Aintree Holdings Pty Ltd and Commissioner of State Revenue
[2008] WASAT 62
•14 MARCH 2008
AINTREE HOLDINGS PTY LTD and COMMISSIONER OF STATE REVENUE [2008] WASAT 62
| STATE ADMINISTRATIVE TRIBUNAL | Citation No: | [2008] WASAT 62 | |
| TAXATION ADMINISTRATION ACT 2003 (WA) | |||
| Case No: | DR:13/2007 | 22 AUGUST 2007 AND 23 AUGUST 2007 | |
| Coram: | JUSTICE M L BARKER (PRESIDENT) | 13/03/08 | |
| 21 | Judgment Part: | 1 of 1 | |
| Result: | The decision of the Commissioner to assess the payments made by the applicant to the consultants as wages subject to payroll tax was affirmed The review application was dismissed | ||
| B | |||
| PDF Version |
| Parties: | AINTREE HOLDINGS PTY LTD COMMISSIONER OF STATE REVENUE |
Catchwords: | Revenue Payroll tax "Wages" "Employee" Whether commission paid to consultants engaged by the applicant were wages Whether consultants were "employees" or independent contractors Consultants found to be "employees" |
Legislation: | Payroll Tax Assessment Act 1971 (WA), s 3(1), s 6, s 11E Payroll Tax Assessment Act 2002 (WA), s 4, s 5, s 21, Glossary cl 2(1)(a) Taxation Administration Act 2003 (WA) |
Case References: | Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788; (2006) 222 ALR 599 D & D Tolhurst Pty Ltd v Commissioner of State Revenue (Vic) (1997) 97 ATC 2179 Federal Commissioner of Taxation v Barrett (1973) 129 CLR 395 Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21 Mortgage Force Service Pty Ltd and Commissioner of State Revenue [2007] WASAT 53 |
Orders | 1. The decision of the Commissioner to assess the payments made by the applicant to the various consultants as wages subject to payroll tax is affirmed.,2. The review application is dismissed. |
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : DEVELOPMENT & RESOURCES ACT : TAXATION ADMINISTRATION ACT 2003 (WA) CITATION : AINTREE HOLDINGS PTY LTD and COMMISSIONER OF STATE REVENUE [2008] WASAT 62 MEMBER : JUSTICE M L BARKER (PRESIDENT) HEARD : 22 AUGUST 2007 AND 23 AUGUST 2007 DELIVERED : 14 MARCH 2008 FILE NO/S : DR 13 of 2007 BETWEEN : AINTREE HOLDINGS PTY LTD
- Applicant
AND
COMMISSIONER OF STATE REVENUE
Respondent
Catchwords:
Revenue Payroll tax "Wages" "Employee" Whether commission paid to consultants engaged by the applicant were wages Whether consultants were "employees" or independent contractors Consultants found to be "employees"
Legislation:
Payroll Tax Assessment Act 1971 (WA), s 3(1), s 6, s 11E
Payroll Tax Assessment Act 2002 (WA), s 4, s 5, s 21, Glossary cl 2(1)(a)
Taxation Administration Act 2003 (WA)
(Page 2)
Result:
The decision of the Commissioner to assess the payments made by the applicant to the consultants as wages subject to payroll tax was affirmed
The review application was dismissed
Category: B
Representation:
Counsel:
Applicant : Ms F Halsey
Respondent : Ms J Jones
Solicitors:
Applicant : Halsey Legal Services
Respondent : State Solicitor's Office
Case(s) referred to in decision(s):
Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788; (2006) 222 ALR 599
D & D Tolhurst Pty Ltd v Commissioner of State Revenue (Vic) (1997) 97 ATC 2179
Federal Commissioner of Taxation v Barrett (1973) 129 CLR 395
Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21
Mortgage Force Service Pty Ltd and Commissioner of State Revenue [2007] WASAT 53
(Page 3)
Summary of Tribunal's decision
1 The applicant, who conducted a business of designing and constructing residential homes at the higher end of the market, engaged the services of a number of consultants to act as sales consultants to negotiate building contracts on its behalf.
