and 3)If the GDA was a relevant contract, a greater allowance than that determined by the Chief Commissioner for the part of the payment to the contractor that was not attributable to the performance of work relating to the GDA should be made in accordance with s3A(2) of the 1971 Act and s35(2) of the 2007 Act. 28The Chief Commissioner submitted that the GDA was a relevant contract and the exemption did not apply because not all services provided by the contractor were ancillary to the conveyance of goods by means of a vehicle. 29At first instance the primary judge found that the GDA was partly a relevant contract and partly not a relevant contract. Smith's appealed and the Chief Commissioner cross appealed. The principal judgment was given by Gleeson JA with whose reasons Beazley P agreed. Sackville AJA agreed with Gleeson's JA's reasons to the extent relevant to this matter. 30Gleeson JA observed: 76 "Both parties accepted that the operation of the exemption depended on a characterisation of the contract, in this case the GDA..." 79 "....The focus of the exemption is on the relevant contract. The question to be answered is whether the GDA is a contract under which Smith's is supplied with services ancillary to the conveyance of goods by means of a vehicle... It is the relationship between the services required to be provided to Smith's under the GDA and the conveyance of goods by means of a vehicle, which the terms of the statutory exemption are directed to..." 82 "... In undertaking what both parties agreed was an evaluative exercise in answering the question posed by the exemption, regard is to be had to the contractual arrangement under which the services are actually provided..." 91 "In my view, when the question asked by the exemption is posed in the correct form, it is clear from an examination of the terms of the relevant contract, as well as the evidence of the time actually spent in the performance of the services... which was the subject of the sampling evidence from contractors... that the GDA is a contract under which Smith's is supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the contractor. 92 "As a matter of characterisation of the GDA, the conclusion to be drawn is that the principal matter or subject of the GDA is the conveyance of goods... " 93 "Furthermore when regard is had to the evidence from the sample of contractors at the trial of the time actually spent in the performance of the services supplied... it is apparent that the services supplied to Smith's very substantially comprised the conveyance of goods by means of a vehicle provided by the person conveying them and services ancillary to the conveyance of goods." 31The Applicant submitted at [9] in AS1 "The evidence to be relied upon at the hearing, and particularly that of the sales commission agents and installers, establishes... that the contractual relationship that existed at all relevant times between those entities was one of the conveyance of goods." 32In response the Respondent submitted at [4] and [5] in RS1 that, while the Chief Commissioner conceded there is a contract under which services are supplied to the Applicant in the course of a business being carried on by the Applicant, the question is whether the services provided are ancillary to the conveyance of goods. The Respondent referred to the judgment of Gleeson JA at [91] in Smith's case in which the court had regard to both the contract itself and to the time spent conveying as a proportion of the time spent performing the contract. The Respondent then submitted that on both grounds, the Applicant does not satisfy the onus under the TA Act and the Applicant "has failed to provide any real detail as to the terms of the contract..(nor)..how much time was spent in the performance of services".(RS1 at [7] - [10]). 33Mr McDonald's evidence was that throughout the Relevant Period he was the director of the Applicant responsible for engaging sales agents and installers. Written statements were in evidence from one sales agent and 3 installers ("the Workers"). Mr McDonald informed the Tribunal as to why other sales agents and installers were not asked to provide evidence. 34The uncontested evidence from Mr McDonald and each of the Workers is that an unwritten agreement was entered into between Mr McDonald on behalf of the Applicant and each relevant Worker on behalf of the company of which he was a director (collectively called "the Contractors") that the relevant Contractor would supply installation services or sales services as appropriate. Each Worker was required to provide services through a company structure. 35The Applicant submitted, and the Respondent did not object to the statements by the Workers being accepted by the Tribunal as evidence of a representative sample of services provided by contractors to the Applicant during the Relevant Period. I accept the evidence of the Workers as an appropriate representative sample for this purpose. 36The evidence outlines in some detail the work carried out by both the sales agents and installers and the locations at which the work was carried out. Some work concerning the installers, relates to conveying products to be installed from the premises of the Applicant to the locations at which installation is to take place. This work included "the process of loading, unloading, conveying and delivering goods" which was regarded by Sackville AJA at [242] in Smith's case "as part of the conveyance of goods by means of a vehicle". 