CSR Ltd v The Chief Commissioner of State Revenue [2006] NSWSC 1380 | Case summary

4902/05 CSR LTD v THE CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT Introduction 1 The CSR Australian Superannuation Fund was conducted for the benefit of present and past employees of the plaintiff, CSR Ltd. The fund had a number of divisions including Division One - Defined Benefit Division. As at 30 June 1996 there was no deficiency in that Division. Nor was there a deficiency in any subsequent year. 2 On the advice of an actuary, CSR was requested and agreed to make top-up contributions to Division One to maintain the value of the assets at a 120% of total liabilities as a prudential measure. 3 A superannuation benefit is included in wages if not in respect of services rendered by an employee before 1 July 1996. Wages paid in New South Wales or paid elsewhere for services rendered in New South Wales are liable to pay-roll tax. CSR submitted that the top-up contributions were not superannuation benefits and, if they were, most of them were in respect of services rendered before 1 July 1996. 4 In each of the years ended 30 June 2002, 2003 and 2004 the defendant, the Chief Commissioner of State Revenue, assessed CSR to pay-roll tax on so much of the top-up contributions as CSR calculated to be attributable to New South Wales. There is no argument as to the calculation of those amounts. Superannuation benefits 5 The Pay-roll Tax Act 1971, s 3AA(6A) provided that wages included a superannuation benefit, other than one paid or payable in respect of services rendered by an employee before 1 July 1996. Wages liable to pay-roll tax were defined in s 6(1) in terms of wages payable in New South Wales or wages payable for services rendered wholly or partly in New South Wales. The definition of a superannuation benefit in s 3(1) was in the following terms: "In this Act, except in so far as the context or subject-matter otherwise indicates or requires: superannuation benefit means money paid or payable by an employer in respect of an employee: (a) to or as a superannuation fund within the meaning of the S uperannuation Industry (Supervision) Act 1993 of the Commonwealth, or (b) as a superannuation guarantee charge within the meaning of the Superannuation Guarantee (Administration) Act 1992 of the Commonwealth, or (c) to or as any other form of superannuation, provident or retirement fund or scheme, including a wholly or partly unfunded fund or scheme." 6 It was not in dispute that Division One fell within par (a) of the definition. Nor was it in issue that the moneys were paid by an employer. CSR submitted that the words "in respect of an employee" required the identification of an employee who had provided services in New South Wales to CSR, in respect of whom CSR made a payment to Division One. 7 The CSR Australian Superannuation Fund had a number of Divisions because of the amalgamation of earlier superannuation funds. In addition to Division One there was Division Two - Accumulation Division, Division Three - Employees' Retirement Division and Division Four - Allocated Pension Division. 8 Division One was closed in April 1990. No new members have been admitted since that date. There are now only 24 active members in the sense of being current employees of CSR. The figure has dropped from 35 at 30 June 2002. It is estimated that in 15 years' time Division One will be entirely closed and it will be possible to determine with certainty the extent to which the top-up contributions were necessary to meet obligations to members. Some part of the top-up contributions may prove to be necessary because of poor returns on investment. On the other hand, it is more likely that none of the top-up contributions will be necessary to make good the trustee's obligations to members. The actuaries who gave evidence agreed that since Division One was at all times in surplus before CSR made its top-up contributions, those contributions might never be needed to discharge the trustee's liabilities, because the fund at a 100% on actuarial calculation, fully funded all reasonable expectations. 9 The trust deed was amended on a number of occasions in the period from 30 June 2002 to 30 June 2004. Key provisions, however, remained constant. The assets of the Fund were held by the trustee upon trust to be applied in accordance with provisions of the deed pursuant to cl 4.2. Clause 6.3 provided that no person should have any claim, right, or interest to or in respect of the fund, or any contributions thereto, or any interest therein, or any claim upon or against the trustee or an employer, except under and in accordance with the provisions of the deed. Members had to elect between a pension and a lump sum. The pension was calculated as a percentage of the final three years' average salary, the percentage increasing with the number of years of service. Likewise, the lump sum was calculated as a multiple of the final three years' average salary, the multiple increasing with the number of years of service. Upon termination of the Fund, cl 13, and later cl 13A, provided that any surplus should be applied by the trustee in any manner reasonably consistent with any of the objects of the Fund. Clause 7.4 provided that if the trustee should determinate at any time, on the advice of the actuary, that the value of the assets of the Fund exceeded 120% of the amount required to meet actuarial liabilities, the trustee might agree with CSR to apply all or part of the excess to CSR, to augment benefits payable to members, or as they might otherwise agree. 