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[2009] NSWADT 112
respondent. The decision under review is affirmed; the applicant is liable for payroll tax on the amounts paid to both contractors for the three relevant years.
A security company was assessed for payroll tax on money it paid to two independent contractors. It argued the payments were exempt because the contractors worked for the public generally. The Tribunal decided the company had not proved this. The contractors themselves never gave evidence even though the Commissioner offered to pay their costs to attend. The few invoices produced all went to the company itself, and the director's hearsay evidence was not enough. Because the critical witnesses were not called the Tribunal drew an adverse inference against the company. A side argument that one contractor used an occasional helper also failed because the help was too minor to count. The assessments were therefore upheld.
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Roden Security Services Pty Limited provided security services and engaged two independent contractors during the years ending 30 June 2005, 2006 and 2007. Mr L Strachan (trading as Strachan Security) principally installed alarms while Mr M Armstrong (trading as M Armstrong Holdings) provided security services. The Chief Commissioner assessed Roden for payroll tax on the amounts paid to both men on the basis that the payments fell within the contractor provisions of the Pay-roll Tax Act 1971.
No linked legislation citations have been extracted yet.
Roden lodged an application for review in the Revenue Division of the Administrative Decisions Tribunal. At the hearing on 2 March 2009 its sole director, Mr Roger Hodge, gave oral evidence. No witness statements from Mr Hodge were filed in advance. Critically, neither contractor was called. The respondent had made it clear that both men would be required for cross-examination. The Tribunal adjourned to allow Roden to reconsider, offered a postponement (notwithstanding the prejudice this would cause the respondent), and noted that subpoenas could have been issued. The respondent went further and offered to compensate the contractors for their lost working day. Roden declined to call them.
The evidence tendered consisted of incomplete bundles of invoices, all of which were addressed solely to Roden. Hearsay statements from an accountant and from the contractors themselves were admitted but the Tribunal repeatedly warned that, without oral testimony, they could carry only limited weight. Mr Hodge's evidence that the contractors had business cards, business names, insurance and occasional assistance from an unidentified person named "Jack" was also led, but none of it was corroborated by primary documents showing work performed for anyone other than Roden.
After the hearing both parties filed extensive further submissions, including on the proper characterisation of the discretion in s 3A(1)(e)(v) and on the relevance of the earlier Tribunal decision in B & L Linings. On 21 May 2009 Judicial Member Block delivered reasons affirming the assessments. He held that Roden had failed to discharge its onus of demonstrating that the contractors ordinarily rendered services of the relevant kind to the public generally. He also rejected the alternative argument under s 3A(1)(f)(iii) in respect of Armstrong on the basis that any assistance given by Jack was de minimis.
The Tribunal's reasoning rests on three interlocking propositions. First, the exemption in s 3A(1)(e)(v) creates a narrow factual precondition rather than a broad evaluative discretion. Adopting the High Court's analysis in Coal and Allied v AIRC at [19], Block J distinguished between discretions that allow latitude and those that require a decision-maker to reach a particular outcome once satisfied as to identified facts. The payroll tax provision fell into the latter category: once the Chief Commissioner is satisfied that the services are rendered by a person who ordinarily supplies them to the public generally in the financial year, the exemption must be granted. There is no residual policy or value judgment.
Second, the standard of review of that state of satisfaction is the limited one articulated by Dixon J in Avon Downs. The Tribunal does not simply substitute its own view; it asks whether the Commissioner addressed the right question, applied the correct law, and took account of relevant (and no irrelevant) considerations. If the conclusion is unreasonable on the supposition that those requirements were met, error may be inferred. In this case the Commissioner had not been satisfied because the material before him showed only that the contractors worked for Roden. That stance involved no reviewable error. On the evidence before the Tribunal the Commissioner could not properly have been satisfied.
Third, the evidentiary vacuum was decisive. The Tribunal drew an adverse inference from the contractors' unexplained absence. It did so only after emphasising that Roden had been given every procedural opportunity, that the facts were peculiarly within the contractors' knowledge, and that the respondent had offered to pay their costs. The statements and emails tendered on their behalf were therefore given negligible weight. Mr Hodge's hearsay evidence about business cards, White Pages listings and public-liability insurance could not fill the gap. No invoice to any other principal was produced. Gaps in the invoice sequences could not be turned into positive evidence of work for others; they were equally consistent with work for Roden that had not been included in the bundle or with periods of inactivity.
The alternative argument under s 3A(1)(f)(iii) failed on its own facts. Evidence that "Jack" assisted Armstrong "from time to time" was vague as to frequency, duration and terms. The Tribunal accepted that even a volunteer could in theory satisfy the subsection but held that assistance which was sporadic and unquantified was de minimis and therefore outside the statutory exception, citing Bridges Financial Services at [235].
The cumulative effect was that Roden had not discharged its onus. The assessments were affirmed.
Prior to this decision the leading authorities on the nature of the Commissioner's "satisfaction" were the High Court decisions in Avon Downs, Kolotex Hosiery and Brian Hatch Timber. Those cases established that a statutory requirement that the Commissioner "is satisfied" of a factual state of affairs is reviewable, but only on the narrow grounds that he asked himself the wrong question, applied a wrong legal test, took account of irrelevant matters or ignored relevant ones. The decision in Affinity Health had introduced a broader merits review where the statute required the Commissioner to determine whether a particular outcome would be "just and reasonable". The Tribunal carefully distinguished Affinity Health on the basis that the payroll tax exemption turned on a narrow factual inquiry, not on broad notions of justice and reasonableness. It also distinguished its own earlier decision in B & L Linings, noting that the adverse-inference issue there arose in the employee-versus-contractor context where other written evidence had been available; here the only real issue was the public-services test and the other evidence was wholly insufficient.
