LAYALA ENTERPRISES PTY LTD (IN LIQ) v FC of T
Judges:Sundberg J
Court:
Federal Court
Sundberg J
Facts
During the period 1 July 1988 to 30 June 1990 (``the period'') the applicant (``Layala'') carried on the business of recruiting and supplying professional personnel to the construction industry for the purpose of gaining or producing assessable income, and was the beneficial owner of one half of the issued units in the Wirrabrook Unit Trust (``the Wirrabrook Trust''). Throughout the period the trustee of the Wirrabrook Trust was Wirrabrook Holdings Pty Ltd (``Wirrabrook''). In its capacity as trustee of the Wirrabrook Trust, Wirrabrook carried on the business of recruiting and supplying professional personnel to the construction industry for the purpose of gaining or producing assessable income. Under the terms of the deed constituting the Wirrabrook Trust and resolutions of the trustee, during the year of income ended 30 June 1989 (``the 1989 year'') and during the year of income ended 30
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June 1990 (``the 1990 year'') Layala was presently entitled to one half of the income of the Wirrabrook Trust. Accordingly, under s 97 of the Income Tax Assessment Act 1936, one half of the net income of the trust estate of the Wirrabrook Trust for each of those years was to be included in Layala's assessable income for each of those years.Throughout the period (including the month following the end of the period) neither Layala nor Wirrabrook applied for registration or was in fact registered as an employer under s 12 of the Pay-roll Tax Assessment Act (WA) 1971 (``the Act''), furnished returns under s 13 of the Act specifying the taxable wages that were paid or payable during the period, or paid pay-roll tax in respect of taxable wages that were paid or payable during the period. In December 1988 Wirrabrook and Layala obtained legal advice that indicated that their status as ``employment agents'' and their liability for pay-roll tax depended upon whether or not there was a sufficient similarity between the services provided by them to their clients and the services provided by their clients' employees. Following receipt and consideration of the legal advice, the directors of Wirrabrook and Layala concluded that the services were not sufficiently similar, and at least until September 1990 conducted the affairs of Wirrabrook and Layala on the basis that they were not liable to pay-roll tax.
The income tax return lodged by Wirrabrook for the 1989 year disclosed a total net income of $138,571, of which $69,286 was distributed to Layala. The income tax return lodged by Layala for the 1989 year disclosed a taxable income of $145,251. This amount included the $69,286 distributed to it by Wirrabrook. On the basis that these income tax returns were correct, the respondent issued a notice of assessment to Layala dated 27 February 1990 in respect of the 1989 year based on a taxable income of $145,251. The income tax return lodged by Wirrabrook for the 1990 year disclosed a total net income of $361,156, of which $180,578 was distributed to Layala. The income tax return for the 1990 year lodged by Layala on 17 December 1990 disclosed a taxable income of $50,027. This amount included the $180,578 distributed to it by Wirrabrook. Pursuant to s 166A of the Income Tax Assessment Act 1936 an assessment in respect of the 1990 year was deemed to have been made and served on Layala on 17 December 1990.
Neither Wirrabrook nor Layala included pay- roll tax as an expense item in its profit and loss accounts for the 1989 year or the 1990 year. Neither claimed a deduction for pay-roll tax in its income tax returns for the 1989 year or the 1990 year.
