Supreme Court New South Wales Medium Neutral Citation: Qantas Airways Limited v Chief Commissioner of State Revenue [2015] NSWSC 826 Hearing dates: 27, 28 and 29 October 2014 Decision date: 30 June 2015 Jurisdiction: Equity Division Before: White J Decision: Refer to para [100] of judgment Catchwords: TAXES AND DUTIES – payroll tax – exemption from payroll tax of employer superannuation contributions paid "in respect of services performed by an employee before 1 July 1996" under the Payroll Tax Act 2007 (NSW) Schedule 6, clause 4(1) and the Pay-Roll Tax Act 1971 (NSW) s 3AA(6A) – apportionment of contributions to a defined benefits scheme by reference to pre and post 1 July 1996 services – taxpayer paid contributions while the fund was in surplus – surplus was not used to reduce size of contributions – contributions paid at a higher "normal cost" level rather than an "adjusted normal cost" level – whether contributions could be apportioned – whether CSR Ltd v Chief Commissioner of State Revenue [2006] NSWSC 1380; (2006) 68 NSWLR 440 was correctly decided that top-up contributions could be apportioned notwithstanding the fund was not in deficit as at 30 June 1996 – whether record-keeping requirements were met by the taxpayer where calculations of payments were not recorded contemporaneously with payments – held, allowing the appeal in part and remitting the matter to the Chief Commissioner: (1) CSR Ltd v Chief Commissioner of State Revenue was correctly decided; (2) the taxpayer was entitled to refunds in respect of top-up contributions and in respect of amounts paid in excess of the adjusted normal cost level; (3) the taxpayer did not prove that any part of the adjusted normal cost level contributions could be apportioned because a simple ratio of pre and post 1 July 1996 services could not be applied to these contributions Legislation Cited: Pay-Roll Tax Act 1971 (NSW) Payroll Tax Act 2007 (NSW) Superannuation Industry (Supervision) Act 1993 (Cth) Taxation Administration Act 1996 (NSW) Income Tax Assessment Act 1936 (Cth) State Revenue Legislation (Further Amendment) Act 1992 (NSW) State Revenue Legislation Further Amendment Act 1996 (NSW) State Revenue Legislation (Miscellaneous Amendments) Act 1996 (NSW) Cases Cited: CSR Ltd v Chief Commissioner of State Revenue [2006] NSWSC 1380; (2006) 68 NSWLR 440 Tasty Chicks Pty Limited v Chief Commissioner of State Revenue [2011] HCA 41; (2011) 245 CLR 446 Metricon Qld Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 982; (2013) 92 ATR 169 State Government Insurance Office v Rees (1979) 144 CLR 549 Workers' Compensation Board of Queensland v Technical Products Pty Limited (1988) 165 CLR 642 Category: Principal judgment Parties: Qantas Airways Limited (Plaintiff) Chief Commissioner of State Revenue (Defendant) Representation: Counsel: D F C Thomas (Plaintiff) M Kimber SC with I Young and A Gerard (Defendant) Solicitors: Pricewaterhouse Coopers (Plaintiff) Crown Solicitors Office (Defendant) File Number(s): 2013/233532 Judgment 1. HIS HONOUR: The plaintiff ("Qantas") seeks review of a decision of the defendant ("the Chief Commissioner") made on 29 July 2011 in so far as the Chief Commissioner refused a request made by Qantas for a refund of certain amounts of payroll tax paid in the financial years ended 30 June 2006 to 30 June 2010. The amount of the refund sought was $6,260,527. 2. Qantas sought a refund of a portion of the payroll tax that related to superannuation contributions made by it to the Qantas Superannuation Plan ("the Plan") referable to the provision of defined benefits to Qantas' employees that were claimed to have been made in respect of service of the employees prior to 1 July 1996. 3. The Pay-Roll Tax Act 1971 (NSW) ("1971 Act") applies to Qantas' claim for a refund in the financial years ended 30 June 2006 and 30 June 2007. The Payroll Tax Act 2007 (NSW) ("2007 Act") applies to its claim for a refund in respect of allegedly overpaid payroll tax for the 2008, 2009 and 2010 financial years. 4. Under both Acts in the years in question superannuation contributions made by an employer in respect of an employee were included within the definition of wages on which payroll tax was payable. There was excluded from the superannuation contributions included in taxable wages, contributions made "in respect of services rendered [or performed] by an employee before 1 July 1996" (1971 Act, s 3AA(6A); 2007 Act, Schedule 3 clause 6(1)). The Chief Commissioner contends that in its application to a defined benefit superannuation scheme, that exclusion applies only to contributions made after 1 July 1996 to make up a deficiency in the assets of the scheme to meet benefits payable in respect of services rendered by the employees up to that date. The Qantas Plan was substantially in surplus at 1 July 1996. 5. The same submission was made by the Chief Commissioner in CSR Ltd v Chief Commissioner of State Revenue [2006] NSWSC 1380; (2006) 68 NSWLR 440. Gzell J rejected the submission. 6. The following issues arise: 1. Whether the decision of Gzell J in CSR Ltd v Chief Commissioner of State Revenue that the exemption in s 3AA(6A) of the 1971 Act may be available notwithstanding that a defined benefits scheme was not in deficit as at 1 July 1996 is clearly wrong and should not be followed. For the reasons below, I am of the view that not only was his Honour not clearly wrong in this conclusion, but he was correct. 2. Whether the Chief Commissioner should have been satisfied, or the Court should be satisfied, that superannuation contributions were sufficiently recognised in Qantas' records for payroll tax purposes. I have concluded that Qantas' records did sufficiently evidence those contributions. 3. Whether the methodology for apportioning that part of the contributions paid by Qantas to fund the payment of benefits under the scheme that was adopted in CSR Ltd v Chief Commissioner of State Revenue can be applied to the contributions paid by Qantas in the present case, in so far as they were payments of normal cost contributions. I have concluded that such apportionment cannot be made. 4. Whether contributions paid by Qantas in the relevant years, to the extent they exceeded adjusted normal cost contributions, can be apportioned in the manner claimed. I have concluded that they can be so apportioned. 1. The result is that Qantas is entitled to a further refund of $2.3 million, but is not entitled to the refund of approximately $6.26 million as claimed. Background 1. The Qantas Superannuation Plan is a superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth). The trustee of the Plan was required to appoint an actuary to value the assets and liabilities of the Plan at least once in every three years. There were 15 Divisions of the Plan. Five of the Divisions provided for the payment to a member of the Division of a benefit payable on retirement, resignation, retrenchment, or death, of lump sums, the quantum of which was determined by applying a multiplier to the member's final average salary where the multiplier depended upon the total years of service. By way of example, an employee who was a member of Division 2 was entitled on retirement to a retirement benefit, one component of which was either 10.6 per cent or 9.3 per cent of final average salary for each year of "credited service" as either a flight attendant or technical air crew member, or as ground staff, as the case might be; subject to adjustment in the case of early retirement before the member's 50th birthday, in the case of flight attendants and technical air crew, or early retirement before the member's 55th birthday in the case of ground staff. The Plan does not provide benefits by way of pension. 2. Thus for the purposes of the defined benefits component of the Plan the period of service of members is a necessary integer in determining the quantum of the retirement benefit to which the members will be entitled. Those retirement benefits are funded, or partly funded, by the contributions made by Qantas. Qantas contends that to the extent that those superannuation contributions relate to members' service before 1 July 1996 they are not included within taxable wages. 3. The Plan remained substantially in surplus until 31 October 2008. 4. In 2005 and 2006 the trustee employed Mr Mark Thompson, an actuary with Russell Investment Group. He provided his report on an actuarial investigation of the Plan as at 1 July 2005. He reported that over the three years up to 30 June 2005 the Plan's actuarial surplus, that is the actuarial value of its assets less the present value of accrued benefit liabilities, had increased. The reported surplus was $139 million. The coverage of accrued benefit reserves of members by the actuarial value of assets as at 30 June 2005 was 102.9 per cent. The market value of the assets of the Plan as at 1 July 2005 was 105.8 per cent of vested benefits. (Vested benefits are the total benefits which would be payable if all members left employment as at the date of the investigation. Accrued benefits are the estimates of future benefit entitlements, discounted to present value, for each member in respect of membership up to the date of investigation.) An actuary with Russell Investment Group, Ms Brodie, explained that: "In broad terms the Accrued Benefit values the various benefits available to a member as at the investigation date, projects those benefits forward to an estimated date of payment for each benefit, allowing for assumed salary increases and price inflation, and then discounts back to a present value using an assumed discount rate. Assumptions about the probability of retirement, death, resignation and disability are factored into this calculation in order to determine the estimated date of payment of each type of benefit." 