Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue

Jurisdiction

1. The Tribunal has jurisdiction to review the notices of assessment, pursuant to s 96 of the Taxation Administration Act 1996 ("TA Act"), s 9 of the Administrative Decisions Review Act 1997 (NSW) ("ADR Act") and s 28 of the Civil and Administrative Tribunal Act 2013. It is the decision to issue the assessments, not the decision on the objection, which is the subject of the review: see Singh v Chief Commissioner of State Revenue [2016] NSWCATAD 9 at [10] - [13] and the authorities there cited.
2. In conducting that review, the Tribunal is required to determine the correct and preferable decision having regard to the materials before it and the applicable law: s 63 of the ADR Act.
3. The applicant has the onus of proving its case: s 100(3) of the TA Act. The Tribunal may make orders as specified in s 101 of the TA Act, including confirming or revoking the assessments.

Background

1. The underlying facts for each of the years of assessment are not in dispute and set out below is a summary of the salient facts.
2. Dr Thomas and Ms Naaz were the directors of the applicant.
3. The applicant operated a business comprised of three medical centres: the Windsor Family Practice, McKenzie House Specialist Medical Centre and The Ponds Family Medical Practice.
4. Various doctors ("Doctors") operated from the applicant's medical centres. Each Doctor, or a related entity, entered into a written agreement ("Agreement") with the applicant.
5. The parties have identified a particular Agreement, being an agreement between the applicant and a Dr Chen as representative of the Agreements between the applicant and the Doctors.
6. As part of the Agreements, the applicant provided rooms at its medical centres to the Doctors, as well as shared administrative and medical support services (including nurses, reception, administrative staff and the charging and collection of Medicare fees on behalf of Doctors). The Doctors saw patients at the applicant's medical centres. The patients did not pay the Doctors directly for the medical services provided. Instead, the flow of money was as follows: 1. the Doctors "bulk billed" each patient and the patients assigned their Medicare benefits to the Doctors by completing a Medicare "Bulk Bill Assignment of Benefit" form; 2. the Doctors had the option of dealing directly with Medicare to obtain the benefits that had been assigned to them by the patients, or having the applicant do so. All Doctors, other than three, requested that the applicant do so; 3. the applicant, on behalf of the Doctors, made claims on Medicare and the funds received by the applicant from Medicare were placed into an account held by the medical centre in which the Doctor saw the patient. Each medical centre had a separate account and all of the billings of the Doctors relating to that medical centre were received into that account; 4. administrative staff employed by the applicant recorded and reconciled these payments; and 5. at the end of the first four weeks of the Agreement, and every fortnight thereafter, amounts equal to 70 per cent of the claims paid by Medicare for a particular Doctor (without any deductions for tax or superannuation or otherwise) were paid from the medical centre's bank account to that Doctor. The remaining 30 per cent was retained by the applicant as a service fee.
7. It is the payments from the applicant to the Doctors of amounts equal to 70 per cent of the claims paid by Medicare ("Payments") that are the subject of the assessments.

Issues for Determination

1. The issues requiring resolution are as follows.
2. First, whether the Payments were wages and thus subject to payroll tax. This in turn requires the resolution of the following issues: 1. whether the Agreements were "relevant contracts" within the definition of that term in s 32 of the PT Act; and 2. if so, whether the Payments were "amounts paid or payable by [the applicant] during a financial year for or in relation to the performance of work relating to [the Agreement] …", for the purposes of s 35 of the PT Act.
3. Secondly, if the answer to the first question is yes, then whether there should be a remission of the interest and penalties assessed by the respondent.