10 Clause 13 and cl 13A of the deed vary the usual situation in which an ultimate surplus in a superannuation fund is prima facie held on a resulting trust for those who contributed to it (Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 at 1411, Wrightson Ltd v Fletcher Challenge Nominees Ltd [2002] 2 NZLR 1 at [23]). 11 None of the members of the Fund had any beneficial ownership of any of the underlying investments including, in particular, the top-up contributions (CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 79 ALJR 1724 at [25], Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 80 ALJR 519 at [75]). 12 Until the happening of a prescribed event that crystallises a member's right into an actual entitlement, a member of a superannuation fund is neither the legal nor the beneficial owner of any amount that stands to the credit of the member's account from time to time (Re Coram; Ex parte Official Trustee in Bankruptcy v Inglis (1992) 36 FCR 250 at 253, Wrightson at [28]). 13 The 120% of estimated liabilities was an actuarial calculation. Actuarial surpluses or deficits are the product of assumptions underlying previous actuarial predictions being falsified. They might disappear in the future for the same reason. A prudential margin is desirable because the actuarial calculation of the amount of assets required to meet projected liabilities, described as the "central estimate" has a 50% probability of being too low, and a 50% probability of being too high (Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd (1999) 87 FCR 536 at [23] - [25]). 14 For the purpose of the definition of superannuation benefit, the question whether the top-up contributions were paid by CSR in respect of an employee is to be determined at the time the contributions became payable. 15 CSR submitted that there was no answer to the question: "What amount of a top-up contribution payable by CSR was in respect of any New South Wales employee?" It was submitted that it was not open to treat the definition as requiring an amount payable in respect of the class of employees who were members of Division One because other provisions in the legislation confirmed a construction that required connection with individual employees. CSR pointed to the Pay-roll Tax Act 1971, s 3AA(6A) to which reference has already been made. The exclusion requires identification of services rendered by an employee before 1 July 1996. Section 3AA(1) speaks in terms of wages paid or payable to an employee as such. Section 6(1) speaks in terms of wages paid or payable for services rendered during a month or part of a month. It was submitted that those words lack meaning unless construed as operating by reference to the particular services supplied by a particular employee. Clause 5 in Sch 6 is in the following terms: "Regulations under clause 1 may make provision for or with respect to: (a) determining whether, and the extent to which, any money paid or payable by an employer to a superannuation, provident or retirement fund or scheme that is not identified by the employer as paid or payable in respect of a particular employee (and whether or not purporting to be so paid or payable on any actuarial basis) is to be regarded for the purposes of this Act as money paid or payable in respect of a particular employee, and (b) determining what portion of an amount paid on or after 1 July 1996 by an employer to a fund or scheme that is wholly or partly unfunded, being an amount paid in respect of an employee (or that is taken, by virtue of regulations made for the purposes of paragraph (a), to have been so paid) who rendered services to the employer on or after, as well as before, 1 July 1996 is to be regarded, for the purposes of this Act, as having been paid in respect of services rendered by the employee before that date." 16 CSR submitted that it did not matter that no regulations had been made. The power to do so recognised that it was necessary to identify a particular employee in order for a payment to a superannuation fund to be liable to pay-roll tax and confirmed that it was difficult to allocate such payments to particular employees. 