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

Application to Tribunal for administrative review of Chief Commissioner's decisions

1. Fleet Repairs applied to the Tribunal for an administrative review of six decisions made by the Chief Commissioner of State Revenue. Those decisions assessed Fleet Repairs as liable for payroll tax for various periods from 2013 to 2017. The Tribunal's role was to decide what the "correct and preferable decision is having regard to the material then before it": Administrative Decisions Review Act 1997 (NSW), s 63(1). Fleet Repairs had the onus of proving that they were not liable to pay the tax: Taxation Administration Act 1996 (NSW), s 100(3).
2. The Tribunal found that the Chief Commissioner had assessed Fleet Repairs' liability for payroll tax correctly and confirmed the decisions. The contract between Transtar and RJK Logistic Solutions for Mr Keel to provide management services was held to be a relevant contract under s 32 of the Payroll Tax Act. The contract did not come within either the "conveyance of goods exemption" or the "less than 180 days exemption". That meant that the payments made by Transtar to RJK Logistic Solutions for Mr Keel's management services should be included in the taxable wages of Transtar for each of the relevant periods. It followed that Fleet Repairs, as the nominee to pay the tax on behalf of group members, was liable for payroll tax on those wages.

Appeal to Appeal Panel from Tribunal's decision

1. Fleet Repairs has appealed from the Tribunal's decision on a question of law: Civil and Administrative Tribunal Act 2013 (NSW), s 80(2)(b). There are two grounds of appeal. Both grounds relate to the question of whether the contract for the provision of Mr Keel's services is a "relevant contract" under the Payroll Tax Act. Essentially, Fleet Repairs submitted that the Tribunal had misdirected itself as to the meaning of both the "conveyance of goods exemption" and the "less than 180 days exemption". No ground of appeal related to the imposition of penalty tax.
2. The Chief Commissioner put forward alternative grounds on which the Tribunal could have reached the same conclusion. He did not intend these submissions to be treated as a cross-appeal.

Our decision

1. We have decided that the Tribunal did not misdirect itself as to the meaning of the "conveyance of goods exemption" or the "less than 180 days exemption". The conclusion it reached that Fleet Repairs was liable for payroll tax, was correct although, in relation to the conveyance of goods exemption, for a more specific reason than that articulated in the reasons for decision. As the Tribunal's decision was the correct decision, the appeal is dismissed.

The relevant legislative provisions and the two exemptions in issue

1. The Tribunal outlined the relevant legislation at [13] and [14]: 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. 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".
2. The two exemptions in issue are in s 32(2)(b)(ii) (the conveyance of goods exemption) and s 32(2)(d) (the less than 180 days exemption) of the Payroll Tax Act. Each exemption is an exemption to the definition of "relevant contract" in s 32(1): (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) gives out goods to natural persons for work to be performed by those persons in respect of those goods and for re-supply of the goods to the designated person or, where the designated person is a member of a group, to another member of that group.
3. There is no dispute in this case that the contract comes within the definition of a relevant contract in s 32(1). The exemptions are expressed in the following terms in s 32(2): (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. (2B) Subsection (2) (a), (b), (c) or (d) does not apply to a contract under which any additional services or work (of a kind not covered by the relevant paragraph) are supplied or performed under the contract. (3) For the purposes of this section, an employment agency contract under which services are supplied by an employment agent, or a service provider is procured by an employment agent, is not a relevant contract. (Emphasis added.)

The Tribunal's decision

1. The Tribunal made the following findings of fact at 51 - (3): (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.
2. The Tribunal went on to assess the degree of connection between these activities and the conveyance of goods at 51: (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.
3. The Tribunal considered this approach to be consistent with that adopted by the Court of Appeal in Smith's Snackfood Co Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 470. The Tribunal noted at 51, that in that case at [147] and [152], the Court: . . . 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.
4. The Tribunal concluded that the conveyance of goods exemption did not apply and the Commissioner's assessments of Fleet Repairs for payroll tax were correct.