Relevant provisions of the PT Act

1. Prior to considering those issues, it is necessary to provide a brief overview of the relevant provisions of the PT Act.
2. Sections 6 and 7 of the PT Act imposed liability to pay payroll tax on "taxable wages" upon "the employer by whom taxable wages are paid or payable".
3. "Taxable wages" were defined in s 10 of the PT Act as "wages that are taxable in this jurisdiction". Section 11 of the PT Act relevantly provided that wages are taxable in this jurisdiction if the wages were "paid or payable by an employer for in relation to services performed by an employee wholly in this jurisdiction".
4. Section 13 of the PT Act defined "wages", in so far as is presently relevant as follows: (1) For the purposes of this Act, "wages" mean wages, remuneration, salary, commission, bonuses or allowances paid as payable to an employee, including - ... (e) an amount that is included as or taken to be wages by any other provision of this Act. ... (3) This Act applies in respect of wages referred to in subsection (1)(a)-(e) that are paid or payable to or in relation to a person who is not an employee in the same way as it applies to wages paid or payable to an employee (as if a reference in this Act included a reference to such persons).
5. Division 7 of the PT Act, titled "Division 7 - Contractor Provisions", extended the concept of "wages" to certain payments made under "relevant contracts". The central provision in Div 7 is s 35, which provided in so far as is presently relevant: 35 Amounts under relevant contracts taken to be wages (1) For the purposes of this Act, amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract or the re-supply of goods by an employee under a relevant contract are taken to be wages paid or payable during that financial year.
6. Several of the words and phrases used in s 35(1) were defined in the PT Act. In particular and in so far as is presently relevant: 1. "paid" was defined in s 3 as follows: "paid" in relation to wages, includes provided, conferred and assigned and pay and payable have corresponding meanings. 1. "employer" was defined in s 3 as including "a person taken to be an employer by or under this Act" and in s 33 as follows: 33 Persons taken to be employers (1) For the purposes of this Act, a person - (a) who during a financial year, under a relevant contract, supplies services to another person, or (b) to whom during a financial year, under a relevant contract, the services of persons are supplied for or in relation to the performance of work, or (c) who during a financial year, under a relevant contract, gives out goods to other persons, is taken to be an employer in respect of that financial year. (2) If a contract is a relevant contract under both section 32 (1) (a) and (b) - (a) the person to whom, under the contract, the services of persons are supplied for or in relation to the performance of work is taken to be an employer, and (b) despite subsection (1) (a), the person who under the contract supplies the services is taken not to be an employer. 1. "relevant contract" was defined in s 32 as follows in so far as is presently relevant: 32 What is a relevant contract? (1) In this Division, a "relevant contract" in relation to a financial year is a contract under which a person (the "designated person") during that financial year, in the course of a business carried on by the designated person: (a) supplies to another person services for or in relation to the performance of work, or (b) has supplied to the designated person the services of persons for or in relation to the performance of work, or (c) gives out goods to natural persons for work to be performed by those persons in respect of those goods and for re-supply of the goods to the designated person or, where the designated person is a member of a group, to another member of that group. (2) However, a "relevant contract" does not include a contract of service or a contract under which a person (the "designated person") during a financial year in the course of a business carried on by the designated person: … (b) is supplied with services for or in relation to the performance of work where - (i) those services are of a kind not ordinarily required by the designated person and are performed by a person who ordinarily performs services of that kind to the public generally, or (ii) those services are of a kind ordinarily required by the designated person for less than 180 days in a financial year, or (iii) those services are provided for a period that does not exceed 90 days or for periods that, in the aggregate, do not exceed 90 days in that financial year and are not services - (A) provided by a person by whom similar services are provided to the designated person, or (B) for or in relation to the performance of work where any of the persons who perform the work also perform similar work for the designated person, for periods that, in the aggregate, exceed 90 days in that financial year, or (iv) those services are supplied under a contract to which subparagraphs (i)-(iii) do not apply and the Chief Commissioner is satisfied that those services are performed by a person who ordinarily performs services of that kind to the public generally in that financial year, or ... 1. "contract" was defined in s 31 as follows: "contract" includes an agreement, arrangement or undertaking, whether formal or informal and whether express or implied. 1. "employee" was defined in s 34 as follows: 34 Persons taken to be employees For the purposes of this Act, a person who during a financial year - (a) performs work for or in relation to which services are supplied to another person under a relevant contract, or (b) being a natural person, under a relevant contract, re-supplies goods to an employer, is taken to be an employee in respect of that financial year. 1. "services" was defined in s 31 as follows: "services" includes results (whether goods or services) of work performed.
7. The aggregate effect of these provisions in the present case is that if the Agreements were relevant contracts (s 32) and the Payments were for or in relation to the performance of work relating to the Agreements (s 35), then the applicant was an employer (ss 3, 33) and the Payments were wages (s 13), and as such taxable wages (ss 10 and 11) for which the applicant is liable (ss 6 and 7).

First issue: were the Payments made by the applicant to the Doctors wages?

1. As noted above, to answer this question it is necessary to consider: 1. whether the Agreements were "relevant contracts" under s 32 of the PT Act; and, if so 2. whether the Payments were "for or in relation to the performance of work relating to" the Agreement.

Are the Agreements "relevant contracts"?

1. A "relevant contract" is defined in s 32 of the PT Act. In the present case, this requires consideration of: 1. s 32(1)(b) (which the respondent contends is satisfied but which the applicant contends is not); and 2. the exception in s 32(2)(iv) (which the applicant contends is satisfied but which the respondent contends is not).

Section 32(1)(b)

1. The effect of s 32(1)(b) is that the Agreements will be relevant contracts if during the particular financial year, in the course of the business of the applicant of operating medical centres, the applicant had supplied to it under the Agreements the services of persons for or in relation to the performance of work.

Applicant's submissions

1. The applicant's submissions may be summarised as follows: 1. the proper characterisation of the arrangement is that the Doctors supplied medical services to the public and the Doctors paid a service fee to the applicant in return for the provision of various administrative and medical support services which assisted the Doctors to provide those medical services to the public. This characterisation is consistent with the terms of the Agreement and the substance of the arrangement between the applicant and Doctors. Under the arrangement: 1. the Doctors had clinical independence, both in how and when they saw patients and what they prescribed for patients; 2. the fees earned by Doctors from the provision of medical services to patients were billed by Doctors to their patients who assigned their Medicare benefits to the Doctors, and those fees were claimed and collected from Medicare by the applicant on behalf of the Doctors and retained by the applicant in a separate account on behalf of Doctors; 3. the service fees were charged as a separate supply the applicant to the Doctor on which GST was paid and for which the Doctors claimed an input tax credit; 4. Doctors chose the days and times in which they attended the Premises to provide medical services to patients; 5. Doctors used their own medical equipment when treating patients; 1. there is no evidence that the Doctors provided any services at all to the applicant. To the contrary, the evidence establishes that: 1. the Doctors provided services to patients; and 2. the applicant provided services to the Doctors; and 1. the present case is distinguishable on its facts from the decision of the Victorian Civil and Administrative Tribunal in The Optical Superstore Pty Ltd and Ors v Commissioner of State Revenue [2018] VCAT 169 ("Optical Superstore (VCAT)") and the decision of the High Court of Australia in Accident Compensation Commission v Odco Pty Ltd [1990] HCA 43; (1990) 95 ALR 641; and 2. the respondent's characterisation of what constitutes a "relevant contract" gives Div 7 an unintended breadth and would include an arrangement between a barrister and their clerk (relying upon the observations of Croft J in the Supreme Court of Victoria in Commissioner of State Revenue v The Optical Superstore Pty Ltd [2018] VSC 524 ("Optical Superstore (VSC)") at [32]).

