1. By correspondence from Gasflow's accountant (Mr Jerry Polatajko) dated 27 April 2017, Gasflow objected to those assessments using the standard form provided by the State Revenue Office.[2] In Part E, 'Reasons for objection', Mr Polatajko responded 'see attached/enclosed schedule'. The ground referred to in the attachment was '[t]he provision of labour is ancillary or secondary to the supply of materials or, equipment by [GOPL]'.[3] Mr Polatajko also referred to the Commissioner's ruling PTA033 relating to section 32(2)(a) of the PTX Act which provides an exemption from the contractor provisions[4] in such circumstances.
2. On 30 June 2017, the Commissioner determined not to allow the objections.
3. On 14 August 2017, Mr Noel Beharis of Affinity Tax Pty Ltd (the instructing solicitor in the proceedings) sent an email to Ms Jade Debono, an officer in the Technical Advice and Review Branch of the State Revenue Office.[5] In that communication, Mr Beharis raised the question of whether Gasflow and GOPL should be grouped and '[i]f so, there is ... the legal question concerning whether the relevant contract rules should be set aside and the two entities treated as a single employer under the Payroll Tax Legislation'. Ms Debono responded by email on 15 August 2017 to advise that, as the objection had already been determined, the Commissioner was 'functus officio', ie. had made his final decision and could not consider the new argument.[6]
4. On 17 August 2017, Gasflow requested that the matter be referred to VCAT under section 106 of the Taxation Administration Act 1997 (Vic) (TA Act). The referral was ultimately made on 24 November 2017.
5. The hearing took place over 2 days in October 2018. The evidence tendered at hearing was:

1. 28 documents (T Documents) filed by the Commissioner with the Tribunal under clause 89(1) of Schedule 1 to the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act) on or about 24 November 2017; 2. unsworn witness statements from: 1. HA filed on 9 March 2018 (HA WS); 2. SA filed on 9 March 2018 (SA WS) and 11 May 2018 (SA FWS);

1. Profit and loss statements for Gasflow for the years ended 30 June 2013 to 30 June 2016; 2. Profit and loss statements for GOPL for the years ended 30 June 2012 and 30 June 2013; and 3. Three invoices issued by GOPL to Gasflow dated 23 February 2012, 13 March 2012 and 20 March 2012 (GOPL Invoices).
2. HA and SA attended to give evidence and be cross-examined.

1. Under the Victorian payroll tax legislation, payroll tax is imposed on taxable wages paid by an employer to its employees in Victoria in a financial year.[7]
2. The payroll tax legislation includes provisions (contractor provisions) by which amounts paid to a person under a 'relevant contract',[8] that are 'for or in relation to the performance of work', are taken to be wages.[9] Such amounts are taxable wages to the extent paid under a relevant contract to a person in Victoria.
3. However, the payroll tax legislation provides that services provided under certain contracts are excluded from the relevant contract provisions (contractor exemption provisions), such as where the services are provided to the public generally.[10]
4. As payroll tax is only payable on taxable wages where (and to the extent) the wages exceed a specified threshold, the payroll tax legislation includes provisions to group certain employers, such as where they are under common control, to prevent multiple thresholds being claimed by the one group (grouping provisions).[11]
5. These proceedings concern the application of the above provisions to the arrangements between Gasflow and GOPL in the Relevant PTX Years. There is a preliminary procedural issue regarding leave to raise certain grounds not included in the objection and, subject to that leave being granted (as necessary), four main (but overlapping) issues in contention:

1. The contractor exemption provisions: Whether wages which may prima facie be treated as being paid under the contractor provisions are exempt from those provisions under the exemptions for services: 1. that are ancillary to the use of goods which are the property of the person by whom services are supplied (ancillary services exemption);[12] 2. performed by a person who ordinarily performs services of that kind to the public generally (services provided to the public exemption);[13] or 2. where the work to which the services relates is performed 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 (two or more employees exemption).[14]

1. The grouping inconsistency ground: Whether the grouping provisions are inconsistent with the contractor provisions, such that the contractor provisions should be read down to exclude relevant contracts (or wages paid under relevant contracts) between members of a group.
2. In addition, and again subject to leave, Gasflow argues that VCAT should determine that no penalties are payable on the basis that it took reasonable care (reasonable care ground).[15]

1. The decision of the Commissioner in respect of the financial year ended 30 June 2013 is set aside, and assessment no. 12134100, is varied to nil.
2. The decision of, and the assessments which have been issued by the Commissioner to Gasflow, for the years ended 30 June 2014 (assessment no. 12134118), 30 June 2015 (assessment no. 12134134) and 30 June 2016 (assessment no. 12134176) are confirmed.
3. To briefly summarise, I have decided:

1. Leave to rely on additional grounds not raised in the objection: Leave is granted for Gasflow to rely on the services provided to the public exemption, the two or more employees exemption and the grouping inconsistency ground. Leave is refused for the reasonable care ground. 2. The contractor exemption provisions: The services provided to the public exemption and the two or more employees exemption applies for the financial year ended 30 June 2013, but none of the contractor exemption provisions are applicable to the financial years ended 30 June 2014, 30 June 2015 or 30 June 2016.