2 The Commissioner of State Revenue assessed the payments to the consultants as wages subject to payroll tax under the Payroll Tax Assessment Act 1971 (WA) and the Payroll Tax Assessment Act 2002 (WA).
3 The central issue between the parties was whether the consultants were employees of the applicant or independent contractors. The Tribunal determined that the consultants were in fact employees and dismissed the review application.
Issues
4 The primary issue for determination by the Tribunal in these proceedings is whether payments made by Aintree Holdings Pty Ltd as trustee for the Latrobe Unit Trust trading as Beaumonde Homes (Beaumonde, or applicant):
• during the financial years 1999/2000, 2000/2001, 2001/2002 and 2002/2003 in respect of certain consultants are taxable wages for the purpose of s 6, Payroll Tax Assessment Act 1971 (WA) (1971 Act); and
• during the financial year 2003/2004, in respect of the same consultants are taxable wages for the purpose of s 5, Payroll Tax Assessment Act 2002 (WA) (2002 Act).
5 The parties agree that central to the determination of the primary issue is the question of whether at material times the consultants were employees of the applicant or independent contractors.
Facts
6 Many facts in the proceedings are agreed or not in dispute between the parties, as set out below. Disputed facts are the subject of express findings by the Tribunal.
(Page 4)
7 The applicant has for some time and at all material times conducted a business of designing and constructing residential homes at the higher end of the market, priced in excess of $200,000.
8 At all material times, the applicant conducted its business under the trade name Beaumonde Homes and maintained display homes which were open to the public.
9 At material times, Mr Elio Galante was managing director of the applicant.
10 At material times, Beaumonde engaged the services of a number of consultants to act as sales consultants to negotiate building contracts on its behalf.
11 An issue in the proceedings is the precise identity of the engaged consultants. What is not in dispute, however, is that the applicant made commission payments in respect of negotiated building contracts to the following entities who were associated with the following natural persons:
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12 In the two relevant periods, the payments made to such entities ranged from as low as approximately $44,500 per annum for one, to as high as approximately $278,000 per annum for another. This reflected the fact that some consultants were more successful than others.
13 The facts before the Tribunal show that each natural person performed the functions of a sales consultant and principally operated from a designated display home constructed by the applicant and allocated to the consultant. To put it colloquially, each consultant had a specific display home to show to the public.
(Page 5)
14 In all cases, the applicant had an oral contract with each consultant governing the performance of the consultant's functions, although Mr Jennings thought he had completed a written arrangement at some point.
15 Construction contracts between an interested client and Beaumonde were required to be concluded by the natural persons identified with each entity.
16 This account of the facts is necessarily brief and in outline. More factual details concerning the relationship between the consultants and Beaumonde, and the work done by or on behalf of the consultants, is discussed later by reference to particular aspects or features of the relationship in each case.
Why the issue arises
17 As explained in Mortgage Force Service Pty Ltd and Commissioner of State Revenue [2007] WASAT 53 (Mortgage Force) at [277] [286], the issue in a case such as the present arises because under s 6(1) of the 1971 Act and s 5 of the 2002 Act a tax is payable, generally speaking, on wages paid or payable by an employer.
18 Section 3(1) of the 1971 Act relevantly defines "wages" to mean
"any wages, salary, commission … paid or payable … to, or in relation to, an employee as an employee …".
19 Section 4 of the 2002 Act, read with the Glossary at the end of the 2002 Act and the Taxation Administration Act 2003 (WA), give the expression "wages" a number of meanings including that in cl 2(1)(a) of the Glossary, as follows:
"wages, salary, commission … paid or payable to or in relation to an employee as an employee …"
20 Thus, the definition of "wages" in both the 1971 Act and the 2002 Act focuses on payments paid or payable "to an employee as an employee".
21 Neither the 1971 Act nor the 2002 Act defines the expression "employee". The parties agree that the term "employee" must therefore be given the meaning ascribed to it by the general law.