37At [141] in Smith's case, in considering whether other services were ancillary to the conveyance of goods Gleeson JA said "The relevant question is the nature of the relationship between the services supplied and the conveyance of goods." 38Evidence as to the work carried out by sales agents is provided at [13] in SPM2 and at [2], [4] and [6] to [10] in Mr Tucker's statement. 39Mr Tucker's evidence as to the work he carried out on a typical day during the period 2000 to 2014 included: 1)attending the Applicant's premises to receive a list of telephone and email enquiries advising of the relevant addresses and contact details; 2)arranging a time to attend the addresses; 3)driving to those addresses; 4)ascertaining the nature of the work to be done, inspecting, taking measurements and designing the wardrobe or shower screen as appropriate; 5)Preparing a quote, utilising costs schedules provided by the Applicant, and writing it up in a "quote book" provided by the Applicant; 6)Handing the quote to the person at the address. 40If the quote could not be finalised at the job site Mr Tucker would prepare the quote at his home office and forward it to the client by email from the Applicant's premises, usually the day after his attendance on site. He would deliver a copy of all quotes to the sales section of the Applicant daily. 41If the client accepted the quote while Mr Tucker was at the job site he would take a deposit and later that day or the following day deliver the accepted quote and deposit to the Applicant's sales office. 42If the quote was not accepted while Mr Tucker was at the job site, he would follow it up and if the quote was later accepted he would arrange for a deposit to be obtained by credit card and would deliver this information to the Applicant's sale office on his next visit. He travelled in a vehicle owned by his company. 43The parties agreed that Mr Tucker would not be called for cross examination on the basis that the substance of the work he physically carried out was sales work for the Applicant on behalf of his company. 44I accept that the contract between Mr Tucker's company and the Applicant to which his evidence relates is representative of contracts between the Applicant and sales agents throughout the Relevant Period. 45Evidence as to the work carried out by Mr Phillips, Mr Hayward and Mr Bayley is detailed in the statements by them and confirmed by Mr McDonald at [14] and [15] in SPM2 . The evidence of each of these Workers included what they said was a typical day's work for the Applicant during the Relevant Period. The work was described in some detail and the statements were substantially similar. In summary the work for a typical day during the Relevant Period included: 1)Attending the Applicant's premises. 2)Unloading rubbish from the previous day's work. 3)Completing documentation of the previous day's work and having same confirmed by a manager. 4)Receiving details of the current day's work. 5) Loading the wardrobe components (and in the case of Mr Phillips and Mr Bayley, shower screen components), consumables and tools necessary for the relevant installation. 6) Contacting clients as appropriate to advise of the estimated time of arrival. 7) Conveying the components, consumables and tools from the Applicant's premises to the installation site and unloading as required. 8) Removing items being replaced and cleaning site as necessary. 9) Confirming measurements, installing relevant products and cleaning up the site. 10) Obtaining payment. 11) Travelling to the next installation site and repeating the process. 46I accept that this evidence is representative of installation services provided pursuant to contracts between the Applicant and companies providing installation services throughout the Relevant Period. 47Each of Mr Phillips and Mr Hayward gave oral evidence to the Tribunal. Each described their work as the installation of wardrobes for the Applicant (in accordance with agreements reached with the Applicant by their respective companies). 48The parties agreed that Mr Bayley would not be called on the basis that the primary work he carried out was installing fixtures and cupboards. 49Contrary to the submissions referred to at [31] I observe that no evidence was presented as to the amount of time spent by Mr Tucker on any particular component of the tasks he undertook in carrying out work for the Applicant nor evidence regarding any material conveyance of goods or work ancillary to the conveyance of goods. 50I am not satisfied on the evidence presented that the contracts between the Applicant and sales agents in respect of the Relevant Period are contracts for the conveyance of goods. I find that these contracts are contracts for the provision by the Contractor of sales services. 51I observe that there is evidence that installers conveyed goods in the course of providing their services and performed work ancillary to the conveyance of goods. However contrary to the submissions referred to at [31] I am not satisfied on the evidence presented that the contracts with the installers' companies are contracts for the conveyance of goods. I find that these contracts are contracts for the provision by each Contractor of installation services of shower screens and/or wardrobes for clients of the Applicant. I find that work involving the conveyance of goods and work ancillary to the conveyance of goods was ancillary to the provision of installation services. 52Accordingly I find that the contracts between the Applicant and contractors relevant to the services of sales agents and installers were not exempted from being relevant contracts by s3A(1A)(1) of the 1971 Act or s32(2)(d)(i) of the 2007 Act.