17 CSR submitted that the construction for which it contended was consistent with a body of authority on fringe benefits tax legislation requiring the identification of a particular employee in respect of whom the benefit was provided. The term "fringe benefit" is defined in the Fringe Benefits Tax Assessment Act 1986 (Cth), s 136(1) in relation to an employee, in relation to the employer of the employee, as a benefit provided to the employee or an associate of the employee in respect of the employment of the employee. Historical analysis 18 When the Pay-roll Tax Act 1971 was introduced, superannuation benefits were not included in the definition of wages in s 3. 19 The State Revenue Legislation (Further Amendment) Act 1992 introduced s 3AA(4) which included contributions to a non-eligible superannuation fund in wages. It was in the following terms: "Contributions to a superannuation fund or retirement benefit scheme are to be treated as wages for the purposes of this Act unless they are contributions made to an eligible superannuation fund (within the meaning of section 267 of the Income Tax Assessment Act 1936 of the Commonwealth) in respect of a member of the fund by an employer of the member or by any other person other than the member." 20 Superannuation benefits were thus excluded from wages, and exempt from pay-roll tax, if the fund was an eligible one. The explanatory note that accompanied the introduction of that amendment Act noted that the above amendment extended the ambit of the subsection so that superannuation payments would be treated as wages for the purposes of the Act only if they were not contributions to an eligible superannuation fund. 21 The State Revenue Legislation Further Amendment Act 1996 removed s 3AA(4) and introduced s 3AA(6A). It provided that wages included a superannuation benefit. That term was defined in s 3(1) to include all employer contributions to a superannuation fund and not simply those to a non-eligible superannuation fund. The definition was as follows: " superannuation benefit means: (a) a payment of money by an employer for the benefit of an employee to, or the setting apart of money by an employer for the benefit of an employee as, a superannuation fund within the meaning of the S uperannuation Industry (Supervision) Act 1993 of the Commonwealth, or (b) a payment by an employer of a superannuation guarantee charge within the meaning of the Superannuation Guarantee (Administration) Act 1992 of the Commonwealth, or (c) a payment of money by an employer for the benefit of an employee to, or the setting apart of money by an employer for the benefit of an employee as, any other form of superannuation, provident or retirement fund or scheme, or (d) in respect of an unfunded or partly unfunded superannuation, provident or retirement fund or scheme (being a fund or scheme under which the employer is not required to, or does not, pay or set aside money in respect of a superannuation, provident or retirement fund or scheme during the period of the employee's employment), a payment of money that: (i) is paid or payable by an employer as, or as a contribution to, a pension, lump sum or other benefit paid or payable as a result of the retirement of an employee (or the cessation of the employment of an employee for any other reason) to the employee (or ex-employee) or a dependent of the employee (or ex-employee) in respect of services rendered by the employee after 30 June 1996, and (ii) is not liable to pay-roll tax by virtue of paragraph (a), (b) or (c)." 22 The explanatory note that accompanied the introduction of the amendment Act stated that the object of the Act, so far as it related to pay-roll tax, was: "To treat employer superannuation contributions as wages for the purpose of assessing pay-roll tax but to reduce the rate of pay-roll tax in two stages." 23 The legislative provisions as they stood in the relevant years were introduced by the State Revenue Legislation (Miscellaneous Amendments) Act 1996. The explanatory note that accompanied the introduction of that Act said of the amendment to the definition of a superannuation benefit that it was: "… to simplify the definition of superannuation benefit , at the same time making it clear that no such benefit constitutes wages within the meaning of the Act unless it is paid or payable in respect of services rendered by an employee on or before 30 June 1996." 24 The second reading speech to the amendment Act included the following: "Superannuation benefits become liable for pay-roll tax from 1 July 1996, but only in respect of services provided on or after that date. The amendments include transitional provisions which specify record-keeping requirements in relation to exempt superannuation benefits, and the method of calculating the exempt and liable components of a superannuation benefit provided under an unfunded scheme. A regulation-making power has also been included to allow rules to be prescribed for the calculation of the exempt and liable components of a superannuation benefit which cannot be attributed to a particular employee. This is necessary because of the number of differing superannuation arrangements entered into by employers." 