Civil and Administrative Tribunal New South Wales Medium Neutral Citation: BSA Ltd v Chief Commissioner of State Revenue [2022] NSWCATAD 275 Hearing dates: 23 and 24 November 2020 Date of orders: 26 July 2022 Decision date: 26 July 2022 Jurisdiction: Administrative and Equal Opportunity Division Before: NS Isenberg RFD, Senior Member Decision: The decisions under review are affirmed. Catchwords: TAXES AND DUTIES – payroll tax – liability to taxation – arrangements affecting liability to tax – review of assessments pursuant to s 96 of the Taxation Administration Act 1996 (NSW) TAXES AND DUTIES – interpretation of ss 32(2)(a) and (d) of the Payroll Tax Act 2007 (NSW) – whether supply of services by subcontractors under the subcontracts was ancillary to the supply of goods TAXES AND DUTIES – interpretation of s 32(2B) of the Payroll Tax Act 2007 (NSW) – whether subcontracts were relevant contracts under s 32(2B) – whether the subcontracts included services that were not for or ancillary to the supply or conveyance of goods TAXES AND DUTIES – penalty tax and interest – interpretation of Part 5 of the Taxation Administration Act 1996 (NSW) – whether reasonable care was exercised by the taxpayer Legislation Cited: Administrative Decisions Review Act 1997 (NSW) Payroll Tax Act 2007 (NSW) Taxation Administration Act 1996 (NSW) Civil and Administrative Tribunal Act 2013 (NSW) Duties Act 1997 (NSW) Cases Cited: Adams Bidco v Chief Commissioner of State Revenue [2019] NSWSC 702 B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187; (2008) 74 NSWLR 481 Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue; International Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 657 Boston Sales and Marketing Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 139 Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd [2020] NSWCA 126 Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 Downer EDI Engineering v CCSR [2019] NSWSC 743 Harrison v Melhem [2008] NSWCA 67 HRC Hotel Services v CCSR [2018] NSWSC 820 Levitch Design Associates v CCSR [2014] NSWCATAD 215 Qualweld Australia Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 227; (2014) 100 ATR 339 Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA470 South Sydney West Area Health Service v Stamoulis [2009] NSWCA 153 The Smith's Snackfood Company Limited v Chief Commissioner of State Revenue (NSW) [2012] NSWSC 998 Texts Cited: Nil Category: Principal judgment Parties: BSA Ltd (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: E Bishop with O Berkmann (Applicant) S Balafoutis SC with D Stretton (Respondent) Solicitors: Johnson Winter & Slattery (Applicant) Crown Solicitor (Respondent) File Number(s): 2018/00291991 Publication restriction: Confidentiality orders were made on 23 November 2020 (the Orders). Pursuant to s 64(1)(d) of the CAT Act, in addition to the Orders, the contents of these Reasons marked [NOT FOR PUBLICATION] are not to be published, other than those words. REASONS FOR DECISION Background 1. On 24 September 2018 the Applicant filed with the Tribunal an Administrative review application form seeking a review by the Tribunal of a disallowance by the Chief Commissioner on 10 July 2018 (the Disallowance) of an objection made by the Applicant on 8 February 2018 to a payroll tax notice of assessment issued 11 December 2017 for the financial year ending 30 June 2017 (the Assessment). 2. On 15 October 2019, the Applicant filed an amended Administrative review application (the Application) again seeking a review by the Tribunal of the Disallowance. 3. There is no dispute that, as the Applicant submitted at [1] in its "Closing Trial Submission" filed 11 February 2021: In these proceedings … BSA Limited ["the Applicant" or "BSA"] … seeks a review of a payroll tax assessment … issued by [the Chief Commissioner of State Revenue ("the Respondent" or "the Chief Commissioner"] pursuant to the Payroll Tax Act 2007 (NSW) [PT Act] for the period 1 July 2016 to 30 June 2017 [the Relevant Year]. The payroll tax was imposed [amongst others] in respect of payments BSA made to subcontractors under subcontracts between BSA and its subcontractors for services provided in respect of: Foxtel Management Pty Ltd (Foxtel), Optus Networks Pty Ltd (Optus), NBN Co Limited (NBN), Telstra and Ericsson (referred to as "platforms"). 1. There is also no dispute that the Respondent submitted in its "Closing Written Submissions" filed 22 February 2021: 2 The disputed part of the assessment relates to the "BSA Connect" division of BSA's business. This division works for pay TV and broadband providers such as Foxtel, Optus and NBN (providers or platforms). BSA engages contractors (technicians) who attend the premises of the providers' customers. The contractors provide and install equipment such as satellite dishes, set top boxes and modems at the customers' premises, and connect that equipment to the providers' pay TV and broadband networks. The contractors also provide service calls … for those customers. 3 The Chief Commissioner determined that the contracts between BSA and its contractors (technicians) were "relevant contracts" within the meaning of s 32 of the [PT Act], and that amounts paid by BSA to its contractors (contractor payments) were paid "under" those contracts. Section 35(1) of the PTA has the effect that payments made under "relevant contracts" are taken to be wages and thus are liable to payroll tax. However, under s 35(2) of the PTA, the proportion of contractor payments that is "not attributable to the performance of work" (the non-labour component) is not subject to payroll tax. 4 The Chief Commissioner determined that the non-labour component of BSA's contractor payments was 25%. That figure was applied to contractor payments of [NOT FOR PUBLICATION] giving a net taxable amount of [NOT FOR PUBLICATION] … BSA objected to [the Assessment] on the basis that the non-labour component should be 36.04% s 58 documents, p 25. The Chief Commissioner disallowed the objection s 58 documents, pp 189-190. BSA then commenced these proceedings seeking review of the assessment, s 58 documents, p 191 ... The role of the Tribunal 1. The Tribunal was established by the Civil and Administrative Tribunal Act 2013 (NSW) (CAT Act). The objects of the CAT Act include enabling the Tribunal to review and determine appeals against decisions made by certain persons and bodies; enabling the Tribunal to resolve the real issues in proceedings justly, quickly, cheaply and with as little formality as possible; and ensuring that the Tribunal's processes are open and transparent (ss 3(b)(ii) and (iii), 3(d) and 3(f)). Jurisdiction of the Tribunal 1. Section 28 of the CAT Act provides "The Tribunal has such jurisdiction and functions as may be conferred or imposed on it by or under this Act or any other legislation." 2. Notwithstanding the wording of the applications referred to above, I observe that during the hearing the parties agreed, by their respective counsel, that the decision the subject of review by the Tribunal is the Assessment not the Disallowance. 3. In Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 the Court of Appeal said at [28]: … the right of review under s 97 is given by reference to the operative decision of the Chief Commissioner and not to a ruling made on an objection. Although the existence of an objection is a necessary precondition to the power of review by the Court, and it is the taxpayer's dissatisfaction with the determination of the objection which provides standing to seek review, it is the initial decision which is the subject matter of the review. 1. Section 96 of the Taxation Administration Act 1996 (NSW) (TA Act) provides the jurisdictional power of administrative review by the Tribunal which is commensurate with the Supreme Court's jurisdictional power in s 97. I find that the decision the subject of review by the Tribunal is the Assessment not the Disallowance. 2. There is no dispute that the Tribunal is empowered to review the Assessment (ss 9 and 55 of the Administrative Decisions Review Act 1997 (NSW) (ADR Act) and s 96 of the TA Act). Section 63 of the ADR Act requires the Tribunal, in determining an application concerning an administratively reviewable decision, to decide what the correct and preferable decision is having regard to the material then before it, including any relevant factual material and any applicable written or unwritten law, and authorises the Tribunal to affirm, vary or set aside the administratively reviewable decision. If the Tribunal sets aside that decision the Tribunal is to make a decision in substitution for that decision or remit the matter for reconsideration by the administrator who made the decision. Material before the Tribunal 1. Both parties relied on: 1. A bundle of 193 pages of documents filed 13 November 2018 pursuant to s 58 of the Administrative Decisions Review Act 1997 (NSW) (ADR Act), (s 58 documents). 2. The documents in a Joint Bundle of Authorities dated 20 November 2020. 1. The Chief Commissioner relied on: 1. Affidavit of Nicholas Andrew Borger affirmed 16 July 2019 and Exhibits "NAB-I" and "NAB-2" to the affidavit; 2. Affidavit of Kevin Bernard Pillay sworn 15 July 2019 and Exhibit "KP-I" (Mr Pillay's expert report); 3. The Respondent's Closing Written Submissions dated 19 February 2021(RS); 4. Oral submissions made during the hearing by Mr Balafoutis; and 5. Oral concessions made during the hearing by Ms Bishop. 1. References to submissions by the Respondent are to submissions in RS unless indicated to the contrary. 2. The Applicant relied on; 1. Affidavit of Tao Li dated 11 April 2019; 2. Affidavit of Christopher Shawn Reid dated 11 April 2019 and 18 November 2020; 3. Affidavit of Yang (Ken) Liang dated 17 April 2019; 4. Affidavits of Rebecca Crompton dated 17 April 2019 and 14 November 2019; 5. Affidavits of Simon Kuan Chieh Lee dated 17 April 2019 and 14 May 2019; 6. Affidavit and expert report of Michelle Hartman of Deloitte Touche Tohmatsu Limited (Deloitte) sworn 14 May 2019; and Ms Hartman's advice letters to the Applicant of 11 June 2019 and 11 November 2019 (annexed to Mr Benson's affidavit); 7. Affidavit of Evan Avades dated 4 November 2019; 8. Affidavits of Anthony Sarcasmo dated 8 November 2019 and 1 September 2020; 9. Affidavit of Lucas Lithgow dated 8 November 2019; 10. Affidavit of Nicholas John Benson dated 25 November 2019; 11. Affidavits and expert reports of Justin Algie of Deloitte dated 20 December 2019 and 1 September 2020; 12. Affidavit of Leaston Paull dated 1 September 2020; 13. Affidavit of Rajan Sappideen dated I September 2020; 14. The Applicant's Closing Trial Submissions dated I I February 2021 (AS or ACS) and Closing Trial Submissions in Reply dated 26 February 2021 (ASR or ACSR); 15. Affidavit of Robert Reaveley Wyld made 17 November 2020; 16. Oral submissions made during the hearing by Ms Bishop; and 17. Oral concessions made during the hearing by Mr Balafoutis. 1. References to submissions by the Applicant are to submissions in AS / ACS unless indicated to the contrary. Onus 1. There is no dispute that s 100(3) of the Taxation Administration Act 1996 (NSW) (TA Act) provides that the Applicant has the onus of proving its case in a review by the Tribunal. 2. The requisite standard of proof is the "balance of probabilities" (Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [31] and B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187; (2008) 74 NSWLR 481 at [104]). 3. The Chief Commissioner submitted: 7 … BSA has not satisfied its onus on each issue. On the relevant contracts issue, the contracts (or overall arrangements) between BSA and its contractors were "relevant contracts" under s 32(2B) of the PTA because they included services of a kind not covered by ss 32(2)(a) and (d) of the PTA - that is, they included services that were not for or ancillary to the supply or conveyance of goods. On the non-labour component issue, BSA has not established that the non-labour component (being an average across all contractor payments during the relevant period) exceeds 25%. On the penalty tax issue, BSA failed to undertake proper investigations to determine the non-labour costs incurred by its contractors, despite being informed by the Chief Commissioner that this exercise was necessary to quantify the non-labour component. 1. The Respondent submitted at [15], and the Applicant conceded at ASR [12], that the Respondent did not bear the onus of proving the Assessment was correct. 2. The Respondent further submitted: 15 … the Tribunal is obliged to assume that the assessment is correctly made unless the applicant establishes otherwise. This is clear from two provisions of the TAA (a) Section 119 of the TAA provides that, in an application for review, the notice of assessment is prima facie evidence that the amount and all particulars of the assessment are correct (b) Section 100(3) of the TAA provides that, in an application for review, the applicant has the onus of proving its case … 17 In Levitch Design Associates v CCSR [2014] NSWCATAD 215 at [27], the Tribunal said: … The legislation does not place any onus on the Chief Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The burden on the applicant is not necessarily discharged by showing an error by the Chief Commissioner in forming a judgment as to the amount of the assessment. It is for the taxpayer to discharge the burden of proof by establishing what the correct amount of an assessment should be ... Statutory context of payroll tax 1. Payroll tax is a tax imposed by the PT Act on employers (as defined) in respect of New South Wales taxable wages (as defined and referred to herein as "wages" unless stated to the contrary) paid during each financial year. If total wages paid by an employer during a financial year, are below the statutory payroll tax threshold for that year, then no payroll tax is payable by that employer. All references in these reasons to legislative provisions, are to provisions of the PT Act, unless stated to the contrary. 