Permanent Trustee Nominees (Canberra) Limited v. Chief Commissioner of Pay-roll Tax (N.S.W.).

Lee J

Supreme Court of New South Wales

Judgment date: Judgment handed down 27 March 1987.

Lee J.

This is an appeal by the plaintiff against the decision of the Chief Commissioner of Pay-roll Tax disallowing the objection of the plaintiff to assessments of pay-roll and supplementary pay-roll tax under the Pay-roll Tax Act 1971 as amended, on wages paid by the plaintiff between 1 July 1984 and 28 February 1985. The case raises for consideration the effect of sec. 16B of the Act upon the liability of a corporation for tax on wages paid when it is a trustee of the business in which the wages are paid.

Sections 6 and 7 of the Act operate to make wages paid by an employer liable to pay-roll tax (subject to sec. 10) at a flat rate and employers who pay wages in excess of $2,500 per week or are members of a group paying wages are required to be registered as employers by the Chief Commissioner. Section 8 requires pay-roll tax to be paid by "the employer" which is defined in sec. 3 to mean "any person who pays or is liable to pay any wages..." and it is common ground that the plaintiff is for the purpose of the present proceedings, the "employer" within the Act. Sections 9B, 11A, 11B and 11C make provision for the calculation of the amount of tax payable and it is sufficient to say that the question whether tax is payable at all, and if it is how much is payable is dependent upon the amount of wages paid to employees. A deduction of a "prescribed amount" (sec. 9B) from taxable wages plays a significant part both in regard to liability for pay-roll tax and the amount thereof in a given case. Returns must be lodged by employers (sec. 13).

The evidence shows that the plaintiff was incorporated in the Australian Capital Territory pursuant to the Companies Ordinance on 27 October 1959, and that it is a trustee of (inter alia) a trust called the Cotswolds Trust under which it is required to administer a retirement village consisting of a number of dwelling units. The lessees of the units are the beneficiaries under the trust. The legal title to the premises is in the plaintiff. In accordance with the trust deed the plaintiff appointed a Mr Champ to be managing agent of the complex of units at a salary and for a fixed term, and Mr Champ in accordance with the terms of his appointment engaged six to eight employees to assist him in the control and management of the village. Mr Champ was followed by Mr Baldwin as managing agent and at present there are some nine employees. The managing agent and the other employees have been and are paid their wages by the plaintiff, who receives the moneys from which to pay them, from payments made by the lessees of the units to a bank account in the name of the plaintiff. The plaintiff receives an annual fee of $19,350, which is paid by the occupants of the complex, for acting as trustee and for managing the Cotswolds. The plaintiff acts as trustee of 183 inter vivos trusts, in some of which it employs labour in the carrying on of businesses subject to the particular trusts. It is not suggested that there is any connection in any way between the business carried on by the plaintiff under the Cotswolds Trust and any of the businesses carried on by it under other trusts.

The plaintiff is a wholly owned subsidiary of Permanent Trustee Company Limited and it is this relationship which constitutes the two companies a "group" within sec. 16B of the Act. Section 16B constitutes any two

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companies a group "if they are by reason of section 7(5) of the Companies (New South Wales) Code to be deemed, for the purposes of that Code, to be related to each other". For the sake of completeness I point out that the Permanent Trustee Company is also the holding company for five other wholly-owned subsidiaries as well as one other company. The holding company acts as trustee of a very great number of deceased estates and inter vivos trusts, and in many of these trusts it employs labour in the carrying on of businesses subject to the trusts.

The grouping provisions in Pt IVA of the Act group together for pay-roll tax purposes not only corporations which come within sec. 16B, but also employers (whether corporations or not) who have the same employees in their respective businesses (sec. 16C). In addition, under sec. 16D, persons having a controlling interest in each of two businesses are grouped and specific provisions are made for determining such groupings in the case of corporations, partnerships and businesses carried on under trusts, and I shall refer to these later. Employers who are grouped together are denied the deduction from the amount of taxable wages provided by sec. 9B and the formula for the calculation of the deduction which is permitted, is laid down in sec. 16J. That section requires the total of the wages paid by the group to be brought to account. The effect of the grouping provisions is that employers who would not be liable for tax on wages actually paid by them, will in many, if not most, instances become liable on being assessed by reference to group wages, and those who would be liable in any event will pay more. For the sake of completeness I mention that in 1982 (Act No. 62 of 1982) a supplementary pay-roll tax was introduced but the provisions relating thereto need not be noticed.