Apportion non-labour component of payment for services payable under a relevant contract 53Section 3A(2)(c) and (d) of the 1971 Act and s35(1) and (2) of the 2007 Act provide that amounts paid by the Applicant under a relevant contract which are taken to be wages for the calculation of payroll tax do not include amounts paid under the contract which "are not attributable to the performance of work relating to that contract". The non attributable amounts are to be determined by the Chief Commissioner (the 2007 Act) or may be prescribed by the regulations (the 1971 Act). 54There were no relevant amounts prescribed by regulations under the 1971 Act. Following the earlier audit the Chief Commissioner allowed deductions from wages for the 2003 - 2005 years of 40% of amounts paid for installers' services and 10% of amounts paid for sales services. For the Relevant Period the Chief Commissioner allowed 25% for installers' services and made no allowance from amounts paid for sales services. 55The Applicant's relevant written submissions on this issue are outlined at [15] (1) - (4), (8) and (10). The Respondent submitted that the Applicant provided no evidence as to the non labour component of contract payments for services nor of expenses incurred by contractors in providing the services. 56The remuneration for installation services was, according to Mr McDonald at [11] in SPM2, to be in the form of earnings and according to each of the three installers to be a rate applicable to all contractors and was "based upon a wardrobe type at a lineal rate" (Mr Phillips at [3], Mr Bayley at [2] and Mr Hayward at [3].) The Contractors were required to trade through a company, supply their own tools, a vehicle of a certain description and be responsible for the running and maintenance costs of the vehicle as well as workers compensation insurance, public liability insurance and a mobile phone. Duties of the installers were agreed orally and details are set out above. 57The remuneration for sales agents was, according to Mr McDonald at [11] in SPM2, to be in the form of commission. Mr Tucker said at [4] in his statement that the rate varied depending on the discount allowed in order to secure each job. The sales agents were required to supply their own vehicle, mobile phone, workers compensation and public liability insurance. Duties of the sales agents were agreed orally and details are set out above. 58Remuneration rates for both sales agents and installers were usually reviewed annually. 59No doubt costs were incurred by the Contractors in supplying and maintaining vehicles, mobile phones, effecting required insurance, supplying and maintaining tools as appropriate and in relation to other business expenses. However no evidence was placed before the Tribunal as to these costs or expenses nor was any evidence provided of any calculation made by the Applicant so as to determine what amount of the money paid to the Contractors for the services received by the Applicant would be properly attributable to the non-labour component of those services. 60Annexed to SPM1 was a copy of the OSR Revenue Ruling PTA 018 named "Contractor Deductions". The purpose of this Ruling is said to be to set out deductions for materials and equipment for certain types of contractors and to outline the manner in which new deductions may be granted in respect of payments made under a relevant contract, which deductions are not to be included in the wages which are subject to payroll tax with effect from 1 July 2007. None of the categories of contractors refer to sales persons or installers of shower screens or wardrobes. The deduction allowed for "cabinetmakers/kitchen fitters" is 30% and the deduction allowed for "carpenters" is 25%. 61The Ruling states "If a profession/trade is not listed above, a principal may apply to the Chief Commissioner for a determination with details regarding the cost of materials and equipment provided by the contractor" and continues in bold print "Please note that rulings do not have the force of law. Each decision made by the Office of State Revenue is made on the merits of each individual case having regard to any relevant ruling." 62There is no evidence before the Tribunal that the Applicant has applied for a relevant ruling. The Applicant's grounds for its Objection include the statement that the earlier audit was completed on a "compromised basis" and, that audit "was finalised with a mutual agreement that installers payments were to be reduced by 40% to allow for costs and salesperson payments were to be reduced by 10%.In the absence of any instruction from OSR, our clients have completed all recent payroll tax returns on this basis. In regard to the current audit, we are not aware of any request by OSR for records relating to deductions from these classes of payments..." 