1. On 17 March 2006, the Plan's actuary, Mr Thompson, recommended that the aggregate company contribution to the Plan remain at no less than 13 per cent of salaries (plus the value of any salary-sacrifice contributions). This was an average contribution rate for all members of the plan as at 30 June 2005. He also reported that there was an excess of assets over the value of Accrued Benefits of $139 million and that under the trust deed Qantas could elect to reduce future "normal cost contributions" by up to that amount grossed up for tax which would be equivalent to a reduction in contributions of $55 million per annum for three years. 2. The actuaries retained by the parties for the purpose of these proceedings provided a joint report. They described "normal cost contributions" as referred to in Mr Thompson's report as follows: "2.11. One of the funding methods generally regarded as appropriate for assessing the cost of defined benefits accruing in an ongoing Plan is the Projected Unit Credit (PUC) method. This is a widely used and well accepted actuarial methodology. The first step in applying this method to assess the contributions required from the employer involves calculating the amounts of all benefits expected to be paid in all future years to existing members in respect of their scheme membership over the next one year, allowing for all contingencies which can be expected to give rise to benefit payments at any time in the future, and allowing also for future salary increases. These amounts are discounted to give the present value of the benefits accruing in respect of the next year's membership. This is the underlying cost of the defined benefits and is independent of the funding position in respect of the benefits that have already accrued. 2.12. Contributions at this level will cover the cost of the benefits accruing to members in the year following the assessment date, assuming experience unfolds in line with the actuarial assumptions used. Expressed as a percentage of salaries this represents the cost of the benefits, and therefore the contribution rate required to provide the defined benefits specified, for a group with the given membership profile. Some part of this cost is typically met by contributions from members, and the balance is the contribution required from the employer to meet the cost of the benefits accruing. This is referred to by some actuaries, including the Russell actuary who prepared the reports on the 2005 and 2007 reports on the actuarial reviews of the QSP as the 'normal cost'." 1. The actuaries also described the term "adjusted normal cost". They said: "2.14 The second step of the PUC method involves calculating an adjustment to the cost described in 2.12 above, taking account of any surplus or deficit. The Actuary advises the period of time over which it is appropriate to either utilize any surplus, or fund for any deficit. If there is a surplus the overfunding can be applied to reduce the employer contribution required to fund for future benefits for some time, while if there is a deficit additional employer contributions will be required to make up the underfunding. Some actuaries would refer to this as the 'adjusted normal cost', being the cost of benefits taking account of the financial position of the plan. Other actuaries use other terms to describe this cost." 1. The actuaries observed that when a fund is in surplus the adjusted normal cost (or contribution) will be lower than the normal contribution, but the level of adjusted normal cost (or contribution) will depend on the period of time over which it is appropriate, in the actuary's judgment, to use the surplus. If a fund is in deficit the period over which the deficit is made good will affect the level of the adjusted normal cost. 2. The Plan's actuary, Mr Thompson, calculated the normal cost for the defined benefit component of the benefits provided in each Division of the Plan. These were expressed as a proportion of members' salaries (together with other particular contributions required by the rules of the trust). He also calculated the available surplus that could be used to reduce the contribution required to fund the normal cost, and hence the adjusted normal cost. 3. In the present case Qantas did not adjust its contributions to use the available surplus. It paid the amounts assessed by the actuary as normal cost contributions, that is, the contributions that would be required to fund the benefits that would accrue from the employees' membership of the Plan for the ensuing year. 4. A further actuarial investigation was carried out into the Plan as at 1 July 2007. Again the plan was in surplus as at that date. Mr Thompson reported that there was an excess of assets over the value of accrued benefits of $290 million taking into account adverse investment performance up to 31 January 2008. The actuary reported that the company could elect to reduce future normal cost contributions by up to that amount (grossed up for tax). This would be equivalent to a reduction in contributions of $113 million per annum for three years. Again, the normal cost contribution was determined in respect of each Division for members in the defined benefits plan. The market value of assets as at 1 July 2007 was 111 per cent of vested benefits and 107.8 per cent of accrued benefits. 5. Again, Qantas paid the full amount of the normal cost contribution without adjustment, that is, without reducing the normal cost contribution by using any part of the surplus. 6. Following the Global Financial Crisis in 2008 the Plan's actuary conducted a review of the Plan's financial position and made recommendations in relation to Qantas' contributions. On 28 November 2008 he reported that as at 1 July 2008 there was a surplus of $227 million. However, as at 31 October 2008 the surplus had been reduced to $6 million. The daily movement in investment markets meant that the estimate of actuarial surplus would vary from day to day, but a position of near-zero surplus then obtained. The actuary advised that there was then no actuarial surplus of any materiality in the Plan and therefore no capacity for the company to reduce its normal cost contributions. Retaining the actuarial surplus had helped support the financial position of the Plan during a period of negative investment returns. 7. By 30 June 2009 there was a deficit of assets to vested benefits. The value of assets was then only 98.5 per cent of the benefits that would have been payable had all members left their employment at that date. (There was no review of the accrued benefits liability as at that date.) As at 30 June 2010 the market value of the Plan's assets was 99.1 per cent of the vested benefits. 8. During this period Qantas continued to make the normal cost contributions as determined by the actuary as the amount required to fund the benefits accruing in the ensuing year in respect of the employees' continued membership of the Plan. In addition, Qantas made additional contributions to replenish the deficit. It made "top up" contributions of $21.2 million in the year ended 30 June 2009 and $14.9 million in the year ended 30 June 2010. 9. On 17 November 2010 PricewaterhouseCoopers, acting for Qantas, requested a refund of what were said to be overpaid amounts of payroll tax in relation to superannuation contributions for the financial years ended 30 June 2006 to 2010. The claim for a refund of $6,260,527 was made up as follows: "Period Contribution as lodged Pre* Payroll Refund $ $ tax rate $ 1 January 2010 - 30 June 2010 53,310,388 8,261,500 5,65% 466,775 1 July 2009 – 31 December 2009 53,310,388 8,261,500 5.75% 475,036 1 January 2009 – 30 June 2009 69,179,156 10,385,500 5.75% 597,166 1 July 2008 – 31 December 2008 69,179,156 10,385,500 6.00% 623,130 1 July 2007 – 30 June 2008 175,162,849 18,998,000 6.00% 1,139,880 1 July 2006 – 30 June 2007 164,189,332 21,778,000 6.00% 1,306,680 1 July 2005 – 30 June 2006 148,300,416 27,531,000 6.00% 1,651,860 Total Refund 6,260,527 *Proportion of contribution that relates to services performed pre-1 July 1996 (refer Annexure 4) and is not subject to payroll tax." 1. In support of the application PricewaterhouseCoopers provided a report from an actuary, Mr Campbell, of Russell Investment Group, who described the methodology used as follows: "METHODOLOGY The method we have used is consistent with the methodology set out in CSR Ltd v The Chief Commissioner of State Revenue. The steps involved in calculating the amount of contributions that relate to the period prior to payroll tax applying to superannuation contributions in each State are: Calculate the total accrued defined liability as at 1 