BRILLIANT Applicant And COMMMISSIONER OF TAXATION

[2010] AATA 267

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 267

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/4395-97

TAXATION APPEALS DIVISION		)
Re		JOHN BRILLIANT

Applicant

And COMMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Ms G Ettinger, Senior Member

Date16 April 2010

PlaceSydney

Decision The Tribunal affirms the decision under review.

..................[sgd]...........................

Ms G Ettinger     
  Senior Member

CATCHWORDS

Superannuation Guarantee – whether worker was an employee or a contractor – indicia – worker found to be employee – decisions under review affirmed.

Superannuation Guarantee (Administration) Act 1992 ss 12(1, ) 12(3)
Taxation Ruling TR 2005/16
Superannuation Guarantee Ruling SGR 2005/1.

Stevens v.Brodribb Sawmilling Company Pty Ltd (1986) 60 CLR 16

Zuijs v. Wirth Brothers Pty Ltd (1955) 93 CLR 561

Humberstone v. Northern Timber Mills (1949) 79 CLR 389

Hollis v. Vabu(2001) 207 CLR 21

World Book (Australia) Sawmilling Company Pty Ltd v. Federal Commissioner of Taxation 92 ATC 4327

REASONS FOR DECISION

16 April 2010	Ms G Ettinger, Senior Member
SUMMARY

1.      Mr John Brilliant has had a varied background. He is very proud of his work which consists amongst other things, of painting silk and wool for scarves, ties, women’s jackets and other garments, and having the garments available for sale in galleries and tourist shops. He has been involved in the business of handpainting silk for approximately 33 years.

2.      Mr Brilliant had a worker for a number of years to whom he made weekly payments in cash, the records of which he said he kept in a book. He no longer has that book, nor any other records in that regard. Mr Brilliant did not deduct any tax or make any superannuation payments for the worker, Mr Vahram Makinadjian, whom he says, he considered to be a contractor. Mr Brilliant is the Applicant in a dispute with the Commissioner of Taxation (the Commissioner), who says that for the years 1995, 1996 and 1997, the years in dispute, the worker was an employee, not a contractor, as claimed by Mr Brilliant. The Commissioner has, accordingly, charged Mr Brilliant the superannuation guarantee in connection with Mr Makinadjian’s employment in those years. Before me there were issues of credit. There were also indicia indicating the worker was an employee. I preferred the Respondent Commissioner’s argument, and affirmed the decision under review. My reasons follow.

EVIDENCE  & BACKGROUND

First meeting and Beyond

3.      Mr Brilliant says that Mr Makinadjian first came to his studio in 1992, and worked for him under various “contracts” until 1997, whereas Mr Makinadjian says he commenced working for Mr Brilliant in 1994. Mr Brilliant explained that the “contracts” to which he referred were oral agreements. There is no dispute, and I accept that there were no written contractual agreements. This is however a matter where there is generally conflict of evidence, and there are issues of credit which I have addressed.

4.      Mr Makinadjian says that after arriving in Australia from Armenia in 1992, he studied English and did a course in pattern making at TAFE. He told me that he had learnt tailoring and ceramics in Armenia. I heard oral evidence, and had before me affidavits or statements from Mr Brilliant, (Exhibit A1), Mr W Pardy, a retired chartered accountant who had been Mr Brilliant’s accountant from approximately 1978 – 2003, (Exhibit A3), and Mr Makinadjian (Exhibit R3). 

5.      Mr Pardy told me that he first met Mr Makinadjian in 1992, and that Mr Makinadjian was doing contract sewing at that time. Mr Pardy said that he knew Mr Makinadjian was a contractor, and that he made wedding dresses. He said he had seen only one invoice issued from Mr Makinadjian, but knew that because it was a cash business, Mr Makinadjian did not want to keep too many records. He admitted that notwithstanding he was Mr Brilliant’s accountant, there had been gaps in submitting tax returns for Mr Brilliant because he, (Mr Pardy), had been suffering from depression. 

