Qualweld Australia Pty Ltd v Chief Commissioner of State Revenue  NSWCATAD 227
|Date of judgement||22 December 2014||Proceeding No.||1410067|
|Court or Tribunal||NSW Civil and Administrative Tribunal - Administrative and Equal Opportunity Division|
|Legislation cited||Payroll Tax Act 2007
Taxation Administration Act 1996
|Catchwords||Employment agency contracts – payroll tax – procure – wages – penalties – reasonable care|
|Cases cited||CXC Consulting Pty Ltd v Commissioner of State Revenue (2013) VSC 492
Freelance Global Ltd v Chief Commissioner of State Revenue (2014) NSWSC 127
On Call Interpreters & Translators Agency Pty Ltd v Commissioner of Taxation (No 3) (2011) FCA 366
RVO Enterprises Pty Ltd ATF the R M O'Mara Family Trust v Chief Commissioner of State Revenue (2004) NSW ADT 64
Taneja v Commissioner of Taxation (2009) AATA 87
Value Engineering (Australasia) Pty Ltd v Commissioner of State Taxation (WA) (1985)
Qualweld Australia Pty Ltd (“the Taxpayer”) sought a review in the NSW Civil and Administrative Tribunal (“the Tribunal”) of an assessment of payroll tax for the years ended 30 June 2009 to 30 June 2012 inclusive (“the relevant period”).
The proceedings consider whether amounts paid by the Taxpayer to welders are payments made pursuant to “employment agency contracts” as set out in s.37 of the Payroll Tax Act 2007 (“the Act”).
The Chief Commissioner’s decision that the payments were made pursuant to employment agency contracts was affirmed by the Tribunal, and the assessments were confirmed.
The Taxpayer has filed a Notice of Appeal to the Appeal Panel.
The Taxpayer in these proceedings is a company involved in the welding industry. The Taxpayer paid welding contractors at hourly rates for work done on certain complex welding projects for its clients.
The Chief Commissioner assessed the taxpayer for the four years 2008-09 to 2011-12, asserting that the payments by the Taxpayer to the welders were paid pursuant to employment agency contracts as defined under section 37 of the Act.
These proceedings raised three issues:
firstly, whether the employment agency provisions contained in Division 8 of the Act applied;
secondly, if Division 8 did not apply, whether any of the exceptions to the relevant contract provisions in Division 7 applied;
thirdly, the Taxpayer sought a review of the Chief Commissioner’s decision to impose penalty tax for failing to take reasonable care.
Tribunal’s consideration of the issues
Employment Agency Issue:
The Tribunal stated that the following elements must be satisfied before the employment agency provisions can apply (para 35):
there must be a contract;
under that contract, the services of the worker must be procured by the Taxpayer;
the procurement of those services by the Taxpayer must be "for a client of" the Taxpayer;
the contract must not be a contract of employment between the worker and the client; and
the contract must not result in the creation of a contract of employment between the worker and the client.
The Tribunal stated that the first, fourth and fifth elements are clearly satisfied (para 35), and concluded (at para 37) that:
“The two issues that lie at the heart of this case are the second and third elements, which together call for conclusions to be reached as to whether the (Taxpayer) has procured the services of the Worker for the Client by entering into the contract with the Interposed Entity.”
In the Tribunal’s view, the meaning and interpretation of procure would, to a large degree, ne the outcome of the case. The Tribunal referred to Freelance Global Ltd v Chief Commissioner of State Revenue 2013 NSWSC 127 where at paragraph 115 White J stated:
"I think the better view is that "procure" when used in s3C (Payroll Tax Act 1971) and 37 (Payroll Tax Act 2007) means more than facilitate or enable and requires that the employment agent cause the services of a contract worker (or service provider) to be provided to the employment agent's clients, with the expenditure of care and effort by the employment agent. I do not accept that this can only be done if the employment agent recruits the contract worker or service provider for the client."
The Tribunal identified six key factors raised by the parties as being relevant in determining the employment agency issue (at 55). The Tribunal's findings in relation to these issues were:
Any prior relationship between the worker and the client – there was no prior relationship in this case. The Tribunal stated (para 58):
"...the existence of a prior relationship between the independent contractors (ie the Interposed Entity) and the head company (the Client) may make it easier in some senses to prove that there has been a procuring of services.