How have the courts interpreted the conveyance of goods exemption?

1. Before addressing the ground of appeal relating to this exemption, we will examine how the courts have interpreted the conveyance of goods exemption, or similarly worded exemptions.
2. In Smith's Snackfood Company ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 470 (Smith's case), the Court of Appeal was considering the conveyance of goods exemption. At that time, there was no specific exemption where the taxpayer was supplied with services solely for the conveyance of goods by means of a vehicle provided by the person conveying them. There was only an exemption for services ancillary to that conveyance: Smith's case at [63]. With effect from 1 July 2014, that provision was amended to include the words "solely for or" before the word "ancillary".
3. Smith's carried on a business selling various snack foods and drinks in vending machines. Smith's engaged independent contractors under Goods Distribution Agreements (GDAs). Those contracts required the contractor to provide his or her own vehicle to distribute the goods: Smith's case at [90]. The contract included re-stocking the vending machines, removing and transporting goods which had passed their use by date and collecting the money from the vending machines: Smith's case at [23]. The contractors were also trained to clean, maintain and repair the machines. Occasionally, the contractor was given promotional material to place on the vending machines and was expected to look for new business opportunities while conveying the goods.
4. Gleeson JA at [116] (Beazley P agreeing at [1]) held that "the focus of the exemption is one entire, indivisible, 'relevant contract'". Gleeson JA summarised the issue at [79]: . . . the relevant question under s 32(2)(d) is not whether the services of transportation, filling and maintaining the vending machines (and the other services supplied under the GDAs) can be considered secondary or subservient to the other. 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. The words "under which" may be taken as meaning "in accordance with", "pursuant to" or "required by" the terms of the GDA. 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, not the quite different question posed by the Chief Commissioner as to whether any of the services can be considered secondary or subservient to the other.
5. Gleeson JA held at [95] that the context is that "the conveyance of goods is the principal matter and the exemption from the definition of 'relevant contract' is provided where under the relevant contract there is supplied services which are ancillary to the principal matter". The "primary judge erred in adopting the approach that subservience is a characteristic of the expression 'services ancillary' in the exemption": Gleeson JA at [111]. Ultimately, "the question whether one activity is ancillary to another is a question of fact and degree": Gleeson JA at [109].
6. At [91], Gleeson JA concluded that the GDA was "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." His Honour concluded at [92], that: 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 . . . and that the GDA is a contract under which Smith's is supplied with services ancillary to the conveyance.
7. The Court held that the contracts were exempt from the definition of "relevant contract" because Smith's was supplied with services ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them. Providing promotional material and looking for business opportunities did not affect the engagement of the exemption because they were trivial activities: Gleeson JA at [153].
8. In Chief Commissioner of State Revenue v Downer EDI Engineering Pty ltd [2020] NSWCA 126, Downer sub-contracted individuals to deliver and install Foxtel equipment. One issue was whether the payments made by Downer to the subcontractors were exempt from payroll tax under the "conveyance of goods exemption". Under the relevant contracts, the sub-contractors had to purchase a delivery vehicle and install cables, wiring and other equipment to clients who wanted to receive the Foxtel service. The subcontractors were required to provide marketing material.
9. On a typical day, the sub-contractor would collect the equipment they needed, travel to the customer's premises using their vehicle, install the equipment and connect and activate the set top box before going to the next job. There was a separate agreement under which the sub-contractors installed a satellite dish.
10. Bathurst CJ (Macfarlan JA and Meagher JA agreeing) agreed with the primary judge's conclusion that the conveyance of goods exemption to the definition of relevant contract applied in this case. Bathurst CJ summarised the primary judge's reasoning at [64] and [66]: . . . the conveyance was not limited to vehicular transport, but included further steps to make the conveyance "complete" such as placing the goods in a particular location, and noted that in Smith's Snackfood it included placing the items in a vending machine. . . . The primary judge pointed to similarities between the present case and Smith's Snackfood. He referred to the fact that in each case, the subcontractor was required to own and provide his or her own vehicle, undertake relatively simple and short term training, collect, transport, unload and manipulate the items until they were in their final location, clean the site and check installed equipment.
11. The Court held that the subcontracts fell within the conveyance of goods exclusion in s 32(2)(d)(i) of the Payroll Tax Act. Downer was not liable for payroll tax on any of the money paid to the subcontractors.
12. We articulate the following propositions based on Smith's case: 1. the focus of the exemption is one entire, indivisible, 'relevant contract': Gleeson JA at [79] and [116]; 2. it is the relationship between the services required to be provided to the taxpayer under the contract and the conveyance of goods by means of a vehicle provided by the person conveying them which the terms of the statutory exemption are directed to: Gleeson JA at [79]; 3. the question is not whether any of the services required to be provided under the contract can be considered secondary or subservient to the other; Gleeson JA at [79]; 4. subservience is not a characteristic of the expression "services ancillary" in the exemption; Gleeson JA at [111]; and 5. the question whether one activity is ancillary to another is a question of fact and degree: Gleeson JA at [109].