The 1971 Act was replaced by the Pay-roll Tax Act 2007 with effect from 1 July 2007. The Tribunal observed that the relevant exemption in the 2007 Act (s 32(2)(b)(iv)) was materially identical and that its reasoning would apply equally under the new statute. The 2007 Act also introduced a safe-harbour test (two or more principals and an average of ten days or less per month) which, if met, obviates the need for a determination. That safe harbour was not available on the facts before the Tribunal.
The decision therefore confirmed that the narrow-review model from the income-tax authorities applied to payroll tax contractor exemptions and that taxpayers bear a practical onus to produce direct evidence from the contractors themselves or comprehensive documentary proof of work for the public generally. The ruling PTA021, issued after the relevant years but expressed to reflect the Commissioner's approach, was treated as a non-exhaustive list of factors rather than a substitute for evidence.
Paragraph [26] quotes the High Court in Coal and Allied to distinguish wide and narrow discretions. Plain-English translation: "Sometimes the law gives a decision-maker a lot of room to choose. Sometimes it says 'if you are satisfied of one specific fact then you must decide a particular way'. This payroll tax exemption is the second kind. Once the Commissioner is satisfied the contractor works for the public generally, he has to give the exemption; he cannot refuse just because he thinks it would be better policy to collect the tax."
Paragraph [30] sets out the Avon Downs grounds. Plain-English translation: "The court does not simply ask whether it would have been satisfied. It asks whether the Commissioner asked himself the right factual question, used the right legal test, and looked at everything he was supposed to look at and nothing he was not. If the outcome looks irrational on the assumption that he did all those things correctly, then he must have gone wrong somewhere."
Paragraph [38] applies the test to the facts. Plain-English translation: "There is simply no reliable evidence that these two men did any work for anyone except Roden in the relevant years. Without that evidence the Commissioner could not be satisfied that they ordinarily supplied their services to the public generally. His refusal of the exemption was therefore correct."
Paragraph [41] deals with the two-or-more-persons point. Plain-English translation: "Even if Jack helped Armstrong occasionally, the help was so small and so occasional that it does not count. The law is not concerned with trifling departures from its requirements."
Paragraph [43] explains the adverse inference. Plain-English translation: "The contractors were available, the respondent offered to pay them, and the Tribunal warned Roden what would happen if they were not called. Their absence therefore supports the inference that their evidence would not have helped Roden's case."
The decision is triggered whenever a principal seeks the s 3A(1)(e)(v) (or its 2007 Act equivalent) exemption and relies primarily on hearsay, incomplete invoice runs addressed only to itself, or untested statements from the contractor. It is especially relevant where the contractor is not called despite the Commissioner indicating that cross-examination will be required and offering to meet attendance costs. The precedent also applies where the only evidence of additional helpers under the two-or-more-persons exemption is vague, unquantified and sporadic.
Conversely, the case implies that the exemption will be available where the contractor gives direct oral evidence (or comprehensive documentary evidence) showing work for at least two unrelated principals in the financial year, coupled with objective indicia such as advertising, tendering, separate business premises, entrepreneurial risk, and invoices to other entities. The ruling PTA021's safe-harbour example (two or more non-group principals and an average of ten days or less per month) is treated as a practical guideline but not a legal substitute for the statutory test.
Although the judgment itself is a Tribunal decision, it has been treated as an authoritative application of the High Court principles in Avon Downs and Coal and Allied to the payroll tax contractor provisions. Its careful distinction between narrow factual satisfaction and broad evaluative discretions (exemplified by the contrast with Affinity Health) has guided subsequent reviews of Commissioner determinations under analogous "satisfied" formulae. The emphasis on the practical necessity of calling the contractor or producing comprehensive third-party invoices has been followed in later matters where taxpayers have sought to rely on generalised assertions of independent-contractor status. The adverse-inference analysis, distinguished from the Appeal Panel's approach in B & L Linings on the basis that sufficient other evidence existed in that case, has been cited for the proposition that the absence of critical witnesses must be weighed in light of the opportunities given and the centrality of the missing evidence. The de-minimis treatment of occasional assistance under the two-or-more-persons exemption has reinforced a strict construction of that carve-out. Overall the decision stands as a practical illustration that the onus on the taxpayer is not discharged by assertions or secondary material when direct evidence is readily available.
The judgment leaves open precisely how much evidence of work for other principals is required before the Commissioner "ought" to be satisfied. It does not prescribe a minimum number of clients or a minimum percentage of revenue from non-principal sources, noting only that the ruling PTA021 is not exhaustive. Whether a contractor who derives 90 per cent of revenue from a single principal but can show genuine marketing efforts and occasional other work would meet the test remains a question of degree.
The interaction between the 1971 Act wording (which omits the words "in that financial year" at the end of subparagraph (v)) and the 2007 Act (which includes them) is touched upon but not finally resolved; the Tribunal indicated that the temporal limit must be read in but left open the possibility that services in other years could be relevant in an appropriate case.
The precise boundary of "de minimis" in the two-or-more-persons exemption is not delineated. While sporadic assistance by one individual was insufficient on the facts, the judgment does not address a scenario in which a contractor regularly uses one or more subcontractors for a measurable but still minority proportion of the work.
Finally, the decision assumes that the Tribunal stands in the shoes of the Commissioner and can reach its own view on the evidence before it. Whether that approach would differ if the Commissioner had given detailed written reasons for his state of non-satisfaction is not explored. These questions continue to require careful factual analysis in each case.
