GIBSON v FC of T

Members:
BH Pascoe SM

Tribunal:
Administrative Appeals Tribunal (sitting as the Small Taxation Claims Tribunal)

Decision date: 17 October 1997

---

BH Pascoe (Senior Member)

This is an application to review a decision of the respondent to disallow an objection against an assessment of income tax based on the applicant's income of the year ended 30 June 1995. The applicant had claimed in his objection that the amount of $12,557 should be excised from his assessable income as being the tax-free amount of a bona fide redundancy payment and exempt from income tax under section 27CB of the Income Tax Assessment Act 1936 (``the Act'').

2. At the hearing, the applicant was represented by Mr R Lander, an accountant and tax agent and the respondent by an officer of the respondent. A statement of agreed facts was provided to the Tribunal and the respondent called as a witness Mr Lucas a transport manager for Cleland Cold Stores Pty Ltd which

---

ATC 2166

formerly owned the company for whom the applicant provided services as an owner-driver.

3. The statement of agreed facts was as follows:

``1. The return of income, for the year ended 30 June 1995, described the applicant's occupation as a truck driver.

2. The applicant was subject to an industrial agreement, made on 29 November, 1993 between:

Clelands Distribution Pty Ltd (Formerly known as P. Cleland Enterprises Ltd) And Associated Companies and the Transport Workers Union of Australia (Victorian Branch)

3. The applicant was subject to the terms and conditions contained in the agreement, stated as item 2, from the date of commencement of the agreement to the date of termination.

4. The applicant owned a truck (prime mover) which was used to transport products at the direction of Clelands Distribution Pty Ltd.

5. The applicant operated as an owner/driver within the terms and conditions of the agreement stated at item 2.

6. The applicant was paid at the rates and in accordance with the Victorian Road Transport Association Inc./Transport Workers Union Sub-contractor Agreement applicable to a sub-contractor.

7. The rates applicable to the agreement stated at item 6 include; (a) labour component, (b) fixed costs component, and (c) variable costs component. The fixed costs and variable costs components relate to the vehicle owned and operated by the applicant.

8. The applicant operated under the Prescribed Payments System of tax collection during the course of the agreement, stated in item 2.

9. Prescribed payments tax was deducted, at the rate of 10%, from the applicant's gross payment during the period 1 July 1994 to date of payment on 6 August 1994.

10. Prescribed payments tax was deducted, at the rate of 3%, from the applicant's gross payment for the period 7 August 1994 to the date of termination.

11. On termination of the applicant's services, he received a gross payment of $12,556.58 in accordance with clause 9 (Permanent Painted Owner/Drivers), sub- paragraph (c) Retrenchment, contained in the agreement at item 2.

12. The applicant did include the amount of $12,557 (representing the amount of $12,556.58 stated at item 11) as business income, derived from non primary production, in his 1995 return of income. Prescribed payments tax of $378 was claimed as a credit against the business income.

13. On 1 November 1995 the Commissioner of Taxation issued an assessment to the applicant in respect of the year ended 30 June 1995.

14. By notice in writing, dated 16 September 1996, lodged at the office of the Deputy Commissioner of Taxation, Cheltenham, the applicant objected to the inclusion of the amount of $12,557 in his assessable income for the year ended 30 June 1995.

15. The Commissioner disallowed this objection by letter dated 23 December 1996.''

4. Mr Lucas stated that Clelands Distribution Pty Ltd (``Clelands'') acted as a transport broker which solicited business from customers requiring goods to be transported, including its parent company, Cleland Cold Stores Pty Ltd. It engaged owner-drivers such as the applicant to provide the transport. In general the owner- driver would report directly to the customer and be directed by that customer as to the transport work required for the day. He said that the owner-drivers were paid on an hourly rate which varied according to the vehicle. He stated that Mr Gibson owned a prime mover with the attached trailer owned and supplied by Clelands. Mr Lucas said that each owner-driver was required to submit a weekly time sheet showing the number of hours worked. Under the terms of the industrial agreement, Clelands guaranteed a minimum payment of 120 hours per month. He stated that owner drivers were entitled to substitute another driver approved by Clelands if they were sick or wished to take holidays.

