Neale v Atlas Products (Victoria) Pty Ltd

94 CLR 419
1955 - 1401B - HCA

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(Judgment by: Dixon CJ, McTiernan J, Webb J, Kitto J, Taylor J)

Between: Neale
And: Atlas Products (Victoria) Pty Ltd

Court:

Judge:
Dixon CJ, McTiernan J, Webb J, Kitto J and Taylor J

Subject References:
Taxation and revenue
Income tax
Offences
Independent contractor

Legislative References:
Income Tax and Social Services Contribution Assessment Act 1936 (No 27) - s 221A; s 221C

Hearing date: MELBOURNE 16 March 1955
Judgment date: 1 April 1955

SYDNEY

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Judgment by:
Dixon CJ, McTiernan J, Webb J, Kitto J, Taylor J

These two appeals are brought from the orders of a magistrate dismissing two informations which alleged offences under s. 221C of the Income Tax and Social Services Contribution Assessment Act 1936-1952. The offence alleged in each instance was said to have been constituted by the failure of the respondent, as an employer, to make the appropriate deduction pursuant to the above-mentioned section when paying wages to an employee in respect of a period of one week. The initial difficulty in the way of the prosecutor was to establish that the payments made to the persons in question were "salary or wages" within the meaning of the section and this difficulty, in the opinion of the magistrate, he failed to overcome.

The evidence showed that the respondent company commonly undertook to supply and fix roofing tiles to buildings in the course of construction and, for this purpose, it was necessary to utilize the services of a number of working tilers. The effect of the arrangements made between the respondent and these tradesmen is a critical matter in the case, it being urged by the appellant that the evidence established that the arrangements resulted in the creation of relationships of master and servant whilst the respondent maintained that the working tilers were, and at all times remained, independent contractors.

Consideration of the relevant statutory provisions may, perhaps, tend to diminish the importance in this case of the general distinction between these two conceptions. Section 221C (1) is in the following terms:"For the purpose of enabling the collection by instalments from employees of income tax, where an employee receives or is entitled to receive from an employer in respect of a week or part thereof salary or wages in excess of two pounds, the employer shall, at the time of paying the salary or wages, make a deduction therefrom at such rate as is prescribed." For the purposes of this section "employer" is defined to mean a person who pays or is liable to pay any salary or wages and "employee" means a person who receives, or is entitled to receive, salary or wages. "Salary or wages" is defined to mean "salary, wages, commission, bonuses or allowances paid (whether at piece-work rates or otherwise) to an employee as such" and includes, inter alia, any payments made "under a contract which is wholly or substantially for the labour of the person to whom the payments are made". Before the magistrate the competing submissions of the parties were, apparently, directed mainly to the latter provision but, for reasons which will presently appear, the respondent's liability does not necessarily turn upon it. It is clear that moneys paid to an independent contractor in satisfaction of a contractual obligation do not, in the ordinary legal sense, represent salary or wages.

Nor are the general words of the definition of "salary or wages" appropriate to assimilate the remuneration of an independent contractor to the defined term. "Salary or wages" means salary, wages, commission, bonuses or allowances paid to an employee as such. The question then arises whether the particular provision that the defined term shall include payments made under a contract which is wholly or substantially for the labour of the person to whom the payments are made sufficiently widens the meaning of the term to embrace, at least in some circumstances, the remuneration of an independent contractor. In the argument addressed to this Court there may have been a suggestion that if in the case of any independent contractor it appeared that the parties contemplated that the contractual work would be substantially performed by the independent contractor himself, although the terms or conditions of the contract, whether express or implied, did not actually require it, the particular extension of the defined term would be sufficient justification for characterizing his remuneration as salary or wages for the purposes of s. 221C. This suggestion, however, is without validity, for if the contract leaves the contractor free to do the work himself or to employ other persons to carry it out the contractual remuneration when paid is not a payment made wholly or at all for the labour of the person to whom the payments are made.