6.      For the purposes of this matter, the relevant years are the tax years 1995 – 1997, so I am not required to decide when Mr Brilliant and Mr Makinadjian first met. However I am satisfied that Mr Makinadjian worked at Mr Brilliant’s studio in the relevant years, commencing at least in 1994, and leaving during 1997.

Mr Makinadjian’s duties

7.      There was no disagreement, and I accepted that from 1994 until he left in 1997, Mr Makinadjian worked for Mr Brilliant in his business as a sewer and cutter. He also assisted with washing the silk, and the other processes involved in painting the silk and wool for the production of scarves and other garments. Mr Makinadjian also cleaned Mr Brilliant’s studio. Mr Makinadjian’s evidence was that he attended at the studio five days a week, for approximately 35 hours a week, and was paid the same amount in cash every week. He explained that the amount would be the same amount for a year at a time, with an increase in pay after each year. He said that he did not receive any documentation, but told me he kept a book with regard to his own pay, which was not before the Tribunal. He said that he knew no tax or superannuation was paid for him. He said that he asked for group certificates, but did not receive any from Mr Brilliant.  Mr Brilliant denied he had been so asked. Mr Brilliant told me that he kept a book recording the weekly payments to Mr Makinadjian but that the book was no longer available.

8.      Mr Brilliant, not surprisingly, did his best to make me accept that Mr Makinadjian was, at all times, a contractor. He told me that Mr Makinadjian came to him via an introduction from a friend, and that Mr Makinadjian took work home to carry out on his own machine, and that he brought back the finished products. He also said that during the years 1995 – 1997, Mr Makinadjian conducted his own business making wedding dresses, doing clothing alterations, and making clothing under contract for retail stores in the inner western suburbs.

9.      Mr Brilliant recounted an incident in 1995 when he attended at a craft store of a person he knew, who showed him what looked like one of his silk scarves with a label, ANI, which was Mr Makinadjian’s own label. When this was shown to Mr Makinadjian at the hearing, he denied that he had passed off Mr Brilliant’s scarves as his own. In his statement to the Commissioner dated August 1998 (T8-27), Mr Makinadjian disclosed that he had registered the business name ANI in 1995, but indicated that the business was not operating. In his oral evidence before me, he said he may have sold scarves in 1995 although he could not remember exactly. However he denied that the documentation shown to him was his, saying he did not give typed invoices, but gave invoices out of a handwritten invoice book. He said that he did not have a stamp with the address shown at the hearing on it, neither the email indicated there.  As far as I am concerned any passing off does not concern me in my decision making. However, if Mr Makinadjian was conducting his own business in 1995, it may impact on whether he was an employee of Mr Brilliant for the relevant years which included 1995.

10.     My conclusions as to the work Mr Makinadjian carried out for Mr Brilliant are however that he worked at the direction of Mr Brilliant, that he was paid a regular weekly wage for a regular working week during the relevant period, that this payment was not contingent on what he had produced during the particular week or other period, and that he was an integral part of Mr Brilliant’s business. The evidence which I preferred was that he worked at Mr Brilliant’s premises, used Mr Brilliant’s equipment and did not bear any risk or pay for the use of equipment or materials.

Records

11.     Mr Brilliant said that he kept a book recording what he paid to Mr Makinadjian weekly, although he no longer had that book, and could not produce it to the Tribunal. He said that he paid Mr Makinadjian weekly in cash, and that the amount varied from $200 to $900 a week, depending on the work which had been carried out in a particular week. Mr Brilliant said that he did not pay any taxes for Mr Makinadjian, or pay superannuation for him, as he regarded Mr Makinadjian as a contractor who could come and go at will. He said that Mr Makinadjian kept his own hours, attending between 5 - 15 hours a week, whereas in replies to questions in the “Principal Questionnaire” Mr Brilliant stated that Mr Makinadjian worked 15 – 40 hours per week.  Mr Brilliant also said that Mr Makinadjian did at least a part of the work at his own home on his own overlocker (sewing machine), as Mr Brilliant did not buy one until 1995.

