Moore Park Gardens v Chief Commissioner of State Revenue

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2758/03 MOORE PARK GARDENS MANAGEMENT PTY LTD v CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT 1 The defendant assessed the plaintiff to pay-roll tax for the years ended 30 June 1998 to 30 June 2002. The plaintiff objected to the assessments, the defendant purported to disallow the objections and the plaintiff sought to review those decisions before the court. 2 The plaintiff provided cleaning services to a number of owners corporations within the Moore Park Gardens complex. To carry out these tasks, the plaintiff engaged a number of cleaners each assigned to a particular building. The defendant acquired and charged each owners corporation for cleaning materials such as brushes, mops and soap products. The plaintiff paid the wages, superannuation and workers compensation insurance premiums of each cleaner and sought reimbursement from the owners corporation for the cleaning of whose premises the employee was dedicated. 3 A caretaker was in charge of cleaning within the entire complex. He interviewed potential cleaners and offered those selected by him a job. His wages and on costs were paid by the plaintiff and apportioned to each owners corporation. The wages and on costs of a central management team of eight persons was charged to the owners corporations as a component of the plaintiff's management fee. 4 If a cleaner was unable to remove a stain from a carpet, that fact was brought to the attention of the caretaker who engaged an outside contractor to steam clean the carpet, the cost being reimbursed by the appropriate owners corporation. 5 Cleaners were engaged in their tasks from 7 am to 3 pm Monday to Friday and during restricted periods on Saturday and Sunday. 6 The plaintiff controlled the pay-roll for each cleaner deducting any contributory superannuation contributions and tax. Cleaners were entitled to holidays and to sick leave. 7 In October 2002, an employment agency contract declaration form was executed on behalf of each owners corporation. Each declaration stated that it covered the period commencing on 1 January 2000. Each declared that wages payable under contract with the plaintiff did not attract pay-roll tax because the owners corporation was not required to be registered for pay-roll tax purposes. 8 A deponent from each owners corporation swore in identical terms that by reason of being present at the meeting of the owners corporation when the plaintiff was appointed, the intention of the owners corporation was, that at the time of execution of the declaration, the plaintiff was acting as the agent of the owners corporation in order to obtain employees to carry out the cleaning duties. 9 The matter was brought before the court under the Taxation Administration Act 1996, s 97(1)(a) which provided that a taxpayer might apply to the court for a review of a decision of the defendant that had been the subject of an objection if the taxpayer was dissatisfied with the defendant's determination of the taxpayer's objection. 10 When the matter came before the court, Mr Raphael who appeared for the plaintiff, sought to challenge the defendant's determination of the notice of objection on the ground that the person who made that determination did not have delegated authority to do so. 11 In BBLT Pty Ltd v Chief Commissioner of the Office of State Revenue 2003 ATC 5063 at par 36-37 I held that the Taxation Administration Act 1996, s 97(1)(a) was not enlivened unless there was an adverse determination upon a notice of objection. I put to Mr Raphael that if his challenge was successful, there would be no determination and, in consequence, no matter before the court. 12 Mr Raphael sought to rely upon the Taxation Administration Act 1996, s 97(1)(b) in the alternative. It provided that a taxpayer might apply to the court for a review of a decision of the defendant that had been the subject of an objection if 90 days had passed since the taxpayer's objection was served on the defendant and he had not determined the objection. 13 The Taxation Administration Act 1996, s 100(1) provided that an application for review following a failure of the defendant to determine an objection could not be made unless the applicant had given written notice of the proposed application to the defendant not less than 14 days before it was made. No such notice was given. The provision is, however, a procedural one for the benefit of the defendant that may be waived by him. In this case the defendant waived the requirement. 14 The defendant submitted that if the Taxation Administration Act 1996, s 97(1)(b) was relied upon, the plaintiff's delegation argument appeared moot. I do not agree. The plaintiff argued that the decision maker who disallowed its objection lacked delegated authority so that there was no determination and s 97(1)(b) was enlivened. If the plaintiff failed in that argument and there was a determination, it relied on s 97(1)(a). 15 The Taxation Administration Act 1996, s 67 allowed the defendant to delegate to any person any of his functions under a taxation law. On 29 December 2000, the defendant delegated his function to allow or disallow an objection under s 91(1) to a person of minimum level at 5/6. 16 On 10 March 2003, Amy Huynh recommended that the objections be disallowed. On 11 March 2003, Thelma Tacedena approved the recommendation. 17 It was submitted by the defendant that it was Ms Tacedena who disallowed the objection. The evidence revealed that objection recommendations had to be approved by Ms Tacedena or a senior officer before a notice of determination of the objection was sent to a taxpayer. 