2. Section 13 provides an inclusive definition of wages to the effect that "wages" includes both the "wages" described in s 13 and any amount taken to be wages by any other provision of the PT Act. 3. Division 7 of Part 3 of the PT Act (ss 31 to 36) as at 30 June 2017 provided that certain amounts paid or payable during a financial year by a person (taken to be an employer) for or in relation to the performance of work relating to a relevant contract (as defined) are taken to be wages paid or payable during that financial year. 4. The PT Act, with emphasis on Division 7, relevantly states: Historical version for 28 June 2017 to 14 December 2017 An Act to provide for a tax on employers in respect of certain wages, to harmonise payroll tax law with Victoria, to repeal the Pay-roll Tax Act 1971; and for other purposes. Part 1 Preliminary 1 Name of Act This Act is the Payroll Tax Act 2007. 2 Commencement This Act commences or is taken to have commenced on 1 July 2007. … Division 7 Contractor provisions 31 Definitions In this Division: contract includes an agreement, arrangement or undertaking, whether formal or informal and whether express or implied. relevant contract has the meaning given in section 32. re-supply of goods acquired from a person includes: (a) a supply to the person of goods in an altered form or condition, and (b) a supply to the person of goods in which the first-mentioned goods have been incorporated. services includes results (whether goods or services) of work performed. supply includes supply by way of sale, exchange, lease, hire or hire-purchase, and in relation to services includes the providing, granting or conferring of services. 32 What is a relevant contract? (1) In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person: (a) supplies to another person services for or in relation to the performance of work, or (b) has supplied to the designated person the services of persons for or in relation to the performance of work, or (c) gives out goods to natural persons for work to be performed by those persons in respect of those goods and for re-supply of the goods to the designated person or, where the designated person is a member of a group, to another member of that group. (2) However, a relevant contract does not include a contract of service or a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person: (a) is supplied with services for or in relation to the performance of work that are ancillary to the supply of goods under the contract by the person by whom the services are supplied or to the use of goods which are the property of that person, or (b) is supplied with services for or in relation to the performance of work where: (i) those services are of a kind not ordinarily required by the designated person and are performed by a person who ordinarily performs services of that kind to the public generally, or … or (c) is supplied by a person (the contractor) with services for or in relation to the performance of work under a contract to which paragraphs (a) and (b) do not apply where the work to which the services relate is performed: (i) by two or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or (ii) where the contractor is a partnership of two or more natural persons, by one or more of the members of the partnership and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or (iii) … or (d) is supplied with services solely for or ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them. … (2B) Subsection (2) (a), (b), (c) or (d) does not apply to a contract under which any additional services or work (of a kind not covered by the relevant paragraph) are supplied or performed under the contract. … 33 Persons taken to be employers (1) For the purposes of this Act, a person: (a) who during a financial year, under a relevant contract, supplies services to another person, or (b) to whom during a financial year, under a relevant contract, the services of persons are supplied for or in relation to the performance of work, or (c) who during a financial year, under a relevant contract, gives out goods to other persons, is taken to be an employer in respect of that financial year. (2) If a contract is a relevant contract under both section 32 (1) (a) and (b): (a) the person to whom, under the contract, the services of persons are supplied for or in relation to the performance of work is taken to be an employer, and (b) despite subsection (1) (a), the person who under the contract supplies the services is taken not to be an employer. 34 Persons taken to be employees For the purposes of this Act, a person who during a financial year: (a) performs work for or in relation to which services are supplied to another person under a relevant contract, or (b) being a natural person, under a relevant contract, re-supplies goods to an employer, is taken to be an employee in respect of that financial year. 35 Amounts under relevant contracts taken to be wages (1) For the purposes of this Act, amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract or the re-supply of goods by an employee under a relevant contract are taken to be wages paid or payable during that financial year. (2) If an amount referred to in subsection (1) is included in a larger amount paid or payable by an employer under a relevant contract during a financial year, that part of the larger amount which is not attributable to the performance of work relating to the relevant contract or the re-supply of goods by an employee under the relevant contract is as determined by the Chief Commissioner. (3) An amount paid or payable for or in relation to the performance of work under a relevant contract is taken to include: (a) any payment made by a person who is taken to be an employer under a relevant contract in relation to a person who is taken to be an employee under the relevant contract that would be a superannuation contribution if made in relation to a person in the capacity of an employee, and (b) … 1. I observe that both parties referred to the second reading speech by the Minister in relation to the State Revenue Legislation Further Amendment Bill 2014 (NSW) (which became the Amending Act), on 29 May 2014. The speech included wording at Hansard, pages 29468 to 29470. 2. That part of the Minister's second reading speech included by the Applicant in its submissions (immediately after [113]) is: The relevant contracts provisions currently provide an exemption from payroll tax for remuneration paid to an owner driver for services that are ancillary to the conveyance of goods. The exclusion applies to contracts under which the driver provides a vehicle to transport goods... The bill makes it clear that the exemption for owner drivers is limited to a contract that provides solely for the conveyance of goods, and ancillary services such as loading and unloading the vehicle. The legislation has been administered by the Chief Commissioner on this basis since 1986. However, recent decisions of the New South Wales Supreme Court and Court of Appeal indicate the exemption can be claimed for contracts under which other types of services or other kinds of work are provided. This has opened up significant tax avoidance opportunities. In an overwhelming proportion of cases, owner driver contracts relate solely to the provision of the vehicle and ancillary services, including the driver's services in driving the vehicle as well as loading and unloading. Therefore the amendments will not have a significant effect on current industry arrangements, but they will prevent the manipulation of contracts that are not specifically for the conveyance of goods but which may require the incidental use of a vehicle. The Victorian Payroll Tax Act has already been amended and will take effect from 1 July 2013 to give effect to the changes to the anti avoidance and owner driver provisions proposed in this bill. 1. The Applicant then submitted at [114] to [119]: 114 Prior to the amendments being introduced into the PTA, equivalent sections were introduced into the Victorian Payroll Tax Act 2007 (Vic) via the State Laws Amendment (Budget and Other Measures) Bill 2013 with the equivalent provision to s 32(2B) being s 32(2A) of the PTA (Vic) which reads as follows: (2A) Subsection (2)(a), (2)(b)(i), (2)(b)(iv) or (2)(d) does not apply to a contract under which services not referred to in that subsection are supplied in addition to services referred to in that subsection. 115. With respect to the amendments made to s 32(2)(d) of the PTA (Vic), clause 44 of the explanatory memorandum relevantly provides: "Subclause (2) amends section 32(d) of the Payroll Tax Act 2007. Subclause 2(a) amends section 32(2)(d)(i), which deals with owner-drivers, to insert "solely for or" after "services". "In The Smith's Snackfood Company Limited v Chief Commissioner of State Revenue (NSW) [2012] NSWSC 998, the Supreme Court of NSW observed that the language of the equivalent provision in the Payroll Tax Act 2007 (NSW) was such that it did not provide an exemption for contracts for the conveyance of goods by owner drivers, but only for those services ancillary to the conveyance of goods. To ensure that this exemption covers both, and is limited solely to those purposes, this amendment expressly provides that a relevant contract does not include a contract under which the principal is supplied with services solely for the conveyance of goods, or services that are ancillary to that conveyance, using a vehicle provided by the person conveying the goods." 116. The introduction of s 32(2B) in NSW (and s 32(2A) in VIC) was out of abundant caution to ensure that if a contract includes services not already covered by s 32(2)(a) to (d) the exception was not engaged and the contract was a "relevant contract". For the purposes of s 32(2)(a), if a contract includes additional services which are not ancillary to the supply of goods, s 32(2B) operates to ensure that the contract remains a "relevant contract." A similar result is achieved by s 32(2B) for the purposes of s 32(2)(d) where a contract includes additional services which are not ancillary to the conveyance of goods. Put another way, s 32(2B) is only engaged if the Contract includes additional services which are not ancillary to the supply of goods. 117. There is nothing in the language of the provision nor in the extrinsic materials to suggest that the word "ancillary" as used in s 32(2)(a) or in s 32(2)(d) was to be given a different meaning from that applied in Smith's Appeal. The examples of ancillary services to a conveyance of goods given by the Minister in the second reading speech (at [113] above) were simply that - examples an ancillary services for the purposes of s 32(2)(d). No assistance is obtained from relying on those words to construe the metes and bounds of the word "ancillary" as used in s 32(2)(a) to (d). 118. Therefore, the construction of the word "ancillary" as used in s 32 of the PTA given by the Court of Appeal in Smith's Appeal and in Downer Appeal is equally applicable to s 32 after the amendments and introduction of s 32(2B). 119. For all the reasons expressed above and consistent with the conclusions reached in Downer, BSA contends that under the subcontracts service calls and change orders are ancillary to the supply of goods and the conveyance of goods. Consequently, s 32(2B) of the PTA is not engaged. 