Respondent's submissions

1. The respondent's submissions may be summarised as follows: 1. the applicant operated the medical centres at which the main business activity was a general medical practice; 2. services were provided at those medical centres by the Doctors; 3. the applicant required the services of the Doctors in order to carry on its business at the medical centres; 4. the Agreements were entered into to secure the provision of the Doctors' services, with those Agreements providing for matters including: 1. hours of work; 2. obligations upon the Doctors to: 1. comply with protocols; 2. promote the business of the medical centre; 1. the retention by the applicant of property in business records; 2. a leave policy; 3. payment of hourly rates in certain circumstances; and 1. consequently, each Agreement was an agreement under which the applicant, during each financial year and in the course of a business carried on by the applicant, had supplied to it the services of the Doctors for or in relation to the performance of work.
2. The respondent also submitted that the fact that the Doctors' services may also be described as having been provided to patients of the medical centres is beside the point, as it does not gainsay the proposition that those services formed part of the conduct of the medical centre businesses carried on by the applicant. The respondent submitted that the present circumstances are analogous to those in Levitch Design Associates Pty Ltd as Trustee for the Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215, where at [54] Senior Member Sorenson held that the "employee" supplied services to the "employer" by serving the needs of the clients of the "employer".

Consideration

1. The Agreement is described at cl 1 as being "…in respect of the provision of The Services by The Doctor, at times agreed by the parties, in The Clinic operated by The Venture", where: 1. "The Venture" means the applicant; 2. "The Doctor" means the particular Doctor who is a party to the Agreement; 3. "The Clinic" is defined as "the facility provided by The Venture for the provision of The Services by The Doctor"; and 4. "The Services" are defined as "medical services normally provided in most general practices and shall not include services of a special nature provided by some GP's, such as, acupuncture, cosmetic services etc...".
2. Clause 2 of the Agreement stated that the applicant was authorised to use "part of Thomas & Naaz Pty Ltd @ The Ponds Family Medical Practice to operate the Clinic" and that "The Doctor has requested to use The Clinic(s) to provide The Services in these facilities as a private Doctor, subject to the terms of this Agreement" and further that "The Doctor agrees to provide the services on a five day per week basis, including weekend rotation."
3. Clause 3 of the Agreement set out a number of general obligations upon the Doctors, including their qualifications and insurance. It also included: 1. "The Doctor shall at all times act to promote the interest of The Clinic" (cl 3.4); 2. "The records of all services are the sole property of The Venture, the Doctor shall have access to records for a period of six months after completion of contract on request" (cl 3.6); 3. "The Doctor shall abide by operating protocols issued by The Venture from time to time" (cl 3.7); 4. obligations upon the Doctors to: 1. meet roster commitments; 2. be physically present during rostered sessions; 3. sign on at the start of each shift - noting time of arrival during hourly rate period; 4. sign off at the end of each shift - noting time of departure during hourly rate period; 5. not take any action to channel patients away from the Clinic; 6. complete all necessary documentation in accordance with the operating protocol for The Venture; and 7. provide bank account details to enable electronic transfer of shift payments (cl 3.8); 1. obligations on "The Venture" to: 1. provide rosters in a timely manner; 2. endeavour to accommodate Doctors' shift preferences; and 3. provide shift payments via EFT within four weeks from the date of the shift (cl 3.9).
4. Clause 4 of the Agreement, which dealt with payment and rostering included: 1. in respect of services provided in the Clinic, an obligation on the Doctors to "bulk bill" the patients and pay the Venture 30 per cent plus GST of the total billings (cl 4.1); 2. for the first three months of the Agreement that payment would be based on either a minimum rate of $140 per hour, inclusive of GST, or 30 per cent plus GST paid to The Venture (whichever was the higher). The normal day would be nine hours with a one-hour unpaid lunch break (cl 4.2); 3. rostered days were 9.00am to 6.00pm Monday, Tuesday, Wednesday and Friday, and 9.00am to 5.00pm Saturdays (cl 4.4); and 4. payment was to be made to the Doctor fortnightly two weeks in arrears (cl 4.5).
5. Clause 6 of the Agreement, which dealt with leave policy, included: 1. an obligation on the Doctor to inform The Venture of any unplanned absence in advance (cl 6.1); 2. an obligation on the Doctor to provide The Venture at least 6 weeks' notice prior to a planned vacation (cl 6.3): 3. that a maximum of four weeks' vacation leave per 12-month period was allowed (cl 6.5); and 4. that all applications for leave were to be made in writing to The Venture for approval (cl 6.7).
6. Clause 7 of the Agreement dealt with the event of the departure of the Doctor and provided, inter alia, that an exclusion zone of five kilometres from The Clinic would be expected by The Venture for a period of two years after the Doctor left the Clinic.
7. As noted above, the "Services", as defined, were "medical services normally provided in most general practices and shall not include services of a special nature provided by some GP's, such as, acupuncture, cosmetic services etc...". Such services are most directly supplied to patients of the particular Doctor providing them, rather than to the applicant.
8. However, this does not prevent a conclusion that the Doctors provided services to the applicant, as is illustrated by Levitch Design Associates at [54] and the authorities there cited, namely Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue (2005) 222 ALR 599 at [223]-[226] and Smith's Snackfood Co Ltd v Chief Commissioner of State Revenue [2013] NSWCA 470; (2013) 97 ATR 904 at [56].
9. The terms of the Agreement indicate that the Doctors agreed to: 1. provide the Services on a five day per week basis, including weekend rotation (cl 2) and in this regard agreed to meet roster commitments (cl 3.8) and to provide advance notice of planned vacations (which were limited to four weeks in a 12 month period and which had to be approved by the applicant (cl 6)); 2. promote the interests of the applicant (cl 3.4) including not channelling patients away from the applicant (cl 3.8); 3. abide by the applicant's operating protocols and to complete all necessary documentation for that purpose (cl 3); and 4. a restrictive covenant, which would become operational upon the Doctor leaving the particular medical centre owned by the applicant, with such covenant to have an "exclusion zone" of 5 kilometres from that medical centre and to be in place for two years after the Doctor's departure (cl 7).
10. These clauses indicate that the Agreement secured the provision of the Services provided by the Doctors to the patients of applicant's medical centres. In circumstances where such services were a necessary part of the applicant's medical centre business, the Doctors provided them not only to the patients but also to the applicant.
11. Section 32(1)(b) of the PT Act requires that the services provided were provided for or in relation to the performance of work. This requires only that the services supplied under the Agreement are work-related: see Accident Compensation Commission v Odco at 612 and Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue at [32] and [60]. Neither party contended that the services provided under the Agreement were other than work-related and the Tribunal is satisfied that this criterion is met.
12. For the reasons set out above, the Agreement is a relevant contract within the meaning of s 32(1)(b) of the PT Act.