25 The reference to the transitional provisions was to the Pay-roll Tax Act 1971, Sch 6, cl 5, which is quoted above, and to Sch 6, cl 4 which was in the following terms: "(1) Money paid by an employer, after 30 June 1996, in respect of a defined benefit superannuation scheme or an unfunded scheme, that is alleged by the employer to be paid in order to make up a deficiency in the scheme, as at 30 June 1996, relating to a benefit payable in respect of services rendered by an employee or employees on or before that date, must be evidenced to the satisfaction of the Chief Commissioner in the employer's records for pay-roll tax purposes. (2) In particular, the employer's records must show the manner of calculation of the deficiency and any actuarial basis for it. (3) For the purposes of subclause (2) and of any assessment under section 18 to which that subclause is material, the certificate of a fellow or accredited member of the Institute of Actuaries of Australia to the effect that the actuarial basis on which an amount is calculated as a deficiency is justified is prima facie evidence of that fact. (4) Without limiting the generality of any of the provisions of section 18, the Chief Commissioner, on an assessment under that section, is entitled to assume that an appropriation of money after 30 June 1996 as a superannuation benefit is an amount paid or payable in respect of the services of an employee or employees after that date, if records are not kept as this clause requires." Proper construction 26 The Act must be construed as a whole and context in its widest sense is to be considered in the first instance and not merely at some later stage when ambiguity might be thought to arise (CIC Insurance Ltd v Bankstown Football Club Ltd (1995-1997) 187 CLR 384 at 408). 27 The purpose of the provisions of the State Revenue Legislation Further Amendment Act 1996, with respect to the Pay-roll Tax Act 1971, was to include all superannuation benefits in wages and not just those that could be identified with a particular employee. The purpose of the amendment to the definition of a superannuation benefit in the State Revenue Legislation (Miscellaneous Amendments) Act 1996 was to simplify the definition. It was not, in my view, to introduce a restriction that would exclude superannuation benefits from pay-roll tax unless they could be identified with a particular employee. In my view the change in verbiage from "a payment of money by an employer for the benefit of an employee …" to "money paid or payable by an employer in respect of an employee …" was not intended to affect a change in meaning. In particular, there was, in my view, no legislative intent to exclude top-up contributions by employers to defined benefit funds. 28 The regulation making power in the Pay-roll Tax Act 1971, Sch 6, cl 5 recognises that in some superannuation funds there may be a difficulty in identifying for whose benefit a superannuation benefit is paid. It provides a potential mechanism for determining that question. It does not exclude from a superannuation benefit one that cannot be ascribed to a particular employee. It presupposes that there can be a non-ascribed benefit. If a non-ascribed benefit does not fall within the definition, as CSR submits, there is no purpose in cl 5. And cl 4 recognises that there can be a superannuation benefit for two or more employees. 29 The construction for which CSR contends places undue weight on the words "in respect of" and gives no weight to the historical context. 30 The words "in respect of" take their meaning from their context (Federal Commissioner of Taxation v Scully (2000) 201 CLR 148 at [39]). In its ordinary meaning the phrase is broad requiring some connection between two matters although the connection need not be close or direct. In Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110 at 110 Mann CJ said: "The words "in respect of" are difficult of definition, but they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject-matters to which the words refer." 31 In Workers' Compensation Board of Queensland v Technical Products Pty Ltd (1988) 165 CLR 642 at 653-654, Deane, Dawson and Toohey JJ thought this statement went too far but they acknowledged that the phrase is of wide import: "Undoubtedly the words "in respect of" have a wide meaning, although it is going somewhat too far to say, as did Mann CJ in Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110 at 111, that "they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject-matters to which the words refer". The phrase gathers meaning from the context in which it appears and it is that context which will determine the matters to which it extends."

