Peter F. Burns Pty. Ltd. v. Commissioner of Stamps (S.A.).
Judges:Jacobs J
Court:
Supreme Court of South Australia
Jacobs J.
This is an appeal by Peter F. Burns Pty. Ltd. (``the taxpayer'') against an assessment to payroll tax which was issued on 18 March 1975 pursuant to the provisions of the Payroll Tax Act 1971 amended as at the date of the assessment. The general administration of that Act is committed to the Commissioner of Stamps (sec. 5). The assessment is in respect of the period of 1 September 1971 to 31 January 1974 the former date being the date upon which payroll tax was first levied under the State Act. It had previously been levied under Commonwealth legislation, namely the Payroll Tax Assessment Act 1941, as amended, and the Payroll Tax Act 1941. The tax to which the assessment refers is alleged to be due in respect of ``wages'' said to have been paid to certain ``employees'' of the taxpayer in the period to which the assessment relates. The appeal was duly instituted by a petition of appeal dated 23 May 1975, that being the procedure which was then prescribed by sec. 36(6) of the Act, prior to its amendment by Act No. 74 of 1975. That amendment did not come into force until 20 November 1975.
The substantial ground of appeal is that the ``wages'' in respect of which the assessment has been made were not paid to ``employees'' of the taxpayer, within the meaning of the Act. The persons concerned were, at the relevant time, land salesmen, engaged in the business of the taxpayer, who were remunerated by commission only. The taxpayer says that in the whole of the circumstances of their engagement and work, including the method of their remuneration, they are properly to be regarded not as servants or employees of the taxpayer, but as independent contractors.
The issue thus briefly stated is identical with the issue which was decided adversely to the taxpayer in
F.C. of T. v. Barrett and Ors. 73 ATC 4147; (1973) 129 C.L.R. 395; but the present taxpayer says that Barrett's case (supra), despite its obvious similarities, is distinguishable upon the facts. That case was decided under the Commonwealth legislation, but the State legislation which is relevant for present purposes is in identical terms. In particular, in each Act ``wages'' is defined to mean ``any wages, salary, commission, bonuses or allowances paid or payable (whether at piece-work rates or otherwise and whether paid or payable in cash or in kind) to any employee as such...''. It was decided in Barrett's case (supra) that the test to be applied in determining whether wages are paid ``to any employee as such'', for the purposes of this legislation, is whether the relationship of master and servant, or employer and employee, according to the ordinary concepts of the Common Law, exists between the payer and the paid.
In the words of Stephen J. in Barrett's case (supra) the relevant principles of the common law ``lie in a familiar and much visited field; the principles are little in doubt, although their application to particular facts may... give rise to difficulty''. The books abound with illustrations of the principle, but all that can be said with any certainty is that there is no single test or criterion. No further detailed review of the case law would
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serve any useful purpose. It was examined by Stephen J. in Barrett's case (supra) and by this Court inR. v. Allan ex parte A.M.P. Society (1968) 16 S.A.S.R. 237 - see in particular per Bray C.J. at pp. 247-48, and by King J. (as he then was) at pp. 257-61. In former times there was a simple test, the right to control the manner of doing the work, but it is now established that a reservation of a right to direct or superintend the performance of the task cannot transform into a contract of service what in essence is an independent contract
Queensland Stations Pty. Limited v. F.C. of T. (1945) 70 C.L.R. 539 - per Dixon J. (as he then was) at p. 552). Conversely, it was pointed out in
Zuijs v. Wirth Bros. Pty. Limited (1955) 93 C.L.R. 561 that in the context of a modern industrial society earlier concepts of relevant control, especially in the case of those employees possessing specialised skills or talents or exercising individual judgment, require modification. In many such cases an employer cannot in fact supervise the mode of performance of the work, but it will be enough if the employer retains lawful authority to command so far as there is scope for it, if only in incidental or collateral matters.
Another test that has been suggested is to ask whether or not a man's work is done as an integral part of another's business or as only accessory to it; whether, to put it in slightly different terms, the person in question is performing the relevant services as a person in business on his own account. That test, while not to be discarded, has been said to raise as many problems as it solves. (Barrett's case, supra, at p. 402.)