(Page 6)
22 In this regard, the general law, generally speaking, draws a distinction between an "employee" and an "independent contractor".
23 As explained by the Tribunal in some detail in Mortgage Force at [288] [311], there are a number of factors that bear on the proper characterisation of the relationship. They do not require detailed repetition here, but include such factors as:
• the existence of control by the putative employer over the putative employee;
• the mode of remuneration;
• the provision and maintenance of equipment;
• the obligation to work;
• the hours of work and provision of holidays;
• the deduction of income tax; and
• the delegation of work by the putative employee.
24 It is also generally understood that there is no "bright line" test or "lightening rod" mechanism for determining the proper characterisation and that each case necessarily turns on its own facts: see generally Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21 (Hollis).
25 As I explained in Mortgage Force at [310], ultimately the various judicial statements concerning the proper characterisation of the relationship serve to remind one that there is no single test or factor that enables one to decide whether or not a person is an employee or an independent contractor in a given relationship. While it remains helpful to consider the various indicia of employment, it is also necessary to remain aware that the ultimate determination does not simply involve a mechanical or quantitative exercise by reference to these various tests or factors, and the totality of the relationship between the parties must be considered. Ultimately, one must weigh all the factors and determine by reference to the facts as a whole whether the relationship is truly one of employment or not.
(Page 7)
The entities and the consultants
26 As noted earlier, the question of just who was engaged by the applicant to provide services the entities or natural persons associated with them - was raised by the parties.
27 There is little doubt that the entities submitted claims for payment to the applicant for activities principally carried out by the associated natural person or persons.
28 In most cases, the relevant natural person or persons were shareholders and directors of the entity. In the case of Mr Pain, his wife was also a director and shareholder of the entity.
29 The evidence before the Tribunal makes it quite clear that Mr Galante on behalf of the applicant was anxious at the outset, in each case, to ensure that the male natural person would actually be providing the services that would result in the applicant securing contracts with clients.
30 The evidence does not disclose any formal discussions by or on behalf of the entities and Mr Galante. Rather it suggests that Mr Galante for the applicant dealt personally with the male natural persons when the actual engagements were made. Nonetheless, it can be assumed, from the evidence of the subsequent course of conduct, that the applicant was not averse to formally engaging the entities associated with the natural persons, so long as it was understood that the natural persons would actually exercise the sales skills that Mr Galante had identified during his interviews with them.
31 In that context, there is little doubt that the natural persons acted wholly for and on behalf of the entities in all their dealings with the applicant and made all relevant decisions for and on behalf of the entities in their dealings with clients.
32 There is also little doubt on the evidence that, if any of the entities had advised Mr Galante that the relevant services would henceforth be provided by some person other than the nominated natural person or persons, Mr Galante, on behalf of the applicant, would have felt justified as a matter of contract in refusing to recognise the services provided in that way by that entity, and would not have paid for them; or at least would not have felt contractually obliged to do so.
(Page 8)
33 In that regard, it seems to me not to matter whether the "consultant" actually engaged by the applicant was, in a strict legal sense, the entity or the natural person or persons associated with it. In either case, the activities of the natural person or persons are coincident with the relevant functions of the consultant, whether the entity or the natural persons, and are fundamental to the proper characterisation of the relationship between the consultant and the applicant.
34 If formal determination of this issue were necessary, I would find that the entities were the consultants, but on the terms specified above.
35 In my view, therefore, it is unnecessary to determine whether any person should be deemed an employer for the purposes of the 1971 Act under s 11E or the 2002 Act under s 21.
Engagement of consultants
36 It is relevant, however, to consider the circumstances in which the entities or the natural persons were engaged by Mr Galante as sales consultants. Most, but not all, of the natural persons engaged during the relevant periods had prior home building sales experience. All had general sales experience.