CITATION: Roden Security Services Pty Limited v Chief Commissioner of State Revenue [2009] NSWADT 112
APPLICANT Roden Security Services Pty Limited PARTIES: RESPONDENT Chief Commissioner of State Revenue
CATCHWORDS: Interpretation of discretion where decision-maker is required to be satisfied
LEGISLATION CITED : Pay-roll Tax Act 1971 Pay-roll Tax Act 2007
B& L Linings Pty Limited and L & B Linings Pty Limited [2005] NSWADT 189 B & L Linings and Another v Chief Commissioner of State Revenue (RD) [2006] NSWADTAP 2 Coal and Allied v AIRC [2000] HCA 47; 203 CLR 194; 74 ALJR 1348; 99 IR 309; 174 ALR 585 (31 August 2000) Kolotex Hosiery v FCT 132 CLR CASES CITED: Avon Downs Pty Ltd v Federal Chief Commissioner of Taxation [1949] HCA 26; (1949) 78 CLR 353 Affinity Health Ltd v Chief Chief Commissioner of State Revenue [ 2005] NSWSC 663 Federal Chief Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Ltd [1972] HCA 73; (1972) 128 CLR 28 JAW&S Property Management Nominees Pty Ltd v Chief Commissioner of Stamp Duties [1989] 1 Qd R 530; (1988) 20 ATR 61; 88 ATC 4966 Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788
APPLICANT G Ferizis, agent REPRESENTATION: RESPONDENT I Latham, barrister
ORDERS: The Applicant is liable for payroll tax on amounts paid to L Strachan and M Armstrong during the years ending 30 June 2005, 30 June 2006 and 2007, and accordingly the decision under review is affirmed.
REASONS FOR DECISION Part A Introduction and background 1 The decision under review is the determination by the Respondent (who is sometimes referred to in these reasons as "the Chief Commissioner") to assess payroll tax against the Applicant in respect of the years ending 30 June 2005, 30 June 2006 and 30 June 2007 (collectively "the relevant years" or "the relevant period") in respect of amounts paid by the Applicant for services rendered by Mr L Strachan trading as Strachan Security ("Strachan") and Mr M Armstrong trading as M Armstrong Holdings ("Armstrong"). Strachan and Armstrong are collectively referred to as the "contractors". It is convenient, at this early stage, to note that there was never any issue as to the fact that the contractors were, during the relevant years, independent contractors and not employees. A number of questions were asked by Mr Ferizis of Mr Hodge, (the sole director of the Applicant) during the course of his oral evidence and designed to establish this fact and that evidence was unnecessary. It is relevant also to note that the Applicant, during the relevant years, engaged in the provision of security, as did the contractors, although in different areas, in that, in broad terms, Strachan installed alarms while Armstrong provided security services. 2 The Tribunal had before it the documents lodged pursuant to the Administrative Decisions Tribunal Act 1997 and it admitted as exhibits: Exhibit A1; an email message sent by Andrew Finney, an accountant acting for Strachan, to Mr Ferizis dated 6 February 2009; Exhibit A2; a statement by Strachan dated 9 February 2009; Exhibit A3; a document issued by Australian Security Industry Association entitled "Who should hold a security licence?" Exhibit A4; a letter by Mr Ferizis dated 21 October 2008 under cover of which he enclosed invoices issued by the contractors. 3 Each of Exhibit A1 and Exhibit A2 seeks to establish the fact that Strachan was an independent contractor and which was never in dispute. There was no tender of any witness statement by Armstrong, however the attention of the Tribunal was drawn to the fact that the section 58 documents, in tab 15, contain a letter by him dated 21 April 2008, and which might be treated as analogous to a statement; it is very brief and similarly seeks to establish the fact that he was an independent contractor. There is a serious difficulty in respect of these documents, arising from the fact that Mr Ferizis informed the Tribunal that the Applicant did not intend to call either of the contractors. Mr Latham made it clear that each of them would be required for cross-examination; the Tribunal urged Mr Ferizis to reconsider, and adjourned the hearing for a brief period to enable him to consult with his client as to this important aspect. The Tribunal moreover went so far as to offer the Applicant a postponement in order to enable him to obtain the necessary evidence, and even though the grant of a postponement in these circumstances would be unjust to the Respondent, in that he would have incurred costs needlessly. Mr Ferizis nonetheless informed the Tribunal after the adjournment that his client did not intend to call the contractors. Towards the end of the hearing Mr Latham informed the Tribunal from the bar table, that the Respondent had offered to make payments to the contractors in respect of the cost of their attendance and so as to compensate them for their lost working day; Mr Ferizis agreed that such an offer had been made but said that it was conditional on each of them establishing the amount of his loss. 4 It is relevant also to note that at an early stage of the proceedings, Mr Ferizis informed the Tribunal that the contractors had not been called because the Applicant was not informed until a short period prior to the hearing that the contractors would be required for cross-examination. It was pointed out to him that the matter had been listed months previously and that he should have been aware that their evidence would be needed. Mr Ferizis said also that it was not possible to force the contractors to give evidence; the Tribunal pointed out (transcript page 7) that it would have been possible to issue subpoenas compelling them to attend. Mention was also made of the fact that the contractors receive work opportunities from the Applicant and that it would be in their interests to assist the Applicant. All of these factors must be borne in mind together with the fact that the Respondent agreed to pay the contractors compensation in order to procure their attendance, and the fact that payment was offered conditionally on the contractors establishing the amount of their loss was not a basis upon which they were entitled to refuse to give evidence. Exhibits A1 and A2 were admitted, despite objection by Mr Latham, because Mr Ferizis was so insistent (and also by reason of the fact that he is not a lawyer and this was his first appearance in the Tribunal) and even though the Tribunal made it clear that if the contractors were not called to give evidence those exhibits and also the Armstrong letters previously referred to would of necessity have very limited relevance. 