DRAKE PERSONNEL LTD & ORS v COMMR OF STATE REVENUE (VIC)Judges:
Victorian Court of Appeal
MEDIA NEUTRAL CITATION:
 VSCA 122
In each of the cases subject to appeal the primary liability of the appellants (``Drake'') has turned on the definitions of ``wages'' and ``employer'' in s. 3. The structure of the Pay-roll Tax Act 1971 (``the Act'') at the relevant times, as it still essentially remains, has been described in these terms by a majority of the High Court in Murdoch v. Commr. of Pay-roll Tax (Vic.):
``The Act imposes a tax upon employers in respect of certain wages. The tax is imposed by s. 7 on all taxable wages, which are described in s. 6. It is payable by the employer by whom the taxable wages are paid or payable (s. 8).''
Their Honours then referred to the definitions of ``employer'' and ``wages'' in s. 3(1) of the Act, as those definitions then stood. Stephen, J., agreed with the majority and the dissenting member of the Court, Gibbs, J., analysed the fundamental provisions of the Act in almost identical terms: see at 634. Thus pay-roll tax is charged and levied by s. 7 not on ``wages'' as such, but on ``taxable wages''. ``Taxable wages'' are defined in s. 3(1) to mean wages that, ``under section 6, are liable to pay-roll tax'' thus requiring the reader to examine s. 6 to see which wages are so made liable. Section 6 has varied considerably over the years but it remained unchanged to 1994 and, at least during that period, contained a number of restrictions of a relatively technical kind relating to time and place of payment but which required also at the least that the wages were ``paid or payable by an employer... in Victoria'' or in respect of services performed or rendered only or mainly in Victoria: see sub-s. (1).
2. The significance of the employer in the scheme of the Act is shown by s. 8 which requires that pay-roll tax be paid ``by the employer by whom the taxable wages are paid or payable''. The definition of ``employer'' in s. 3(1) at the relevant time was (as it still remains) expansionary in the sense that it includes not only ``any person who pays or is liable to pay any wages'' but includes also ``any person deemed to be an employer by section 3C''. It was in the definition of ``wages'' in s. 3(1) that there was found the first reference to an ``employé'' (as it was, at the relevant time, spelt in the definition section of the Act
```wages' means any wages, remuneration, salary, commission, bonuses, allowances or other benefits
The expression ``or other benefits'' was deleted by s. 4 of thepaid or payable (whether at piece work rates or otherwise and whether paid or payable in cash or in kind) to or in relation to an employé as such or to or in relation to any person deemed by section 3C to be an employé and, without limiting the generality of the foregoing, includes- Pay-roll Tax (Amendment) Act1993 (No. 9 of 1993), which came into operation on 1 July 1993 but that Act, by a substituted subs. (2), provided that a reference to ``wages'' included a reference to ``fringe benefits'', other than exempt benefits for the purposes of the Fringe Benefits Tax Assessment Act1986 (Cth.). The amendment, though coming in the middle of the period under consideration, is not presently relevant.
- (ba) any amount deemed to be wages by section 3C;
- (ca) wages, remuneration, salary, commission, bonuses, allowances or other benefits paid or payable whether in cash or in kind to or in relation to an employé by any person acting for or in concert or under an arrangement or understanding whether formal or informal and whether expressed or implied with the employer;
There have usually been at least four other paragraphs of the definition but none are presently relevant. It may again be seen that the wider definition of wages was confined to that which is paid or payable ``to or in relation to an [ employé] as such'' or to any person deemed to be an employee by reason of s. 3C. It should be noted that the expression ``payable... to... an [ employee] as such'' has connotations which require the relationship between the payer and the payee to be considered as a whole. As was said
``On the other hand, the concept of `wages' would seem necessarily to ground the relationship of payer and payee in that of master and servant.''
As they later said (at 645) the question ordinarily is whether the payment could be ``rightly described as remuneration paid to employees because they were employees''. On the other hand where the deeming provisions of s. 3C are involved, the question is whether the payment is made ``to any person deemed by section 3C to be an employee'', although para. (ba) will bring in any payment to such a person if it is ``deemed to be wages'' by that section.