37 It appears that no written contracts were entered into, despite Mr Jennings' belief that he had a written contract.
38 While there is some lack of clarity as to exactly what the terms of the oral contract were at the time of engagement, there was a common understanding by all the natural persons who dealt with Mr Galante, and I find, that they would abide by the industry practice when it came to the rights of the applicant to terminate their services. For example, there was a general understanding that poor performance may result in termination, as might "lying" to a client, and that the failure to act exclusively for Beaumonde in the metropolitan area, for example by selling homes for a competitor home builder, would be another ground for termination of the contract.
Introductory discussions/orientation/training
39 There appears to have been relatively little done in this regard with the particular natural persons or entities taken on as consultants. However, this is explicable by reason of the fact that there were only a relatively small number of consultants, each of whom took on the responsibility to show a particular display home, and most had prior experience in this line of work.
(Page 9)
40 It seems that the most that the training involved was to ensure that the relevant natural persons understood the paperwork trail that Beaumonde required to be completed to meet its needs leading up to a contact.
41 Ultimately, the applicant required the natural persons to be in attendance at the display homes on designated industry days, obtain and follow up leads, develop plans for the proposed building, get the preparation of plans agreement signed, get the working plans in place through the applicant, get the building approval through the local government processes, and then have the final agreement signed by the client at the applicant's office.
42 Within that paperwork trail there was a degree of autonomy depending on the skill and approach taken by the individual consultant. For example, Mr Marzec was very good at developing his own home concepts. Other consultants, however, worked very much within the home options offered by Beaumonde. If changes were required to standard plans, most consultants used the inhouse services of Beaumonde to achieve those changes. They did not use their own architects or designers.
Nature of services performed
43 The scope of work described in the preceding paragraphs indicates the nature of the services performed.
44 The applicant took on the natural persons, whether personally or through the entities, who had the appropriate sales skills to "sell contracts", as Mr Galante put it in evidence.
45 Mr Galante wanted the services of the various natural persons because he thought they had the relevant skills to do well. Their job was to sell an existing home design or a modified home design or, in some cases, a new concept design that would be built by the applicant for the client.
46 In this context, there was no particular regulatory framework under which the consultants needed to be registered or qualified to carry out their work. What they needed was the skill to sell contracts for the construction of a home by Beaumonde.
47 Similarly, there is no evidence that the consultants were required by law, or by the applicant, to be members of any particular professional body. Nor did they need to obtain any particular qualification or engage in any continuing professional development from any professional body.
(Page 10)
48 In terms of professional development, the most that happened was the regular "catch up" meetings between the consultants and Mr Galante at the head office - usually weekly - to discuss new display villages, increasing costs, leads and contracts, and general discussion concerning estimators and draftspersons in the organisation.
Remuneration
49 All of the consultants received commission payments for their work. Most were remunerated at 3.5% or 3.75%. One more successful consultant was remunerated at 4%.
"Giveaways" and other expenses
50 It was agreed between the applicant and the consultants that the commission received would be calculated by reference to the total purchase price of a home contract multiplied by the relevant commission rate, less any amount negotiated between the consultant and Beaumonde on account of a "giveaway". In this context, a "giveaway" was a "sweetener" that the consultant offered the client by way of inclusion in the contract at no expense to the client. A good example might be the inclusion of a spa in the home which the consultant would offer the client to induce the client to enter into the contract.
51 A "giveaway" of course was an expense. While offered by the consultant, it was not physically paid for by the consultant in the sense that no money changed hands. However, the consultant would negotiate first with the applicant concerning the giveaway so that the expense of offering it was either assumed wholly by the applicant or shared by the applicant and the consultant. Typically, the expense was shared and a deduction would be made from the commission payable when the commission was paid.
52 Some of the consultants indicated that if the consultant made an error in the costing of a "giveaway" that they would have to bear the expense.
53 In other circumstances, a consultant might arrange for an artist to sketch a drawing for the purpose of showing a client. Mr Pain, for example, had an arrangement with Beaumonde and he contributed 50% of the price of the drawing, the total price being around $150. He did not, however, obtain drawings in every case.
