Gabi Duta Pty Limited v Chief Commissioner of State Revenue

1. The Respondent based his assessments on the undated Employers [sic] Questionnaire signed by Mr G F Duta, a director of the Applicant, and served on the Respondent on 14 October 2015 (the Employers Questionnaire). References to question numbers in these reasons are to the answers to the correspondingly numbered questions in the Employers Questionnaire. The Employers Questionnaire states the following: 1. The Applicant carries on business under the name "Gabi's Agricultural Services": Questions 1 and 2. 2. Its principal place of business is located in Mudgee, NSW: Question 3. 3. The nature of its business is to operate a ".. labour hire service ..": Question 15. 4. It employs staff in New South Wales and Victoria: Questions 16, 17 and 18. 5. It is not registered for payroll tax in any other state or territory: Question 19.
2. I turn to the Respondent's basis for issuing assessments, which are in the alternative. The first relies on Division 8 of Part 3 of the Payroll Tax Act 2007, relating to employment agents; this is the basis on which the assessments were issued. His second basis, which he looks to only if his first argument is unsuccessful, relies on Division 7 of Part 3 of that Act, relating to contractors.
3. The first basis can be summarised as follows: 1. the agreements, arrangements or undertakings, whether express or implied, under which the Applicant makes the services of agricultural workers available to its clients are employment agency contracts within the meaning of section 37 of the Payroll Tax Act 2007, because they are contracts (in the expanded meaning of that term provided for in section 37(3)) under which the Applicant procures the services of certain persons - each referred to in section 37(1) as a "service provider" - to its clients; 2. the Applicant is an "employment agent" for purposes of that section; 3. In consequence, the Applicant is taken under section 38 of the Payroll Tax Act 2007 to be an employer for purposes of that Act; because it is so taken to be an employer, the Respondent is thus an employer, as defined in section 3 of that Act, which expressly includes as an employer "… any person taken to be an employer by or under this Act" 4. As well, the persons who perform work for or in relation to which services are supplied by the Applicant to its clients under employment agency agreements - the service providers referred to in section 37(1) - are taken under section 39 of that Act to be employees of the Respondent; 5. Subject to certain exceptions which are not relevant for present purposes, under section 40: 1. the amounts paid to or in relation to the Applicant in connection with any such employment agency contract, 2. the value of any benefit provided for in relation to the provision of services in connection with any such employment agency contract that would be a fringe benefit if provided to a person in the capacity of an employee, and 3. any payment made in relation to a service provider that would be a superannuation contribution if made in relation to a person in the capacity of an employee, are taken to be wages paid or payable by the Applicant. 1. Payroll tax is assessable on taxable wages. These are amounts which are wages for purposes of the Act (including amounts which are taken to be wages under section 40) and which have the requisite connection with New South Wales provided for in section 11. The Respondent says that the vast preponderance of moneys paid during the relevant years by the Applicant to employees or contractors is properly characterised as having the requisite connection with New South Wales.
4. The evidence on which the Respondent bases his argument is primarily the answers provided by the Applicant in the Employers Questionnaire, and in particular the Applicant's answers to the following questions: 1. Question 15, which asks what is the nature of the Applicant's business. The Applicant's response was "LABOUR HIRE SERVICE ". 2. Question 16, which asks when did the business first employ staff in New South Wales. The Applicant's response was "2001". 3. Question 17, which asks if the business employs staff in other states. The Applicant's response was to confirm that it did so, by marking the box "Yes". 4. Question 18, which asks in what states and territories the business employs. The Applicant's answer was to mark the box labelled "VIC", which clearly meant that the business employed personnel in Victoria. 5. Questions 32 and 33, which ask for details of taxable wages in respectively, the years 2011 to 2014, and in the current year. The Applicant responded that it paid taxable wages as follows during the financial years [1] 2011, 2012, 2013, 2014 and 2015: Financial Year 2011 2012 2013 2014 `2015 Dates 1 July 2010 to 31 December 2010 ($) 1 January 2011 to 30 June 2011 ($) 1 July 2011 to 30 June 2012 ($) 1 July 2012 to 30 June 2013 ($) 1 July 2013 to 30 June 2014 ($) 1 July 2014 to 30 June 2015 ($) NSW Wages Salaries Nil 329,303 368,335 267,555 179,270 Superannuation paid to employees/directors Nil 93,442 29,883 2,668 21,694 Liable contractor payments Nil 3,447,073 1,945,882 2,203,895 1,667,854 Total NSW Wages Nil 3,899,818 2,353,100 2,474,118 1,868,818 152,400 (to 31 May 2015) Interstate Wages Nil 28,041 41,426 70,809 63,075 78,514 (to 31 May 2015) Total Australian Wages Nil 3,927,859 2,394,526 2,544,927 1,931,893 230,914 (to 31 May 2015)

