The conduct of the partnerships and the sole trading activities of Mr Whitby
134 MJ & PT Jamsek existed through the whole period in which a truck and services were provided to the companies. The partnership returned the income received and claimed deductions and depreciation, in the manner described earlier.
135 R&D Whitby existed until 30 June 2012 and returned the income received and claimed deductions and depreciation, in the manner described earlier. From 1 July 2012, Mr Whitby continued the same acquisitions but as a sole trader.
136 Upon the commencement of the GST system on 1 July 2000, the partnerships charged GST and remitted GST to the Commissioner. The partnerships registered for GST, obtained an ABN and claimed input tax credits in respect of GST paid on acquisitions. After Mr Whitby's partnership came to an end, he charged GST and issued invoices under his own ABN and remitted GST and claimed input tax credits on acquisitions.
137 As Katzmann J observed in Fair Work Ombudsman v Grouped Property Services Pty Ltd [2016] FCA 1034 at [48]:
To qualify for an ABN, one needs to be carrying on an enterprise (as defined in A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 9-20) in Australia or, in the course or furtherance of doing so, make supplies that are connected with Australia: see A New Tax System (Australian Business Number) Act 1999 (Cth), s 8. A person is not entitled to an ABN if the only work the person performs is in someone else's enterprise.
138 It is, of course, necessary to observe that the GST was introduced after the partnerships commenced and only once the parties were performing the relevant contracts. The weight to be afforded to this issue might not be as significant as the situation in which a decision was made, after careful consideration of available alternatives, to commence operations in a particular manner such that GST was to be charged for the relevant supplies.
139 In ACE Insurance Ltd v Trifunovski [2013] FCAFC 3 at [37] (the appeal from Perram J's decision referred to at [124] above), Buchanan J said:
It is also difficult, in my view, to give much independent weight to arrangements about taxation, or even matters such as insurance cover or superannuation. These are reflections of a view by one party (or both) that the relationship is, or is not, one of employment. For that reason, in my view, those matters are in the same category as declarations by the parties in their contract (from which they often proceed). They may be taken into account but are not conclusive. These matters are less important than the adoption by the parties (where this occurs) of rights and obligations which are fundamentally inconsistent with basic requirements of a contract of employment, such as the ability to delegate the discharge of obligations under a contract to another person, or where there is a lack of control over how work is done.
140 On the other hand, in Tattsbet at [70]-[71], Jessup J (with whom Allsop CJ and White J agreed) said:
70. Fifthly, in contemporary Australia, it is impossible to ignore, and difficult to depreciate, the taxation implications of the mode of operation which parties to a relationship have voluntarily adopted. In the past, the deduction of what are now called PAYG instalments was always treated, uncontroversially, as indicative of an intention that the relationship in question was one of employment. To any suggestion that the absence of such instalments tended to point to the relationship being one of principal and independent contractor, it was often rejoined that such an argument was circular, in the sense that a consequence of the relationship being one of employment was, under legislation, that such instalments had to be deducted. In contemporary times, however, there are legislative markers on both sides, as it were. It is no longer just the absence of PAYG deductions that may make it more difficult to characterise the relationship as one of employment, it is the presence of GST collections by the putative contractor, and his or her compliance with the regulatory requirements which apply to the provision of services by persons who are not employees, that point quite strongly against the relationship being characterised in this way. These observations are made, of course, in the context of the present case, where there is no suggestion that the respondent's participation in the GST system did not reflect her own conscious, well-informed, intentions.
71. There was nothing tokenistic about the respondent's participation in the GST system. Not only did she collect, and forward to the ATO, GST in the amounts referred to at [48] above, but, over the course of a year, she invested about 90 hours of her own, or of her accountant's, time in the preparation of the relevant BAS returns and the collection of the necessary information: the equivalent of more than two weeks work for a normal wage-earner. There would be something conspicuously at odds with the reality of the respondent's own actions, and the assumptions which those actions implied, were it now to be held that the respondent's participation in the GST system was undertaken because of her own mistaken characterisation of her relationship with the appellant.
141 In Australian Air Express Pty Limited v Langford [2005] NSWCA 96; 147 IR 240, McColl JA noted that authorities did not deal consistently with the significance of the way in which a person was treated for tax purposes, saying at [49]:
The authorities have not dealt consistently with the significance of a person being treated for tax purposes as if he or she was an independent contractor. In Stevens (at 37) Wilson and Dawson JJ referred to the payment of remuneration without deduction for income tax as indicating a contract for services. In Hollis the majority did not regard this factor as material. McHugh J, on the other hand, (at [69]) regarded the fact that a finding the bicycle couriers were employees would "make employers retrospectively guilty of a number of statutory offences", including those relating to compliance with taxation legislation, as militating against that conclusion.
