BEHMER & WRIGHT PTY LTD v COMMISSIONER OF STATE REVENUE (VIC)Judges:
GT Pagone P
Administrative Appeals Tribunal of Victoria
GT Pagone (Presiding Member)
The Applicant challenges an assessment made under the Pay-roll Tax Act 1971 (``the Act'') which included in its assessable amounts payments to R., R. & R. Stubb (``the contractor''). The parties agreed that there are only three issues of substance in contest between them. The first two were, respectively, the applicability of sub- sections 3C(1)(e)(v) and 3C(1)(f) of the Act. The third issue was whether penalties should be imposed if the assessment was to be upheld and if so, the amount. The parties joined in asking that the Tribunal consider only the first two issues and leave the question of penalties for further argument depending on the decision on the first two issues.
A. Agreed facts
2. The parties also asked that the case proceed by way of agreed statement of facts, however there appeared to be some difference between the parties about the precise facts which had been agreed between them. A document was prepared on behalf of the Applicant consisting of two parts. The first part is described as a ``Statement in numbered form of any facts agreed between the parties'' (``the Statement of Agreed Facts'') and the second part is described as a ``Statement in alpha form of any documents agreed between the parties'' (``the Statement of Agreed Documents''). Under cover of a letter dated 29 February 1994 from the State Revenue Office to the Registrar of this Tribunal there was supplied for filing on behalf of the Commissioner a statement pursuant to Regulation 8 of the Administrative Appeals Tribunal (Taxation Division) Regulations. That statement was also divided into parts and the first two correspond with those of the Applicant.
3. The first part of each is virtually identical, although there were some minor differences of no consequences; hence the parties agreed on what were to be the facts for the purpose of the hearing. The second part of each statement differed but the parties agreed at the hearing to adopt the Statement of Agreed Documents supplied by the Applicant with (a) the exclusion of one document and (b) the inclusion of two others.
4. During the course of argument both parties referred to matters which appear in documents filed with the Tribunal but which were not expressly set out in either the Statement of Agreed Facts or in the Statement of Agreed Documents. Mr Warlow, who appeared for the Applicant, said that he thought that the parties had agreed that the matters in documents other than the Statement of Agreed Facts could be relied upon by either party. Mr Vassie of counsel, who appeared for the Respondent, said that he would obtain instructions about his client's position. By letter dated 9 March 1994 sent to the Tribunal after the hearing, the solicitor for the Respondent informed the Tribunal that the Respondent ``regrets that he cannot agree to either party relying upon any
ATC 2069alleged fact which was not contained in the Statement of Agreed Facts set out under the Regulation 8 Statement filed with the Tribunal or in the two additional documents which were tendered by consent at the hearing''. It appears from the letter that a copy of it had been sent to Mr Warlow who has not sought to re-open the matter.
5. The letter on behalf of the Commissioner does not clarify the position very much. The first document set out in the Statement of Agreed Documents (both as agreed at the hearing and in that filed by the Commissioner) is described as:
``All documents filed by the State Revenue Office, on 30 December 1993, with the Tribunal and numbered l to 16 under Regulation 6 of the Administrative Appeals Tribunal (Taxation Division) Regulations 1985.''
Reference to the Regulation 6 documents as amongst the agreed documents appears (a) to result in virtually every document before the Tribunal being agreed between the parties and (b) making unclear what purpose could be served by what was said in the letter dated 9 March 1994 from the solicitor for the Respondent. A reading of that letter, together with the description of the documents said to be ``agreed'', does not seem to exclude any document of any relevance to the proceeding. If that is so there would seem to have been no point in writing the letter. On the other hand the letter was presumably written because the Commissioner was concerned to exclude from the agreed documents those facts in the Regulation 6 documents relied upon by Mr Warlow at the hearing on behalf of his client at the time when I questioned the status of those documents. At the time of my raising the matter neither party referred to the description of the first class of documents purporting to have been agreed to, and the letter of 9 March 1994 does not in terms refer to that description either. In these circumstances it seems to me that I should confine myself to the Statement of Agreed Facts set out below.