The Commissioner in the present case, by grouping the wages of the plaintiff with the wages paid to the head office staff of the Permanent Trustee Company Limited, has been able to impose tax on the wages paid by the plaintiff to its employees at the Cotswolds which is considerably greater than would have been the case if the tax thereon were assessed by reference only to wages paid by the plaintiff. The present case comes to this Court, because hitherto, according to both counsel, the Commissioner has not applied sec. 16B to companies which are trustee companies, the practice having been that an assessment of tax was only raised in respect of the wages paid by the trustee company in a business being carried on under a particular trust. Hitherto the Commissioner has, the Court has been informed, treated sec. 42 as unaffected by sec. 16B, and the question in the case is whether the Act should be so interpreted. It has not been contended by the Chief Commissioner that any of the other grouping provisions (sec. 16C, 16D) apply in the present case. Section 42 provides as follows:

"42(1) With respect to every agent and with respect also to every trustee, the following provisions shall apply -

  • (a) He shall be answerable as an employer for the doing of all such things as are required to be done by virtue of this Act or the regulations in respect of the payment of any wages which are subject to pay-roll tax under this Act.
  • (b) He shall, in respect of any such wages, make the returns and be chargeable with pay-roll tax thereon, but in his representative capacity only, and each return shall, except as otherwise provided by this Act, be separate and distinct from any other.
  • (c) If he is an executor or administrator, the returns shall be the same as far as practicable as those the deceased person, if living, would have been liable to make.
  • (d) Where as agent or trustee he pays tax, he is hereby authorised to recover the amount so paid from the person on whose behalf he paid it, or to deduct it from any money in his hands belonging to that person.
  • (e) He is hereby authorised and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay the tax.
  • (f) He is hereby made personally liable for the tax payable if, after the Chief Commissioner has required him to make a return, or while the tax remains unpaid, he, except with the written permission of the Chief Commissioner,

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    disposes of or parts with any fund or money which comes to him from or out of which tax could legally be paid, but he shall not be otherwise personally liable for the tax.
  • (g) He is hereby indemnified for all payments which he makes in pursuance of this Act or by the requirements of the Chief Commissioner.
  • (h) For the purpose of ensuring the payment of tax the Chief Commissioner shall have the same remedies against attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as he would have against the property of any other person in respect of tax, and in as full and ample a manner.

(2) Nothing in subsection (1) affects the operation of Part IVA in relation to trustees."

The contention advanced by Mr Gleeson Q.C. counsel for the plaintiff is that sec. 42 should be treated as a section intended to express the liability of a trustee including a trustee company in respect of pay-roll tax, that liability being only in a representative capacity and only for the wages applicable to the particular trust which it is administering without reference to wages applicable to any other trust business. (sec. 42(1)(b)). It is pointed out that sec. 42 was in the Act - without subsec. (2) - from its inception in 1971 whereas the grouping provisions were introduced by Act No. 87 of 1975. It is common ground that both the plaintiff and the holding company have always separately returned, for taxation, the wages payable in particular trusts and always received separate assessments in respect of each trust.

In my view, the fact that the grouping provisions came into the Act after sec. 42 had operated for some years, the place in the Act of sec. 42 - it is in Pt VIII - and the language of sec. 42, especially subsec. (1)(b) provide as clear an indication as one could have that the legislature was intending, in sec. 42, to deal expressly and separately with the case of pay-roll tax on wages paid in a business carried on by a trustee (or by an agent). The Act provides in sec. 3 that unless the context or subject matter otherwise indicates or requires, "trustee, in addition to every person appointed or constituted trustee by act of parties, by order or declaration of court or by operation of law, includes..." and "person includes a company". There being no contrary intention evident in sec. 42 the word "trustee" would include a corporation. Subsection (1)(a) of sec. 42 first makes the trustee liable as an employer, and as I have said, the employer is made liable by sec. 8 for the payment of pay-roll tax. "Employer" is defined in sec. 3 to mean "any person who pays or is liable to pay any wages...", and in addition a trustee would in any event, in most cases, be in a contractual relationship of master and servant with the person to whom the wages are paid, so as to be an "employer", as is the case here. The Act is not concerned to treat the person or persons who supply the funds from which the wages are paid as "the employer" (
Glebe Administration Board v. Commr of Pay-roll Tax (N.S.W.) 83 ATC 4269 (Rogers J.)). The remaining provisions of sec. 42 are intended both to impose obligations upon the trustee in regard to the payment of pay-roll tax and also to give such persons important rights that protect their positions as trustees liable to pay the tax imposed by the Act. Under subsec. (1)(b) the trustee is to be chargeable with pay-roll tax "in his representative capacity only" that is as trustee, yet if sec. 16B applies in association with sec. 16J, the liability of the trustee company to pay-roll tax, as an employer of the employees receiving the wages, becomes related to a matter wholly unrelated to its representative capacity, namely to what may be called its association with the parent company. In my view this is to disregard the purpose of subsec. (1)(b) which is to make clear that the liability of trustees is only to be referable to their being trustees. The requirement that "each return shall... be separate and distinct from any other" could not more pointedly make clear that each trust is to be separately answerable for the pay-roll tax payable on the wages paid in the business the subject of the trust. In the present case the Chief Commissioner by aggregating the wages paid by the plaintiff in the Cotswolds Trust with the wages paid to the head office staff of the Permanent Trustee Company Limited is, in my view, plainly acting contrary to the intention expressed in sec. 42(1)(b). Presumably that aggregation was sufficient to lift the plaintiff's liability to tax up to the amount assessed and it was unnecessary for the Chief Commissioner to look further but the very nature of what was