1. In relation to the financial year 2016, the Respondent stated in his letter dated 27 May 2016 to the Applicant which accompanied the notices of assessment [2] that in the exercise of his "… power pursuant to section 11 of the Payroll Tax Act 2007 to issue an assessment notice based on information accessible …" to him, he issued an assessment for the period 1 July 2015 to 30 April 2016 derived from: 1. the Applicant's business activity statements for July 2015 to February 2016, and 2. the liable contractor payments for 2015 disclosed in response to Question 32 of the Employers Questionnaire.
2. The reference to section 11 of the Payroll Tax Act appears to be an error. The relevant provision is in fact section 11 of the Taxation Administration Act 1996, but no significance attaches to this, since the Respondent's authority under that section to make the relevant assessment is clear.
3. The Respondent also says that: 1. the workers who are the relevant service providers under the Respondent's analysis work within the respective businesses of the Applicants' clients, as viticultural farm hands, by picking grapes and pruning grapevines, and in some years by "chipping out" weeds or working as general farm hands on cotton farms; and 2. this follows from the 2011/2012, 2012/2013 and 2013/2014 Workcover declarations found at Tab 16 of the s58 documents, and from the Applicant's second Statement of Facts, Issues and Contentions referred to below, which confirms the general accuracy of this description of the workers' duties.
4. The conclusion which the Respondent draws is that the arrangements are, consistently with the decision in UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852, and especially the reasoning found in paragraphs [62] to [66] of that decision, such as to fall within the scope of division 8 of Part 3 of the Payroll Tax Act 2007. This conclusion is in my view correct.
5. The Respondent says that: 1. there is no evidence provided by the Applicant which challenges the Respondent's conclusions, 2. the limited documentary material - annual financial statements, tax returns, business activity statements, wages summaries, ledger pages and Workcover declarations - provided or obtained in relation to the Applicant and its business during the relevant years are not inconsistent with the Respondent's analysis, and 3. accordingly, the Applicant has failed to discharge its onus under section 100(3) of the Taxation Administration Act 1996, so that the Respondent's assessments must stand.
6. Relevant to all of this is certain correspondence in June, July and August 2017 between the Applicant's accountant, Mr Austin, and the Respondent's solicitors, which is appended to an affidavit dated 9 August 2017 by Mr Robert Ghanem, a solicitor employed in the Respondent's solicitor's office. The course of correspondence is as follows: 1. On 1 June 2017 Mr Austin provided a document headed Statement of Facts, Issues and Contentions, to which was attached a spreadsheet prepared by him dissecting the amounts paid by the Applicant in each of the financial years 2012, 2013, 2014, 2015 and 2016 as between wages and contractor payments in each of New South Wales and Victoria. It is fair to say that this spreadsheet offers a radically different basis for assessing the Applicant's liability to payroll tax from that adopted by the Respondent on the basis of the answers to the Employers Questionnaire. It is also fair to say that, apart from the spreadsheet itself, there was little by way of argument or evidence in support of the analysis of the Applicant's liability implicit in the spreadsheet. 2. On 16 June 2017 Mr Austin provided a second document headed Statement of Facts, Issues and Contentions in support of the earlier one. This document expanded somewhat on the Applicant's argument, and essentially puts three arguments on the applicant's behalf: 1. First, a very significant portion of the amounts included by the Respondent in calculating the Applicant's liability for payroll tax are in fact payments made by the Applicant to sub-contractors, in order to ensure that the services of the sub-contractors' employees are available to meet the Applicant's contractual obligations to its customers; 2. Secondly, both wages and contractor payments are clearly referrable to contracts undertaken by the Applicant in either NSW or Victoria; and 3. The assessments should be amended accordingly. 1. Further correspondence followed, concerning: 1. the variation of the formal timetable which had been established for the provision of further evidence for the purposes of this review by the parties, 2. the Applicant's progress in providing that evidence, and 3. the Respondent's intention to raise the employment agent provisions in the review, and the possible application of section 32 of the Payroll Tax Act, if the employment agent provisions were in fact not applicable. 1. On 13 July 2017 the Applicant provided a third Statement of Facts, Issues and Contentions in support of the earlier ones, in which the Applicant asserted that payments "… to contractors in the State of NSW are not "wages" as defined in the payroll tax legislation and are not subject to payroll tax" . 2. There followed a succession of communications between the solicitor for the Respondent and Mr Austin. These included relevantly: 1. A request dated 17 July 2017 by the Respondent's solicitor, requesting certain evidence, such as contractor account ledgers, contractor invoices, contractor time sheets and contracts with contractors and clients relevant to the Applicant's arguments; 2. A succession of email communications, concerning Mr Austin's unsuccessful efforts to obtain from the Applicant and provide the relevant evidence; the latest of these was dated 29 July 2017, and indicated that Mr Austin had been unable to meet with his client and to obtain the relevant information in order to be able to provide it, as he had hoped, by 28 July 2017; and 3. A letter dated 4 August 2017 from the Respondent's solicitor to Mr Austin, in which the Respondent's solicitor: 1. Informed Mr Austin of the Respondent's intention to rely on the employment agency argument and, if unsuccessful in that argument, to argue that the Applicant's arrangements amount to relevant contracts for purposes of section 32 of the Payroll Tax Act; and 2. Invited Mr Austin to provide appropriate evidence which could allow the Respondent to reassess the payroll tax liability on geographic grounds, and included an outline of the types of evidence.
7. As Mr Austin agreed during his oral submissions, no evidence was provided in response, He explained his understanding of his client's business, but recognised that he had been unable to secure from his client any evidence of a kind which might allow him to demonstrate to the Tribunal the correctness of the analysis which underlies both the arguments in his various Statements of Facts, Issues and Contentions and the numerical analysis set out in the spreadsheet. In his own expression, he was " .. hamstrung" in his efforts for his client.
8. One can sympathise with Mr Austin in his fruitless efforts on his client's behalf, but nonetheless three conclusions follow: 1. The Applicant has not discharged its onus of proof in relation to its challenge to the Notices of Assessment; these reasons will deal subsequently with questions of interest and penalty tax; 2. The Respondent's notices of assessment must therefore stand; and 3. In view of that conclusion, there is no need for the Tribunal to consider the potential application of Division 7 of Part 3 of the Payroll Tax Act 2007 in relation to the Applicant's affairs for the relevant years, since by reason of section 32(3) of that Act an arrangement which is an employment agency contract for purposes of Division 8 of Part 3 cannot be a relevant contract to which Division 7 applies.
9. There are two final points to be made concerning the substantive elements of this review: 1. Mr Austin's spreadsheet indicated that the Applicant's wage and contractor payments, both in NSW and Victoria, for the financial year ended 30 June 2015 and the 10 month period ended 30 April 2016 were as follows: Year ended 30 June 2015 ($) 10 month period ended 30 April 2016 ($) Wages NSW 240,152 133,833 Wages Victoria 143,545 138,126 Contractor payments NSW 676,101 494,922 Contractor payments Victoria 737,456 613,588 Total 1,797,254 1,380,469