July (i.e. the start of each financial year) in aggregate, as well as for each State. The best estimate assumptions were used based on the most recent actuarial investigation completed prior to the relevant calculation date. For each State, calculate the portion of liabilities that is attributable to service prior to the introduction of payroll tax on superannuation contributions, using a simple proportionate approach on an individual member basis; For each State, determine the proportion of accrued liability attributable to service prior to the introduction of payroll tax on superannuation contributions using the amounts determined above; and For each State, multiply the proportion determined in step 3 above by the total contributions paid during the year. RESULTS The following table shows the proportion of accrued liability attributable to service prior to the introduction of payroll tax for each State as at the following dates: (%) 1 July 2005 1 July 2006 1 July 2007 1 July 2008 1 July 2009 NSW 21.7 18.9 16.6 15.4 14.1 … The following tables show the portion of total contributions attributable to service prior to the introduction of payroll tax for each State for the following years ending: ($'000) 30 Jun '06 30 Jun '07 30 Jun '08 30 Jun '09 30 Jun '10 NSW 27,531 21,778 18,998 20,771 16,523 …" 1. On 29 July 2011 the Chief Commissioner allowed a refund of the "additional-top-up contributions made in the financial years ended 30 June 2009 and 2010 that were in respect of services performed by an employee before 1 July 1996". The Chief Commissioner otherwise rejected the request. He said that the normal contributions paid by Qantas were not paid in respect of services performed by employees before 1 July 1996 and that the method used by Mr Campbell to apportion the superannuation contributions was not in accordance with established actuarial practice, nor in accordance with the terms of the Acts. The decision in CSR Ltd v Chief Commissioner of State Revenue did not address the appropriate method of apportionment in a way relevant to Qantas' application. 2. The Chief Commissioner was right to say that the decision in CSR Ltd v Chief Commissioner of State Revenue was not determinative of the issue raised by Qantas' application. He was also right in saying that the apportionment exercise conducted by Mr Campbell of Russell Investments was not a recognised method for apportioning superannuation contributions. The Superannuation and Employee Benefits Practice Committee of the Institute of Actuaries of Australia published a discussion note in October 2009, the purpose of which was to set out one possible approach for members of the Institute to use to apportion defined benefit liabilities and contributions for payroll tax purposes. The Committee advised that it considered that one possible approach was to determine the proportion of all accrued defined benefit liabilities at the start of the relevant payroll tax year attributable to service prior to the relevant date and apply that percentage to the total level of "top-up contributions" paid to the fund in respect of those defined benefit liabilities for the relevant payroll tax year, being the employer contributions that the actuary determined exceeded the normal contributions required in respect of the defined benefit liabilities for that year. The discussion note did not contain any endorsement of a similar apportionment being applied to the normal cost contributions. 3. The contributions in question in CSR Ltd v Chief Commissioner of State Revenue were top-up contributions, not normal cost contributions. Two actuaries gave evidence in these proceedings. Mr Geoffrey McRae was engaged by PricewaterhouseCoopers to provide an independent expert opinion, and his report was tendered by Qantas. Mr John Newman was retained by the Chief Commissioner to provide an independent expert opinion and his report was also tendered. Both actuaries were agreed that it was not appropriate to apportion the normal cost component of a contribution because that was an amount required to fund members' benefits that would accrue in the ensuing year. Both actuaries were agreed that it was appropriate to apportion top-up contributions that were required to fund a deficit. Thus, Mr McRae said: "Where fund assets at the calculation date are inadequate to meet the assessed value of benefits accrued in respect of membership completed before the calculation date, the fund is commonly described as being in deficit. In this case 'top-up' contributions will be required to make good the asset shortfall. These contributions would be calculated on an overall basis in the first instance (over all past years), but could reasonably be attributed in part to each past year of fund membership of the current members, based on when the benefits accrued. The funding of past benefit accruals could be characterised to effectively have a pot of plan assets for each past year. When there is a shortfall then each of these pots could be considered to be less than full. The top up contributions seek to fill each of these pots so that the benefits for each past year are fully provided for. As each of the pots requires a top up contribution, the top up contributions are not in respect of any one year of benefit accrual but in part in respect of each year of past benefit accrual." 1. Similarly, Mr Newman said: "Contributions at the level of the normal cost finance the benefits accruing at the time they are paid. Hence only contributions in excess of the normal cost include an element in respect of services rendered before 1 July 1996, and only contributions in excess of the normal cost can be apportioned. … In 2009 and 2010 additional contributions were paid over and above the normal cost. These contributions were related to benefits accrued for past service, so can be said to be in respect of services rendered in prior years and it is appropriate to apportion these." 1. The Chief Commissioner acted accordingly in allowing a refund of payroll tax referable to that part of the top-up contributions in 2009 and 2010 that were referable to members' service as employees of Qantas before 1 July 1996. 2. The Chief Commissioner now says that this was erroneous, but the reason for his taking that position is because he contends that the exemption for contributions made to defined benefits schemes in respect of employees' service before 1 July 1996 was only available in respect of funds then in deficit. 3. Qantas rightly contends that the proper construction and application of the legislation is not determined by actuarial opinion. It submits that even in the case of normal cost contributions there should be an apportionment. A normal cost contribution is an amount assessed as being required to fund the benefits accruing to members in the ensuing year, but the calculation of accrued benefits required to be funded requires account to be taken of all past years of service as well as assumptions being made as to future years of service in order to obtain the estimated value of total accrued benefits that are to be discounted to reach a present value. Past years of service, including those years before 1 July 1996, is an integer in the calculation. Qantas submits that the normal cost contributions required to be made are partly referable to, that is to say, are partly in respect of, service of employees prior to 1 July 1996. 4. Qantas' alternative argument is that to the extent it made contributions that exceeded the adjusted normal cost, such contributions were partly in respect of services rendered or performed by an employee before 1 July 1996. In the years ended 30 June 2006 to 30 June 2008 and in the six months to 31 December 2008, Qantas made contributions in excess of the adjusted normal cost. That is to say that on those occasions there was a surplus of assets over and above the amount required to pay the accrued benefits liability and the vested benefits liability. Where there is such a surplus the adjusted normal cost will take account of that surplus and hence be lower than the normal cost. In essence, the surplus will be taken to be available to fund the additional liabilities that accrue in the following year to the extent the surplus so extends, and the adjusted normal cost which the employer would be required to pay will be less than the normal cost to the extent to which the surplus is available. 5. In the present case the actuary advised that as at 1 July 2005 there was a surplus of $139 million and suggested that that surplus could be used over a period of three years, thereby reducing the contributions that Qantas would otherwise be required to make by $55 million per year for three years. (Because the trustee was required to pay tax of 15 per cent on the contributions, Qantas would be required to pay $164 million to fund liabilities of $139 million and hence could be relieved of a liability to pay $164 million, rounded up to $55 million over three years. 