Fleet Repairs & Maintenance Pty Ltd v Chief Commissioner of State Revenue

Narrowing the issues

1. In making the Assessments, the Respondent, as he states in his letter of 13 October 2017 to the Applicant: 1. Proceeded on the basis of a finding that the Applicant, Transtar Linehaul Pty Ltd (Transtar) and Edgely Pty Ltd constituted a group for payroll tax purposes; and 2. Nominated the Applicant "… to pay tax on behalf of all group members as a single lodger for the group".
2. Both in the Objections and in its Administrative review application form the Applicant challenged the decision to group the three companies. This challenge comprised 3 of the six grounds for dispute identified in the Administrative review application.
3. However, since: 1. the statement of matters in issue contained in the Applicant's written submissions dated 7 June 2019 does not refer to the grouping decision; and 2. in any event, counsel for the Applicant stated in his opening remarks to the Tribunal at the hearing on 21 November 2019 that the Applicant did not intend to press any objection on the grouping decision, there does not appear to be any dispute concerning the Respondent's decision to group the three companies for purposes of the Assessments. Accordingly the Tribunal need not consider the three grounds referrable to grouping issues any further.
4. Moreover, in its Administrative review application the Applicant included as the sixth of its grounds for dispute "… the basis of calculation used for superannuation by the respondent". Since, however: 1. nothing in the Applicant's submissions deal with his ground, 2. no submissions, arguments or evidence were made or provided by the Applicant during the hearing concerning it, even if the Applicant has not in fact decided not to press this ground, the Applicant has self-evidently failed to discharge the onus placed on it under sub-section 100(3) of the TAA in relation to it.
5. What follows is that the only matters which appear to be in issue are those set out in the fourth and fifth grounds identified in the Applicant's Administrative review application: "4. The taxpayer disputes payments made by Transtar Linehaul Pty Ltd to RJK Logistics Pty Ltd are liable contractor payments. 5. The taxpayer disputes the penalties and interest claimed by the respondent."

Legislative Background

1. The legislative starting point is section 6 of the Payroll Tax Act 2007 (the Act) which imposes payroll tax on all "taxable wages", being wages having a relevant nexus with New South Wales. Under section 7 of the Act liability of the tax falls on the employer by whom the taxable wages are paid or payable. Section 13(1)(e) of the Act includes as wages any amount which is taken to be wages under any other provision of the Act.
2. Section 35(1) of the Act is such a provision, since it provides relevantly as follows: "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".
3. The Respondent in the Assessments and in its submissions says that certain contractual payments made by Transtar to RJK Logistics Pty Ltd (RJK) during the relevant taxation years, in consideration of the supply to Transtar by RJK of certain services of Mr RJ Keel, were payments under a relevant contract, and are thus: 1. payments made "for or in relation to the performance of work relating to a relevant contract", and 2. thus taxable wages thanks to the combined effect of sections 35(1) and 13(1)(e). The Applicant says that they are not.
4. These reasons will return in more detail below to this controversy, but a broad outline is helpful in grasping the relevance of the legislative provisions set out below.

Relevant legislation

1. Underlying this dispute are three primary sections in addition to sections 13(1)(e) and 35(1): 1. Section 32, which provides relevantly as follows: (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: (a) supplies to another person services for or in relation to the performance of work, or (b) has supplied to the designated person the services of persons for or in relation to the performance of work, or (c) …………………………. (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 (b) is supplied with services for or in relation to the performance of work where: (i) those services are of a kind not ordinarily required by the designated person and are performed by a person who ordinarily performs services of that kind to the public generally, or (ii) those services are of a kind ordinarily required by the designated person for less than 180 days in a financial year, or (iii) those services are provided for a period that does not exceed 90 days or for periods that, in the aggregate, do not exceed 90 days in that financial year and are not services: (A) provided by a person by whom similar services are provided to the designated person, or (B) for or in relation to the performance of work where any of the persons who perform the work also perform similar work for the designated person, for periods that, in the aggregate, exceed 90 days in that financial year, or (iv) those services are supplied under a contract to which subparagraphs (i) - (iii) do not apply and the Chief Commissioner is satisfied that those services are performed by a person who ordinarily performs services of that kind to the public generally in that financial year, or (c) is supplied by a person (the contractor) with services for or in relation to the performance of work under a contract to which paragraphs (a) and (b) do not apply where the work to which the services relate is performed: (i) by two or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or (ii) where the contractor is a partnership of two or more natural persons, by one or more of the members of the partnership and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or (iii) where the contractor is a natural person, by the contractor and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, 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. (2A) Subsection (2) does not apply if the Chief Commissioner determines that the contract or arrangement under which the services are supplied was entered into with an intention either directly or indirectly of avoiding or evading the payment of tax by any person. 1. Section 33, which provides relevantly as follows: (1) For the purposes of this Act, a person: (a) who during a financial year, under a relevant contract, supplies services to another person, or (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, or (c) who during a financial year, under a relevant contract, gives out goods to other persons, is taken to be an employer in respect of that financial year. (2) If a contract is a relevant contract under both section 32 (1) (a) and (b): (a) the person to whom, under the contract, the services of persons are supplied for or in relation to the performance of work is taken to be an employer, and (b) despite subsection (1) (a), the person who under the contract supplies the services is taken not to be an employer. 1. Section 34, which provides as follows: 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, or (b) being a natural person, under a relevant contract, re-supplies goods to an employer, is taken to be an employee in respect of that financial year.