B. The statement of agreed facts
6. The facts agreed between the parties are as follows:
``1. The Commissioner of Pay-roll Tax (`the Commissioner') issued pay-roll tax assessment notice for the period 1 July 1988 to 30 June 1991 (inclusive) to Behmer & Wright Pty Ltd (`the Applicant') on 4 December 1991. That assessment was numbered SP 232.
2. By letter dated 23 January 1992 enclosing Notice from Senserrick Warlow & Associates Pty Ltd, Certified Practising Accountants, the Applicant objected to the assessment of pay-roll tax.
3. By letter dated 5 August 1992 and Notice dated 3 August 1992, the Commissioner disallowed the Applicant's objection.
4. By letter dated 9 September 1992 the Applicant's accountants requested the Commissioner to refer his decision to the Administrative Appeals Tribunal.
5. By letter and Notice dated 28 September 1992 the Commissioner requested Further and Better Particulars of the Applicant's objection.
6. By letter dated 21 October 1992 the Applicant furnished Further and Better Particulars of its objection together with enclosures.
7. By notice dated 30 December 1993 the Commissioner referred his decision to the Administrative Appeals Tribunal.
8. The Applicant relies on the Commissioner's published criteria in Pay- roll Tax Circular 4/89 for the year 1990/91 in determining its liability concerning the payments made to R & R & R Stubbs (`Stubbs') under the relevant contracts for that year.
9. For the financial years ending 30 June 1988, 30 June 1989 and 30 June 1990 respectively, Stubbs received incomes as follows:1988/89 (i) Payments from Applicant to Stubbs $84,184.00 (ii) Total income of Stubbs $112,208.00 (iii) Proportion of (i) to
(ii):approximately 75% (iv) Payments from Jennings $28,024.00 (25%) Industries Ltd 1989/90 (i) Payments from Applicant to Stubbs $86,649.00 (ii) Total income of Stubbs $180,189.00 (iii) Proportion of (i) to (ii): approximately 48% (iv) Payment from Jennings Industries Ltd $84,792.00 (47%) (v) Other Payments $8,748.00 (5%) 1990/91 (i) Payments from Applicant to Stubbs $166,168.00 (ii) Total income of Stubbs $175,530.00 (iii) Proportion of (i) to (ii): 95%
10. The Applicant was formed as a company in 1981 by Brett Behmer and Trevor Wright. At all material times it has carried on business as a building contractor.
11. The Applicant's main area of expertise is in the construction of institutional and commercial buildings in the $0 - $10M category.
12. Over the Applicant's life, much of its work has been the construction of schools and health care projects won on a competitive tender basis.
13. The scale of the Applicant's business is in the order of $30M per annum.
14. The Applicant currently employs 45 direct employees and at any one time utilises more than 150 independent sub-contract firms of varying sizes and structures to carry out on-site construction activities.
15.a) The nature of the services required of Stubbs by the Applicant was specifically the supply of all necessary labour to carry out carpentry works for the Applicant in accordance with the contract documents and to the satisfaction of the Supervising Architect and Site Foreman for an agreed lump sum firm price subject to contract variations.
- b) The services supplied by Stubbs to the Applicant in the financial years ending 30 June 1988, 30 June 1989 and 30 June 1990 (`the said services') were services of the nature described in sub-paragraph a).
- c) Stubbs supplied the said services to the Applicant under contracts entered into between the Applicant and Stubbs by acceptance of tender as described in paragraph 20 below.
- d) Stubbs supplied the said services to the Applicant in the course of Stubbs' business.
- e) Stubbs supplied the said services to the Applicant for or in relation to work carried out by the Applicant and/or by Stubbs.
- f) The Applicant ordinarily required the said services in the course of the Applicant's business.
- g) During each of those three financial years, Stubbs provided the said services for periods which exceeded, in aggregate, 30 days in that year.
16. The Applicant ordinarily and consistently requires the services of carpenters in its contracts with third parties for more than 180 days in a financial year.
17. Stubbs is and at all material times has been a partnership consisting of five people namely Robert Edward Stubbs and Doreen Stubbs, Ronald Kevin Stubbs and Kathleen Stubbs and Ross Stubbs.