6. In fact Qantas did not reduce its contributions. But it submitted that to the extent its contributions exceeded the adjusted normal cost they were a contribution to a surplus in the same way as the top-up contributions in 2009 and 2010 were made to top up the deficit. For the same reasons as it was appropriate to apportion the top-up contributions to the deficit between pre and post 1 July 1996 years of service, it was appropriate to apportion the difference between the contributions made in periods when the fund was in surplus and the adjusted normal cost. 7. This view was supported by Mr McRae, but not by Mr Newman. Mr McRae explained his reasoning as follows: "5.3.2 Hypothetical Example of a fund in surplus Where fund assets are more than adequate to meet the assessed value of benefits accrued in respect of membership completed before the calculation date, the fund is commonly described as being in surplus. As described in Sections 5.1 and 5.2 above: the Normal Cost is calculated assuming there is no surplus or deficit where there is a surplus, the Adjusted Normal Cost is calculated by applying the surplus to reduce the Normal Cost. In the analogy used above, where there is a surplus, each of the pots for funding each year of past benefit accrual would be full and there would be additional assets to be applied. Surplus assets are available to be applied to reduce the Normal Cost of benefits accruing in the following years to a lower amount, the Adjusted Normal Cost. In some cases the surplus would be applied to reducing contributions in a single year, but often the surplus is spread over a longer period. Once again, using the funding pot analogy for each year, the Projected Unit Credit Method determines the Normal Cost for the next year after the calculation date, and payment of a contribution amount equal to the Normal Cost would exactly fill the funding pot for that next year. Where there is a surplus and part of that surplus is applied to the next year, the funding pot for that next year will be partly filled by the use of that surplus. The remaining cash contribution required by the employer to exactly fill the funding pot will be less than the Normal Cost and in the terminology above would be described as the Adjusted Normal Cost. Where the employer paid the Adjusted Normal Cost, after consideration of the advice of the actuary, the employer contribution rate for that year would be meeting just the cost of benefits accruing in that single year. Where the employer pays a higher amount than the Adjusted Normal Cost, such as the Normal Cost, the additional amount would be paid to provide a buffer against possible future adverse experience of the fund. This buffer is not in respect of any one year of past membership of the fund, but in a manner similar to that for 'top-up' contributions, could reasonably be attributed in part to each past year of fund membership of the current members. With the funding pots for each past year, and the next year being full (in the case of the next year, in part by the allocation of surplus and in part by a contribution equal to the Adjusted Normal Cost), any contributions in excess of the Adjusted Normal Cost would be allocated to an additional pot alongside each past year's funding pot, to hold that year's share of the additional contribution (I would call these supplementary funding pots). This is exactly analogous to the case of a deficit, where each past year's funding pot requires an allocation from the top up contribution. The rationale of this approach can be seen more clearly by comparing the cases where an employer does apply the surplus assets to reduce contributions and one where the employer continues, in the event of a surplus arising, to pay the unadjusted Normal Cost. Effectively the part of the Normal Cost that is not required, because part of the surplus assets has already been applied to part fill the funding bucket for the coming year, would be used to part fill each of the supplementary funding pots. If a future shortfall arises because of adverse economic or demographic experience, this shortfall will be greater where the lesser Adjusted Normal Cost has been paid. Effectively there will be no assets in the supplementary funding pots to offset the shortfall in the amounts in the initial series of funding pots. Where the Normal Cost has been paid each year there will be assets in the supplementary funding pots and the overall financial position of the plan will be stronger (lower shortfall). The payment of the Adjusted Normal Cost each year would be considered to be adequate, in line with accepted actuarial standards and normal provision for the accruing benefits of the plan. However, payment of this reduced amount will result in a greater deficit in the event of adverse financial or economic experience. The greater the shortfall, the greater will be the required 'top-up' contributions. The part of each top-up contribution that is applied to a pre-payroll tax funding bucket would not be assessable for payroll tax." 1. Mr Newman did not agree. In his view the proportioning methodology should not be applied to contributions in excess of the adjusted normal cost, but only to contributions in excess of the normal cost. In the present case Qantas continued to make normal cost contributions. It could have reduced its contributions to the recommended adjusted normal cost level. Had it done so it would have been required to make higher top-up contributions later because the deficit would have been greater. It would then have been entitled to apply the proportionate approach to those top-up contributions. But that was not the course it elected to take. It could not be said that the difference between the contributions it made and the adjusted normal cost were contributions to a surplus, as distinct from being required to finance the ongoing accrual of benefits, leaving the existing surplus available. The Chief Commissioner supported Mr Newman's views. 2. The Chief Commissioner also contended that Qantas had not complied with an alleged statutory requirement that it keep contemporaneous records that evidenced to the Chief Commissioner's satisfaction that the contributions were paid in respect of services performed by employees before 1 July 1996. Pay-Roll Tax Act 1971 1. The 1971 Act applies to Qantas' payroll tax liabilities up to the year ended 30 June 2007. Section 8 of the 1971 Act provided that: "Pay-roll tax shall be paid by the employer by whom the taxable wages are paid or payable." 1. "Taxable wages" was defined in s 3 to mean: "wages that, under Section 6, are liable to pay-roll tax." 1. Section 6(1)(a) relevantly provided that: "6 Wages liable to pay-roll tax (1) The wages liable to pay-roll tax under this Act are wages that are paid or payable by an employer for services performed or rendered during a month or part of a month and: (a) are wages that are paid or payable in New South Wales, …". 1. "Wages" were defined by s 3AA. Section 3AA(6A) provided that: "3AA Wages … (6A) Wages includes a superannuation benefit, other than one paid or payable in respect of services rendered by an employee before 1 July 1996." 1. "Superannuation benefit" was relevantly defined in s 3 as follows: "superannuation benefit means money paid or payable by an employer in respect of an employee: (a) to or as a superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 of the Commonwealth …" 1. The Qantas Superannuation Plan was a superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth). 2. Section 50A of the 1971 Act provided as follows: "50A Savings, transitional and other provisions Schedule 6 has effect." 1. Schedule 6 was headed "Savings, transitional and other provisions". Part 3 of Schedule 6 provided: "Part 3 Provisions consequent on the enactment of the State Revenue Legislation (Miscellaneous Amendments) Act 1996 3 Definitions In this Part, defined benefit superannuation scheme has the same meaning as in the Superannuation Guarantee (Administration) Act 1992 of the Commonwealth. 4 Manner of determining liability of certain superannuation benefits to taxation (1) Money paid by an employer, after 30 June 1996, in respect of a defined benefit superannuation scheme or an unfunded scheme, that is alleged by the employer to be paid in order to make up a deficiency in the scheme, as at 30 June 1996, relating to a benefit payable in respect of services rendered by an employee or employees on or before that date, must be evidenced to the satisfaction of the Chief Commissioner in the employer's records for pay-roll tax purposes. (2) In particular, the employer's records must show the manner of calculation of the deficiency and any actuarial basis for it. (3) For the purposes of subclause (2) and of any assessment under section 18 to which that subclause is material, the certificate of a fellow or accredited member of the Institute of Actuaries of Australia to the effect that the actuarial basis on which an amount is calculated as a deficiency is justified is prima facie evidence of that fact. (4) Without limiting the generality of any of the provisions of section 18, the Chief Commissioner, on an assessment under that section, is entitled to assume that an appropriation of money after 30 June 1996 as a superannuation benefit is an amount paid or payable in respect of the services of an employee or employees after that date, if records are not kept as this clause requires. 