---

ATC 2167

5. It was submitted for the applicant that the amount of $12,557 received on termination of his services with Clelands was exempt from income tax under section 27CB of the Act. It was argued that it represented the tax free amount of a bona fide redundancy payment included in an eligible termination payment as defined by section 27A(1) of the Act. Mr Lander maintained that Mr Gibson had been an employee of Clelands and that the payment had been made in consequence of the termination of that employment. He submitted that the terms of the industrial agreement, the degree of control and direction, the remuneration on the basis of an hourly rate, the company signage on the vehicle, the wearing of a uniform, the fact that Mr Gibson drove solely for Clelands and the calculation of the termination payment by reference to years of service all demonstrated an employer-employee relationship. It was stated that Clelands had made contributions to a superannuation fund for the benefit of Mr Gibson although no details as to amounts were available.

6. For the respondent it was submitted that the payment in question fell to be assessed as ordinary income under section 25(1) of the Act. It was argued that there was no employer- employee relationship between Clelands and Mr Gibson so that the payment was not an eligible termination payment within section 27A(1) of the Act. It was said that Mr Gibson was carrying on his own business activity of transporting goods within the terms of a contract with Clelands which provided the customers for that business. The deduction of amounts under the Prescribed Payment System (``PPS'') was said to be correct in that Mr Gibson received payment under a contract for the performance of work, the activity was within the prescribed road transport industry and was made and received by persons operating within that same industry category. It was argued that payments under the contract did not contribute salary and wages as defined by section 221A(1) of the Act.

7. The question for determination here is whether Mr Gibson's relationship with Clelands was one of employment and whether the payment of $12,557 was in consequence of the termination of employment. Although some of the time in the hearing was spent in seeking assistance from the definitions of ``employee'' and ``salary and wages'' in section 221A(1) of the Act and the definition of ``employee'' in the Superannuation Guarantee (Administration) Act 1992, these definitions are of no assistance in relation to this question. The former provision provides definitions solely for the purpose of Division 2 of Part VI of the Act concerned with collections of tax by instalments and the latter provision is concerned with requiring superannuation contributions from employers. Both widen the common law meaning of employment to include contracts wholly or principally for the labour of the person who receives payment. However, section 27A(1) of the Act does not pick up definitions from any other section or Act. Here the only expansion, if it could be said to be such, is to include ``the holding of an office''. It was not suggested that Mr Gibson held any office with Clelands so we are concerned solely with the common law meaning of employment.

8. Both parties referred to the decision of the Supreme Court of New South Wales, Court of Appeal in
Vabu Pty Limited v FC of T 96 ATC 4898; [1996] 33 ATR 537. In that case the appellant was a courier company which sought a declaration from the Court that its couriers were independent contractors and not employees so as to be outside the scope of the Superannuation Guarantee (Administration) Act 1992. It was an appeal from a decision of Ireland J, in the Supreme Court of New South Wales who had found that the couriers were employees for the purpose of that Act. The Court of Appeal overturned this decision and found that they were independent contractors. At ATC page 4900; ATR page 538 Meagher JA said:

``While it is almost never an easy task to decide whether a given person is an employee or an independent contractor, there is no doubt what the legal tests are. The old test of `control' is now superseded by something more flexible. This is made clear by the judgment of Mason CJ in
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) Aust Torts Reports ¶80-000; (1985-1986) 160 CLR 16, and the earlier judgment of Dixon J in
Queensland Stations Pty Ltd v FC of T (1945) 8 ATD 30; (1945) 70 CLR 539.

Learned senior counsel for the respondent, Mr J L Trew QC, stressed in the course of his submission, that the company always retained a considerable measure of control

---

ATC 2168

over the couriers, and that the couriers were employees. Thus, the documents to which I have referred provide that operatives are to be neat and tidy, are to wear uniforms provided by the Company, are to replace their vehicles when the company considers them to be unsatisfactory, are to observe a starting time and to work a prescribed number of hours, and are not to use foul language on the telephones. They must accept work allocated to them by the Company, deliver goods in the manner which the company directs, accept re- routing if told to by the Company, and take no more leave than is permitted. The cumulative effect of these conditions certainly gives the Company a deal of control over its courier. However, a person may supervise others without becoming their employer.