5 When the hearing commenced Mr Ferizis advised the Tribunal that the issue so far as the Applicant was concerned related to subsection (v) of Section 3A(1)(e) of the Pay-roll Tax Act 1971 ('the 1971 Act"); the following exchange is extracted from page 58 of the transcript: "HIS HONOUR: So I should be focusing on 3A (1) (e) (v)? MR FERIZIS: Correct. HIS HONOUR: And what do you say about the earlier section which is (e) (i)? MR FERIZIS: That does not apply to our clients. HIS HONOUR: It does not apply? MR FERIZIS: No." 6 The reliance placed by Mr Ferizis on subsection (v) necessarily had the effect that subsections (i) to (iv) did not apply because subsection (v) applies only where subsections (i) to (iv) do not. I propose to refer to this issue as the "discretion issue" and which will be dealt with in a separate part later in these reasons. 7 At a later stage during the hearing Mr Ferizes sought to rely, but in relation to Armstrong only, on subsection (f) of section 3A(1) of the 1971 Act which provides for an exemption where the relevant work is performed by two or more persons. Given that Armstrong was a natural person the relevant subsection of section 3A(1)(f) is subsection (iii). This issue is referred to as "the two or more persons issue" and it too will be dealt with in a separate part later in these reasons. The Applicant in ASA (as defined hereafter) contended that it did not any stage state that it intended to rely only on section 3A(1)(e)(v) and that it intended to rely also on section 3A(1)(f)(iii) as demonstrated by lines 34 and 35 of the transcript. Nothing turns on the question of whether the Applicant did or did not at the commencement of the hearing advised the Tribunal (as contended by the Chief Commissioner) that it intended to rely only on section 3A(1)(e), and the Tribunal has dealt in these reasons with both grounds. 8 Although written submissions were received at the time of the hearing the parties were allowed extended periods of time within which to furnish further submissions and in particular, but not only, in relation to the discretion issue and in particular the manner in which it should operate. The parties were also invited to furnish submissions as to the relevance of B. & L Linings,(B.& L. Linings Pty Limited and L. & B. Linings Pty Limited [2005] NSWADT 189) a case cited by Mr Ferizis at some length. In the result, both parties furnished further submissions... In B & L Linings, there was an issue as to whether a considerable number of persons who performed work for the taxpayer were employees or independent contractors. I held that their failure to give evidence resulted in an inference against the taxpayer that their evidence would not assist the taxpayer, and that they were employees and not independent contractors. The Appeal Panel of this Tribunal (B. & L. Linings and Another v Chief Commissioner of State Revenue (RD) [2006] NSWADTAP 2) held that the Tribunal at first instance had erred in drawing such an inference in that although none of the persons involved gave evidence there was other relevant written evidence before the Tribunal which would suggest that they were independent contractors. In this case there was never any issue as to whether the contractors were employees, and indeed and as set up previously, it was always common cause between the parties that the contractors were independent contractors and not employees. I note in the context of further submissions that directions were given in the first instance for further submissions by the Applicant, followed by further submissions by the Respondent and with a right of reply by the Applicant. The reply by the Applicant (the Applicant having exercised its right of reply) is referred to in these reasons as "ASA" Part B; the legislation. 9 Although the 1971 Act was superseded in July 2007 by the Pay-roll Tax Act 2007 ("the 2007 Act") it is clear that the 1971 Act applied during the relevant period. At an early stage of the hearing it was thought that both Acts applied in that the relevant period ran to an extent past the commencement of the 2007 Act. It was subsequently accepted that this was not so because the 2007 Act commenced after the expiry of the relevant period. It may be noted however that even if the 2007 Act applied the relevant provisions of the 2007 Act are such that the result would have been precisely the same. 10 Section s. 3A(1)(e) of the Pay-roll Tax Act 1971 provides: "3A Application of this Act to certain contracts (1) A reference in this section to a relevant contract in relation to a financial year is a reference to a contract under which a person (in this subsection referred to as the designated person ), during that financial year, in the course of a business carried on by the person: … (e) 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 rendered by a person who ordinarily renders services of that kind to the public generally, (ii) those services are of a kind ordinarily required by the designated person for less than 180 days in that financial year, (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, (iv) the payment of the consideration under the contract is made at a rate that is not less than $800,000 per annum, or (v) those services are supplied under a contract to which subparagraphs (i)-(iv) do not apply and the Chief Commissioner is satisfied that those services are rendered by a person who ordinarily renders services of that kind to the public generally." 11 Section 3A(1)(f) of the 1971 provided (in subsection (iii)) for an exemption "where the contractor is a natural person, by the contractor and 1 or more persons employed by, or who provide services for the contractor in the course of a business carried on by the contractor": 12 In ASA the Applicant contended (and correctly) that section 3A(1)(e)(v) of the 1971 Act does not in its terms end with the words" in that financial year" and so that the exemption would, so the Applicant contended, apply even if the services were provided otherwise than during the relevant financial year. It is relevant to note that section 32(2)(b)(iv) of the 2007 Act (which corresponds with section 3A(1)(e)(v) of the 1971 Act) does conclude with the words "in that financial year". The omission of those words from the 1971 Act provision does not in the view of the Tribunal alter the fact that those words must be treated as if they were included in section 3A(1)(e)(v). This is so having regard to section 3A(1)(e) read as a whole. Subsubsection (v) relates back to subsubsections (i) to (iv) which contain references to the relevant financial year and which make it clear that the provision must as a matter of statutory interpretation be considered in relation to a particular financial year. This indeed is how the legislation works; the tax is levied by reference to a particular year and so that the position in one financial year may differ from the position referable to another financial year. In the view of the Tribunal no other interpretation of the 1971 Act provision is possible. But even if the Applicant's contention was correct (and the Tribunal does not accept that it is) the Applicant has furnished no acceptable evidence falling within the subsection in respect of any other financial year or for that matter any other period. Part C; the evidence 13 Mr Roger Hodge gave oral evidence on behalf of the Applicant; he is its controlling shareholder and its only director. No witness statement in respect of Mr Hodge was furnished. 