Fleet Repairs' submissions on appeal

1. Fleet Repairs submitted that there is a critical difference between the facts in Smith's Case and Downer EDI on the one hand, and the present case on the other. In those cases, the conveyancing of goods was only a part of the business. While the marketing 'services' provided in those cases (e.g the provision of promotional or marketing material and looking for business opportunities) was not ancillary to the conveyancing of goods, when the conveyancing of goods is the entire business, marketing services may be seen as ancillary to the conveyance of goods by means of a vehicle.
2. Transtar has one identifiable business activity - its business of the conveyance of goods with vehicles it provides for that purpose and its client contracts for the conveyance of their goods by Transtar in its vehicles. The services performed by Mr Keel for Transtar are all services which are ancillary to the sole business activity of Transtar. They are, in the relevant sense, auxiliary, accessory or incidental to that activity, whether they are referrable to the particular conveyance of goods, some past conveyance or the future conveyance. In the absence of the conveyance of goods by Transtar, Mr Keel's services would not be required.

Chief Commissioner's submissions on appeal

1. The Chief Commissioner submitted that the conveyance of goods exemption cannot be satisfied because the services of Mr Keel were not supplied under a contract for the conveyance of goods by a vehicle or for services ancillary to the conveyance of goods by a vehicle. Mr Keel did not convey goods by means of a vehicle or otherwise.

Consideration

1. We agree with the Chief Commissioner's submissions. Contrary to Fleet Repairs' ground of appeal, the conveyance of goods exemption is not concerned with the relationship between the services required to be provided to Transtar under the contract and Transtar's business activities. The focus of the exemption is on one entire, indivisible, "relevant contract." In this case, the relationship under consideration is the relationship between the services required to be provided to Transtar under the contract and the conveyance of goods by means of a vehicle provided by the person conveying them: Smith's Case at [79].
2. Read in context, and in light of the decision in Smith's case, the conveyance of goods exemption is intended to apply to contracts under which the taxpayer receives various kinds of services under a single contract and where one of those services is the conveyance of goods by means of a vehicle provided by the person conveying them. If, under that contract, the taxpayer receives services ancillary to those services, the contract will not be a relevant contract.
3. In this case, there are no services required to be provided to Transtar under the contract relating to the conveyance of goods by means of a vehicle provided by the person conveying them. Consequently, there is no relationship between those services and the services required to be provided to Transtar under the contract. The question as to whether one service or activity is ancillary to the other does not arise. That reasoning is more specific than the Tribunal's reasoning, but our conclusion is the same. The contract is a relevant contract and attracts payroll tax.

Ground of appeal

1. The contract between RJK Logistic Solutions and Transtar will not be a relevant contract if the management services provided by Mr Keel are "services of a kind ordinarily required by Transtar for less than 180 days in a financial year."