18. The Stubbs partnership commenced on 1 May 1984.
19. The main business of Stubbs is carpentry contractor and has been so at all material times.
20. The Applicant conducts its business as follows: the Applicant enters into contracts for construction of buildings with third parties. It then selects a few contractors with
ATC 2071whom it has continuous and consistent relationship and forwards a letter to each of them setting the specifications for the job and requesting that they complete a standard tender form for the job. The selected contractors submit the completed forms to the Applicant and the Applicant then chooses the contractor it wishes to give the job to by reference to prior dealings with such contractor as one of the criteria for accepting the tender. This arrangement is a very close form of tender and the contractors do not solicit the Applicant or advertise to the Applicant that their services are available to it.
21. The Applicant is familiar with the quality of the works performed by Stubbs as Stubbs have in the past (and up to the present time) been working consistently for the Applicant in the various projects undertaken by the Applicant.
22. Under each contract between Stubbs and the Applicant, all the works are performed solely by three partners, namely Robert Edward Stubbs, Ronald Kevin Stubbs and Ross Stubbs. Stubbs does not engage, sub- contract or employ anyone else to perform the services that it contracted with the Applicant to perform.
23. All the payments referred to above were made under the contracts referred to in Paragraph 15(c) and for the performance of the said services.
24. No part of the payments received by Stubbs from the Applicant was for materials or equipment and the payments are solely related to the provision of labour.
25. Stubbs did not advertise their services during the relevant financial years.''
C. Liability to pay-roll tax
7. The liability to pay-roll tax is imposed by section 8 of the Act upon an employer ``by whom the taxable wages are paid or payable''. ``Taxable wages'' is an expression defined in section 3 to mean ``wages that, under section 6, are liable to pay-roll tax''. Section 6 provides that certain wages are liable to pay-roll tax under the Act where, broadly speaking, they are wages which are paid or payable by an employer in Victoria. Section 3C extends the ambit of taxable wages by deeming that a person is an employer in certain circumstances. One such circumstance is where a person has received services under a ``relevant contract''.
8. Sub-section 3C(1) identifies the class of relevant contracts which bring the parties to those contracts within the net of pay-roll tax. The sub-section, however, excludes certain circumstances from the extended operation. It was common ground between the parties that the Applicant would be liable to pay-roll tax for amounts paid to the contractors unless it could rely upon the exceptions found in either sub- section 3C(1)(e)(v) or sub-section 3C(1)(f) of the Act.
D. Exception (e)(v): services offered generally to the public
9. Paragraph 3C(1)(e)(v) exempts from the extended operation of the Act the provision of services to a person by another who generally offers those services to the public. The relevant part of the exemption is in the following terms, namely that a reference to a taxable contract:
``... does not include a reference to a contract of service or a contract under which a person during a financial year in the course of a business carried on by him-
- (e) has supplied to him services for or in relation to the performance of work where-
- (v) those services are supplied under a contract to which sub-paragraphs (i) to (iv) do not apply and the Commissioner is satisfied that those services are rendered by a person who ordinarily renders services of that kind to the public generally...''
Thus the factual inquiry which this paragraph requires in the present case is whether the persons to whom the Applicant made payment were providing services which they ordinarily rendered to the public generally.
10. It is important to realise that the factual inquiry required by sub-paragraph (e)(v) in this case is concerned not with the business of the Applicant but, rather, with that of the contractor (``Stubbs''). It is therefore somewhat surprising to see so little information about Stubbs' business in the Agreed Statement of Facts.
11. The Respondent submitted that Stubbs did not ordinarily render services to the public generally because:
- (i) they did not advertise,
- (ii) they submitted tenders as a selected invitee,
- (iii) the Applicant is the major of only two main clients,
- (iv) Stubbs worked for the Applicant for sustained periods in each year (further and better particulars para 2(g) and (h)), and
- (v) they did not come within the terms of the pay-roll tax circular guidelines since:
- - there was no ``wide range of clients'',
- - in the last year they received 80% or more of their income from one principal, and
- - the guidelines do not say that if such income is less than 80% they will be entitled to an exemption.