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done suggests anomaly. On the construction contended for by the Chief Commissioner, sec. 16B permits (with sec. 16J) in the case of related trustee companies such as the plaintiff and the Permanent Trustee Company Limited, the aggregation of the whole of the wages paid out in all the trusts administered by the plaintiff, and at the same time aggregation of those wages with the wages paid out by the holding company in respect of one or some or all of the trusts administered by it, and then a calculation accordingly of the pay-roll tax payable on the wages paid by the plaintiff. In short the provision in sec. 42(1)(b) that the trustee lodge separate returns for each trust paying wages, would lose all its significance in the case of a trustee company.

The grouping provisions, particularly sec. 16B must be viewed against the background that the area in which they will operate will in any event, even if trustee companies are not included, be very wide and one asks oneself what reason Parliament could have had for making pay-roll tax higher when the trustee of the business is a company than when it is not, for that is the effect for which the Chief Commissioner contends. I find no satisfactory answer for such discrimination. One can understand, as counsel for the Chief Commissioner suggested, that the legislature might, by a provision such as sec. 16B, seek to prevent companies avoiding pay-roll tax by dividing employees between the holding company and a number of subsidiaries, but that seems to be quite remote from and unrelated to the case of companies carrying on businesses as trustees under a trust. Section 16B might even be explained on some general basis that there is a fairness or justice in requiring associated companies to be taxed by reference to the total workforce of the group, and there can be no doubt as to the reasonableness of the grouping provisions in sec. 16C and 16D. But even counsel for the Chief Commissioner did not seek to suggest a rational explanation why trustee companies should be grouped in respect of trust wages, and I myself can see none.

It was claimed by counsel for the Chief Commissioner that subsec. (2) of sec. 42 was a clear indication of an intention on the part of the legislature to render the grouping provisions, including sec. 16B, applicable to trustee companies, but I do not see the matter in that light. The grouping provisions of the Act have in sec. 16D(3)(e) and (6)(b), expressly dealt with grouping in the cases of trusts and a provision such as subsec. (2) in sec. 42 was needed to make clear that those particular grouping provisions override sec. 42(1). The fact that sec. 16D concerns itself expressly with trustees and when they are to be grouped as employers, and then in subsec. (4) expressly groups a corporation which has a controlling interest in a business with any other corporation related to it by reason of sec. 7(5) of the Code is again, in my view, a clear recognition by the Act that employers whether corporations or not, who are trustees are intended to be dealt with separately from employers whether corporations or not, who are not trustees.

The case is one in which the operation of sec. 16B in its operation in Pt IVA is repugnant to the operation of sec. 42 particularly subsec. (1)(b) in the case of trustee companies, and a construction to avoid that repugnancy is to be preferred, if one is reasonably open. Without resorting to the rule that in such a case the last section must prevail (Maxwell on Statutes 12th ed. 187), there is, in my view, a clear indication from the provisions of Pt IVA itself as well as from sec. 42 that the legislature is intending to confine the liability of all trustees to pay-roll tax to the amount of the wages paid in the business subject to the trust. Section 42 can properly be construed as applying to all trustees, whether corporations or not, and sec. 16B is intended to apply to corporations which are not also trustees. Each section is intending to deal with a particular class of employer and can be given effect accordingly, with the result that the two sections can operate harmoniously and achieve rationally - and fairly - the essential object of a pay-roll tax which is to tax actual wages paid as between employer and employee.

In the result, the appeal is allowed and the objections of the plaintiff to the assessments issued upheld on the ground that sec. 16B of the Act has no application to the assessment of the tax payable by the plaintiff during the periods specified in the assessments. The defendant is to pay the plaintiff's costs. The orders may be entered. The plaintiff may have the exhibits.

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