Sydney Flooring Pty Ltd v Chief Commissioner of State Revenue

The relevant contract question

1. There are five relevant Installers to whom the Applicants made payments during the Relevant Period under arrangements which the Respondent says are "relevant contracts", within the meaning of section 32 of the Act. They are Mr Robert Horn (whose name is sometimes given as "Horne" in the evidence and submissions; these reasons will refer to him as "Horn", which appears to be the more common spelling adopted), Keld Shultz Flooring Pty Limited, Mr A Meenhuis, Mr John Parker and Mr Lee Parker. For some time the treatment of payments made to a sixth installer, Mr Dirk Peters, had been in issue, but in their oral and written submissions the Applicants limited the review to the five Installers, excluding Mr Peters. Accordingly, these reasons do not consider Mr Peters' situation. The Respondent has not necessarily assessed the payments to each Installer with payroll tax in relation to each year of the Relevant Period. Rather: 1. payments to two of the Installers, Messrs J A and Lee Parker, are assessed with payroll tax for each Relevant Year comprising the Relevant Period, while 2. payments to the other Installers are assessed with payroll tax in one or some Relevant Years only of the Relevant Period. 3. At the hearing, the Respondent made certain concessions in relation to Mr Horn, for the Relevant Years 2010 and 2012, and Mr Meenhuis, for the Relevant Year 2010. The effect of these concessions was to accept that the amounts paid by the Applicants to Messrs Horn and Meenhuis for those Relevant Years should be excluded from assessment to payroll tax. Amounts paid to Messrs Horn and Meenhuis in other Relevant Years still remain within the scope of the review, however.
2. The scheme of the Act, in broad summary, is relevantly as follows: 1. The starting point is section 7, which makes an employer liable for payroll tax on taxable wages. The term employer is defined in section 3 to include "… a person taken to be an employer by or under this Act ..". The significance of this extended definition will be referred to below. 2. Section 8 provides that the amount of payroll tax payable on taxable wages is to be determined in accordance with Schedules 1 and 2 of the Act. 3. Section 10 defines taxable wages as being wages that are taxable in New South Wales. Two sections elaborate on these concepts: 1. Section 13(1), which provides that wages means "… wages, remuneration, salary, commission, bonuses or allowances paid or payable to an employee …"; and 2. Section 11(1), which establishes a geographical nexus for payroll tax purposes, by providing that wages (as defined) are taxable in New South Wales if paid or payable "… for or in relation to services performed by an employee wholly in this jurisdiction". 3. In the present case, there is no dispute that the relevant geographical nexus is satisfied in the case of all Installers. 1. Sections 33 and 34 expand the concepts of employer and employee in the Act beyond their usual meanings. They respectively provide: 1. under section 33(1)(b), that a person "…to whom during a financial year, under a relevant contract [emphasis added], the services of persons are supplied for or in relation to the performance of work …" is taken to be an employer for purposes of the Act during that financial year; this fits into the extended definition of employer referred to above, and in particular the extension of that term to include "… a person taken to be an employer by or under this Act .."; and 2. under section 34(a) of the Act, that a person who during a financial year "… performs work for or in relation to which services are supplied to another person under a relevant contract [emphasis added]…" is taken to be an employee in respect of that financial year; the consequence is that "… wages, remuneration, salary, commission, bonuses or allowances paid or payable …" paid or payable to any such person who is taken to be an employee are wages within the meaning of section 13 and, provided that the relevant criteria in section 13 are satisfied, are taxable wages in respect of which payroll tax is exigible. 1. The central concept which underlies the operation of sections 33 and 34 is that of the relevant contract, which is defined in section 32. Three particular provisions are relevant: 1. Section 31, which provides that for purposes of sections 32, 33 and 34, the word "contract" has an extended meaning, so as to include not only a contract in its usual acceptation, but also "… an agreement, arrangement or undertaking, whether formal or informal and whether express or implied..". 2. Section 32(1), which defines a relevant contract in relation to a financial year as being a contract (within the extended meaning provided under section 31) under which a person, who is called in section 32 a "designated person", "… during that financial year, in the course of a business carried on by the designated person: 3. (a) supplies to another person services for or in relation to the performance of work, or 4. (b) has supplied to the designated person the services of persons for or in relation to the performance of work …..". 5. Section 32(2), which sets out several specific circumstances in which the receipt or supply of services by a designated person will not be a receipt or supply pursuant to a relevant contract. These various exceptions are considered in more detail below.
3. Against that background, these reasons will consider the circumstances of each Installer in relation to each Relevant Year for which the Respondent has assessed payroll tax on payments made by an Applicant during the Relevant Year to that Installer. The issues are in each case as follows: 1. Did an Applicant have provided to it the services of the relevant Installer for or in relation to the performance of work? 2. Were those services provided by the Installer under a contract, within the meaning of section 31 the Act? 3. Did any of the exceptions provided for in section 32(2) apply, so as to exempt the arrangements between the Applicants and the relevant Installer from being a relevant contract?