12. The burden of proof falls upon the Applicant as objector of the assessment: see section 33A(1)(b). What the Applicant must prove is that Stubbs ordinarily render services to the public generally of the kind supplied to the Applicant in particular. Paragraph 9 says something about the percentage of the income received by Stubbs during the three years of income from 1 June 1987 to 30 June 1990. Paragraph 15 describes the nature of the services supplied by Stubbs and the provision of those services to the Applicant. Paragraphs 17 and 18 say that the Stubbs' business is conducted as a partnership which has been carried on since 1 May 1984. Paragraph 19 describes the nature of the Stubbs' business as that of carpentry contractor and paragraph 25 says that Stubbs did not advertise their services during the relevant financial years.
13. I do not think too much can be made of the fact that Stubbs' do not advertise their services. The partnership business concentrates its activities on the provision of carpentry services to relatively large projects and does not seek small contracts. Stubbs appear to be concerned to obtain work of a kind which may be obtained by tender and competition with others (see paragraphs 15 and 20 of the agreed statement).
14. Naturally, the Agreed Statement of Facts does not say anywhere either that the contractors ordinarily rendered services to the general public of the kind provided to the Applicant or that they did not. Some inference in favour of the Applicant may perhaps be drawn from what is said in paragraph 9 since it may be assumed that the income derived from sources other than from the Applicant was from business activities with the public generally in the provision of services of the kind rendered to the Applicant. However, the factual inquiry to be undertaken is one which must be undertaken in the context of the proper legal construction to be given to the words in the Act.
15. The Act is now expressed to have come within its terms a wide class of contractual relations which would not come within the ordinary relationship of employee and employer. The exception is designed to exclude a limited class of persons who would otherwise be caught. That exception is attracted where it can be shown that the contractor was rendering services of the relevant kind to the public generally. There was not much dispute between the parties about how the words in clause (v) should be interpreted. Mr Vassie conceded, in my view correctly, that the factual inquiry required a broad survey of what Stubbs did over a period which was not limited to the period of assessment. In other words that the factual inquiry was not restricted to the period in question. If the only evidence was the quantum of work for the 1990/91 year the Applicant would be hard pressed to maintain its objection because in that year the Applicant provided 95% of Stubbs' total income. However, in the 1988/89 year the Stubbs partnership obtained 25% of its income from the provision of services to Jennings Industries Ltd; an enterprise which appears to be wholly unrelated to the Applicant. In the 1989/90 year the Applicant supplied only 48% of Stubbs' income.
16. Paragraph (v) operates when the Commissioner (and the Tribunal on review: section 33B) is satisfied that the person rendering the services is one who ``ordinarily renders services of that kind to the public generally''. Those words both describe the factual inquiry as well as describe the class of persons whose services fall within the exception to liability. The words are found in a provision which confers a discretion which may be exercised when no other exception to liability operates. In that context the words cannot be construed so narrowly that they are never likely
ATC 2073to operate independently of any other exception; that is, that the provision must be construed so that it will have a sphere of operation where none of the other exceptions would apply. Such a construction is compelled by the words in paragraph (v) which expressly state that the discretion is conferred only where the preceding subsection ``do not apply''. The facts that the paragraph is concessionary and that the concession is discretionary are two other factors suggesting that the words should not be read narrowly.
17. In construing the words it must also be remembered that the paragraph is one of general application. Some circumstances may more readily appear to fit within the terms of the exception than others, but the interpretation to be given to the words must be capable of sensible application across the spectrum of business relations touched by the Act. There may be some services which of their nature are more susceptible to a provision which can be described as being ``to the public generally''. Conversely there may be others which by their nature, or by the disciplines and constraints through which they are provided, appear less readily as ones which are ordinarily to the public generally. An example given during the course of argument was that of the barrister who accepts a brief which requires exclusive commitment to one matter over a long period of time, and perhaps a number of years. In such a case the barrister would still be thought of as ordinarily rendering services of that kind to the public generally though in fact the barrister was providing services exclusively to the one client during the period of the brief.