3. Thus when one turns to s. 3C, upon the assumption that the payment cannot otherwise be characterised as wages as generally understood, it can be seen that sub-s. (2)
ATC 4503contains three relevant deeming provisions, each necessary to satisfy various provisions of the Act, so that para. (a) deems certain persons to be ``an employer'', para. (b) deems certain persons to be ``an employee'', and, in substance, that which is paid or payable by such ``employers'' to such ``employees'' is deemed by para. (c) to be ``wages''. For each of those provisions it is necessary to ascertain what is ``a relevant contract'' and that in turn sends one to the elaborate deeming provisions contained in sub-s. (1) of s. 3C (which has not substantially changed since the period here under consideration).
4. However, it is in the end not necessary for the Commissioner to place reliance on s. 3C, for, as the judgment of Phillips, J.A. so carefully demonstrates, the payments made by Drake to the ``temporaries'', as they were described, were in fact wages as generally understood. If one regards, as one should, each engagement of a temporary as a separate contract, a proper characterisation of the payments made to them should lead to the conclusion that they were ``taxable wages'' within the meaning of the Act. For the purpose of the present dispute, there could be no real argument that the nature of the work performed by the temporaries was that of independent contractors. As the clients of Drake had no contractual dealings with the temporaries (as was effectively conceded), the clients could have been under no obligation to pay the temporaries and thus the only person properly to be described as their ``employer'' was Drake. Not only did they agree to pay each of the temporaries, but they even made a virtue out of proclaiming that they were the effective employer of each of the temporaries. The temporaries looked to it for payment and it was made clear to them that ultimate control of their activities rested with Drake.
5. It is perhaps easy to be misled by looking at the overall arrangements and to assert that Drake was merely providing services to its clients on a casual basis. But the issue is a narrower one than that inasmuch as it is necessary to characterise the payments made to the temporaries. It is therefore the relationship between the payer and recipient of those payments which is in issue. In this respect it was Drake who engaged them on every occasion and it was Drake who was responsible for paying what in other circumstances would be called wages. It would, perhaps, be harder to envisage the normal employer/employee relationship when all that Drake provided to a client was a person to do half a day or a day's work, but that is only one end of the scale, for in many cases the temporaries were provided for a week, a month or for several months. The work they then performed was the ordinary work performed by employees engaged directly to do that work. The problem in the present case is that the clients did not engage them directly, nor did they pay them or have true right of control over them inasmuch as they were not the clients' employees. On the other hand Drake did engage them, did pay their wages and did have ultimate control over them. The only difference from a normal employment arrangement was that they did not work at Drake's offices or premises but were sent to clients' premises to carry out their duties. I cannot see that that prevents Drake from being their employer according to generally accepted concepts. There could in truth be no other choice, unless the characteristic of the work performed by the temporaries made it more akin to that performed by independent contractors. The latter certainly has not been established. In fact, the temporaries were the employees of Drake, whether for shorter or longer periods, and it was the appellants who paid them their wages which for present purposes should be considered ``taxable wages'' within the meaning of the Act.
6. Strictly it is not necessary to go beyond this conclusion and to examine the deeming provisions so elaborately set out in s. 3C. I am inclined to the opinion that the difficulties raised in the present case are largely difficulties raised because there was an attempt to deem that which in truth should be characterised as wages according to ordinary concepts. Nevertheless, I would agree with Phillips, J.A., for the reasons which he so carefully expresses, that the Commissioner would also be entitled to succeed upon the basis of that section. I would also agree with Phillips, J.A. in relation to the other matters he deals with in his judgment, although I would like to strike a note of caution in relation to the connotation, in other circumstances, of the expression ``pass on'' contained in s. 22 of the Taxation Administration Act 1997.
7. I would therefore agree that the appeals should be dismissed and that the cross-appeals be allowed.