The impact of this case on ATO policy is discussed in Decision Impact Statement: Commissioner of Taxation v Newton; Natalie Newton (trading as Combined Care for the Elderly) and Commissioner of Taxation (2008/3923 ).
FC of T v NEWTONJudges:
Federal Court, Sydney
MEDIA NEUTRAL CITATION:
 FCA 1440
1. This appeal is concerned with the construction of s 12 of the Superannuation Guarantee (Administration) Act 1992 (Cth) ( the Administration Act ). The Administration Act, together with the Superannuation Guarantee Charge Act 1992 (Cth) ( the Charge Act ), were intended to implement a decision by the Commonwealth government to impose a tax, called the superannuation guarantee charge , on an employer who provides superannuation support for employees below a minimum level. The explanatory memorandum circulated in connection with the Bills for the Administration Act and the Charge Act stated that their purpose was to encourage employers to provide a minimum level of superannuation support for employees. All employers were to be potentially liable for the tax. However, the tax was not to apply if the employer had provided a minimum level of superannuation support for each employee, or the employer was exempt in respect of a particular employee.
2. By s 16 of the Administration Act, the superannuation guarantee charge is payable by an employer, in respect of the employer's superannuation shortfall . The employer's superannuation shortfall is calculated by reference to the individual superannuation shortfall for each employee. Under s 19(1), an employer's individual superannuation shortfall for an employee is the amount worked out using the formula specified in s 19. In general, the superannuation shortfall is a specified proportion of the total salary or wages paid by the employer to the employee, reduced by reference to the proportion of the employee's salary or wages actually paid by the employer to certain superannuation funds for the benefit of the employee. The precise details of the formula are not presently relevant. The critical aspect of the imposition of the superannuation guarantee charge for present purposes is that it is calculated by reference to total salary or wages paid by an employer to an employee .
3. Section 12(1) of the Administration Act provides that the words employee and employer are to have their ordinary meanings, except to the extent that the meaning is expanded or restricted by the provisions of s 12(2) to 12(11) inclusive. Sections 12(2) to 12(10) expand the concepts of employer and employee. Section 12(11), however, contracts the concepts, and provides as follows:
"A person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not regarded as an employee in relation to that work. [emphasis added]"
4. From July to December 2000, the respondent, Ms Natalie Newton ( the Taxpayer ), carried on the business of providing community support services to her clients. The clients of the Taxpayer were persons who were disabled, infirm, elderly or otherwise in need of physical assistance in their own homes. The services provided to such clients included cooking, cleaning, shopping, showering, dressing and general household duties. The services also included assistance with shopping.
5. However, the services provided by the Taxpayer were not provided physically or personally by the Taxpayer herself. Rather they were provided and performed by workers on whom the Taxpayer would call when a client of the Taxpayer made a request for assistance. The Taxpayer determined which of the workers on a list of potential workers maintained by her was appropriate for the prospective assignment and offered that assignment to that worker. If the worker accepted the offer, the worker would attend the home of the Taxpayer's client and provide the required services. The services were provided at the client's home, except where the worker went shopping with the client. The worker who provided the services was paid by the Taxpayer. The client of the Taxpayer paid the Taxpayer for the provision of the services of the worker. Thus, the business of the Taxpayer may fairly be described as that of an intermediary.
6. The Taxpayer did not make superannuation contributions in respect of 21 of the workers who provided services to clients of the Taxpayer in the year ended 30 June 2001. It is common ground, for the purposes of the present appeal, that each of the 21 workers in question did work for clients of the Taxpayer that can fairly be characterised as being of a domestic or private nature. It is also common ground that the 21 workers did not do that work for more than 30 hours per week. It appears that there was no evidence as to whether any of the 21 workers in question did work in any week for more than one household, such that the worker did work in total for more than 30 hours per week.
7. In 2003, the Commissioner issued to the Taxpayer an assessment for the superannuation guarantee charge in respect of the year ended 30 June 2001. The superannuation guarantee charge was calculated by inference to the 21 workers. The Taxpayer objected to the assessment. The Commissioner made an objection decision disallowing the objection. The Taxpayer then appealed to the Administrative Appeals Tribunal ( the Tribunal ) from the Commissioner's objection decision.