1. The Chief Commissioner also extracted part of the second reading speech. That extract included the Applicant's extract other than the reference to the amendment to the Victorian Payroll Tax Act. 2. I have set out below a broader extract from the Minister's second reading speech. The underlined section of the Tribunal's extract is that part extracted by the Chief Commissioner in his submissions. The bold extract was emphasised by the Chief Commissioner in the section of the speech he extracted. The bill makes amendments to the "relevant contracts" provisions of the Payroll Tax Act 2007, which tax remuneration paid to contractors who provide services on a similar basis to ordinary employees but who are regarded at law as independent contractors. The practice of using contractors is often intended to avoid administrative and on-costs associated with long-term employment contracts, including charges and taxes such as payroll tax. The relevant contracts provisions have applied to payroll tax since 1985 to combat arrangements that avoided payroll tax ... … There are a number of exclusions in the relevant contracts legislation which exempt payments to genuine independent contractors... there are general exemptions applying to contractors who are owner-drivers … This ensures that genuine small businesses do not lose their entitlement to the small business tax-free threshold ... … The amendments in this bill extend this anti avoidance provision so that it can be applied when an employer enters into arrangements to avoid tax using any of the other exemptions in the relevant contracts provisions. This is necessary because of the use of various contrived arrangements that avoid the contractor provisions. The relevant contracts provisions currently provide an exemption from payroll tax for remuneration paid to an owner-driver for services that are ancillary to the conveyance of goods. The exclusion applies to contracts under which the driver provides a vehicle to transport goods. The reason for the exemption is that a large proportion of the consideration paid to owner-drivers is for the provision of a vehicle and its running costs. The value of the personal services of the driver represents a relatively small proportion of the payments to owner-drivers. The bill makes it clear that the exemption for owner-drivers is limited to a contract that provides solely for the conveyance of goods, and ancillary services such as loading and unloading the vehicle. The legislation has been administered by the Chief Commissioner on this basis since 1986. However, recent decisions of the New South Wales Supreme Court and Court of Appeal indicate the exemption can be claimed for contracts under which other types of services or other kinds of work are provided. This has opened up significant tax avoidance opportunities. In an overwhelming proportion of cases, owner-driver contracts relate solely to the provision of the vehicle and ancillary services, including the driver's services in driving the vehicle as well as loading and unloading. Therefore the amendments will not have a significant effect on current industry arrangements, but they will prevent the manipulation of contracts that are not specifically for the conveyance of goods but which may require the incidental use of a vehicle. … 1. Certain of the Chief Commissioner's submissions, concerning the anti-avoidance legislation in 2014, are as follows, from [26] to [35B]: 26 Section 32(2B) of the PTA provides an exception to the exceptions (2B) Subsection (2) (a), (b), (c) or (d) does not apply to a contract under which any additional services or work (of a kind not covered by the relevant paragraph) are supplied or performed under the Contract. 27 Section 32(2B) was inserted by the State Revenue Legislation Further Amendment Act 2014 (NSW) (Amending Act) with effect from 1 July 2014. This was in response to (at least) the decisions in The Smith's Snackfood Company Limited v Chief Commissioner of State Revenue (NSW) [2012] NSWSC 998 (Smith's trial) and Smith's Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW) [2013] NSWCA 470 (Smith's appeal) To understand s 32(2B), it is necessary to explain those decisions 28 In Smith's trial and Smith's appeal, the plaintiff taxpayer (Smith's) sold snack foods and drinks through vending machines, and engaged independent contractors to store, transport and restock the machines (among other services) The issue was whether the contracts between Smith's and its contractors were "relevant contracts" - specifically, whether the exception in s 32(2)(d)(i) of the PTA applied (which was relevantly similar to what is now s 32(2)(d)) 29 In Smith's trial, Gzell J held that some services provided by Smith's contractors were, while others were not, "ancillary" to the conveyance of goods, and that the contracts could be apportioned or divided so that payments in relation to non-ancillary services were liable to payroll tax, and payments in relation to ancillary services were not liable. 30 In Smith's appeal, the Court of Appeal held that the contracts could not be thus apportioned. The exemption in s 32(2)(d)(i) of the PTA applied either to the whole contract or not at all at [112]-[121] (Gleeson JA, Beazley P agreeing), [244] (Sackville AJA) 31 The remaining issue in Smith's appeal was whether the s 32(2)(d)(i) exemption applied to the (whole of the) contracts between Smith's and its contractors. The Court of Appeal held that the exemption applied The principal subject matter of the contracts was the conveyance of goods (transporting and installing snack foods into the vending machines) Smith's appeal at [92] (Gleeson JA, Beazley P agreeing) Gleeson JA (Beazley P agreeing) held that the following services supplied by the contractors were "ancillary" to that conveyance of goods: placing orders for goods (at [139]-[141]), storing goods (at [139]-[141]), carrying out minor repairs to vending machines (at [142]-[144]), making service repair calls (ie, requesting a Smith's technician by telephone if the contractor could not repair the machine him or herself at [142]-[144]), and stocktaking of goods (at [154]-[157]) Sackville AJA held (at [241]) that the following services were "ancillary* to the conveyance of goods by Smith's contractors ordering and storing goods, collecting goods past their "use by" date in order to load and ultimately dispose of them, and maintaining a vehicle to convey the goods. Gleeson JA (Beazley P agreeing) held that the following services were not "ancillary" to the conveyance of goods: placing promotional material on vending machines (at [145]-[148]), cleaning vending machines (at [145]-[148]), and looking for business opportunities when conveying goods (at [149]-[153]) It was noted that these non-ancillary services were "de minimis" (although this did not affect the outcome) at [81] and [158]. 32 The outcome of Smith's appeal was that, because the contracts included services "ancillary" to the conveyance of goods, the contracts were excluded from the definition of "relevant contracts" under s 32(2)(d)(i) (as it then was), and payments under those contracts were not liable to payroll tax 33 Dissatisfied with that outcome, Parliament enacted the Amending Act which inserted s 32(2B) into the PT Act. The purpose of the Amending Act was explained by the Minister for Finance and Services, Mr Dominic Perrottet, in his second reading speech on 29 May 2014 (Hansard pp 29468-9) [the Chief Commissioner's extract of the Minister's speech] 34 Thus, the Minister's objection - and the basis for law reform - was that, under the existing law, a contract could be excluded from the definition of a "relevant contract even if (like those in Smith's trial and Smith's appeal) it included services that were neither for nor ancillary to the conveyance of goods The Amending Act responded to that mischief by introducing s 32(2B) of the PT Act. Section 32(2B) provides, in effect, that if a contract includes any other services - that is, services that are neither for nor ancillary to the conveyance of goods - then it is outside the so-called "owner-driver" exemption in s 32(2)(d) (and thus is a "relevant contract"). As a matter of consistency, s 32(2B) was drafted to apply not only to the "owner-driver" exemption (which was the Minister's immediate concern) but also to the exemptions in ss 32(2)(a) to (c) 35 Accordingly, the effect of s 32(2B) of the PTA is that if a contract includes any services that are not covered by ss 32(2)(a) to (d), then the exceptions in those subparagraphs do not apply, and the contract remains a "relevant contract". That is so even if those additional services are of a de minimis kind - as they were in Smith's trial and Smith's appeal (to which the Amending Act responded) 35A The Amending Act also responded to Gleeson JA's observation in Smith's appeal at [63] that it was "curious" that s 32(2)(d)(i) of the PTA (as it then was) only mentioned services ancillary to the conveyance of goods, when one would also expect it to refer to services for (not just ancillary to) the conveyance of goods. The Amending Act therefore changed "ancillary to the conveyance of goods" to "solely for or ancillary to the conveyance of goods" in s 32(2)(d)(i) (which then became s 32(2)(d)) That was a separate matter from the insertion of s 32(2B). Contrary to BSA's reply submissions at [19]–[20] (ACS [116]), the insertion of s 32(2B) was a substantive response to Smith's trial and Smith's appeal (hence the Minister's express reference to "recent decisions of the New South Wales Supreme Court and Court of Appeal"), and was not simply for an "abundance of caution". 35B The Chief Commissioner does not submit that the Amending Act expressly or impliedly altered the meaning of "ancillary" in ss 32(2)(a) or (d) of the PTA (cf ACS [117]). However, it is still worth observing that the overall purpose of the Amending Act was to limit the scope of the owner-driver exemption, not to expand its reach, and that BSA's technicians are a long way from genuine owner-drivers of the kind primarily contemplated by the exemption - that is, drivers who simply load, convey and unload goods using their own vehicle. 1. The question arises as to the weight to be given by the Tribunal to the second reading speech. I observe that in Harrison v Melhem [2008] NSWCA 67: 1. His Honour Spigelman CJ said: 12 Statements of intention as to the meaning of words by ministers in a second reading speech may be of use in determining matters of purpose but are seldom available for ascertaining the meaning of the later-enacted text. Even where a statement of intention in a second reading speech contemplates a particular circumstance, the words of intention will not prevail over the words of the statute. … 16 The courts must determine what Parliament meant by the words it used. The courts do not determine what Parliament intended to say. … 1. His Honour Mason P said: 168 On my understanding, the law is clear in Australia that a minister's understanding of the effect of a statute or the state of the common law cannot give the Bill he or she is promoting an effect inconsistent with its terms as construed by the court. In Re Bolton; Ex parte Beane, three justices of the High Court of Australia went further in refusing to give any weight to a minister's unambiguous second reading speech that contradicted the text. Mason CJ, Wilson J and Dawson J stated (at 518): The words of a Minister must not be substituted for the text of the law. ... It is always possible that through oversight or inadvertence the clear intention of the Parliament fails to be translated into the text of the law. However unfortunate it may be when that happens, the task of the Court remains clear. The function of the Court is to give effect to the will of Parliament as expressed in the law. … 170 I would respectfully adopt and apply the following passage in the judgment of Kirby J in Nominal Defendant v GLG Australia Pty Ltd [2006] HCA 11, 228 CLR 529 (at 555-556[82], citations omitted): This court has repeatedly insisted that the Second Reading and other speeches in Parliament may only be used to throw light on the meaning of legislative words, to the extent that such speeches are sustained by the legislative text as subsequently adopted. It is in the nature of parliamentary speeches that they commonly lack the precision of statutory language. … The rule of law requires that this court give effect to the purpose of Parliament expressed in the law made by or under an enactment. It is not part of a court's function, as such, to give effect to parliamentary speeches, ministerial media releases or other informal statements unless, validly, they have the specific endorsement of a parliamentary enactment…. 1. Having regard to the clear guidance given by their Honours in Harrison v Melhem and extracted above, I focus on the wording of the PT Act, including that introduced in 2014, rather than the text of the Minister's speech. Issues 1. The parties agree that the main issues in dispute are: (1) Relevant contracts issue: (2) Non-labour component issue: and (3) Penalty issue. I will deal with each issue in turn. Relevant contracts Issue The Applicant's submissions: 1. In opening its submissions in relation to the relevant contracts issue, the Applicant conceded: 1. at [84] that payroll tax applies to the Foxtel Subcontract and the Optus Subcontract unless one of the exemptions or exceptions in s 32(2) applies; and 2. at [85] "… there is no dispute between the parties that the Foxtel Subcontract and the Optus Subcontract prima facie satisfy s 32(2)(a) or s 32(2)(b) subject to the operation of s 32(2B) …" 1. The Applicant also submitted: 86. … a substantial part of the total time spent by subcontractors is spent delivering or conveying the goods. 87. However, as noted by Payne J in Downer, all of the equipment supplied by the subcontractors to the customers in accordance with the subcontracts "... is part of an operating package and thus essential in order to supply the functioning service." (at [57]). The goods supplied under the subcontracts (similarly to Downer) are not limited to the set-top box or satellite dish but include all of the materials and consumables as identified in subcontracts. 88. The supply of goods is essential to the performance of the various activities in subcontract[s] … 1. For its part, the Respondent submitted, under the heading Relevant Contracts Issue, at [18]: … the Tribunal is obliged to assume that the assessment is correct unless BSA establishes otherwise. It is for BSA to discharge the burden of proof by establishing that its contracts are not "relevant contracts" under s 32 of the PTA, and (if they are "relevant contracts") that the taxable component of its contractor payments in the relevant period was less than the [NOT FOR PUBLICATION] reflected in the assessment. 