12.     Mr Makinadjian, on the other hand, said that he did not take work home to sew as he worked at Mr Brilliant’s studio during regular business hours, and did all his work at Mr Brilliant’s studio. He denied when giving his oral evidence that he made wedding dresses, and that they took a lot of time to make. He agreed that he had registered a business name, ANI, in 1995, and that he had been doing alterations at home, but denied he had an overlocker, or that he was doing contract sewing.

13.     Mr Makinadjian agreed he had been paid in cash on a weekly basis, but said that it was always a similar amount, for his regular hours, which was adjusted annually. He agreed no tax or superannuation had been paid for him. Mr Makinadjian told me that there was one occasion when he went overseas, and was paid for four weeks in spite of not being at work.

14.     This is a case where there are few records on which I can rely to make a decision. Neither Mr Brilliant nor Mr Makinadjian were able to produce records relating to the weekly payments which were made by Mr Brilliant to Mr Makinadjian. It is not in dispute and I am satisfied from the evidence however, that Mr Brilliant did not make tax or superannuation payments for Mr Makinadjian, neither give him any group certificates or statements of earnings. Both agreed that although holiday pay was not generally paid, Mr Brilliant did pay Mr Makinadjian during a four week holiday overseas on one occasion. The annual income from which the superannuation guarantee has been calculated by the Respondent is as declared by Mr Makinadjian in his income tax return.

Letters to the Westpac Bank and Department of Immigration

15.     There are further indications supporting the findings which I make that Mr Makinadjian was an employee of Mr Brilliant in his business. In that regard I had before me letters which indicated Mr Brilliant considered Mr Makinadjian to be an employee.

16.     In a letter dated 8 September 1994, Mr Brilliant had written to Westpac, stating that Mr Makinadjian was employed as his Production Controller, and stating that it was envisaged he would be “promoted to manage the Sydney showroom/workroom”.  Mr Brilliant also stated that Mr Makinadjian was “earning $520 per week (take home)”.

17.     I also had before me an undated letter addressed “To Whom It May Concern”, from Mr W Pardy, of WA Pardy & Co, Mr Brilliant’s accountant, which stated that Mr Makinadjian was employed as “Production and Warehouse Manager” for Brilliant Silk and Wool, earning a gross wage of $650 per week, and allowances amounting to $100 per week. Mr Brilliant said that this letter was submitted to Westpac in support of Mr Makinadjian obtaining a housing loan. 

18.     Further letters were written in support of the immigration of Mr Makinadjian’s mother-in-law. On 20 November 1996, Mr Pardy wrote to the Department of Immigration & Ethnic Affairs, (the Department), describing Mr Makinadjian as Brilliant Silk’s Production Manager. He stated that Mr Makinadjian earned $825 gross per week. On 28 February 1996 Mr Brilliant also wrote to the Department stating that Mr Makinadjian was employed by Brilliant Wool & Silk as its Production Manager, adding: “He is a vital part of our business with advanced qualifications in pattern-making and cutting and tailoring."

19.     Mr Brilliant admitted that the above mentioned letters contained false information. He said that the amount of $825 was nominated because he, (Mr Brilliant), having been a former employee of the Department, knew that the income threshold required by the Department was $800. Both Mr Brilliant and Mr Pardy attempted to play down what they stated were untruths in their letters on the basis that they were motivated by humanitarian and compassionate sentiments when they wrote them and wanted to assist Mr Makinadjian with the immigration problem he faced.

ISSUES BEFORE THE TRIBUNAL

20.     The issues before the Tribunal were:

· whether for purposes of the superannuation guarantee, under the common law or pursuant to section 12, and in particular sections 12(1) and 12(3) of the Superannuation Guarantee (Administration) Act 1992, (the Act), Mr Makinadjian was an employee of John Brilliant; or whether he was a contractor

·     whether the superannuation guarantee charges imposed on Mr Brilliant for the tax years ending 30 June 1995, 1996 and 1997 were correct.

LEGISLATIVE CONTEXT

21.     The relevant legislation in this matter is the Superannuation Guarantee (Administration) Act 1992, particularly sections 12(1) and 12(3).