(Page 11)
54 The fact that a commission was payable and may have been adjusted by the "giveaways" and related expenses designed to assist a consultant in obtaining the signature of a client on a building contract is perhaps an indication that a consultant is an independent contractor. It is, in any event, a factor to be borne in mind. The "giveaway" expenses, from a consultant's point of view, however, were minor in the scheme of things.
Right to dictate place and hours of work
55 It is clear enough that under the arrangements in place between all consultants and the applicant, it was expected that the consultants would be at the display home assigned to them at the times advertised by the applicant, usually on Wednesdays, Saturdays and Sundays. The industry standard includes Mondays but it seems that attendance on a Monday, in the case of the applicant, was at the discretion of the particular consultant.
56 The evidence before the Tribunal suggests that the applicant did not take a hard line in supervising compliance with this requirement. However, there was a clear expectation that the consultant would be at their display home on the main days or, if absent on leave or the like, would arrange cover through a substitute person.
57 Mr Galante explained that the applicant would only step in if it was concerned that the failure of a consultant to be at a display home was leading to a lack of leads and contracts. Otherwise a degree of autonomy was given to the consultants. In other words, if they were doing a good job, Mr Galante would stay out of the picture.
58 It was clear, therefore, from Mr Galante's evidence that the consultants who did particularly well were given more leeway, to use Mr Galante's expression, than others because of their overall success. In other words, he had less reason to direct, or supervise, or monitor the progress in such cases.
Obligation to work
59 In the formal relationship between the consultants and the applicant, there does not appear to have been any express "obligation" to work. Of course, a consultant will only earn a commission if they do what is required of them. At another level, however, a nonperforming consultant knows, as all agreed in evidence, that their arrangement with the applicant might well be terminated if they were not successful in selling contracts. The evidence discloses that each of the consultants well understood that the failure to perform might lead to termination of the arrangement. One
(Page 12)
- witness indicated that a consultant would usually consider leaving before any such termination notice was given.
60 If one ties that understanding with the obligation, more or less, to be at a display home at the appointed hours, and to report regularly to Mr Galante about leads and contracts, then it is reasonable to say that, generally speaking, each consultant effectively had an obligation to work.
Exclusivity of services
61 It was very clear from the evidence of the natural persons, that either by express agreement or implied agreement, or shared understanding of what the industry standards were, a natural person was not entitled to provide services to another home builder, at least in the metropolitan area of Perth.
62 In this case, each of the natural persons who worked for an entity understood that if they individually began working for another home builder, whether under their own name or under someone else's name, the arrangements they, or the entity associated with them, had with the applicant would in all likelihood be terminated. One of the witnesses described this as reasonable because it avoided a "conflict of interest".
63 Outside the metropolitan area, in the southwest of the State, the consultants/natural persons were able to provide services to a particular building company, the result of which was that they would earn commissions. The applicant's building plans were often used by that southwest builder and the applicant apparently received a royalty when this occurred.
Product update and information sessions
64 The "catch up" meetings referred to earlier largely fall into this category. It seems that these meetings were held quite regularly, usually every week.
65 One consultant who appears not to have personally attended these meetings regularly was Mr Marzec. As explained earlier, he had greater leeway than others because he was a very successful consultant. However, he still remained in touch with Mr Galante as to his progress.
66 Mr Galante explained that at these meetings he would chat with each consultant in particular to ascertain what leads or contracts they had obtained over the preceding week. There were also discussions about pricing to keep the consultants up to date.
(Page 13)
67 The evidence shows that these were significant meetings that provided the applicant with important information about the performance of the consultants.
Own business
68 In some situations, it is appropriate to look at all of the facts and circumstances and ask whether a consultant is an independent contractor because they are operating their "own business": see D & D Tolhurst Pty Ltd v Commissioner of State Revenue (Vic) (1997) 97 ATC 2179 (Tolhurst) at 2191. In this case, there are some superficial signs that each consultant operated their own business. For example:
• each natural person operated through a corporate entity or trust, to the knowledge of the applicant;
• each was responsible for their own taxation and superannuation;
• to some extent, each provided their own infrastructure, with computers and software programs and the like at their own expense;
• each used their own motor vehicle and mobile telephones at their own expense; and
• to an extent, each chose their own working hours.
