Thinking | 16 November 2018

Talking Tax – Issue 142

Case law

Supreme Court finds that the State Revenue Office made a payroll tax mistake

In Nationwide Towing & Transport Pty Ltd v Cmr of State Revenue (No 2) [2018] VSC 609, the Victorian Supreme Court determined that the taxpayer’s payroll tax assessments should be set aside, as an error of statutory interpretation had been made by the State Revenue Office, and the Commissioner of State Revenue (Commissioner) should reconsider whether the exemption for contractors who ordinarily perform services of that kind to the public generally had in fact been satisfied.

In light of this decision, businesses that are registered for payroll tax are encouraged to consider whether they are making payments to contractors that might satisfy this exemption - the exemption not necessarily requiring that the contractors are running independent businesses or servicing multiple customers at the same time.

Nationwide Towing & Transport Pty Ltd (as representative of its payroll tax group) (Taxpayer) had a contract with the RACV to provide emergency roadside assistance services, with the Taxpayer engaging with its own contractors to provide these services (Contractors).

The Commissioner issued payroll tax assessments to the Taxpayer for the 2010 to 2014 financial years (Assessments).

The Taxpayer lodged an objection to the Assessments on 19 May 2015 on the primary ground that certain payments made by a member of the group (Eastern Van Services Pty Ltd) to Contractors should not be treated as taxable wages as the services were performed by persons who ordinarily performed services of that kind to the public generally in that financial year (as provided for by sub-section 32(2)(b)(iv) of the Payroll Tax Act 2007 (PTA)). In particular, the Taxpayer relied on the fact that the Contractors directly provided other, similar services to RACV members outside of their contract with the Taxpayer, including selling spare parts to those drivers.

The Commissioner was not satisfied that the services provided by the contractors were provided in the course of conducting a genuinely independent business, which stands in the market place and ordinarily renders like services to the public generally (other than to RACV members through the contract with the Taxpayer). Accordingly, the Taxpayer’s objection was disallowed.

The Taxpayer primarily contended that in the objection determination, the delegate of the Commissioner misdirected herself as to the relevant question in applying sub-section 32(2)(b)(iv) of the PTA and that her conclusion was affected by a mistake of law. More specifically, the Taxpayer argued that the relevant question was not whether the services were provided by the Contractors “in the course of conducting a genuinely independent business” or “in the course of providing services to EVS”, but rather whether services of the same kind are ordinarily performed to the public.

The Court agreed that the delegate of the Commissioner incorrectly applied the law. The correct inquiry is to focus on whether the services provided by the Contractors directly under contract were of the same kind as services provided to the public generally. The Commissioner erred by incorrectly focussing on the fact that the Contractors did not operate their own garages and repair businesses in addition to providing services to the Taxpayer.

The Court drew on the principles from Re Behmer & Wright Pty Ltd and the Commissioner of State Revenue and Drake Personnel Ltd v Commissioner of State Revenue, which both held that the requirement that services be “ordinarily rendered” to the public generally does no more than require the Commissioner to look at the contractor’s business and be satisfied that the ordinary course of that business is to render services to whoever will contract the contractor on similar terms.

For example, in Behmer, contractors were engaged to provide carpentry services to large projects which would involve working for one entity for long periods. Despite the exclusivity during these periods, the contractor was held to perform services of the kind to the public generally as the contractor still worked from time to time for members of the public. This is likened to a barrister who accepts exclusive commitment to one brief for an extended period of time but still generally offers their services to the public in that financial year.

As this was an error of law, the Court did not rule on whether the contractors did in fact provide services to the public. Rather, it held the Commissioner erred in applying the law and remitted the case back to the Commissioner for redetermination.

Tribunal clarifies principal place of residence test for land tax purposes

In Kerruish v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 1724 the Victorian Civil and Administrative Tribunal (VCAT) clarified the test to determine whether a property qualifies as a “principal place of residence” for land tax purposes (PPR). In doing so, VCAT upheld the Commissioner’s assessments for the 2013 and 2014 land tax years but found that the assessments for the 2012, 2015 and 2016 land tax years should be set aside and varied to nil.

In light of this decision and the numerous data matchup tools available to the revenue offices, taxpayers claiming the PPR land tax exemption (and, implicitly, other PPR concessions) should be careful about what addresses they are providing to authorities and how that might affect their ability to prove that they are genuinely occupying a property as their principal place of residence.

Ms Kerruish had objected to her land tax assessments for the 2012 - 2016 land tax years (Relevant Period) on the basis that the property being assessed (Altona Property) was her PPR for the Relevant Period.

The Commissioner had provided VCAT with four pieces of evidence supporting that Ms Kerruish was in fact living in another property in Tarneit during the Relevant Period, including a passenger card that listed the Tarneit property as her intended address in Australia and the address she provided to the Australian Securities and Investments Commission when registering a new company. In the evidence provided, there were also references to the property being vacant in some years and receiving rental income in other years.

VCAT cited Chief Commissioner of State Revenue v Ferrington [2004] NSWADTAP 41 and identified the following common principles in determining a person’s PPR:

  1. the words “principal place of residence” should be given their ordinary meaning in the context in which they appear;
  2. whether someone has been residing in premises as their PPR is to be assessed objectively in light of the circumstances relating to the actual occupation of the dwelling;
  3. the intention of the person concerned is relevant but not determinative;
  4. the residence must have a degree of permanence to it;
  5. the short length of a person’s residence, while relevant, is not determinative;
  6. the reason for a person’s departure from the home must be reasonable and adequately explained when considered in light of their personal circumstances.

VCAT further added that account must be taken of every place of residence of the person.  In this respect, where a taxpayer has access to multiple properties, it will be a question of fact and degree to determine if a particular property has been proven to be the PPR for the taxpayer.

Finally, the use of land must be considered for each particular year in question rather than aggregating its use over all of the years in contention.

In this case, VCAT considered the background and facts and determined that Ms Kerruish failed to prove that she occupied the Altona Property as her PPR for the Relevant Period for the purposes of the PPR exemption in section 54 of the Land Tax Act 2005 (LTA). However, given that she had occupied the Altona Property as her PPR from June 2010 to June 2011 and temporarily left the property, Ms Kerruish was entitled to the exemption for an absence from PPR contained in section 56 of the LTA for the years that the Altona Property was not rented, being 2012, 2015 and 2016.


Andrew O’Bryan

Andrew specialises in taxation law. He is a CPA Australia Fellow and Chairman of its Taxation Centre of Excellence.

Jim Koutsokostas

Jim is a experienced lawyer and Chartered Tax Advisor, providing expert advice on corporate and trust tax matters.

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