12  Interpretation: employee, employer

(1)  Subject to this section, in this Act, employee and employer have their ordinary meaning. However, for the purposes of this Act, subsections (2) to (11):

(a)  expand the meaning of those terms; and

(b)  make particular provision to avoid doubt as to the status of certain persons.

….

(3) If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

WAS MR MAKINADJIAN AN EMPLOYEE OR A CONTRACTOR

22. I have to decide whether Mr Makinadjian was Mr Brilliant’s employee either under the common law or pursuant to section 12(1) and 12(3) of the Act for the years 1995-1997, or whether he was a contractor.

23.     It is not disputed, and I accept that for the relevant period, Mr Brilliant did not keep records in regard to paying Mr Makinadjian, that he paid him weekly in cash, and did not pay tax or the superannuation guarantee for Mr Makinadjian. There was evidence that Mr Makinadjian did not issue invoices, although I am mindful Mr Pardy said he had seen one invoice.

24.     The matter came to the attention of the ATO because on 4 May 1998, Mr Makinadjian lodged a “Superannuation Guarantee, Employee Notification of Insufficient Employer Contributions” form, which commenced an investigation into his status whilst working for Mr Brilliant.  Mr Brilliant responded to a query from the Commissioner, stating that he worked on his own, and did not contribute to a superannuation fund.  He continued to insist that Mr Makinadjian was a contractor, and later disclosed that he paid him:

·     $26,000 in the 1993/4 year

·     $30,940 in the 1994/5 year

·     $33,900 in the 1995/6 year

·     $16,860 in the 1996/7 year

25.     The Commissioner issued a default assessment in December 2000 based on Mr Makinadjian’s gross earnings, as follows:

·     $30,940 in the 1995 year

·     $39,416 in the 1996 year

·     $24,435 in the 1997 year

26.     Mr Brilliant’s views regarding Mr Makinadjian’s employment status were provided to the Commissioner in a form titled “Principal Questionnaire” which is at T29-82 of the T-documents.  He indicated as follows:

·     There was no written contract between him and Mr Makinadjian. “Mr Makinadjian offered to do making up work for me on a contract basis”.

·     In October/November 1992, Mr Makinadjian came to his studio and introduced himself as a “clothing maker up”.

·     He had no employees performing similar duties.

·     He did not issue the worker with a PAYG payment summary or group certificate.

·     Mr Makinadjian was engaged on a job to job basis, rather than for a specific period of time or indefinitely.

·     The job, on a day to day basis, was left to the worker’s discretion.

·     Mr Makinadjian set his own hours although Mr Brilliant indicated priorities based on customer orders  - “he organised his own work schedule”

·     As to quality control – “he was an excellent tailor – quality control was never an issue”.

·     The time taken to complete the job was left to Mr Makinadjian. In the “Principal Questionnaire” Mr Brilliant stated that Mr Makinadjian worked 15 – 40 hours per week, not as specified by Mr Brilliant. I noted that in his oral evidence. Mr Brilliant said that Mr Makinadjian worked 5 – 15 hours a week.  Mr Brilliant indicated that Mr Makinadjian did not submit invoices. Mr Brilliant said that he was paid, not for the completion of work, but on a “weekly reconciliation”. He was not paid allowances, not paid sick leave, or other employee benefits. No superannuation was paid.

·     As to whether the worker could carry out work for others during the relevant time – “He operated his own business as a contract clothing maker, wedding dress maker and tailor, prior to, during and subsequent to doing work for me”.  He did not have to carry out the work for Mr Brilliant personally, and could engage others to do so; his business partner and/or wife worked with him. No approval from Mr Brilliant was required, and Mr Makinadjian paid them.

·     As to whether the worker had a right to refuse a particular job or task – “He declined work sewing scarves worth $4-5,000 pa.  On occasion was not available to do work for me because of other urgent tailoring commitments particularly making wedding dresses. Advised he would be unable to do work as was taking an overseas trip to Armenia”.

·     The work was performed both at Mr Brilliant and Mr Makinadjian’s premises. He did not pay for use of Mr Brilliant’s premises (plant, equipment, vehicle).