18. Prolonged analysis of the words in the paragraph may uncover unexpected doubts and ambiguities. In
Pyneboard Pty Ltd & Ors v T.P.C. & Anor (1982) ATPR ¶40-272; (1982) 57 FLR 368 it was said at ATPR p 43,447; FLR p 375:
``Artificial dissection, in the course of determined obfuscation, can introduce an argumentative element of uncertainty into words which, when read reasonably in context, are adequate to convey a plain and clear meaning.''
No determined obfuscation by either party is suggested in this case but the same element of uncertainty may creep in by analysis of words without sufficient regard to their context and the objects to be achieved by the legislation. Thus it may be asked whether the words ``ordinarily renders'' requires that the services rendered to the public generally were ordinarily rendered at the same time as they were rendered to the person whose pay-roll tax may be affected. In other words whether by ``ordinarily renders'' what the legislature was concerned to preserve from liability was the case of a contractor who provided services to a person at the same time as ordinarily rendering services to the public. Similarly the requirement that the services be rendered to the public generally may give rise to questions such as whether the section can only apply where the services to the public is factually rendered to a large number of persons, or offered to the public indiscriminately; that is, whether the service is at least offered to the public as such.
19. Paragraph (v) seems to be concerned to exempt from the net of liability services provided by a contractor who is genuinely independent from the person whose liability would be affected by the broadening of the ambit of the Act. The test the legislature has chosen to determine that independence is one which requires a factual inquiry into the rendering of services by the contractor to others. That the rendering be ``to the public generally'' means no more than that the Commissioner (and on review the Tribunal) is able to exercise the power if the contractor renders services to other members of the public apart from the person otherwise liable to tax. The words do not confine the exercise of the power to those cases where there is a large class of the public to whom the services are either provided or offered. The requirement that the services to the public generally be ``ordinarily rendered'' does no more than require the Commissioner or Tribunal to look at the contractor's business and to be satisfied that the ordinary course of that business is to render services to whoever will contract on like terms. The composite phrase conditioning the exercise of the power in paragraph (v) thus requires the Commissioner or Tribunal to be satisfied that the contractor is engaged in an independent business and that in that business the contractor will, as an ordinary incident, deal with persons other than the one whose liability will otherwise be increased.
20. In the end I am satisfied on the limited facts available in this case that the proper conclusion is that Stubbs do ordinarily render
ATC 2074their services to the public generally. They are not tied to the Applicant but seek its work when invited to tender. The Applicant is not the sole consumer of the Stubbs' services and they have at least one other significant client.
E. Exception (f): the services performed by the contractor and others
21. The Applicant also relied on the exception in paragraph (f). That provides an exception in the case of a contract of service or a contract under which a person during a financial year in the course of the business carried on by that person:
``(f) has supplied to him by a person (in this paragraph called `the contractor') services for or in relation to the performance of work under a contract to which paragraphs (d) and (e) do not apply where the work to which the services relate is performed-
- (i) by two or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor;
- (ii) where the contractor is a partnership of two or more natural persons, by one or more of the members of the partnership and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor; or
- (iii) where the contractor is a natural person, by the contractor and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor-
unless the Commissioner determines that the contract or arrangement under which the services are so supplied was entered into with an intention either directly or indirectly of avoiding or evading the payment of tax by any person.''
Mr Vassie's submission here was that the exception did not apply because Stubbs' services to the Applicant were performed mainly by the male partners of the partnership and that the services they provided did not include any work performed by any person employed by them or who supplied services to them. It seems to me that the submission is correct and that there is no factual basis upon which the Applicant may rely upon this exception. In paragraph 22 of the Statement of Agreed Facts it is clearly stated that under each contract between Stubbs and the Applicant all works were performed solely by the three partners and that the partnership did not engage, sub-contract or employ anyone else to perform the services that it had contracted with the Applicant to perform. Thus it cannot be said within the terms of any of the sub-paragraphs in (f) that the Stubbs discharged any part of their contractual obligation through persons employed by them or through persons who provided services to them.
22. In the event I should set aside the Respondent's decision referred to the Tribunal and remit it back to the Respondent to assess the Applicant by excluding payments made by the Applicant to Stubbs.