69 However, in other respects, business cards and stationery and advertising was all provided by the applicant at the applicant's expense.
70 For all intents and purposes, each natural person was presented by the applicant as the individual consultant of Beaumonde and not some other entity.
71 Each natural person was effectively obliged to work the display home provided by the employer.
72 Each natural person had desk space/office space at the office of the applicant. Some used this space more than others.
73 In substance, each consultant was dependent for their income on achieving the sale of contracts for the applicant, who then built homes for the clients.
(Page 14)
74 In this regard, the clear impression from the evidence is that the work of a consultant was highly integrated with the overall operation of the applicant's business.
75 As noted earlier, the consultants were not free to consult with other home builders. While some carried out their own small land developments on the side, they were well and truly locked into the taxpayer's overall business operation.
76 When Mr Galante gave evidence, he unselfconsciously referred to the consultants as "sales consultants that we employ".
Clients and advertising
77 As noted, the consultants did not advertise themselves separately in order to attract clients. This was all done by the applicant.
78 The applicant's advertisements in respect of the display homes drew potential clients to the display homes. The job of the consultant was then to "sell the contract" to the potential home buyer.
79 The natural person's name and mobile telephone number was shown on the advertising of Beaumonde in relation to particular display homes and on business cards and stationery.
80 While individual consultants would also get work from word of mouth, the display home was central to the generation of income by the taxpayer and the consultants.
Power to delegate
81 The natural persons engaged to sell contracts did not in any relevant sense have the power to delegate key activities. They personally had the job to sign up clients on contracts.
82 Whether or not the natural persons operated through a corporate entity is really not to the point. As noted earlier, the entity was really not in a position to dispense with the services of the natural persons who had, in effect, been engaged by Mr Galante to do the work of sales consultants.
83 While there is evidence to show that while on holidays or the like, other persons, including family members, provided cover for the natural persons, these arrangements do not provide any real evidence of the exercise of a power to delegate. They were merely convenient arrangements accepted as appropriate by the applicant.
(Page 15)
84 The reality, at all material times, and as the natural persons explained, was that their commission was dependent on them completing the sale and that was not something, as a matter of practice, that could be left to anybody else. All of the natural persons understood they had been engaged because of their sales skills and they had no real capacity to delegate any key sales functions to other persons.
Duration
85 As noted earlier, there were no formal written contractual arrangements between the consultants and the taxpayer. The arrangement was not for any standard fixed term. The consultants were all on commission. If they underperformed, then they knew their relationship with the applicant was doomed. While this did not happen during the material periods, it appears that it was only because the consultants also appreciated that if one underperformed it was sensible to leave before you were asked to leave.
Support for consultants
86 The applicant provided a degree of support for the consultants through the "catch up" meetings at head office.
87 The consultants could also consult with the general manager and the sales manager outside those meetings in relation to their work.
88 They were also able to use the draftsmen engaged on contract by the applicant to prepare plans for clients.
89 While some clients chose to develop their own concept plans, as in the case of Mr Marzec, most used the facilities provided by the applicant. Additionally, as noted earlier, many of the consultants had office space and used telephones and other equipment at the head office of the applicant.
90 Mr Jennings is one person who seems to have used the office space at the head office quite regularly and had his computer located in the applicant's office.
Provision of equipment
91 The consultants were expected to supply their own equipment in terms of home computers, printers, faxes, mobile telephones and the like, and their own vehicles. Little in that regard was provided by the taxpayer for the consultants.
(Page 16)
92 The Commissioner contends that the Tribunal should view the allocation by the applicant of a particular display home to a designated consultant as an example of the provision of equipment to the consultant, and so a means of characterising the relationship as one of employment.
93 I do not think that it can reasonably be said, on the usual tests, that the allocation of a display home to a consultant for the purposes of display to potential home buyers is the supply of "equipment", as commonly understood. However, there is some merit in the submission made.