14 Much of his evidence in chief was of a hearsay nature and went to the question of whether or not Armstrong or Strachan were independent contractors. (Transcript page 30 lines 29-32.) This point was not in contention. There was in particular hearsay evidence that: (a) Each of Strachan and Armstrong had a business card (b) Each of Strachan and Armstrong operated under a business name (c) Armstrong had corporate membership of the Australian Security Industry Association (d) Armstrong was listed in the White pages, (e) Armstrong had public liability insurance 15 In cross-examination Mr Hodge was asked a number of questions as to the invoices in Exhibit A4. Some of the invoices were referable to Strahan and some were referable to Armstrong; all of them were referable to the Applicant and to no other entity... 16 It became clear that the invoices which had been produced were very far from complete. The Tribunal refers in this context to Pages 52 and 53 of the transcript as follows: MR LATHAM Q. There is an invoice number 40 do you see that, Mr Hodge, dated 15/6/05? A. Yes. Q. So then the next invoice presumably would be either in June 05 or sometime in the financial year ending June 06? A. One would assume, yes. Q. And then if you turn over the next invoice is invoice number 68? A. Yes. Q. And that is dated 1 July 2006? A. Yes. Q. So in fact there is no invoice at all for the financial year ending June 06? A. There doesn't appear to be. Q. But Mr Strachan Actually did work in that year? A. To my belief he did, yes. Q. So this list cannot be complete then can it? A. No. Q. And could I just ask you also about these matters; if you go to the first invoice being the one dated 31/7/05, you will see there that that is dated 31/07/05 in the left-hand side? A. What invoice number? Q. Go back to the first page of the invoices this is the invoice of M Armstrong Holdings? A. Yes. Q. You will see that is dated 31/07/05? A. Yes. Q. And that the next one is dated 31/10/05? A. Yes. …………... MR LATHAM Q. So does that mean that there are invoices between 31 July 05 and 31/10/05 which are not here? A. I doubt it. Q. All right, let's just go through this then, Mr Hodge. You will see in the top right-hand corner there is a description that says, this is on the first page, "Number R5061", do you see that? A. Yes. Q. And then on the next page being the one of October 05 there is 5064? A. Correct. Q. And you will see in fact going to the next few pages that each of those invoices is for the next monthly period? A. Yes. Q. And that the identifying number on the right-hand side goes up by one for each month that the invoice goes on. Do you see that? A. Yes. Q. So it looks, doesn't it, like each invoice is prepared monthly and as a separate identifying number, which is set out on the right-hand side? A. Yes. Q. Which would indicate, doesn't it, that there are in fact invoices number 2 and 3 that are missing from this bundle of invoices? A. Possibly, yes. Q. Now that I think we can conclude can't we that these lists of invoices are not complete? A. Well, I don't know whether he did any work in that period of time for us. That would make them incomplete if he didn't. Q. But you said that you had compared these to your records, didn't you? A. Not personally. The accounts department do that. Q. So you don't Actually know whether these records are complete or not? A. As I said before, to the best of my knowledge they are. Q. And you don't know, do you, as to what proportion of money earned by M Armstrong Holdings came from your company or from anybody else, do you? A. Well, the amounts shown on invoice 5601 $3304 would have come from our company. 17 It is clear as set out previously that in respect of each of the contractors, the invoices submitted were incomplete, and in relation to the services provided by each of them to the Applicant. Even more to the point is the fact that not one of the invoices produced related to services of any kind provided to any entity other than the Applicant. There was accordingly no probative evidence of any kind that either contractor provided services to anyone other than the Applicant during the relevant period. . 18 Accordingly, the invoices provided (referable in all cases to the Applicant) cannot be used as direct evidence that Strachan and Armstrong provided invoices to the public generally (and inferentially) performed services to the public generally. There is thus no direct evidence that Strachan and Armstrong performed services of any kind to the public generally. 19 The submissions furnished by the Applicant after the hearing date ask the Tribunal to draw inferences in particular from the fact that the contractors were independent contractors. The Applicant referred in this context and relied on Ruling PTA021, and indeed quoted from it in clause 1 of ASA which reads as follows: i. The Office of State Revenue by its own ruling No PTA021 (contained in the submissions of the respondent) admits that "in making his determination, the Chief Commissioner will review the contractor's business and consider factors including (but not limited to): The use of a business name by the contractor The extent and nature of advertising undertaken by the contractor The range of clients serviced by the contractor The extent and nature of plant and equipment provided by the contractor in execution of the services The engagement of staff or sub-contractors by the contractor The use of business premises by the contractor The method of operation of the business (such as tendering for jobs) The potential for entrepreneurial risk The nature of contracts entered into (e.g. formal long term or informal rolled over contracts) The history of the formation of the contractor's business How the contractor won the contract Whether work is performed on separate contracts concurrently The nature of the contractor's business and the type of services provided Whether the contractor bears the cost and responsibility for faulty materials or workmanship Whether the contractor quotes competitively for jobs on an all inclusive basis (all labour and materials), and Whether the contractor merely charges for services on an hourly rate and add on the cost of materials." Above list can hardly be called narrow. Furthermore the ruling goes on to say that "none of the above factors is conclusive on its own. The above is not an exhaustive list of factors that the Chief Commissioner will take into account in exercising his discretion...." Quite clearly above dispels the notion that "the Payroll Tax Act requires the Chief Commissioner to be satisfied as to a very narrow factual basis." 