Some common elements

1. Before examining the particular circumstances of each Installer, several matters of general relevance can usefully be addressed at the outset.
2. First, one element of the definition of relevant contract is clearly established in each case, and there was no dispute between the parties on this point. This is that the Applicants, as designated persons, had the relevant services supplied to them in the course of "….. a business carried on by the designated person". This conclusion follows from paragraphs 12 to 23 (inclusive) of Mr Willi Durkowyak's affidavit dated 12 July 2016 (the Durkowyak Affidavit), where Mr Durkowyak summarises the history and business practices of the Applicants.
3. Secondly, as indicated above, there is no dispute that the relevant amounts paid by the Applicants to the Installers were all for or in relation to services wholly performed in New South Wales, so that the necessary geographic nexus is established. The consequence is that if the amounts paid by the Applicants to the Installers during the Relevant Period are properly characterisable as wages, remuneration, salary, commission, bonuses or allowances paid or payable by an employer to an employee within the meaning of the Act, they will be taxable wages for purposes of the Act.
4. Certain evidence was provided in affidavit or oral form by Mr Durkowyak and Mr Steve Carroll. It is convenient at this stage to make several comments on this evidence: 1. Mr Durkowyak, as he states in his affidavit, is together with his wife one of the two directors and the owners of the Applicants. I am in consequence satisfied as to the reliability of his statements as to the Applicants' history, corporate organization, routine business systems and methods. 2. Equally, Mr Steve Carroll states in his affidavit dated 15 July 2016 (the Carroll Affidavit) that he is the General Manager of the Applicants. I am satisfied that, by virtue of the familiarity which his position gives him with such matters, his evidence as to the Applicants' routine business systems and methods is reliable. 3. I will consider later in these reasons more specifically their statements concerning the systems used to prepare and maintain, and identify and remedy possible deficiencies in, the Applicant's accounting records so far as they relate to payments made to the Installers during the Relevant Period.
5. All Installers other than Keld Schultz are natural persons, and accordingly the potential exists for the exemption provided under section 32(2)(c)(iii) to apply to them. This provides that a contract for the supply of services to a designated person (such as the Applicants) is not a relevant contract if the work to which the services relate is performed by a contractor who is a natural person "… and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor …". There are several aspects of this exemption, in its potential application the relevant Installers, on which a number of general observations and conclusions can usefully be set out at this stage.
6. The first is whether the Installers were assisted in their work by "… one or more persons …": 1. On this point, Mr Daymon Joseph Sharwood has provided an affidavit dated 14 July 2016 (the Sharwood Affidavit). In it he states that: 1. he is a truck driver, and has been employed by the Applicants in that role for over 10 years; 2. in the course of his employment he has come to know various Installers, including Messrs JA and Lee Parker, Mr Horn and Mr Meenhuis; and 3. he has observed in the course of delivering flooring to job sites that "…there is invariably more than one person, the contractor has an offsider to help with the floor laying". He speaks generally about his observations of floor-laying practice, but says nothing specific about the practice of particular Installers during identified Relevant Years. 1. Despite this relative lack of precise focus, I am satisfied that Mr Sharwood's observational evidence supports generally the proposition that the Installers were, with the possible exception of Mr Lee Parker, typically supported by an assistant during the Relevant Period. 2. The Durkowyak Affidavit refers: 1. generally, in paragraph 39, to the Installers "… engag[ing] and supervis[ing] their own employees and staff, and [being] solely responsible for their own employees and staff …"; and 2. specifically, in paragraphs 41 (in the case of Mr John Parker), and paragraphs 53 to 55 (in that of Mr Meenhuis), to specific Installers having assistance in their floor installation activities for the Applicants. This provides a further measure of support for the proposition that Installers had assistance in those activities.
7. The second issue is whether this assistance was enjoyed by an Installer "…in the course of a business carried on by .." the Installer. Two affidavits are relevant: 1. The first is the Durkowyak Affidavit, which sets out: 1. in paragraphs 13 to 24 a general description of the Applicants and their business, including in particular the sequence of steps undertaken by the Applicants in order to provide the services of specialist floor layers to customers of the Applicants who have agreed to purchase flooring; and 2. in paragraphs 25 to 39 certain elements of the relationship between the Applicants and specialist floor layers whose services they so procure. I will return to these descriptions in more detail below. 1. The second is the affidavit dated 14 July 2016, of Mr Daniel James McFadden (the McFadden Affidavit). In his affidavit, Mr McFadden: 1. states in paragraphs 4 and 5 that he is the sales manager for the Applicants, and that his duties include serving as the point of contact for customers in connection with complaints about workmanship by floor layers procured by the Applicants; 2. states in paragraphs 6 and 7 that it is the responsibility of the floor layers to rectify any issues identified by such complaints; 3. in paragraphs 8 to 12 recounts, by way of example, the history of one such complaint, involving Mr John Parker; and 4. annexes a chain of communications which illustrate the course of that complaint. I have no reason to doubt the accuracy of the McFadden Affidavit, or the views expressed in it as to the allocation of responsibility, as between the Applicants and a floor layer whose services are procured by the Applicant, for the rectification of faulty workmanship. Its overall effect is to support the statement made by Mr Durkowyak in paragraph 32 of the Durkowyak Affidavit, that the Installers were responsible for the rectification of faulty workmanship in work performed by them. 1. I now return to the Durkowyak Affidavit: 1. Paragraphs 25 to 39 outline various elements of the relationship between the Applicants and specialist floor layers whose services they procure for customers. This description is expressed to apply generally to these specialist floor layers, and must therefore extend, subject to any specific exceptions identified by Mr Durkowyak, to the Installers. 2. These elements include: 1. In paragraphs 25 to 27, that each floor layer enters into a framework agreement, called a "Period Trade Contract", which neither obliges the floor layer to perform, nor the Applicants to award, work. Rather, it sets out the general terms which will apply if a particular floor layer is engaged to perform work. 2. In paragraphs 28 to 31, that each floor layer is required to ensure that he has all relevant licences; to provide his own transport, tools and protective clothing; and to supply all equipment and fastenings for laying the floors. 3. In paragraphs 33 to 35, that each floor layer is required to procure his own insurance coverage; to have an ABN, and to be responsible for his own taxation liabilities, on account of which the Applicants do not make deductions from amounts payable to Installers; and to provide evidence to that effect (and of the floor layer's licence) to the Applicants. 4. In paragraphs 32, 37 and 39 that each floor layer is responsible, as between him and the Applicants, for the performance and quality of the work performed by him. This, of course, is consistent with Mr McFadden's evidence. 1. I have no reason to doubt the accuracy of this description of the relationship between the Applicants and the Installers, which shows that, at least in the elements so described, that relationship displays several of the indicia which the law has traditionally used to determine whether a particular relationship involving the performance of work is one of customer and contractor, as distinct from one of employer and employee. These indicia are summarised in the Respondent's Revenue Ruling No. PTA 038, and there is little point for present purposes in going beyond that summary, since the Durkowyak Affidavit clearly demonstrates that many of these individual indicia are present. Indeed (and this is merely an observation, not a criticism) the selection of content for the relevant sections of the Durkowyak Affidavit appears to have been informed to a degree by the list of indicia in that ruling. 1. I turn now to the second relevant aspect of the Durkowyak Affidavit, which deals with the process by which the services of particular floor layer were during the Relevant Period engaged for a particular floor-laying job. 1. The starting point is paragraph 18, where Mr Durkowyak outlines the Applicants' process for providing a quote to a customer. The quote, he says in paragraph 19, included both "…the goods that are to be supplied and the work to be undertaken [underlining added]". The quotation was provided by the Applicants, on the basis of either plans or on-site measurements made by a representative of the Applicants. Even though it covered work to be undertaken in fitting the floor, it was made without consultation with, or participation by, any floor layer. 2. Paragraph 20 says that once the customer accepted the quote, the Applicant took a deposit from the customer and signed a contract with (or, in the case of a builder, received an order from) the customer. Subsequently, according to paragraph 21, the customer provided a start date for the job. 3. It was only at that point, according to paragraph 21, that a floor layer was involved in the process. The Applicants then made enquiries with their preferred floor layers to ascertain if one "…. is available to do the work on the dates required". It is to be noted here that it was timing, not pricing, which according to Mr Durkowyak dictated the choice of floor layer. 4. Once an available floor layer was identified, the Applicants sent an email or facsimile to him, "… setting out details of the work to be done", and subsequently further instructions which he says "…cover all aspects of the work that is to be performed …". Mr Durkowyak exhibits at Tab 3 in the exhibits to his affidavit a copy of an email communication with an Installer - as it happens, Mr John Parker - "..by way of example…". A similar communication, again to Mr John Parker, is Annexure A to the McFadden Affidavit. Both were offered as examples of communications of this kind. I return to these communications below. 1. What is noticeable in all of this is the absence of any reference to or evidence of pricing discussions or negotiations between the Applicants and its floor layers, including the Installers: 1. The order of events set out in paragraphs 21 and 22 suggests that the Applicants had no expectation of any independent pricing negotiations with Installers. That the Applicants' practice was to provide quotes to and sign contracts with customers without consultation with the Installers and before securing the services of an Installer strongly indicates that the Applicants were either: 1. certain as to their Installers' pricing, or 2. prepared to take significant pricing risk themselves. No other aspect of the Applicants' business model as outlined in the Durkowyak Affidavit suggests a significant risk appetite in relation to the installation of flooring. The inference I draw is that pricing as between the Applicants and their Installers was neither contested nor negotiated by the Installers. 1. The two examples of job-specific communications between the Applicants and contractors referred to above are instructive. They both refer to various aspects, both technical and administrative, of the relevant job, but are absolutely silent on pricing. 2. The Period Trade Contract which is Tab 4 of the exhibits to the Durkowyak Affidavit, and which Mr Durkowyak describes as "standard", contains in clause 3, three possible methods of identifying the price for work conducted under it: a quote from the contractor to the Applicants; a work order issued by the Applicants to the contractor; or such other written evidence as is signed by both parties. Nothing in the Durkowyak Affidavit identifies whether, and if so how, any such method was adopted. 3. In paragraph 36 of the Durkowyak Affidavit, Mr Durkowyak refers to the procedures required under the Period Trade Contract for the pricing of work additional to that comprised in the original quote provided by the Applicants and agreed by their customer. Presumably he has in mind here the provisions of Condition 2 of the Period Trade Contract. His emphasis in paragraph 36 on the process of assessing (and, if need be, obtaining further) quotes for additional work contrasts strongly with the absence a similar process for pricing the principal job, which suggests that the pricing of standard types of work was not negotiated. 4. Paragraph 38 of the Durkowyak Affidavit outlines the invoicing procedures as between the Applicants and flooring contractors, including the Installers. These are that the Applicants generate Recipient Created Tax Invoices on behalf of the contractors. These, Mr Durkowyak says, reflect the job specification sheets "…that become the trade contracts when agreed to by the contractors ..". This however provides no enlightenment as to how (or indeed whether) pricing is agreed between the Applicants and the contractors. The Applicants provide several examples of these Recipient Created Tax Invoices: 1. at Tab 5 of the exhibits of the Durkowyak Affidavit is a Recipient Created Tax Invoice issued on behalf of Mr John Parker, dated 28 June 2012, for a GST inclusive amount of $2,105.40. It is headed "Purchase # 00011897"; 2. at Tab 8 of the exhibits to the Durkowyak Affidavit are 7 Recipient created Tax Invoices issued on behalf of Mr John Parker; and 3. Appendix D to the Applicants' objection dated 28 April 2014 contains two further recipient created tax invoices; one, dated 19 July 2012, is issued on behalf of Mr John Parker, and the second is issued on behalf of Mr Lee Parker and has the same date. With one exception, all of the invoices provide for pricing at a fixed amount per unit, being variously per piece, per square metre or per "L/M" (which may be a reference to linear metres), and all the invoices show consistent unit pricing for the same kinds of work. So, for example, fitting hardwood 100mm flooring is consistently priced at $7 per square metre, beading is consistently priced at $4 per L/M, and cork is consistently priced at $3 per L/M. The exception relates to an invoice which is described as covering "repairs to floor as agreed with Bill". 1. Pricing and revenue management is axiomatically a central element in the operation of any business, and Hill J noted in Evans v Federal Commissioner of Taxation (1989) 20 ATR 922, at 939, that "… whether ordinary commercial principles are applied characteristic of the lines of business in which the venture is carried on …" is one of the indicia to be considered in determining whether a particular activity constitutes a business. The evidence from Mr Durkowyak does not show that the Installers exercised any control over (or even influenced) the price at which they laid floors for individual customers of the Applicants, and indicates that in practice they were presented as a fait accompli with the price for laying the flooring which had been agreed between the Applicants and their customer. This system of price dictation, in my view, raises real questions as to whether the Installers in reality adhered sufficiently to ordinary commercial principles to be genuinely independent businesses. This is reinforced by the absence of any evidence as to whether, and if so the process whereby, these various unit prices were established as between an Installer and the Applicants. The absence of any evidence as to the Installers' asserting any control of (or even any significant input into) the pricing of their work for the Applicants represents a very significant counterweight to the other indicia listed above, and raises a real question as to whether the relevant condition to the exemption in section 32(2)(c)(iii) can be satisfied on the basis of the evidence provided.

Mr Robert Horn

1. Following its concession referred to above, the Respondent now claims payroll tax only on payments by the Applicants to Mr Horn in Relevant Year 2011.
2. Did an Applicant have supplied to it in Relevant Year 2011 the services of Mr Robert Horn for or in relation to the performance of work? 1. There appears to be no dispute that this was the case. 2. Moreover: 1. the Durkowyak Affidavit indicates in paragraph 56 that Mr Horn supplied his services to the Applicants; and 2. the relevant pages of Annexure C to the Carroll Affidavit identify over 75 instances in during Relevant Year 2011 in which Mr Horn made supplies to the Applicants.
3. I am satisfied therefore that in relevant Year 2011 an Applicant had supplied to it the services of Mr Horn for or in relation to the performance of work.
4. Were Mr Robert Horn's services supplied under a contract (within the meaning provided under section 31)? 1. In paragraph 56 of the Durkowyak Affidavit Mr Durkowyak states that Mr Horn had signed a Periodic Trade Contract with the Applicants, and from time to time took up trade contracts with the Applicants. 2. Nothing in the Durkowyak Affidavit indicates that any special contracting arrangements which fell outside the description contained in paragraphs 26 to 38 of the Durkowyak Affidavit, applied to Mr Horn during Relevant Year 2011. 3. I am satisfied, therefore, that Mr Horn supplied his services under a contract, within the meaning of section 31.
5. Does any exception under section 32(2) apply to Mr Horn for Relevant Year 2011?

Exemption under section 32(2)(b)(iv) of the Act 1. The Applicants' claim that Mr Horn falls within the exemption provided for in section 32(2)(b)(iv) of the Act, which exempts from payroll tax for a financial year payments by a Designated Person to a supplier of services if the Respondent is satisfied that the relevant supplier "… ordinarily performs services of that kind to [sic] the public generally in that financial year...": 1. The Applicants provided no evidence from Mr Horn as to the scope of his business during Relevant Year 2011, his customer base during that Relevant Year or the extent to which during that Relevant Year he provided his services to customers other than the Applicants. 2. In the Durkowyak Affidavit, Mr Durkowyak states at paragraph 57 that Mr Horn "… also offers his services to the public generally". He provides no evidence in support of this proposition, other than a comparison prepared by the Respondent of payments made to Mr Horn by the Applicants (which, the Respondent says, were sourced from the Applicants' accounting records) to details of Mr Horn's business turnover derived from his business activity statement and of his income tax returns. These indicate that for the Relevant Year 2011: 1. Mr Horn was paid $118,868 by the Applicants; 2. Mr Horn disclosed in his Business Activity Statement a turnover of $136,396; and 3. Mr Horn had an assessable income of $123,997. 1. In the Carroll Affidavit, Mr Carroll states that the amount referred to in paragraph (a)(i) above is incorrect, and should be revised upwards to $123,452 (excluding GST) or $135,797 (including GST). These reasons will consider later the issues raised by Mr Carroll in his affidavit, but assuming those adjusted amounts to be correct they do little to support the argument made by the Applicants, since they narrow to a mere $599 the difference between the turnover claimed by Mr Horn in his Business Activity Statement and the aggregate GST inclusive payments made by the Applicants to him. 2. In any event, whether the differential is $17,528 (according to the unadjusted figures) or $599 (according to Mr Carroll's adjusted figures), the fact that Mr Horn's turnover reported in his Business Activity Statement exceeds the aggregate payments received by him from the Applicants during the Relevant Year demonstrates at most that he had: 1. at least one other customer whose business with him in aggregate represented, 2. another business, as to the nature of which there is no evidence, which generated, or 3. some combination of (i) and (ii), which represented, a little under 10% of his turnover. The evidence provided invites surmise on these matters, but it does not go beyond this; in particular it does not indicate that the activities of Mr Horn which generated this turnover involved the provision of services similar to those provided by him to the Applicants. It does not demonstrate on the balance of probabilities that during Relevant Year 2011 Mr Horn "… ordinarily performs services of that kind to [sic] the public generally in that financial year...": as required by section 32(2)(b)(iv) of the Act.