What follows is that, if one accepts the Respondent's treatment of all contractor payments as taxable wages (as in the absence of evidence to the contrary one must), for all relevant periods - including the 10 month period ending on 30 April 2016, the Applicant's taxable wages exceeded the statutory threshold for registration. 1. The detailed calculations attached to the Respondent's Notices of Assessment of 27 May 2016 exclude from the taxable wages on which payroll tax is calculated the amounts which in response to Questions 32 and 33 of the Employers Questionnaire the Applicant describes as Interstate wages. The Respondent has therefore applied the information provided in the answers to the Employers Questionnaire in a consistent way in the assessments.

1. The Respondent in its Notices of Assessment imposed: 1. Interest under section 22 of the Taxation Administration Act 1996, and 2. Penalty tax calculated at the rate of 25% of the unpaid tax, under section 27 of that Act
2. In respect of unpaid payroll tax for the financial years 2011, 2012, 2013, 2014 and 2015. By letter dated 3 August 2017 to the Applicant, however, the Respondent stated that the amounts of penalty tax had been reduced by 20% in accordance with section 29 of that Act, having regard to the Applicant's disclosure during the Respondent's investigation.
3. In the Tribunal's view, the relevant administratively reviewable decision is the decision evidenced by the notices of assessment issued on 27 May 2016, as modified and supplemented by the Respondent's letter dated 3 August 2017. For the reasons set out above, the Tribunal affirms that decision under section 63(3)(a) of the Administrative Decisions Review Act 1997.

Endnotes

1. As defined in the Payroll Tax Act 2007, section 3, being "… each year commencing on 1 July".
2. Found at Tab 71 of the s58 documents 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: 12 February 2018