5 Superannuation payments not readily related to particular employees or their periods of service Regulations under clause 1 may make provision for or with respect to: (a) determining whether, and the extent to which, any money paid or payable by an employer to a superannuation, provident or retirement fund or scheme that is not identified by the employer as paid or payable in respect of a particular employee (and whether or not purporting to be so paid or payable on any actuarial basis) is to be regarded for the purposes of this Act as money paid or payable in respect of a particular employee, and (b) determining what portion of an amount paid on or after 1 July 1996 by an employer to a fund or scheme that is wholly or partly unfunded, being an amount paid in respect of an employee (or that is taken, by virtue of regulations made for the purposes of paragraph (a), to have been so paid) who rendered services to the employer on or after, as well as before, 1 July 1996 is to be regarded, for the purposes of this Act, as having been paid in respect of services rendered by the employee before that date." Payroll Tax Act 2007 1. The 2007 Act is applicable to Qantas' liability for the financial years after 30 June 1997. Section 6 of that Act provides that: "Payroll tax is imposed on all taxable wages." 1. Section 17 relevantly provides: "17 Wages include superannuation contributions (1) For the purposes of this Act, wages include a superannuation contribution. (2) A superannuation contribution is a contribution paid or payable by an employer in respect of an employee: (a) to or as a superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 of the Commonwealth, …" 1. Section 103 provides that "Schedule 3 has effect". 2. Schedule 3 relevantly provides: "Schedule 3 Savings, transitional and other provisions … 3 Application of this Act and old Act (1) This Act applies to payroll tax on taxable wages that are paid or payable on or after 1 July 2007. (2) Despite its repeal, the old Act continues to apply to payroll tax on taxable wages (within the meaning of the old Act) paid or payable before 1 July 2007. … 6 Superannuation contributions relating to pre-1 July 1996 service (1) Despite anything in section 11 or 17, wages do not include a superannuation contribution paid or payable in respect of services performed by an employee before 1 July 1996. (2) A superannuation contribution that is alleged by an employer to be paid in respect of services performed by an employee before 1 July 1996 must be evidenced to the satisfaction of the Chief Commissioner in the employer's records for payroll tax purposes. (3) In particular, the employer's records must show the manner of calculation of the contribution and any actuarial basis for it. (4) For the purposes of subclause (3) and of any assessment of payroll tax to which that subclause is material, the certificate of a fellow or accredited member of the Institute of Actuaries of Australia to the effect that the actuarial basis on which an amount is calculated is justified is evidence and, in the absence of evidence to the contrary, proof of that fact. (5) If records are not kept as required by this clause, the Chief Commissioner is entitled to assume that a payment of money by an employer as a superannuation contribution on or after 1 July 1996 is an amount payable in respect of services performed by an employee on or after that day." Taxation Administration Act 1996 1. On a review of the decision of the Chief Commissioner that has been the subject of an objection under s 97 of the Taxation Administration Act 1996 (NSW) the Court stands in the shoes of the Chief Commissioner and is required to make the determination that the judge considers should be made on the evidence adduced in the review proceeding (Tasty Chicks Pty Limited v Chief Commissioner of State Revenue [2011] HCA 41; (2011) 245 CLR 446 at [13]-[22]; Metricon Qld Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 982; (2013) 92 ATR 169 at [26]). The question is not whether the Chief Commissioner had or lacked a satisfaction as to whether the superannuation contribution alleged by Qantas to have been paid in respect of services performed before 1 July 1996 was evidenced in Qantas' records for payroll tax purposes, but whether the Court is so satisfied. 1996 legislation 1. Prior to 1996 some contributions made by employers to an employee's superannuation fund were included within the definition of wages that were subject to payroll tax. But contributions made to an eligible superannuation fund within the meaning of s 267 of the Income Tax Assessment Act 1936 (Cth) were not so included (State Revenue Legislation (Further Amendment) Act 1992 (NSW) Schedule 5, clause 2). 2. The State Revenue Legislation Further Amendment Act 1996 (NSW) (assented to on 28 June 1996) provided for the insertion into s 3AA of the 1971 Act a new subsection (6A) that provided: "Wages includes a superannuation benefit." 1. A "superannuation benefit" was defined so as to include: "a payment of money by an employer for the benefit of an employee to, or the setting apart of money by an employer for the benefit of an employee as, a superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 of the Commonwealth." 1. Also included in the definition of "superannuation benefit" was a payment of money that was "paid or payable by an employer as, or as a contribution to, a pension, lump sum or other benefit paid or payable as a result of the retirement of an employee (or the cessation of the employment of an employee for any other reason) in respect of services rendered by the employee after 30 June 1996" that was not otherwise liable to payroll tax. However this provision related only to payments made in respect of an unfunded or partly unfunded superannuation, provident or retirement fund or scheme, being a fund or scheme under which the employer was not required to, or did not, pay or set aside money during the period of the employee's employment. 2. The State Revenue Legislation (Miscellaneous Amendments) Act 1996 (NSW) defined an "unfunded" scheme. A new section 3(5) was inserted that provided, in substance, that a superannuation scheme was unfunded to the extent that money paid or payable by an employer in respect of an employee covered by the scheme was not paid or payable during the employee's period of service with the employer. 3. In introducing the State Revenue Legislation Amendment (Howard and Costello) Bill (which became the State Revenue Legislation Further Amendment Act 1996) on 20 June 1996 the Minister stated that: "The Pay-roll Tax Act will be amended in order to include employer superannuation contributions within the definition of wages for the purposes of the Act. At the same time the rate will be decreased from seven per cent to 6.85 per cent. The changes are to take effect from 1 July 1996 with the net effect providing additional revenue of around $100 million in a full year. This initiative also addresses the anomaly and the resulting distortions caused by not including employer contributions to superannuation in the definition of wages for payroll tax purposes. South Australia Already includes employer contributions to superannuation in its payroll tax base." (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 20 June 1996 at 3350) 1. Counsel for the Chief Commissioner described this legislation as a blunt instrument without any transitional provisions except for contributions to unfunded or partly unfunded public sector schemes. Counsel emphasised that part of the Second Reading Speech that described the non-inclusion of superannuation contributions in the payroll tax base as an anomaly which caused resulting distortions. The point of this submission was to suggest that the next, and operative, legislative amendment had a narrow operation. 2. The next legislative amendment was the State Revenue Legislation (Miscellaneous Amendments) Act 1996 assented to on 3 December 1996. It amended s 3AA(6A) so that the subsection read: "(6A) Wages includes a superannuation benefit, other than one paid or payable in respect of services rendered by an employee before 30 June 1996." 1. That subsection remained unchanged until the repeal of the 1971 Act. 2. "Superannuation benefit" was redefined as follows: "superannuation benefit means money paid or payable by an employer in respect of an employee: (a) to or as a superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 of the Commonwealth, or (b) as a superannuation guarantee charge within the meaning of the Superannuation Guarantee (Administration) Act 1992 of the Commonwealth, or (c) to or as any other form of superannuation, provident or retirement fund or scheme, including a wholly or partly unfunded fund or scheme." 1. That definition also remained unchanged until the repeal of the 1971 Act. 2. The State Revenue Legislation (Miscellaneous Amendments) Act 1996 amended Schedule 6 by inserting Part 3 as set out at [45] above. 3. These clauses were unchanged up to the repeal of the 1971 Act. 4. No regulations were made for the purposes envisaged by clause 5 in Part 3 of Schedule 6. 