An observation on evidence

1. Mr Keel both: 1. provided affidavit evidence, in the form of an affidavit dated 30 May 2019, concerning his employment and business background generally and, more particularly, his working relationship with Transtar and its chief executive at all relevant times, the late Mr Serle, and the commercial relationship between Transtar and RJK; and 2. submitted himself to oral examination, a detailed cross-examination and re-examination.
2. The Tribunal considered Mr Keel to be a frank, forthcoming and reliable witness. In his evidence: 1. He demonstrated a good recall of his dealings with Transtar and Mr Serle. 2. He was able to respond sensibly to questions posed in cross-examination. The answers which he gave were both internally coherent and consistent with his evidence generally. 3. His account of his relevant dealings was plausible, commercially rational and internally consistent. 4. When his recall or knowledge of events failed him, he admitted it frankly.
3. Ms Nicole Leon, who is a director of Transtar and of the Applicant and the widow of the late Mr Serle, provided an affidavit dated 5 June 2019. Counsel for the Respondent urged the Tribunal to place little probative value on Ms Leon's affidavit because: 1. She was not cross-examined; and 2. In it she herself states that her affidavit is made on her information and belief, and in reliance on corporate records of the Applicant and Transtar, information provided to her by staff members, and information communicated to her by her late husband before his death.
4. The Tribunal noted these observations and agreed that the probative value to be attached to Ms Leon's affidavit was in some respects at least limited, for the reasons set out above. That is not to say, however, that it is without utility. Given the basis on which Ms Leon says that she made her affidavit, the Tribunal's view is that: 1. It is of little if any value to the extent it refers to matters of detail concerning the Applicant's and Transtar's business activities during the financial years in question, such as the number of days in any year which Mr Keel spent working on their affairs in the absence of supporting business records; no such records were provided in support of Ms Leon's evidence; but 2. In relation to matters of general business strategy during the years in question, however, her close domestic relationship with Mr Serle coupled with her subsequent appointment as a director of the companies allow greater credibility to be afforded to her statements.

Application of these provisions: crucial questions

1. Several questions need to be asked and answered concerning the possible application of these provisions to Transtar in relation to the services of RJK and Mr Keel during the relevant financial years.

Were Mr Keel's services provided under a contract?

1. The first question is whether Mr Keel's services were provided by RJK to Transtar under a contract during the relevant financial years: 1. There appears to be no dispute between the Applicant and the Respondent on this question, with both accepting that they were so provided. 2. The evidence provided supports this conclusion. 3. In his affidavit dated 30 May 2019, at paragraphs 26 and 28 respectively, Mr Keel stated that: 1. at no time has he been employed by Transtar; and 2. since 2004 he has been employed and paid only by RJK. He provided oral evidence to the same effect. 1. In that affidavit: 1. He states at paragraph 20, that in 2004 he agreed on behalf of RJK with the late Mr Searle, representing Transtar, that Transtar would retain RJK to provide management and consultancy services to Transtar; 2. At paragraph 22 he states that the retainer between Transtar and RJK has continued since then; and 3. At paragraph 21 he states that a document which is annexed to the affidavit as Annexure B was an unsigned copy of the agreement between Transtar and RJK which established that arrangement. 1. He provided oral evidence consistent with this history, while noting that the amount payable by Transtar under the arrangement for RJK to provide Mr Keel's services varied by agreement from time to time between the parties.
2. I am satisfied, both from this evidence and the parties' apparent unanimity on the point, that during all relevant financial years RJK provided Mr Keel's services to Transtar under a contract for the purposes of section 32(1).

Were RJK and Transtar designated persons within the meaning of section 32(1)?

1. The next question is whether either or both of RJK and Transtar were designated persons within the meaning of section 32(1) during the relevant financial years. In doing so several subordinate questions need to be answered.
2. The first is whether RJK provided Mr Keel's services "…in the course of a business carried on by.." RJK, in the words of section 32(1) of the Act: 1. There appeared to be no dispute between the parties that this was the case. 2. In his affidavit, Mr Keel states that: 1. He and his wife initially acquired RJK as a corporate vehicle through which he would undertake a particular consultancy for which his structural independence from the recipient of his advice was commercially desirable: at paragraph 10. 2. Thereafter he used RJK to provide consultancy services on at least one other occasion before it was engaged by Transtar: at paragraphs 13 and 14. 3. Subsequent to RJK's first being engaged by Transtar in 2004, RJK has provided consultancy services to at least three other clients between 2010 and 2019: at paragraphs 31 to 36. 4. RJK employs Mr Keel, provides workers compensation insurance, pays his superannuation, is registered for GST purposes and pays GST: paragraphs 24 and 25. 5. RJK invoices its clients, including RJK, for the services provided by Mr Keel. He annexes samples of these invoices to his affidavit: paragraphs 29 and 30.
3. He provided oral evidence consistent with his affidavit.
4. I am satisfied that, in providing Mr Keel's services to Transtar, RJK did so "…in the course of a business carried on by.." RJK.
5. A parallel question arises for Transtar. This is whether, under the contractual arrangements between it and RJK, Transtar "… in the course of a business carried on by…" it "… has supplied to [it] the services of persons …", again in the words of section 32(1) of the Act: 1. Under section 8(c) of the Interpretation Act 1987, plural references include the singular, so the provision of the services of Mr Keel alone is capable of satisfying this test. 2. There was no dispute between the parties that Transtar at all material times carried on a trucking business. 3. Mr Keel's evidence, both in his affidavit and his oral evidence was that his services were provided to Transtar in connection with Transtar's business as a trucking company. The first paragraph of the letter agreement which is Annexure B to Mr Keel's affidavit is instructive, and entirely consistent with Mr Keel's oral evidence: the services are to be provided "… to further develop the business prospects of Transtar. The main areas will be the provision of Business Development Services, including increasing revenue, better utilization of current assets and broadening the client base".
6. I am satisfied from this evidence that, in having Mr Keel's services provided to it by RJK, Transtar did so "…in the course of a business carried on by.." it.