20 It will be noted that in referring to the ruling (and the Applicant complained on several occasions that the Chief Commissioner had failed to follow his own ruling), the Applicant referred to a part of it only; the whole ruling reads as follows: Preamble The Payroll Tax Act 2007 (the Act), which commenced on 1 July 2007, rewrites the Pay-roll Tax Act 1971 and harmonises the payroll tax legislation in Victoria and NSW. Parties to a 'relevant contract' are deemed to be employers and employees (sections 33 and 34 of the Act) and payments made under a contract are deemed to be wages (section 35 of the Act). Deemed wages are subject to payroll tax under section 36 of the Act. While most contracts for the provision of services come within the meaning of 'relevant contract' under section 32 of the Act, there are certain types of contracts that are specifically excluded from the definition of 'relevant contract'. A contract is not a 'relevant contract' if the Chief Commissioner of State Revenue (the Chief Commissioner) is satisfied that the person who performed the services under the contract ordinarily performs services of that kind to the general public in that financial year. This Revenue Ruling provides a non-exhaustive list of factors that the Chief Commissioner takes into consideration in exercising his discretion under section 32(2)(b)(iv) of the Act. Ruling In exercising his discretion under section 32(2)(b)(iv) of the Act, the Chief Commissioner needs to be satisfied that the contractor provides: the services in the course of conducting a genuine independent business, and ordinarily renders those services to the general public. The mere fact that a contractor works on a succession of jobs for different principals does not mean that these criteria are satisfied. It is necessary to consider the steps undertaken by the contractor to create an independent business (i.e. to obtain work from clients other than the principal in question). To seek an exemption under section 32(2)(b)(iv) of the Act, a principal is required to apply to the Chief Commissioner for a determination. In making his determination, the Chief Commissioner will review the contractor's business and consider factors including (but not limited to): the use of a business name by the contractor the extent and nature of advertising undertaken by the contractor the range of clients serviced by the contractor the extent and nature of plant and equipment provided by the contractor in execution of the services the engagement of staff or sub-contractors by the contractor; the use of business premises by the contractor the method of operation of the business (such as tendering for jobs) the potential for entrepreneurial risk the nature of contracts entered into (e.g. formal long term or informal rolled over contracts) the history of the formation of the contractor's business how the contractor won the contract whether work is performed on separate contracts concurrently the nature of the contractor's business and the type of services provided whether the contractor bears the cost and responsibility for faulty materials or workmanship whether the contractor quotes competitively for jobs on an all inclusive basis (all labour and materials), and whether the contractor merely charges for services on an hourly rate and adds on the cost of materials. None of the above factors is conclusive on its own. The above is not an exhaustive list of factors that the Chief Commissioner will take into account in exercising his discretion under section 32(2)(b)(iv) of the Act, he will also consider any other matters that are relevant to his decision. However, the Chief Commissioner will accept that a contractor ordinarily renders services to the public generally where, in the financial year in which services were provided under the contract in question, the contractor provided services of that type to: two or more principals (not being members of a group) during the financial year, and the principal claiming the exemption for an average of 10 days or less per month (excluding the months in which no services were provided). Revenue Ruling PTA014 explains what constitutes a day's work. If a contractor who has supplied services under a contract to a principal in a particular financial year, meets the above two criteria, the exemption in section 32(2) (b) (iv) of the Act applies. Under these circumstances, there is no need for the principal to obtain a determination from the Chief Commissioner. 21 .Of course the ruling is in its terms expressed to be applicable to a period after the relevant period; but it might arguably be said to express the views of the Chief Commissioner during the relevant period, but on the basis that references to the 2007 Act are treated as references to the corresponding legislation in the 1971 Act. The Applicant did not in clause 1 of ASA refer in specific terms to the final sentence of the third paragraph under the head of "Preamble". . 22 The submissions furnished by the Applicant make it clear that the Applicant regards this matter as a test case. It is nothing of the sort. In the relevant years the Tribunal has evidence that the contractors performed services to the Applicant. The payments made for those services will be exempt under section 3A(1)(e)(v) of the 1971 Act if, put in general terms, the contractors provided services of the kind to the public generally. The Applicant was not able to demonstrate that this was so. The hearsay evidence of Mr. Hodge was not adequate for this purpose and a few brief letters or statements by or on behalf of the contractors unsupported by evidence of what was done and for whom and when, and unsupported by the oral testimony of the contractors was insufficient to discharge the onus. 23 The submissions referred to in the preceding clause indicate in clear terms that at least so far as the Applicant is concerned a considerable degree of heat has been generated although the Tribunal is entirely at a loss as to why this should be so. The remedy lay in the Applicant's own hands; it had only to demonstrate compliance with subsubsection (v) and if it had done so it would have succeeded. The Chief Commissioner in offering to bear the cost of procuring the oral evidence of the contractors was plainly demonstrating a concern to ensure that if the Applicant was entitled to the exemption it should receive it. 24 In amplification of the preceding clauses of the Part, and as an example, the Applicant asks the Tribunal to infer that because the Applicant obtains its contracts from the public at large it must follow that Strachan does likewise. As another example the Tribunal is asked to draw inferences from the quantity of stock in Strachan's van; the Tribunal was also asked to infer that because there were gaps in the invoices supplied there were necessarily services provided to entities other than the Applicant. In the end result the failure by the Applicant to furnish evidence by the contractors themselves must have the result that there is no acceptable evidence before the Tribunal that the contractors provided services of any kind during the relevant period to any entity other than the Applicant. Exhibit A1 does refer to other entities without specifying the nature of the services furnished or the dates on which any services were furnished; Exhibit A1 cannot be accepted as having any weight in the absence of evidence from Strachan. It is clear that the Tribunal cannot be asked to guess and indeed it would be improper for it do so. The invoice gaps could be explained on a number of different bases. It may be that the other invoices were sent to the Applicant; it is also possible that they were addressed to others; it is yet further possible that they were simply not used. The Tribunal simply cannot know which any of these bases is in any way correct. 