94 The fact of the matter is the taxpayer went to considerable expense to create an example of the end product that it was willing to build for a client, and engaged a sales consultant to show the particular product to the consuming public. Principally, through the showing of the display home, the applicant generated its income and profits, and the consultants their commissions.
95 This certainly is a factor to be taken into account in determining the proper characterisation of the relationship between the applicant and the consultants.
Conclusion
96 In my view, taking all of the factors described above into account, the applicant exercised a level of supervision and control over the activities of the consultants such that it is difficult to find that the consultants were truly independent contractors in the relevant periods.
97 One ordinarily expects commission agents, such as the sales representatives of Beaumonde in this case, to have a large degree of autonomy. After all, they are engaged because of their skill in selling things without direction. In this case, some were better salespersons than others and developed more autonomy within the Beaumonde organisation than others.
98 A starting point therefore is to regard the fact that the consultants were paid on commission, and that adjustments by way of deduction from commission might be made for "giveaways" negotiated with a client by the consultant before a contract is signed, as suggesting that the consultants were independent contractors.
99 Against this, the overall system of work suggests that one cannot too quickly conclude that the work done by a consultant was the subject of a
(Page 17)
- separate business to that of the taxpayer, because the businesses of the consultants were highly integrated with that of the applicant.
100 There were only relatively few consultants. They were engaged to act exclusively for the taxpayer in the metropolitan area. If they sold contracts in the southwest they were expected to use a particular builder. That was because the taxpayer actually earned a royalty from the other builder's use of its plans. The consultant then earned a commission directly from that other builder.
101 In terms of the arrangement with the applicant, each consultant was assigned a particular display home from which they principally worked. Most of their leads came from working that display home. While repeat business came as well from satisfied old customers, the evidence shows that the business of the taxpayer and that of the consultants was primarily dependant on working the display homes.
102 Consultants were expected not to mislead clients and to be successful in selling contracts. Underperformance could be expected to lead to termination of the contract by the applicant.
103 While a degree of flexibility in hours of work and the manner of selling a contract is understandable in this industry dependent on the overall level of performance of an individual consultant the primary expectation was that their display home would be worked by the consultant on weekends and usually on Wednesdays; and sometimes on Mondays. While there was a degree of autonomy in that regard, the primary expectation was that the display homes would be open with the taxpayer's relevant consultants in attendance.
104 Most of the time, the consultants were working to the conclusion of contracts for the construction of one of Beaumonde's standard homes, although modifications were often made to the plans. Sometimes extensive modifications were made and new concept plans developed. But these homes were still built by the taxpayer. Thus while, for some consultants, there was an additional degree of creativity in developing concept plans for clients, the ordinary consultant did not expect to engage in that degree of creativity. Most consultants did not use planmaking computer software and relied upon the draftspersons at the taxpayer's office for developing their client's plans.
105 This is not a case where it can be said that the consultants developed a separate "client list" which gave "their business" some goodwill value. Once a home was built, that really was the end of the client, unless the
(Page 18)
- client returned to build another home. If the consultant were to "sell" a "client" to somebody else, there would be very little likelihood of the client using that other person, because what they were after was the skill of the individual consultant. This was acknowledged by the consultants with whom the issue was raised in evidence.
106 This is not a case like that of Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788; (2006) 222 ALR 599 (Bridges) or Mortgage Force where, in effect, it could be said that the consultant was in a franchisee relationship with the taxpayer. Here, the consultant's job was to sell contracts so that the taxpayer could build homes. It was a vertically integrated business, not a franchise operation or akin to one. The taxpayer took very special care to select the persons who would sell contracts.
107 The fact that the only income earned by the consultants was from commissions, which may mean in some periods they did not earn income or alternatively earned better income than usual, may suggest that the consultants were independent contractors. However, the overall evidence weighs against that conclusion.
108 The fact remains that the consultants were engaged to sell contracts that enabled the taxpayer to construct homes for profit. One might say that the consultants were engaged to produce a "given result", in that they were to produce a contract. On the other hand, it may also be said that they were engaged to supply their skill rather than produce a given result.