However it does not follow that the absence of such a prior relationship would rule out the procuring of those services for the Clients in this case.”
The payment of an hourly rate by the client – the taxpayer contended this supported the conclusion that it delivered a service to the client and nothing more. The Tribunal stated (para 62):
"...having regard to (several cases specified in para 60) ...and the general proposition that what matters here is the work that is being done and not the manner by which it is being remunerated, I discount the relevance of the fact that the payment was often made on an hourly charge out basis.”
The number of employees of the Taxpayer – the taxpayer employed 1 experienced welder and his wife who assisted with administration of the business. The tribunal stated (para 68):
"...not to suggest that the (Taxpayer) could not carry on a business of the kind it contends for (delivering complex welding project work) with only one actively involved employee. It is however another factor which assists the argument contended for by the (Chief Commissioner).”
The nature of the underlying business conducted by the Taxpayer – the Taxpayer asserted that it engaged by its clients to achieve a result, in the form of the completion of welding projects for its clients. The Tribunal stated (para 75):
"...in objectively assessing the nature of the business, even though there are elements which went beyond the provision of the welders for the Clients, the central and predominant aspect of the (Taxpayer's) business was precisely (the supply of welders and nothing else). Anything beyond the provision of such welders for the Clients was largely incidental to that core business.”
The description of the work to be done by the Taxpayer – the Tribunal considered written quotations provided by the Taxpayer, copies of service agreements, purchase orders and invoices, and an email from the client to the Taxpayer regarding who should bear the cost of faulty welding. The Tribunal stated (para 87):
“This (email) would seem to suggest that the Client was paying for the supply of welders that were secured to it by the (Taxpayer) and for nothing else. In this case it paid an additional amount but only as a goodwill gesture and not because it was obligated to do so. Again, this suggests a procurement of services by the (Taxpayer) for the Client in the very sense referred to in the Payroll Tax Act.”
The extent to which the Taxpayer’s total revenue arises from the provision of the worker’s services – the Tribunal noted that payments to Interposed Entities represented 88.48% of the total revenue generated by the (Taxpayer) from all its activities in 2010 -11 and similar percentages for the previous 2 years. The Tribunal stated (para 89):
“These numbers would suggest that the (Taxpayer's) assertion that the provision of the services of tradespeople (especially welders) is merely incidental to its broader business activities, is a difficult argument to sustain. The reality based on these numbers is that the provision of the services of welders is a fundamental and critical aspect of the business carried on by the (Taxpayer).”
Ultimately, the Tribunal found in favour of the Chief Commissioner in respect of the employment agency issue, concluding (at paras 90 and 91):
“...the preferable view is that the (Taxpayer) procured the services of the welders for the Clients and accordingly in each relevant case there is an employment agency contract.
There are some aspects of the documents that confusingly point the other way, but looking at the totality of the evidence presented, it seems to the Tribunal that fundamentally what the (Taxpayer) was doing was procuring the services of the tradespeople for the projects being undertaken by the Clients and the (Taxpayer) had a responsibility which carried with it certain financial implications to ensure that these tradespeople would be qualified to carry out that work to the standards required.”
Relevant Contract Issue:
The Taxpayer submitted that the payments to the welders were not payments made under an employment agency contract but that they were payments made under a relevant contract to which the exceptions contained in section 32(2) of the Act applied. However, the Tribunal was of the view that this issue would only need to be considered if the payments made by the Taxpayer to the welders were not made under an employment agency contract.
Given the findings in respect of the employment agency issue, the Tribunal did not consider the relevant contracts issue.
The assessments issued to the Taxpayer imposed penalty tax of 25%. At objection this was reduced to 20% based on voluntary disclosures made by the Taxpayer. The Taxpayer sought a review of this decision on the basis that it took reasonable care to comply with the Act.
The Tribunal stated (at para 98):
“The point here is that the taxpayer has provided precious little in the way of hard evidence to demonstrate that it took the sort of steps one would expect a reasonable person to take in such circumstances. The application of the employment agency provisions do not appear to have been considered by the (Taxpayer) in any detail until it became apparent that there were concerns raised by the (Chief Commissioner). Certainly no evidence was provided that legal advice had been sought or obtained at any relevant time.”
The Tribunal found that the Taxpayer failed to take reasonable care and thus the imposition of penalty tax was affirmed.