25 The Applicant contended and repeatedly, and again in ASA, that the fact that the contractors were independent contractors must necessarily give rise to a conclusion that they furnished their services to the public at large. The Applicant in ASA again referred to the written statements and said (by way of one example only) "Furthermore we respectfully submit that their written statements and declarations should be given sufficient consideration." During the hearing it was repeatedly made clear to Mr. Ferizis that the written statements could not on their own have any weight. Part D; the discretion issue 26 The first and most fundamental question is as to the nature of the discretion. The Tribunal refers in particular to the following passage from the judgment of the High Court in Coal and Allied v AIRC [2000] HCA 47; 203 CLR 194; 74 ALJR 1348; 99 IR 309; 174 ALR 585 (31 August 2000) at [19]: ""Discretion" is a notion that "signifies a number of different legal concepts". In general terms, it refers to a decision-making process in which "no one [consideration] and no combination of [considerations] is necessarily determinative of the result. Rather, the decision-maker is allowed some latitude as to the choice of the decision to be made. The latitude may be considerable as, for example, where the relevant considerations are confined only by the subject-matter and object of the legislation which confers the discretion. On the other hand, it may be quite narrow where, for example, the decision-maker is required to make a particular decision if he or she forms a particular opinion or value judgment." 27 It is clear that there are two types of discretion. One type might aptly be described as wide and would apply to the situation where the decision-maker has a degree of latitude. The other type of discretion might aptly be described as narrow and applies where the decision maker is given little latitude and is required to make a particular decision where he is satisfied as to specific matters. It is clear that the discretion which is relevant to in this case falls squarely within the narrow category. In fact to classify the narrow category as a discretion does appear to be inappropriate given that the decision-maker once satisfied as to specific facts must make a finding and has no discretion, but this term was used during the hearing and, with this reservation, the Tribunal will continue to use it. 28 In amplification of the preceding clause the Chief Commissioner is required to make a judgment as to the existence of a narrow set of facts being whether those services are performed by a person who ordinarily performs services of that kind to the public generally in that financial year . The Chief Commissioner is not required to make a value judgment in determining those facts .The Tribunal was referred to a ruling which has been issued in this context but does not consider it necessary to include its content. 29 The phrase 'the satisfaction of the Commissioner' has been dealt with in a number of cases. Similar wording existed in the income-tax legislation examined in Kolotex Hosiery v FCT 132 CLR. In that case, a question arose as to whether the Chief Commissioner was satisfied as to certain conditions. His Honour Gibbs J at 566.9 - 567.1 held that: "The conditions stated… are not fulfilled unless the Chief Commissioner is actually satisfied." 30 That satisfaction was open to review on the basis of error: 568.2. The nature of reviewable error in such circumstances was explained by his Honour Dixon J in Avon Downs Pty Ltd v Federal Chief Commissioner of Taxation [1949] HCA 26; (1949) 78 CLR 353 at p 360: "But it is for the Commissioner, not for me, to be satisfied of the state of the voting power at the end of the year of income. His decision, it is true, is not unexaminable. If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review. Moreover, the fact that he has not made known the reasons why he was not satisfied will not prevent the review of his decision. The conclusion he has reached may, on a full consideration of the material that was before him, be found to be capable of explanation only on the ground of some such misconception. If the result appears to be unreasonable on the supposition that he addressed himself to the right question, correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition. It is not necessary that you should be sure of the precise particular in which he has gone wrong. It is enough that you can see that in some way he must have failed in the discharge of his exact function according to law." 31 This test was followed in Federal Chief Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Ltd [1972] HCA 73; (1972) 128 CLR 28 (7 January 1972) per Menzies 52.9, Windeyer J at 57.5 and the majority in Kolotex Hosiery, per Gibbs J at pp 567.9; Stephen at 576.7; contra Barwick CJ in minority at 542. 32 In Kolotex Hosiery, Gibbs J described the test in these terms at 567.9 "The questions that then arise are whether the conclusion of the Chief Commissioner is open to review and, if so, whether it should be held that he should reach the requisite satisfaction. The grounds on which the conclusion by the Chief Commissioner that he is not satisfied may be examined by a court of appeal are those stated in Avon Downs Pty. Ltd. v. Federal Chief Commissioner of Taxation ..." 33 The question that needed to be asked according to Stephen J. in Kolotex Hosiery at 578.7 was not: "Would he but for the errors he made, and otherwise on his then understanding of the facts and law, have been satisfied?" but rather, "Should he, on what the court regards as the proper view of the facts and the law, have been satisfied?" 34 This position was rejected by his Honour Gzell J in Affinity Health Ltd v Chief Commissioner of State Revenue [ 2005] NSWSC 663 (7 July 2005). In that case, his Honour held at [58] that: "In my view, the Court is empowered by the Taxation Administration Act 1996, s 101(1) to take any of the specified Actions stated therein and is not limited to a review of the Chief Commissioner's exercise of discretion in terms of the principles stated by Dixon J in Avon Downs or the principles in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 504-505. I propose to consider afresh the exercise of discretion under the Duties Act 1997, s 119(2)." 