8. On 23 September 2010, the Tribunal made a decision that the objection decision be set aside and that the Taxpayer's objection be allowed in full. The Commissioner has now appealed to the Federal Court under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ( the Tribunal Act ). Under s 44 of the Tribunal Act, an appeal on a question of law lies as of right to the Federal Court from a decision of the Tribunal.
9. By his amended notice of appeal filed on 9 November 2010, the Commissioner identified the following questions of law:
- • Whether the 21 workers in question were paid to do work wholly or principally of a domestic or private nature within the meaning of s 12(11) of the Administration Act.
- • Whether, for the purposes of determining whether a worker is paid to do work wholly or principally of a domestic or private nature, s 12(11) of the Administration Act merely requires an examination of the nature of the work carried out by the worker and does not require an examination of:
- (i) the identity of, or any of the attributes of, the person who pays for that work,
- (ii) the relationship between the payer and the worker, or
- (iii) the nature of the work or services that the worker provides to the payer
- • Whether the circumstance that the payer makes the payment to the worker in the course of a business that the payer carries on is irrelevant to determining whether the worker is paid to do work wholly or principally of a domestic or private nature, within the meaning of s 12(11) of the Administration Act.
10. The Commissioner contends that the Tribunal, in concluding that the 21 workers in question were paid to do work wholly or principally of a domestic or private nature within the meaning of s 12(11), erred in holding that s 12(11) merely requires an examination of the nature of the work carried out by a worker, erred in holding that s 12(11) does not require an examination of the three matters identified above in the second question of law, and erred in holding that the circumstances that the payer makes the payment to the worker in the course of a business that the payer carries out is irrelevant in determining whether the worker is paid to do work wholly or principally of a domestic or private nature within the meaning of s 12(11).
11. The task of construing s 12(11) must be undertaken with the purpose of that provision and of the Administration Act as a whole in mind. The context of s 12(11) is to be considered in the first instance, and not merely at some later stage, when ambiguity may be thought to arise. Further, the context includes such things as the existing state of the law and the mischief that one may discern, by legitimate means, the Administration Act was intended to remedy. Thus the apparently plain words of s 12(11), read in the light of the mischief that the Administration Act was designed to overcome, together with its objects, could have a quite different appearance. Further, inconvenience or improbability of result can assist in preferring an alternative construction to a literal meaning, so long as the alternative construction is reasonably open and conforms to the legislative intent (
CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 at 408).
12. The Commissioner relies on parts of the explanatory memorandum circulated in connection with the Bills for the Administration Act and the Charge Act as indicating an intention to exclude, from liability to pay the superannuation guarantee charge, only householders who pay a person to carry out occasional or part time domestic or private duties for such householders. The Taxpayer, on the other hand, relies on other parts of the explanatory memorandum as indicating a different intention.
13. The explanatory memorandum states that the Administration Act will potentially apply to all employers in respect of their employees. After referring to the expansion of the concepts of employer and employee by s 12(2) to 12(10), the memorandum states as follows:
"A person will not be an employee if the person is paid to do work which is wholly or principally of a domestic or private nature on a part time basis (ie no more than 30 hours a week)... This means that people who pay a part time nanny or housekeeper, for example, will not have to provide superannuation support in respect of their employee. The exclusion is for domestic or private work and therefore does not extend, for example, to employees who clean office buildings."
The Commissioner says that that passage suggests that the Parliament was not intending to relieve a labour hire business, or other businesses that provide domestic services for clients, from liability for the superannuation guarantee charge. He points specifically to the reference to "people who pay a part time nanny or housekeeper". The Taxpayer, however, contends that the words "[t]he exclusion is for domestic or private work' in the last sentence show that it is the nature of the work that is done, and not the identity of the payer who pays for the work to be done, that is significant.
