New interpretation of employment agency contract payroll tax provisions (NSW)

In UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852, the NSW Supreme Court set aside assessments issued by the Chief Commissioner of State Revenue under the employment agency provisions of the Pay-roll Tax Act 1971 (NSW) and Payroll Tax Act 2007 (NSW).

The case dealt with UNSW’s Unisearch business unit which arranged for the provision of expert opinion to clients by subject matter experts for purposes such as litigation, laboratory testing, and the provision of expert reports. In challenging the assessments issued by the Chief Commissioner, UNSW contended that the underlying purpose of the employment agency provisions was to capture indirect arrangements which would be characterised as employment arrangements if entered into directly by the service provider and client, rather than capturing services provided by a genuine independent contractor through an arrangement with an intermediary. UNSW submitted that services provided directly by an independent contractor to a client would generally not be subject to payroll tax, due to the existence of a range of payroll tax exemptions available under the relevant contract provisions.

In considering the positions put forward and the construction of the key provisions, the Supreme Court found that the employment agency contract provisions were intended to apply to arrangements where the employment agent provided individuals who would comprise, or who would be added to, the workforce of the client for the conduct of the client’s business. Whether the service provider operates as an individual or through an interposed entity, or as a genuine independent contractor, did not matter for this purpose. The Court did, however, draw a distinction between services provided for a client’s benefit and services provided in a client’s business. Specifically, where the services are not provided by the service provider working in the client’s business, the Court found that the arrangement would not fall within the intended scope of the employment agency contract provisions. On this basis, while the work performed by the experts was provided for the benefit of the client, it was not carried out in the client’s business and was therefore not subject to payroll tax under the employment agency contract provisions.

Backpacker Tax comes into force (Cth)

Following much debate and publicity, the Federal Government’s “Backpacker Tax” bill (ie. Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016 (No. 2)) received Royal Assent in December 2016.

The Bill amends the personal income tax rates applying to ‘working holiday makers’ to 15% for those employees with taxable incomes of up to $37,000. The bills also amends PAYG withholding rates applying to working holiday makers and requires that the employee obtain a Tax File Number in order to work in Australia.Working holiday makers include individuals holding a subclass 417 (Working Holiday) visa, a subclass 462 (Work and Holiday) visa, and a bridging visa permitting the individual to work in Australia.

The new tax rates came into force from 1 January 2017, however, the ATO has provided an extension to 31 January 2017 for employers to register as an employer of working holiday makers via the ATO website. Penalties may apply where employers do not register by this date. There are also a number of other tools available on the ATO website, including a Visa Entitlement Verification system, which can be used by employers to confirm whether their workers hold a visa that would result in them being classified as a working holiday maker for the purpose of the new rules.

Penalties for failure lodge FBT returns (Cth)

In GSLL and Commissioner of Taxation [2016] AATA 954, the Administrative Appeals Tribunal affirmed the Commissioner’s decision to impose 75% penalties under section 284-90(1) of Schedule 1 to the Taxation Administration Act 1953 in respect of the taxpayer’s failure to lodge fringe benefits tax (FBT) returns across a number of FBT years. The taxpayer argued that the penalty should be either remitted in full or in part, based on mitigating circumstances including the fact that the management of all taxation affairs were entrusted to the company’s external accountant, the general lack of understanding of FBT compliance obligations by the company director, and the behaviour by the parties involved amounting only to a failure to take reasonable care rather than demonstrating an intentional disregard of the law or recklessness in regard to its FBT obligations.

The Tribunal found that the required circumstances for full remission of the penalty were not satisfied, and further, the relevant legislative provisions provided no scope for a partial remission of the 75% base penalty amount where a taxpayer fails to lodge a return by the required due date. Accordingly, the decision of the Commissioner to impose the penalties was affirmed in full.

Recovery of tax debts from moneys held on trust for the taxpayer (Qld)

In Commissioner of State Revenue v Can Barz Pty Ltd & Anor [2016] QCA 323, the Supreme Court dismissed the appeal of the Commissioner, finding that payroll tax debts owed by a taxpayer could not be recovered through garnishee notices issued to third parties in respect of amounts that were to be held on trust by the taxpayer’s superannuation fund.

Following the sale of a property by a superannuation fund for which the taxpayer was acting in the capacity of trustee, the Commissioner sought to recover an outstanding tax debt from third parties, including real estate agents and the purchaser of the property, using sale proceeds that were set to be received by the superannuation fund. The Court found that the Commissioner’s interpretation of the garnishee provisions of the Taxation Administration Act 2001 (Qld) would have resulted in an operational inconsistency with the laws of the Commonwealth, which do not allow the application of superannuation funds for the payment of tax debts. As the money in question could not be lawfully applied by the taxpayer in the payment of the tax debt due to the operation of the Superannuation Industry (Supervision) Act 1993 (Cth), they were also unavailable to be recovered by the Commissioner from third parties via garnishee notice.

New decision on the application of payroll tax exemption for work performed in connection with a charitable purpose (NSW)

The Supreme Court of NSW - Court of Appeal in Grain Growers Limited v Chief Commissioner of State Revenue (NSW) [2016] NSWCA 359 has disallowed the appellant’s application for a payroll tax exemption and refund of payroll tax pursuant to section 48 of the Payroll Tax Act 2007 (NSW). The Court determined the proper construction of subsection 48(2) finding that for a non-profit PwC 4 TaxTalk Monthly February 2017 organisation to be entitled to an exemption from payroll tax, it has to establish that the wages must be paid or payable for work of a kind that is like or similar to that which is ordinarily (that is, regularly or commonly or customarily) performed in connection with the charitable purposes of the organisation.

Application of payroll tax exemption to certain facilities operated by local councils (NSW)

In Snowy Monaro Regional Council v Chief Commissioner of State Revenue [2017] NSWCATAD 14, the Tribunal revoked the decision of the Chief Commissioner to disallow the payroll tax exemption applicable to local councils, finding that an Aged Care Facility operated by the council should not fall within the definition of a "hostel" and should therefore fall outside of the excluded services listed in section 60 of the Payroll Tax Act 2007 (NSW) for which the local council payroll tax exemption does not apply. In reaching this decision, the Tribunal gave consideration to the legislative intention of the term "hostel" and also the ordinary meaning of this term, being facilities providing temporary accommodation, with minimal services and basic comforts at a low cost and low level of care from the operator. Ultimately, as the Aged Care Facility operated by the council was primarily occupied by permanent residents, and occupants incurred both high costs and received high levels of care from qualified staff, it was determined that it would not be appropriate to treat this facility as a hostel under the Payroll Tax Act.

New decision on the characterisation of an organisation's charitable purpose in relation to payroll tax exemption (Vic)

In Victorian Farmers Federation v Commissioner of State Revenue [2017] VCAT 19, the Victorian Civil and Administrative Tribunal found that the applicant's purpose was to advance the private interests of those engaged in the business of agriculture, rather than the promotion of agriculture generally, and therefore the organisation's purpose was not charitable. Whilst a benefit to the community resulted from the profitability of farming businesses, this was found to not be the purpose of the Victorian Farmers Federation. The case confirms when an organisation applies for payroll tax exemption status under s48 of the Payroll Tax Act 2007 (Vic), a holistic approach is applied, which considers the objects in the Constitution, the activities undertaken in pursuit of those objects, and other relevant factors.