·     Mr Makinadjian had a fully self contained sewing facility at his own premises, industrial sewing machines, industrial overlockers etc

27.     Mr Brilliant’s oral evidence was generally consistent with the above as related to the subjects traversed above except where indicated.  However,  other matters were raised at the hearing and are discussed in these Reasons for Decision as appropriate.

28.     Mr Makinadjian’s evidence as given in his written statement dated 10 August 2008 to the Commissioner combined with his oral evidence was in summary as follows:  

·He was employed by Mr Brilliant as a sewer, cutter and pattern-maker, he delivered sewing to sub-contractors, and also washed silk and cleaned the workplace;

·He did not receive superannuation from the Applicant, neither did the Applicant pay tax on his behalf.

·He did not have the right to employ, subcontract, delegate or hire other people to perform or assist the worker in performing the work. His evidence was in stark contrast to that of Mr Brilliant who said that Mr Makinadjian’s wife helped him. Mr Makinadjian deposed that at the relevant times his wife worked in an office job at a hospital.

·There was no written agreement between himself and Mr Brilliant; 

·He was not hired as a contractor or consultant and was paid a set amount weekly by Mr Brilliant;

·He was required to work from approximately 8.30 am to 4.30 pm each week day;

·He stated that he was provided with workers’ compensation but not sick or annual leave. I have noted that on one occasion Mr Makinadjian was paid wages for the month he took off to travel overseas on holidays, and that in contradiction to what he had put in his form to the Commissioner, in his Affidavit he deposed that he was paid sick leave.

·There were no dress or uniform requirements;

·The performance of the worker was controlled on a day-to-day basis by the Applicant. He wrote in his Affidavit that later on when he knew the business, he began to take over the production, and that Mr Brilliant was calling him the “Production Manager”.

·The worker was of the opinion that he was performing work as an employee for the Applicant, and was not running his own business. He told me that he registered a business name ANI in 1995, and indicated in documentation (T8-27), that the business was not operating at that time. However I am satisfied from Mr Makinadjian’s oral evidence that he was already operating a private sewing business during the relevant period while he was working approximately 35 hours a week for Mr Brilliant. He maintains he did not make wedding dresses while Mr Brilliant gave evidence that he did.  I do not find it necessary for purposes of this matter to decide that issue.

·He did not submit invoices to the Applicant; I noted Mr Pardy’s evidence that he had once seen an invoice of Mr Makinadjian’s.

·He did not incur expenses in performing his work for the Applicant and was not required to provide equipment, tools or a vehicle; and

29.     The Commissioner’s main points in support of his contention that Mr Makinadjian was an employee were:

(a)That Mr Makinadjian was engaged to work for the Applicant as a sewer, cutter, pattern-maker and production manager. Mr Makinadjian also washed silk and cleaned the workplace.

(b)There was no written contract between the Applicant and Mr Makinadjian.

(c)The work was predominately performed at the Applicant’s business premises.

(d)The Applicant provided all of the equipment and materials to Mr Makinadjian and paid the worker at regular weekly intervals for work completed.

(e)Mr Makinadjian was not required to pay for use of the premises.

(f)The work done by Mr Makinadjian was not directly supervised as he was a skilled worker.

(g)The Applicant held the ultimate control over Mr Makinadjian by providing direction as to what work was to be done and what products to use.

(h)Mr Makinadjian received payment from the Applicant for his labour; he did not incur any financial risk nor did he incur any financial loss.

(i)Mr Makinadjian could not engage others to assist him in his work. 

30.     Mr Burne also addressed the tests as promulgated in the case law and I have discussed them in these Reasons for Decision.

THE TRIBUNAL’s CONSIDERATIONS

31.     In coming to a decision about whether Mr Makinadjian was an employee of Mr Brilliant’s in the relevant period, I noted both parties referred to the Superannuation Guarantee Ruling SGR 2005/1. I have noted that the Ruling explains when an individual is considered to be an “employee” under section 12 of the Act. I have also noted that the expressions “employer” and “employee” have both their ordinary and extended meaning.