Wirrabrook's and Layala's activities came to the attention of the Commissioner of State Taxation (``the Commissioner'') in September 1990. As a result of an audit conducted by the Commissioner, assessments were issued to Wirrabrook and Layala on 13 June 1991 pursuant to the Act in respect of periods including the 1989 year and the 1990 year. By the assessments the Commissioner assessed Wirrabrook and Layala to the following amounts of pay-roll tax in respect of taxable wages that were paid or payable in each of the relevant years of income:
Wirrabrook 1989 $129,959.94
1990 $237,992.65
Layala 1989 $ 7,584.72
1990 $ 9,703.49
Wirrabrook and Layala, in accordance with the legal advice referred to, disputed the pay- roll tax assessments. Objections to the assessments were lodged with the Commissioner on 25 July 1991. These objections were disallowed by the Commissioner on 31 October 1991. The objections then became the subject of appeals to the Supreme Court of Western Australia. On 4 March 1992 Wirrabrook and Layala obtained another legal opinion which was to the effect that they were at all material times ``employment agents'' for the purposes of the Act and that accordingly their Supreme Court appeals would fail. Wirrabrook and Layala accepted that advice, and at some time between 4 March 1992 and 22 September 1993 agreed to discontinue the Supreme Court appeals and accept that they had pay-roll tax liabilities in respect of the relevant periods. Thereafter each agreed to be placed in liquidation. By an Order of the Supreme Court of Western Australia made on 1 December 1993, Garry John Trevor was appointed official liquidator of Wirrabrook and Layala.
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At all material times the true position was as follows:
- • During the period each of Wirrabrook and Layala was an ``employer'' as defined in s 3(1) of the Act and an ``employment agent'' as defined in s 3(2a).
- • Wirrabrook paid or was liable to pay ``wages'', as defined in s 3(1), of $2,260,173 in the 1989 year and $4,016,810 in the 1990 year.
- • Layala paid or was liable to pay ``wages'', as defined in s 3(1), of $131,908 in the 1989 year and $164,147 in the 1990 year.
- • Wirrabrook and Layala constituted a group for the purpose of Part IVA of the Act.
By notices of objection dated 22 March 1996, which were treated by the respondent as having been lodged within time, Layala objected against its income tax assessments for the 1989 year and the 1990 year, claiming that its taxable income should be reduced by $72,686 and $50,027 in the respective years. In relation to the 1989 year the basis for the reduction was the allowance of a deduction of $7,585 for pay- roll tax incurred by Layala in relation to that year, and a reduction of $64,980 in the distribution it received from Wirrabrook. The basis for the reduction in the distribution was that a deduction of $129,960 for pay-roll tax incurred was allowable to Wirrabrook. In relation to the 1990 year the basis for the reduction was the allowance of a deduction of $9,703 for pay-roll tax incurred by Layala in relation to that year, and a reduction of $118,996 in the distribution it received from Wirrabrook. The basis for the reduction in the distribution was a claim that a deduction of $237,993 for pay-roll tax incurred was allowable to Wirrabrook. By notice dated 16 August 1996 the respondent disallowed Layala's objections. Layala appeals to this Court against the respondent's decisions on its objections. The appeals were consolidated.
The Act
Part III of the Act - ``Liability to Taxation'' - consists of ss 6 to 11. Section 6 provides that wages liable to pay-roll tax are wages paid or payable by an employer after August 1971. The word ``wages'' is defined in s 3(1) so as to include amounts paid or payable by way of remuneration by an employment agent to a person engaged to perform services for a client of the employment agent: par (f). The expression ``pay-roll tax'' is defined as ``the pay-roll tax imposed by any Act as assessed under this Act''. Pay-roll tax is in fact imposed by the Pay-roll Tax Act 1971, s 3. Section 7 of the Act provides:
``Subject to, and in accordance with, the provisions of this Act, there shall be charged, levied, collected and paid on all taxable wages pay-roll tax at such rate or rates as Parliament shall from time to time declare and enact.''
The expression ``taxable wages'' means wages that are liable to pay-roll tax under s 6. Pay-roll tax is payable by the employer by whom taxable wages are paid or payable: s 8.
Part IV of the Act - ``Registration and Returns'' - consists of ss 12 to 16. Section 12 deals with registration of employers. Sub- section (1) provides:
``An employer (not being an employer who is registered as an employer) who, during a month, pays or is liable to pay, anywhere, wages at a rate in excess of the amount per week prescribed for the purposes of this section in Schedule 1 the whole or any part of which is taxable wages or who, being a member of a group, during a month pays or is liable to pay any taxable wages, shall apply, within 7 days after the close of that month, to the Commissioner in the approved form and manner, for registration as an employer, and thereupon the Commissioner shall register him as an employer under this Act.''