Zuijs v. Wirth Bros. Pty. Ltd. (supra) is but one of many illustrations of the need to consider, in each instance, all available facts in determining the nature of an employer's relationship to those who perform work for him, rather than rely exclusively upon any one criterion such as the reservation of the right to control. In R. v. Allan (supra) at p. 248 Bray C.J. reached much the same conclusion when he said:
``It seems to me, then, that at the present time there is no magic touchstone. The Court has to look at a number of indicia and then make up its mind into which category the instant case should be put. It is a question of balancing the indicia pro and con.... But the power of control over the manner of doing the work is very important, perhaps the most important of such indicia.''
The decision of the Full Court in that case was reversed on appeal to the
Privy Council A.M.P. Society v. Allan (1978) 52 A.L.J.R. 407, but only upon a different view of the facts. The observations of Bray C.J. on the law were quoted without disapproval.
It is no easy task to decide upon which side of the line the present case falls, and it may sound paradoxical to say, in contrast to many cases, that the task is made no easier by the thoroughness with which the evidence has been presented. Evidence has been given at length by Mr. Peter Burns, the founder and managing director of the taxpayer; by Mrs. Williams, who is employed by the taxpayer in the capacity of Secretary/Bookkeeper; evidence by eight men, each of whom (to use an expression which is intended to be neutral) ``worked as a land salesman with the taxpayer'' during the relevant time. Some of them so worked before and during the relevant period, some during and after that period, and some of them combined executive or managerial duties with their work as land salesmen. It has been suggested in the pleadings, and in the course of argument, that those performing these additional duties might in any event fall into a different category from those who were only salesmen. Four salesmen were called in support of the taxpayer's case, and four in support of the Commissioner. In addition there is a large volume of documentary evidence.
Every witness impressed me as being essentially honest and truthful, although the recollection of some was more reliable than others on matters of detail. Indeed, such was their candour and frankness that it was sometimes difficult to know whose case they were called to support, for every witness deposes to matters that might properly be put on opposite sides of the scale. In these circumstances, no good purpose would be served by an attempted abstract of the evidence of each witness, and an aggregation of the matters which may be put on one side or the other, in order to see where the balance lies; and any such attempt would almost certainly carry the stigma of
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incompleteness. Some factors will inevitably have more weight than others, but it is the picture which emerges upon the whole of the evidence which will carry the day; and in the particular circumstances of this case, much light will be thrown upon the colour and shape of that picture if the relevant period, 1 September 1971 to 31 January 1974 is examined in its ``historical'' context. That, indeed, is broadly the approach which was adopted by counsel and the witnesses.There is little or no direct evidence of the way in which the taxpayer conducted its business prior to 1 July 1969. Such evidence as there is suggests that the land salesmen upon whom the taxpayer then relied were remunerated by commission only, and that their relationship to the taxpayer, was (to say the least) loose and tenuous, so loose and tenuous indeed as to be unsatisfactory, unreliable, and detrimental to the taxpayer's prosperity. It was to remedy that situation that the taxpayer, in about the middle of 1969, under the guidance of Mr. Burns, decided to build up a staff of employed salesmen, and reorganise the taxpayer's ``modus operandi''.
A central feature of the new scheme provided for the remuneration of salesmen by a basic salary, augmented by a bonus in respect of any sale they were instrumental in effecting. In addition they became entitled to holiday pay, and sick leave, and were permitted to join the taxpayer's superannuation scheme. It was hoped in this way to build-up a sense of loyalty and team-work, and it was thought that the salesmen would so cherish the relative financial security which such a system offered, that they would do their best to preserve it and see that it worked to the advantage of the taxpayer.