Exemption under section 32(2)(c)(iii) of the Act 1. The issue is not raised in the Applicants' submissions, but for completeness I will briefly consider the possible argument, that amounts paid to Mr Horn in relevant Year 2011 might be exempt under section 32(2)(c)(iii). This provides that a contract for the supply of services to a designated person (such as the Applicants) is not a relevant contract if the work to which the services relate is performed by a contractor who is a natural person (as is Mr Horn) "… and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor …". 2. The Sharwood Affidavit speaks generally about his observations of floor-laying practice, but says nothing specific about the practice of Mr Horn during the Relevant Year 2011, although the generality of Mr Sharwood's observational evidence supports the inference that it is reasonably likely that Mr Horn was, at least on occasions, supported by an assistant 3. The Durkowyak Affidavit suggests that it was a reasonable possibility that Mr Horn was, at least on occasions, supported by an assistant, but: 1. it says nothing specific about the practice of Mr Horn during the Relevant Year 2011; and 2. says nothing about the relationship between Mr Horn and any assistant which might allow the conclusion to be drawn that during the Relevant Year 2011 Mr Horn fell within the scope of section 32(2)(c). 1. There is no evidence on this issue from Mr Horn himself. 2. Even if one accepts, on the basis of the Durkowyak and Sharwood Affidavits, that during Relevant Year 2011 Mr Horn enjoyed the assistance of one or more other persons in his activities of laying floors ordered by the Applicants' customers, this is not of itself sufficient to confer on Mr Horn the benefit of the exemption under section 32(2)(c)(iii). One element of the exemption is that this assistance be obtained "….in the course of a business carried on by the contractor …". 3. What does the evidence show as to whether Mr Horn received this assistance in the course of carrying on a business in Relevant Year 2011? 1. It shows that in that Relevant Year Mr Horn had receipts of $118,868 (or, on Mr Carroll's adjusted figures, $135,797 on a GST inclusive basis) from the Applicants, against total revenues (according to his business activity statement) of $136,396. That is to say, the Applicants represented either 90% or 99.5% of his turnover for Relevant Year 2011. 2. It shows that he undertook work for the Applicants. 3. It shows, at least according to the Durkowyak Affidavit, that the formal structure of relations and risk allocation between Mr Horn and the Applicants was in various respects not inconsistent with Mr Horn carrying on an independent business. 1. Equally relevant is what the evidence does not show: 1. First, there is no evidence provided which demonstrates that Mr Horn had any significant sources of work in his trade other than the Applicants. 2. Secondly, there is no evidence of any systematic business management or record keeping by Mr Horn generally. There is ample evidence that in their dealings with Mr Horn the Applicants used systematic business management and record-keeping, and that these business practices of the Applicants shaped the way in which Mr Horn conducted his activities with the Applicants, for example through the creation by the Applicants of recipient created tax invoices in connection with supplies made to them by Mr Horn. There is, however, no evidence as to how Mr Horn conducted his activities, if any, in which the Applicants were not involved. 3. Thirdly, there is no evidence of marketing, promotion or active business development by Mr Horn. 4. Fourthly, for the reasons outlined above, the quoting and pricing arrangements described in the Durkowyak Affidavit raise real doubts, which nothing in the evidence is sufficient to dispel, as to whether Mr Horn was in fact carrying on a business during Relevant Year 2011. 1. Ultimately, despite the imposition on Mr Horn of certain business-like formal structures and practices, there is no evidence that during Relevant Year 2011: 1. he sought or secured his own customers, 2. he set or negotiated his own prices, or 3. he conducted his activities in a way which was genuinely an independent business (as distinct from a relationship which had the appearance, but not the substance, of an independent business).

1. In view of all this, the Applicants have not discharged the onus imposed on them to satisfy me that: 1. the arrangement under which Mr Horn supplied services to the Applicants during relevant Year 2011 was not a relevant contract within the meaning of section 32(1) of the Act; or 2. the arrangement is exempted by section 32(2) of the Act.

Keld Shultz Flooring Pty Limited (Keld Shultz)

1. The Respondent claims payroll tax only on payments by the Applicants to Keld Shultz in Relevant Year 2011.
2. Did an Applicant have supplied to it in Relevant Year 2011 the services of Keld Shultz for or in relation to the performance of work? 1. There appears to be no dispute that this was the case. 2. Moreover: 1. the Durkowyak Affidavit indicates in paragraph 25 that Keld Shultz (which Mr Durkowyak refers to in his affidavit as "Keld Schultz") supplies its services to the Applicants; and 2. the relevant pages of Annexure C to the Carroll Affidavit identify over 50 instances during Relevant Year 2011 on which Keld Shultz made supplies to the Applicants.
3. I am satisfied therefore that in relevant Year 2011 the Applicants had supplied to them the services of Keld Shultz for or in relation to the performance of work.
4. Were Keld Shultz' services supplied under a contract (within the extended meaning provided under section 31)? 1. In paragraph 25 of the Durkowyak Affidavit, Mr Durkowyak states that Keld Shultz has signed a Periodic Trade Contract with the Applicants and from time to time takes up trade contracts with the Applicants. 2. Nothing in the Durkowyak Affidavit indicates that any special contracting arrangements which fell outside the description contained in paragraphs 26 to 38 of the Durkowyak Affidavit, applied to Keld Shultz during Relevant Year 2011. 3. I am satisfied, therefore, that Keld Shultz supplied those services under a contract within the meaning provided under section 31.
5. Does any exception under section 32(2) apply to Keld Shultz for Relevant Year 2011?

Exemption under section 32(2)(b)(iii) of the Act 1. The Applicants argue that Keld Shultz falls within the exemption provided for in section 32(2)(b)(iii) of the Act, which exempts from payroll tax for a financial year payments by a Designated Person to a supplier of services if: 1. the relevant 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 2. certain conditions set out in section 32(2)(b)(iii)(A) and (B) of the Act as to the performance of the underlying work are satisfied. 1. The Applicants' sole argument for this proposition is that the relative modesty of the amounts paid to Keld Shultz during relevant Year 2011 - $42,916 according to the original figures provided by them to the Respondents, and $47,721 (GST inclusive) according to the adjusted figures in the Carrol Affidavit - makes it "highly likely" that Keld Shultz provided services to the Applicants for less than 90 days in aggregate in Relevant Year 2011: 1. They have not, however, provided any evidence, whether from Keld Shultz or the Applicants, such as time sheets or daily rates, on the basis of which the arithmetic plausibility of that assertion could be tested. The relevant page of Annexure C to the Carroll Affidavit indicates that during Relevant Year 2011 Keld Shultz undertook 53 individual invoiced jobs for the Applicants, ranging in value from $165 to $3,339.05, and extending over a period 9 months. There is, however, no evidence which allows any conclusion to be drawn as to the number of days work which these 53 jobs involved, other than a reference in the Applicant's objection dated 28 April 2014 (which is found at page 8 of Tab 2 of the Section 58 Documents) to the Australian Taxation Office's Small Business Benchmarks for Timber Floor Installation, which suggest that an installation job typically takes 4 days. This is of little assistance, since the value of jobs undertaken varies widely, and the Applicants have provided no evidence which relates this benchmark to the work undertaken by Keld Shultz during the Relevant Year 2011. 2. Moreover, they have made no effort to demonstrate that the conditions set out in section 32(2)(b)(iii)(A) and (B), which are an integral part of the exemption, are satisfied. 1. The Applicants have not satisfied me that the payments made to Keld Shultz during the Relevant Year 2011 fall within the exemption provided for in section 32(2)(b)(iii) of the Act.

Exemption under section 32(2)(b)(iv) of the Act 1. The Applicants argue too that Keld Shultz falls within the exemption provided for in section 32(2)(b)(iv) of the Act, which exempts from payroll tax for a financial year payments by a Designated Person to a supplier of services if the Respondent is satisfied that the relevant supplier "… ordinarily performs services of that kind to [sic] the public generally in that financial year...": 1. The Applicants provided no evidence from Keld Shultz as to the scope or size of its business during Relevant Year 2011, its customer base during that Relevant Year or the extent to which during that Relevant Year it provided services to customers other than the Applicants. 2. They themselves provided no evidence as to any of these matters, inviting the Tribunal to infer from the relative modesty of the amounts paid to Keld Shultz by the Applicants that Keld Shultz must have had, during Relevant Year 2011, numerous other customers to whom it made its services available. To make this inference, the Tribunal would have to make either of two assumptions: 1. that Keld Shultz' business in Relevant Year 2011 was so large that its business with the Applicants represented no more than a minor proportion of its total business; and 2. even if that assumption could be made, that the rest of Keld Shultz' business in Relevant Year 2011 was one in which it "… ordinarily performs services of that kind to [sic] the public generally in that financial year...": The Applicants have provided no evidence in support of either assumption. 1. The Applicants have not, therefore, satisfied me that the payments made to Keld Shultz during the Relevant Year 2011 fall within the exemption provided for in section 32(2)(b)(iv) of the Act.

Mr Alfonsus Meenhuis

1. Following its concession referred to above, the Respondent now claims payroll tax only on payments by the Applicants to Mr Meenhuis in Relevant Year 2011 and Relevant Year 2013.
2. Did the Applicant have supplied to it in Relevant Years 2011 and 2013 the services of Mr Alfonsus Meenhuis for or in relation to the performance of work? 1. There appears to be no dispute that this was the case. 2. Mr Durkowyak states in paragraph 50 of the Durkowyak Affidavit that Mr Meenhuis provided services to the Applicants for all of the Relevant Period. 3. The relevant pages of Annexure C to the Carroll Affidavit identify over 30 instances during Relevant Year 2011, and over 40 instances during the Relevant Year 2013, on which Mr Meenhuis made supplies to the Applicants.
3. I am satisfied, therefore, that in Relevant Years 2011 and 2013 the Applicants had supplied to them the services of Mr Alfonsus Meenhuis for, or in relation to, the performance of work.
4. Were Mr Alfonsus Meenhuis' services supplied under a contract (within the extended meaning provided under section 31)? 1. In paragraph 25 of the Durkowyak Affidavit Mr Durkowyak states that all contractors are required to sign a Periodic Trade Contract with the Applicants. There is no suggestion that Mr Meenhuis' arrangements with the Applicants departed from this general model. 2. I am satisfied, therefore, on the balance of probabilities, that Mr Meenhuis supplied his services to the Applicants during Relevant Years 2011 and 2013 under a contract within the meaning provided under section 31.
5. Does any exception under section 32(2) apply to Mr Meenhuis for Relevant Years 2011 and 2013?

Exemption under section 32(2)(b)(iii) of the Act 1. The Applicants argue that Mr Meenhuis falls within the exemption provided for in section 32(2)(b)(iii) of the Act, which exempts from payroll tax for a financial year payments by a Designated Person to a supplier of services if: 1. the relevant 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 2. certain conditions set out in section 32(2)(b)(iii)(A) and (B) of the Act as to the performance of the underlying work are satisfied. 1. The Applicants' sole argument for this proposition is that the relative modesty of the amounts paid to Mr Meenhuis during the two Relevant Years in question makes it "very likely" that Mr Meenhuis provided services to the Applicants for less than 90 days in aggregate in each of Relevant Years 2011 and 2013: 1. The amounts originally provided by the Applicants to the Respondents were: 1. Relevant Year 2011: $38,184 2. Relevant Year 2013: $46,803. 1. The GST inclusive adjusted amounts set out in the Carroll Affidavit are: 1. Relevant Year 2011: $44,395 2. Relevant Year 2013: $55,143. 1. They have not, however, provided any evidence, whether from Mr Meenhuis or the Applicants, such as time sheets or daily rates, on the basis of which the arithmetic plausibility of their assertion could be tested. The relevant pages of Annexure C to the Carroll Affidavit indicate that: 1. during Relevant Year 2011 Mr Meenhuis undertook 38 individual invoiced jobs for the Applicants, ranging in value from $10.89 to $3,662.03, over a period of 4 months, and 2. during Relevant Year 2013 Mr Meenhuis undertook 51 individually invoiced jobs for the Applicants, ranging in value from $110 to $4,351.77 over a period of 9 months, but there is no evidence which allows any conclusion to be drawn as to the number of days work which these 38 and 53 jobs respectively involved. Even the shorter of these periods, that of 4 months during Relevant Year 2011, significantly exceeds in duration 90 days and was therefore capable of accommodating more than 90 days' work. The reference in the Applicant's objection dated 28 April 2014 to the Australian Taxation Office's Small Business Benchmarks for Timber Floor Installation is of little assistance, since the value of jobs undertaken varies widely, and the Applicants have provided no evidence which relates this benchmark to the work undertaken by Mr Meenhuis during the Relevant Years 2011 and 2013. 1. Moreover, they have made no effort to demonstrate that the conditions set out in section 32(2)(b)(iii)(A) and (B), which are an integral part of the exemption, are satisfied. 1. The Applicants have not, therefore, satisfied me that the payments made to Mr Meenhuis during the Relevant Years 2011 and 2013 fall within the exemption provided for in section 32(2)(b)(iii) of the Act.

