• The impact of this case on ATO policy is discussed in Decision Impact Statement: Weston and Commissioner of Taxation (Published 14 October 2009).

WESTON v FC of T

Members:
BH Pascoe SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2008] AATA 869

Decision date: 30 September 2008

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BH Pascoe (Senior Member)

1. These applications are to review decisions of the respondent which disallowed objections against assessments of the Superannuation Guarantee Charge (SGC) and penalties for the year ended 30 June 2003 and each of the 10 quarters from 1 July 2003 to 31 December 2005.

2. At the hearing, the applicant, Mr M Weston was unrepresented. The respondent Commissioner of Taxation was represented by Ms R Woolley, an officer of the respondent. Evidence was given by Mr Weston.

3. The background to this matter is that Mr Weston who carries on a nut farming business in Eurobin, Victoria, was advised by the respondent on 16 April 2007 that he had been selected for audit. He was requested to complete statements relating to Superannuation Guarantee but failed to do so. On 26 April 2007 Mr Weston was advised that he had not satisfied his obligations as an employer under the Superannuation Guarantee (Administration) Act 1992 (the Act) and was liable for SCG. Assessments issued on 10 May 2007 included a penalty of 10 per cent under Part 7 of the Act. The total amount of SGC assessed was $14,558.36, with a penalty of $1,455.77.

4. Mr Weston said that, in 2002, he agreed to employ a Ms Bursill on a permanent basis. As he was uncertain as to the correct rate of pay he telephoned Wageline and was advised that the appropriate hourly rate was $13.08. He said that he was then advised to add 10 per cent to cover superannuation. As a consequence, he paid Ms Bursill at the rate of $14.50 per hour and said that he informed her that this amount included superannuation and that she was responsible to manage it. A similar arrangement was made with another employee. He took the view that he had satisfied the obligation to pay superannuation contributions and the employees should not seek a further contribution. Alternatively, he argued that the SGC should be calculated on the amount paid to these employees less one-eleventh to arrive at the amount actually paid as wages.

5. Mr Weston said that he also used Korean nationals as casual labour to collect nuts and these were paid at a rate per kilogram collected. He said that they were there for a very short period and he paid the money to one person, a Mr Yin, who organised the others, was the only one who spoke English and the only one with a Tax File Number. He regarded Mr Yin as a head contractor with the others as sub-contractors.

6. Under the Act, an employee is required to make contributions to a complying superannuation fund or retirement savings account at the rate of 9 per cent of salary or wages of eligible employees. For the year ended 30 June 2003, such contributions were required to have been paid by 28 July 2003. From 1 July 2003, the due date for contributions has been the 28^th day of the month following the end of each quarter. Failure to make the required contributions renders the employer liable for SGC which consists of the required 9 per cent of salary/wages, a nominal interest component calculated at the rate of 10 per cent from the commencement of the relevant period to the date of assessment and an administration component. This latter component was $50 plus $30 for each employee in respect of the year ended 30 June 2003. For each quarter from 1 July 2003, the administration component is calculated at the rate of $20 per employee.

7. Under the relevant provisions of s 11 and s 12 of the Act an eligible employee is a person who is paid a salary or wages or works under a contract that is wholly or principally for the labour of that person. Employees excluded are those under 18 or over 70 or who receive less than $450 in a month.

8. Whether Mr Weston was wrongly advised or whether he misunderstood the advice given is not the issue. While I accept that he understood that he would meet the employee superannuation contribution requirement by paying an additional 10 per cent to the employee, the Act is clear that the obligation is on the employer to make contributions to a complying fund directly. There is no discretion in the Act to ignore the failure of the employer to make such contributions. Further, while Mr Weston may have regarded one-eleventh of the amount paid as superannuation, all of the records show the total amount paid to these employees solely as salary or wages. While I am not doubting the evidence of Mr Weston, there is simply no warrant for reducing the amount paid to an employee in these circumstances.