Section 13(1) provides:
``Every employer who is registered or required to apply for registration in accordance with the provisions of section 12 shall, within 7 days after the close of each month or such other period as the Commissioner may by notice in writing in a particular case direct, furnish to the Commissioner, in accordance with the approved form and manner, a return relating to that month and shall specify in that return any taxable wages that were paid or payable by him during that month.''
Part V - ``Collection and Recovery of Tax'' - consists of ss 17 to 31. Section 17 requires an employer liable to pay pay-roll tax to pay the tax within seven days of the end of each month.
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Section 18 deals with default assessments. When the Commissioner finds that pay-roll tax or further tax is payable by an employer he may assess the amount of taxable wages paid or payable by the employer and calculate the pay- roll tax or further tax payable: sub-s (1). Sub- section (2) provides that where``(a) any employer fails or neglects duly to furnish any return as and when required by this Act or the regulations or by the Commissioner;
(b) the Commissioner is not satisfied with the return made by any employer; or
(c) the Commissioner has reason to believe or suspect that any employer (though he may not have furnished any return) is liable to pay pay-roll tax,
the Commissioner may cause an assessment to be made of the amount upon which, in his judgment, pay-roll tax or further tax ought to be levied and that person shall be liable to pay pay-roll tax or further tax thereon, except in so far as he establishes on objection or appeal that the assessment is excessive.''
An employer who becomes liable to pay pay- roll tax or further tax by virtue of an assessment under sub-s (2) is also liable to pay, as additional tax, an amount equal to the amount of that tax or further tax, but the Commissioner may remit the additional tax or part thereof: sub-s (5). The Commissioner must serve notice of the assessment on the employer: sub-s (6). The amount of the pay-roll tax, further tax or additional tax specified in the notice is payable on or before the date specified in the notice: sub-s (7). Under s 23(1) tax is deemed, when it becomes due and payable, to be a debt due to Her Majesty and payable to the Commissioner. The Commissioner may sue for and recover any tax unpaid in any court of competent jurisdiction: sub-s (2).
Section 51(1) - incurring a liability
In
New Zealand Flax Investments Ltd v FC of T (1938) 5 ATD 36 at 49; (1938) 61 CLR 179 at 207 Dixon J said of the word ``incurred'' in the predecessor of s 51(1) of the Income Tax Assessment Act:
``... `Incurred' does not mean only defrayed, discharged, or borne, but rather it includes encountered, run into, or fallen upon. It is unsafe to attempt exhaustive definitions of a conception intended to have such a various or multifarious application. But it does not include a loss or expenditure which is no more than impending, threatened, or expected.''
See also
Coles Myer Finance Limited v FC of T 93 ATC 4214 at 4220-4221; (1993) 176 CLR 640 at 661-663. In
FC of T v James Flood Pty Ltd (1953) 10 ATD 240 at 245; (1953) 88 CLR 492 at 507-508, after quoting the above passage from New Zealand Flax, the Court said:
``... It is one thing, however, to say that it is not necessary, for the purposes of s 51(1), that an actual disbursement should have taken place. It is another thing to say that in the present case the taxpayer had incurred a loss or outgoing in the year of income in respect of the pay of its men during the annual leave to be taken in the ensuing accounting period by employees whose services had not as yet qualified them for annual leave. In respect of those employees there was no debitum in praesenti solvendum in futuro. There was not an accrued obligation, whether absolute or defeasible. There was at best an inchoate liability in process of accrual but subject to a variety of contingencies.''
The decision in Flood that there was no loss or outgoing incurred in respect of payment for annual leave was based on the provisions of the award that nothing was payable until an employee had served for twelve months. Accordingly, no loss or outgoing had been incurred in respect of an incomplete portion of a twelve month period which had been served as at the end of a financial year.