Were Mr Keel's services for or in relation to the performance of work?

1. A contract involving the supply of services can only be a relevant contract for the purposes of section 32 of the Act is the services supplied are ".. services for or in relation to the performance of work".
2. Again, there appeared to be no dispute between the parties that they were.
3. Mr Keel's unchallenged oral evidence was that he performed a number of functions for Transtar during the relevant financial years: on a weekly basis he collected, analysed and reported on data concerning fleet usage; he monitored market pricing and reported on it to Transtar; he identified business opportunities with current or potential customers and attempted to have them directed to Transtar; he identified market developments and advised Transtar how best to respond to them; exceptionally, he would negotiate on Transtar's behalf with troublesome customers in order to broker a mutually acceptable solution; and more generally he would attempt to devise solutions to business dilemmas which Transtar referred to him.
4. Senior Member Sorensen's 2014 decision in Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215 considers in some detail at [42] to [55] what is meant by the expression "services for or in relation to the performance of work". The Senior Member's: 1. observations in [42] as to the width of the word "services' in the context of section 32, and 2. compilation in [43] to [45] of definitions of "services" and "work", if applied in the context of the present review indicate that what Mr Keel says that he did for Transtar pursuant to the contractual arrangements with RJK, as summarised above, were "services for or in relation to the performance of work" within the meaning of section 32(1) of the Act.

Were RJK and Transtar designated persons?

1. What follows from these answers is that each of RJK and Transtar was a designated person for purposes of section 32 of the Act during the relevant financial years.

Were the contractual arrangements between RJK and Transtar relevant contracts under section 32(1)?

1. The consequence in turn is that the contractual arrangements between RJK and Transtar for the provision of Mr Keel's services during the relevant financial years satisfy the requirements to be relevant contracts within the meaning of section 32(1) of the Act.

Did those contractual arrangements fall within an exemption provided for in section 32(2)?

1. The conclusion set out in the preceding paragraph, however, is not the end of matters. Rather, it leads to a second major question, which is whether the arrangements are excluded from the category of relevant contracts by the exempting provisions of section 32(2).

Certain clearly inapplicable exemptions

1. Several exemptions under section 32(2) are clearly inapplicable to the contractual arrangements between JRK and Transtar.
2. The first of these is the exemption in section 32(2)(a), which exempts: 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.
3. There is no evidence that the services supplied by PJK to Transtar and performed by Mr Keel were in any way connected with either a supply of goods to Transtar by JRK or Mr Keel, or the use of goods which are the property of JRK or Mr Keel.
4. The second is the exemption in section 32(2)(b)(i), for services for or in relation to the performance of work where: those services are of a kind not ordinarily required by the designated person and are performed by a person who ordinarily performs services of that kind to the public generally.
5. The evidence from Mr Keel was that: 1. since 2004 he has been performing the services which are broadly summarised in [33] above for Transtar, and 2. during that period, Transtar paid RJK as consideration for its procuring those services annual payments which, in each year, amounted to no less than $100,000; this was the annual fee agreed in 2004, which was from time to time increased by agreement in subsequent years so that, by the financial year ending 30 June 2017, it had increased to $140,000 per annum; this follows both from Mr Keel's oral evidence and the specimen fortnightly invoices issued by RJK to Transtar which from Annexure E to Mr Keel's affidavit.
6. Whether or not Mr Keel or RJK ordinarily performed services of that kind to the public generally, it is clear from both Mr Keel's evidence as to his continuing relationship with Transtar and from the contractual and financial documents which were annexed to his affidavit that those services were ordinarily required (and, for that matter, acquired, paid for and presumably valued) by Transtar during the financial years in question. Hence the first of the two cumulative elements of the exemption provided for in section 32(2)(b)(i) is not satisfied, and that exemption is unavailable.
7. The third is the exemption in section 32(2)(c). The drafting of that paragraph is quite complex, but in essence it excludes from the scope of section 32(1) contracts under which a contractor provides services for or in relation to the performance of work where: 1. the services are physically performed by two or more natural persons who do so pursuant to a relationship between them and the contractor, and 2. do so in circumstances where the relationship between each of those persons and the contractor is such that payroll tax liability in respect of the work which underlies those services is effectively determined as between the contractor and those persons.
8. The evidence in the present application is universally that only one individual, namely Mr Keel, performed the relevant services. Hence the exemption in section 32(2)(c) cannot apply.