5. In introducing the Bill that became the State Revenue Legislation (Miscellaneous Amendments) Act 1996 on 20 November 1996 the Minister said: "A number of minor amendments are proposed to clarify the liability for pay-roll tax on employer superannuation benefits and to make it clear that an employer is not liable to pay tax more than once on a superannuation benefit which is also taxable as a fringe benefit or as a component of a salary package. Superannuation benefits became liable for pay-roll tax from 1 July 1996, but only in respect of services provided on or after that date. [sic] The amendments include transitional provisions which specify record-keeping requirements in relation to exempt superannuation benefits, and the method of calculating the exempt and liable components of a superannuation benefit provided under an unfunded scheme. A regulation-making power has also been included to allow rules to be prescribed for the calculation of the exempt and liable components of a superannuation benefit which cannot be attributed to a particular employee. This is necessary because of the number of differing superannuation arrangements entered into by employers." (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 20 November 1996 at 6281) 1. Contrary to what the Minister said, the amendments to the Pay-Roll Tax Act that took effect from 1 July 1996 did not provide that superannuation benefits became liable for payroll tax only in respect of services provided on or after that date. However, it may be inferred that that had been the government's intention. 2. Counsel for the Chief Commissioner submitted that clause 4 of Schedule 6 was of vital importance and indicated that the amendments made by the State Revenue Legislation (Miscellaneous Amendments) Act 1996 had the purpose of making provision for a case where money was paid in order to make up a deficiency in a scheme as at 30 June 1996 relating to benefits assessed as payable as at that date. The Chief Commissioner submitted that clause 4 focused on the deficiency as at 30 June 1996 and unless such a deficiency were established in the manner required by clause 4 the Chief Commissioner, and in turn the Court, was entitled to assume that any appropriation of money to superannuation after 30 June 1996 was in respect of an amount paid or payable in respect of services after that date (clause 4(4)). 3. The Chief Commissioner submitted that the effect of clause 3(2) of Schedule 3 to the 2007 Act was that the requirement for a deficiency as at 30 June 1996 was preserved and expressly incorporated by reference in the 2007 Act. 4. That was not the basis on which the Chief Commissioner proceeded in dealing with Qantas' application. But leave was granted to the Chief Commissioner to amend his appeal statement in order to raise this issue. CSR Ltd v Chief Commissioner of State Revenue 1. The CSR Australian Superannuation Fund had a number of Divisions, including a defined benefit Division. At least some members were entitled to pensions, unlike members of the Qantas Superannuation Plan. There was no deficit in that Division as at 30 June 1996 or any subsequent year. The fund was conducted for the benefit of present and past employees of CSR Ltd. CSR agreed to make top-up contributions to the defined benefit Division to maintain the value of assets at 120 per cent of total liabilities as a prudential measure. CSR contended that such top-up contributions did not come within the definition of a "superannuation benefit" within the meaning of s 3 as the contributions were not moneys paid or payable by an employer "in respect of an employee". CSR argued that such top-up contributions could not be identified with a particular employee and were therefore not paid or payable "in respect of an employee". Gzell J rejected that argument. His Honour held (at [40]) that: "[40] … the use of the singular in the definition of superannuation benefit in the Pay-Roll Tax Act 1971, s 3(1) imports the plural and CSR's argument that it is necessary to identify an individual employee who benefits from its top-up contributions is misconceived." 1. The Chief Commissioner submitted that because there was no deficiency in the fund as at 30 June 1996 none of the top-up contributions made by CSR was exempted from being included in wages. Gzell J rejected the opinion of an actuary called by the Chief Commissioner who said that since the Division was not in deficit as at 30 June 1996 all employer contributions after that date were attributable to service after that date. His Honour noted that some members were entitled to benefits by way of pension. As his Honour said (at [45]): "[45] But to the extent to which the top-up contributions potentially benefited pensioners whose employment ceased before 1 July 1996, it could not be said that the benefit was attributable to services rendered after 30 June 1996." 1. His Honour then described and dealt with the Chief Commissioner's argument as follows: "[46] Having submitted that the words 'in respect of' in the definition of superannuation benefit in the Pay-roll Tax Act, s 3(1), should be interpreted broadly, requiring a connection between two matters but not a close one, the Chief Commissioner submitted that the same words in s 3AA(6A) should be read restrictively. It was submitted that the exclusion should be read with the transitional provisions in Sch 6 and, in particular, with cl 4. It was submitted that so read the exclusion was limited to benefits paid or payable to make up a deficiency as at 30 June 1996. [47] I do not accept that submission. I see no reason to construe the words 'in respect of' differently in s 3AA(6A) of the Pay-roll Act 1971 from their construction in the definition of superannuation benefit in s 3(1). There is nothing in the amending legislation or in the explanatory notes to the amending legislation that suggests a restriction to superannuation benefits to cure a deficiency in a fund as at 30 June 1996. And while Sch 6, cl 4 speaks of making up such a deficiency it does not purport to limit the exclusion in s 3AA(6A) to this situation." 1. I would follow that conclusion unless I were satisfied that it was clearly wrong. So far from being satisfied that it was clearly wrong, I consider that Gzell J was correct for the reasons he gave. Contrary to the submission of counsel for the Chief Commissioner, I agree with Gzell J that there is nothing in the amending legislation, that is, the State Revenue Legislation Further Amendment Act 1996 (the June amendment) or the State Revenue Legislation (Miscellaneous Amendments) Act 1996 (the December amendment) or the explanatory notes thereto, or, I might add, the Second Reading Speeches, that suggests that it was intended that the limitation on the extent to which payment of superannuation contributions (called superannuation benefits) would become liable for payroll tax (namely, that such superannuation contributions be included in wages only in respect of services provided after 30 June 1996) was intended to apply only to a fund that was in deficit as at 30 June 1996. Nothing to that effect was said in either of the Second Reading Speeches. It is true that in the Second Reading Speech on the introduction of the State Revenue Legislation (Miscellaneous Amendments) Bill on 20 November 1996 the Minister described the amendments to be made by that Bill as being minor and having been introduced for the purpose of clarifying the liability for payroll tax on employer superannuation contributions. On one view, the amendment might be regarded as more than minor. But it also appears from the Second Reading Speech that the government of the time had thought that the amendments introduced from 1 July 1996 were to apply only in respect of superannuation contributions paid in respect of services provided after that date. As that was the government's intention, the amendment made to give effect to that intention could properly have been characterised as a minor one. 2. In any event, such extrinsic materials are not a substitute for the text of the legislation. The text of the Act is both the starting and finishing point. 3. As Gzell J said, clause 4 of Schedule 6 does not purport to limit the exclusion in s 3AA(6A) to a situation of a fund's being in deficit as at 30 June 1996. If it were intended that all future superannuation contributions were to be included in taxable wages except those paid to make up a deficiency in a scheme as at 30 June 1996 in respect of services provided by an employee before that date, then one would expect s 3AA(6A) so to have provided. It did not. 4. In my view the likely explanation for the inclusion of clause 4 of Schedule 6 was a recognition that whereas, at least arguably, the payment of normal cost contributions for a defined benefits scheme would not relate to services provided by employees before 1 July 1996 (because such payments would be made to fund benefits that accrued after that date), payments made to make up a deficiency in a fund could be apportioned between pre and post 1 July 1996 service, and the government was concerned that employers might claim, with no real justification, that superannuation contributions fell into the latter rather than the former category. In other words, it is likely that clause 4 was introduced to deal with an apprehended immediate problem. I think clause 4 of Schedule 6 is significant in relation to the issues in the case for its recognition that contributions to make up a deficit could be apportioned, but no qualification on the operation of s 3AA(6A) is implied by the reference in clause 4 of Schedule 3 to the date. 5. Clause 4(1) of Schedule 6 to the 1971 Act was not replicated in the 2007 Act. The requirement for the keeping of adequate records was carried forward to the 2007 Act in clause 6 of Schedule 3 to that Act, but without any reference to whether the payment was made in order to make up a deficiency in a scheme as at 30 June 1996. This is understandable, given the 11 years that had passed. The fact that the 2007 Act repeated the substance of s 3AA(6A) in clause 6(1) of Schedule 3 with no reference to a requirement that the fund be in deficit as at 30 June 1996 indicates that it was never a requirement of the 1971 Act that the exemption was limited to the case of defined benefit schemes in deficit as at 30 June 1996. 