1. The grouping inconsistency ground: The grouping inconsistency ground is misconceived as there is no group as between Gasflow and GOPL and, in any event, there is no basis to ignore relevant contracts which give rise to deemed wages under the contractor provisions by reason that the relevant contracts are between members of a group.

LEAVE TO RELY ON ADDITIONAL GROUNDS NOT RAISED IN THE OBJECTION

1. As noted above, the objection lodged with the Commissioner on behalf of Gasflow on its face only referred to the ancillary services exemption from the contractor provisions.
2. However, Dr Orow (for Gasflow) contends that, when read in context, the objection should be viewed more broadly as contending that an exemption from the contractor provisions applies, allowing Gasflow to rely on the two or more employees and services provided to the public exemptions without leave.
3. Alternatively, Gasflow submits that leave should be granted because the Commissioner has been on notice of the grounds since the filing of the Applicant's Statement of Legal Contentions on 9 March 2018 (ASLC) and will not suffer prejudice as a result of the additional grounds based on the contractor exemption provisions.
4. As indicated in paragraph [11], Mr Beharis (on behalf of Gasflow) foreshadowed the grouping inconsistency ground in discussions and correspondence with the Commissioner's representatives in August 2017.
5. Gasflow submits that the Commissioner has been well aware of the additional ground, there was no additional evidence that needed to be prepared or filed, the matter is one of significant importance and there is no prejudice to the Commissioner.
6. Lastly, on the morning of the hearing, Dr Orow indicated that Gasflow also sought to have the penalties remitted on the basis that Gasflow had taken reasonable care. While he ultimately accepted that this had not been raised in any prior correspondence, he contended that leave should be allowed as it did not add time to the proceedings (as it only required two questions to be put by him to HA) and again there is no prejudice to the Commissioner.
7. Mr Williams (for the Commissioner) did not seek to contend that there would be significant prejudice to the Commissioner if leave was granted to allow the additional grounds to be argued. However, he said that prejudice is not the only factor established in the case law.
8. In relation to the two or more employees exemption, he noted that this had been raised conditionally in the ASLC, ie. '[i]f contrary to the contentions of the Applicant ... it is found that [GOPL] engaged the services of other persons'.[16] As the Commissioner does not contend that GOPL engaged the services of others, and the evidence shows that Gasflow employed all of the employees apart from SA, the ground is misconceived.
9. In relation to the services provided to the public exemption, Mr Williams contended that leave should not be granted because, from the moment that GOPL committed to being a subcontractor to Gasflow for the provision of services under the APA Contract, GOPL did not provide - and was no longer available to provide - services to the public generally.
10. The Commissioner accepts that mention of the grouping inconsistency ground was made at an early stage, but contends that it was raised without identifying the basis on which grouping was said to exist or the inconsistency now sought to be relied upon. The Commissioner contends that these are matters that should have been raised by Gasflow earlier, are probably misconceived, and VCAT should consider whether it is fair for Gasflow to raise them now.

1. Under section 109 of the TA Act, on a review, a taxpayer's case is limited to the grounds of the objection unless the Tribunal otherwise orders.
2. The discretion to grant leave to allow an additional ground or grounds to be argued is 'large and expressed in unfettered terms'.[17]
3. I discussed the leading cases concerning this discretion in Carvalho v Commissioner of State Revenue[18] in the following terms:

In Harry One Pty Ltd v Commissioner of State Revenue, Hollingworth J referred with approval to the description of the equivalent provision in Federal tax legislation as 'an unfettered discretion remedial in nature to overcome a mischief resulting in injustice'.

In Conder Towers Pty Ltd v Commissioner of State Revenue, Pagone J considered the discretion in section 109 of the TA Act and granted leave in circumstances where:

• the additional ground had been notified to the Commissioner several months before the hearing;
• no prejudice was caused to the Commissioner by permitting the taxpayer to rely on the additional ground;
• the evidence supporting the ground had been filed before the hearing and no evidence was sought to be tendered by the Commissioner in opposition; and
• the point was discrete, confined and added little time to the hearing of the proceeding.

As evident from the first consideration referred to in Conder Towers, the time of making an application for leave to add an additional ground can be important. In Love v Commissioner of State Revenue, Senior Member Davis indicated that he would have denied leave to a self-represented applicant to raise an additional ground where it was only raised after all evidence had been called, stating that:

In any event, s.109 of the TAA limits the taxpayer's case to his ground of objection. In this particular instance there was no issue about the clearance certificate in the taxpayer's ground of objection. In any event, even if Mr Love had requested leave to argue such ground, bearing in mind that Mr Love only raised it in his reply, in a hearing where evidence had been called and submissions were basically finished, I do not believe it would have been appropriate to grant leave in those circumstances, even for a self-represented person.[19]