Potentially applicable exemptions

1. Once the clearly inapplicable exemptions are eliminated, four exemptions remain which are, or at least have at some stage in the review process been suggested as, potentially applicable. These are the exemptions provided for in section 32(2)(b)(ii), (iii) and (iv), and in section 32(2)(d). These reasons will deal with them in reverse order.

Potential application of the exemption under section 32(2)(d)

1. This is exemption concerns a contract under which the designated person (relevantly, Transtar): is supplied with services solely for or ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them.
2. While it is undoubtedly the case that: 1. Transtar carried on at all relevant times a road freight transport business, 2. In the course of that business it conveyed goods using vehicles for that purpose, and 3. The services of Mr Keel were provided in connection with that business, it does not follow that the supply of services by RJK and Mr Keel satisfied the exemption in section 32(2)(d).
3. The exemption is engaged if it can be shown that those services were supplied: 1. Solely for, or 2. Either, depending on whether the word "solely" is given a distributive construction, either: 1. solely ancillary to, or 2. ancillary to, the conveyance of goods by means of a vehicle provided by the person conveying them.
4. This, as the decision of the NSW Court of Appeal in Smith's Snackfood Co Ltd v Chief Commissioner of State Revenue [2013] NSWCA 470 indicates at [109] is "… ultimately a question of fact and degree". Although that case concerned an earlier (and in certain respects different) version of section 32(2)(d), its observations concerning the proper meaning to be given to the word "ancillary" in this context, the required degree of relationship between the services provided and the conveyance of goods, and the correct approach to establishing that relationship, are relevant to this review.
5. In the present case: 1. The form of contract annexed to Mr Keel's affidavit provides that the services are to be provided "… to further develop the business prospects of Transtar. The main areas will be the provision of Business Development Services, including increasing revenue, better utilization of current assets and broadening the client base". 2. Mr Keel's oral evidence described his services as being to collect, analyse and report on data concerning fleet usage on a weekly basis; to monitor market pricing and report on it to Transtar; to identify business opportunities with current or potential customers and attempt to have them directed to Transtar; to identify market developments and advise Transtar how best to respond to them; exceptionally, to negotiate on Transtar's behalf with troublesome customers with a view to brokering a mutually acceptable solution; and more generally to attempt to devise solutions to business dilemmas which Transtar referred to him. 3. Some of these services - notably, identifying and attempting to capture business opportunities for Transtar, and occasionally negotiations with troublesome customers in order to resolve disputes - do involve Mr Keel directly with customers, and the latter category may well potentially relate to difficulties arising out of particular transactions for the conveyance of goods. 4. However, nothing in the evidence suggests that any of them have that degree of direct connection with the conveyance of goods that underpinned the decision in Smith's Snackfood Co Ltd v Chief Commissioner of State Revenue. There is a clear distinction between, on the one hand, transporting goods and providing services ancillary to that process and, on the other, assisting Transtar in the management of its business and commercial relationships. Even if that assistance extends to involvement in the management of a particular customer relationship which has soured, it does not have the necessary connection with the conveyance of goods which the words "solely for" and "ancillary" dictate. 5. This approach is consistent with that adopted by the Court of Appeal in Smith's Snackfood Co Ltd v Chief Commissioner of State Revenue at [147] and [152], where it observed that, respectively, the placement of promotional materials on vending machines and looking for business opportunities for the supplier of snack foods did not, respectively, have a sufficient connection with the supply or delivery of goods on behalf of the snack food company as to attract the operation of the exemption. A similar conclusion applies here in relation to Mr Keel's activities, even if the cause of the commercial problem which he was called upon to mediate had to do with Transtar's performance of a contract for the conveyance of goods.
6. The exemption under section 32(2)(d) does not, therefore, assist the Applicant.

Potential application of the exemption under section 32(2)(b)(iv)

1. This is exemption concerns a contract under which the services supplied are performed by a person: who ordinarily performs services of that kind to the public generally in that financial year.
2. The evidence from Mr Keel in his affidavit was as follows: 1. In paragraph 22, that "… RJK has provided consulting services to other companies in the industry either on a job by job basis or for a fixed term"; 2. In paragraph 23, that there "… is no restriction upon RJK providing my services to other companies other than that the work for Transtar would always have priority"; 3. In paragraphs 31 and 32, that RJK had supplied his consultancy services to Avon, a cosmetics company, in relation to the transport of dangerous goods; an invoice which is annexed to the affidavit as Annexure G indicates that this occurred in 2012; 4. In paragraph 33, that RJK had supplied his consultancy services to a company called FDM, again in relation to the transport of dangerous goods; there is no evidence as to when this occurred; and 5. In paragraph 34, that RJK had supplied his consultancy services to Longford/Southern Delivery Services; invoices attached as Annexure F indicate that this occurred in 2012.
3. Mr Keel's oral evidence was that: 1. During the period 2014 to 2017 he had undertaken no paid consultancy work for clients other than Transtar, although he had performed some unpaid consultancy work for a company called FDN; and 2. The invoices annexed to his affidavit referred to above were the only invoices issued by RJK issued during the 2012/2017 period to clients other than Transtar.
4. According to these invoices, the amounts invoiced by RJK to clients other than Transtar during the period 2012/2017 period was $3668.83. This is clearly an insignificant fraction of the amount invoiced by RJK to Transtar during only one of those years and indicates that the business conducted by RJK with the public generally, as distinct for Transtar, was minimal.
5. What flows from Mr Keel's evidence is that, although RJK did have a very limited number of clients to whom on very few occasions it supplied Mr Keel's services on a remunerated basis during the relevant period, the Applicant has been unable to demonstrate that RJK's did so with the volume, frequency, repetition and promiscuity sufficient to engage the exemption in section 32(2)(d). There was no evidence that RJK's services were advertised or publicised, or otherwise promoted. Rather, Mr Keel said, that consultancy engagements for RJK came essentially from the pool of transport operators or users with whom he had during his career developed relationships of a kind which would recommend his advice to them. While it is clear that during the period RJK did provide Mr Keel's services very occasionally to a very limited group of other clients, this is not in my view sufficient to support the conclusion that it did so "ordinarily to the public generally".

