Fringe Benefits Tax – Airport car parking facilities are considered to be commercial parking stations

In Commissioner of Taxation v Qantas Airways Limited [2014] FCAFC 168, the Full Court of the Federal Court dismissed an appeal by Qantas and upheld the Commissioner’s appeal of an earlier Administrative Appeals Tribunal (AAT) decision in finding that airport car parking facilities were considered to be ‘commercial parking stations’. As a result, Qantas was liable to pay Fringe Benefits Tax (FBT) in respect of car parking fringe benefits provided to employees at airports across Australia.

Car parking benefits provided at Canberra Airport had previously been found by the AAT to not constitute a fringe benefit on the basis that parking facilities at that airport were not available in the ordinary course of business to members of the public, as parking was restricted to airline travellers only. In overturning the AAT’s decision that the car park at Canberra Airport was not subject to FBT, the Court found that it was irrelevant whether the employees could in fact use the car spaces, as the existence of a nearby commercial parking station was only relevant for determining the value of the benefit provided and did not need to provide an alternative parking option for employees. The Court concluded that the conditions imposed on parking at Canberra Airport did not mean it was unavailable to members of the public - rather, that it was available to the public on the terms stipulated.

Based on this case, it is important for any employers that are providing car parking spaces to employees at or near airports, to consider if there are FBT implications of doing so.

Payroll Tax- Employment Agency Contracts (NSW)

In Qualweld Australia Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 227, the Tribunal considered whether payments made by a business in the welding industry (Qualweld) to its welding contractors  were subject to payroll tax under the ‘employment agency contract’ provisions of the Payroll Tax Act 2007 (NSW).

In coming to its decision, the Tribunal rejected Qualweld’s assertion that it carried on a business of delivering significant welding projects for its clients. Instead, the Tribunal agreed with the Chief Commissioner in that, while elements of Quaweld’s business went beyond the provision of welders for its clients, the central and predominant aspect of the business carried on by Qualweld was the  supply of welders to its clients.

In reaching this decision, the Tribunal paid particular attention to the following factors:

  • Documentary evidence including invoices and contracts, which were consistent with the view that Qualweld was essentially engaged to deliver the services of particular tradespeople for its clients;
  • Qualweld had no employees other than the sole director of the company and his wife; and
  • The vast majority of Qualweld’s revenue was generated from the provision of welders to its clients, as referenced by sub- contractor costs in excess of 85 per cent of gross revenue annually.

There have been a number of recent cases and decisions in favour of the revenue authorities on the employment agency contract provisions. Employers should ensure that any contractors who have been engaged for the purpose of enabling the employer to provide a service to their client are reviewed to ensure compliance with the payroll tax legislation.

Payroll Tax- Application of contractor exemptions (NSW)

In Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215, the Tribunal considered the application of s32 of the Payroll Tax Act 2007 (NSW) to payments for architectural services by Levitch Design Associates (‘LDA’). While the Tribunal found that the agreement between LDA and Mr Wright constituted a ‘relevant contract’ per s32(1), LDA was able to prove the exemption in s32(2)(b)(iv) applied to all but one financial year.

The Tribunal found the exemption in s32(2)(b)(i) was not satisfied. In order to qualify for the exemption, LDA had to establish that the architectural services are ‘not ordinarily required’ by LDA, and that they are performed by a person who ordinarily performs services of that kind to  the public generally. Despite LDA producing evidence that the fees paid for architectural services constituted an average of 4.7 per cent over the relevant years, the Tribunal did not accept the gross value of fees to be an appropriate indicator of whether the services were ordinarily required. Instead it noted that invoices were issued for these services on a monthly basis from 2010 to 2012, indicating that the services were in fact ordinarily required by LDA.

LDA also failed to meet the onus of proof in respect of s32(2)(b)(ii) and (iii) regarding the 180 day and 90 day test, respectively. Importantly, the Tribunal commented that LDA must show the number of days on which architectural services were required. As LDA was unable to produce evidence showing the actual days worked by the contractor, neither exemption could be applied.

The Tribunal was, however, satisfied that the contractor ordinarily performed architectural services of the kind supplied to LDA to the public generally during the 2008, 2010, 2011 and 2012 financial years, and therefore the exemption in s32(2)(b)(iv) applied in respect of these years. Evidence provided by the contractor showed that in each of these financial years, architectural services provided to LDA constituted between 58 per cent and 81 per cent of the contractor’s total earnings. The exception was the 2009 financial year, where the Tribunal disallowed the exemption on the basis that the contractor generated 93 per cent of its total earnings from LDA. As such, payments made to the contractor during the 2009 financial year were subject to payroll tax.

This decision serves as a reminder to taxpayers to ensure that appropriate documentation is retained on file for all contractor exemptions claimed during the financial year. In the absence of such documentation, payments made to contractors will generally by subject to payroll tax in full.

Payroll Tax – Commissioner’s discretion to de-group (NSW)

In Chief Commissioner of State Revenue v Seovic Civil Engineering Pty Ltd [2014] NSWCATAP 94, the Appeal Panel of the NSW Civil and Administrative Tribunal overturned an earlier decision of the Tribunal, finding that the Commissioner was not required to de-group an administration company from the two other entities it provided services to.

The Appeal Panel found that the discretion to de- group may only be exercised if the Commissioner  is first satisfied that any connections that exist between the businesses do not lead to a conclusion that they are connected in a commercial sense. The Appeal Panel stated the Tribunal failed to consider whether, due to the nature of an undisputed connection between the group members (ie. the fact that the administration company solely provided services to the two entities in question and also provided key personnel to these entities via contracts) there was a connection between a business carried on between the relevant entities, so as to lead to a conclusion that the businesses were relevantly connected.

Fringe Benefits Tax – Fly in fly out arrangements

In John Holland Group Pty Ltd v FCT [2014] FCA 1332, the Federal Court dismissed an appeal by the taxpayer against an objection decision in relation to the taxable value of flights paid for on behalf of employees for travel between Perth and Geraldton under fly-in-fly-out work arrangements.

In reaching this decision, the Court found that the travel was not ‘otherwise deductible’ and therefore subject to FBT in full. This was on the basis that  the flights were incurred because the employee had chosen to live away from their place of work, being the project location, irrespective of the fact that the travel was undertaken at the employer’s direction and the employee was paid during the period of travel.

Changes to Superannuation

Federal government has announced in the 2014-15 Mid Year Economic and Fiscal Outlook a number of proposed amendments to the superannuation guarantee charge (‘SGC’) rules for late or short payment of superannuation contributions from 1 July 2016. These changes include:

  • The earnings base for the SGC will be brought into line with the current earnings base for SG contributions, being ordinary time earnings rather than total salary and wages;
  • The nominal interest on unpaid superannuation contributions will be aligned with the period over which the SGC are outstanding; and
  • Penalties under the SG legislation will be aligned with the general tax penalty provisions.

The Government is yet to release any draft legislation in relation to these proposed changes.

Single Touch Payroll

The Federal government has announced that from July 2016, it will implement the Single Touch Payroll system, which will allow employers to automatically report payroll information through their accounting software as and when employees are paid. This will eliminate the need to report Pay As You Go Withholding throughout the year and employee payments summaries at the end of the year.