It is a payment made under a contract whereby the contractor has undertaken to produce a given result and it becomes payable when, and only when, the contractual conditions have been fulfilled. Moreover, the nature of the payment is not affected by the circumstance that the contractor has himself performed the bulk of the work under the contract or that it was the expectation of the parties that he would do so if, in truth, the contract did not create the relationship of master and servant. It may be, however, that in cases where an independent contractor is required by the terms of his contract to perform the contractual work himself the addition to the general definition may have some application, but it is unnecessary, in the circumstances of this case, to express any concluded view concerning contracts of such a special class. If this be so, however, it is the result rather of chance than design for the extension of the defined term was not, in our view, directed to considerations of the nature referred to. Its language is, in our opinion, designed to deal with circumstances of another kind. It is not unusual for contracts of employment to create obligations on the part of the servant not only to make his services or labour available to the master but also to do additional things. He may, for instance, be required to provide his own tools or equipment: (cf. Mutual Acceptance Co Ltd v Federal Commissioner of Taxation). ^[F1]

Or, on the other hand, the contract may provide for additional payments to be made to the employee based on circumstances which, in one sense, may be thought to be extraneous to the mere provision of his services such as a special living allowance in specified areas: (cf. The Tergeste ^[F2] and Midland Railway Co v Sharpe ^[F3] ). Probably the word "allowance" in the general definition would, at least in most cases, be sufficient to embrace payments of the latter kind (Mutual Acceptance Co Ltd v Federal Commissioner of Taxation ^[F4] ), but the reasons of the minority in that case may have afforded grounds for making some form of special provision for such cases. In many such cases the payments stipulated for may be said to be payments made under a contract wholly or substantially for the labour of the person to whom the payments are made, though it is a simple matter to conceive examples of the former class where remuneration might be said to be substantially for the hire of plant or equipment: see, e.g. Humberstone v Northern Timber Mills ^[F5] and Wright v Attorney-General for the State of Tasmania. ^[F6] In any such cases, however, the critical question will be one of fact, but no such question arises in the present case for if the tradesmen, in any of the instances under review, were free to carry out the contractual work themselves or to engage others to perform it for them, either in whole or in part, the payments received by any particular tradesman were in no sense made under a contract for his labour.

According to the facts proved in the case there was substantial regularity, or perhaps continuity, of the relationship-whatever it amounted to in law-between the respondent and each tradesman. The practice was for the respondent to inform a particular tradesman at or towards the end of his previous job that another job was available. It was not, however, established that the respondent had the right to direct the tradesmen to any particular new job and the reasonable inference from the evidence was that there was nothing in their legal relationship to oblige any particular tradesman to undertake or to prevent him from declining any new job. The basis of their relationship, it was said, could be found in a form of document which was tendered in evidence and which, if taken at its face value, indicated clearly that the tradesmen did not become servants of the respondent. This document was in the following form:

"H.2936

F. Marston

17.7.52

ATLAS PRODUCTS (VIC.) PTY. LTD.

CR. ATKINSON & DALGETY STS.

OAKLEIGH, S.E. 12 UM 3490

Dear Sir,

I/We hereby contract to supply the necessary labour and/or materials including wire and colour for roof tiling of jobs for

T. LAWRIE, Marlborough St. E. Bentleigh

PD24 12s. 9d.

As I/we will be employing other persons in respect to this work I/we hereby undertake to make:

(a)

the necessary income tax deductions in regard to the earnings of myself and other persons engaged in the said work,

(b)

the necessary pay roll tax payments to the Commissioner of Taxation,

(c)

will also be responsible for covering the said persons under the provisions of the Workers' Compensation Act,

(d)

pay all employees award rates inclusive of holiday and sick leave and/or any other special benefits under any such award.

RECEIPT

Received the sum of Twenty-four POUNDS

twelve SHILLINGS

nine PENCE

being in full settlement of the above.