Potential application of the exemptions under section 32(2)(b)(ii) and (iii)

1. These exemptions concern the supply of services where: 1. In the case of section 32(2)(b)(ii), the services: are of a kind ordinarily required by the designated person for less than 180 days in a financial year; or 1. In that of section 32(b)(iii), the services: are provided for a period that does not exceed 90 days or for periods that, in the aggregate, do not exceed 90 days in that financial year in circumstances where one or more other service providers provide the designated person with similar services or services for similar work for an aggregate period which exceeds 90 days.
2. In essence, both exemptions look to circumstances where a designated person receives services under a contract or contracts for up to 180 days in a financial year. As the Respondent's Ruling PTA 020 notes, paragraph (b)(ii) looks at the question primarily from the standpoint of the recipient of the services, while paragraph (b)(iii) views it principally from that of the service provider.
3. Clearly, a (but not the only) significant issue for both exemptions is to identify for how many days in a financial year were Mr Keel's services required by Transtar: 1. Mr Keel's affidavit says, at paragraph 26, that "To the best of my recollection, I have never worked 180 days out of any given year for Transtar or any of its associated companies"; 2. His affidavit annexes copies of what he describes as ".. randomly selected invoices from RJK to Transtar during the period 30 June 2014 to 1 July 2017"; each of these invoices is expressed to be for consultancy fees for a period of 14 days, and to be calculated as a multiple of 10 days at a specific daily rate; 3. In his oral evidence, Mr Keel explained his working relationship with Transtar: 1. He had one fixed and regular duty, which was to recover, analyse and report on certain data on fleet usage which was recorded through devices on vehicles in the fleet and analysed using analytical tools of his own devising; the performance of this task took him 1 day per week, and because it was computer based he typically did it week in and week out, even if he was on holidays; this amounted to 52 days per year; and 2. His other duties, as outlined above, variously involved business development for Transtar; noting and reporting on industry pricing and trends and advising Transtar on possible commercial responses to these matters; on occasions finding a solution to customer dissatisfaction; on one occasion, pursuing with a particular customer the slow payment of Transtar's invoices; and, more generally, to devise solutions to particular commercial problems which concerned Transtar (and in particular the late Mr Serle); he said that he spent on balance between 5 and 7 working days each month on these additional duties, although because of the flexible nature of his engagement with Transtar and Mr Serle in some months he could spend more time working with Transtar and in others less; however, he was clear that looked at on an annualised basis his involvement in these duties amounted to no more than 7 days per month. 1. Ms Nicole Leon, who is a director of Transtar and of the Applicant, and the widow of the late Mr Serle, provided an affidavit dated 5 June 2019. In it she said relevantly that, " … based on my observations of RJK's activities with Transtar .. I do not believe that Robert Keel would ever have worked for a total of 90 days in any year doing work for or specifically on behalf of Transtar".
4. All of this presents the Tribunal with a dilemma: 1. On the one hand, should it extrapolate from the apparently consistent practice in the invoices sent by RJK to Transtar of claiming that the consultancy fee covered 10 days per fortnight, calculated on a daily rate, to conclude that Mr Keel's services were "required by" for something in the order of 260 days a year, being 10 days per fortnight for the 26 fortnightly periods into which the year can be divided? Even if one allows for a generous period of holidays - say 2 months or 4 fortnights per annum - this would still result in Mr Keel's services being apparently "required by" Transtar for something in the order of 220 days per annum, which is well over the 180 and 90 day periods respectively contemplated by sections 32(2)(b)(ii) and (iii)? 2. On the other, does it look to Mr Keel's oral and written evidence (and, subject to the reservations expressed earlier, that of Ms Leon), to conclude that in fact his services were required by Transtar for a much briefer period, of less than 180 days (if Mr Keel's affidavit evidence is to be accepted) or 90 days (if Ms Leon's affidavit evidence is accepted)?
5. At the outset, even though Ms Leon's evidence as to the annualised period for which Mr Keel provided his services to Transtar is expressed to be "… based on my observations of RJK's activities with Transtar" the Tribunal is not convinced by it, because: 1. Mr Keel's oral evidence is that he spent something between 112 and 136 days per year on work for Transtar; this comprises 1 day a week for 52 weeks per year on fleet analysis (a total of 52 days) and between 5 days per month (or 60 days per year) and 7 days per month (or 84 days per year); this, to state the obvious, is quite inconsistent with Ms Leon's evidence, on a matter concerning which Mr Keel has direct and intimate personal experience; 2. Ms Leon provides neither any evidence as to the nature or frequency of her observation of Mr Keel's involvement with Transtar during the relevant periods, nor any internal records of Transtar which might corroborate her statements; and 3. Ms Leon was not available for cross-examination concerning her affidavit, and so there was no scope for testing the inconsistency between her views and those of Mr Keel.
6. Turning now to the relationship between RJK and Transtar, several aspects require comment: 1. The original agreement from April 2004 does not specify any number of days for which Mr Keel must work. Rather, it identifies some general duties, contemplates the expansion of this scope on request by Transtar, and specifies an annual remuneration, to be paid fortnightly against invoices. It did not require that RJK provide time sheets or otherwise account for Mr Keel's time. This suggests that the fee payable by Transtar to RJK was a retainer, the purpose of which was to ensure the availability of Mr Keel's consultancy services as and when required. 2. The evidence in Mr Keel's affidavit is consistent with this. In paragraph 23 of his affidavit he states that: "In providing services to Transtar and its associated companies I was not required to attend the premises. No one at Transtar directed me how to provide the services or when the work was carried out. There is no restriction upon RJK providing my services to other companies other than that the work for Transtar would always have priority". This description is entirely consistent with the relationship between Transtar and RJK being one under which RJK was retained, for an annual fee, to provide Mr Keel's services as and when required. 1. Mr Keel's oral evidence was that Mr Serle wished the annual fee to be paid in fortnightly instalments "… for cash flow reasons" . That the aggregate fee was paid in 26 fortnightly payments does not necessarily detract from its characterisation as a retainer payment. 