Section 32(2)

1. Section 32(2) of the PT Act provided a series of exemptions to the operation of s 32(1). The applicant submitted in writing that the exemptions in s 32(2)(b)(iii) and (iv) and s 32(2)(c) of the PT Act applied. However, at the hearing the applicant pressed only s 32(2)(b)(iv) and only that exemption is considered below.
2. Section 32(2)(b)(iv) provided: (2) However, a "relevant contract" does not include a contract of service or a contract under which a person (the "designated person") during a financial year in the course of a business carried on by the designated person - … (b) is supplied with services for or in relation to the performance of work where - (i) those services are of a kind not ordinarily required by the designated person and are performed by a person who ordinarily performs services of that kind to the public generally, or (ii) those services are of a kind ordinarily required by the designated person for less than 180 days in a financial year, or (iii) those services are provided for a period that does not exceed 90 days or for periods that, in the aggregate, do not exceed 90 days in that financial year and are not services - (A) provided by a person by whom similar services are provided to the designated person, or (B) for or in relation to the performance of work where any of the persons who perform the work also perform similar work for the designated person, for periods that, in the aggregate, exceed 90 days in that financial year, or (iv) those services are supplied under a contract to which subparagraphs (i)-(iii) do not apply and the Chief Commissioner is satisfied that those services are performed by a person who ordinarily performs services of that kind to the public generally in that financial year.
3. The application of s 32(2)(b)(iv) in the present case requires the applicant to satisfy the Tribunal that the services provided by the Doctors were services: 1. supplied under a contract to which subparagraphs (i)-(iii) did not apply; and 2. performed by a person who ordinarily performed services of that kind to the public generally in that financial year.

Evidence

1. The evidence adduced by the applicant relevant to these issues is: 1. the Agreement; 2. evidence of Dr Thomas that the Doctors were "free to provide medical services and other clinics, and many of them do so"; 3. a list of 40 Doctors who were party to an Agreement with the applicant during the relevant taxation years; 4. a spreadsheet ("Spreadsheet") prepared from the records of the applicant which included the names of a subset of those 40 Doctors whom Dr Thomas deposed "I believe provided medical services at one or more medical practices (not related to the applicant) during one or more of the financial years"; 5. a bundle of printouts titled "Financial Details" obtained from respondent with respect to 14 Doctors named in the Spreadsheet. The printouts include details of income earned by those 14 Doctors; 6. a table ("Table") setting out for each of the 14 Doctors and each of the relevant financial years, the percentage of that Doctor's income derived from the Payments; 7. three letters on the applicant's letterhead from individual Doctors. Two of those are from Doctors identified in the Spreadsheet and in the following form: "1. During the period [as specified] I consulted and provided services at the [specified medical centre(s) operated by the applicant]. 2. I confirm that during this time I consulted and provided medical services in my individual capacity/as an employee of my own company and that the relevant ABN is [as specified]. 3. I confirm that during the following period I also consulted and provided medical services at [Fairfield Heights Medical Centre/ Quakers Hill Family Practice (respectively)] and did so on the same basis as stated at 2 above". The third letter is signed by a Doctor not named in the Spreadsheet and contains paragraphs in the form of paragraphs 1 and 2, but not 3, above.

Applicant's Submissions

1. The applicant submitted that the exemption in s 32(2)(b)(iv) applied on the basis that the Tribunal should be satisfied that the services were performed by a person who ordinarily performed services of that kind to the public generally in that financial year.
2. The applicant relied upon Optical Superstore (VCAT), in which the Victorian Civil and Administrative Tribunal (at [121]) referred to the Commissioner's summary of principles to be applied in the consideration of the equivalent exemption in the Victorian Act: "...the exemption ...applies only where the contractor's services are both made available to and used by the public generally in the relevant financial year. It is not necessary in order for the exemption to apply that the other clients to whom the services are provided are a large class of the public, nor do they need to be quantitatively significant or substantial - although there is a point below which the quantum of work is not sufficient to attract the exception. It is, however, necessary to provide sufficient evidence that demonstrates that the services being supplied to the other clients each financial year are of the kind being supplied to the applicants, and are not services of some other kind, such as those supplied as an employee ... only income received in respect of optometry services supplied by an optometrist as a contractor is relevant to whether the exception ... applies to the Optom Agreements."
3. The applicant submitted that the evidence was sufficient to satisfy the Tribunal and in particular: 1. Dr Thomas's evidence should be accepted; 2. the letters from the two Doctors who indicated that they also practised elsewhere is sufficient evidence that they ordinarily perform services of the kind provided to the applicant to the public generally and in this regard, the Tribunal should follow the approach taken in Levitch Design Associates, where the Tribunal found (at [20]) "on the limited evidence available" that the proper conclusion was that the exemption applied. The only evidence provided to the Tribunal in that case was a document which purported to be a statutory declaration by the contractor which included a table setting out the proportion of work done for the taxpayer and for others. The applicant also referred to paragraph [26] of the decision of the Tribunal in Sydney Flooring Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 96; 105 ATR 546; and 3. for the other Doctors on the Spreadsheet, the Tribunal should infer from the information in the Table as to the percentage of total income earned by each of those Doctors, that they each obtained income elsewhere and thus that they ordinarily performed the services of the kind provided to the applicant to the public generally.

