WORLD BOOK (AUSTRALIA) PTY LTD v FC of T

Judges: Clarke JA

Meagher JA
Sheller JA

Court:
Supreme Court of New South Wales - Court of Appeal

Judgment date: Judgment handed down 7 July 1992

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Meagher JA

On 16 April 1986 the appellant paid to a Mr Bruce Maiden the sum of $85.25 by way of commission. The appellant is a company which engaged in the business of selling books. The commission was payable by the appellant to Mr Maiden pursuant to a written agreement between the parties, under which a commission became payable ``on each product'' (that is, a set of encyclopaedia) ``included in an order that is taken by the agent'' (that is, Mr Maiden) ``for immediate delivery and accepted by the company'' (that is, the appellant). It is common ground that the appellant did not deduct income tax from the amount of commission to which I have referred. The appellant contends that it was not obliged to, the respondent contends it was. The respondent laid an information against the appellant which was dismissed by the learned magistrate before whom it came. His decision was reversed by Roden J on appeal in 1988, and now after a leisurely lapse of four years there is before us an appeal from Roden J's decision.

The section of the Income Tax Assessment Act 1936 of which it is alleged that there is a breach is s. 221C(1A) which reads as follows:

``Where an employer pays to an employee salary or wages, the employer shall, at the time of paying the salary or wages, make a deduction from the salary or wages at such rate (if any) prescribed...''

The relevant definitions which govern s. 221C are contained in s. 221A(1) and (2), and insofar as they are relevant are:

``s. 221A(1):

...

`employee' means a person who receives, or is entitled to receive, salary or wages...

`employer' means a person who pays or is liable to pay any salary or wages...

`salary or wages' means salary, wages, commission, bonuses or allowances paid... to an employee as such, and, without limiting the generality of the foregoing, includes... any payments made -

• (a) under a contract that is wholly or principally for the labour of the person to whom the payments are made...

s. 221A(2):

For the purposes of the definition of `salary or wages' in subsection (1) -

• (a)...
• (b) a payment made to a person under a contract that is wholly or principally for the labour of any person shall be taken to be a payment made under a contract that is wholly or principally for the labour of the person to whom the payment is made if -
  • (i) in the case of a payment that is made in respect of labour that has been performed, in whole or in part, before the time when the payment is made - the whole or principal part of the labour that was performed before the time when the payment is made was performed by the person to whom the payment is made; and
  • (ii) in case of a payment that is made in respect of labour the whole of which is to be performed after the time when the payment is made - the person making the payment can reasonably be expected to believe that

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    ATC 4330

    the person to whom the payment is made will perform the whole or principal part of the labour in respect of which the payment is made.
• ...''

The resolution of the dispute depends on whether the commission paid to Mr Maiden was ``salary or wages'' within the statutory definition. It is clear enough that the expression ``salary or wages'' normally denotes payments by an employer to an employee and would not be apt to cover payments made to an independent contractor. But unhappily it is also clear enough that Parliament has intended to widen the ambit of the expression so that it catches some payments made to persons other than employees. In the present case it was conceded before Roden J by the present respondent that the relationship between the appellant and Mr Maiden did not fall within the common law relationship of employer and employee, and no attempt was made before us to resile from this concession. Nonetheless his Honour found that the payment fell within the extended statutory definition of ``salary or wages''.

The meaning of the expression ``salary or wages'' in s. 221A(1) has been to some extent covered by previous authority. The High Court in
Neale (DFC of T) v Atlas Products (Vic) Proprietary Limited (1955) 10 ATD 460; (1955) 94 CLR 419 had this to say of it at ATD 461-462; CLR 424-425:

``It is clear that monies paid to an independent contractor in satisfaction of a contractual obligation do not, in the ordinary legal sense, represent salary or wages. Nor are the general words of the definition of `salary or wages' appropriate to assimilate the remuneration of an independent contractor to the defined term. `Salary or wages' means salary, wages, commission, bonuses or allowances paid to an employee as such . The question then arises whether the particular provision that the defined term shall include payments made under a contract which is wholly or substantially for the labour of the person to whom the payments are made sufficiently widens the meaning of the term to embrace, at least in some circumstances, the remuneration of an independent contractor. In the argument addressed to this court there may have been a suggestion that if in the case of any independent contractor it appeared that the parties contemplated that the contractual work would be substantially performed by the independent contractor himself, although the terms or conditions of the contract, whether express or implied, did not actually require it, the particular extension of the defined term would be sufficient justification for characterising his remuneration as salary or wages for the purposes of s. 221C. This suggestion, however, is without validity, for if the contract leaves the contractor free to do the work himself or to employ other persons to carry it out the contractual remuneration when paid is not a payment made wholly or at all for the labour of the person to whom the payments are made. It is a payment made under a contract whereby the contractor has undertaken to produce a given result and it becomes payable when, and only when, the contractual conditions have been fulfilled. Moreover, the nature of the payment is not affected by the circumstance that the contractor has himself performed the bulk of the work under the contract or that it was the expectation of the parties that he would do so if, in truth, the contract did not create the relationship of master and servant. It may be, however, that in cases where an independent contractor is required by the terms of his contract to perform the contractual work himself the addition to the general definition may have some application, but it is unnecessary, in the circumstances of this case, to express any concluded view concerning contracts of such a special class.''