6. I do not accept the submission of counsel for the Chief Commissioner that clause 3(2) of Schedule 3 of the 2007 Act had the effect that the operation of the requirement for a deficiency as at 30 June 1996 was preserved and expressly incorporated by reference in the 2007 Act. Clause 3(2) of Schedule 3 to the 2007 Act applies only to the payroll tax paid or payable before 1 July 2007. It does not apply to the payroll tax on taxable wages payable after 1 July 2007 and hence could not "preserve" the alleged requirement that the exemption from payroll tax in respect of superannuation contributions paid in respect of services provided by an employee before 1 July 1996 was limited to a case, so far as defined benefit schemes were concerned, where there was a deficiency as at that date. 7. For these reasons I reject the Chief Commissioner's submission that the plaintiff's claim is barred because the scheme was not in deficit as at 30 June 1996. Adequacy of record-keeping 1. Clause 4 of Schedule 6 to the 1971 Act is not applicable because Qantas does not allege that any moneys paid by it were paid in order to make up a deficiency in the scheme as at 30 June 1996. 2. In respect of the 2008 to 2010 financial years, clause 6 of schedule 3 to the 2007 Act is applicable. That clause required that the superannuation contributions paid by Qantas in respect of services performed by employees before 1 July 1996 be evidenced to the satisfaction of the Chief Commissioner in its records for payroll tax purposes and that those records show the manner of calculation of the contribution and any actuarial basis for it. 3. Despite repeated requests from the bench, counsel for the Chief Commissioner could not point to any particular deficiency in the accounting records kept by Qantas. Qantas' records were kept electronically. There is no dispute that Qantas adequately recorded the employer superannuation contributions made and all relevant details of its employees' service to enable a calculation to be made as to how much of the superannuation contributions could be said to be referable to pre 1 July 1996 service. The Chief Commissioner's submission was that that calculation was not made contemporaneously in the records kept by Qantas for payroll tax purposes, but rather was made subsequently from its records. 4. Clause 6(2) of Schedule 3 to the 2007 Act requires that the employer's superannuation contribution be evidenced to the Chief Commissioner's satisfaction in the employer's records for payroll tax purposes. There is no doubt that Qantas' contributions are so evidenced. Qantas' records show the manner of calculation of its contributions. The actuarial basis for its contributions is evidenced by the reports of Mr Thompson. It is true that at the time the contributions were made there was no record purportedly apportioning the contributions in respect of pre and post 1 July 1996 service. But the records to enable that calculation to be made, to the extent that it can be made, (see below) were adequately kept. Apportionment of normal cost contributions 1. As noted above, CSR Ltd v Chief Commissioner of State Revenue concerned the apportionment of top-up contributions that were to add to the surplus of the fund to provide a prudential margin. The apportionment methodology used in that case by the actuary for CSR was described as follows: "[43] Keith John Knapman was an actuary retained by CSR. He apportioned between pre-1996 services and post-1996 services by determining, as at 30 June in each of the years in question, the total Division One liabilities. He then calculated so much of those liabilities as were attributable to post-June 1996 service by New South Wales employees of CSR and determined the proportion of liabilities attributable to post-June 1996 service for those CSR New South Wales employees. He then applied that percentage to the top-up contributions made by CSR in the years in question to arrive at so much of those contributions as was attributable to post-30 June 1996 service by CSR's New South Wales employees. That amount subtracted from the top-up contributions in each year, gave the amount of them as was attributable to pre-1 July 1996 service by CSR New South Wales employees and all deferred and pensioner members. …" 1. Mr Campbell of Russell Investment Group applied the same methodology to the whole of the contributions paid by Qantas. He said that the method used was consistent with the methodology set out in CSR Ltd v Chief Commissioner of State Revenue. But that is only to say that the same methodology was applied to apportion contributions. Mr Thompson did not say that in his view that was an appropriate methodology to apply in respect of the whole of the contributions. Both actuaries engaged by the Chief Commissioner and Qantas agreed that it was not appropriate in so far as the contributions made by Qantas were "normal cost" contributions, that is, contributions that were made to fund the ongoing accrual of benefits to members for the ensuing year. In a letter from Russell Investment Group to Qantas dated 25 October 2011 the actuary (whose name is not given) applied the same methodology to contributions for the year ended 30 June 2011 (which are not in issue in the present case), but added "Whilst the calculations were done under the approach set out in CSR Limited v The Chief Commissioner of State Revenue, I am not certifying that the approach is reasonable." 2. Qantas submits, rightly, that the issue depends on a question of statutory construction, not actuarial practice. But that is not to say that actuarial practice is irrelevant. The issue of statutory construction turns on the meaning to be given to the words "in respect of". Actuarial practice may well be relevant to the application of that phrase. 3. The question is whether the superannuation contributions paid by Qantas were "in respect of services rendered by an employee before 1 July 1996" (in the case of the 1971 Act (s 3AA(6A)), or were paid "in respect of services performed by an employee before 1 July 1996" (in the case of the 2007 Act (clause 6(1) of Schedule 3)). 4. As Gzell J observed in CSR Ltd v Chief Commissioner of State Revenue, the phrase "in respect of" has a wide meaning requiring some connection between two matters (at [30]). In State Government Insurance Office v Rees (1979) 144 CLR 549 Mason J said that: "The expression 'in respect of' denotes a relationship or connexion between two things. In State Government Insurance Office v Crittenden [(1966) 117 CLR 412 at 416] Taylor J quoted, with evident approval, the remarks of Mann CJ in Trustees Executors & Agency Co Ltd v Reilly [[1941] VLR 110 at 111], 'The words "in respect of" are difficult of definition, but they have the widest possible meaning of any expression intended to convey some connexion or relation between the two subject-matters to which the words refer'. The same view was taken later in Club Motor Insurance Agency Pty Ltd v Sargent [(1969) 118 CLR 658]. But, as with other words and expressions, the meaning to be ascribed to 'in respect of' depends very much on the context in which it is found." (at 561) 1. In Workers' Compensation Board of Queensland v Technical Products Pty Limited (1988) 165 CLR 642 at 653-654, Deane, Dawson and Toohey JJ said: "Undoubtedly the words 'in respect of' have a wide meaning, although it is going somewhat too far to say, as did Mann CJ in Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110 at 111, that 'they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject-matters to which the words refer'. The phrase gathers meaning from the context in which it appears and it is that context which will determine the matters to which it extends." Wilson and Gaudron JJ spoke to the same effect at 646-647. 