1. Before considering each additional ground sought to be advanced, it is appropriate to briefly comment on VCAT's procedures in relation to taxation reviews.
2. When a taxation matter is referred to VCAT for review, a timetable is set with orders made for the filing and exchange of the parties' legal contentions and the evidence on which they will seek to rely (including witness statements). It is only after the submissions and evidence have been filed that an administrative mention is scheduled to set the date for the hearing.
3. The above procedures reflect the need for VCAT to ensure that matters proceed efficiently in accordance with obligations under the VCAT Act to 'determine each proceeding with as much speed, as the requirements of this Act and the enabling enactment and a proper consideration of the matters before it permit'.[20]
4. While VCAT is bound to act fairly and according to the substantial merits of the case,[21] parties are expected to adhere to those procedures, particularly where they are represented.
5. I reject Gasflow's contention that the two or more employees exemption or the services provided to the public exemption were express or implied grounds of the objection. There was no reference to some overarching ground that the contractor exemption provisions generally applied.
6. While I do agree with Dr Orow's contention that, in making an assessment based on the application of the contractor provisions, it is incumbent on the Commissioner to turn his mind to the contractor exemption provisions, this does not impact on the strictures imposed by the TA Act if a taxpayer seeks to object to the assessments and subsequently pursue a review at VCAT or appeal to the Supreme Court.
7. That said, I grant leave for Gasflow to rely on the additional grounds relating to the two or more employees exemption and the services provided to the public exemption. These grounds were flagged in the ASLC, filed seven months in advance of the hearing and, at least in so far as the financial year ended 30 June 2013 is concerned, are clearly raised for consideration on the evidence filed at that time.
8. I also grant leave for the grouping inconsistency ground. This ground was raised even earlier by the correspondence of 14 August 2017. While it is true, as the Commissioner submits, that that correspondence does not shed a lot of light on the basis on which grouping is claimed to exist or the impact that grouping may have if found to exist, there is no unfairness to the Commissioner by allowing those matters to be considered now. The evidence on which Gasflow seeks to rely has all been filed in accordance with the timetable set down by the Tribunal (extended by consent). Most relevantly, the grouping inconsistency ground raises an issue of some importance as to the interpretation of the PTX Act.
9. However, I refuse leave for the reasonable care ground.
10. Gasflow has been represented throughout this matter. No explanation was given for the failure of any of those representatives to raise the reasonable care ground at any time prior to the first day of the hearing.
11. Further, there is nothing in the witness statements for HS or AS that provided any evidence relevant to the ground now contended for.
12. The only evidence provided was HA's response to two questions put to him by Dr Orow. The evidence itself was far from satisfactory. All HA said was that he had not caused Gasflow to be registered for payroll tax on the advice of his accountant,[22] on whose advice he relied. However, in response to a query from me, he could not recall whether Gasflow had received any written advice. There is no evidence of when that advice was requested or given, what issues the advice was sought on, what information was provided (or known) to the accountant in order to provide his advice or whether there were any assumptions or limitations on the advice given. The accountant was not called to clarify any of these matters.
13. I now turn to consider the issues in dispute.

1. Gasflow concedes that, subject to the grouping inconsistency ground, the contractor provisions prima facie apply to the arrangement between it and GOPL which applied during the Relevant PTX Years. That is, the arrangement is a relevant contract and the payments of some $3 million made under those arrangements are deemed to be wages paid by Gasflow (taken to be an employer) to GOPL (taken to be an employee) for the purposes of the PTX Act.
2. However, Gasflow contends that one or more of the contractor exemption provisions apply to exempt any payments to GOPL from being treated as wages.
3. Each of the claimed exemptions is considered below.

1. The main contractor exemption provision relied on by Gasflow is the ancillary services exemption. It is contended for Gasflow that the evidence shows that GOPL provided Gasflow with the use of a variety of equipment necessary to conduct the activities required to fulfil Gasflow's obligations under the APA Contract and that the services of SA - GOPL's only employee between October 2012 and 30 June 2016 - were ancillary to the provision of the use of that equipment.
2. In particular, Gasflow relies on the evidence given by SA at the hearing that the component of the GOPL charges referable to his labour was small at $500 per day. Gasflow also relies on the three GOPL Invoices tendered.[23] Although those precede the Relevant PTX Year, Gasflow submits that they evidence that the provision of the use of equipment was always contemplated. In this regard, the GOPL Invoice for:

1. 23 February 2012 describes the things supplied as 'Services Rendered 17/02/2012 (Gear plus Scott & John)', for which the sum of $2,500 was charged; 2. 13 March 2012 describes the charges as being $2,180 per day, calculated as 'Base rate of $2,500 per day - $320 (no John)'.