Respondent's Submissions

1. The respondent's submissions may be summarised as follows: 1. the applicant bears the onus of proving that s 32(1)(b)(iv) was engaged; 2. the Tribunal would not be satisfied on the evidence before it that the applicant has discharged that onus and in particular: 1. Dr Thomas's evidence that he believed that various Doctors provided services at other medical centres is insufficient, particularly in circumstances where the applicant was twice granted a vacation of the hearing date to allow it to obtain evidence in support of its case; 2. no business records have been tendered; 3. no detail has been provided - whether in the letters from the above-mentioned two doctors, the printouts, the Table or otherwise - as to the nature of the income earned elsewhere. In particular, there is no evidence that it is income earned from the provision of medical services and could, for example, have been earned from other activities such as share trading.

Consideration

1. As noted above, the applicant needs to satisfy the Tribunal that the services provided by the Doctors were services: 1. supplied under a contract to which subparagraphs 32(2)(b)(i)-(iii) did not apply; and 2. performed by a person who ordinarily performed services of that kind to the public generally in that financial year.
2. Neither party addressed the first of these questions. In Nationwide Towing & Transport Pty Ltd v Commissioner of State Revenue [2018] VSC 609, Croft J said at [49] with respect to the equivalent provision in the Payroll Tax Act 2007 (Vic): The opening words of s 32(2)(b)(iv) of the Payroll Tax Act are important to its proper construction. They make it clear that these exemption provisions only arise for consideration if paragraphs (i) to (iii) do not apply: that is, it can apply only where the services are of a kind ordinarily required by the "designated person" for more than 180 days in a financial year, and are provided for more than 90 days in the financial year. It therefore contemplates an ongoing and regular supply of services required by the other, which can involve, but not require, the Contractor carrying on a business of supplying those services. (footnotes omitted)
3. As to s 32(2)(b)(i), the Tribunal is satisfied, on the basis that the applicant has a medical centre business, that the services are of a kind ordinarily required by the applicant and thus that this subsection does not apply.
4. As to s 32(2)(b)(ii), the Tribunal is satisfied, on the bases that: 1. the applicant has a medical centre business; and 2. the terms of the Agreement, which secure the provision of the services of the Doctors, that such services are of a kind ordinarily required by the applicant for more than 180 days per annum thus that this subsection does not apply.
5. As to s 32(2)(b)(iii), there is no evidence before the Tribunal as to the number of days that each Doctor provided their services to the applicant. In these circumstances, the Tribunal is unable to be satisfied as to whether s 32(2)(b)(iii) does or does not apply.
6. It follows that the Tribunal is unable to conclude that the opening words of s 32(2)(b)(iv) - "those services are supplied under a contract to which subparagraphs (i)-(iii) do not apply" are satisfied. Thus, the exemption un s 32(2)(b)(iv) is not available.
7. In these circumstances, it is not necessary for the Tribunal to consider the second question, namely whether the services were performed by a person (i.e. the particular Doctor) who ordinarily performed services of that kind to the public generally in that financial year. Nevertheless, in deference to the submissions that have been made, that question is addressed briefly below.
8. The only evidence from any of the Doctors identified in the Spreadsheet were the two letters identified above. Those letters show that those two Doctors provided medical services elsewhere and thus that those Doctors ordinarily performed such services to the public generally: see Re Behmer & Wright Pty Ltd (1994) 28 ATR 1082 at [19].
9. For the remaining Doctors identified in the Spreadsheet, the evidence before the Tribunal is insufficient to prove that those Doctors ordinarily performed services of the kind provided by them to the applicant to the public generally in any of the financial years. In this regard: 1. the evidence of Dr Thomas is a combination of a bald assertion as to what those Doctors did and a statement of his belief and no foundation has been provided for such assertion and statement of belief; 2. the Tribunal is not prepared to infer from the evidence that the remaining Doctors earned other income, that such income was derived from the provision of medical services by them to the public generally. The evidence does not allow such an inference to be drawn when, as the respondent submitted, that income may have been derived from other sources.
10. For the reasons set out above, the Tribunal is satisfied that the Agreements are "relevant contracts" within the meaning of s 32 of the PT Act.

Were the Payments "for or in relation to the performance of work relating to" the Agreements?

1. The next question is whether the Payments were "for or in relation to the performance of work relating to" the Agreements, as required by s 35 of the PT Act.

Applicant's Submissions

1. The applicant's submissions may be summarised as follows: 1. the test is as stated by the Tribunal in Homefront Nursing Pty Ltd v Chief Commissioner of State Revenue [2019] NSWCATAD 145 at [84], namely whether there is a sufficient relationship between the payment and the relevant contract; and by the Victorian Court of Appeal in Commissioner of State Revenue v The Optical Superstore [2019] VSCA 197; (2019) 110 ATR 651 ("Optical Superstore (VSCA)") at [65], where the Victorian Court of Appeal stated: The words "for relation to the performance of work" specify that it is a connection between the amount provided and the performance of work which provides the criterion by which the provision of that amount is, or is not, taken to be wages. 1. the Payments were not amounts paid for or in relation to the performance of work, but were instead the return to the Doctors of monies which at all times belonged to the Doctors; 2. the position in the present case is analogous to, and indistinguishable from, the position in the decision of the Tribunal in Homefront Nursing; and 3. the relationship between the Payments and the performance of work is too remote to satisfy s 35(1).