1. All of the relevant contributions paid by Qantas to the Qantas Superannuation Plan that were the subject of the suggested apportionment by Qantas were paid to provide benefits to members of defined benefit schemes, at least some of whom had rendered or performed services before 1 July 1996 and who, on retirement, would be entitled to a lump sum calculated by reference to the entirety of the length of their service, including their service before 1 July 1996. Hence there was a connection between the payments made by Qantas and pre 1 July 1996 service of employees. Taken to extremes, the taxpayer could say that all of the contribution to the defined benefit scheme, or at least the contribution in so far as it was referable to employees with pre 1 July 1996 service, was made "in respect of" that service, because there was a connection between the payment and the service, and hence all of the contribution should be exempt from payroll tax without apportionment between the years of service pre and post 1 July 1996. Qantas did not so submit, and I think rightly so. 2. The question is how the words "in respect of" pre 1 July 1996 service should be applied, having regard to the context and purpose of the relevant provisions. I think that the construction of those words of the 2007 Act is assisted by consideration of the 1971 Act. Clauses 4 and 5 of Schedule 6 of the 1971 Act are instructive. Clause 5 shows that Parliament was conscious of the fact that regulations might need to be made in order to determine how an apportionment should be made. That perhaps showed a consciousness of the problem. Clause 4 shows that it was understood that a contribution to make up a deficiency in a scheme as at 30 June 1996 could be said to relate to benefits payable in respect of services rendered by an employee before 1 July June 1996. For the reasons explained by Mr McRae (see para [27] above) there is a sure foundation for that conclusion. 3. The evident purpose of s 3AA(6A) of the 1971 Act and clause 6(1) of Schedule 3 to the 2007 Act was to ensure that the 1996 amendments did not have retrospective effect. To the extent to which later contributions can be shown to be funding a deficiency or providing a prudential margin for the payment of benefits referable to (in respect of) pre-1 July 1996 service, then the exclusion of such contributions from taxable wages is consistent with the legislative purpose. 4. If a normal cost contribution could be apportioned between pre and post 1 July 1996 service in a way that was logical and reasonable so as to be consistent with that purpose, then I would accept that such an apportionment should be made. But I do not accept that the mere fact that there is a connection between the two things as described above means that the normal cost contribution can be said to have been paid in respect of the services rendered before the employee before 1 July 1996. The contribution was paid each year to fund the cost of benefits estimated to accrue for the ensuing year based on estimates of future service, future salary increases, price inflation and appropriate discount rates. A simple ratio of pre and post 1 July 1996 service, when applied to normal cost contributions, does not yield a sensible outcome. 5. The question is complicated. Thus it appears from the reports of Russell Investment Group that in calculating the required normal cost contribution the actuary takes into account anticipated earnings from the fund. A normal cost contribution was only required to the extent needed to make up the deficiency between those anticipated earnings and the estimate (discounted to present value) of future accrued benefits. The fact that the calculation of the liability for accrued benefits required to be funded included a component of pre 1 July 1996 service does not mean that the payment of a normal cost contribution was made in respect of pre 1 July 1996 service, in the absence of any criteria for determining how much, if any, of that contribution was properly referable to the pre 1 July 1996 service. No actuary proffered a means of enabling such a calculation to be made, or even suggested that such a calculation was possible. The discussion note issued by the Superannuation Employee Benefits Practice Committee of the Institute of Actuaries of Australia said that there may be circumstances where a portion of an entire contribution might be considered to relate to the period prior to the payroll tax transition date, but gave as the only example a public sector scheme that used, at least partially, a 'pay as you go' funding method. The Committee clearly considered that in the case of a funded scheme only top-up contributions could be apportioned. In the absence of any demonstrable way of properly apportioning normal cost contributions so that some proportion could be said to have been paid in respect of services rendered by employees before 1 July 1996, the taxpayer cannot satisfy the onus that lies on it (Taxation Administration Act, s 100(3)) to show that payroll tax was not payable on the contribution. Differential between contribution made and adjusted normal cost 1. I accept Mr McRae's opinion that there is no difference in principle between the making of top-up contributions to rectify a deficiency and the making of voluntary contributions to a surplus. That is the logic behind CSR Ltd v Chief Commissioner of State Revenue. The contributions apportioned in that case were contributions to a surplus. By his letter of 29 July 2011, the Chief Commissioner, rightly in my view, accepted that contributions to make up a deficiency could be apportioned between pre and post 1 July 1996 service. 2. Mr Newman did not say that there was any logical ground for distinction. It was agreed that had Qantas paid contributions at the levels of adjusted normal cost determined by the actuary, that is, had it taken advantage of the surplus in the fund that obtained up to 31 October 2008, it would have been required to make up a higher deficiency in 2009 and 2010, but would have been entitled to apportion such top-up contributions between pre and post 1 July 1996 service in determining the payroll tax payable on those contributions. 3. Mr Newman's essential point is that that is not what Qantas did. It did not use the available surplus. Instead, it paid the full amount of the normal cost contribution and accordingly the contribution cannot be apportioned. 4. A normal cost contribution is not a contribution to pay expenses that will accrue in the following year. It is a contribution to add to a fund so that in the ensuing year the fund can be expected to be sufficient to meet the discounted value of all future benefits payable to members of the fund, having regard to the investments already held for that purpose. The payment of the normal cost contribution cannot sensibly be segregated from the other moneys and investments of the Qantas Superannuation Plan. That is to say, there is no difference between applying any part of the existing investments of the plan (including those which are surplus to the calculated accrued benefits) towards payment of members' benefits, and applying the amounts contributed by Qantas as normal cost contribution in the years in question towards payment of those liabilities. In the case of the "adjusted normal cost differential" it is possible to make a logical and evidence-based apportionment between employees' pre and post 1 July 1996 service. In my view to the extent contributions were made by Qantas in excess of adjusted normal cost, it is possible to say how much of the contributions were made in respect of services rendered or performed by employees before 1 July 1996 and to that extent they should not be included in Qantas' taxable wages. 5. Mr McRae reviewed the calculations made by Russell Investment Group and prepared independent check calculations. He was not cross-examined on those figures and no issue was raised as to their accuracy. Mr Newman agreed with the arithmetic results reached by Mr McRae, although disputing the basis of his calculation. I accept Mr McRae's analysis. He showed that between 1 July 2005 and 31 December 2008 Qantas made contributions of $207.6 million in excess of adjusted normal cost. Of that amount $38.27 million is apportioned to pre 1 July 1996 service of New South Wales employees. Applying the relevant payroll tax rate of six per cent over that period, Qantas was entitled to a refund of $2.3 million. Qantas paid $36.1 million between 1 January 2009 and 30 June 2010 as top-up contributions when the plan was in deficit. Applying the same methodology it was entitled to a refund of $310,000 in respect of those top-up contributions. That refund has already been allowed by the Chief Commissioner. Conclusion 1. For these reasons I have concluded that the decision of the Chief Commissioner dated 29 July 2011, in so far as it refused the refund sought by Qantas in PricewaterhouseCoopers' letter of request of 17 November 2010, should be revoked. Qantas' application for an order that the refund sought by it by PricewaterhouseCoopers' letter of 17 November 2010 be allowed in full should be dismissed. Qantas is entitled to a refund of $2.3 million in addition to the refund allowed by the Chief Commissioner by his letter of 29 July 2011, and interest calculated in accordance with s 105 of the Taxation Administration Act. The matter should be remitted to the Chief Commissioner to be determined in accordance with these reasons. I direct the parties to bring in short minutes of order in accordance with these reasons. I will then hear any argument on the question of costs. ********** 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: 30 June 2015