BSA Ltd v Chief Commissioner of State Revenue [2022] NSWCATAD 275
Background
These proceedings concerned an application to the New South Wales Civil and Administrative Tribunal against an assessment of payroll tax issued by the Chief Commissioner of State Revenue for the period 1 July 2016 to 30 June 2017 under the Payroll Tax Act 2007 (NSW) (“the Act”). The Chief Commissioner had determined that certain contracts between the Applicant and contractors engaged to provide and install telecommunications hardware at customers’ premises were “relevant contracts” within the meaning of s.32 of the Act and therefore liable to payroll tax.
The Applicant engaged contractors (technicians) who attended the premises of the Applicant’s clients to install broadband and pay TV services. The contractors provided and installed equipment such as satellite dishes, set top boxes and modems at the customers' premises, and connected that equipment to the providers' pay TV and broadband networks.
Issues
The three main issues in dispute were (see [33]):
- The “relevant contracts issue”; that is, whether certain contracts were “relevant contracts” within the meaning prescribed in s.32 of the Act.
- The “non-labour component issue”; that is, whether the non-labour component of the Applicant’s contractor payments exceeded 25% for the purposes of s.35(2) of the Act; and
- The “penalty issue”; that is, whether the Applicant took reasonable care to comply with its payroll tax obligations such that penalty tax imposed under Part 5 of the Taxation Administration Act should be remitted.
Decision
Relevant contracts issue
Section 32(2) relevantly provides that:
- a relevant contract does not include a contract of service or a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person:
- is supplied with services for or in relation to the performance of work that are ancillary to the supply of goods under the contract by the person by whom the services are supplied or to the use of goods which are the property of that person, or
- is supplied with services solely for or ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them.
There was no dispute that the definition of “relevant contract” in s. 32(1)(b) of the Act was satisfied. The dispute between the parties involved whether any exemptions in s.32(2) applied.
The Applicant submitted, relying on the decision of the Court of Appeal in Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd [2020] NSWCA 126 (“Downer”), that the correct meaning to be attributed to the word “ancillary” in sub-s. 2(a) was “supplementary or auxiliary or accessory”. Under this reading, certain tasks carried out by the subcontractors including “collecting, transporting and delivering … equipment, discussing with the customer any specific preferences or requests and placing items of equipment in their place” were ancillary to the supply of goods and therefore satisfied the exemption in s.32(2)(a).
The Chief Commissioner conceded that due to the similarities between Downer and the present case, it was common ground that ss 32(2)(a) and (d) of the Act applied to BSA's contracts with technicians. However, the relevant tax years in Downer were those ending 30 June 2010 to 30 June 2013, which was before the enactment of s 32(2B) of the Act which provides:
- 2B Subsection (2) (a), (b), (c) or (d) does not apply to a contract under which any additional services or work (of a kind not covered by the relevant paragraph) are supplied or performed under the contract.
The Chief Commissioner submitted that the question raised by s 32(2B) is whether any "additional services" (of a kind not covered by ss 32(2)(a) and (d)) were supplied or performed under the arrangements between BSA and its contractors. The Chief Commissioner contended that “additional services” were indeed supplied or performed by the contractors, including service calls where no new equipment was supplied or conveyed, often some time after the initial installation, which was distinguishable from Downer.
Those services were not "solely for the conveyance of goods by means of a vehicle provided by the person conveying them" under s 32(2)(d), nor were they ancillary to the supply or conveyance of goods under ss 32(a) or (d). Accordingly, s 32(2B) applied, in which case the exemptions in ss 32(2)(a) and (d) did not apply, and the arrangements between BSA and its contractors were "relevant contracts".
Senior Member Isenberg accepted the Chief Commissioner’s submissions and noted that the evidence before the Tribunal included several examples of work by subcontractors who were not the subcontractors who conveyed the original goods for installation, and work which did not require the use of goods conveyed under a relevant agreement.
Non-labour component issue
The Applicant relied upon a number of affidavits and reports regarding the non-labour cost component of payments to its contractors, including expenditure on materials, allocation of capital costs of motor vehicles based on assumptions of their economic life and resale value.
The Chief Commissioner disputed various assumptions on which the Applicant’s calculations were based, and argued that the Applicant had not satisfied its onus of proving that the non-labour component of contractor payments exceeds 25%, noting that even if one or two of the platforms exceeded 25% (for example, Foxtel and/or Optus), that may still be counterbalanced by a lower non-labour component on the other platform or platforms (for example, NBN).
Senior Member Isenberg found that the Applicant had not satisfied the Tribunal on the balance of probabilities that the average non-labour component of its contractor payments exceeded 25%.
Penalty issue
Senior Member Isenberg stated at [141] that:
"In an application for review, involving an application for remission of a penalty, the onus lies on the Applicant to prove on the balance of probability that it took reasonable care to comply with its obligations..."
Regarding reliance on expert advice, Senior Member Isenberg noted the findings of Ward CJ in Eq in Adams Bidco v Chief Commissioner of State Revenue [2019] NSWSC 702 that the Applicant bears the onus to provide evidence not only as to relevant advice sought and received but also what would be required by way of reasonable care to comply with the relevant taxation law.
The Applicant obtained advice from senior counsel, but Senior Member Isenberg determined (at [139]) that there was no evidence before the Tribunal of reliance by the Applicant on the Senior Counsel’s advice.
Senior Member Isenberg noted (at [143] that he had regard to an 8-page letter from the Chief Commissioner to the CEO of the Applicant which included matters to be taken into consideration in determining penalty tax and interest payable when a taxpayer fails to pay the correct amount of payroll tax on time. Having regard to the Chief Commissioner’s letter, the Senior Member concluded (at [144]) that he was not satisfied that the Applicant had met the reasonable care test as stated by Ward CJ in Eq.
Orders
The decision under review was affirmed.
Link to decision