PD24 12s. 9d.

F. C. MARSTON."

But, as appeared from the evidence, these forms were not signed until the completion of each job. Nevertheless, it was said that the terms set out constituted the basis of the contract for each job. The parties were well acquainted with the contents of the form and, it was contended, the evidence established that each job was undertaken on the understanding that a form would be signed on completion and that in the meantime its known provisions should govern the rights of the parties.

Counsel for the appellant ultimately conceded-and we think rightly conceded-that if this was so the appeal must fail and he ultimately sought to establish that, upon the evidence, the terms of this document should be disregarded. In the main he relied upon the circumstances that each tiler concerned was regularly, and virtually consistently, employed, that regular weekly payments were made to each of them and that the degree of control and supervision which was exercised was inappropriate to the work of an independent contractor. Whilst there are reasons inherent in the document itself for doubting if it was the real measure of the relationship between the parties, it should be borne in mind that there was no reason whatever why they should not have arranged their affairs in this fashion if they were minded so to do and we should not be disposed to ignore it unless it can be said that the evidence establishes quite clearly that the conduct of the parties was inconsistent with it as the basis of their relationship. But this was not, in our opinion, established by the evidence. There was nothing to show that the tilers were not, in fact, free to perform the contractual work themselves or to employ other labour to carry out or assist in the carrying out of that work. Nor was there anything to establish that any form or degree of control appropriate to the relationship of master and servant was ever exercised. The circumstance that one job succeeded another with regularity and that more or less regular payments were made to the tilers did not furnish any safe basis for ignoring what was quite clearly said to have been the basis of their contractual relationships. On the whole we are of the opinion that there is no sufficient ground for reversing the decision of the magistrate based as it was on the belief that the terms of the document substantially set forth the conditions upon which each tiler was employed upon each job.

But even if our view on this point had been different there was still a difficulty in the way of the appellant. It will be observed that s. 221C requires deductions to be made where an employee receives or is entitled to receive from an employer in respect of a week or part thereof salary or wages in excess of two pounds. By sub-s. 2 (a) if the salary or wages is or are paid in respect of piece-work performed by the employee, or in respect of services rendered under a contract which is wholly or substantially for the labour of the employee, the latter is deemed to be entitled to receive that salary or those wages in respect of the period of time from the commencement of the performance of the work or services until the completion of the work or services. Further ancillary provision is made by sub-s. 2 (c) which provides that if an employee is entitled, or deemed to be entitled, to receive the salary or wages in respect of a period of time in excess of one week, he shall be deemed to be entitled to receive in respect of each week or part of a week in that period an amount of that salary or those wages ascertained by dividing the salary or wages by the number of days in the period and multiplying the resultant amount (i) in the case of each week-by seven and (ii) in the case of each part of a week-by the number of days in the part of a week. It is clear from these provisions that if the tilers in question should be regarded as employees who were engaged on piece-work it would be necessary for the prosecution to establish in each instance the period of time taken for the completion of the work for which payment was made. This difficulty was fully appreciated by counsel for the appellant and he sought to meet it by pointing to the fact that more or less regular weekly payments had been made to each of the tilers concerned. But, even if regular weekly payments were made-and this was a matter of some dispute-it by no means follows that any of the payments which are in question in this appeal were made, or should, by reason of the statutory provisions referred to, be deemed to have been made, in respect of a period of one week. It is, we think, impossible to ascertain from the evidence what period of time was occupied by the tilers in performing any of the work for which the payments in question were made and this being so there is an additional reason why the appeal should fail.

We should, perhaps, add that the averment in each case that the respondent was an employer who paid a sum of money as wages in respect of a period of one week does not carry the matter any further for the evidence establishes that the sums in question become payable in respect of particular tasks performed and not in respect of any period of time. Since there is no averment as to the period of time occupied in the performance of each task there is, of course, no room for the operation of the deeming provisions of s. 221C (2).