18 The plaintiff submitted that Ms Huynh made the determination. Reference was made to Steel City Wholesale Pty Ltd v Federal Commissioner of Taxation (2003) 52 ATR 747. That was a case, however, in which the person who made the recommendation insisted that it was he who made the decision. On those facts, the court determined that he was the decision maker. That observation is also apposite to the decision in MLC Investments Ltd v Federal Commissioner of Taxation 2003 ATC 5,133. 19 Following Ms Tacedena's decision to approve the recommendation, Ms Huynh wrote on 11 March 2003 stating that she had reviewed the grounds of objection and that her determination was to disallow it. It is unfortunate that the letter was couched in the first person. Nonetheless, I am of the view that the determination was made by Ms Tacedena. It was not open to Ms Huynh to make the determination. She did not purport to do so. She made her recommendation to Ms Tacedena and it was only after that recommendation was accepted that she wrote her letter. 20 Ms Tacedena held the position of assistant director, clerk grade 11. That was a grade greater than that required to consider and determine an objection under the Taxation Administration Act 1996, s 91 under the delegation. The plaintiff's challenge to the determination fails and the Taxation Administration Act 1996, s 97(1)(b) was not enlivened. 21 If I be wrong in my view that it was Ms Tacedena who made the determination, Ms Huynh held the position of a grade 3/4 clerk prior to making her recommendation. However, on 17 April 2003, approval was granted to an application made on 16 April 2003 by Ms Tacedena that Ms Huynh should perform duties in a higher graded position, that of technical education officer, clerk 7/8, for the period 26 February 2003 to 4 April 2003. 22 Notwithstanding that approval was granted ex post facto, the inference I draw is that between those dates Ms Huynh performed duties at the higher level. 23 The Public Sector Employment and Management Act 2002 came into effect on 9 September 2002. Section 24(1) provided that the appropriate department head might appoint, to act in a position in the department that was vacant or the holder of which was suspended, sick or absent, a member of staff of the department or a member of staff of another department. Section 24(2) provided that a person while acting in a position under the provision had all the functions of the holder of the position. 24 It follows, in my view, that if Ms Huynh was the person who disallowed the objection, she had the necessary authority under the delegation at the time, there was a proper determination and, again, the Taxation Administration Act 1996, s 97(1)(b) was not enlivened. 25 The Pay-roll Tax Act 1971, s 3C was introduced with effect from 1 January 1999. It provided that under an employment agency contract, the employment agent was taken to be the employer but the employment agent was not liable to pay-roll tax in certain circumstances including the circumstance that the client was not registered or required to be registered as an employer under the Act. The provision was as follows: "(1) For the purposes of this Act, an employment agency contract is a contract under which a person (in this section referred to as an employment agent ) by arrangement procures the services of another (in this section referred to as a contract worker ) for a client if the employment agent (by a means other than a contract of employment between the contract worker and the client) and as a result receives directly or indirectly payment in respect of the services provided by the contract worker to the client, whether by way of a lump sum or ongoing fee, during or in respect of the period when the services are provided. (2) For the purposes of this Act: (a) the employment agent under an employment agency contract is taken to be an employer, and (b) the contract worker under an employment agency contract is taken to be an employee of the employment agent, and (c) an amount, the value of a benefit or a payment, being: (i) any amount paid or payable to the contract worker in respect of the provision of services in connection with an employment agency contract, and (ii) the value of any benefit provided for or in relation to the provision of services in connection with an employment agency contract that would be a fringe benefit if provided to a person in the capacity of an employee, and (iii) any payment made in relation to the contract worker that would be a superannuation benefit if made in relation to a person in the capacity of an employee, is taken to be wages paid or payable by the employment agent. (3) If it is not reasonably practicable to determine the extent to which an amount, benefit or payment constitutes wages under subsection (2) (c), the Chief Commissioner may accept a return, or make an assessment, in which the amount on which pay-roll tax is levied is determined on the basis of estimates. (4) An employment agent is not liable to pay-roll tax under this Act in relation to an employment agency contract: (a) if the contract worker is liable to pay pay-roll tax (as the employer of the person who actually provides the services to the client of the employment agent under the contract) in respect of wages paid for those services, or (b) if the wages that the amount, value of the benefit or payment under subsection (2) (c) is taken to be would have been exempt from pay-roll tax under section 10 had the contract worker been paid those wages by the client of the employment agent, or (c) if the client of the employment agent is not registered or required to be registered as an employer under this Act at the time the employment agency contract is entered into and a declaration to that effect has been given by the client to the employment agent. (5) If, after a client gives a declaration referred to in subsection (4) (c) to an employment agent, the client becomes registered or is required to be registered as an employer under this Act, the client is liable to pay pay-roll tax in respect of the wages paid under the employment agency contract during each financial year in which the client is registered or is required to be registered." 