1. 20 March 2012 describes charges for 14 March of $1,640 as comprising '$1000 + John ($320) + Billy ($320)'.
2. By contrast, the Commissioner contends that the first step is to characterise what the contract between Gasflow and GOPL was for,[24] and says that the evidence of HA and SA support that it was a contract to achieve an outcome - ie. satisfaction of all the obligations of Gasflow under the APA contract (other than those of an administrative nature) - rather than a contract for the use of goods. In that context, it is artificial to look at hire rates for comparable equipment[25] or daily rates for staff.
3. The Commissioner further argues that, even if it is wrong on that point, the evidence shows that the equipment utilised by GOPL in undertaking the services had a purchase cost of at most $300,000, which is disproportionate in comparison to the fees of around $3 million paid by Gasflow to GOPL over the Relevant PTX Years.
4. Under cross-examination, SA sought to explain this difference on the basis that there was no certainty of continued work under the APA Contract due to the need to tender for tranches of work from APA, with no guarantee of work. However, the Commissioner says that evidence should be given no or little weight, having regard to the fact that HA had nothing to say on the discrepancy, and a letter from APA provided to Gasflow on 13 April 2017[26] confirms that Gasflow was engaged under a five year contract from 1 July 2011 to 30 June 2016.
5. Lastly, the Commissioner says that references to the wages actually received by SA from GOPL (eg. $108,680 in the year ended 30 June 2016) or what SA has recently been offered to become an employee project manager for another company (approximately $150,000 per annum) are not comparable. The Commissioner says this is because, under the arrangement between Gasflow and GOPL, GOPL was taking entrepreneurial risk and was entitled to the associated reward. In this regard, the Commissioner notes that, in addition to the wages referred to above, SA received a dividend from GOPL of $386,673 during the year ended 30 June 2016, taking his total return from the arrangement to close to $500,000.
6. The precise wording of the exemption as set out in section 32(2)(a) of the PTX Act is as follows:

(2) However, a relevant contract does not include a contract of service under which a 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

1. The critical word in that provision is 'ancillary'.
2. In Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue,[27] the New South Wales Court of Appeal considered the equivalent ancillary services exemption in the payroll tax legislation of that jurisdiction. Glesson JA delivered the primary judgement stating that:[28]

The ambit of the expression "ancillary" is to be gleaned from the context, namely 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.

1. It seems that the parties in that proceeding were in broad agreement with the primary judge's description of ancillary as 'subsidiary, incidental, accessory, auxiliary', although there was debate as to whether it also needed to be 'subservient'.[29]
2. Importantly, following a review of cases considering the meaning of ancillary, Gleeson JA drew out six propositions, the last of which was that 'ultimately the question whether one activity is ancillary to another is a question of fact and degree'.[30]
3. I find that Gasflow has failed to prove the ancillary services exemption is available for the following reasons:-
   • All of the sample invoices provided by Gasflow[31] relating to the Relevant Tax Years simply refer to 'Services Rendered' and 'Scott ($3,200)'. There is no reference to the use of goods generally, or any particular goods provided for the job.
   • While the GOPL Invoices tendered for the period before the Relevant Tax Years contain a reference to 'gear' and some breakdown of the amounts referable to people who were employed by GOPL at that time, they do not specify or attribute any particular amount to gear or make it clear how much was attributable to the services of SA.
   • I accept the Commissioner's contention that it would not have made any commercial sense for Gasflow to pay around $3 million over 4 years principally to use equipment worth $300,000 at most. While I agree with Dr Orow that it is not for the Commissioner to tell taxpayers how to run their business, it is a matter which is appropriately considered in weighing the facts.
   • I reject SA's evidence that the discrepancy between the payments made to, and the value of the equipment provided by, GOPL can be explained by the uncertainty as to ongoing work under the APA Contract. First, this is not consistent with the letter provided by APA referring to a five year contract or the actual fact pattern over the Relevant Tax Years where GOPL evidently obtained so much work that it was unable to perform services for Tenix or any other party. Second, I note that HA, who was the then principal of Gasflow, did not proffer that explanation (or indeed any explanation) for the discrepancy when asked.
   • While the evidence does show that GOPL provided some specialist equipment necessary to fulfil the APA Contract, the evidence also shows that Gasflow had a considerable amount of equipment itself. In this regard, I reject the suggestion that the use of the supplementary equipment provided by GOPL was the principal reason for the engagement by Gasflow of GOPL or that the services of SA were ancillary.
4. While the real purpose of the arrangement is only known to Gasflow and GOPL (or HA and SA), there is a sense from the evidence that over the Relevant Tax Years, HA was trying to see which of his two sons (SA and Mr Brendan Alkemade) was best placed to take over the Gasflow business after his retirement.[32] Ultimately, his other son decided to move away from gas mains installation into general building work, and SA acquired Gasflow. In this light, the considerable amounts that Gasflow paid to GOPL over the Relevant Tax Years can be seen to be the cost for maintaining the APA Contract and the value of the Gasflow business for the benefit of HA's family over that period.[33] It is self-evident that this does not make it principally a contract for the provision of the use of goods.