Exemption under section 32(2)(b)(iv) of the Act 1. The Applicants claim that Mr Meenhuis falls in Relevant Years 2011 and 2013 within the exemption provided for in section 32(2)(b)(iv) of the Act, which exempts from payroll tax for a financial year payments by a Designated Person to a supplier of services if the Respondent is satisfied that the relevant supplier "… ordinarily performs services of that kind to [sic] the public generally in that financial year...": 2. The Applicants provided only limited evidence from Mr Meenhuis as to the scope of his activities during either Relevant Year, his customer base during either Relevant Year or the extent to which during those Relevant Years he provided his services to customers other than the Applicants. This information was contained in Appendix F to the Applicant's objection dated 28 April 2014 (and is found at pages 62 to 70 (inclusive) of Tab 2 of the Section 58 Documents). 3. In relation to Relevant Year 2011 the following evidence was provided: 1. The first document is a payslip issued to Mr Meenhuis by an employer named Earthpower Tech Syd Pty Limited (Earthpower), in respect of the period 9 May 2011 to 15 May 2011. This indicates that during Relevant Year 2011 Mr Meenhuis was employed by Earthpower as an "Operator/Landfill" and that, during that year until 15 May 2011, he had received gross remuneration from Earthpower of $25,793.49. This indicates that in Relevant Year 2011 Mr Meenhuis had a second career as an "operator/landfill", not that he provided to the public generally services of the kind provided by him to the Applicants. It therefore does not support the Applicants' argument. 2. The second document is one dated 6 July 2011 and headed "ETP Payment Summary". It indicates that on 18 May 2011 Earthpower made a payment to Mr Meenhuis, from which it withheld income tax of $257. As was the case for the payment slip described above, this tells us nothing more than that Mr Meenhuis was an employee of Earthpower during Relevant Year 2011; it does not show that he provided to the public generally services of the kind provided by him to the Applicants. It does not support the Applicants' argument. 3. The third document is a payslip dated 30 June 2011 issued to Mr Meenhuis by NSW TAFE (TAFE), as employer, in respect of the period ending 19 June 2011. This indicates that during Relevant Year 2011 Mr Meenhuis was employed by TAFE to undertake teaching duties in the Allied Timber Trades course at Lidcombe College, and that, during that year, he had received gross remuneration from TAFE of $1,117.44. This indicates that Mr Meenhuis provided instruction to students of Allied Timber Trades at Lidcombe College, not that he provided to the public generally services of the same kind as those provided by him to the Applicants. It does not support the Applicants' argument. This does not satisfy me that the payments made to Mr Meenhuis during the Relevant Years 2011 fall within the exemption provided for in section 32(2)(b)(iv) of the Act. 1. In relation to Relevant Year 2013 the position is somewhat different: 1. Exhibited to the Durkowyak Affidavit is a payslip issued to Mr Meenhuis by a company named Heartwood Timber Floors and Shutters Pty Limited (Heartwood), in respect of the period 14 June 2013 to 20 June 2013. 2. This indicates that during Relevant Year 2013 Mr Meenhuis received remuneration from Heartwood, and in particular that until 20 June 2013, he had received gross remuneration from Heartwood of $9,350. The payslip states that this was calculated at an hourly rate $23.4311 per hour, which in turn indicates that Mr Meenhuis worked for Heartwood for 399 hours (or, assuming a 35 hour week, approximately 11 weeks). 3. The decision of a predecessor Tribunal in Roden Security Services Pty Limited v Chief Commissioner of State Revenue [2010] NSWADTAP noted that "In some circumstances at least one other significant client may suffice". This proposition was derived from a decision of Balmford J in the Supreme Court of Victoria in Drake Personnel v Commissioner of State Revenue (1998) 40 ATR 304, where at paragraph 41 His Honour in turn approved a decision of Member Pagone (as he then was) of the Victorian Administrative Appeals Tribunal in Behmer v Commissioner of State Revenue (1994) 28 ATR 1082. This decision concerned a not dissimilar exemption to that under consideration here, and in it Member Pagone noted that the exemption could be engaged where a supplier of services had, in addition to the taxpayer, ".. at least one other significant client". That approximately 21% of the working year in Relevant Year 2013 was devoted by Mr Meenhuis to work for Heartwood indicates in my view that Heartwood was in that year a significant source of work for Mr Meenhuis. 4. The question then is whether Mr Meenhuis provided during Relevant Year 2013 services to Heartwood of the kind he provided to the Applicants: 1. Heartwood's name is descriptive in nature, and clearly suggests that its business includes the supply of wooden flooring in connection with which it might well utilise the services of Mr Meenhuis in his trade of floor installation. 2. There was, however, no evidence that Heartwood was at the relevant time actually engaged in the supply of wooden flooring so as to need the services of a skilled floor layer. To reach that conclusion would require the Tribunal to make an assumption as to Heartwood's activities, based on nothing more than its corporate name. 3. Equally, there is no evidence as to the purposes for which Mr Meenhuis was engaged by Heartwood; the payslip indicates that he was engaged by Heartwood, but does not indicate any job description or duties. For all one knows, he may have been engaged by Heartwood to drive earthmoving machinery, or to instruct its staff in timber related trade skills. 4. Had there been evidence as to either of those issues, it might well have been open to me to conclude that Mr Meenhuis was engaged to provide floor laying services to or for Heartwood, but there was none. The Applicants have not, therefore, satisfied me to that the payments made to Mr Meenhuis during the Relevant Year 2013 fall within the exemption provided for in section 32(2)(b)(iv) of the Act.

Exemption under section 32(2)(c)(iii) of the Act 1. The Applicants claim that Mr Meenhuis falls in Relevant Years 2011 and 2013 within the exemption provided for in section 32(2)(c)(iii) of the Act. 2. This, as has already been outlined, provides that a contract for the supply of services to a designated person (such as the Applicants) is not a relevant contract if the work to which the services relate is performed bv a contractor who is a natural person "… and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor …". 3. Several elements need to be satisfied: 1. The relevant work is performed by a contractor, subject to the additional requirements outlined in paragraphs (c), (d) and (e) below. For the reasons set out earlier, I am satisfied that during Relevant Years 2011 and 2013 Mr Meenhuis provided services to the Applicants, under contracts entered into by him. The nature of Mr Meenhuis' collaboration with persons described in paragraphs (c), (d) and (e) below is the central issue, and is discussed in more detail below. 2. The contractor is a natural person. This requirement is clearly satisfied. 3. The relevant work is performed by the contractor and one or more persons. This requirement is discussed in (11) below. 4. Those persons are employed by, or provide services for, the contractor. This requirement is discussed in (12) below. 5. They do so in the course of a business carried on by the contractor. This requirement is discussed in (13) below. 1. Was the relevant work performed during Relevant Years 2011 and 2013 by Mr Meenhuis and one or more persons? 1. The evidence set out above in the Sharwood Affidavit is relevant. It says nothing specific about the practice of Mr Meenhuis during the Relevant Years 2011 and 2013, although the generality of Mr Sharwood's observational evidence supports the inference that it is reasonably likely that Mr Meenhuis was, at least on occasions, supported by an assistant during those Relevant Years. 2. The Durkowyak Affidavit states in paragraph 55, that: 3. "As long as I have known Mr Meenhuis he has worked with other persons when laying floors". 4. Mr Durkowyak does not state on what basis he made this statement. In particular, he does not indicate whether it is based on his own direct observation of Mr Meenhuis' work practices, on matters reported to him by third persons or surmise from commercial information concerning Mr Meenhuis' activities. 5. It also refers in paragraphs 54 and 55 to a conversation on 11 July 2016 between Mr Durkowyak and Mr Meenhuis, in which he reports Mr Meenhuis as stating: 1. In paragraph 54, that he (Mr Meenhuis) had employed an apprentice in each of Relevant Year 2011 and 2013; and 2. In paragraph 55, that he (Mr Meenhuis): 3. "….can't do this job on my own, there is too much in it, particularly as I get older". 1. This evidence is clearly hearsay, and, under section 38(2) of the Civil and Administrative Tribunal Act 2013, Tribunal is not bound by the rules of evidence. The limitation on reliability inherent in hearsay evidence is properly a matter to be taken into account by the Tribunal in determining how much weight to place on these paragraphs, but the tone and language of Mr Meenhuis' reported remarks, coupled with the evidence referred to below from Mr Meenhuis' financial records, give them the ring of truth. 2. The financial summary prepared by the Respondent in respect of Mr Meenhuis, which appears as Tab 59 of the Section 58 Documents and Tab 11 of Exhibit WD-1 to the Durkowyak Affidavit indicates that in Relevant Year 2011 Mr Meenhuis paid wages totalling $8,738 in relation to one employee. There is no corresponding entry for Relevant Year 2013. 3. On balance, I am satisfied that: 1. during Relevant Year 2011 Mr Meenhuis received the assistance of a person in performing work for the Applicants; and 2. it is reasonably likely, having regard to Mr Meenhuis' work practices outlined above, that during Relevant Year 2013 he received the assistance of a person or persons in performing work for the Applicants.