In
RACV Insurance Pty Ltd v FC of T 74 ATC 4169 the question was whether a motor vehicle insurer was entitled to a deduction in respect of its estimate of its liability arising out of accidents which had occurred in the financial year but of which it had not been notified by the owners of the damaged vehicles. Menhennitt J held that it was. At 4176 his Honour said:
``... In relation to liability insurance the insurance company is bound to indemnify its insured against his liability to a third person. Once events have occurred out of which a liability to indemnify an insured arises, it appears to me that... a loss or outgoing has been incurred.... [T]he fact that the quantum of the loss or outgoing is a matter of estimate and that the assessment may have
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to be adjusted in the light of later events does not stand in the way of it being a loss or outgoing...''
And at 4180, in the course of distinguishing the case before him from Flood, his Honour added:
``But in relation to compulsory third party insurance, once the events have occurred which give rise to a liability to indemnify it seems to me that, within the passage I have cited [from Flood], a loss or outgoing has been encountered, run into or fallen upon. It is more than a loss or expenditure which is no more than impending, threatened or expected.''
The parties' contentions
Layala contended that all the events which gave rise to a liability to pay pay-roll tax had occurred during the relevant years of income: taxable wages had been paid (ss 6-8), and Layala was obliged to apply for registration (s 12) and furnish a return within seven days of the end of each month specifying the taxable wages paid during that month (s 13(1)). The tax was payable seven days after the close of each month in respect of the taxable wages paid during that month (s 17), though it became owing upon the expiry of the relevant month, notwithstanding that a notice of assessment was not issued until later. Reliance was placed upon
Commr of State Taxation (WA) v Pollock (1994) 12 ACLC 28 at 39; (1993) 12 ACSR 217 at 231 where Ipp J, with whom Wallwork J agreed, said that pay-roll tax becomes owing when it is capable of calculation, which ``will ordinarily be upon the expiry of the month in which pay-roll tax liability has been incurred''. Thus, so it was submitted, Layala was entitled to the deductions claimed in the years in which the pay-roll tax liability arose (1989 and 1990) and not in the year in which the assessment was issued (1991).
The respondent contended that the Act distinguishes between a taxpayer self- assessment under s 13 and an assessment by the Commissioner under s 18. In the former, an employer self-assesses when he lodges a return under s 13. Tax is then assessed, and the taxpayer is required to pay the tax within the time prescribed by s 17. When the employer fails to self-assess, no liability to pay tax arises unless and until the Commissioner issues an assessment under s 18.
Two regimes?
The time at which a tax becomes owing is to be ascertained from the terms of the statute which imposes it: Pollock at ACLC 39; ACSR 230. If ss 13(1) and 17 stood alone, I would have concluded that an employer who pays taxable wages becomes liable to pay-roll tax (ie the tax becomes owing) at the expiration of the relevant month, and is obliged to pay the tax within seven days of the close of that month. As Ipp J said at ACLC 34; ACSR 224
``... the statutory scheme does not depend upon the delivery of an assessment by the Commissioner for particularisation of the amount of pay-roll tax payable by an employer. That is because Parliament has declared the rate of pay-roll tax payable in any given month, and as the employer should know the amount of taxable wages paid by him in that month, the employer - without any assessment by the Commissioner - should be able to determine the particular amount of pay-roll tax payable by him for that month.''
Section 17 appears to be of general application, so as to apply not only to employers who have lodged returns, but to those who have not. The obligation to pay ``within the time within which he is required... to lodge the return'' would not naturally be read as meaning within the time within which he is required to and does lodge the return. One would thus be inclined to agree with Ipp J when he said (at ACLC 34; ACSR 224) that by reason of ss 17 read with s 13(1) ``every employer liable to pay pay-roll tax is required to pay the pay-roll tax within 7 days after the close of each month''.
But ss 13 and 17 do not stand alone. Section 18 must be accommodated. It deals, amongst other things, with the case where an employer fails to furnish a return as and when required by the Act: sub-s (2)(a). It empowers the Commissioner to make an assessment of the amount upon which tax ought to be levied, and the employer ``shall be liable to pay pay-roll tax... thereon''. That the employer becomes liable because of the assessment is re-inforced by the words of sub-s (5) - ``Any employer who becomes liable to pay pay-roll tax... by virtue of an assessment made under sub-s (2)...''. The obligation to pay the tax for which the employer is liable arises on the date specified in the notice of assessment: sub-s (7).