And there are several considerations which make me think that on balance the couriers are not employees. In the first place, they supply their own vehicles (be they bicycles, motorbikes, cars, utilities or vans). They have to bear the expense of providing for and maintaining these vehicles: they pay for running repairs, petrol, insurance and registration. The company provides telephones, uniforms and signage. The couriers' expenses are very considerable. To quote McKenna J in
Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance (1968) 2 QB 497 at 526:

`the ownership of the assets, the chance of profit and the risk of loss in the business of carriage are his and not the company's'

a consideration which points to the couriers being independent contractors.''

Later (at ATC page 4900; ATR page 539) His Honour said:

``Another indicium is that the couriers have to provide themselves with their own street directories, telephone books, trolley, ropes, blankets and tarpaulins.

Another, very important, indicium is that the couriers receive no wage or salary. Normally, if they were true employees, one would expect a certain sum to be paid each day, week or month. The company's documents provide for no such thing. They are paid a prescribed rate for the number of successful deliveries they make. It is not, I think, fanciful to say that each courier conducts his own operation, permitting himself for his own economic advantage to be supervised by the company. If this were not so, why would the documents anticipate that the courier may use a business name or corporate name if he so wishes? A company does not usually have employee corporations.

Although this part of the case is hardly without difficulty, on the whole I am disposed to conclude that at common law the couriers must be classified as independent contractors.''

9. The applicant sought to distinguish the decision in Vabu by arguing that, in that case, couriers who used their own motor vehicles were paid amounts based on a flag fall payment for each contract of carriage undertaken together with a running rate per kilometre. Here, Mr Gibson was paid an hourly rate with a minimum of 120 hours per month. It was said also that the degree of control was greater than that involved in Vabu. In a very recent decision in
Deluxe Red and Yellow Cabs Co-operative (Trading) Society Ltd & Ors v FC of T 97 ATC 4770 Hill J, was required to consider whether certain taxi drivers were employees. His Honour commented on the question of the control test as [sic] dominant test and said [at 4781]:

``The difficulty which the control test gives rise to in practice has caused courts to attempt to formulate other tests. Thus, in
Montreal v Montreal Locomotive Works (1947) 1 DLR 161 Lord Wright posed the issue for consideration to be:

`whose business it is, or in other words by asking whether the parties carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior.'

Another, but related formulation is to be found in
Fall v Hitchen (1973) 1 WLR 286 where the question was asked whether the work was done as an integral part of another's business or whether it was performed by the person for his own account.

Stephen J in
Federal Commissioner of Taxation v Barrett 73 ATC 4147 at 4150; (1973) 129 CLR 395

---

ATC 2169

at 402 criticised these so-called `new formulations' as doing little more than restating the question rather than providing an answer to it. Yet, it must fairly be said that to ask the question whether a person is carrying on business on his own account is to throw some light on the conceptual understanding of the nature of the relationship. So too does a consideration of factors such as whether the person is required to provide his own tools (
Atlas Tiles v Briers 78 ATC 4536; (1978) 144 CLR 202), whether the person is at risk of loss (cf Montreal Locomotive Works), whether the person stands to make a profit, over and above a fixed remuneration, whether the employer is required to contribute towards workers compensation insurance, the method and intensity of training (Barrett supra), the ability to delegate to another (
Australian Mutual Provident Society v Allan and Chaplin (1978) 18 ALR 385) or whether the contract between the parties describes the relationship as one of employer/employee or one of independent contractor (
Narich Pty Ltd v Commissioner of Pay-Roll Tax (NSW) 84 ATC 4035; (1983) 2 NSWLR 517). Some factors will inevitably point one way and some factors will point in another way. What will be required, as Barrett's case demonstrates, is a process of weighing up the competing factors.''

10. As stated in the agreed facts the relationship of Mr Gibson with Clelands was based on the industrial agreement between Clelands and the Transport Workers Union dated 29 November 1993. This agreement applied only to the business segment previously operated as the Taxi Truck Division of Downard Pickford which had been acquired by Clelands. The agreement was expressed as being with the union on behalf of its members engaged as contract drivers by the company. The agreement ran for 15 pages but the major relevant points were as follows:

• 1. Owner-drivers to be paid minimum hourly rates with loadings for Saturday afternoons, Sundays, public holidays and after 6 pm.
• 2. Owner drivers responsible for explaining to customers the conditions for ``cash work'' and personally responsible for any personal cheques accepted without authority and which are subsequently dishonoured.
• 3. Accumulation at the rate of 3 minutes per hour towards a rostered day off to be remunerated at the appropriate rate of pay for the vehicle classification as per the Transport Workers Award 1983.
• 4. Kilometre rates in addition to hourly rates for work performed outside the metropolitan area.
• 5. Company may deduct disbursements such as fuel advances, finance company repayments, insurance premiums, etc from amounts due to owner drivers. Deduction may be made also, for claims from clients for damages, discrepancies, late deliveries or over stating of times and which are not explained satisfactorily.
• 6. Work to be allocated in the following preference:
  • 1. Company drivers
  • 2. Painted drivers on seniority
  • 3. Unpainted drivers, working on a casual basis.
• 7. Contract drivers to work as directed by authorised employees of the company with proper diligence and dispatch.
• 8. Owner-drivers to maintain vehicles and supply sufficient ropes, tarpaulins, covers, trolleys etc.
• 9. Owner-drivers responsible where, through negligence, goods are lost or damaged.
• 10. Company to provide clothing if uniform required.
• 11. Non return of a consignment note may result in non payment for the job.
• 12. If an owner-driver is delayed en route, the company may transfer the goods at the owner-driver's expense and complete the contract.
• 13. Owner-driver not to accept work from previous clients of the company within six months from termination of services with the company.
• 14. Company may terminate services for variety of reasons including inefficiency, failure to carry out a reasonable management demand, falsification of document, etc.

  ---

  ATC 2170

• 15. Owner-driver to provide public liability, third party and carriers liability insurance at own expense.
• 16. For ``painted owner-drivers'' the company to bear the cost of signwriting but owner-driver to contribute 50% of the cost if he leaves within twelve months.
• 17. Owner-driver may sell vehicle at no more than reasonable market value, subject to availability of work, the condition of the vehicle and the suitability of the prospective purchaser.
• 18. If retrenchments are required the company to pay a package equal to two weeks pay plus three weeks pay for each year of service. Such payment to be based on actual fixed and labour costs for 38 hours per week.
• 19. Owner-drivers to be paid for a minimum of 120 hours per four weekly period provided the vehicle is available for the whole of that period and the company is not prevented from utilising the services of the owner-driver by circumstances beyond the control of the company. Minimum payment to be reduced for any period when vehicle not available due to holidays, sickness or otherwise, where owner-driver rejects work for any unsatisfactory reason or where company is prevented from utilising the services.

11. This is another case which involves weighing the competing factors as to whether Mr Gibson's relationship with Clelands was one of employment. In favour are the facts that he worked solely for the company, his vehicle and uniform displayed the company name, the company exercised a degree of control over his activities, he was remunerated at an hourly rate with a minimum guaranteed payment and the retrenchment payment was based on years of service. The factors which indicate the relationships as being that of an independent contractor include:

• • Mr Gibson received no holiday or sick pay. Any time taken for holidays or caused by sickness reduced the minimum guaranteed payment.
• • Any payment depended on the availability of his vehicle. If the vehicle was out of action there was no entitlement to any payment.
• • The major part of the hourly rate was for the fixed and variable costs of the vehicle.
• • A significant factor in the contractual relationship was the provision by Mr Gibson of a major asset.
• • Mr Gibson was responsible for all costs of running and maintaining the vehicle and for liability insurance.
• • Mr Gibson was liable for claims for damage, discrepancies, late deliveries and transfer of goods if delayed en route.
• • An owner-driver was able to delegate the driving to another approved driver. Mr Gibson maintained that he had never done this but the evidence indicated that substitution was allowable.
• • Mr Gibson was at risk of loss in the event of higher than expected vehicle costs or any material periods of vehicle unavailability.

12. On balance, I am satisfied that the factors which point to Mr Gibson being an independent contractor far outweigh those which indicate an employee/employer relationship. I am unable to find any significant factors which enable this case to be distinguished from the findings of the Court of Appeal in Vabu (supra). There are more similarities than differences. Here the major factors are the risk of loss and the chance of profit, the significant part in the quantum of earnings of the availability of a vehicle, the responsibility for the expense of providing the vehicle and for any loss or damage to goods and the ability to substitute another driver. All of these factors indicate a person carrying on his own business in conjunction with another rather than a person employed by another. The factors relied upon by the applicant reflect the contractual relationship between the parties which may have minimised the risks of carrying on the business but do not result in the relationships being one of employment.

13. It follows that the decision under review should be affirmed.