1. Were those persons employed by, or did they provide services for, the contractor? 1. In relation to Relevant Year 2011, the evidence contained in the financial summary prepared by the Respondent in respect of Mr Meenhuis, suggests that Mr Meenhuis' employed an assistant, during part at least of that Relevant Year. 2. There is no such evidence in relation to Relevant Year 2013. 3. However, the conclusion in paragraph 31(f)(ii) dictates a similar conclusion here, that it is reasonably likely that during Relevant Year 2013 a person provided services for Mr Meenhuis in connection with his performance of work for the Applicants. 4. A similar conclusion for Relevant Year 2011 can also be drawn from the conclusion on paragraph 31(f)(i).
2. Did those persons do so in the course of a business carried on by Mr Meenhuis? 1. The Applicants answer this question affirmatively. They say that: 1. Mr Meenhuis was carrying on a business during both Relevant Years; 2. They say this for four reasons: 1. Mr Meenhuis was conducting a trade; 2. He did so for fee, gain or reward; 3. He did so in a systematic and repetitive manner; and 4. He had the overall responsibility to fulfil the terms of his contracts with the Applicants, including the remedying of any defective works. 1. Mr Meenhuis employs (or otherwise obtains the services of) his assistants in the course of that business. 1. The Respondent answers the question negatively. He says that: 1. Mr Meenhuis was not carrying on a business; 2. He says this for four reasons: 1. Mr Meenhuis' income from his trade was derived overwhelmingly from his work for the Applicants, suggesting that there was a standing arrangement between the Applicants and Mr Meenhuis; 2. The practice between Mr Meenhuis and the Applicants for the issue by the Applicants of recipient created tax invoices in respect to Mr Meenhuis' work suggests a lack of independence on Mr Meenhuis' part, both as to pricing and business systems; this lack of independence is inconsistent with Mr Meenhuis carrying on a business; 3. There is no evidence of any advertising by Mr Meenhuis, 4. There is no evidence of any record-keeping, system or management, or repetitive industry on the part of Mr Meenhuis. 1. Mr Meenhuis cannot therefore be considered as having employed (or otherwise obtained the services of) his assistants in the course of a business. 1. What does the evidence show for relevant Year 2011? 1. It shows that in that Relevant Year Mr Meenhuis had receipts of $58,184 (or, on Mr Carroll's adjusted figures, $44,395 inclusive of GST) from the Applicants, against total revenues (according to his business activity statement) of $41,354 and assessable income of $39,452. 2. It shows too that he had income, not connected with his activities as a floor layer, from two other sources. 3. It shows that he undertook work for the Applicants. 4. It shows, as outlined in the Durkowyak Affidavit, that the formal structure of relations and risk allocation between Mr Meenhuis and the Applicants was in various respects on a basis not inconsistent with Mr Meenhuis carrying on an independent business. Paragraphs 25 to 39 of the Durkowyak Affidavit are all indicative of this. 1. Equally relevant is what the evidence does not show: 1. First, there is no evidence provided which demonstrates that Mr Meenhuis had any significant sources of work in his trade other than the Applicants. 2. Secondly, there is no evidence of any systematic business management or record keeping by Mr Meenhuis. There is ample evidence that in their dealings with Mr Meenhuis the Applicants operated their businesses with the benefit of systematic business management and record-keeping, and that this system "trickled down" to Mr Meenhuis, for example through the creation by the Applicants of recipient created tax invoices in connection with supplies made to them by Mr Meenhuis. 3. Thirdly, there is no evidence of marketing, promotion or active business development by Mr Meenhuis. 4. Fourthly, for the reasons outlined above, the quoting and pricing arrangements described in the Durkowyak Affidavit raise real doubts, which nothing in the evidence is sufficient to dispel, as to whether Mr Meenhuis was in fact carrying on a business during Relevant Year 2011. 1. Ultimately, despite the imposition by the Applicants on Mr Meenhuis of certain formal structures which are not inconsistent with Mr Meenhuis carrying on a business, there is no evidence that during Relevant Year 2011 that: 1. he sought or secured his own customers, 2. he set or negotiated his own prices, or 3. he conducted his activities in a way which was genuinely an independent business (as distinct from a relationship which had the appearance, but not the substance, of an independent business).

Mr John Parker

1. The Respondent claims payroll tax on payments by the Applicants to Mr John Parker throughout the entire Relevant Period.
2. Did the Applicants have supplied to them throughout the Relevant Period the services of Mr John Parker for or in relation to the performance of work? 1. There appears to be no dispute that this was the case. 2. Mr Durkowyak states in paragraph 44 of the Durkowyak Affidavit that Mr John Parker entered into Period Trade Contract with the Applicants for all of the Relevant Period. 3. The relevant pages of Annexure C to the Carroll Affidavit identify numerous instances during each Relevant Year on which Mr John Parker made supplies to the Applicants.
3. I am satisfied, therefore, that throughout the Relevant Period the Applicants had supplied to them the services of Mr John Parker for or in relation to the performance of work.
4. Were Mr John Parker's services supplied under a contract (within the extended meaning provided under section 31)? 1. In paragraph 44 of the Durkowyak Affidavit Mr Durkowyak states that Mr John Parker signed a Periodic Trade Contract with the Applicants for each Relevant Year. 2. Nothing in the Durkowyak Affidavit indicates that any special contracting arrangements which fell outside the description contained in paragraphs 26 to 38 of the Durkowyak Affidavit, applied to Mr John Parker during the Relevant Period. 3. I am satisfied, therefore, that Mr John Parker supplied his services to the Applicants during each Relevant Year under a contract within the extended meaning of section 31.
5. Does any exception under section 32(2) apply to Mr John Parker for Relevant Years 2011 and 2013?

Exemption under section 32(2)(b)(iv) of the Act 1. The Applicants claim that Mr John Parker falls in each Relevant Years within the exemption provided for in section 32(2)(b)(iv) of the Act, which exempts from payroll tax for a financial year payments by a Designated Person to a supplier of services if the Respondent is satisfied that the relevant supplier "… ordinarily performs services of that kind to [sic] the public generally in that financial year...": 2. There was no evidence from Mr John Parker himself as to the scope of Mr John Parker's activities during the Relevant Period, his customer base during the Relevant Period or the extent to which during the Relevant Period he provided his services to customers other than the Applicants. 3. The only evidence which the Applicants provided as to those matters was a statement by Mr Durkowyak in paragraph 42 of the Durkowyak Affidavit, that: 4. "John has always been free to and in fact has accepted work or contracts for entities other than the company". 5. The Applicants have not referred to Mr John Parker's financial information, but for completeness these reasons will. Set out below is a table. Each column refers to a particular Relevant Year, and the first row sets out the payments made to Mr John Parker in each Relevant Year by the Applicants (which the Respondent says were sourced from the Applicants' accounting records), the second row sets out the adjusted amounts of those payments as set out in the Carroll Affidavit, and the third row sets out the turnover recorded for Mr Parker in Business Activity Statements for each Relevant Year, as identified by the Respondents: Relevant Year 2010 Relevant Year 2011 Relevant Year 2012 Relevant Year 2013 Applicant payments to John Parker: Applicants' original figures 145,886 188,659 132,627 154,329 Applicant GST inclusive payments to John Parker: as adjusted by S Carroll 123,865 113,548 76,095 92,445 John Parker's turnover, according to his Business Activity Statements 144,734 128,639 83,502 113,514 Adjusted applicant sourced revenue as a percentage of turnover 85.58% 88.26% 92.10% 81.44%

1. Using the adjusted figures advocated by Mr Carroll so as to maximise the percentage attributable to revenues derived otherwise than from the Applicants, this suggests that in all relevant years Mr Parker's revenue from sources other than the Applicants was, at most, 18.56% of turnover and at its lowest 7.9% of his turnover. The fact that Mr Parker's turnover exceeds by these relatively modest margins the aggregate payments received by him from the Applicants during the Relevant Years demonstrates at most that he had: 1. one or more other customers whose business with him in aggregate represents, 2. another business, whose nature is imprecise, which generates, or 3. some combination of (i) and (ii) which produces, at most less than one fifth of his turnover. In the absence of evidence as to the sources of the relevant part of his turnover, it does not demonstrate that he "… ordinarily performs services of that kind to [sic] the public generally in that financial year...", as required by section 32(2)(b)(iv) of the Act. 1. The Applicants have not satisfied me that the payments made to Mr John Parker during the Relevant Period fall within the exemption provided for in section 32(2)(b)(iv) of the Act.

Exemption under section 32(2)(c)(iii) of the Act 1. The Applicants claim that Mr John Parker falls in all Relevant Years within the exemption provided for in section 32(2)(c)(iii) of the Act. 2. This provides that a contract for the supply of services to a designated person (such as the Applicants) is not a relevant contract if the work to which the services relate is performed by a contractor who is a natural person "… and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor …". 3. Several elements need to be satisfied: 1. The relevant work is performed by a contractor, subject to the additional requirements outlined in paragraphs (c), (d) and (e) below. For the reasons set out earlier, I am satisfied that, during all Relevant Years, Mr John Parker provided services to the Applicants, under contracts entered into by him. The nature of Mr John Parker's collaboration with persons described in paragraphs (c), (d) and (e) below is the central issue, and is discussed in more detail below. 2. The contractor is a natural person. This requirement is clearly satisfied. 3. The relevant work is performed by the contractor and one or more persons. This requirement is discussed in (9) below. 4. Those persons are employed by, or provide services for, the contractor. This requirement is discussed in (10) below. 5. They do so in the course of a business carried on by the contractor. This requirement is discussed in (13) below. 1. Was the relevant work performed during Relevant Years 2011 and 2013 by Mr John Parker and one or more persons? 1. The Sharwood Affidavit is relevant here, especially since it refers expressly to Mr Parker. It says nothing specific about the practice of Mr John Parker during the Relevant Years, although the generality of Mr Sharwood's observational evidence, coupled with his identification of Mr Parker as one of the contractors whom he knows and supplies, suggests that it is reasonably likely that Mr John Parker was, at least on occasions, supported by an assistant during those Relevant Years. 2. The Durkowyak Affidavit states in paragraph 41, concerning Mr Parker, that: 3. "John employed people to work for him, including his sons". 4. It also refers in paragraph 44 to Mr Parker's practice of working with his son: 5. "Since about 2000 John Parker has worked with his son, Lee Parker …. Lee's attendance at worksites during that period was organised by John Parker". 6. Mr Durkowyak does not state on what basis he made this statement. In particular, he does not indicate whether it is based on his own direct observation of Mr John Parker's work practices, on matters reported to him by third persons or surmise from commercial information concerning Mr John Parker's activities. 7. On balance, however, despite these gaps as to the basis for Mr Durkowyak's statement, I am satisfied that it is reasonably likely, having regard to Mr John Parker's trade practices outlined above, that during all Relevant Years: 1. he received the assistance of at least one person in performing work for the Applicants; 2. that person was his son, Mr Lee Parker; and 3. it is possible that he may also have received assistance from other persons, but there is no evidence as to whether this in fact occurred or, if so, who those persons were.

1. Were those persons employed by, or did they provide services for, the contractor? 1. The financial summary prepared by the Respondent in respect of Mr John Parker, which appears as Tab 55 of the Section 58 Documents, indicates that in no Relevant Year did Mr John Parker pay wages. 2. There is no evidence from Mr John Parker himself as to the nature of the relationship under which he received assistance, whether from Mr Lee Parker or anyone else, in performing work for the Applicants. 3. Mr Durkowyak outlines in his affidavit his view as to the nature of the arrangements between the Applicants, Mr John Parker and Mr Lee Parker: 1. In paragraph 43, he states that "We had no contractual relationship with Lee Parker up to and during the relevant period". 2. He makes a statement to similar effect in paragraph 45. 3. In paragraph 47, he outlines the arrangements between the Applicants, Mr John Parker and Mr Lee Parker as to the payment of Mr Lee Parker: 4. "For some time the company has been splitting payments for the work that John Parker contracts for between John Parker and Lee Parker. That is the case for the entire audit period. The split has occurred as a result of a request from John Parker to be paid in this fashion. On every occasion when the monies have been paid to Lee Parker the amount that is to be paid has been specified to us by John Parker. The money is disbursed at the request of John to Lee. I recall that in or about 2005, in respect of a recent job, John said to me: 5. "Are you able to split the payment between myself and Lee?" 6. I replied: 7. "We can, if you wish". 8. After that date, John Parker would request that a payment to be made to him be split. I agreed to this. The splits were not always on a fifty/fifty basis, as John would give me directions as to how the amount was to be paid after every job. I did not think splitting the payment as directed by John would make any difference. I never discussed these payments with Lee. I never received any directions from Lee and did not expect to, as John was our contractor and all of our dealings were with John. At all times, John engaged his own staff and was responsible for his staff. As John was a long time and trusted contractor, I was happy to make payments to him in accordance with his requests". 1. In paragraph 49 of his affidavit Mr Durkowyak provides further evidence to similar effect, in which he emphasises that: 1. There was no contract between the Applicants and Mr Lee Parker; and 2. The Applicants looked to Mr John Parker to satisfy any complaints as to faulty workmanship, and not to Mr Lee Parker. 1. In paragraph 48 of his affidavit, Mr Durkowyak identifies examples of invoices which have been "split", to use his terminology, between Messrs John and Lee Parker. These are found at Tab 8 of the exhibit to his affidavit. 2. The evidence provided by Mr Durkowyak in paragraph 47 is relatively inconclusive as to the nature of the business relationship between Messrs John and Lee Parker. The notion of "splitting the payment as directed by John" is equally consistent with either Mr Lee Parker being an employee of or contractor to his father (in which case the split could easily be effected by Mr John Parker giving a simple payment direction to the Applicants, that part of the amount due and otherwise payable to him be paid to Mr Lee Parker, in satisfaction of his obligation to pay Mr Lee Parker for his services) or with Mr Lee Parker having a direct financial relationship with the Applicants. 3. The evidence provided in paragraph 48, and the specimen invoices, are more indicative of the latter than the former. Every one of the invoices provided, which according to Mr Durkowyak's affidavit are "representative of invoices that have been 'split'", provides not for Mr John Parker to invoice the Applicants for the full price of the relevant works and to direct payment of a portion to Mr Lee Parker, but rather for the invoiced price otherwise charged by Mr John Parker to be reduced by a negative item, variously called in the invoices "Less 50% split with Lee", "50% of job to Lee Parker" or "split with Lee" . Rather than merely directing payment to Mr Lee Parker, the invoices indicate that Mr John Parker and the Applicants treated Mr Lee Parker, at least for remuneration purposes, as a direct supplier to the Applicants, who provides his services not to his father, but rather to the Applicants. 4. Accordingly, I am not satisfied that: 1. In providing assistance to his father in connection with work for the Applicants, Mr Lee Parker was employed by, or provided services to, Mr John Parker, or 2. During the Relevant Period, Mr John Parker received relevant assistance in performing work for the Applicants form any person other than Mr Lee Parker.