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Thus ss 13 and 17 suggest that all relevant employers become liable to tax at the close of each month and must pay the tax within seven days of the end of the month, whether or not a return has been lodged, while s 18(2)(a), dealing with the particular case of the employer who does not lodge a return, states that the liability to pay arises on the making of the assessment and the obligation to pay arises on the date specified therein.
Reading the Act as a whole, I am of the view that s 17 deals with cases where returns are lodged, and s 18(2)(a) deals with the particular case where no return is lodged. Cf
Refrigerated Express Lines (A'asia) Pty Ltd v Australian Meat and Live-Stock Corporation & Ors (1980) ATPR ¶40-156 at 42,228; (1980) 29 ALR 333 at 346 and
Smith v The Queen (1994) 181 CLR 338 at 348. In my view the Act establishes two regimes: one for employers who furnish returns in accordance with s 13, and one for those who are assessed by the Commissioner under s 18.
Under the first regime, the employer's return will specify the relevant taxable wages. The Act operates upon the return, and according to Pollock the tax becomes owing upon the expiration of the month in which the liability has been incurred. Under s 17 the tax becomes payable within seven days after the end of the month. It was to the class of employer assessed under this regime that Ipp J's remarks in Pollock were directed. Thus, having at ACLC 34; ACSR 224 noted the power in s 18 for the Commissioner to make an assessment in certain circumstances, his Honour observed that the tax is nonetheless ``ordinarily'' calculated and paid by employers without assessments being made. And again at ACLC 39; ACSR 231 his Honour qualified by the word ``ordinarily'' his statement that tax becomes owing at the expiration of the month in which the liability has been incurred.
The second regime is contained in s 18. The liability to pay tax arises on the making of the assessment. The tax is payable on or before the date specified in the notice of assessment: sub-s (7). In the cases covered by pars (a) and (c) of sub-s (2) the employer will not have lodged a return. Section 18 alone will operate in those cases. In the case covered by par (b) the employer will have lodged a return. The self- assessment regime will apply to the wages disclosed in the return, and s 18 to those that in the Commissioner's opinion have not been disclosed in the return. The liability to tax on the wages disclosed in the return and the payment thereof will be governed by ss 13 and 17, and the liability to tax on the wages not disclosed and the payment of the tax thereon will be governed by s 18.
Sections 21 and 22 reflect the existence of the two regimes. Section 21(2) provides for the payment of interest at the rate of 20 per cent per annum on any tax which is not paid before the expiration of the time specified in s 17 or s 18 from that time until the tax is paid. Section 22(1) provides
``If pay-roll tax, further tax or additional tax assessed under this Part is not paid before the expiration of the time specified in sections 17 or 18..., penal tax shall forthwith be payable of an amount equal to the amount of the pay-roll tax, further tax or additional tax, as the case may be.''
The time specified in s 17 is seven days after the end of the relevant month. The time specified in s 18 is the period ending on the date specified in the notice of assessment. The Commissioner cannot obtain interest under s 21(2) in respect of the period preceding the date specified in the notice. But he is compensated by the additional tax which s 18(5) imposes on an employer who is assessed under that section.
Conclusion
Until the assessments were made in 1991 Layala was not in my view liable to pay pay- roll tax. It had not ``encountered, run into, or fallen upon'' a liability. Immediately before the assessments were issued there may have been an impending, threatened or expected liability, in the sense that the Commissioner might have issued an assessment or may have indicated that he was going to issue an assessment. Prior to the issue of an assessment Layala may have been subject to an inchoate obligation to pay whatever might ultimately be the amount of an assessment under s 18. But such an obligation is not a loss or outgoing ``incurred'' for the purposes of s 51(1). The consolidated application is dismissed.
THE COURT ORDERS THAT:
1. The consolidated application be dismissed.
2. The applicant pay the respondent's taxed costs of the application.
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