As an attempt to secure the highest possible standard of performance by the salesmen, the taxpayer set up an intensive training scheme, particularly for new recruits, who were paid their basic salary as soon as they were taken on strength, and while still undertaking the training course. A sales manual was prepared, covering not only sales techniques, but various aspects of the taxpayer's practice and policy, and the standards of conduct and behaviour which it expected of its salesmen. It was regarded by the salesmen as their ``bible''. The business of the taxpayer was conducted through its head office and a number of suburban branches, and the salesmen were henceforth allocated by management to a particular area, or even to particular duties within that area. Hours of work were not strictly policed, but the salesmen were required to keep the office informed of their whereabouts. Each branch manager maintained something in the nature of a roster, to ensure that the office was always manned, and weekend work, of which there was a good deal, was also rostered. The taxpayer prepared a ``finance manual'' for the use of salesmen, which contained detailed information about the lending procedures of a number of financial institutions, from which long term housing loans might be available. It also contained instructions about auction procedures, the preparation of contracts, and specimens of standard forms of contract which the taxpayer used. From time to time, it issued, and circulated throughout the branches, circular memoranda, which were serially numbered, and which were in the nature of instructions to staff. It also issued instructional memoranda, copies of some of which are to be found in Exh. D4, and which appear in some respect to be supplementary to the sales manual, on such subjects as canvassing, and prospecting to obtain ``listings'', i.e. houses for sale. As to advertisements, they were to be prepared by the salesmen, but their insertion in the newspaper was co-ordinated and regulated by branch managers. The cost of advertisements was paid by the taxpayer; each branch was given a quota for advertising costs, based on a figure of about $110 per branch salesman per month, but there was no strict adherence to the quota amount if circumstances reasonably required that it be exceeded. It was more in the nature of a base figure, designed to impose some control or restraint upon excessive advertising. When a sale had been completed, the salesman was required to prepare a ``story sheet'', setting out specified details of the transaction. This was transmitted to head office, and was used not only for arranging settlements, but also to monitor the level of performance and achievement by the individual salesman. Registration fees were paid by the taxpayer to ensure that registration was maintained, but were debited to the individual salesman.
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So much suffices to describe in outline the salient features of the organisation of the taxpayer's business, which were brought into existence in mid-1969. There is not the slightest doubt that in this period the staff of salesmen were ``employees'' of the taxpayer, whatever tests are used to establish that concept. They were clearly so regarded by the taxpayer itself, and payroll tax was paid upon their emoluments.
The reorganisation however, failed in its purpose, and the business of the taxpayer suffered. Some of the best salesmen left, because they believed they could earn more on a ``commission only'' basis, and at least some of those that remained, or who were later engaged during this period, became in effect lazy, content to subsist on their basic salary or little more, with a minimum amount of effort, rather than improve their financial position by working harder in order to earn a greater amount by way of bonuses on negotiated sales. The business depended very largely upon the energy, enterprise and ability of the salesmen; but it became apparent to Mr. Burns that the ``fixed'' basis of remuneration, in conjunction with the management practices and controls - many of which had been instituted with a view to maintaining the level of performance by salesmen and improving their skills - were having a stultifying effect. He decided that the salesmen must become more self-reliant, and that the key to the problem was more financial incentive, together with more latitude and opportunity for individual initiative.
Towards the end of January 1971, he called a meeting of branch managers to explain proposed changes, and that was followed soon after by a meeting of all salesmen. The evidence does not enable me to find with any precision what transpired at these meetings, but in substance both the managers and the salesmen were told that henceforth they would be remunerated by commission only, the base rate of remuneration to the salesmen concerned to be 40% of the commission earned by the taxpayer on a completed sale, with a small bonus on sale by auction of a property ``listed'' by the salesman. The same arrangement was to apply to branch managers, who would be expected to work as salesmen in the field; but in addition to the commissions they might earn as a salesman, they were to be paid by virtue of their managerial status and responsibilities a monthly ``expense'' allowance of $100, plus a 5% ``over-rider commission'', being 5% of the commission earned by the taxpayer on sales effected at that branch.
This new basis of remuneration appears to have been put to the staff on a ``take it or leave it'' basis. The taxpayer obviously had no right unilaterally to alter the existing contracts of service. The staff were told that those who wished to stay could do so, or they could leave, and whether they stayed or left they would be paid all their accumulated entitlements, including holiday pay. Those who opted to leave would receive pay in lieu of notice. Those who were in the taxpayer's superannuation scheme were given the option, if they stayed on, of remaining in the scheme at their existing level of contribution, based upon their former basic salary. The new arrangements were to commence on 1 February 1971.
