Payroll Tax – De-grouping (NSW)

In Headwear Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 166, the issue of de-grouping was brought before the New South Wales (NSW) Civil and Administrative Tribunal. Following on from a number of recent cases, the case centred on whether the Chief Commissioner of State Revenue had acted correctly in deciding not to exercise discretion under section 79 of the Payroll Tax Act 2007 (NSW) to de-group the Applicant from a payroll tax group formed with three other employers (the Headwear Group). Relevantly, the Applicant carried on business mainly in NSW with the other three employers carrying on business in Western Australia (WA), Victoria and Queensland respectively.

In confirming the decision of the Chief Commissioner not to exercise his discretion, the Tribunal held that having regard to the material before the Tribunal, the Applicant had not discharged its onus of satisfying the Tribunal that, on the balance of probability, the business of the Applicant was carried on independently of, and was not connected with, the carrying on of each other ‘group’ business. This was despite submissions by the Applicant that the Applicant’s business was only a small business compared to the businesses carried on by the other group members in other States, and that each of the businesses was independently operated with separate staff, premises, banking facilities, lease arrangements, infrastructure and customers and, except for common ownership, the entities had no economic dependence on each other.

In reaching this decision, the relevant matters identified by the Tribunal included the role played by significant individuals in the business activities of both the Applicant and the WA business; the supply of all stock to all group members from a  single factory with exclusive communications through the WA business; the financial connections between the Applicant and the major equity owner in each of the NSW, Queensland and Victorian businesses; the failure by the Director of the Applicant, who was totally responsible for all aspects of the Applicant’s business, to consider alternate sources of stock, funding and providers of administrative and accounting services; the group marketing and communications through a common website for potential clients; and the use of the same “Headwear” branding by all group members.

This case serves as yet another reminder that the onus of proof rests with the taxpayer in respect of de-grouping, and taxpayers should ensure sufficient evidence is maintained to support their tax position.

Superannuation Guarantee – Contractors

In OEM Supplies Pty Ltd and Commissioner of Taxation [2015] AATA 532 the Administrative Appeals Tribunal (AAT) of Australia found that the Commissioner of Taxation had erred in determining that Mr Hunt was an employee of OEM Supplies Pty Ltd (OEM) during the period 1 July 2007 to 31 March 2012. As a result, superannuation guarantee default assessments issued by the Commissioner during this period were set aside by the AAT.

Mr Hunt was a former employee of OEM who was re-engaged by the company as a contractor to build and maintain the company’s website a number of years after his voluntary resignation. In exchange for these services, Mr Hunt was paid a monthly retainer, annual bonus (that was not linked to performance) and a 30 per cent commission on website sales.

The AAT considered whether Mr Hunt was an employee either under common law or the extended definition for superannuation guarantee purposes, in both cases finding that, on balance, the relevant factors pointed to the operation of a business by Mr Hunt rather than an employment relationship. In particular, there was evidence of risk, a lack of control by the company over the way in which the services were performed by Mr Hunt, limited integration into the core business of OEM, the engagement of others to assist with the work, and the promotion of his business to other potential customers. This was despite the AAT noting that some of the factors were akin to an employer/employee relationship (such as the issue of company business cards for Mr Hunt’s use). In finding that Mr Hunt was not an employee under the extended definition for superannuation guarantee purposes, the AAT was satisfied that the contract between Mr Hunt and the company was not “wholly or principally” for the labour of Mr Hunt. OEM was focused on the outcome rather than directing Mr Hunt as to the means by which that outcome was to be achieved. Importantly, Mr Hunt was free to employ others to assist him in carrying out the work, and Mr Hunt had a history of doing so

. The decision in this case highlights the complexities around determining whether your workers should properly be characterised as independent contractors or common law employees.

Queensland State Budget: 2015-16 financial year

In the recently announced Queensland (Qld) State Budget for the 2015-16 financial year, a number of key employment tax measures were announced, including:

  • the introduction of a 25 per cent rebate on payroll tax on the wages of each apprentice and trainee employed by businesses. This rebate is in addition to apprentice and trainee wages being exempt from payroll tax, and is offset against the tax payable on the wages of other employees
  • a three year payroll tax exemption for new companies established in Queensland as part of Advance Queensland research programs, and
  • a deferral of planned increases in the payroll tax threshold, meaning the threshold will remain at $1.1 million from 1 July 2015. This deferral appears to further delay the Qld government’s commitment of increasing the payroll tax threshold to $1.6 million by 1 July 2019.

ATO Data Matching in respect of Visa holders

The Australian Taxation Office (ATO) has provided notice of a new data matching program under which it will acquire names and addresses and other details of visa holders, their sponsors, and migration agents for the 2013 to 2017 financial years from the Department of Immigration and Border Protection. These records will be electronically matched with other data to identify non-compliance with registration, lodgement, reporting and payment obligations under taxation laws.