63The section 58 documents include at pages 217 and 218, as part of an OSR document headed "Audit Report Compliance - Audit Branch" dated 4 April 2012 the following: "In 2006 year an audit investigation completed for the 2003, 2004 and 2005 years by way of compromised assessment. The condition to the compromise, is specific in that if the percentage deductions were to continue the client would need to maintain specific records which would support the deduction in wages to "sales and installer personnel".... "Client stated they include 90% of total commission paid as payroll tax liable wages as per previous field audit completed in the 2006 year by OSR. Previous audit was completed by way of "compromise" and client was explained that the allowed percentage deduction at that stage was by the way of "risk management approach" and the percentage will need to be reviewed in future audits. The client was to provide supporting documentation in support of the deductions applicable to "commissions". ... The client could not provide any additional information in support of the deduction. Accordingly the client was notified that in the absence of supporting documentation no deduction was permitted in respect of the sales people. This approach is consistent with all other "wardrobe & showers screens" businesses." 64The OSR report contains a similar statement in relation to the Applicant declaring 60% of total contract payments as payroll tax liable wages for installers in accordance with the earlier audit. The report states that at the time of the earlier audit the client was asked to keep certain records to demonstrate the percentage deduction and the client failed to keep those records. The deduction allowed for the installers is 25% which is consistent with the deduction allowed to carpenters as outlined in PTA018. "Again this approach was adopted in the absence of the client maintaining proper documentation to substantiate the claim for any higher deduction." 65The s58 documents contain at pages 1-9 an undated record by a Senior Compliance Officer of the OSR of an interview conducted during the course of an audit on 2 November 2005 with the then Administration Manager of the Applicant and with Mr Howard Hadley a director of the Applicant. The record includes the following: At [7] in relation to installers "They were paid at predetermined rates set by (the Applicant) depending on the complexity of installation. It was explained to the interviewees that the invoices supplied by the contractors did not demonstrate that 40% was deductible.... I explained to them that...this percentage will need to be reviewed from here on in for near future audits. I added that I was prepared to allow this percentage at this stage (risk management approach was adopted rather than quibble over an extra few percentages) but the contractors would need to change their billing/invoicing to clearly highlight the labour costs from materials." At [8] in relation to sales agents "The sales agents were paid commissions at predetermined percentages set by (the Applicant) depending on the costs of each job. 66At pages 10-12 of the section 58 documents is a copy of a letter dated 19 December 2005 from the OSR to Mr Dennis Furey, PKF Chartered Accountants & Business Advisors. The letter is a response to a submission in relation to the payroll tax liability of the Applicant. The 2nd and 3rd pages of the letter include the following: "... (the Applicant's) "installers" do not meet any specific percentage deductions available under either revenue rulings or fact sheets. The closest industry available deduction would be under "kitchen fitter" - that allows a 30% deduction. If an employer considers that a greater percentage deduction for a trade not listed is warranted, then a separate submission should be lodged to the Commissioner of Pay-roll tax by that employer substantiating the reasons behind the request. The merits of requests will be considered on a case-by-case basis." 67Mr McDonald said at [4] and [5] in SPM1 that Mr Furey was the partner responsible for the Applicant from its incorporation until 30 June 2004 (at Gabriel & Partners) and thereafter at PKF Chartered Accountants until October 2006 when Gabriel & Partners were re-engaged. Mr McDonald and Mr Furey were responsible for dealing with the OSR in the course of the earlier audit. Mr Hadley has, since incorporation of the Applicant been a director and 50% shareholder. 68No evidence has been presented to the Tribunal in support of the Applicant's submissions that a deduction of more than 25% should be allowed from the total amounts paid in respect of installers nor that any deduction should be allowed in respect of the total amounts paid in respect of sales agents for the purpose of calculation of the payroll tax liability of the Applicant. No evidence has been presented to substantiate the Applicant's submission that the installers should be in the same category of contractors as kitchen fitters. The fact that the Chief Commissioner allowed 40% at an earlier audit in respect of installers and 10% in respect of sales agents is not evidence that those percentages should be allowed in respect of the Relevant Period. The submission that the non-labour component of payments is greater than that presently allowed by the Chief Commissioner is not supported by any evidence. 69In order to succeed the Applicant is required to establish the facts on which it relies to prove its case. This requires the Applicant to provide evidence in support of its submissions. I am not satisfied on the evidence before me that the 25% deduction allowed in respect of installers should be increased nor am I satisfied that any allowance should be made in respect of sales agents.