Respondent's Submissions

1. The respondent's submissions may be summarised as follows: 1. the words "in relation to" are of wide import, citing Optical Superstore (VSC) at [54], Rita Sahade v Owners Corporation SP 62022 [2013] NSWSC 1791 at [58], and O'Grady v Northern Queensland Co Ltd (1990) 169 CLR 356 at 376; 2. the Payments made were "in relation to the performance of work" under each Agreement because the Agreements were entered into for the central purpose of each Doctor performing clinical services in each medical centre; 3. the above analysis is in accordance with an orthodox construction of the text of s 35(1) of the PT Act, and is also on all fours with the decision of the Victorian Court of Appeal in Optical Superstore (VSCA); 4. in Optical Superstore (VSCA) the Victorian Court of Appeal rejected an argument that the money transferred to the optometrists in that case was not deemed wages because the monies were at all time beneficially owned by those optometrists; and 5. Optical Superstore (VSCA), as a Court of Appeal decision on identical provisions, should be followed in preference to Homefront (a first instance decision of this Tribunal) to the extent that Homefront (at [84]) reached a different conclusion.

Consideration

1. The issue is whether the Payments were "for or in relation to the performance of work relating to" the Agreements.
2. The first step is to identify the "performance of work". It is clear that the provision of the Services, as defined in the Agreement, is the "performance of work".
3. The second step is to consider whether that "performance of work" can be said to be "relating to" the Agreement. The Tribunal is satisfied that this is the case in circumstances where that work is the very subject of the Agreement.
4. The third step is to consider whether the Payments were "for or in relation to" that performance of work. In Smith's Snackfood Co Ltd v Chief Commissioner of State Revenue, Gleeson JA (Beazley P agreeing) said at [57]- [59]: 57 The expression "in relation to" may be described as a "relational term". As explained by French CJ in R v Khazaal [2012] HCA 26; 86 ALJR 884 at [31]: "Relational terms ... may refer to a relationship between two subjects which may be the same or different and may encompass activities, events, persons or things. They may denote relationships which are causal or temporal or relationships of similarity or difference. The task of construing such terms does not involve the resolution of ambiguity. They are ambulatory words and may be designed to cover a variety of subjects and a variety of relationships between those subjects. The nature and breadth of the relationships they cover will depend upon their statutory context and purpose. Generally speaking it is not desirable, in construing relational terms, to go further than is necessary to determine their application in a particular case or class of cases." (emphasis added; footnote omitted) 58 The High Court has also observed that the prepositional phrase "in relation to" is of indefinite content: O'Grady v Northern Queensland Co Ltd [1990] HCA 16; 169 CLR 356 at 376 per McHugh J; Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390 at [24] per French CJ. 59 Subject to any contrary indication derived from its context or drafting history, the phrase "in relation to" requires no more than a relationship, whether direct or indirect, between two subject matters: O'Grady v Northern Queensland Co Ltd at 376 per McHugh J.
5. The relationship between the performance of the work and the Payments in the present case is that, as described above: (1) the Doctors provided the services to patients; (2) the patients assigned their medical benefits to the Doctors; (3) the applicant, on behalf of the Doctors, submitted the assigned claims for the medical benefits to Medicare; (4) Medicare paid those benefits to the applicant; and (5) the applicant retained 30 per cent of the amounts received from Medicare and paid the remaining 70 per cent to the Doctors as the Payments.
6. There is a clear relationship between the provision of the services and the Payments. The availability of the Medicare benefits to the Doctors was a direct consequence of the provision of the services. The Payments were the amount of those benefits less a 30 per cent deduction. Whilst the relationship between the provision of the services and the Payments was not direct, there was a clear indirect relationship sufficient to satisfy the terms of the section. There is nothing in the context of the section nor its legislative history to suggest that such a relationship is insufficient.
7. The applicant placed particular reliance upon the decision of the Tribunal in Homefront Nursing. That decision also involved payments made by a medical centre business to doctors of an agreed percentage of amounts recovered by the medical centre business from Medicare with respect to medical benefits assigned by patients seen by those doctors in the medical centre business. The Tribunal held that the payments were not payments for or in relation to the performance of work relating to a relevant contract.
8. The present Tribunal does not regard the decision in Homefront Nursing as determinative of the present application. The Tribunal in that case (at [54] and [84]) saw the question as whether the amounts received by the business from Medicare were received on its own account out of which it paid the doctors or whether it received those amounts on behalf of the doctors as a "bank of convenience" and as a mere convenient collecting system. In other words, the Tribunal placed weight on the fact that the funds received by the practitioners were funds belonging to them, rather than to the business.
9. However, neither the capacity in which the "employer" receives the amount which is paid to the "employee" nor the ownership of the funds transferred is a relevant consideration in applying the words of the statute, for the reasons explained in Optical Superstore (VSCA) at [63] - [67] (emphasis added): [63] Under the scheme, ordinary expectations of what constitute wages are of limited relevance. For example, amounts are capable of being 'wages' without there being an obligation to pay (in the case of bonuses) and in some circumstances where the source of the payment is a third party: s 46. The contractor provisions are perhaps the most prominent example of the manner in which the statute creates its own conception of what are 'wages'. Those provisions contain detailed exceptions to the definition of 'relevant contract', in s 32(2). As noted, the contractor provisions operate by reference to the notion of amounts 'paid or payable … for or in connection with work'. In this last respect they resemble the general definition of 'wages' in s 13(1), which contains tests such as whether a payment is 'attributable to labour', 'by way of remuneration' or 'by way of commission'. [64] At no point does the statute articulate as a relevant inquiry whether the flow of money in question is beneficially owned by the recipient. As the judge recognised, any such inquiry can arise only if the words 'paid or payable' are read as implying that limitation. With respect to the judge, we do not think that they can. [65] The words 'for or in relation to the performance of work' specify that it is a connection between the amount provided and the performance of work which provides the criterion by which the provision of that amount is, or is not, taken to be wages. No other test is posited. In that context, there is no reason why 'paid or payable' does not mean simply the provision of money. The definition in s 3 expressly states that 'paid', in relation to wages, includes their provision. That reading is consistent with the ordinary meaning of the word. To read the word as being subject to a requirement that what is provided does not belong to the recipient is to assume a legislative intention which is not anchored in the statutory text or any identified context. [66] In circumstances where the whole notion of 'wages' is the result of a complex statutory scheme, it cannot be imputed to the legislature that it did not intend to treat as wages amounts paid to a person beneficially entitled to receive those amounts. It is not pertinent to ask whether the amounts resemble wages in the ordinary sense, because the term as used in the Act is a statutory creation whose content is explicitly set out in detailed provisions. In that context, when the statute states that the provision of money is a payment, it should be given that operation. [67] The ordinary meaning of 'payment' readily embraces a payment of money to a person beneficially entitled to that money. When the entitlement is recognised and the money is provided to the person, it has been 'paid' to that person. That is so, whether the money is provided in cash or from a bank account. But in the latter case, it is especially clear that the money has been provided, and therefore 'paid', from one person to another, notwithstanding that the payer was obliged to make payment because the payee had a beneficial entitlement to the money. If the payer refused to do so, as a matter of ordinary language the beneficial owner could rightly insist that he or she be 'paid' their money.
10. For the above reasons, the Tribunal is satisfied that s 35 of the PT Act operates so as to deem the Payments to be wages.