14. The Commissioner contends that the emphasis, in the explanatory memorandum, on removing a liability that would otherwise apply to a person employing, for example, a part-time nanny or housekeeper, is consistent with the use of the phrase "domestic or private" to characterise exclusions in earlier legislation. He points to s 221A(1) of the Income Tax Assessment Act 1936 (Cth) ( the 1936 Act ), which relates to payments under a contract for the labour of a person, where the payments were wholly or principally of a "private or domestic nature". The explanatory memorandum for the Bill that inserted that provision in the 1936 Act relevantly said:
"[T]he combined effect ... will be to exclude from the term "salary or wages" (and so relieve householders from the obligation to make PAYE deductions), payments made to persons who are not employees as such, where the payments are wholly or principally of a private or domestic nature."
15. The Taxpayer, on the other hand, points to the quite different structure of s 221A(1), as compared with s 12(11), in support of the proposition that little assistance is to be gained from the earlier provisions. She says that s 221A(1) is markedly different in text and structure. The relevant provisions of s 221A(1) are as follows:
"Salary or wages means salary, wages, commission, bonuses or allowances paid... to an eligible person as such... including any payments made:
- (a) under a contract that is wholly or principally for the labour of the person to whom the payments are made where:
- (i) the person making the payments under the contract is not a natural person;
- (ii) the payments under the contract are not wholly or principally of a private or domestic nature"
Thus, s 221A(1) specifically identifies the person making the payments under the contract, who must be a natural person. The use of the word under also directs attention to the contract pursuant to which the payment is made. Further, it is the payment itself that must have the character of a private or domestic nature, as distinct from the work being of a private or domestic nature. Accordingly, little assistance is given by s 221A to the construction of s 12(11).
16. The Taxpayer relies on the literal effect of s 12(11) and says that the construction contended for by the Commissioner involves reading into s 12(11) words of qualification that are not there. The Taxpayer characterises the construction contended for by the Commissioner as involving the introduction of words such as "by a householder" after the word "paid". That, she says, entails substituting a test different from that prescribed by s 12(11) itself. The Taxpayer points out that s 12(11) is silent as to any relevant characteristic of the payer. She says that the language of the provision focuses on the person being paid, not the person by whom the payment is made. Thus, she says, the words of s 12(11) do not refer to the identity of the entity that pays a person to do work, but, to a person who is paid to do work of the relevant character.
17. The Commissioner contends, on the other hand, that the words of s 12(11) suggest that the provision is concerned with work of a domestic or private nature only from the perspective or point of view of the payer. He says that the concept of paying a person to do work of a private nature is inconsistent with the construction contended for by the Taxpayer, under which a business could pay a worker to do work of a private nature, so far as the end user or client was concerned. He says that the use of the word domestic in the context of payment for work indicates that the work is directed towards the home or household affairs of the payer as opposed to the home or household affairs of a third party client of the payer. The language of s 12(11), however, is equivocal as to that question.
18. The Commissioner asserts also that there is no apparent policy justification for determining the obligation of a business to pay the superannuation guarantee charge in respect of a person who is engaged by that business solely by reference to the work that the person performs. He says that the effect of the construction contended for by the Taxpayer is that a labour hire business would be required to pay the superannuation guarantee charge in respect of a worker assigned to clean an office, school or government building but would not be required to pay the charge where the same worker is assigned to clean domestic or private premises. The Commissioner points out that the work carried out by the worker in both instances might be materially identical, yet the obligation of the employer to the superannuation guarantee charge would be different. Similarly, the Commissioner says, it would be anomalous if the exemption applied where a worker was retained, for example, to do work of a domestic nature in a boarding school, hotel or hospital.
19. The Commissioner says that, if the only enquiry is as to whether the work carried out by the worker is of a private or domestic nature, a wide range of persons who would be liable for the superannuation guarantee charge would not have that liability. He gives as examples staff who clean rooms for the residents of a strata title retirement village, since their work could properly be characterised as domestic or private in nature. The same result, he says, would follow for nurses and carers performing work in such establishments. On the other hand, staff employed to perform administrative functions in the same business would attract an obligation to pay the superannuation guarantee charge, if appropriate superannuation contributions were not made in respect of those employees.
20. It would be curious to characterise work done in those circumstances as work of a domestic or private nature. The phrase is a composite one. While some work done in a boarding school, hotel or hospital or in a retirement village might be characterised as domestic, in some sense, it could not fairly be characterised as being of a domestic or private nature , in the context of the Administration Act.