1. The Respondent continued with a discussion of aspects of the PT Act, stating in summary: 19 In general terms, the effect of Division 7 of Part 3 of the PTA (ss 31 -36) is to impose payroll tax on payments made under "relevant contracts" for the provision of services 20 Section 31 of the PTA relevantly provides. "contract" includes an agreement, arrangement or undertaking, whether formal or informal and whether express or implied 21 Section 32(1) of the PTA then defines a "relevant contract" (1) In this Division, a "relevant contract" in relation to a financial year is a contract under which a person (the "designated person") during that financial year, in the course of a business carried on by the designated person (a) supplies to another person services for or in relation to the performance of work, or (b) has supplied to the designated person the services of persons for or in relation to the performance of work, or (c) gives out goods to natural persons for work to be performed by those persons in respect of those goods and for re-supply of the goods to the designated person or, where the designated person is a member of a group, to another member of that group. 22 It is common ground that s 32(1)(b) applies to BSA's contracts with technicians AS [64] CB7.5984. ACS [84]. 23 Section 32(2) of the PTA then sets out exceptions to the definition of a "relevant contract". BSA bears the onus of proving that its contracts (including arrangements) fall outside the definition of a "relevant contract". BSA relies on ss 32(2)(a) and (d): (2) However, a "relevant contract" does not include a contract of service or a contract under which a person (the "designated person") during a financial year in the course of a business carried on by the designated person- (a) is supplied with services for or in relation to the performance of work that are ancillary to the supply of goods under the contract by the person by whom the services are supplied or to the use of goods which are the property of that person, or [… ] (d) is supplied with services solely for or ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them. 1. The Respondent set out a concise summary of the decisions in Downer trial and Downer Appeal as follows: 24 These exceptions were considered in Downer EDI Engineering v CCSR [2019] NSWSC 743 (Downer trial) and Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd [2020] NSWCA 126 (Downer appeal). In those cases, s 32(2)(a) and s 32(2)(d)(i) (which was relevantly similar to what is now s 32(2)(d)) were found to apply to contracts for pay TV installation services. The central facts were that Foxtel engaged Downer to deliver and install set top boxes for Foxtel's customers, and Downer engaged contractor technicians to do that work. Payne J at first instance, and the Court of Appeal (Bathurst CJ, Macfarlan and Meagher JJA agreeing), held that the contracts between Downer and its technicians for the delivery and installation of the set top boxes involved services (installation services) that were "ancillary to the supply of goods" (the supply of the set top boxes). The installation was "ancillary" to the supply of goods (the set top boxes) because "the installation was something which tended to assist, or which naturally went with, the supply of the goods necessary to receive the Foxtel service": Downer appeal, [132]. This engaged the exception in s 32(2)(a) of the PTA. Further, the installation services were "ancillary to the conveyance of goods by means of a vehicle provided by the person conveying them" (the conveyance of the set top boxes by vehicles provided by the technicians). This engaged the exception in s 32(2)(d) of the PTA Downer appeal, [140]-[142]. The result was that amounts paid by Downer to its technicians were not liable to payroll tax 25 Given the similarities between Downer trial, Downer appeal and the present case, it is common ground … that ss 32(2)(a) and (d) of the PTA prima facie apply to BSA's contracts with technicians (subject to s 32(2B)). However, the relevant tax years in Downer trial and Downer appeal were those ending 30 June 2010 to 30 June 2013: Downer appeal, [10] This was before the enactment of s 32(2B) of the PT Act. 1. The Applicant submitted at [89] – [92] that in the context of s 32 "ancillary" meant "supplementary or auxiliary or accessory". In this regard the Applicant relied on Payne J in Downer. His Honour said at [140] : "The question posed by s 32(2)(a) is relatively simple to state: are the services supplied ancillary, in the sense of supplemental or auxiliary or accessory, to an identified circumstance or event, being the supply of goods under the contract? …" 1. The Applicant submitted at [90] that certain specific tasks including conveyance of goods by means of the vehicle provided by the subcontractor, collecting, transporting and delivering Foxtel equipment, discussing with the customer any specific preferences or requests and placing items of equipment in their place, were ancillary to the supply of goods. The Applicant expressly submitted "… that "the other items required by the subcontract" (such as service calls and change orders) [Tribunal emphasis] were also ancillary "to the supply of goods being essential to the contractual outcome of supplying the customer with the Foxtel subscription service." 2. At [90] the Applicant used footnotes "107" and "108". Those footnotes respectively refer to paragraphs [153] and [154] in Downer as the evidentiary source of the words used by Payne J in that decision. I observe that all items in AS [90] relate to and are included by His Honour in the expressions "conveyance of goods" or "ancillary to the supply of goods" at [153] and [154] other than the phrase "service calls and change orders" [Tribunal emphasis]. The relevance of this phrase to describe certain work is referred to below. 3. The Applicant submitted that in Downer Appeal: 91. Bathurst CJ (Macfarlan and Meagher JA agreeing) … upheld the primary judge's decision and noted that the installation tasks were "... something which tended to assist, or which naturally went with the supply of the goods to receive the Foxtel service." Bathurst CJ, by way of analogy, also noted that "work necessary to make a piece of household equipment operate will be incidental to the supply of that piece of equipment." 92. On the basis of the conclusions reached in Downer and Smith's concerning the expression "ancillary", all of the additional services provided under the Foxtel Subcontract and Optus Subcontract are ancillary to the supply or conveyance of the goods to ensure the contractual obligations to the customer to provide a fully operational Foxtel or Optus service are met. 1. I observe that at [132] Bathurst CJ referred to the words extracted by the applicant in [90] as "… an imperfect analogy …". I also observe that the context of the judgment appears related to the initial installation of the Foxtel service by the technician / subcontractor who actually conveyed the relevant goods to the location where the customer had determined to use the goods, rather than changes to the initial installation such as relocation of goods at the subsequent request of the customer. 2. The Applicant has provided no evidence that work carried out for the Applicant for the benefit of a customer by a subcontractor (the second subcontractor) other than the subcontractor who was a party to a contract or agreement to convey goods for the initial installation of the Foxtel service for that customer and where the second subcontractor does not convey goods to the customer or carries out services not subject to the initial installation agreement, such as a service call not referred to in the original agreement or a change order which merely relocates goods originally located in accordance with the initial installation agreement, is work covered by the initial agreement. 3. It seems to me that the work relevantly referred to in Downer and Downer Appeal is work carried out as part of an installation of new services under the Foxtel Subcontract. At the risk of repeating my above observations, I note that an issue raised by the Respondent in these proceedings relates to work carried out by a subcontractor who is not necessarily the subcontractor who carried out the original installation with relevant goods conveyed by means of a vehicle provided by that subcontractor AND does not necessarily involve work which requires conveyance to the work site of any particular goods: s 32(2)(d). 4. At [38] under the heading "Installation activities, the Respondent submitted: "I refer to the Applicant's submission at [92] which implies that all additional services to customers by subcontractors of the Applicant "… are ancillary to the supply or conveyance of … [relevant] goods … ". 1. I accept the Respondent's submission and reject the Applicant's implied submission at [92]. As I have observed elsewhere in these reasons, the Applicant bears the onus of proving its case by probative evidence, not merely by submissions and unsourced generalisations. The evidence before the Tribunal includes several examples of work by subcontractors who are not the subcontractor who conveyed the original goods for installation, and work which did not require the use of goods conveyed under a relevant agreement. There is also a lack of evidence that all work carried out occurred pursuant to the terms of the original contract with a client of the Applicant such as Foxtel or Optus. The Respondent's submissions as to relevant contracts 1. The Respondent further submitted: 38 (c) … the Chief Commissioner contends that s 32(2B) applies because the arrangements include services of a kind not covered by ss 32(2)(a) and (d). The Chief Commissioner contends that there are additional services supplied under the relevant contracts that are neither services solely for the conveyance (by vehicle) of goods (see section 0 below) (sic) nor services ancillary to the supply or conveyance (by vehicle) of goods (see section D.7 below). Accordingly, the exceptions in ss 32(2)(a) and (d) do not apply, and the arrangements remain "relevant contracts". 39 … the resolution of the relevant contracts issue turns on the application of s 32(2B) of the PTA to BSA's arrangements for Foxtel and Optus work. D.5 Additional services: service calls and change orders 40 The question raised by s 32(2B) of the PTA is whether any "additional services" (of a kind not covered by ss 32(2)(a) and (d)) are supplied or performed under the arrangements between BSA and its contractors for Foxtel and Optus work 41 The Chief Commissioner contends that such "additional services" are supplied or performed under those arrangements. The "additional services" are (a) service calls (at least where no new equipment is supplied or conveyed by the technician), and (b) "change orders" involving only the installation of an additional outlet (not a new set top box or satellite dish) 42 Those services are not "solely for the conveyance of goods by means of a vehicle provided by the person conveying them" under s 32(2)(d), nor are they ancillary to the supply or conveyance of goods under ss 32(a) or (d) Accordingly, s 32(2B) applies, in which case the exemptions in ss 32(2)(a) and (d) do not apply, and the arrangements between BSA and its contractors are "relevant contracts". 1. I have difficulty accepting the submission at [41(b)] above to the extent that it involves new goods being supplied or conveyed by a technician who uses those goods to install an additional outlet. The Applicant's submissions in reply in relation to relevant contracts issue 1. The Applicant's replies to RS concerning relevant contracts are at ACSR [26] to [74] including the following: 1. at ACSR [26] – [30]: RCS [26]-[35B]: Section 32(2B): 1. There is no dispute that: 1. s 32 relates to relevant contracts and s 32(2B) is an anti-avoidance provision inserted in the PT Act by the Amending Act. 2. s 32 has effect for the Relevant Year. 1. The Applicant submitted: 7. Two issues which are not in dispute in this proceeding are that: a) the Foxtel Subcontract and the Optus Subcontract are contracts under which BSA's subcontractors supply goods; and b) s32(2)(a) and/or (d) of the PTA prima facie apply to the Foxtel Subcontract and the Optus Subcontract subject to s 32(2B) of the PT Act. … 9. The scope of s 32 of the PTA was the subject of a recent decision of Downer EDI Engineering Pty ltd v Chief Commissioner of State Revenue [2019] NSWSC 743 (Downer) upheld on appeal in Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd [2020] NSWCA 126 (Downer Appeal), where it was determined that Downer's subcontract with its subcontractors in respect of Foxtel was not a relevant contract. Special leave to the High Court from the Downer Appeal was refused on 11 February 2021. … 106. Like in Downer, all tasks set out in the Foxtel Subcontract and Optus Subcontract are in substance bound up, and intimately connected with, the supply of Foxtel and Optus equipment (goods) under the Subcontracts to access a fully operational Foxtel or Optus service. As such, they are "ancillary" to the supply within the meaning of s 32 PTA. As the services under the contract are "ancillary" to the supply of goods and s 32(2B) does not affect the conclusion pursuant to s 32(2)(a) - the Foxtel Subcontract and the Optus Subcontract are not relevant contracts. 