Mr Lee Parker

1. The Respondent claims payroll tax on payments by the Applicants to Mr Lee Parker throughout the entire Relevant Period.
2. Did the Applicants have supplied to them throughout the Relevant Period the services of Mr Lee Parker for or in relation to the performance of work? 1. There appears to be no dispute that this was the case, although there is a divergence of views as to the basis on which the supply took place. 2. Mr Durkowyak states in paragraphs 47 to 49 of the Durkowyak Affidavit that Mr Lee Parker worked on flooring installation jobs undertaken for customers of the Applicants. 3. The relevant pages of Annexure C to the Carroll Affidavit identify many instances during each Relevant Year on which an Applicant made payments to Mr Lee Parker in connection with supplies of services made by him to the Applicants.
3. I am satisfied, therefore, that throughout the Relevant Period Mr Lee Parker supplied to the Applicants the services of persons for or in relation to the performance of work.
4. Did Mr Lee Parker do so under a contract (within the extended meaning provided under section 31)? 1. In paragraph 43 of the Durkowyak Affidavit Mr Durkowyak states that during the Relevant Period the Applicants ".. had no contractual relationship with Lee Parker …". 2. In view of Mr Durkowyak's central role in the business operations of the Applicants during the Relevant Period, I accept that Mr Lee Parker had not entered into a Periodic Trade Contract with the Applicants in respect of any Relevant Year. 3. That, however, is not the end of matters. As mentioned earlier, the expression "contract" has an expanded meaning in the definition of "relevant contract", that extension being affected under section 31 of the Act. Section 31 provides that for purposes of sections 32, 33 and 34, the word "contract" includes not only a contract in its usual acceptation, but also "… an agreement, arrangement or undertaking, whether formal or informal and whether express or implied.." . 4. The evidence provided by Mr Durkowyak in his affidavit as to the "splitting" of invoices at Mr John Parker's request, and in particular: 1. The way in which that process took place, namely by the partial substitution in recipient created tax invoices generated by the Applicants of Mr Lee Parker for his father as a supplier to the Applicants; this process necessarily entailed the active participation of the Applicants in the substitution, and by virtue of that active participation their acceptance of Mr Lee Parker's close, continuing and direct involvement with their business; 2. The frequency with which Mr Lee Parker was recognised in the Applicants' records as a supplier during the Relevant Period, as evidenced by Mr Carroll's affidavit; and 3. The magnitude of the direct payments made by the Applicants to Mr Lee Parker during the Relevant Period, which were such as to make him their second or third largest Installer during each Relevant Year, all raise the inference that there was, if not a formal legally binding contract between the Applicants and Mr Lee Parker, at least an informal arrangement for the provision by him of his services. That such an arrangement may have been implemented through the agency of Mr John Parker, as Mr Durkowyak suggests in paragraphs 43 and 45 of his affidavit, does not dispel that inference. 1. I am satisfied, therefore, that Mr Lee Parker supplied his services to the Applicants during each Relevant Year under a contract (within the extended meaning of section 31).
5. Does any exception under section 32(2) apply to Mr Lee Parker for Relevant Period? 1. The Applicants do not suggest in their submissions that any exception under section 32(2) applies to Mr Lee Parker, and provide no evidence on the point. 2. For completeness, however, I will consider whether there is any evidence that Mr Lee Parker is entitled to an exemption under section 32(2)(b)(iv) of the Act, which exempts from payroll tax for a financial year payments by a Designated Person to a supplier of services if the Respondent is satisfied that the relevant supplier "… ordinarily performs services of that kind to [sic] the public generally in that financial year...": 3. There was no evidence from Mr Lee Parker himself as to the scope of Mr Lee Parker's activities during the Relevant Period, his customer base during the Relevant Period or the extent to which during the Relevant Period he provided his services to customers other than the Applicants. 4. The only evidence can be derived from Mr Lee Parker's financial information, which is set put below in tabular form. Each column refers to particular Relevant Year, and the first row sets out the payments made to Mr Lee Parker in each Relevant Year by the Applicants (which the Respondent says were sourced from the Applicants' accounting records), the second row sets out the adjusted amounts of those payments as set out in the Carroll Affidavit, the third row sets out the turnover recorded for Mr Parker in Business Activity Statements for each Relevant Year, as identified by the Respondents, and the fourth sets out the information in the second row as a percentage of that in the third row: Relevant Year 2010 Relevant Year 2011 Relevant Year 2012 Relevant Year 2013 Applicant payments to Lee Parker: Applicants' original figures 108,080 133,971 129,848 151,877 Applicant GST inclusive payments to Lee Parker: as adjusted by S Carroll 104,882 110,861 73,769 89,990 Lee Parker's turnover, according to his Business Activity Statements 112,252 123,445 80,252 124,103 Adjusted Applicant sourced revenue as a percentage of turnover 93.43% 89.80% 91.92% 72.51%

1. Working from the adjusted figures advocated by Mr Carroll so as to maximise the percentage attributable to revenues derived otherwise than from the Applicants, this suggests that in all relevant years Mr Parker's revenue from sources other than the Applicants was, at most, 27.49% of turnover and at its lowest 6.57% of his turnover. This demonstrates that he had: 1. one or more other customers whose business with him in aggregate represented, 2. another business, whose nature is unclear, which generated, or 3. a combination of (i) and (ii) which produced, a portion of his turnover which in most years of the Relevant Period was relatively insignificant, and in one year only was financially important. It does not demonstrate, however, that he "… also offers his services to the public generally", as required by section 32(2)(b)(iv) of the Act. 1. The Applicants have not satisfied me that the payments made to Mr Lee Parker during the Relevant Period fell within any exemption provided for in section 32(2) of the Act.

The issue

1. The Applicants submit that: 1. the records originally provided by the Applicants to the Respondent of amounts paid to Installers, and on which the Respondents base his calculation of payroll tax, misstated the amounts paid; and 2. that if payroll tax is in fact exigible it should be calculated on the amounts which the Applicants subsequently provided to the Respondents in their objection.
2. The Respondent says that: 1. there is no compelling evidence that the earlier figures are materially inaccurate, and 2. accordingly, the Applicants have not discharged their onus of proof.

The events

1. According to the Respondent's Investigation Notes (which are at Tab 4 in the Section 58 Documents): 1. In August 2013 the Respondent commenced an audit of the Applicants' payroll tax compliance. 2. During November 2013, the Applicants' accountants provided 42 pages of financial information for purposes of the audit. 3. On 5 December 2013 the Respondent undertook a field audit at the Applicants' business premises. 4. On 22 January 2014, the Respondent posed questions on particular issues, with the request that a response be provided by 5 February 2014. This is at Tab 32 in the Section 58 Documents. 5. On 3 February 2014, the Applicants: 1. responded to the questions, and 2. sought an extension of 2 weeks in which to provide further information. This is also at Tab 32 in the Section 58 Documents. 1. On that same date, the Respondent granted an extension until 14 February 2014. 2. On 13 February 2014 the Applicants provided the information requested. This is at Tab 31 in the Section 58 Documents. 3. On 28 February 2014 the Respondent replied to the Applicants' letter of 13 February 2014, outlining certain preliminary conclusions, and requesting that any further information be provided by 14 March 2014. This is at Tab 30 in the Section 58 Documents. 4. On 14 March 2014 the Applicants sent a fax to the Respondent, requesting an extension until 28 March 2014 of the period for providing further information, and addressing certain other matters. They sought the extension for two reasons: 1. Because they were still waiting for Installers to provide potentially relevant documentation which they had asked them to provide; and 2. Because, in the words of the request, "….Through consultation with our external accountants, it has come to light that some of the contractor payment amounts previously provided to your Office may have been inaccurate. Accordingly, we are currently in the process of verifying the amounts paid to those contractors and will advise your Office upon completion". 3. This is at Tab 28 in the Section 58 Documents, and at Tab 13 of the exhibits to the Durkowyak Affidavit. 1. On 21 March 2014 the Respondent replied. He relevantly: 1. rejected the extension request; 2. made no mention of the issues raised by the Applicants as to possible inaccuracies in the information previously provided by them; 3. informed the Applicants that he would be issuing the Notice of Assessment on that day, "..In the interests of finalising this payroll tax investigation …"; and 4. drew the Applicants' attention to the availability of an objection procedure.
2. This is at Tab 27 in the Section 58 Documents, and at Tab 14 of the exhibits to the Durkowyak Affidavit.
3. On or about 5 May 2014 the Applicants lodged an objection to the Respondent's assessment, in which one of the grounds of objection was that the Respondent had issued his assessment on the basis of financial information which he was aware from the Applicants' letter of 14 March 2014 may have been incorrect. This is at Tab 2 in the Section 58 Documents.
4. On 24 October 2014 the Respondent wrote to the Applicants, disallowing their objection. This is found at Tab 1 in the Section 58 Documents. Nowhere in this letter does the Respondent appear to address the objection based on possible inaccuracies in the information originally provided by the Applicants, and which in their fax of 14 March 2014 they sought time to correct.
5. Hindsight suggests that it may have been desirable for the Respondents to engage at the time with the Applicants' expressed concerns as to the accuracy of certain information derived from their accounting systems.