Obviously enough, the High Court was speaking only of the section as it stood in 1954. At that time it did not contain paragraph (2)(b), which was not introduced into the Act until 1983. What the High Court was saying was surely this: in order to be caught by the Act a payment must be a payment either to an employee in the strict sense, or alternatively to a person who is engaged under a contract that is wholly or principally for his labour; where a contractor has the right to delegate his contractual tasks (whether or not he exercises that right) he does not come within that alternative description; what categories of independent contractors are caught by the statutory definition is unclear. The contract

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ATC 4331

between Mr Maiden and the appellant conferred on Mr Maiden a right of delegation, and it is, I think, fairly clear that if the present case had arisen before the 1983 amendments there would be no question but that the respondent would have lost.

Counsel for the respondent contended, and Roden J decided, that the 1983 amendments, by adding paragraph (2)(b) to s. 221A, had reversed the effect of the Atlas Products Case , so that the existence of the right to delegate no longer prevented a contract from coming within the statutory definition. I think this was Parliament's intention in enacting the paragraph, despite the lapse of over 20 years since the decision against which it was reacting. Nonetheless a very real question arises whether the language which Parliament chose to use really effectuates that intention. I cannot understand how the Atlas Products Case can be read except as deciding that the words ``a contract that is wholly or principally for the labour of the person to whom the payments are made'' cannot refer to a contract with an independent contractor where the latter has a power to delegate his tasks. Yet paragraph (2)(b) uses that expression, and therefore should be taken as referring only to some category of contract which does not contain a power of delegation. If, therefore, a contract contains a power of delegation, s. 221A(2)(b) cannot apply to it. Of course this raises a query as to the utility of the paragraph: what work does it do? It is a query I find impossible to answer. Nonetheless, bearing in mind that the statute is both fiscal and penal, I see no reason why the Courts should construe its provisions so they mean something they intended to say but do not say. For these reasons I think that the learned magistrate came to the correct decision and Roden J fell into error in overruling him.

But even if I am wrong in this view, it does not follow that Roden J was correct in the conclusion to which he came. To reach that result it would be necessary to take the view that the presence of a power of delegation was, before 1983, the only possible obstacle to a contract generating an obligation to deduct tax in respect of payments made under it. This is not so. A contract (other than a contract constituting the parties employer and employee) must still satisfy the description of ``a contract that is wholly or principally for the labour of the person to whom the payments are made''. This, one would have thought, is not the same thing as ``a contract under which the payee performs some labour on behalf of the payer''. Indeed I should have thought that the very statutory wording employed suggests that there are some categories of contract where payments are made in consideration for work done which do not fall within the definition. The High Court's dicta in the Atlas Products Case points in the same direction. And it would be surprising if the statute caught, for example, a client's payments to his solicitor, a property- owner's payments to his estate agent or a patient's payments to his surgeon. The extremely wide view of the definitions urged on us by counsel for the respondent, although impliedly adopted by Roden J below, and expressly adopted by Lush J in
DFC of T v Bolwell (1967) 1 ATR 862 at 872, that the section is brought into play whenever a payment is made under a contract to a payee who performs some labour is, to my mind, erroneous. However, once one takes the view that whilst the statutory definitions are apt to catch payments to some independent contractors but do not extend to all independent contractors, one is faced with the extraordinarily difficult question of where to draw the line. I do not think any formula is capable of enunciation which will answer that question. However, in the present case, when the essence of the contract was to achieve a result and not to do work, and where under the contract the payee was not obliged to do any work at all (although in fact he apparently did a great deal), in my view the payment was not made under a contract of the kind to which the statutory definitions refer.

In my view the present appeal should be upheld and the decision of Roden J be set aside. The appeal by way of stated case to Roden J should be dismissed with costs. The decision of the magistrate, Mr Wall, should be confirmed. The respondent should pay the appellant's costs of the appeal and have a certificate under the Suitors' Fund Act in respect of the costs of the appeal.