107. As s 32(2)(a) applies, it will be unnecessary for the Tribunal to determine whether s 32(2)(d) also applies. However, BSA contends that the conveyance of goods by means of the vehicle provided by the subcontractor included (as was held in Downer): a) collecting the equipment ("including materials or consumables") from BSA's warehouse or from other suppliers; b) transporting the equipment to the customer's premises; c) delivering the equipment to the customer's premises which included: i) placing the set-top box and any other equipment in the location indicated by the customer; ii) placing other items of equipment in their location including by laying cables, connectors, wall plates and placing satellite dishes where required. 108. All other tasks are ancillary to that conveyance as necessarily tied to the completion of the contractual obligations to the customer to provide a fully operational Foxtel or Optus service. Without the functioning equipment, the Foxtel and Optus services cannot be provided to the customer and the customer is deprived of the practical benefit of the possession of the equipment and a fully operational service. 1. In relation to ACSR [32]–[34], I observe that the relevant relationship between each subcontractor and BSA has been variously described by one or the other of the parties to these proceedings as a "Foxtel/Marvel Subcontract", a "Foxtel Subcontract", "various subcontractual obligations", or an "Optus Subcontract" as expressed by the Applicant in ACSR and "contracts", "overall arrangements", "Foxtel Subcontract", "Optus Subcontract", "BSA's contracts with technicians" as expressed by the Respondent. I find that so long as the "tag" used by each party is in relation to "an agreement, arrangement or undertaking, whether formal or informal and whether express or implied" which are inclusively covered by the word "contract" (see s 31) in relation to relevant work for BSA, carried out by entities generally described as "subcontractors" the particular name, description or tag is irrelevant. 1. at ACSR [31]-[34]; RCS [36]-[39]: … 1. Under the heading "Foxtel: service calls and change orders" the Respondent submitted from [44] to [48] examples of work carried out for BSA by subcontractors which did not necessarily involve the supply or conveyance of goods. The Respondent based examples of service calls on Mr Reid's 18 November 2020 affidavit and Mr Lithgow's affidavit of 8 November 2019. 2. At [47] and [48] the Respondent used examples from Mr Reid's affidavit at [105], in respect of "change orders" such as a customer wanting a set top box moved or [107] performing work on a previously installed dish. There is no evidence that such work necessarily involves the subcontractor who originally conveyed the set top box or the dish to the customer's location. 1. As to Mr Lithgow's affidavit and oral evidence: 1. The Respondent gave examples of what were described as "typical activities of subcontractors" in respect of the Optus platform being in general the same as those for Foxtel and including, at RS [49], "Service calls not involving the installation of any equipment … Disconnections … [and] … Outlet change orders … ". 2. The Respondent also referred, at [49A], to the reliance by BSA in respect of these proceedings for the Relevant Year, on the affidavit of Evan Avades made 4 November 2019. Mr Avades, a Quality Assurance Field Supervisor for Optus at BSA, who swore he was authorised to swear his affidavit on behalf of BSA, carried out a time in motion survey for the Optus platform on behalf of BSA. At [49A] the Respondent provided, from Mr Avades' cross-examination, several examples of work performed by BSA's subcontractors who carried out service calls which did not involve the installation of any equipment supplied or conveyed by the subcontractor. Involvement of a second technician 1. One of the issues which arose in the proceedings is the extent to which relevant work was carried out after the initial installation by the technician / subcontractor who provided the vehicle which had conveyed goods to the customer being serviced. 2. There is no dispute that a witness of the Applicant, Mr Christopher Reid, was BSA's State Manager for WA from 2012 to early May 2017 and for NSW from 8 May 2017 to 4 September 2017 and thereafter BSA's National Operations Manager until November 2018. Mr Reid is particularly familiar with BSA's dealings with its customer Foxtel. 3. The Respondent submitted that Mr Reid's oral evidence to the Tribunal included: 1. at [46] "… if a customer wishes to disconnect from the Foxtel service, the customer returns the set top box using a post pack which Foxtel sends to the customer. The technician returns the set top box to Foxtel if they are carrying out a change order …, but not for a pure disconnection … for a pure disconnection, there is no installation, supply or conveyance of goods. 1. at [65A] "… Mr Christopher Reid was … familiar only with the Foxtel platform. In cross-examination, he said that jobs were allocated to technicians through a combination of automatic and manual routing, and that BSA intended, where possible, to have service calls done by the same technician who had previously installed the set top box. This helped with customer satisfaction and educated technicians about their mistakes. However, he conceded that the same technician was not always allocated. There were two reasons for this. First, BSA's system did not keep track of who had done an installation more than 12 months earlier, and thus would not "know" who to allocate in such cases. Secondly, using the same technician was just one of several variables or criteria used to allocate jobs. Other variables included the technician's capacity (they may not be available on a given day, or may not have enough time on that day), the technician's skillset (ability to carry out the necessary task), the technician's location (proximity to customers), and minimising overall travel time. Further, if a technician's contract with BSA had ended, a different technician would necessarily be chosen. 1. The Applicant did not challenge the above evidence / submission. 2. The Respondent also submitted: 64 On its terms, s 32(2)(a) of the PTA only applies where the same person supplies the goods and the ancillary services (such as installation services) the "supply of goods under the contract" must be "by the person by whom the services are supplied". In other words, s 32(2)(a) only covers cases where the contractor providing the ancillary services is the same contractor who supplies the Foxtel or Optus equipment 65 Given the number of BSA contractors, it is unlikely that the same contractor always does the original supply and subsequent service call or outlet change order. … 65C The proper finding is that the technician doing a service call or outlet change order for BSA was often not the technician who had installed the set top box (or satellite equipment). 66 Again, s 32(2)(a) could not be satisfied in circumstances where different people supply the goods and the ancillary services, because none of those services are then ancillary to the supply of goods by the person by whom the services were supplied. In other words, even if service calls and outlet change orders could be otherwise characterised as ancillary to the supply of goods (which is disputed), they are not covered by s 32(2)(a), because the person who supplies the services is (often) different from the person who supplied the goods. 1. I observe that the parties did not supply to the Tribunal data to support the use by the Respondent of the word "often" in [65C] or [66]. However, the onus lies on the Applicant to provide probative evidence to support its case. I find and it is more likely than not that the Applicant would be the party which I anticipate would have been in the best position to dispute the submissions by the Respondent in these circumstances as the Applicant was the entity which engaged technicians to carry out the relevant work. 2. Having regard to the evidence before the Tribunal, I accept the submissions of the Respondent on this point other than regarding the extent to which the word "often" is appropriate. 3. I observe that at ACSR [71], in its discussion of the Respondent's submission concerning work by technicians other than the subcontractor who initially conveyed goods to a customer's location, the Applicant submitted: The terms of the Foxtel Subcontracts and the Optus Subcontractors demonstrate that for service calls and outlet change orders, while Foxtel Issue Equipment may not be supplied on every occasion, a consumable is. This makes the Respondent's argument otiose. 1. The above submission is challenged at RS [46A] by the following submission concerning Mr Lithgow: … Mr Lithgow took detailed notes of a service call during his "time and motion study" in 2019 CB6 4525. In cross-examination, he confirmed that during this particular service call, the cable technician attended the customer's premises, tested signals and then left. There was no supply or conveyance of goods involved T1.87 (transcript day 1. page 87). Mr Lithqow explained that for service calls such as this, there would be no work to do (other than signal testing and reporting a fault), because the fault was a network fault which Telstra would need to fix T1.88. 1. I have checked the references used in the above extract and confirm their accuracy. 2. Mr Lithgow was re-examined by Mr Berkmann. During the re-examination Mr Lithgow stated (see T1.89) the technician "would have" tested signals in various locations. If certain deficiencies were found in certain equipment, Mr Lithgow said the technician "would have" carried out work to replace certain parts and then re-tested signals. 3. It seems to me, that in answering Mr Berkmann's questions with the phrase "would have" on several occasions in relation to performance by the technician of particular items of work, and the evidence that Mr Lithgow's time and motion records at CB6-4525 show the technician spent 8 minutes in total testing signals, the "would have" indicates the potential occurrence of hypothetical events which may occur under certain circumstances. However, I am not satisfied that any one or more of those events occurred in the actual work under consideration. 4. Accordingly, I reject the Applicant's submissions at ACSR [71]. 5. The Applicant submitted at ACSR [41]: When regard is had to the relevant subcontracts, it is apparent there are no "additional services or work" that would operate as to invoke the application of s 32(2B) PTA (for the reasons set out below). 1. Having regard to the work monitored by Mr Lithgow, the details of which are at CB6.4525, Mr Lithgow's oral evidence to the Tribunal, my findings immediately above the reference to the Applicant's submission at ACSR [41] and my findings elsewhere in these reasons, I reject that submission. 2. Having regard to my above findings I am satisfied that the contracts made between the Applicant and the subcontractors are relevant contracts for the purpose of Division 7 of the Payroll Tax Act 2007 in respect of the period 1 July 2016 to 30 June 2017. Non-labour component issue The Applicant's position in relation to the Non-Labour Component issue 1. The Applicant submitted at AS: 11. If the Tribunal determines that the Foxtel/Marvel or Optus subcontracts are relevant contracts, it will also need to determine, in respect of those relevant contract(s), the appropriate percentage of the amount paid by BSA under those subcontracts which was not attributable to the performance of work in accordance with s 35 PTA (non-labour component) and thus not subject to payroll tax (the Non-Labour Component Issue). … 120. Should the Tribunal determine that an exemption under s 32(2)(a) or (d) PTA does not apply for the Foxtel and Optus subcontracts then those contracts would be "relevant contracts" as defined in s 32 PTA. 121. The Tribunal would then be required apply s 35(2) PTA and determine the amounts paid by BSA which are not attributable to the performance of work in relation to each of those relevant contracts (as it is only payments for labour that can be included as taxable wages). The Respondent's position in relation to the Non-Labour Component issue 1. Contrary to the Applicant at AS [11], the Respondent proposed the following preliminary question and submission at [6(b)]: If the contracts between BSA and its contractors were "relevant contracts'' (or if BSA has not shown otherwise), has BSA established that the average non-labour component of its contractor payments exceeds 25%? If so, the assessment is excessive. Evidence of Ms Hartman 1. There is no dispute that at all relevant times Ms Hartman was a partner at Deloitte specialising in taxation and providing advice. From about 2013 to November 2019 she carried out such work for BSA. On 14 May 2019 Ms Hartman provided an expert report to BSA in respect of the Assessment. The report is in evidence. 