109 In the end, these various competing factors in favour of the characterisation of the relationship as one in which the consultants are independent contractors is not persuasive.
110 The fact that consultants were expected to provide their own computer equipment and the like, motor vehicles and telephones in order to carry out their work, suggests independence, and involved expenses that were not insignificant, but neither were they so great as to compel the conclusion that the consultants were necessarily independent contractors as a matter of law.
111 As indeed the decision of Hollis in the High Court of Australia demonstrates, the fact that a person supplies some of their own equipment may sometimes be a term of an employment relationship.
112 The hours of work, ostensible right to dictate place of work, lack of an express obligation to work and lack of provision of holidays, are
(Page 19)
- factors that may suggest independence, but as noted earlier, the consultants were effectively required to display homes, be there on certain days, and later to report their success with leads to the applicant's representative. This is all consistent with employment, not independence: see Federal Commissioner of Taxationv Barrett (1973) 129 CLR 395 at 405.
113 It appears that, from a taxation, superannuation, holiday pay and sick pay point of view, the consultants were expected to look after their own affairs. This suggests independence, but it does not necessarily mean that the relationship between the parties is not that of employer/employee: see Hollis.
114 The actual terminology used in formal documentation is sometimes helpful in determining the true relationship between the taxpayer and another. Here there was no written agreement between the parties purporting to state that the consultants were independent contractors. While the witness statement of Mr Galante, for example, referred to "sales companies" as the entity with which the taxpayer dealt, as noted earlier, when he gave his evidence he actually referred to the sales representatives "we employ". It goes both ways and perhaps the more colloquial statement betrays the substance of the true relationship with the relevant entities or natural persons.
115 There is also no doubt that, in this case, the consultants were not developing some saleable asset, such as goodwill or trailing commissions or client lists which they could on-sell to others. This certainly is an aspect of this case that distinguishes it from that of Bridges and, to an extent, Mortgage Force. In the end matters of perception affect this determination, as Mr Nettle observed in Tolhurst.
116 In my view, as a matter of perception, during the relevant periods the consultants were employees, not independent contractors.
117 As to just who the consultants were at material times, I earlier suggested that perhaps the entities were. However, the actual persons who were engaged in substance were the natural persons, because of their skills. Their services were the subject of invoices submitted to the applicant through corporate entities and trusts. No doubt there are good taxation and other business reasons for those arrangements.
118 Nonetheless, it is clear that whether the consultant engaged by the taxpayer was the natural person or associated entity, their relationship
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- with the taxpayer was the same in either case and depended wholly on the conduct of the natural persons.
119 Either way, I am not satisfied that the consultants were independent contractors. It cannot be said, in this case, that the consultants were conducting their "own business", as distinct from that of Beaumonde's, in any real sense. Indeed, to use an expression from Tolhurst, the consultants were the taxpayer's "factotum".
120 In those circumstances, I conclude that in truth and substance, the consultants engaged by the applicant in the relevant periods were in each case employees and not independent contractors. It follows that the payments made to them by the applicant should be treated as "wages" under the 1971 Act and the 2002 Act.
121 In the circumstances, I do not consider it necessary to rely upon s 11E of the 1971 Act or s 21 of the 2002 Act to deem any person an employer for the purpose of the relevant Act.
122 In my view, the facts disclose the relationship between the applicant taxpayer and either the relevant entity to whom payments were made during the relevant periods or the natural persons who directed that payments should be made to certain entities, was that of employer and employee and that the payments of commissions so made constitute "wages" as defined under the 1971 Act and the 2002 Act.
Conclusion and order
123 For the reasons given above, the Tribunal would affirm the decision of the Commissioner that payroll tax is payable on the payments made by the applicant to the consultants.
124 The Tribunal orders:
1. The decision of the Commissioner to assess the payments made by the applicant to the various consultants as wages subject to payroll tax is affirmed.
2. The review application is dismissed.
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- I certify that this and the preceding [124] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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JUSTICE M L BARKER, PRESIDENT
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