It appears that none of the staff resigned immediately, although some of them did so before the end of that year. The change, however, was not universally welcomed, and indeed the salesmen at one of the branches decided among themselves to pool and share their commissions, a decision of which Mr. Burns did not approve, but which he did not try to prevent, because he felt that to do so would be inconsistent with his basic idea that the salesmen should be ``masters of their own destiny''.
This basic change in remuneration was accompanied by some changes in management techniques and controls. It appears that these were not spelt out at the meetings, but rather evolved as a consequence of the new remuneration structure. It was no longer felt necessary to maintain the intensive instruction course for salesmen, at the same level as previously, although it seems clear from the evidence of Mr. Worth that some instruction was available to intending salesmen before they took up their appointment. There were various aspects to the company's business, e.g. commercial and industrial sales, existing homes, new house sales, and building contracts negotiated in co-operation with one or more builders. Instead of salesmen being allocated to particular branches where their
ATC 4226
duties were assigned, they henceforth tended to be recruited for a specific vacancy in a specific branch, sometimes (but not often) for one specific class of sales activity, e.g. building contracts. They were generally confined to the area from which they were recruited, although there was a procedure for some sharing of commission if they happened to obtain a listing outside their area. Attendance rosters at branch offices were still maintained, but more by mutual agreement than by managerial direction, although some branch managers, e.g. Mr. Henderson, appeared to exercise more direct supervision than others. Holidays, to which there was no entitlement and which there was no entitlement and which were unpaid, were likewise arranged by mutual agreement. It was clearly in the interest of the individual salesmen to organise their activities and presence at the branch office on a team basis, with the branch manager having a co-ordinating role. Preparation and insertion of advertisements became the responsibility of each salesman, although again some managers exercised more supervision than others, particularly with respect to the less experienced salesmen, but the taxpayer still paid the advertising charges. Each salesman was allowed a basic quota of $110 per month, the same amount as previously, but if it were exceeded the taxpayer again paid the difference. There is no evidence that any salesman was ever required to pay for advertisements of property that he had obtained for listing. The only expenses they had to bear were their own registration fees, as previously, their own car expense, and their private telephone. All the ``overhead services'' of the taxpayer, office space, clerical assistance, stationery and the like, were provided by the taxpayer, as previously. ``Story sheets'' were still required, but were now for statistical and record purposes rather than to monitor the activities of the particular salesmen. Copies of the sales manual were still available, but it was no longer regarded as the ``bible''; the finance manual, however, was in regular use by the salesmen, and they were expected to conform to company policy which was set out on a printed document. This document was revised from time to time. The version which is in evidence was clearly in existence during this period, although some of its provisions are said to be a carry-over from the earlier period. It is an important document which I set out in full.``1. TO SELL REAL ESTATE PROFITABLY.
2. LISTING: To utilise `Auction' as the most efficient way of marketing a property, and to sell this method when listing a property. No property to be offered for sale without listing signed by the Vendor/s.
Each listing to have Salesman's name and date written on it at time of listing.
Listing remains `property' of Salesman as far as 5% listing is concerned regardless of how long after listing, sale is made. Listing to be handed to office girl for typing as soon as Salesman returns to office, but in any case before 9.30 a.m. the following day.
Each listing to be recorded in book at office.
Master (original) listing book to be kept current on a daily basis.
3. ADVERTISING: Inquiries to each adv. belong to the Salesman placing the adv. Record of each adv. for each salesman to be stuck in book by office girl on a daily basis.
Record of calls - for sale or wanted advs. - to be marked against each adv. - daily.
Advs. to be costed individually against each salesman and monthly total for each man recorded.
4. BOUNDARIES: No House or Land Salesman will sell a client, any client, any house or land outside his area. Purchasers will be passed on from Branch to Branch, but full commission will be paid to selling Salesman. Any listing obtained by a Salesman outside his area will be immediately forwarded to the Manager of the area concerned. Listing Salesmen may claim 10% commission.