2. Ms Hartman's evidence was that she attended meetings with BSA and officers of the then Office of State Revenue of New South Wales (OSR) in respect of payroll tax audits of BSA being undertaken by OSR. Ms Hartman said she attended such meetings to support BSA and help them understand payroll tax legislation. Ms Hartman had an annual engagement with BSA for the services she provided. 3. At T2.70-71 Ms Hartman's oral evidence was to the effect that in her affidavit she stated she had been instructed to prepare an independent expert report; she provided BSA with advice about the very issue the subject of this litigation; she denied that at the time she signed her affidavit she was on a yearly retainer with BSA, she said "… wasn't necessarily a retainer, it was work - it was a fee for services being provided. But yes, I was being paid …". 4. At T2.71 Ms Hartman denied she acted as an advocate for BSA; she provided support, advice and assistance to BSA but "…wasn't necessarily an advocate…". Ms Hartman acknowledged she had a financial relationship with BSA. However, she maintained that she was not concerned that there would be a perception that there would be a lack of independence. 5. At T2.72 Ms Hartman's evidence was to the effect that she appreciated the correctness of her advice was in issue in these proceedings; she firmly believed in the evidence she had given BSA; she did not agree that she was not independent. 6. At T2.73 Ms Hartman confirmed she was asked to identify the average percentage of certain components in invoices such as equipment and overheads; she adopted certain assumptions in accordance with instructions to her in relation to her report including that the average payment to subcontractors was [NOT FOR PUBLICATION]. 7. At T2.74 Ms Hartman said her understanding was that [NOT FOR PUBLICATION] was the revenue item for a contractor who was a sole trader; another exemption would apply if the contractor was earning more than that amount annually; she could not recall the source of that amount; she did not include that assumption in her affidavit; Ms Hartman could also not recall whether the amount agreed to with the revenue office was actually [NOT FOR PUBLICATION]. 8. At T2.74 Ms Hartman also said she understood the amount of [NOT FOR PUBLICATION] was only revenue from BSA; she had not included that statement in her affidavit; she drew the assumption from an identified document in accordance with her instructions and agreed that the assumption did not appear in the document. 9. At T2.75-76 Ms Hartman agreed that subcontractors were not exclusively contracted to BSA and earned revenue from sources other than BSA; she had not taken that possibility into account in her calculations; if they were doing work for other businesses their overheads could be spread over that work as well and the overhead costs would be a proportion less than 5.17% [the figure she had included in her expert report]. Ms Hartman also agreed that if the contractors used the same tools and vehicle for a number of customers, not just BSA, that number would come down as a proportion of total revenue from BSA. 10. At T2.77-81 Ms Hartman conceded that her report included an assumption that the effective life of a vehicle was 5 years, she did not know where the document was that had provided that assumption for her but she understood it to be the effective life of BSA's vehicles and she had been instructed accordingly; that was not the life of the subcontractors' vehicles which were the vehicles her task required her to determine the life of. Ms Hartman assumed all vehicles had no resale value at the end of 5 years, would have been fully depreciated and there would then be a maintenance expense with similar costs to the depreciation; she conceded that there was a separate line for maintenance costs and that the report should have elaborated further in relation to depreciation and maintenance costs. Ms Hartman confirmed that she had relied on information from BSA in this regard. After several further questions Ms Hartman conceded that unless a vehicle had no value, including no trade-in value at the end of 5 years, there would have been a balancing adjustment on disposal of the vehicle. Accordingly, there would not be a complete write-off of the initial purchase price of the vehicle. Ms Hartman also conceded that she had assumed the vehicle had never been used for private purposes. 11. Ms Hartman conceded she had no expertise as to the need for particular tools to carry out the work of the subcontractors and had adopted instructions from BSA in that respect. Ms Hartman said technicians may use mobile phones and computers for private purposes and, if so, that would have reduced the total annual cost for those items for the purpose of her calculations. 12. Ms Hartman confirmed at T2.83 that she had not carried out an independent analysis to verify the figures provided by BSA. At T2.84-85 Ms Hartman agreed that from the figures provided by BSA, without an independent analysis, there is an estimate that material expenditure comprises 36.4% of revenue earned for the average subcontractor. Ms Hartman agreed she carried out her own review of material expenditure and derived a figure of between 2 and 4 percent for material expenditure. Ms Hartman said that the latter figure depended on the contract and for the NBN agreement the figure was a lot less. 13. The Applicant relied on an affidavit by Mr Benson, the Chief Strategy Officer of BSA, annexed to which were two letters from Ms Hartman to Mr Benson respectively dated 11 June and 11 September 2019. 14. At T2.89-98 Ms Hartman's evidence was that she wrote the June 2019 letter to support the Applicant's submission to the Chief Commissioner of the State Revenue for Victoria to increase a deduction for overheads. She relied on information provided to her by the Applicant. She could not recall whether she looked at websites for research herself or relied on staff and did not recall whether staff prepared a draft letter. 15. Ms Hartman confirmed that at a bullet point in the June letter the Commissioner of Taxation assessed the average effective life of a car at 8 years. In the same paragraph Ms Hartman assumed the life of a vehicle was 5 years, adopting an instruction given her by the Applicant. Ms Hartman said she had carried out research but had not included any reference to that research. She did not know why there was no reference. 16. Ms Hartman agreed the June letter was prepared to assist the Applicant to obtain a deduction. However, she denied that the letter was an advocacy document written to support the Applicant in its submission to the Chief Commissioner of State Revenue for Victoria. 17. Ms Hartman agreed the letter referred to various costs for tools, a mobile phone, insurance, an iPad and internet connection. She had relied on information provided by the Applicant and her team assisted her to obtain quotes for the costings. Ms Hartman said copies of the quotes had been provided to the Applicant. However, none were provided to the Tribunal. 18. Ms Hartman confirmed at T2.98 that the November 2019 letter at page CD5.4482 is stated to be "… attached research to support various contractor expenses incurred in Victoria and New South Wales." and were invoices provided by the Applicant for different tools. The invoices were not the result of research by Ms Hartman. 19. Ms Hartman insisted that the information was provided by the Applicant in relation to tools. I agree that this applies to all but one of the invoices which relates to a motor vehicle. I also note that the November letter refers not only to tools but also vehicle operating costs, insurance, workers compensation, internet, accounting fees and home office (at CB.4482). 20. Ms Hartman stated at T2.101-113 there was an invoice for a purchase in Western Australia; she was instructed that the cost of buying tools was the same around the country. I observe that one invoice included the purchase by the Applicant of 10 ladders, another invoice included 150 reflective traffic cones. Ms Hartman said she had no knowledge of such usage by technicians. She also said she had no independent expertise as to the tools used by the contractors and did not know what their costs were. She looked at costs incurred by the Applicant, not incurred by the contractors. 21. I observe that the Respondent submitted at [105D]: Ms Hartman frankly conceded that "no one ever asked [her] to actually determine what the subcontractors that were engaged in 2017 incurred for motor vehicle expenses" and that "no one ever asked [her] to calculate the subcontractor expenses incurred for items such as tools including mobile phones and the like" T2 105-106 She did not conduct that analysis, instead, she simply added up invoices that were supplied to her. Ms Hartman's workings do not provide an adequate basis to justify the subcontractors' expenses. 1. I observe that the Respondent's statements of fact in the above extract, are accurate. I also observe that the Respondent's submissions in the last sentence are consistent with my consideration of Ms Hartman's evidence in these proceedings. 2. At ACSR [102] the Applicant submitted "Contrary to the RCS [99]-[100], the figures relied on by Ms Hartman are supported by the evidence of Mr Liang. Evidence of Mr Liang 1. The Applicant submitted at AS: Component attributable to PPE and Business Overheads 142. Mr Liang's unchallenged evidence was that BSA built into the amounts paid to subcontractors a component attributable to materials, labour, PPE and business overheads. Mr Liang provided evidence by way of illustration as to how the components for materials, equipment costs and business overheads are incorporated into the rate paid to BSA contractors for payroll tax calculation purposes. This illustration appears at exhibit YKL-3 of his affidavit and was not challenged by the respondent. 143. The amount BSA attributed to PPE and business overheads were set out in the memo of Geoff Fardell: 15.52% for PPE and 5.17% for business overheads. These same figures were submitted by BSA to the respondent during an Audit in August 2014. 144. Though Mr Lee was cross-examined at great length by the respondent with respect to the PPE and overhead calculations, these figures were not determined by Mr Lee but instead were provided by Mr Geoff Fardell and determined before Mr Lee came into the employment of BSA. Mr Fardell has since left BSA. 145. Unlike Mr Lee (who was not involved in determining the non-labour component), Mr Liang had knowledge of and was involved in process of reviewing the components of the rates paid to subcontractors both prior to and during the relevant period. The respondent did not cross-examine Mr Liang and so his evidence should be accepted. 1. Affidavit of Mr Liang: 9. … The work that the Contractors undertake is in accordance with the scope of works identified in the MSA. 10. Each scope of work has an applicable rate to be applied to that scope of work as set out in the rate card attached to the MSA. The rate for the scope of work which is paid to the Contractors includes a component for materials, labour and ancillary costs. It is the responsibility of the Contractor to purchase the materials required for each scope of work undertaken as specified in the contract. … 18. Based on the import file, BSA publishes the corresponding rates on a contractor web portal for Contractors to validate the rates expected for payment; BSA pays the Contractor the agreed rate for the work in accordance with the scope of works and rates attached to the contract being the blended rate for labour, materials and other component including equipment/vehicles. 1. In relation to Mr Liang, the Respondent submitted: 93 BSA says it pays contractors in accordance with the "rate cards" affidavit of Yang (Ken) Liang sworn 17 April 2019, [8]-[10] CB4 2807. Applying the assumed "rate card" amounts to the contractor payments allows Mr Algie to split the contractor payments into three amounts the "materials amount" (a non-labour component), the "truck roll amount (as explained above), and the "non-materials amount (which is, or includes, a labour component). Mr Algie does not calculate "other non-labour components such as business overheads and equipment" first report. … 105F. Contrary to ACS [145], the evidence of BSA's Mr Liang, who held the position of Finance Manager for the last two months of the relevant period (CB4 2806 [11), does not assist. Mr Liang does not attempt to "validate" BSA's figures for contractor costs (CB4 2806-7 [51-[10D]), and a flowchart he prepared "for PRT [payroll tax] calculation purposes' (CB4 2821) simply adopts, without explaining or justifying, "detail previously provided by BSA to the OSR …". The flowchart also confirms (as observed at [8A(b)] above) that, in relation to contractor payments, amounts for materials, equipment and business overheads were not pre-determined by BSA but were only determined for the purposes of calculating payroll tax … 105J. Sixthly, Ms Hartman's figures assume, without evidence (and contrary to the evidence that exists: s 58 documents, p 28), that the average contractor uses their overhead items solely for business purposes, and that there is no private use component that would reduce the amounts attributable to work done for BSA. Self-evidently, items such as computers, mobile phones and Internet access are likely to be used for private as well as business purposes. Mr Lithgow used the same mobile phone and computer for business as well as personal purposes: T1.79. That is, there was a mix of business and personal use, even though they were bought in his company's name (no doubt for tax reasons). Further, Ms Hartman assumes that each contractor requires a mobile phone and iPad (CB5. 