Second issue: should these be a remission of penalties and interest?

1. Having found that the decision to issue the notices of assessment was correct in so far as it related to the payroll tax assessed, it is necessary to consider whether there should be a remission of the interest and penalties imposed.

Findings of fact

1. The following facts, which are not in contest, are relevant to the question of remission of penalties and interest.
2. For the 2015 and 2016 financial years, the amounts paid by the applicant to the Doctors were reported as "Contractor, sub-contractor and commission expenses" in the income tax returns of the applicant and as expenses in the applicant's financial statements. The income reported in the income tax returns and in the financial statements also included all of the billings of the Doctors.
3. In December 2016, Dr Thomas had a stroke and did not return to work until September 2018.
4. Prior to 9 November 2017, an officer of the respondent left two messages for the accountant for the applicant, Mr Kayal. Those calls were not returned.
5. On 9 November 2017, an officer of the respondent sent an email to Mr Kayal and referred to the messages he had left, indicated that he was writing in relation to a payroll tax audit of the applicant and asked whether the applicant was registered for payroll tax. The officer sent a follow up email later that day after a conversation with Mr Kayal. That email asked for advice by 14 November 2017 as to whether the applicant was registered for payroll tax.
6. Also on 9 November 2017, an officer of the respondent sent an email to Dr Thomas enclosing a Payroll Tax Notice of Investigation and Unregistered Payroll Tax Employers Questionnaire for the applicant and asked for a response, together with financial records, by 30 November 2017.
7. On 1, 4, 14 and 15 December 2017, an officer of the respondent sent further emails to Mr Kayal. The last of these emails foreshadowed that a notice would be issued under s 72 of the TA Act ("s 72 Notice") if no response were received. It also foreshadowed the imposition of interest and a penalty.
8. On 4 December 2017, an officer of the respondent sent an email to Dr Thomas asking Dr Thomas to contact him as soon as possible to discuss a payroll tax audit for the applicant.
9. On 15 December 2017, Dr Thomas wrote to the respondent referring to Mr Kayal's personal circumstances and seeking more time on behalf of the applicant and Mr Kayal.
10. On 18 December 2017, an officer of the respondent sent a further email to Mr Kayal. This email referred to a conversation with Mr Kayal in which it had been indicated that responses would be provided by 12 January 2018.
11. Toward the end of 2017 the relationship between the applicant and its "previous accountant" (who is not identified) ended acrimoniously. At around this time Dr Thomas travelled to India for six weeks with his family.
12. 12 January 2018 passed without the foreshadowed response being provided and on 29 January 2018, an officer of the respondent sent an email to Dr Thomas indicating that a s 72 Notice would be issued. Later that day, a s 72 Notice was issued to each of Dr Thomas and Ms Naaz requiring the provision of a "Completed Unregistered Payroll Tax Employers Questionnaire" by 12 February 2018. Dr Thomas's evidence is that his ability to respond to this Notice was "severely compromised".
13. On 29 March 2018 an officer of the respondent spoke with Dr Thomas and following that conversation sent a confirmatory email asking for "the outstanding records/information asap".
14. On 9 April 2018, having not received a response from the applicant, the respondent issued the notices of assessment.
15. On 10 April 2018, the applicant became registered for payroll tax.

Applicant's submissions

1. The applicant made no submissions with respect to interest.
2. On the issue of penalty tax, the applicant submitted that: 1. the assessed penalty should not have been imposed because the respondent should have been satisfied that the applicant took reasonable care to comply with the PT Act. At all times the applicant lodged its payroll tax returns and calculated its payroll tax liability on the basis that tax was only payable with respect to wages and salary paid to its employees; and 2. the assessed penalty should not have been increased by the respondent under s 30 of the TA Act as the respondent should not have found that the applicant took steps to prevent or hinder the respondent from becoming aware of the tax default, or alternatively the respondent should have accepted that the applicant had a reasonable excuse in failing to comply with the notices issued by the Commissioner under s 72 of the TA Act.