5. COMMERCIAL & INVESTMENT: All listing of C. & I. properties in any area to be done by the C. & I. sales personnel. If C. & I. property sold by House & Land Salesman 10% commission to C. & I. Salesman.
ATC 4227
6. SIGNS: Sell signs at each listing.
Any sign placed on property and marked on listing accordingly makes every call regardless of how long after sign placed, inquiry is made. Return of sign after a sale is responsibility of Salesman selling the property, or if sold by another agency the responsibility of Salesman placing sign. 50% of 6' x 4' or 3' x 4' sign erected will be debited to Salesman's advertising allowance, unless Manager gives specific O.K. otherwise.
7. AUCTIONS: A bonus of $10 will be paid on every auction signed.
8. COMMISSION: 40% + 5% listing to a gross Commission total of $4,500 in each 3 month period to commence 1st October. $4,501 gross commission plus will attract bonus of additional 5% on total of gross commission for the 3 months.
Bonus only paid to Salesman in Company's employ when 3 months total is settled.
Should Salesman leave the Company, any listings made by that Salesman are the property of the Company, and 5% listing does not apply.
9. ADDRESSES: Under NO circumstances must address of property offered for sale be given to enquirer over the 'phone or at the office.
10. OFFERS: No offer from a prospective purchaser to be submitted verbally. In all circumstances a written offer on Contract form must be obtained from prospective purchaser - preferably with 10% deposit - before submitting to vendor.
In all cases, their offers must be conveyed personally if vendor lives within 50 miles of nearest office of the Company. Do not use the telephone.
11. DEPOSIT: In all cases, if no deposit is paid at signing of Contract, the word `Nil' must appear, and following `Payment of Balance' must be detailed amount of deposit to be paid with date by which it will be paid, then balance of amount to be detailed, followed by `In cash or bank marked cheque at settlement'. It is the responsibility of the Branch Manager to diarise the date for any deposit collection, and to ensure it is actually collected on that date.
It is further the responsibility of the Manager to notify, in writing, the vendor that the deposit has been collected, or, and more importantly, to notify - in writing - the vendor if deposit has NOT been collected by the due date, regardless of the reason for non-collection.
12. GENERAL SALES MEETING: It is mandatory for every sales employee in the Company to attend the monthly general sales meeting in Head Office.
13. CANCELLATIONS: No cancellation of contracts can be official and or no deposit refunded without notification of the cancellation being obtained from BOTH vendor and purchaser.
14. ALTERATION TO CONTRACT: After contract signed by both vendor and purchaser, any alteration to terms and conditions in the Contract must be confirmed in writing by both parties to the Contract.
15. No person registered as a Manager or Licensed as a Salesman with the Company will buy or sell any real estate without directing the transaction through normal Company channels.''
Some emphasis was placed by the respondent upon cl. 12 which was said by Mr. Burns to have been incorporated without alteration from a much earlier policy document. There appears to have been no sanction to support this mandatory provision, beyond the self-interest every salesman admitted that he had in attending such meetings, but the fact is that it was regarded as compulsory by almost all the salesmen who gave evidence. In addition, the taxpayer continued to issue circular memoranda, without any interruption to the numerical sequence, although they were less frequent than they had been in the previous period.