4479), whereas it is clear they only require "a mobile device or iPad", not both: affidavit of Yang (Ken) Liang sworn 17 April 2019 [12] CB4.2807 … Similarly, a mobile phone package includes Internet access, so it is double counting to include the cost of a separate Internet package (CB5 4479). 1. The Applicant submitted at ACSR in reply: 14. Contrary to RCS [8A(a) and (b)]: … b) The Schedules of Rates paid to subcontractors for specific work tasks or Scopes of Work under the relevant subcontracts are predetermined amounts in accordance with the schedules to subcontracts. Mr Liang explained that the "My Work Manager" app used by the subcontractors at each job incorporated the scopes of work which the Infinity system translated and added the applicable rate to, using an automatic algorithm. The rates used and which were paid to the subcontractors are recorded in the Infinity System which Mr Algie accessed for verification against in the data provided in electronic format to Mr Algie. Given the nature of the work BSA undertakes and the quantum of amounts paid to subcontractors in the relevant year (over [NOT FOR PUBLICATION]) it is necessary to have specific and pre-determined amounts to operate its business and meet its contractual obligations to its clients such as Foxtel and Optus. … 15. In respect of RS [8A(c)] for the Foxtel Subcontracts: … b) For the October 2016 Foxtel/Marvel Subcontract (and indeed for all subcontracts), the Liang Affidavit confirmed that amounts paid to the subcontractors (on all platforms) included a component for materials, labour and ancillary costs. The calculation of amount attributed by BSA to equipment costs (15%>) and business overheads (5%) is set out in Liang Affidavit exhibit YKL-3. Were there any questions concerning that calculation, the Respondent ought to have cross-examined Mr Liang. c) … d) … if there was any clarification required as to the schedules to the subcontracts, the Respondent could simply have asked Mr Lee questions to that effect or cross-examined any of Mr Liang, Ms Crompton, Mr Sappideen or Mr Benson: the Respondent deliberately refrained from that opportunity one can infer for the reason that it would not have helped the Respondent's case. 1. I observe that the Applicant's reference at the end of the second last sentence in ACSR [15)(b)] is to CB.2821, where the labour component for payment by the Applicant is defined inclusively as "The labour rate includes allowance for equipment costs, business overheads and contractor profit margin." The 15.0% and 5.0% figures in [15)(b)] are described respectively as "estimated costs of equipment …" and "estimated overhead costs …" without any particular method of calculation being brought to the attention of the Tribunal. 2. The Applicant submitted at ACSR [110]: Contrary to RCS [105E] it cannot simply be assumed that the exercise undertaken by Mr Lee was for the purpose of Ms Hartman's report. That question was not asked of him. It was not his role to determine the amount BSA would attribute to non-labour components. Further, it is noted that Mr Liang, the Finance Manager during the relevant year and the only witness to give evidence as to how the non-labour component is incorporated into rates paid to subcontractors, was not cross-examined by the Respondent. 1. At the foot of T1.40 Ms Bishop submitted for the Applicant: "… we rely on Smiths in the Court of Appeal, too, that said it's not the amount the subcontractor incurs, it's the amount that is paid to the subcontractor that is relevant for determining the non-labour component." The Respondent's submissions re Non-Labour Component 106 BSA has not discharged its onus of establishing that the non-labour component of contractor payments exceeds 25% for any of the platforms. 107 Alternatively, even if BSA establishes that the non-labour component of contractor payments exceeds 25% for one or two of the platforms (for example, Foxtel and/or Optus), that may still be counterbalanced by a lower non-labour component on the other platform or platforms (for example, NBN). For the assessment to be overturned, BSA needs to show it is excessive, and this requires attention to the total amounts paid, and the non-labour component, across all platforms. In terms of primary tax, BSA must show that the taxable component of contractor payments across all platforms was less than [NOT FOR PUBLICATION] (being the amount on which the assessment was based) It has not done so. The Tribunal's consideration 1. It is undisputed that the statutory onus lies on the Applicant to prove its case. 2. The Applicant made general submissions at ACSR [4] and [5] that the Respondent relied on the Applicant having failed to prove its case because of certain evidentiary deficiencies and the Respondent failed to provide expert evidence and failed to cross-examine several of the Applicant's witnesses "who should have been given the opportunity to explain the matters relied on to form the Respondent's contentions". 3. Accordingly, the Applicant submitted that for the reasons in the above paragraph and other reasons, "the Tribunal should reject the Respondent's propositions". 4. I reject the Applicant's submission that the Respondent was obliged in these proceedings to conduct its case in a manner which would rectify deficiencies in the Applicant's case. Change in reliance on evidence of Ms Hartman 1. The Applicant submitted at ASR [102] "the figures relied on by Ms Hartman are supported by the evidence of Mr Liang." However, the Applicant then submitted at ASR [103] "the estimation of materials conducted by Ms Hartman was superseded by Mr Algie's report". 2. Ms Hartman's expert report and her two letters of advice to the Applicant were admitted in the proceedings. At ASR [106] the Applicant submitted": The evidence of Ms Hartman is not inadmissible merely because she may or even if she did have had a material interest in the proceedings given her firms ongoing financial relationship with BSA.8.4. Provided that Ms Hartman properly complied with her duties as an expert and presented herself as an honest expert witness (which the Respondent generally accepts RCS [105A]) the Tribunal may and ought to be satisfied of her independence. 1. The Applicant relied on South Sydney West Area Health Service v Stamoulis [2009] NSWCA 153 at 210 to 212 in respect of the first sentence of the above extract. 2. I observe that at [105A] the Respondent submitted: Even if fixed overheads or property, plant and equipment were to form part of the non-labour component, there would still be serious problems with Ms Hartman's analysis As a preliminary observation, while Ms Hartman generally presented as an honest witness, she did not adequately appreciate the position of conflict she had placed herself in by purporting to act as an independent witness when her firm had an ongoing financial relationship with BSA, she had previously acted as an advocate for BSA (by attending meetings to "support" BSAs position), and where the correctness of her payroll tax advice to BSA is at issue in these proceedings T2.71-72, T2.92. Caution is warranted in assessing her evidence... 1. The Applicant continues at ACSR [55] referring to task code S04 by stating: After completing the service activation task the technician would provide the Customer, education and service introduction. This necessarily goes with an activation task which involves the supply of materials. 1. I observe that at [55] the Applicant relies on CB5.4288. That page is partly a repeat of the schedule to the Optus "Statement of Work" on pages 4150 and 4151. The relevant work is listed at pages 4150 and 4288 under the heading "Special Request Orders" together with other categories of work. Some of those Orders refer to installation of specific goods, others refer to categories of work without new goods. 2. The Applicant then refers at ACSR [56] to [69] to more than 20 work codes and identifies in each case (other than one code where no payments were made to subcontractors and another code in respect of which 18 payments were made during the Relevant Year), a reference to evidence of material component payments to technicians. No such reference was provided in relation to work Code S04. 3. In the circumstances, I am not satisfied on the balance of probability that either of the submissions "it is apparent goods are supplied" at [54] or "… necessarily goes with an activation task which involves the supply of materials" are supported by probative evidence. Ms Hartman's evidence 1. The above extracted submission relies on part of Exhibit NAB-1 to Mr Borger's affidavit (of 16 July 2019) found at CB 5135. However, the Exhibit states that the full exemption allowance of "between [NOT FOR PUBLICATION] and [NOT FOR PUBLICATION] related to a sample year of 2010, not for the Relevant Year and also that "third party information available to the Office from other agencies and statutory bodies indicated that they engaged more than two employees". 2. I find that the Applicant did not disclose that the Relevant Year was not 2017 and that the contractor had to have engaged at least three employees for the period. Those failures caused the Applicant to mis-characterize the basis on which the Respondent had "articulated" the relevant "full exemption allowance". Mr Algie's expert evidence Truck roll 1. In ACS the Applicant said: 139. Mr Algie was also not cross-examined by the Respondent in relation to his calculations concerning 'Truck Roll' as it related to the Foxtel platform. BSA also notes that similarly to Downer at [22], the definition of 'truck roll' is the same as that in the Foxtel Scope of Works in these proceedings and it is only proper that it be included in the non-labour component. 1. The definition of "Truck Roll" on which the Applicant relies at CB 3886 is "A standard callout charge for the travel time to attend a location." The components of the Truck Roll were stated at Downer [23] as "In the industry, truck roll means the cost of providing and operating a delivery vehicle. … As with other tasks, the truck roll tasks comprised both a labour and materials component." 2. The Respondent submitted at [92]: The "Marvel" rate card ("Marvel" being Foxtel's operating system from late November / early December 2016) also includes a "truck roll" amount for certain tasks. The "truck roll" amount is said to be "a standard callout charge for the travel time of an installer to attend a location to complete the required tasks and reflects the cost of providing and operating the delivery vehicle" first report [1.9] CB6 4696, second report [2.3] CB6 5040. 1. The Applicant responded at ACSR [95] with the submission: The Respondent's characterisation of BSA's evidence to the effect that "truck roll" is a time-based labour charge is contrary to the evidence and should be rejected. Similarly to Downer at [22], the definition of 'truck roll' is the same as that in the Foxtel Scope of Works in these proceedings and it is only proper that it be included in the non-labour component. 1. Mr Algie's evidence in his first report at [1.9] (CB 6.4696) was accurately extracted by the Respondent at [92] and is repeated above. In his second report Mr Algie said at [2.3] (CB 6 5040): Truck roll is a standard callout charge for the travel time of an installer to attend a location to complete the required tasks and reflects the cost of providing and operating the delivery vehicle. 1. Having regard to Mr Algie's express evidence in his reports as set out above, I reject the Applicant's submission that "… "truck roll" is a time-based labour charge is contrary to the evidence and should be rejected. … " as a mis-characterisation of the evidence of the Applicant's expert witness. I accept the contrary submission of the Respondent to the extent that, in part, "... "truck roll" is a time-based labour charge …" . AS submissions regarding Mr Algie 1. At ACS [131] the Applicant submitted Mr "Algie accessed the source data from the rate cards". The Applicant's reference in support of ACS [131] is Mr Liang's affidavit at [21]-[22] CB Vol 4 Tab 14 pg 2809 - 2810. I observe that the said reference does not mention "rate cards". ACS at [134] states "The rate cards were provided to Mr Algie via an excel spreadsheet and he was instructed that the rate cards were based on the actual rate cards between BSA and the contractors." This sentence is supported by the footnote "24.1.20 T115.20-29". That footnote relates to Mr Algie's cross-examination on 24 January 20, the transcript of which provides, and Mr Algie acknowledged, that he was provided with an excel spreadsheet which he calls a "rate card". Mr Algie could not recall whether the spreadsheet had a validity date. 2. I observe that the relevant spreadsheet (an electronic copy of which is at EXH.001.046.0001) contains nearly 1,000 rows and is headed "Summary of Rate Card data". Approximately 55 rows state "Copy of Missing Rate Code Information for Foxtel 26112019 … "in the column headed "Source file name". It may be that "26112019" relates to the date 26 November 2019. However, I also observe that the spreadsheet does not identify its author. 