32 The Interpretation Act 1987, s 33 provides that in the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act, whether or not that purpose or object is expressly stated in the Act, is to be preferred to a construction that would not promote that purpose or object. 33 Section 8(b) of the Interpretation Act 1987 provides that in any Act a reference to a word or expression in the singular form includes a reference to the word or expression in the plural form. 34 The Interpretation Act 1987, s 5(2) provides that the Act applies to an Act except in as so far as the contrary intention appears in that Act or in an Act. 35 Since members of the Fund may enjoy additional benefit from any surplus on winding up under cl 13 and cl 13A of the various trust deeds, it can be said, I think, that the CSR top-up contributions were paid in respect of employees. An application of a surplus in any manner reasonably consistent with any of the objects of the Fund for the purposes of cl 13 and cl 13A must, I would have thought, include additional benefits to employee members. Prima facie, therefore, and consistently with the legislative purpose to which I have referred, the singular should include the plural in the current definition of a superannuation benefit. 36 Just as CSR points to a number of provisions in the Pay-roll Tax Act 1971 that suggest a confinement of consideration to a singular employee, so the Chief Commissioner points to other provisions that suggest the consideration applies to a pluralism. The definition of the term "award" in s 3(1) includes any agreement with respect to salaries or wages entered into under any other law of the State between an employer constituted by that law and an association or organisation representing a group or class of employees. Section 3AG includes redundancy and long service contributions as wages. "Portable long service leave fund" is defined in s 3AG(6) to mean a fund established to provide paid long service leave to employees in a particular industry who are employed from time to time by different employers in the industry. And the term "redundancy benefit scheme" is defined to mean a scheme or fund that provides benefits for persons working within an industry who are made redundant, leave the industry, or retire. Section 10(1) contains a number of exemptions from pay-roll tax. Section 10(2) provides that certain of those exemptions only operates so as to exclude from wages liable to pay-roll tax, wages paid or payable to employees in respect of time when they were engaged in charitable, benevolent, philanthropic or patriotic work of the non-profit organisation or the charitable work of the organisation, society or institution. Section 31G creates a liability in a principal contractor for pay-roll tax payable in respect of employees of a subcontractor. Section 31G(2) speaks in terms of unpaid pay-roll tax in respect of wages paid or payable to relevant employees. Schedule 6, cl 4 quoted above refers to services rendered by an employee or employees. 37 The Pay-roll Tax Act 1971, s 3(2) is in the following terms: "A reference, in the definition of superannuation benefit in subsection (1), to an employee includes a reference to any person to whom, by virtue of section 3AA(2), an amount paid or payable in the circumstances referred to in section 3AA(2) constitutes wages." 38 If the definition was intended to be confined to a benefit identified with an individual employee, one would have expected the above provision to speak of a reference to each person rather than a reference to any person. 39 In my view, the analogy with the Fringe Benefits Tax Assessment Act 1986 (Cth) is misplaced. That Act is concerned with a tax with respect to benefits provided to an individual employee levied and collected at the employer level. 40 In my view the use of the singular in the definition of superannuation benefit in the Pay-Roll Tax Act 1971, s 3(1) imports the plural and CSR's argument that it is necessary to identify an individual employee who benefits from its top-up contributions is misconceived. 41 If CSR's construction of the definition is open, it creates an improbability of result that assists the court in concluding that the alternative construction of reading the singular as the plural that is reasonably open, is to be preferred to the literal meaning (Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1980-1981) 147 CLR 297 at 320). Pre-July 1996 employment 42 CSR argues that 96% of its top-up contributions were in respect of pre-July 1996 employment. Division One is comprised mainly of pensioners. With respect to members who retired before 1 July 1996, none of the benefits would relate to services rendered after 1 July 1996. This proposition was close to being conceded by Martin Alexander Stevenson, the actuary retained by the Chief Commissioner. If the contributions had been made to a closed fund, the benefits could not have been attributed to service after 30 June 1996. Since entitlements in Division One were determined on the number of years of service, the benefits related to long-ago service. 