The evidence

1. In the Durkowyak Affidavit, Mr Durkowyak: 1. outlines in paragraphs 59 to 65 the events summarised in paragraphs 47 to 49 above; 2. specifies, in paragraph 34, that "..No monies are retained by the company [which is a reference to the Applicants] for contractor's [sic] taxation liabilities …."; and 3. refers, but without any detailed explanation of the underlying circumstances, to a table of adjustments and certain detailed working papers which were exhibited to his affidavit, as Tabs 15 and 16 respectively of the exhibits.
2. Of more utility is the Carroll Affidavit. Mr Carroll's evidence is to the following effect: 1. There were two kinds of error in the information originally provided by the Applicants to the Respondents. 2. The first was attributable to certain systemic errors in posting payments to Installers to the appropriate category within the Applicants' accounting system. The effect was sometimes to include a portion of payments made to Installers under the code for material expenses rather than that applicable to contractor expenses, thereby artificially reducing the aggregate amount attributable to payments to an Installer. 3. The second was a matter peculiar to Messrs John and Lee Parker, which was that the Applicants' accounting system failed to recognise the splitting of remuneration between them, so that the information provided in respect of each of the Messrs Parker included not only amounts actually paid to him, but also so much of the total remuneration for jobs shared between them as was actually paid by the Applicants to the other consequent upon the splitting of the relevant invoices, as described above. The accounting system recognised only the total amount payable by the Applicants to the Messrs Parker in connection with a job, rather than the amount actually payable to Mr John Parker or Mr Lee Parker. The effect was to increase significantly the amounts attributable to each of the Messrs Parker in the Applicants' accounts. 4. He was first alerted to the issue with the Messrs Parkers' remuneration by some general observations of Mr Durkowyak to the effect that the amounts recorded as paid to the Messrs Parker appeared too large. A subsequent comparison of the Applicants' records of cash payments to the Messrs Parker with the Applicants' accounts indicated that there was indeed an issue to be investigated further. He instructed the company accountant, a Mr Rankin, to: 1. analyse the relevant financial information, in order to identify the source of the discrepancies; 2. identify the necessary adjustments in order to prepare an accurate record of remuneration; and 3. prepare an accurate record. 1. Mr Rankin did so, and the results of his investigations are set out in: 1. Annexure B to the Carroll Affidavit, which is also Tab 15 of the exhibits to the Durkowyak Affidavit and one of the attachments to the Applicants' objection, and 2. The detailed working papers which were exhibited to the Durkowyak Affidavit, as Tab 16 of the exhibits.
3. Mr Carroll was cross-examined in relation to his affidavit. He recognised that: 1. he had relied heavily on Mr Rankin (who was not called as a witness) to undertake the accounting analysis and reconstruction; 2. he could not explain in detail the process undertaken by Mr Rankin in order to effect his analysis and reconstruction; but 3. he was, however, able to explain clearly both the net result of that process and the various adjustments, both positive and negative, set out in the working papers.
4. For the reasons outlined below, I am satisfied as to the accuracy of Mr Carroll's evidence, and in particular that the reconstructed figures set out in Annexure B to the Carroll Affidavit, under the heading "New Revised Amounts after Adjustments (incl GST)" are a more accurate record of the amounts paid by the Applicants to the Installers during the Relevant Period than the amounts originally provided to the Respondent by the Applicants, and which is set out in that Annexure under the heading "Information originally provided to OSR".
5. Mr Durkowyak states that amounts payable by the Applicants to the Installers were paid gross, without any deduction on account of taxation liabilities. I have no reason to doubt the accuracy of this proposition, which is consistent with the underlying approach of the Applicants, to treat the Installers as independent contractors whose compliance with taxation laws is a matter for them, not the Applicants.
6. As previously indicated in these reasons, Mr Carroll is the General Manager of the Applicants. As such he can reasonably be expected to have a good overall understanding of their business and financial systems, even if his familiarity with (and with the reasons for) the detailed accounting adjustments proposed by Mr Rankin was substantially derived from Mr Rankin's work. In his explanations of the basis for calculating the New Revised Amounts after Adjustments (incl GST) Mr Carroll was fluent, confident of his material, and able to explain sensibly the interrelationship between the different accounting records used to produce these amounts. Moreover, his preparedness to recognise that he had delegated to Mr Rankin the responsibility of undertaking the detailed analysis showed candour and frankness.
7. The working papers referred to earlier contain both positive and negative adjustments. While the net effect set out in Annexure B to the Carroll Affidavit has been, for the reasons outlined, to reduce the amounts paid to the Messrs Parker by eliminating the double counting of payments, it has also been: 1. to increase the amounts paid to the other Installers, and 2. by reallocating to the Messrs Parker certain misallocated payments, to reduce the net reductions made to their respective payment totals. 3. This even-handedness of approach supports the credibility of the adjustment process.
8. Attached to the Carroll Affidavit as Annexure C were copies of summaries of amounts paid by the Applicants to each Installer during each Relevant Year. These, Mr Carroll states in his affidavit, were obtained by him from the Applicants' accounting records. Each such summary records for each Installer and each Relevant Year each payment made by an Applicant to each Installer, and identifies each such payment by reference to date and a serial number called "PO#". With one minor exception, the total of each such summary for a Relevant Year in dispute, unsurprisingly, matches the corresponding New Revised Amount after Adjustments (incl GST) for the relevant Installer and the Relevant Year in question in Annexure B to the Carroll Affidavit. The exception is for Keld Shultz, where the aggregate of payments set out in Annexure C for Relevant Year 2011 exceeds the corresponding New Revised Amount after Adjustments (incl GST) in Annexure B to the Carroll Affidavit by a little less than $2200. Mr Carroll explained that each summary was obtained by going back to the recipient generated tax invoices prepared by the Applicants for each Installer, listing each such tax invoice and the amount payable under it, and aggregating those totals for each Installer.
9. Since: 1. it is clearly in the Applicants' commercial interests to be able to claim to the maximum extent possible input tax credits for the GST component of payments made by them to Installers in respect of supplies made by Installers, and 2. the Applicants' ability to do so depends directly on the integrity and accuracy of the Installers' tax invoices issued to them (which under the Applicants' system are recipient created tax invoices), a list of payments made to Installers derived from these tax invoices is in my view likely to be a generally accurate indication of amounts in fact paid by the Applicants to the Installers in consideration of their respective services.
10. This view was reinforced by reconciling the samples of Installers' invoices and other accounting records which were variously exhibited to the Durkowyak Affidavit or attached to the Applicants' objection dated 28 April 2014: 1. At Tab 5 of the exhibits of the Durkowyak Affidavit is a Recipient Created Tax Invoice issued on behalf of Mr John Parker, dated 28 June 2012, for a GST inclusive amount of $2,105.40. It is headed "Purchase # 00011897". There is an entry in the list of amounts paid to Mr John Parker attached to the Carroll Affidavit which corresponds exactly as to date, purchase order number and amount. 2. Also at Tab 5 of the exhibits to the Durkowyak Affidavit is a document entitled "Remittance Advice", issued to Mr John Parker on 13 June 2012. It refers to purchase number 00011881, and is for $929.28. A corresponding entry appears in the annexures to the Carroll Affidavit, although the date referred to here is 14 June rather than 13 June, but nothing significant turns on this minor inconsistency. 3. At Tab 8 of the exhibits to the Durkowyak Affidavit are 7 Recipient created Tax Invoices issued on behalf of Mr John Parker, to which Mr Durkowyak referred as examples of the practice of splitting payments on an equal basis as between Messrs JA and Lee Parker. Details of each are set out below: Invoice Date Purchase # GST Inclusive Amount 12 November 2009 00006812 $330.00 12 November 2009 00006792 $1397.95 19 November 2009 00006735 $1527.07 14 June 2012 000011881 $929.28 7 June 2012 000011859 $1277.10 18 April 2013 00013445 $2002.00

Each invoice and payment corresponds to an entry in the annexures to the Carroll Affidavit. 1. Moreover, in the annexures to the Carroll Affidavit which relate to Mr Lee Parker, the following payments can be identified: Payment Date Purchase # GST Inclusive Amount 12 November 2009 00006813 $330.00 12 November 2009 00006740 $1397.95 19 November 2009 00006850 $1527.07 14 June 2012 000011882 $929.28 7 June 2012 000011860 $1277.10 18 April 2013 00013446 $2002.00

1. While the invoices relevant to Mr Lee Parker were not provided, these entries each correlate as to time and amount to the relevant payments to Mr John Parker which, the Applicants say, were "split" with Mr Lee Parker. By doing so, they add credibility to the figures set out in the Carroll Affidavit. 2. Appendix D to the Applicants' objection dated 28 April 2014 contains two further recipient created tax invoices. One, dated 19 July 2012, is issued on behalf of Mr John Parker. It refers to purchase number 00012025, and is for a GST inclusive amount of $1846.63, after a 50% "split" with Mr Lee Parker. It is included in the list annexed to the Carroll Affidavit. The second is an invoice issued on behalf of Mr Lee Parker, for purchase order 00012026, dated 19 July 2012, for a GST inclusive amount of $1846.63, after a 50% "split" with Mr John Parker. It is found in the list of payments to Mr Lee Parker annexed to the Carroll Affidavit. 3. Although the number of invoices involved is not large compared to the total number of transactions entered into with Installers during the Relevant Period, it is in my view sufficient: 1. to indicate a pattern of correlation between the invoices and the entries in the lists annexed to the Carroll Affidavit, and 2. by showing this correlation, to give credibility both to these lists and, since it is from them that Mr Carroll's "New Revised Amounts after Adjustments (incl GST)" are derived, to those revised amounts.
2. Mr Carroll's "New Revised Amounts after Adjustments (incl GST)" are more consistent with the Installers' respective turnovers derived from their Business Activity Statements than the amounts originally provided by the Applicants' from their unadjusted accounting records: 1. While it might not be surprising to find that the aggregate amount which the Applicants' accounting records show them to have paid to a particular Installer in a financial year is less than the amount shown as that Installer's turnover in its Business Activity Statement for that period, it is puzzling - indeed, anomalous - that aggregate payments by the Applicants to an Installer during a financial year should be significantly greater than the turnover reported by that Installer in its Business Activity Statement for the corresponding period. 2. Yet this is precisely what appears from a comparison of the Applicants' accounting records for payments to Messrs John Parker and Lee Parker for each Relevant Year (except in the case of Mr Lee Parker for Relevant Year 2010), with their respective Business Activity Statements for those Relevant Years. 3. Except for one case, no such anomaly arises, however, as between Mr Carroll's "New Revised Amounts after Adjustments (incl GST)" and the amounts in the Installers' Business Activity Statements. A table illustrates the comparison: Year Source Horn John Parker Lee Parker Keld Shultz Meenhuis 2010 Accounts 83,265 145,886 103,080 0 97,408 BAS 117,929 144,734 112,252 62,485 120,879 Carroll 98,265 112,604 104,882 0 113,599 2011 Accounts 118,868 188,659 133,971 42,916 38,184 BAS 136,396 128,639 123,445 - 41,354 Carroll 135,797 113,548 110,861 47,721 44,395 2012 Accounts 75,506 132,627 129,848 0 - BAS 113,645 83,502 80,252 - 17,314 Carroll 86,869 76,095 73,769 0 0 2013 Accounts 0 154,329 151,877 0 46,803 BAS 123,334 113,514 124,103 - 0 Carroll 0 92,445 89,990 0 55,143

1. The exception is Mr Meenhuis in Relevant Year 2011, when Mr Carroll's adjusted figures exceed his Mr Meenhuis' turnover (according to his BAS) by $3041. The modesty of this excess, as compared to the often very large amounts by which the accounting figures for the Messrs Parker exceeded their BAS derived turnovers, suggests that it does not indicate systematic error of the kind described by Messrs Durkowyak and Carroll. In my view, it does not materially weaken the arguments in favour of the figures proposed by Mr Carroll.
2. For these reasons, I am satisfied, on the balance of probabilities, that the figures described under the heading "New Revised Amounts after Adjustments (incl GST)" in Annexure B to the Carroll Affidavit are the amounts by reference to which the Respondents should determine payroll tax for which the Applicants are liable in relation to payments by them to the Installers during the Relevant Period.