142 Her Honour ultimately concluded that it was a significant matter on the particular facts of the case before the Court: at [54], [55].
143 In Climaze Holdings Pty Ltd v Dyson (1995) 13 WAR 487 at 495F, Steytler J said:
It seems to me that the whole concept of rendering invoices for work done (more particularly by a partnership comprising two persons trading under a business name) is quite foreign to an ordinary employment relationship. Equally, the deduction, from the invoiced amounts, of payments made pursuant to the Prescribed Payments System, rather than the deduction of PAYE instalments, points strongly towards the existence of a sub-contract relationship. …
144 The fact that the parties conducted their affairs for many years on the basis that the partnerships were making supplies in respect of which GST was payable, without any suggestion that the partnerships were not engaged in business or should not be charging GST, is a relevant factor, even taking into account the fact that GST was introduced after the structure of the parties' relationship had been established.
145 It is also relevant that there was a conscious decision to set up partnerships in 1986, taken after receiving accounting advice. The partnerships purchased assets, claimed deductions, made decisions about expenditure which affected profitability and conducted their affairs as one would expect of a business. The partnerships' taxation affairs as a whole were conducted in a business-like manner and as one would expect of couples conducting a small business in which one member of each couple performs the majority of the services.
146 The fact that the activities were conducted through a partnership, and the adoption by the parties of a structure which required the partnerships to invoice for work as independent contractors, did not only affect the taxation affairs of the partnerships. The company which was invoiced by the partnerships must have known that it was not withholding tax on the basis that Mr Whitby and Mr Jamsek were employees. The relevant company presumably claimed input tax credits in respect of the GST invoiced by the partnerships.
147 The profitability of the partnerships turned in large measure on the costs associated with operating the vehicles purchased by the partnerships, including the costs associated with the substantial purchase price of the vehicles. Costs included fuel, fines, road tolls, financing costs, maintenance and comprehensive motor vehicle insurance. All of those were met by the partnerships. It is no answer to state, as the applicants did, that the costs were under 50% of the gross income. The fact is that the costs, and therefore the profitability of the activities, were in the control of the partnerships.
148 Mr Whitby and Mr Jamsek could, and did, collect pallets and include a charge for them in the invoices which were submitted to the companies for payment. The applicants submitted that this was not "entrepreneurial" and merely reflected an incentive one might expect to see in an employment relationship. I accept that one might see such an arrangement in an employer-employee relationship. One might also see a simple direction to bring back or collect pallets. There was no evidence, for example, that there had been such a direction and that payment for the pallets was therefore introduced as an incentive. This particular aspect of the parties' arrangements tends to indicate a relationship of client and independent contractor. On 15 January 2009, before there was any suggestion by the applicants that they might be employees, Mr Dixon wrote an internal memo which noted the three "contract drivers collect 'used pallets' and sell back to Thorn as an additional revenue stream". The evidence did not establish how this aspect of the parties' relationship commenced.
149 The partnerships bore the risk of not being profitable or of reduced profitability. The partnership insured against some of the risks. When expenses increased, Mr Whitby and Mr Jamsek sometimes sought increased rates so that their partnerships' profit could be preserved. The partnerships maintained public liability insurance. The partnerships did not bear the same risks as Mr Whitby and Mr Jamsek would have faced as employees. They bore significantly higher risks.
150 I do not regard the partnerships as being equivalent to employee-owned corporations incorporated, as a matter of substance, for the predominant purpose of receiving remuneration for the services provided to an entity by an employee - cf: ACE Insurance. The role of the partnerships was not limited to the receipt of remuneration. The role was broader. The partnerships entered into contracts, owned substantial assets, met the substantial running costs, conducted their accounting and taxation affairs on the basis they operated businesses, collected and remitted GST, claimed input tax credits on purchases and issued tax invoices.
151 It was submitted that the applicants' work did not involve or result in the development of goodwill. However, the partnerships could have sold their businesses if they had wished and such a sale may have included goodwill. The applicants referred in this regard to cl 2(1)(k) of the relevant contracts, which provided:
The Contractors will:
…
(k) Not offer his vehicle for sale with any guarantee of either continuity of work for THORN LIGHTING, or implied acceptance by THORN LIGHTING of the purchaser.
152 This provision did not prohibit the sale of a business. In fact, if anything, this provision suggests the parties contemplated that the relationship was not one of employment and that Mr Whitby and Mr Jamsek might have something over and above the truck to sell. In any event, there are many businesses which do not generate goodwill and which cannot effectively be sold. This factor is of little weight in the circumstances of this case.