Tribunal's decision

1. The Tribunal found, as a question of fact at [65], that during each of the relevant financial years Transtar required Mr Keel's services for no more than 136 days. However, that conclusion was not sufficient to determine whether the exemption applied. The Tribunal noted that the "less than 180 days exemption" looks primarily at the situation of the recipient of the services - Transtar, rather than at the supplier of the services - RJK Logistic Solutions. At 66, the Tribunal emphasised that: (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".
2. According to the Tribunal, if RJK (through Mr Keel) was the sole supplier of such services to Transtar, the answer would be clear - the "less than 180 days exemption" would apply. The reasoning would be as follows: (a) Mr Keel and RJK supplied the services, (b) Transtar acquired them in the course of its business, (c) By doing so Transtar demonstrated that it ordinarily required those services, (d) Mr Keel spent less than 180 days per relevant financial year in providing those services, and (e) section 32(2)(b)(ii) was necessarily satisfied.
3. The onus was on Fleet Repairs to prove that the services provided by Mr Keel were "services of a kind ordinarily required by the designated person for less than 180 days in a financial year." The Tribunal found, on the evidence, that Fleet Repairs had not proved that that was the case. They had not proved that Mr Keel, as director of RJK, was the sole source of services of the relevant kind. There was evidence that members of staff also made a contribution.
4. Evidence about this matter was in the affidavit of Ms Leon, the sole director of Fleet Repair and a director of Transtar, at paragraph 10: . . . 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.
5. The Tribunal observed at [68] that this evidence "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." The Tribunal went on to note that Ms Leon's evidence "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)."
6. Despite reservations about the probative value of some of Ms Leon's evidence, the Tribunal found that "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 . . . it is entirely likely that she observed and noted."
7. Finally, the Tribunal found at [68(5)] that: (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.
8. At [69], the Tribunal concluded that the "less than 180 days exemption" did not apply: 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 Act is applicable to the arrangements between Transtar and RJK.

Appellant's submissions

1. Fleet Repairs relied on various cases interpreting the words "of a kind" in other legislative contexts: e.g. Bunnings Group Limited v Laminex Group [2006] FCA 182, Young J at [81]. None of these cases is directly relevant in determining this ground of appeal.
2. Fleet Repairs submitted that the management services provided by Mr Keel were not of the same kind as those provided by other staff, including the operations manager. To simply classify the services supplied as "business generation" or "customer and relationship management" in the same sense as that conduct by staff of Transtar is the wrong approach. In effect, the Tribunal has sought to classify the broad nature of the services supplied by RJK in the context of the business of Transtar rather than by reference to the nature or the essential characteristics of the services themselves.
3. Mr Keen's evidence was that he had specialised knowledge of the industry and the clients in that industry and that he brought in 90% of the clientele of Transtar. He was an external consultant with a broad knowledge of the transport industry. According to Fleet Repairs, he was a key man in the particular services which were supplied and the skills, knowledge and experience, and relationships with existing or potential customers or clients were uniquely his own.

Consideration

1. The services are described in the contract as "management services, as directed, to further develop the business prospects of Transtar." The fact that Mr Keel had specialised knowledge of the transport industry, had contacts within that industry, brought in 90% of new clients or was an external consultant does not change the kind of services he was providing. They were management services to further develop the business prospects of Transtar. Other employees did not have to be engaged in the same kind of activities to develop business prospects for their services to be "of a kind ordinarily required by Transtar".
2. The onus is on Fleet Repairs to establish that the number of days in a financial year on which management services to further develop the business prospects of Transtar are required by Transtar, is less than 180: Levitch Design Associates Pty ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 215 at [72]. Apart from the evidence about the number of days Transtar required Mr Keel's services, there was no evidence as to the number of days Transtar required those services from employees. Nor was there any evidence that they did not require services of that kind from other employees. No business records were provided about that issue. The Tribunal made no error in concluding that Transtar had not discharged its onus in relation to the applicability of this exemption.

Costs

1. Neither party applied for costs of the appeal and we make no order as to costs.

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: 10 December 2020