21. The Commissioner also points to what he says is the evident aim of the Administration Act, namely, to ensure that superannuation protection is afforded to as many workers as possible. In his speech on the second reading of the Bill for the Administration Act and the Charge Act, the relevant Minister said that there is an ongoing need to ensure that as many Australians as possible have access to superannuation. Nevertheless, it is clear that an exemption of some kind was intended by s 12(11). Further, that exemption was intended for the benefit of householders.
22. In any event, the effect of the Administration Act and the Charge Act is not to require that a superannuation payment be made. Rather, the superannuation guarantee charge is imposed if it is not. The avoidance of the imposition is an inducement to an employer to make a superannuation payment in respect of a worker. The imposition of the superannuation guarantee charge does not, of itself, give the worker any benefit whatsoever.
23. The Commissioner also points to what he says is an obvious policy justification for ensuring that a householder who pays a nanny, gardener or cleaner for occasional or part time work is not required to pay the superannuation guarantee charge. In the absence of an exemption for such a case, a householder would be required to determine whether a worker was an employee, an independent contractor or was providing services in some other capacity. These questions, he says, are of some complexity. If the worker was an employee, the householder would be required to determine the minimum level of superannuation support to be provided in order to avoid the superannuation guarantee charge. The Commissioner suggests that the imposition of onerous compliance obligations on a householder would operate as a disincentive to the householder declaring the existence of the worker and deducting tax in accordance with PAYE or PAYG obligations. He says that those considerations would not apply in the same way to a business that makes money by paying workers to provide certain services of a domestic or private nature to its clients. Such businesses, the Commissioner says, would be expected to be in a position to comply with their general taxation and superannuation obligations. However, those considerations are not compelling and are by no means decisive.
24. Clearly enough, s 12(11) evinces an intention on the part of the Parliament that there be an exemption in respect of a worker who does work of a domestic or private nature for not more than 30 hours per week. Clearly, it was intended that, at least in respect of some such workers, there would be no obligation to pay the superannuation guarantee charge. Further, it is clear enough that the intention was that such an exemption would be for the benefit of a householder for whom the relevant work was done. Where the work is done pursuant to a direct arrangement between the householder and the worker, s 12(11) would clearly be attracted.
25. Where the work is done, as in the present case, by a worker employed by a third party, in consideration of a fee paid by a householder to the third party, it might be expected that the fee would be calculated having regard to whether or not the third party was obliged to make a superannuation contribution or pay the superannuation guarantee charge in respect of the relevant worker. Thus, even on the construction contended for by the Taxpayer, the householder might be expected to obtain the benefit contemplated by s 12(11), even if the work was done by a worker employed by a third party. On the other hand, there is nothing to compel such a third party to differentiate between clients in charging fees, such that a different rate is charged where the worker does work for no more than 30 hours.
26. Further, the position could become quite complex if a particular worker does work of a domestic or private nature for different households, does not do work for more than 30 hours per week for any single household but does work for two or more households, such that the total number of hours that were worked by that worker exceeds 30 hours per week. Those complications would not arise on the construction contended for by the Commissioner.
27. The policy of the Administration Act may not be served by an exemption for the Taxpayer, if a worker were employed by the Taxpayer to do work for more than 30 hours per week but did not do work for any one client for no more than 30 hours. The Taxpayer's construction would give rise to significant difficulties in the case of a worker who does relevant work for not more than 30 hours per week for any given household but does work for more than 30 hours for two or more households. For that reason, I consider, on balance, that the Commissioner's construction is to be preferred. That is to say, the exemption in s 12(11) applies only where a worker is paid by a person to do work that is of the relevant nature qua that person for not more than 30 hours per week.
28. The language of s 12(11) of the Administration Act is by no means clear. In all of the circumstances, I consider, on balance, that the Commissioner has established that there was an error of law on the part of the Tribunal in construing s 12(11). Accordingly, the appeal should be upheld. The matter should be remitted to the Tribunal for consideration according to law in accordance with these reasons. The Commissioner does not ask for any order as to costs, since an arrangement has been made for the Commissioner to pay the Taxpayer's costs in any event.