2. Moreover, the 2004 contract contemplated a fixed annual amount payable by Transtar to RJK of $100,000. Mr Keel's evidence was that this annual amount was from time to time increased by agreement between RJK and Transtar. The sample invoices for 2012/13 indicate 26 fortnightly payments of $4615.40, which giving an annual total of $120,000; those for 2013/14, 2014/15, 2015/16 and 2016/17 provide for 26 annual payments of $5400, giving an annual total of $140,400. All payments were increased by GST. This indicates a consistent and long-standing pattern, under which RJK billed Transtar without reference to time actually worked by Mr Keel. Rather, the billing and remuneration structure are more consistent with the invoiced amount being in consideration of having Mr Keel available to assist Transtar, rather than for Mr Keel actually providing services to Transtar. 3. As well, the 10 days per fortnight referred to in each of the invoices represent a full working week of 5 days, for 52 weeks a year. If the reference to 10 days per fortnight referred to Mr Keel's actual days of work on Transtar's business, he would have had neither holidays nor time available to devote to work for other clients, even though: 1. The terms of the arrangement with Transtar were, according to Mr Keel's affidavit, that that there "… is no restriction upon RJK providing my services to other companies other than that the work for Transtar would always have priority"; and 2. On several occasions during the relevant period, Mr Keel's services were provided by RJK to other clients. 1. What follows from all this, in the Tribunal's view, is that the statements in the invoices issued by RJK, that the fortnightly payment of consultancy fee covered 10 days per fortnight calculated on a daily rate, do not indicate that Mr Keel's services were required for 10 days every fortnight. Rather, in the Tribunal's view the alternative interpretation of those statements, which is that they indicated that Mr Keel's services were available (whether or not required) for 10 days each fortnight, is the preferable one. Mr Keel was at Transtar's disposal for 10 days per fortnight but was not necessarily engaged or required in Transtar's business for that period.
7. Since as these reasons conclude above: 1. Mr Keel's services were available for 260 days a year to Transtar, but 2. this cannot be taken as indicative of the period for which they were ordinarily required, the next issue to be determined is the number of days annually for which his services were required by Transtar.
8. The primary evidence on this is Mr Keel's affidavit and oral evidence, details of which have been summarised above. In essence, it is to the effect that in no relevant year did he provide services to (or as required by) Transtar for more than 136 days. The only corroboration for it is Ms Leon's affidavit to which, for the reasons set out earlier, the Tribunal attaches little probative weight. As indicated above, the Tribunal found Mr Keel to be a credible and reliable witness, on whose evidence it can reasonably rely in order to conclude that, on the balance of probabilities, during each relevant financial year Transtar required his services for no more than 136 days.
9. That conclusion, however, is not sufficient of itself to determine whether the exemption under section 32(2)(b)(ii) is available to Transtar and the Applicant: 1. That exemption, as was noted above, looks primarily to the situation of recipient of services - the designated person - rather than to that of the supplier of services. 2. The question is not whether Mr Keel or RJK provided (or caused the provision of services to Transtar for less than 180 days), but rather whether the contract between RJK and Transtar was one under which Transtar, as the "designated person", was supplied with services which were services "….. of a kind ordinarily required by [Transtar] for less than 180 days in a financial year". 3. If RJK and Mr Keel were the sole supplier of such services to Transtar, the answer would be clear: 1. Mr Keel and RJK supplied the services, 2. Transtar acquired them in the course of its business, 3. By doing so Transtar demonstrated that it ordinarily required those services, 4. Mr Keel spent less than 180 days per relevant financial year in providing those services, and 5. section 32(2)(b)(ii) was necessarily satisfied. 1. However, in the present case the Applicant has not demonstrated that Mr Keel and RJK were together the sole source of services of the relevant kind.
10. The only part of Ms Leon's affidavit which appears to consider this issue is paragraph 10. This states as follows: "RJK does not provide a service which is ordinarily required by Transtar to carry on its business. Transtar over the years increased the volume of its services predominantly through existing clients. The staff including Robert Keel would ensure that relationships Transtar had with existing clients were maintained well and if their needs grew then Transtar would be the preferred supplier to meet this demand".
11. There are several comments to be made on this: 1. The first sentence appears to be inconsistent with matters which do not appear to be in issue, namely that since 2004 (and, relevantly, during the financial years in question) Transtar obtained, used and paid for Mr Keel's services. It is in my view a not unreasonable inference that had Mr Keel's services not been required in Transtar's business during the relevant financial years it would not have undertaken the obligation to pay $140,000 per annum in order to secure them. 2. The rest of the paragraph indicates that some at least of the services which according to his affidavit and oral evidence Mr Keel performed - generating business for Transtar from existing customers and relationship management with customers - were continuing business needs for Transtar which it also met from sources other than Mr Keel, notably the efforts of Transtar's staff. 3. This it should be noted is not inconsistent with Mr Keel's oral evidence, in which he stated that Transtar's operations manager also undertook significant business development activities for Transtar (although Mr Keel did suggest that he was a more important generator of new business for Transtar). 4. Moreover, despite the reservations which I have expressed concerning the probative value in some respects of Ms Leon's affidavit, her comments as to the involvement of staff members along with Mr Keel in customer relationship management and business development are not only inherently credible but are also matters which, as the late Mr Serle's wife and companion, it is entirely likely that she observed and noted. In this respect they are in an entirely different category from her evidence as to the precise number of days per year worked by Mr keel. 5. It is moreover a matter of general public knowledge that the road freight industry is highly competitive, and it would be surprising - indeed, incredible - for a participant in the industry such as Transtar to require for less than half of any year business generation and customer management activities of the kind performed by Mr Keel.
12. Accordingly, while it has been established to my satisfaction that Mr Keel's services were provided for less than 180 days in any financial year, the Applicant has not demonstrated to the standard required by section 100(3) of the TAA that services of the kind provided by Mr Keel were not required by Transtar for less than that period. In consequence, it has not demonstrated that the exemption contained in section 32(2)(b)(ii) of the Payroll Tax is applicable to the arrangements between Transtar and RJK.