To conclude the historical review, the arrangements thus described, which characterised the period to which the disputed assessment to pay-roll tax relates, continued until January 1974 and until, in that month, an industrial award covering
ATC 4228
land salesmen, was made under the Industrial Conciliation and Arbitration Act 1972, as amended. It is common ground that the operation of that award, which provided, inter alia, for remuneration by a specified basic salary plus commission, unquestionably involved a relationship of employer and employee between the taxpayer and its salesmen.The critical question in the case, therefore is whether the change in the basis of remuneration, which occurred on 1 February 1971 and the consequential changes in the taxpayer's methods of operation, also changed the status of the salesmen from that of ``employee'' to ``independent contractor''. I am satisfied, upon the whole of the evidence, that it did not. The method of payment cannot be decisive (
J. Walter Thompson (Aust.) Pty. Limited v. F.C. of T. (1944) 69 C.L.R. 227), for the statutory definition of ``wages'' covers many different forms of payment; and whether one applies the test of control or of ``teamwork'', or of whether the salesmen's work was an integral part of the taxpayer's business, or a combination of all those tests, the result is, upon the evidence, the same. In reaching that conclusion, I do not overlook that some of the obligations which may appear to tie the salesmen and the salesmen/managers to the taxpayer are statutory obligations - for example the obligation to register, to act exclusively for one principal or employer, the obligations with respect to the establishment of branch officers, the conduct of the trust accounts, and the method of advertising, to mention only some of the matters that are covered by the Land and Business Agents Act 1973 - and are to that extent equivocal, in the sense that those statutory provisions have to be compiled with, irrespective of the status that is attributed to the salesmen vis-a-vis the taxpayer. Nor do I overlook the submission that Barrett's case, in which Stephen J. came to the same conclusion in respect of land salesmen remunerated by commission only, and upon which the respondent naturally relied, is clearly distinguishable upon the facts. In particular, the taxpayer in that case used the service both of salaried salesmen - who were admittedly employees - and commissioned salesmen, and the right to work for commission only was seen as a form of promotion to which only the better salaried salesmen became entitled, if they so chose. In addition, the taxpayer in that case, unlike in the present case, paid the registration fees of the salesmen; it played a more active role in dividing listing between salesmen; and it appears to have exercised stricter supervision over the preparation of contracts than in the present case. Those and other differences, however, do not compel a different conclusion in the present case from that which was reached in Barrett's case, if the application of the appropriate legal criteria to the facts of the present case justifies the same conclusion, as in my judgment it does. It is no doubt true that after 1 February 1971 the salesmen were allowed more freedom and latitude, and had more opportunities to use their own initiative; nor is there any doubt that there were significant changes in the basis of recruitment of salesmen, the extent of the training programme, and the allocation of their duties. Nevertheless, there was a very substantial residuum of control and co-ordination exercised by the taxpayer, not only over what a salesman was permitted to do, but where, and how, and sometimes when, he did it. It may be true to say that in some respects the salesmen voluntarily submitted to a measure of control and co-ordination and regimentation, because it was in their interests to do so; but the evidence satisfies me that the branch managers, although they also had a self-interest in the proper and efficient conduct of the salesmen by reason of the ``over-rider'' commission to which they were entitled, also had a duty to the taxpayer to ensure, so far as they could, the proper conduct of the salesmen, to supervise that conduct to the extent that may be necessary, and to see that the taxpayer's business, which depended so much upon the activities of the salesmen, was conducted efficiently and in accordance with the company's policy. The discharge of that duty carried with it powers or rights which in my judgment are typical of the powers or rights of an employer vis-a-vis employees, although the occasion for their exercise appears to have varied from time to time and from branch to branch.
For these reasons therefore, the assessment must be confirmed and the appeal dismissed, and it becomes unnecessary to consider whether, had I reached a different conclusion
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with respect to the salesmen, it would have applied equally to the managers in respect of the whole or any part of their emoluments. Notwithstanding my decision, however, I have some sympathy for the taxpayer. There is no doubt that it acted honestly and bona fide throughout, and there is not the slightest suggestion of improper evasion or non-disclosure. The change in the basis of remuneration in February 1971 which was one of the factors which the taxpayer thought resulted in a reduced liability to pay-roll tax, must have been abundantly clear in the returns which the taxpayer furnished to the Deputy Federal Commissioner of Taxation in the period from 1 February 1971 to 31 August 1971 before the tax became a State tax. The returns were not questioned in any way during that initial period, nor were they questioned by the present respondent after 1 September 1971 until sometime in the middle of 1974, some months after the decision in Barrett's case. In the meantime, the taxpayer had conducted and regulated its business upon the bona fide assumption that no pay-roll tax was payable in respect of the ``wages'' paid to its salesmen, a view which appears to have been concurred in, or at least not challenged, by the respondent for two years. But there is no provision in the Act, nor any rule of law, which precludes the respondent from re-opening the assessments in these circumstances, to impose what may appear to be, but is not in law, a retrospective liability to tax.The petition of appeal is dismissed.
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