43 Keith John Knapman was an actuary retained by CSR. He apportioned between pre-1996 services and post-1996 services by determining, as at 30 June in each of the years in question, the total Division One liabilities. He then calculated so much of those liabilities as were attributable to post-June 1996 service by New South Wales employees of CSR and determined the proportion of liabilities attributable to post-June 1996 service for those CSR New South Wales employees. He then applied that percentage to the top-up contributions made by CSR in the years in question to arrive at so much of those contributions as was attributable to post-30 June 1996 service by CSR's New South Wales employees. That amount subtracted from the top-up contributions in each year, gave the amount of them as was attributable to pre-1 July 1996 service by CSR New South Wales employees and all deferred and pensioner members. Those amounts totalled approximately 96% of the top-up contributions. 44 Mr Stevenson did not cavil with the steps by which Mr Knapman arrived at the proportion of Division One's liabilities attributable to services performed by CSR's New South Wales employees after 30 June 1996. He did not agree with Mr Knapman's final step of applying that proportion to the top-up contributions made by CSR. In his view, since Division One was not in deficit at 30 June 1996, all employer contributions after that date were attributable to service after that date. Mr Stevenson said that this approach was consistent with generally accepted actuarial practice and consistent with the principles adopted by the profession in determining pre-1 July 1988 funding credits for the purpose of the Income Tax Assessment Act 1936 (Cth). 45 But to the extent to which the top-up contributions potentially benefited pensioners whose employment ceased before 1 July 1996, it could not be said that the benefit was attributable to services rendered after 30 June 1996. 46 Having submitted that the words "in respect of" in the definition of superannuation benefit in the Pay-roll Tax Act 1971, s 3(1) should be interpreted broadly, requiring a connection between two matters but not a close one, the Chief Commissioner submitted that the same words in s 3AA(6A) should be read restrictively. It was submitted that the exclusion should be read with the transitional provisions in Sch 6 and, in particular, with cl 4. It was submitted that so read the exclusion was limited to benefits paid or payable to make up a deficiency as at 30 June 1996. 47 I do not accept that submission. I see no reason to construe the words "in respect of" differently in s 3AA(6A) of the Pay-roll Act 1971 from their construction in the definition of superannuation benefit in s 3(1). There is nothing in the amending legislation or in the explanatory notes to the amending legislation that suggests a restriction to superannuation benefits to cure a deficiency in a fund as at 30 June 1996. And while Sch 6, cl 4 speaks of making up such a deficiency it does not purport to limit the exclusion in s 3AA(6A) to this situation. 48 There was no challenge to the mathematics adopted by Mr Knapman. In my view, to the extent to which he has calculated the amount of the top-up contributions made by CSR attributable to pre-1 July 1996 service by CSR New South Wales employees, those amounts answer the description of a superannuation benefit paid or payable in respect of services rendered by an employee before 1 July 1996 and are excluded from wages in terms of the Pay-roll Tax Act 1971, s 3AA(6A). Conclusion 49 CSR has failed in its contention that only so much of its top-up contributions as can be identified as benefiting individual members of Division One of the CSR Australian Superannuation Fund fall within the definition of superannuation benefit in the Pay-roll Tax Act 1971, s 3(1). 50 CSR has succeeded in establishing that approximately 96% of its top-up contributions were paid or payable in respect of services rendered by an employee before 1 July 1996 and are, therefore, excluded from wages in terms of the Pay-roll Tax Act 1971, s 3AA(6A). 51 I will hear the parties on the appropriate terms of orders and I will hear the parties on costs. I direct the parties to bring in short minutes of order reflecting these reasons.

CSR Ltd v The Chief Commissioner of State Revenue

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Judgment (12 paragraphs)

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