26 The plaintiff relied upon the Pay-roll Tax Act 1971, s 3C(4)(c). Since that provision had no operation with respect to the defendant's assessment of the plaintiff for the year ended 30 June 1998 and for the period 1 July 1998 to 31 December 1998, the question is whether the plaintiff or the owners corporations were the employer during that period. 27 Apart from the evidence of the representatives of the owners corporations to which reference has been made, there was no evidence of the relationship between the plaintiff and the owners corporations when the plaintiff was retained to provide cleaning services. Michael Anthony Bonenti gave evidence. He became a director after the years in question. 28 The plaintiff asserted that the relationship was one of principal and agent and that the owners corporations as principals were liable to pay-roll tax prior to the introduction of the Pay-roll Tax Act 1971, s 3C. 29 Pay-roll tax was payable by the employer by whom taxable wages were payable under the Pay-roll Tax Act 1971, s 8. The employer was defined in s 3(1) to mean the person who paid or was liable to pay the wages. I do not regard the equivocal statements of the representatives of the owners corporations as sufficient to establish an agency relationship when the plaintiff was engaged in 1996 to provide cleaning services to the first stage of the Moore Park Gardens development. That evidence goes to the alleged relationships in October 2003 when the declarations were signed. 30 The plaintiff submitted that there was subsequent ratification of its acts as those of an agent. Reliance was placed on the principle that where a person does an act in the name of or on behalf of another, not assuming to act for himself but for that other person, though it is without prior authority it becomes the act of the principal if subsequently ratified by the principal (Keighley, Maxsted & Co v Durant [1901] AC 240 at 246, Davison v Vickery's Motors Ltd (in liq) (1925) 37 CLR 1 at 19, Bowsted & Reynolds On Agency, 17th ed, Sweet & Maxwell, London, 2001, par 2-047). 31 The effect of ratification is to invest the person on whose behalf the act was done, the person who did the act and third parties with the same rights, duties, immunities and liabilities in all respects as if the act had been done with the previous authority of the person on whose behalf it was done (Wilson v Tumman and Fretson (1843) 6 Man & G 236 (134 ER 879). Thus ratification acts respectively under what is often called the rule in Bolton Partners v Lambert (1889) 41 Ch D 295. 32 The problem for the plaintiff in the instant circumstances is that there was no evidence that it entered into its arrangements with the cleaners on its own account or as agent for the owners corporations. As Cooper CJ said in Crowder v McAlister (1909) St R Qd 203 at 206: "Now, there can be no ratification of a contract by a person sought to be made liable as a principal, unless the person who made the contract professed to be acting on behalf of the other at the time, and unless the person sought to be made liable afterwards adopted the contract - that is to say, has ratified it." 33 None of the cleaners was called to give evidence and Mr Bonenti indicated that arrangements with the cleaners were made by the caretaker. The caretaker was not called to give evidence. The evidence did not go beyond establishing that wages, superannuation and workers compensation insurance premiums paid by the plaintiff with respect to an individual cleaner were reimbursed by the particular owners corporation in whose building that cleaner worked through the acceptance by the owners corporation of budget figures and variations thereto. In the absence of evidence that the caretaker engaged the cleaners on behalf of the owners corporations, there is no basis for the application of the doctrine of ratification. 34 It follows that in the period from 1 July 1997 to 31 December 1998, the plaintiff has failed to establish that the owners corporations rather than it were the employers of the cleaners liable to pay tax on the wages paid to them. For that period the defendant's assessments stand. 35 The Pay-Roll Tax Act 1971, s 3C in its original form did not, in my view, apply to the plaintiff for two reasons. 36 First, the purpose of the Pay-Roll Tax Act 1971, s 3C(2) was to deem the employment agent, not otherwise an employer, to be such. For a person who was already an employer there was no point in the provision. The explanatory note to the State Revenue Legislation (Miscellaneous Amendments) Bill 1998 by which the section was introduced stated that the purpose of the introduction of the provision was: "To make employment agents, instead of the end-user, liable for pay-roll tax in respect of employment agency contracts, not being contracts of employment". 