Penalty tax and interest

1. The Act is a "taxation law" within the meaning of section 4 of the TAA, and in consequence any failure to pay payroll tax in whole or in part in accordance with that Act is a "taxation default" as defined in section 3 of the TAA. In view of: 1. my finding that the arrangements between RJK and Transtar for the relevant years were designated contracts, and 2. the evidence (as to which there was no dispute) that neither Transtar nor the Applicant as designated taxpayer paid payroll tax in relation to those designated contracts during the relevant financial years, it follows that the Applicant's failure to pay payroll tax in accordance was a taxation default.
2. Section 21(1) of the TAA imposes on a taxpayer the liability to pay interest on unpaid tax. Section 22(1) of that Act provides that the interest rate is the aggregate of two components: 1. A market rate component, which is determined under section 22(2) by reference to market interest rates from time to time; and 2. A premium component, of 8% per annum. Section 25 of the TAA allows the Respondent the discretion to remit all or part of either component.
3. The Respondent has chosen to remit any premium component interest and has imposed interest only at the market rate. This, the predecessor Tribunal's Appeal Panel explained in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor [2004] NSWADTAP 19 at [60], is "… intended to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due ..".
4. The circumstances where the market rate of interest can properly be remitted by the Respondent are limited. In Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21, Verick JM outlined those circumstances at [27]: "In cases where an amount of interest is imposed by the application of the market rate, only exceptional circumstances would justify any remission. The narrow category of circumstances would include cases where the 'Tax default' is entirely due to a fault of the Chief Commissioner. Other circumstances would include situations completely out of the control of the taxpayer". I respectfully adopt the Judicial Member's explanation. The Applicant has not been able to demonstrate any such exceptional circumstances, and accordingly I can see no basis on which to remit any of the market rate interest imposed by the Respondent in the present case.
5. The Respondent has also assessed penalty tax on the payroll tax assessed but unpaid under the Assessments, at the rate of 25%. Section 26(1) of the TAA imposes this penalty tax, and section 27(1) of that Act sets the rate of penalty tax at 25% of the unpaid tax, while: 1. Section 27(2) allows the rate of penalty tax to be increased to a maximum of 75% by the Respondent, if satisfied that the relevant tax default "…. was caused wholly or partly by the intentional disregard by the taxpayer (or a person acting on behalf of the taxpayer) of a taxation law"; 2. Section 27(3) allows the Respondent to waive the penalty tax if satisfied that: (a) the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law, or (b) the tax default occurred solely because of circumstances beyond the taxpayer's control (or if a person acted on behalf of the taxpayer, because of circumstances beyond either the person's or the taxpayer's control) but not amounting to financial incapacity; and 1. Section 33 of the TAA provides as follows: The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.
6. The Applicant objects to the imposition of penalty tax because: 1. The payments to RJK are only taxable by reason of Division 7 of the Act; and 2. The drafting of sections 32, 33 and 34 of the Act, which are comprised in Division 7, is so arcane as make the imposition of penalty tax unjustifiable.
7. The Applicant's uncomplimentary view of the drafting of those sections may well have some justification. That opinion is, however, entirely beside the point: 1. The Respondent is only authorised under section 27(3) to waive penalty tax if either the Applicant or Transtar took reasonable care to comply with the Act, or its non-compliance was due to a circumstance beyond its control. The Applicant has provided no evidence to suggest that either condition was satisfied. 2. Apart from its opinion as to the complexity of the drafting of sections 32 to 34 of the Act, it has neither: 1. made any argument, nor 2. provided any evidence, which might allow the Respondent to be satisfied in terms of section 27(3). 1. Equally, beyond its drafting critique of the relevant sections, it has offered neither argument nor evidence which might reasonably persuade the Respondent to exercise its discretion under section 33 of the TAA to remit penalty tax.
8. In the absence of any more compelling evidence or argument, I can see no basis for the remission or reduction of penalty tax.