1. Gasflow also relies on the services provided to the public exemption. In this regard, it submits that during the year ended 30 June 2013, GOPL was available to and in fact did provide the same or similar services to other parties, being gas installation services which GOPL provided under contract with Tenix between July to October 2012. Further, it is contended that the Tenix contract remained on foot and GOPL would have been available to provide services to Tenix for the remainder of the Relevant PTX Years but for the fact that the work was less remunerative and certain than the work that GOPL obtained from Gasflow over that period.
2. By contrast, the Commissioner says that, from October 2012, there was a complete and permanent shift in the activities of GOPL whereby it became an exclusive provider of services to Gasflow. This was both the intention of the agreement between Gasflow and GOPL and its effect, given that on the evidence GOPL had no time to perform services for any other party.
3. In relation to the period from July to October 2012, the Commissioner submits that the evidence is unsatisfactory and was only for part of the year until the arrangements with Gasflow became permanent. In relation to the evidentiary point, the Commissioner's Outline of Submissions dated 13 April 2018 (COS) notes that the Tenix contract was not produced and 'no firm conclusions can be drawn about whether or not the services provided to Tenix were, or were not, of the same kind as the services provided to the applicant'.
4. The relevant exemption is set out in section 32(2)(b)(iv) of the PTX Act as follows:

(2) However, a relevant contract does not include a contract of service under which a person ...

(b) is supplied with services for or in relation to the performance of work where -

(iv) ... the 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.

1. Gasflow says it does not matter that GOPL did not in fact provide services to any other party, relying on the decision of the Administrative Appeals Tribunal of Victoria in Re Behmer & Wright Pty Ltd and the Commissioner of State Revenue[34] concerning the equivalent provision in the predecessor legislation.[35] In particular, reference is made to paragraph [17] where Presiding Member Pagone considered the situation of 'the barrister who accepts a brief which requires exclusive commitment to one matter over a long period of time, and perhaps a number of years' and concludes:

In such a case the barrister would still be thought of as ordinarily rendering services of that kind to the public generally though in fact the barrister was providing services exclusively to the one client during the period of the brief.

1. By contrast, the Commissioner says the decision of the Court of Appeal of the Supreme Court of Victoria in Drake Personnel Ltd v Commissioner of State Revenue[36] - also relating to the predecessor legislation - stands for the proposition that it is the actual performance of work for the public that is relevant. In the leading judgement, Phillips JA says:

On my reading of the Pay-roll Tax Act 1971 (Vic), the temporary who generally arranges his or her own work engagements directly with members of the public ... but on occasion obtains an engagement through Drake, may well be one who attracts the [exemption]. In contrast [the exemption] will not be called into play where the temporary is regularly working only through Drake. Such a temporary cannot be said to be supplying to Drake services of such a kind as are ordinarily supplied by that temporary to the public generally; that temporary is ordinarily supplying such services only to Drake.

1. There is an obvious tension between the two decisions. However, they can be reconciled if the differences between the two situations are properly analysed. A barrister will always return to offering his or her services to the public generally after finishing a particular trial, even if it is a lengthy trial. By contrast, while a temporary is in theory always available to work for the public, if they are devoting themselves full time to a particular employment agency, there is no certainty if and when a temporary might take on work from the public generally.
2. I accept Gasflow's submission that GOPL should be regarded as meeting the requirements of the services performed for the public generally exemption in the year ended 30 June 2013.
3. In this regard, the evidence was that, while the scale of the gas mains installation work under the APA Contract was significantly larger and more complex than the residential gas installation work under the Tenix contract, they can still be regarded as services of the same kind. Indeed, if this were not so, then it seems unlikely APA would have approved GOPL as a subcontractor for the purposes of the APA Contract.
4. Although it is true that the work under the Tenix contract was effectively limited to the first few months of the 2013 financial year, I consider the exemption capable of applying whether the services are provided to the public continuously throughout the financial year or in discrete periods, so long as they continue to be offered generally. In this regard, the evidence of SA was that, although GOPL ceased to perform work for Tenix after October 2012, the contract continued and had GOPL not been so busy, it could have taken on further work from Tenix.
5. However, in my view, the position becomes tenuous in the subsequent years. By July 2013, GOPL had been devoted fully to the arrangement with Gasflow for some 8 months and would continue operating in that capacity for at least a further 3 years. Further, the evidence does not support the suggestion that the arrangements with Tenix continued beyond 31 March 2013.[37] This puts GOPL more in the situation of the 'temporary' considered in Drake than the barrister considered in Re Behmer. I find that GOPL was neither ordinarily providing, nor ready to provide, services of the same kind to the public generally in the payroll tax years ended 30 June 2014 to 30 June 2016.

1. Lastly, Gasflow relies on the two employees exemption for the year ended 30 June 2013 on the basis that GOPL employed both SA and another person, for the period from July 2012 to October 2012.
2. The Commissioner contents that the 'invoices from GOPL to [Gasflow] are clear: the services were provided by "Scott".'[38] As such, the ground 'simply does not arise and is inconsistent with the applicant's own evidence'.
3. The relevant exemption is set out in section 32(2)(c)(i) of the PTX Act as follows:

(2) However, a relevant contract does not include a contract of service under which a person ...

(c) is supplied by a person ... with services for or in relation to the performance of work ... 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.

1. There is evidence to support the contention that GOPL employed both SA and another employee, Mr Jamie Paul, for the period from 27 August 2012 to 25 March 2013.[39] As this spanned the period that GOPL ceased working for Tenix and devoted itself to the APA Contract, it follows that for the year ended 30 June 2013, the work to which the services provided by GOPL to Gasflow relates was performed by two employees of GOPL.
2. As such, even if I am wrong in relation to the services performed for the public generally exemption, I find that the amounts paid by Gasflow to GOPL are nevertheless exempt from payroll tax for the year ended 30 June 2013 (only) under the two or more employees exemption.