Respondent's submissions

1. On the issue of interest, the respondent submitted that: 1. the interest imposed was at the market rate only and did not include a premium component; 2. the market rate component of interest should rarely, if ever, be waived as one of the purposes of that component is to compensate the revenue for not having the benefit of the tax payment from its due date and such a waiver would provide a discount to the applicant and thereby discriminate against taxpayers who meet their obligations on time, citing Chief Commissioner of State Revenue (NSW) v Incise Technology Pty Ltd [2004] NSWADTAP 19; (2004) 56 ATR 82 at [60]; and 3. thus a remission of interest is not warranted.
2. On the issue of penalty, tax the respondent submitted that: 1. the applicant has not discharged its onus of proving that penalty tax should be imposed on a basis other than that upon which it was imposed under the notices of assessment; 2. there was a lack of reasonable care on the part of the applicant in circumstances where the applicant was, for years during which it was properly liable to pay payroll tax, not registered for payroll tax in NSW; 3. it follows that no relief from penalty tax is available pursuant to s 27(3)(a) of the TA Act; 4. s 27(1) of the TA Act provides that the amount of penalty tax payable in respect of a tax default is 25 per cent of the amount of tax unpaid, subject to the other provisions of the Division. In effect 25 per cent is the base rate for penalty tax; 5. s 30(1) of the TA Act then provides that the amount of penalty tax determined under s 27 is to be increased by 20 per cent if, after the Chief Commissioner has informed the taxpayer that an investigation is to be carried out and before the investigation is completed, the taxpayer took steps to prevent or hinder the Chief Commissioner from becoming aware of the nature and extent of the tax default. 6. s 30(2) of the TA Act goes on to relevantly specify that a taxpayer takes steps to prevent or hinder the Chief Commissioner if the taxpayer refuses or fails (without reasonable excuse) to comply with a requirement made by the Chief Commissioner under Division 2 of Part 9 for the purposes of determining the taxpayer's tax liability. 1. the applicant hindered the respondent in that: 1. it did not respond to repeated requests from the respondent for information that was necessary to determine its tax liability; 2. the lack of any response caused the respondent to have to issue the s 72 Notices; 3. a s 72 Notice is a requirement made by the respondent under Division 2 of Part 9 of the TA Act; 4. even after the issue of the s 72 Notice, a response was not received from the applicant, necessitating an assessment based on an estimate. For these purposes the respondent relied on s11(2) of the TA Act which provides that if the respondent has insufficient information to make an exact assessment of a tax liability, the respondent may make an assessment by way of estimate; and 1. accordingly, s 30(1) of the TA Act applied to increase the base penalty tax rate of 25 per cent by 20 per cent, resulting in penalty tax rate of 30 per cent.

Consideration

1. The provisions of the TA Act relevant to the issues of penalty tax and interest are set out below: 21 Interest in respect of tax defaults (1) If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day for payment until the day it is paid at the interest rate from time to time applying under this Division. (2) Interest is payable under this section in respect of a tax default that consists of a failure to pay penalty tax under Division 2 but is not payable in respect of any failure to pay interest under this Division. 22 Interest rate (1) The interest rate is the sum of: (a) the market rate component, and (b) the premium component. (2) The "market rate component" is: (a) unless an order is in force under paragraph (b), the Bank Accepted Bill rate rounded to the second decimal place (rounding 0.005 upwards), or (b) the rate specified for the time being by order of the Minister published in the Gazette. ... 27 Amount of penalty tax (1) The amount of penalty tax payable in respect of a tax default is 25% of the amount of tax unpaid, subject to this Division. (2) The Chief Commissioner may increase the amount of penalty tax payable in respect of a tax default to 75% of the amount of tax unpaid if the Chief Commissioner is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer (or a person acting on behalf of the taxpayer) of a taxation law. (3) The Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if the Chief Commissioner is satisfied that: (a) the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law, or… ... 30 Increase in penalty tax for concealment (1) The amount of penalty tax determined under section 27 is to be increased by 20% if, after the Chief Commissioner has informed the taxpayer that an investigation is to be carried out and before the investigation is completed, the taxpayer took steps to prevent or hinder the Chief Commissioner from becoming aware of the nature and extent of the tax default in whole or part. (2) For the purposes of this section, a taxpayer takes steps to prevent or hinder the Chief Commissioner if the taxpayer: (a) deliberately damages or destroys records required to be kept under the taxation law to which the investigation relates, or (b) refuses or fails (without reasonable excuse) to comply with a requirement made by the Chief Commissioner under Division 2 of Part 9 for the purposes of determining the taxpayer's tax liability, or (c) hinders or obstructs an authorised officer exercising functions under that Division for that purpose.
2. The Tribunal is not persuaded that there ought to be any remission of interest or penalty.
3. The interest imposed contained only the market rate component and there are no circumstances which warrant a departure from the usual position that such interest is rarely remitted.
4. The penalty tax was imposed at the default rate of 25 percent under s 27(1) of the TA Act, and then increased to 30 per cent by the application of s 30 of the TA Act. The Tribunal is satisfied on the basis of the evidence set out above that the applicant's failure to engage with repeated attempts by the respondent to obtain information concerning the applicant's payroll tax position, and in particular its failure to respond to the s 72 Notice, constituted steps to prevent hinder the respondent from becoming aware of the nature and extent of the applicant's tax default with respect to payment of payroll tax under the PT Act. This is so despite the evidence from Dr Thomas that his ability to respond was "severely compromised", in circumstances where there the applicant's business was apparently able to continue and where there is no evidence from Dr Naaz or anyone else on behalf of the applicant explaining the failure to respond.
5. Further, the Tribunal is not satisfied on the evidence that, for the purposes of s 27(3) of the TA Act, the applicant took reasonable care to comply with the PT Act. As such, the application of ss 27(1) and 30 was appropriate and there should be no remission of penalty tax.

Conclusion and Order

1. For the reasons set out above, the application fails and the notices of assessment should be confirmed.
2. The Order of the Tribunal is: 1. Payroll Tax Assessment Notices numbered 10104232, 10104238, 10104243, 10104254 and 10104225 dated 10 April 2018 are confirmed.

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 September 2021