Costs

1. The Respondent applied for an award of costs against the Applicant, who opposed the application.
2. Section 60 of the Civil and Administrative Tribunal Act 2013 No 2 (the NCAT Act) sets out the general regime as to costs in proceedings before the Tribunal: Costs (1) Each party to proceedings in the Tribunal is to pay the party's own costs. (2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs.
3. To guide the Tribunal in exercising its discretion under section 60(2), the NCAT Act sets out in section 60(3) a non-exclusive list of considerations relevant to the discretion: (3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following: (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings, (b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings, (c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law, (d) the nature and complexity of the proceedings, (e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance, (f) whether a party has refused or failed to comply with the duty imposed by section 36 (3), (g) any other matter that the Tribunal considers relevant.
4. There is nothing in any other legislation which modifies the operation of section 60 of the NCAT Act for purposes of the present review.
5. In making its application, the Respondent says that three paragraphs of section 60(3) support an exercise by the Tribunal of its discretion as to costs in the Respondent's favour. These are: 1. Section 60(3)(c), which refers to "…the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law"; 2. Section 60(3)(e), which refers to "… whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance"; and 3. Section 60(3)(g), which refers to "… any other matter that the Tribunal considers relevant'; the particular matter to which the Respondent referred here was the relatively late point in proceedings at which the Applicant abandoned certain of its claims, notably as to grouping, and the absence of formal concessions or withdrawals of particular points by the Applicant; the Respondent says that it was left in a position where it had little choice but to prepare to address these issues.
6. In essence, these claims for special circumstances have two underlying elements: 1. That the Applicant's position was so intrinsically unmeritorious as to justify an award of costs against it; and 2. That the Applicant's failure to reduce the scope of argument until a very late stage obliged the Respondent to incur legal costs which in the event proved unnecessary.
7. The statutory setting is clearly and expressly unfavourable to awards of costs. It is the logical corollary of the Tribunal's guiding principle in section 36 of the NCAT Act, " … to facilitate the just, quick and cheap resolution of the real issues in" proceedings before it. Underlying section 60(1) is a view that the guiding principle is generally better served by leaving costs in proceedings before the Tribunal with those who incur them.
8. Looking at the two themes which underlie the Respondent's costs submission, I have some difficulty in seeing that the criticisms made by the Respondent of the Applicant's approach to, and conduct of, the review are special circumstances which justify an award of costs against the Applicant: 1. The statutory provisions in question of the Act, being primarily those relating to corporate grouping and relevant contracts, are complex both in their drafting and in their practical application to particular factual circumstances. While this is not, as I have indicated above, an appropriate reason for relieving the Applicant of liability to penalty tax, it does however militate against their being a sufficient basis to find special circumstances which support an award of costs against the Applicant. The complexity of the relevant provisions is such that divergent views can reasonably and honestly be held concerning their application. This, in my view, is more than amply demonstrated by the quite detailed analysis set out in these reasons. 2. That the Applicant only refined its claims at a late stage in proceedings is regrettable, especially to the extent that it required the Respondent to formulate responses to matters which, in reality, were no longer in dispute. However, one must consider the alternative, which would have been that the Tribunal's half-day hearing would have continued for a full day, if not longer; counsel, solicitors, witnesses and personnel of both the Applicant and the Respondent would have been required personally to involve themselves for a correspondingly longer time; written submissions could well have been longer and more detailed; and additional written submissions may well have been required. The Tribunal must ask itself whether such an outcome would have been more consistent with its guiding principles than what actually occurred, and the answer which I arrive at is that it would not have been. 3. On balance, in my view, the Tribunal's guiding principles are better served by parties taking a pragmatic view as to what issues to press and what issues to concede without the fear of a costs order against them for doing so, even if pragmatism prevails at (or shortly before) the last minute. To make a costs order against a party who makes a late decision not to press particular claims or lines of argument risks the perverse outcome, of providing an incentive to parties to persist with their weaker arguments at hearings from a fear that they will be penalised by a costs order for taking the more pragmatic approach of abandoning the weaker and pursuing only the stronger. Such an outcome would, in my view, be inconsistent with the Tribunal's guiding principle. 4. That is not to say that in particular factual circumstances the balance might not tilt in a different direction. However, I do not consider that in the present case there are special circumstances sufficient to justify an award of costs against the Applicant. 5. Accordingly, I dismiss the Respondent's application for costs.

Orders 1. The Assessments are affirmed. 2. The Respondent's application for costs is 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

Amendments 20 February 2020 - Catchwords corrected. "LAND" replaced with "PAYROLL". 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: 20 February 2020