3. Mr Algie's evidence at T2.117 was that he was instructed that the spreadsheets he received "were based on the rate cards between BSA and its contractors" and he based his calculations on the spreadsheets given to him. At T2.119 Mr Algie said he did not know the difference between the spreadsheets provided to him and what has been referred to as a "rate card". He could not comment on whether the spreadsheets were or were not the actual rate cards. 4. Mr Algie's oral evidence included (at T2.125) his observation that certain rate cards specified the subcontractor would be paid an amount greater than the subcontractor actually received. This was noted at 3.7(f) in his first report. 5. At RS [95A] and [95B] the Respondent submitted that Mr Algie based his calculations on documents not in evidence, namely rate cards referred to in ACS and "no person from BSA has given evidence that this is so". The Respondent also submitted": … [Mr Algie's] reports relied on and assumed the correctness of those spreadsheets: T2.117. BSA has provided no evidence about those spreadsheets at all. BSA has no evidence as to how the spreadsheets were prepared, how they were "based on" the rate cards, or even that those spreadsheets are based on the rate cards …" 1. The Applicant's response at ACSR [94] included: … Mr Algie accessed all of the electronically stored rate cards applicable to the work done in the 2017 year under the Foxtel Subcontract and Optus Subcontract. The evidence adduced by BSA concerning the rate cards in relation to the overall non-labour component, supports the task undertaken by Mr Algie. 1. I observe that Mr Algie's first report included, at CB.4696: 1.7 I have been instructed by JWS to prepare a report setting out my calculation of the sums paid by BSA to its contractors on each of the Foxtel, Optus and NBN platforms in New South Wales during FY17, with the sums identifying the amounts attributable to the labour and non-labour components. My calculation is to be based upon the applicable rate cards for each platform which set out the amounts payable by BSA for the works performed by the contractor. 1.8 Whilst I have been instructed to calculate the amounts attributable to the 'non-labour components', this report addresses the materials component of the total payments to contractors only, and does not address the other non-labour components such as business overheads and equipment. This is because I do not have sufficient information to assess the other non-labour components. 1. Mr Algie states he was instructed by the Applicant's lawyers to prepare a supplementary report (his second report) to address certain specific matters raised in his first report. My perusal of the second report indicates that neither paragraph 1.7 or 1.8 of the first report are referred to in the second report and I assume that none of the matters updated in the second report affect the contents of those paragraphs in the first report. 2. Having regard to the above brief analysis I have no reason not to accept the Respondent's above submissions in relation to RS [95A] and [95B] and Mr Algie's unchallenged statements in 1.7 and 1.8 of his first report. 3. Having regard to my above findings, the Applicant has not satisfied me on the balance of probability that the average non-labour component of its contractor payments for the Relevant Year exceeds 25%. Penalty tax and interest issue 1. The third major issue in these proceedings was the imposition by the Respondent of penalty tax and interest (Penalties) against the Applicant. 2. The Applicant requested remission of the Penalties. The question, submitted by the Respondent at [6(c)] as relevant for the Tribunal's consideration, was "Has BSA established that it took reasonable care to comply with its payroll tax obligations, such that penalty tax should be remitted?" Legislation and authorities 1. The Applicant submitted that relevant legislation governing both the imposition of Penalties and their remission involved consideration of ss 25, 26, 27, 28, 29 and 33 of the TA Act and referred to the decisions of Deutsch SM in Qualweld Australia Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 227; (2014) 100 ATR 339 (Qualweld) at [95], Payne J in Downer, and Ward CJ in Eq in both Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue; International Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 657 and Adams Bidco v Chief Commissioner of State Revenue [2019] NSWSC 702 (Adams Bidco), together with several other judicial decisions. 2. The Respondent referred to ss 26, 27 and 100(3) of the TA Act. The Respondent also relied at [110] on Boston Sales and Marketing Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 139, (Boston Sales) [68], HRC Hotel Services v CCSR [2018] NSWSC 820, [187] (HRC Hotel); and at [111] on Ward CJ in Eq in Adams Bidco. The Applicant's Submissions 1. The Applicant's submissions included: 1. at [165] "the Tribunal will need to determine whether the applicant failed to take reasonable care in determining its payroll tax obligations". 2. at [166] and [167], s 26 of the TA Act provides that a taxpayer is liable to pay penalty tax if a tax default occurs. However, under s 27, the Chief Commissioner may determine that no penalty tax is payable if the taxpayer or an agent took reasonable care to comply with taxation law. 3. at [168]: The concept of taking "reasonable care to comply with the taxation law" was explained in [Qualweld] at [95]: In each case, it is essentially a question of fact whether the taxpayer has taken reasonable care in attending to its tax obligations. Factors that would indicate that a taxpayer took reasonable care include reasonable attempts to comply with the tax law, reasonable professional and other inquiries to ensure compliance, reliance on professional advice or on official published views of the tax law. Factors which indicate that a taxpayer failed to take reasonable care include oversight or forgetfulness to meet with obligations, failure to maintain adequate records and procedures to prevent errors from occurring, not seeking professional advice and errors in complying with the law. [emphasis added by the Applicant]. 1. at [169], Penalties should be reduced to nil as the Applicant took reasonable care to comply with taxation law. 2. at [170] and following, in March 2015 it had sought and subsequently obtained advice from both Deloitte and a named senior counsel (the Tax Counsel) in respect of a lengthy dispute with the Respondent concerning the Applicant's methodology concerning aspects of a similar payroll tax dispute with the Chief Commissioner for a period of several years prior to the Relevant Year. 1. The Respondent's penalty submissions at [108]-[133] included: 109 Section 27(3) of the TAA provides The Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if the Chief Commissioner is satisfied that the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law 110 Bearing in mind that "[t]he applicant has the onus of proving the applicant's case in an application for review" (TAA s 100(3)), it is for the taxpayer to show, with evidence, that it took reasonable care to comply with the taxation law Boston Sales [68], HRC Hotel at [187]. 111 The issue was considered by Ward CJ in Eq in [Adams Bidco]. Her Honour observed that it is not sufficient to take the steps of obtaining advice and seeking a ruling. Her Honour stated at [113] … when looking at the question of reasonable care to comply with the taxation law, it seems to me that it is not sufficient simply to take the (eminently reasonable) steps of obtaining advice and seeking a ruling It is necessary to ask what would be required by way of reasonable care to comply with the taxation law, having regard to the advice that was in fact received… … 130 … Deloitte's advice was limited to costs on the Foxtel platform. Deloitte did not advise on the costs incurred by contractors working for Optus and NBN clients … the non-labour component for Optus and … NBN differed from the non-labour component for Foxtel. It was not reasonable for BSA to assume, contrary to fact, that the figure for Foxtel was representative of all platforms. BSA has also not adduced evidence as to precisely what reliance, if any, it placed on Deloitte's advice and whether (and on what basis) it considered that advice to apply to all platforms. Further, while BSA obtained advice from [the senior counsel] in or before November 2015 … CB6.5132), BSA has not adduced evidence of the contents of that advice (and the assumptions or instructions on which it was based), nor of any reliance upon it by BSA 1. The Applicant's response to RS [130] is at ACSR [117] as follows: The Respondent's submission at [130] lends further support to BSA contention in making his compromise assessment, the Respondent's blanket application of 25% non-labour component without regard to the actual subcontracts under which payments are made and irrespective of the work undertaken, is also not reasonable. 1. I observe that the Applicant's response to RS [130] is in fact non-responsive concerning the detail of the advice of Deloitte and the Tax Counsel referred to by the Respondent. In this regard I refer to both the onus on the Applicant to prove its case by probative evidence and the findings of Ward CJ in Eq in Adams Bidco at [113] to provide evidence not only as to relevant advice sought and received but also what would be required by way of reasonable care to comply with taxation law. 2. I also observe that the Respondent submitted at [130] that the Applicant obtained advice from senior counsel but "… CB6.5132) has not adduced evidence of the contents of that advice … nor of any reliance upon it …". The Respondent's submission that the Applicant "… has not adduced evidence of the contents of that advice …" conflicts with my finding that CB6.5132 refers to page 31 of NAB-1, an exhibit to the affidavit of Mr Borger, tendered to the Tribunal by the Respondent. Page 31 is part of an audit report of the Respondent including a chronology of interactions between the Respondent and the Applicant, and at page 31 (CB6.5132) is the following diary note: 27 Nov 2015 - BSA submitted a legal opinion prepared by [name of the Tax Counsel] in relation to the likely outcome of the OSR's arguments should the matter come before court on: 1) the "owner driver'' exemption s32(2)(d)(i), PTA 2007; 2) the exemption for the performance of work ancillary to the supply of goods under s2(2)(a), PT Act 2007; and the level of penalty imposed by the OSR. 1. I find there is no evidence before the Tribunal of reliance by the Applicant on the advice in the legal opinion in respect of the Relevant Year. However, it seems to me that the Respondent's submission that the Applicant "… has not adduced evidence of the contents of that advice …" is not supported by the Respondent's above diary note. 2. I also observe that a copy of the advice by the Tax Counsel referred to above was not brought to the attention of the Tribunal for the purpose of these proceedings. I make no findings in relation to that advice. Further consideration regarding penalty tax and interest 1. In an application for review, involving an application for remission of a penalty, the onus lies on the Applicant to prove on the balance of probability that it took reasonable care to comply with its obligations which have been the subject of an objection and if the Applicant was dissatisfied with the Chief Commissioner's determination of that objection: Part 5 and ss 96(1) and 100(3) TA Act. 2. The Applicant responded at ACSR [117] to the Respondent's submission at [130]. That response made no reference to the failure by the Applicant to substantiate, by evidence its reliance if any, on advice from Deloitte or the Tax Counsel it briefed. 3. I had regard to the 8 page letter from the Respondent to the CEO of the Applicant, dated 22 September 2015 (CB tab 48, vol 4, 3373 to 3380). The letter included an analysis of information provided by a sample of contractors, being a summary of their actual non-labour expenses incurred while providing services to the Applicant "as a percentage of the total revenue they generated from" the Applicant. The letter also included matters taken into consideration in determining penalty tax and interest "payable when a taxpayer fails to pay the correct amount of payroll tax on time". 4. In the circumstances, I find that the Applicant has not satisfied the reasonable care test as stated by Ward CJ in Eq at [113] in Adams Bidco set out above. Findings and decision 1. Having regard to my above findings on the material before me, I find that the Applicant has not satisfied its onus of proving on the balance of probability by way of admissible and probative evidence that the Assessment in respect of the Relevant Year is incorrect. 2. Accordingly, the correct and preferable decision of the Tribunal is that the decisions of the Chief Commissioner under review are affirmed. Orders and directions 1. The decisions under review are affirmed. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 August 2022