1. In the ASLC, Gasflow contends that it and GOPL 'formed a group within Part 5 of the [PTX Act]. In consequence they formed and must be treated as one entity and the payments made by [Gasflow] to [GOPL] in the years of assessment were internal payments and ought not have been included in calculation of taxable wages and assessed to [Gasflow]'.[40]
2. This argument raises two issues, namely whether Gasflow and GOPL are members of a group for payroll tax purposes and, if so, whether the contractor provisions are inconsistent with the grouping provisions, such that the former should be read down to exclude payments between members of such a group.

1. The contractor provisions, which have already been outlined above, are found in Division 7 of Part 3 of the PTX Act. Part 3 deals with the concept of 'wages' for payroll tax purposes and the effect of the contractor provisions is to deem amounts paid by a principal to a contractor under a 'relevant contract' to be wages, which may then be liable to payroll tax.
2. The Explanatory Memorandum to the Pay-roll Tax (Amendment) Bill (No.2),[41] which introduced the contractor provisions in the predecessor legislation, explained the mischief they were introduced to deal with:

Over the last five or six years there has been an accelerated erosion of the pay-roll tax base through the increased propensity of employers to engage new staff as contractors rather than as employees, and to convert existing employees to contractor status.

1. The grouping provisions are found in a separate part of the PTX Act, namely Part 5. Division 2 of this part identifies when a group exists, relevantly including situations where:
   1. one or more employees of an employer perform duties for or in connection with one or more businesses carried on by the employer and one or more other persons (common employee grouping);[42] and
   2. a person or set of persons has a controlling interest in each of 2 businesses (common control grouping).[43]
2. Common control grouping exists in the case of a corporation, if:[44]
   1. the person or each of the set of persons is a director of the corporation and the person or set of persons is entitled to exercise more than 50% of the voting power at meetings of directors; or
   2. a director or set of directors of the corporation that is entitled to exercise more than 50% of the voting power is under an obligation, whether formal or informal, to act in accordance with the direction, instruction or wishes of that person or set of persons.
3. Dr Orow also relied on a similar provision to that mentioned in paragraph [87(a)] dealing with common control relating to a business carried on by a body corporate or unincorporated, focusing on composition of the entity's board of management.[45]
4. Part 5 of the PTX Act includes two substantive provisions relating to the consequence of grouping.
5. First, section 80 of the PTX Act provides that the members of the group may, with the approval of the Commissioner, designate a qualified member of the group to be the 'designated group employer' for the purposes of the PTX Act. This has relevance to the calculation of payroll tax in accordance with Schedules 1 and 2 to the PTX Act in that the designated group employer is only liable to tax on wages it pays in excess of the payroll tax threshold,[46] while all other group members must pay tax on all of their wages.[47] However, if no designated group employer is so designated, then all members of the group must pay tax on all of their wages.[48]
6. Second, under section 81 of the PTX Act, if a member of the group fails to pay its tax, 'every member of the group is liable jointly and severally to pay that amount to the Commissioner'.
7. The Explanatory Memorandum to the Pay-roll Tax Bill 1974,[49] which introduced the grouping provisions in the predecessor legislation, explained its effect:

The provisions of this clause will subject to the exceptions referred to later, in effect, deem all related and associated parts of an organization to be the one group and allow the group one general exemption only on all wages paid by the related and associated employers in the group.

1. There is no provision in the PTX Act which expressly excludes wages (actual or deemed) paid between members of a group. However, in interpreting the relationship between these two sets of provisions, Gasflow points to the majority decision in Project Blue Sky Inc v Australian Broadcasting Authority[50] who indicated that conflicting statutory provisions should be reconciled so far as is possible, stating:[51]

A legislative instrument must be construed on the prima facie basis that the provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions.

1. It is normally the Commissioner that would argue for - and taxpayers against - the existence of a payroll tax group. This is because, if there is no group, each putative group member would be entitled to its own payroll tax threshold and would not bear joint and several liability for the payroll tax debts of the putative group.
2. This may be the first case where the roles have been reversed.

1. Gasflow primarily relies on common employee grouping for its contention that Gasflow and GOPL formed a payroll tax group. It submits that, in the 2012/2013 payroll tax year, SA and other employees of GOPL (or at least Mr Paul) worked for Gasflow. In the subsequent payroll tax years, the evidence shows that there were seven employees of Gasflow that were under the direction of SA (an employee of GOPL) such that they could be seen to be working for both entities.
2. The Commissioner did not address the 2012/2013 payroll tax year specifically but, in relation to the subsequent payroll tax years, says that SA worked solely as an employee of GOPL, while the seven employees worked solely for Gasflow. As such, there is no basis for common employee grouping to apply.
3. Having regard to my decision on the contractor exemptions for the 2012/2013 payroll tax year, it is not necessary to reach a conclusion on grouping in relation to that year.
4. In relation to the subsequent payroll tax years, I agree with the Commissioner's contention that the evidence does not support the submission that the seven employees worked for GOPL. Rather, they were intentionally employed by Gasflow to work on mains gas installations under the APA Contract. Gasflow paid their wages directly. Given that, on the applicant's case, the charges from GOPL to Gasflow were primarily for the equipment provided by GOPL, and for the ancillary services of SA, it cannot even be said that GOPL received any benefit from the work of those employees.
5. Conversely, so far as SA is concerned, in project managing the APA Contract, he was acting as an employee of GOPL and for its benefit (in terms of the fees payable by Gasflow to GOPL), not as an employee of Gasflow.[52]
6. As such, I find that there was no group as between Gasflow and GOPL on the basis of common employee grouping.