Reassessment 70The Applicant submitted that the Assessments are reassessments of previous assessments and in accordance with s9 of the TA Act the previous reductions of 40% and 10% must apply. (Submission (9) at [15] above) 71Counsel for both parties submitted that "reassessment" is not defined in the TA Act and that the word "reassess" simply means "assess again". I accept this interpretation and refer to the decision of Barrett J in Ispt Nominees Pty Ltd v Chief Commissioner of State Revenue [2003] NSWSC 697 ("Ispt Nominees") at [137]. 72At the 2nd paragraph of AS2 Mr Lonergan referred to page 189 of the section 58 documents which contain what he says is a view by "the auditor and decision maker" of the OSR to the effect that the Assessments were "reassessments". 73In response, Mr Latham for the Chief Commissioner submitted that the use by the OSR officer of the expression "reassessments" is of little moment. There is no evidence that the officer was using that expression in the sense set out in the legislation. To the extent that this is an argument based upon estoppel, it is without substance. 74In AS2 the Applicant also submits that the view of the officer that the Assessments are reassessments is evidence which "is unchallenged and must be accepted without qualification." 75I observe that despite a request by the Applicant, the Chief Commissioner declined an invitation for the relevant officer to be called as a witness at the hearing. I also note that the Applicant was given the opportunity to summons the officer to appear as a witness and the opportunity to request that the officer be regarded as a hostile witness and thus subject to cross examination by Mr Lonergan. The Applicant declined to request that a summons be issued to require the attendance of the officer as a witness. 76It is appropriate to consider the statement by the OSR officer in context. The statement appears in an email from OSR to Gabriel & Partners on 9 February 2012 in response to Gabriel & Partners' request for further detail in relation to the outcome of the OSR review of the Applicant's tax liability for the Relevant Period. 77After a sentence which states "Please find below estimated calculation of your liability (these figures are estimated liabilities and the actual assessment figures may differ slightly)" appears a table of calculations. After the calculations the following paragraphs appear: "I will be issuing the re-assessments by 16 February 2012. This will provide you with 21 days to make full payment without incurring additional interest. If you require more information, please contact me prior to the due date of the assessment. If you have any questions or require further clarification please do not hesitate to contact me." 78I observe that in two successive paragraphs the Assessments are referred to as "the actual assessment figures", "the re-assessments" and "the assessment". 79Mr Lonergan provided no authority in support of his submission. To the extent that the Applicant is submitting that the Chief Commissioner is estopped I agree with Mr Latham's submissions in RS2 at [3] that the Applicant's argument is without substance. Mr Latham relied upon the decision of Barrett J in Ispt Nominees. At [70] His Honour referred to a long line of authority in holding that "no conduct of a revenue authority can estop the operation of the taxing statute." 80I find that the term "re-assessments" was not used in the sense in which it appears in section 9 of the TA Act. If I am wrong I find that the Chief Commissioner is not estopped by the conduct of the OSR officer from assessing the payroll tax liability of the Applicant in accordance with the law. 81Mr Lonergan also submitted at AS2 "Further, the Applicant had lodged and paid payroll tax - that is to say, was assessed (Mr Lonergan's underlining) for payroll tax for the financial years 2007 to 2010 inclusive on an annual basis ... being the same years the subject of the audit." 82Mr Latham relied on a recent decision of White J in Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127. In Freelance Global a taxpayer had lodged payroll tax returns for the years ended 30 June 2003 to 30 June 2007 inclusive, paid tax in accordance with its returns and the Chief Commissioner had accepted the money paid to him. The taxpayer in Freelance Global submitted that, by accepting the returns and the money paid, the Chief Commissioner had necessarily assessed that tax was payable. 83His Honour considered at [35] - [40] the legislative basis of the liability to pay payroll tax found in ss6 - 8 of the 2007 Act and held at [41] "An assessment by the Chief Commissioner is not necessary to give effect to the liability that arises by operation of those provisions". 84His Honour referred to s17 of the TA Act which provides: "17 Acceptance of money or return not necessarily an assessment The acceptance of money by the Chief Commissioner paid in connection with the lodging of a return or other document, or the acceptance of a return or other document, is not, only because of the acceptance, an assessment." 85At [45] His Honour held: "By reason of s 17 of the Taxation Administration Act it cannot be said that the Chief Commissioner is taken to have made an assessment by accepting the returns lodged and the payments made by Freelance." 86At [46] His Honour concluded: "When the question of Freelance's liability to pay payroll tax for that period was raised by KPMG by its letter of 17 October 2007, the Chief Commissioner was not required to reassess Freelance as liable for payroll tax for that period. Instead, he was required to consider whether Freelance's own assessment of its liability for payroll tax for that period was correct or incorrect. In deciding that Freelance's own assessment of its payroll tax liability was correct, or not incorrect, the Chief Commissioner was not making a "reassessment" for the purposes of s 9 of the Taxation Administration Act. The question whether the Chief Commissioner's decision was in accordance with legal interpretations and assessment practices generally applied by him in relation to matters of that kind did not arise." 87I am not satisfied that the reporting, disclosing and discharging by the Applicant of its self assessed payroll tax liability for the Relevant Period causes the Assessments to be reassessments for the purposes of s9 of TA Act.

Decision 88Having regard to the above findings on the material before me, the Applicant has not satisfied me that it is more likely than not that the decisions of the Chief Commissioner under review in relation to the assessment of payroll tax are incorrect. 89The correct and preferable decision of this Tribunal is that the decisions of the Chief Commissioner under review in relation to the assessment of payroll tax are affirmed.

Orders 90I direct that: 1)The Applicant file and serve any submissions on which it proposes to rely in relation to the imposition of interest and penalties in the Assessments within 21 days after the publication of this decision. 2)The Respondent file and serve any submissions in reply within 14 days after the expiration of the said 21 days. 3)The Applicant file and serve any submissions in reply within 7 days after the expiration of the said 14 days.

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: 14 July 2014