37 Even if the plaintiff's arrangement with the owners corporations fell within the definition of an employment agency contract in the Pay-roll Tax Act 1971, s 3C(1), I am of the view that s 3C(2) did not apply to it as it was already an employer and the exemptions in s 3C(4) should be limited to circumstances in which s 3C(2) was operative. 38 The second reason for the non-operation of the Pay-roll Tax Act 1971, s 3C(4)(c) is that it required a declaration to have been given to the plaintiff by its clients, the owners corporations. The declarations were given in October 2002 said to be retrospective in effect to 1 January 2000. 39 It was submitted that there was no time constraint in the provision. A declaration lodged at any time after the event was sufficient. I reject that submission. It cannot have been the intention of parliament that a claim to exemption in the absence of a declaration could be cured years later by the provision of one. The requirement of non-registration was applied to the time the employment agency contract was entered into and, in my view, the additional requirement of the provision of a declaration was limited to that time as well. 40 By the State Revenue Legislation Further Amendment Act 1999, the Pay-roll Tax Act 1971, s 3C(4)(c) was replaced with the following provision: " if the client of the employment agent: (i) is not registered or required to be registered as an employer under this Act, and (ii) would not be required to be registered as an employer under this Act if the client were the employer in respect of the wages paid or payable under all the employment agency contracts to which the client is a party, and a declaration to that effect has been given by the client to the employment agent."

That amendment did not affect the construction of the provision set forth above. 41 The Pay-Roll Tax Act 1971, s 3C(5), s 3C(6), s 3C(7) and s 3C(8) were added to the Act by the same amending legislation. They deal with changes in circumstances affecting the declaration. Section s 3C(7) was amended by the State Revenue Legislation Amendment Act 2001. None of those amendments affect the above analysis. 42 In my view the plaintiff directed its employees to clean the premises of the various owners corporations for a fee that included reimbursement of the wages paid by the plaintiff to its cleaners. Hence throughout the period covered by the assessments, the plaintiff was an employer of the cleaners at common law, the Pay-roll Tax Act 1971, s 3C did not apply to it and it was not entitled to an exemption under s 3C(4). 43 In each of the years in question the defendant raised a penalty of 5% of the tax. The Taxation Administration Act 1996, s 27(1) provided for a penalty in respect of a tax default of 25% of the amount of unpaid tax. The statute provided for increases and decreases in that level of penalty in specified circumstances. Section 33 provided that the Commissioner might, in such circumstances as he considered appropriate, remit penalty tax by any amount. 44 The Taxation Administration Act 1996, s 21(1) provided that if a tax default occurred, the taxpayer was liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day for payment until the day it was paid at the interest rate from time to time applying under the Division. Section 25 provided that the defendant might, in such circumstances as he considered appropriate, remit the market rate component or the premium component of interest or both by any amount. 45 In making her recommendation, Ms Huynh said: "In respect to the interest and penalties, I am of the opinion that the penalty tax should be reduced. I consider that non-compliance was the result of confusion over the legislation. Due to the complex arrangement between the body corporates and client, the status of the cleaners only became clear during the audit. For the years ended 30 June 1998-2001, the client was captured by the grouping provision and found liable for pay-roll tax. After consultation with Frank Abela, it was agreed that a reduction of penalty tax to 5% is warranted. In respect to the interest, I don't view that the grounds provided would warrant a remission. Although the client has claimed cashflow problems, Business rule 5.2.2 states that a taxpayer's inability to pay either interest or penalty tax will not be an acceptable reason for remission." 46 The plaintiff submitted that Mr Huynh had slavishly followed an internal guideline and failed to exercise any discretion in the matter. I reject that submission. With respect to the penalty, Ms Huynh did take in account matters set out above in making her recommendation and they were, no doubt, considered by Ms Tacedena in making her determination. 47 While the recommendation with respect to interest does have the indication of the application of a fetter on the discretion, I am of the view that the correct decision was made. Cashflow problems would not cause me to remit the interest component. The Revenue was out of the money that should have been paid to it with respect to the years in question. It lost the use of the funds. The statute made it clear that in the event of a tax default the taxpayer was liable to pay interest. Mere inability of a taxpayer to raise the amount of the interest is insufficient reason, in my view, for the defendant to remit any amount. 48 No evidence was called on review of any cashflow problem or any other reason to remit the interest. In those circumstances, I uphold the decision not to remit any portion of the interest. 49 I confirm the assessments of the defendant. I dismiss the plaintiff's amended summons and order it to pay the defendant's costs of the review.

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