1. As an alternative to common employee grouping, Gasflow relies on common control grouping to support its contention that Gasflow and GOPL formed a group.
2. Dr Orow explained that this is based on that fact that SA was an alternate director of Gasflow throughout the Relevant PTX Years and that, together with HA and Mrs Alkemade, they comprised a 'set of persons' with 100% control of Gasflow. He then submitted that the same 'set of persons' between them also controlled 100% of GOPL. He also said the same would apply if the board of management test was applied.
3. In the alternative, he contends that SA was accustomed to act in accordance with the directions of his father, such as in relation to the purchase of equipment.
4. The Commissioner says that while it might be possible to say that SA, HA and Mrs Alkemade are a set of persons that between them controlled Gasflow, it cannot be said that the same set controlled GOPL because HA and Mrs Alkemade were not involved in the management of GOPL at all. Mr Williams said if Gasflow's position was accepted, it would be like saying that his private company should be grouped with BHP because he controls his own private company, and the directors of BHP control BHP, so between them they control both companies.
5. I agree with the Commissioner's contentions. When the legislation refers to a 'set of persons', I consider that this requires the same set of persons to have some level of active involvement in the management of the companies to be grouped. This is not the case for HA and Mrs Alkemade in relation to GOPL.
6. As for the 'accustomed to act' test, the evidence shows that SA ran the day to day operations of Gasflow, while HA managed the company (eg. attending to its tax affairs) and maintained a level of oversight to ensure that the requirements of the APA Contract were being met. HA did not act in accordance with SA's instructions.
7. Conversely, while SA may have consulted with HA on the staffing and equipment needs for a given tender under the APA Contract, there was nothing to suggest that HA directed SA in so far as the management of GOPL itself was concerned.
8. As such, I find that there was no group as between Gasflow and GOPL on the basis of common control grouping

Are the contractor and grouping provisions inconsistent, requiring the former to be read down?