Interest

1. The Taxation Administration Act 1996: 1. provides in section 21 for interest to be paid on unpaid tax, including payroll tax; 2. sets out in section 22 the method for calculating interest, which is at a rate which is the sum of two rates: the "market rate component" and the "premium rate component"; and 3. in section 25, allows the Respondent to remit in individual cases either or both components, "… in such circumstances as the Chief Commissioner considers appropriate".
2. In the present case, the Respondent: 1. in his original assessment, decided to apply only the market rate component of interest; and 2. confirmed that decision in his determination dated 24 October 2014 of the Applicants' objection dated 28 April 2014.
3. In doing so the Respondent referred to the decision of a predecessor Tribunal, in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19, in which at paragraph [61] the Tribunal: 1. explained the function of the market rate component, as being "… to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due …"; 2. drew the conclusion that because of this function, the market rate component "… could rarely, if ever, be waived …"; and 3. observed that in order to justify any remission of the market rate component, "… it would be necessary to show that in some way the Commissioner contributed to the default ..".
4. In his Revenue Ruling No PTA 036 version 2, the Respondent outlines circumstances extending beyond his own contribution to the tax default in which he may be minded to remit interest, including where late payment was occasioned by what may be summarised as force majeure events - postal or DX delays or natural disasters, such as fire or flood.
5. The Applicants: 1. refer in their submissions to a decision of a predecessor Tribunal, Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21, where the Tribunal described the circumstances which might justify a remission of the market rate component as including, too, the serious illness of the taxpayer; and 2. submit that the combined effect of: 1. Mr Durkowyak's serious illness during the period from September 2015 until June 2016, which is amply described in paragraphs 74 to 76 of the Durkowyak Affidavit; and 2. Mr Durkowyak's role as, in the words of the Applicants' counsel, ".. the controlling mind of the applicants ..", was to give rise to circumstances outside the control of the Applicants, such that the market component of interest calculated in relation to that period should be remitted by the Respondents.
6. The Respondent, unsurprisingly, disagrees with this submission.
7. I reject the proposition that the market rate component should be remitted for that period, since I do not consider that Mr Durkowyak's illness was such an exceptional circumstance for the Applicants. This is for several reasons: 1. Mr Durkowyak is not the taxpayer in this case. Rather, the taxpayers are the Applicants, and they are companies, so that the notion of taxpayer illness is entirely irrelevant. 2. Even if one accepts the Applicants' claim that: 1. Mr Durkowyak is ".. the controlling mind of the applicants ..", and 2. in consequence, his serious illness should in some way be imputed to the Applicants, it does not follow that, as is implicit in the Applicants' argument, the Applicants were necessarily frozen into inaction because of Mr Durkowyak's illness. 1. The Durkowyak Affidavit states: 1. in paragraph 5, that the Applicants have another director, in the person of Mrs Durkowyak; and 2. in paragraph 15, that the Applicants enjoy the services of "… 11 fulltime employees whose duties include administration, sales and estimating, materials handling and associated duties..". 1. The Carroll Affidavit: 1. states in paragraph 1 that the Applicants have a General Manager, in the person of Mr Carroll; 2. demonstrates, from the evidence provided by Mr Carroll, that he has an intimate knowledge of the Applicants' businesses and finances and that he enjoys the confidence of Mr Durkowyak in connection with his duties; and 3. shows that, at least during a significant part of the audit, they enjoyed the services of an accountant, Mr Rankin. 1. It is clear from this evidence that the Applicants are not insubstantial organisations, and that at the relevant times had both the personnel and resources necessary to ensure compliance with their taxation obligations. The Applicants' managerial personnel may well have been unwilling to address these matters while Mr Durkowyak was indisposed, but it nonetheless remained practically possible for them to do so, and in consequence it does not follow that the Applicants' failure to make payment was due to a circumstance which was beyond their control.

Penalty tax

1. Section 26 of the Taxation Administration Act 1996 provides that, in addition to any interest payable by the taxpayer, a taxpayer is liable to pay penalty tax in connection with a tax default. The failure to pay tax on time is a tax default.
2. Section 27(1) sets the amount of penalty tax payable at 25% of the unpaid tax, although: 1. section 27(2) allows the Chief Commissioner to increase the amount of penalty tax in certain circumstances, and 2. section 27(3) allows the Chief Commissioner to relieve a taxpayer from the payment of penalty tax, if satisfied that either: 1. the taxpayer took reasonable care to comply with the relevant taxation law; or 2. the tax default occurred "… solely because of circumstances beyond the taxpayer's control …".
3. The Applicants seek to have the Respondent determine not to require penalty tax. They do so on the basis that they had taken reasonable care to comply with their payroll tax obligations, by continuing to order their relationships with the Installers in the same way that they had done during the 2003 to 2006 financial years. They say that since: 1. they had been the subject of an audit by the Respondent in 2006 and 2007 in respect of the 2003 to 2006 financial years; 2. they were not assessed for payroll tax in relation to the Installers (or other floor layers whose services they procured under similar arrangements) in respect of that period; and 3. their arrangements with the Installers were consistent with those which had been subjected to audit for the 2003 to 2006 financial years, it was reasonable for them to conclude that the arrangements which they had in place with the Installers would not give rise to a liability to payroll tax and that, by maintaining those arrangements, they were taking reasonable care to comply with the Act.
4. The Respondent adopts a different view. He says that merely following previous practice does not demonstrate that the Applicants took the required degree of reasonable care.
5. It appears to be common ground between the Applicants and the Respondent that reasonable care in this context is, as Middleton J put it in Federal Commissioner of Taxation v Traviati (2012) 205 FCR 136; [2012] FCA 546, at paragraph [36], the care that "… a reasonable person would be likely to have exercised in the circumstances of the taxpayer".
6. Various decisions to which I was referred place some practical flesh on this formulation, including: 1. In Commissioner of State Revenue (Vic) v Snowy Hydro Limited [2012] VSCA 145, at paragraph 171, the Victorian Court of Appeal state that "…. the seeking of legal advice shows, unambiguously, that the taxpayer wished to know whether it had any obligations under the Act and, if so, what they were….". 2. In RVO Enterprises Pty Ltd as trustee for the R M O'Mara Family Trust v Chief Commissioner of State Revenue [2004] NSWADT 64, Judicial Member Verick, in a predecessor Tribunal, summarised at paragraph 23 some factors which might demonstrate reasonable care. These included; making reasonable attempts to comply with the tax law, reasonable professional and other enquiries to ensure compliance reliance on professional advice or on official published views of the tax law. Conversely, Judicial Member Verick noted that failure to seek professional advice might indicate a failure to take reasonable care.
7. In the present case, the Applicants have provided no evidence that they sought legal or other professional advice in relation to the relevant arrangements and practices. It is clear from the Carroll Affidavit that they have used the services of at least one accountant, Mr Rankin, to calculate amounts paid by them to the Installers during the Relevant Period, but nowhere is there any evidence of them seeking or obtaining advice as to the payroll tax consequences of the contractual and payment practices which they have adopted.
8. The Applicants' view that the outcome of the 2006/2007 audit justifies this approach is summarised in the Durkowyak Affidavit, where: 1. at paragraph 67, Mr Durkowyak says that "… the result of this audit was that we were not assessed for any payroll tax in respect of contractors for the audit period and that we had been given a 'clean bill of health' by the Office of State Revenue"; and 2. at paragraph 70, he says that "… the earlier audit gave us the 'all clear' in respect of contractors …..The effect of the audit was to reinforce in our minds that we …… were complying with the requirements of the Office of State Revenue. This belief was a direct result of the actions of the auditors and the outcome of the earlier audit".
9. Several comments can be made: 1. First, it does not necessarily follow that because the outcome of the earlier audit was that no payroll tax was claimed by the Respondent, he endorsed the Applicants' approach. Nowhere is there a statement by the Respondent to that effect, and the Applicants have drawn an inference from the outcome - that they have been given "…… the 'all clear' in respect of contractors …." - that is not inconsistent with, but equally not necessarily the only explanation for, that outcome. 2. Secondly, circumstances relevant to the 2006/2007 audit suggest that, however welcome the outcome may have been to the Applicants, prudence demanded that they review and reassess the payroll tax status of the relations with the Installers. Mr Durkowyak says in paragraph 66 of the Durkowyak Affidavit that: 1. for the 2005 financial year they received no less than three separate payroll tax assessments, ranging "… from a Nil assessment to a $14,414.85 assessment"; and 2. the final communication from the Respondent concerning the audit process was a fax dated 8 October 2007, advising the Applicants "… to disregard the final notice addressed to Sydney Flooring Pty Ltd issued 5 O". The line is cut off at that point. In their objection dated 28 April 2014, the Applicants provide further detail concerning the issue of multiple assessments, noting that "…Multiple assessments were issued by your Office in respect of each year under audit". This succession of events and communications indicates that the outcome was by no means the ringing endorsement of their practices which the Applicants assert. The succession of different assessments, the range of amounts assessed and the somewhat equivocal final communication from the Respondent all suggest that the outcome was not the vindication that the Applicants claim, but rather an indication that while the Respondent had decided not to press the issue at that time, the Applicants' arrangements with the Installers were (and remained) contestable from the perspective of payroll tax compliance. The point was well made by the Applicants themselves in their objection, where they noted that the multiplicity of inconsistent assessments during each financial year "… had the effect of leaving us uncertain of our position". Would this uncertainty not suggest to a reasonable taxpayer that, whatever the outcome of the audit, it was appropriate to take a proactive approach to tax compliance, by seeking up-to-date professional advice? 1. As the Applicants themselves recognised in their objection dated 28 April 2014, the "… NSW payroll tax legislation was subject to harmonisation and a new Act commenced as the audit was nearing completion". The overall statutory and compliance climate at the relevant time was in flux, even if in the event there were few, if any, differences between the old and the current legislation relevant to the Applicants. Again, one must ask whether a reasonable taxpayer would not take a more dynamic approach to its compliance obligations, by obtaining appropriate advice and reassessing the appropriateness of its approach to the Installers? 2. In the objection, the Applicants observe that "Mr Greg Peel, who had been Sydney Flooring's accounting [sic] for around 45 years, passed away while the audit was being conducted". One might ask whether the loss of corporate knowledge which resulted from Mr Peel's death was something which might have usefully been moderated, at least in relation to payroll tax compliance, by seeking professional advice to review the Applicants' relations with the Installers.
10. Having regard to these considerations, I am of the view that the Applicants have not demonstrated on the balance of probabilities that that they took reasonable care in order to ensure that they complied with their payroll tax responsibilities for the Relevant Period.
11. The Applicants have not raised any argument under the second limb of section 27(3), that the tax default occurred "… solely because of circumstances beyond the taxpayer's control …", and have not provided any evidence specifically on the point. Nothing, however, in any of the evidence before me which relates either to: 1. the management structure of the Applicants, or 2. the Applicants' approach to reviewing and adapting their approach to payroll tax compliance, indicates that the relevant tax defaults were caused by circumstances beyond the Applicants' control.

Order

1. Accordingly, in accordance with section 101(1)(d) of the Taxation Administration Act 1996, I remit the assessment under review to the Respondent for redetermination in accordance with the findings set out above.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 April 2017