9. In relation to the amounts paid for the labour of the Korean nationals, it is possible that payments were made to one as the organiser or contractor of labour supplied by others. If this was accepted the result could be that the payment is not deemed salary or wages being a payment to a head contractor for the labour of others leaving the potential liability with that head contractor. Alternatively, the actual amount due to one individual may be less than $450 in a month. Mr Weston believed that the group worked for a short period of 8 - 10 days and all of them did not work every day. Unfortunately, it is difficult to accept fully the evidence of Mr Weston. The records show that in 2004 and 2005, payments were made to five different individuals with names which appear to indicate Korean nationality. Payments covered periods of work of between 8 and 39 days. Clearly there was no one period where all payments were made to one individual. Consequently, and likely to be unfortunately for Mr Weston, I am unable to find that he has discharged the onus of proof that the payments were not salary or wages under the Act.

10. Prior to and at the hearing, the respondent recognised some errors in the calculation of the shortfall in most of the relevant periods. These arose from a failure to include some employees in specific periods where there was a liability, the need to exclude an amount paid to an employee accepted as not being eligible for the purposes of the Act and some variations in periods for which certain employees should be included. The result of the recalculation arising from these errors is that the respondent requested the Tribunal to vary the decision under review to result in the following assessments:

Relevant Period	No of Employees with a SG shortfall	SG shortfall ($)	Interest ($)	Admin component ($)	SGC ($)	Part 7 penalty(10%) ($)
Year ended 30 June 2003	2	2,504.16	1,207.34	110	3,821.50	382.15
Quarter ended 30 September 2003	1	686.72	262.47	20	969.19	96.92
Quarter ended 30 December 2003	2	770.51	275.08	40	1,085.59	108.56
Quarter ended 31 March 2004	1	679.26	225.40	20	924.66	92.47
Quarter ended 30 June 2004	3	1,233.84	378.68	60	1,672.52	167.25
Quarter ended 30 September 2004	1	659.54	185.99	20	865.53	86.55
Quarter ended 31 December 2004	2	768.80	197.44	40	1,006.24	100.62
Quarter ended 31 March 2005	2	738.71	171.10	40	949.81	94.98
Quarter ended 30 June 2005	3	1,136.38	235.21	60	1,431.59	143.16
Quarter ended 30 September 2005	2	1,019.44	185.61	40	1,245.05	124.50
Quarter ended 31 December 2005	2	1,019.44	159.93	40	1,219.37	121.94
	TOTAL				15,191.04	1,519.10

From the material provided and the failure of Mr Weston to discharge his onus of proof that these assessments of SGC are excessive, it is appropriate to vary the decisions under review in accordance with these revised figures totalling $15,191.04.

11. The question of penalty under Part 7 of the Act requires separate consideration. It was clear from the evidence that Mr Weston is a sole trader, conducting a very small rural business. As indicated, I accept his evidence that he believed (incorrectly) that the payment of an additional 10 per cent to employees satisfied his obligation for superannuation. Further, it is likely that, if dealt with and recorded correctly, the payments for labour of the Korean nationals may not have attracted a liability for superannuation. It is clearly possible that the direct employees have unduly benefitted from a doubling up of superannuation benefits and the Korean nationals may never receive the benefit of the SGC. Nevertheless, neither the respondent nor this Tribunal has any discretion to waive the SGC liability or any component of it. The respondent argued that a 10 per cent penalty was appropriate for the failure to provide the Superannuation Guarantee Statements and the failure to make superannuation contributions. As stated, I accept that Mr Weston did not believe that he had any such liability and, therefore, did not consider it necessary to lodge the statements. It is also relevant to recognise that the interest component of the SGC is a form of penalty to the employer by being required to pay 10 per cent per annum on the superannuation shortfall, presumably to compensate the employee for lost income on the required contribution. In all of the circumstances of this case, the Tribunal finds it appropriate to remit the penalty in full pursuant to s 62(3) of the Act.

12. The result of the foregoing is that the decision under review should be varied by remitting the matter to the respondent with a direction to amend the relevant assessments to result in a total SGC of $15,191.04 as set out in paragraph 10 of these reasons and the remission of the penalty under Part 7 of the Act to nil.