1. While it is strictly unnecessary to consider the grouping inconsistency ground given my conclusion that Gasflow and GOPL were not a group, as the argument was a novel one, there may be benefit in expressing a view on this point.
2. Dr Orow sought to explain the perceived inconsistency that arises where the contractor provisions applying to 'intra-group' contracts in the following terms:
   • under the contractor provisions, where a 'relevant contract' exists, the amounts paid by the deemed employer (ie. Gasflow) to the deemed employee (ie. GOPL) are 'taken to be wages';[53]
   • the provisions go on to state that 'no other person is liable in respect of that payment';[54]
   • this is inconsistent with the grouping provisions that make GOPL joint and severally liable for the payroll tax of the group,[55] such that GOPL does in fact remain liable for payroll tax on the payment it receives.
3. The Commissioner says there are a number of reasons I should not find there is inconsistency between the contractor and grouping provisions.
4. First, he points to the fact that the PTX Act does not mandate the payment of wages, so that if only the grouping provisions applied, GOPL could decide not to pay any wages to SA, which would reduce the overall payroll tax liability of the group.
5. Second, if Gasflow's contentions were accepted, then it would potentially apply to both related and unrelated contractors in the following manner:
   • Coy A and Coy B form a group;
   • Coy A enters a relevant contract with Coy X.
   • Because of section 35 of the PTX Act, Coy A is liable to payroll tax for payments made to Coy X that are deemed to be wages.
   • Coy B can't be made jointly and severally liable for the payroll tax on the deemed wages because of the claimed operation of section 36(a) of the PTX Act.
6. It is contended that it would be 'an invitation to tax evasion' to interpret the provisions in the way proposed by Gasflow.
7. Rather, the Commissioner submits that section 36(a) of the PTX Act deals with the primary liability to payroll tax, and the grouping provisions deal with a different question entirely (ie. liability on default).
8. Lastly, the Commissioner says that, if Parliament intended to provide an exemption from the contractor provisions for transactions within a group, one would expect it to be spelt out; but it is not.
9. In my view, there is no conflict between the contractor and grouping provisions which needs to be alleviated - in the sense discussed in Project Blue Sky - in order to ensure the PTX Act operates as a harmonious whole.
10. First, as previously noted, there is no express provision in the contractor provisions to exclude their operation in the case of transactions within a group.
11. Second, as the Commissioner submits, while section 36(a) of the PTX Act operates to prevent another party having primary liability for payroll tax on wages that are deemed to be paid by the principal (as employer) to the contractor (as employee) under a 'relevant contract', this says nothing about collection. The joint and several liability as between members of a group created by section 81 of the PTX Act only operates in the event of default by the group member. It is evidently directed to assuring the collection of all payroll tax due by a group once the individual liabilities of the group members have been determined.[56]
12. Third, the primary purpose of the grouping provisions is to prevent avoidance by related companies accessing multiple payroll tax thresholds by disaggregating their employees among a number of entities.[57] However, the structure of Schedules 1 and 2 to the PTX Act makes it clear that each entity pays payroll tax on its own wages save that, if there is a designated group employer, that entity (alone) can benefit from the payroll tax threshold. It would have been simple enough to adjust for intra-group wages, if the Parliament had wished to do so.
13. Fourth, as conceded by Dr Orow, if I was to find that the grouping provisions operated and excluded the application of the contractor provisions to the payments by Gasflow to GOPL, that would not be the end of the matter. It would then be necessary to determine the liabilities of each member of the group under Schedules 1 and 2 to the PTX Act, with Gasflow paying payroll tax on the wages to its employees (ie. the seven people engaged to work on the APA Contract), and GOPL paying payroll tax on the wages it paid to SA. As there would be no designated group employer in this situation, there would be no payroll tax threshold available to either Gasflow or GOPL, which may well negate a lot (if not all) of the benefit. However, more significantly, this would effectively allow the group to control its payroll tax by determining how much GOPL distributed to SA by way of wages (taxable) versus dividends (non-taxable). This could not be the intention of Parliament, having regard to the purpose of both the contractor and grouping provisions to prevent avoidance of payroll tax.
14. The limited operation of the payroll tax grouping provisions can be contrasted with the far more extensive provisions dealing with groups for income tax purposes.[58] The income tax consolidation provisions expressly include a 'single entity rule' which treats the subsidiaries of such a group as if they were part of the head entity (generally the ultimate Australian parent), rather than separate entities.[59] As explained by the Federal Commissioner of Taxation, a consequence of the single entity rule is that 'dealings that are solely between members of the same consolidated group (intra-group dealings) will not result in ordinary or statutory income or a deduction to the group's head company'.[60] However, even despite the evident breadth of that concept, there are still limitations as to how far the deeming goes.[61]
15. By contrast, the only reference to any concept approaching the single entity rule in a payroll tax context is the reference in the explanatory memorandum introducing the grouping provisions to deeming 'all related and associated parts of an organization to be the one group'. However, this comment is made in the context of the single threshold and, in any event, could only be of assistance if there was some ambiguity in the provisions, which there is not.
16. Therefore, I do not consider that the contractor provisions ought to be read down to exclude wages deemed to be paid under a 'relevant contract' between members of a group.

[2] Documents filed by the Commissioner with the Tribunal under clause 89(1) of Schedule 1 to the Victorian Civil and Administrative Tribunal Act 1998 (T Documents), T4.

[4] These are explained at paragraph [16] below.

[17] Conder Towers Pty Ltd v Commissioner of State Revenue [2012] VSC 107 [33].

[18] [2017] VCAT 1295 [38]-[40] (footnotes omitted).

[22] The same accountant that prepared the objection.

[24] The Commissioner relies on DSG Pty Ltd v Victorian Workcover Authority [2008] VSCA 42 [44] for the proposition that 'services' has a broad meaning in this context.

[27] [2013] NSWCA 470.

[33] In response to a query from me, SA said HA had not transferred Gasflow to SA earlier because of a concern about shutting the door on SA's younger brother, which had been a matter of much discussion between the family members.

[34] (1994) 28 ATR 1082.

[35] Pay-roll Tax Act 1971 (Vic).

[36] (2000) 43 ATR 413.

[39] SA FWS [21] and Attachment SA-10.

[46] For example, see PTX Act, Sch 2, item 8(2).

[47] For example, see PTX Act, Sch 2, item 8(3).

[48] For example, see PTX Act, Sch 2, item 12.

[50] [1998] HCA 28; [1998] 194 CLR 355.

[51] Ibid [70] (per McHugh, Gummow, Kirby and Hayne JJ)(footnotes omitted)

[52] This is similar to the hypothetical example discussed in Liquid Rock Construction Pty Ltd v Commissioner of State Revenue [2011] VCAT 2164 [56] and [60].

[56] In Fyna Projects Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 1220, Leeming JA refers [at 61] to the 'protection of the revenue' as an important factor in the interpretation of such provisions.

[57] See second reading speech cited in Liquid Rock Constructions Pty Ltd v Commissioner of State Revenue [2011] VCAT 2164 [15], and Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue [2011] HCA 41 [8].

[58] Income Tax Assessment Act 1997 (Cth) Pt 3-90.

[59] Ibid s 701-1(1).

[60] Taxation Ruling TR 2004/11 [8(g)].

[61] See 'General Consolidation Regime - Key New Tax Concepts?', Tony Slater QC, Taxation Institute of Australia, First National Consolidation Symposium, Leura, New South Wales, February 2003. The limitations were explored to some extent in Channel Pastoral Holdings Pty Ltd v Commissioner of Taxation [2015] FCAFC 57.