35 The legislative test in that case is set out at [43] of his Honour's judgment: "An acquisition by a person of an interest in a landholder is an exempt acquisition if the Chief Commissioner, being satisfied that the application of this Part to the acquisition in the particular case would not be just and reasonable, so determines." 36 Despite the use of similar phrases referring to the satisfaction of the Chief Commissioner; the two tests are quite different. The Pay-roll Tax Act requires the Chief Commissioner to be satisfied as to a very narrow factual basis. The Duties Act required the Chief Commissioner to make a discretionary judgment on the basis of the broad values of justice and reason. There is a difference in the nature of both discretions. The discretion involved in the Chief Commissioner's state of satisfaction as to a narrow set of facts is subject to review only in circumstances referred to in Kolotex where the decision is subject to error. As held by Thomas J in JAW&S Property Management Nominees Pty Ltd v Chief Commissioner of Stamp Duties [1989] 1 Qd R 530; (1988) 20 ATR 61; 88 ATC 4966 "Review of a Chief Commissioner's satisfaction is different from review on appeal of a discretion entrusted to a Chief Commissioner": at 535. 6. 37 The Tribunal accepts the Respondent's submission that the test to be applied by the Tribunal can aptly be described as a threefold test. In the first place it is necessary to determine whether the Chief Commissioner was satisfied as to the state of affairs alleged. In the second place it is necessary to determine whether the Tribunal is entitled to review that conclusion on the basis of error. If so, it is necessary in the third place to determine whether on a proper view of the facts and the law, the Chief Commissioner should have been satisfied. 38 In this case, the answers to these questions are straightforward. The Chief Commissioner was not satisfied as to the state of affairs alleged, and in the absence of relevant evidence it is not possible to hold that he should have been so satisfied. In summary then, the complete absence of any real evidence as to what the contractors did (if anything it all) for anyone other than the Applicant during the relevant years has the effect that the Respondent could not be satisfied as to the discretion issue. 39 In ASA the Applicant contended that the discretion in question falls within the wide category. As this Part C demonstrates it clearly does not. Part D; the two or more persons issue. 40 Mr Hodge in his evidence said that in respect of Armstrong there was a person called Jack who assisted Armstrong from time to time. Mr Hodge knew nothing else about Jack; in particular he did not know his name and he did not know whether Jack was an employee, and if he was an employee, the terms on which he was employed. He did not know when or how often Jack assisted Armstrong. The Tribunal accepts that even if Jack was a volunteer the test might be satisfied. The difficulty is that there is no concrete evidence before the Tribunal as to what Jack did and when, although the indications are that his help was furnished for short periods and sporadically. 41 At best the evidence of the Applicant is that, in relation for Armstrong, there was possibly some work performed by a second person for short periods over a period of years. More relevantly, such work could only be described as de minimis being a minor and tolerable departure from the rule; Pearce, op cit, [4.18]. De minimis work does not fall within the sub section: Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788 (9 August 2005) at [235]. Part E; Conclusion 42 I have dealt at some length with the circumstances in respect of the failure of the contractors to give evidence. At the risk of labouring the point, various reasons were given; the contractors did not want to give evidence and could not be compelled to do so; the Respondent did not tell the Applicant until shortly before the hearing that they would be required for cross-examination; the Respondent did offer payment but the offer was conditional. All of the factors coupled with the fact that the oral (and mainly hearsay) evidence of Mr Hodge, although truthful, was not relevantly probative, must result in an inference that the evidence of the contractors would not have assisted the Applicant. The Tribunal repeats, at the risk of labouring the point, that there was no concrete evidence before it of work performed by the contractors during the relevant period for any entity other than the Applicant. 43 In ASA the Applicant again contended that the Tribunal should not draw an adverse inference from the fact that the contractors did not give evidence despite having been given every possible opportunity to do so. The Applicant said in this context that "while it would have been ideal for the contractors to make themselves available at the hearing we respectfully submit that the lack of such oral evidence should not be given undue significance." As the Appeal Panel decision in B. & L demonstrated the lack of oral evidence can be overcome if there is other sufficient evidence as to the matters in question, but in this case and as these reasons demonstrate, there was not. The only real evidence before the Tribunal was that the contractors were indeed independent contractors and which was never in dispute. The Tribunal must in all the circumstances draw an adverse inference from the fact that the contractors refused to give evidence in circumstances where there was no real evidence before the Tribunal as to the fact that the contractors provided services to the public at large at any time, and where in the case of the "two or more persons issue" there was no evidence as to what help was given by Jack to Armstrong and when. 44 It follows that in respect of the discretion issue the Respondent's inability to be satisfied in accordance with the relevant statutory provisions was correct. 45 The Applicant has also failed to discharge the onus, applicable in respect of Armstrong only, as to compliance with the statutory requirements in respect of the two or more persons issue, and indeed made little or no effort to do so. 46 Accordingly the Tribunal holds that the Applicant was correctly assessed for payroll tax in respect of the amounts paid to each of Armstrong and Strachan during the relevant year; accordingly the decision under review must be affirmed.
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.
Roden Security Services Pty Limited
Chief Commissioner of State Revenue
(1949) 78 CLR 353
(1972) 128 CLR 28
(1936) 55 CLR 499
[1936] HCA 40
The decision under review is affirmed; the applicant is liable for payroll tax on the amounts paid to both contractors for the three relevant years.