32.     I have also consulted the Taxation Ruling TR 2005/16 which states that the term “employee” must have its ordinary meaning. It stated:

“Whether a person is an employee of another is a question of fact to be determined by examining the terms and circumstances of the contract between them having regard to the key indicators expressed in the relevant case law. Defining the contractual relationship is often a process of examining a number of factors and evaluating those factors within the context of the relationship between the parties.   No one indicator is itself determinative, of that relationship. The totality of the relationship between the parties must be considered.”

33.     In determining whether or not a worker is an employee, I have noted that subsection 12(1) of the Act defines “employer” and “employee” as having ordinary their ordinary meaning.  However for the purposes of the Act, subsections (2) to (11):

·     expand the meaning of those terms; and

·     make particular provision to avoid doubt as to the status of certain persons.

34. In relation to section 12(1) of the Act, a worker will be an employee for superannuation guarantee purposes if he or she is a common law employee.It is therefore necessary to consider whether there is a common law relationship of employer/employee between the parties. If the common law tests are not met or are inconclusive, it is then necessary to consider whether the extended definition of employee in section 12(3) of the Act applies. Section 12(3) of the Act expands the ordinary meaning of the term “employee” to include persons who are contracted wholly or principally for their labour.  

35.     In Stevens v. Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16 the High Court held that a number of common law tests should be given consideration in determining if the worker is an employee or a contractor: The case also indicates as stated above, that it is the consideration of the totality of the relationship between the parties which must be considered and that no single test will provide the answer.

36.     Mr Flick submitted that a useful starting point was the High Court’s decision in Hollis v Vabu (2001) 207 CLR 21 in which the majority quoted Windeyer J in Marshall v Whitaker’s Building Supply:

“...The distinction between an employee and independent contractor is ‘rooted fundamentally in the difference between a person who serves his employer in his, the employer’s business, and a person who carries on a trade or business of his own’.”

37.     I have considered the case law, the Superannuation Guarantee Ruling SGR 2005/1 and the Taxation Ruling TR 2005/16 and find that the following indicia are relevant to my considerations, although it is the consideration of the totality of the relationship between the parties which must be considered.

Control
Integration
Results test
Delegation
Terms of Engagement
Risk

Control

38.     Control of an employee in the workplace with regard to where, when and how to carry out work is the prerogative of the employer. Mr Burne submitted on behalf of the Respondent that the emphasis is on the right to control, rather than the actual control, and noted the change in emphasis which has occurred due to the increasing usage of skilled labour and consequential reduction in supervisory functions. He submitted that where the nature of the employment required a considerable degree of experience, knowledge or skill, then it was to be expected that the employer would leave the performance of the activity up to the employee.

39.     Mr Flick referred to Hollis v Vabu (2001) 207 CLR 21, and the fact that couriers the subject of that case had little control over their work, they were regimented, had no special skills, and were presented to the public as “emanations of Vabu”. His argument on behalf of Mr Brilliant was that Mr Makinadjian’s expertise was what Mr Brilliant sought, that he worked on Mr Brilliant’s pieces both at his (Brilliant’s) premises and at home, that Mr Makinadjian had a key, and came and went at will, and that he did not work set hours or at the direction of Mr Brilliant. Mr Flick argued that Mr Makinadjian was employed to provide garments sewn to a high standard, that he had the right to employ persons to complete the work, and that, as indicated in Mr Brilliant’s “Principal Questionnaire” which is discussed above, Mr Makinadjian ran his own business making wedding dresses and other garments contemporaneously with carrying out work for Mr Brilliant, and was paid by Mr Brilliant according to the work he produced.

40.     Mr Burne referred me to Zuijs v. Wirth Brothers Pty Ltd (1955) 93 CLR 561, where, he submitted, the High Court articulated the significance of control in an employment relationship in the following way.

“What matters is lawful authority to command so far as there is scope for it.  And there must always be some room for it, if only in incidental or collateral matters.”   

41.     He also referred to Dixon J in Humberstone v Northern Timber Mills (1949) 79 CLR 389 as follows:

“The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter’s orders and directions.”

42.     Mr Burne submitted that Mr Brilliant retained control over Mr Makinadjian by providing direction as to what work would be done, and what products to use. Although Mr Makinadjian was not directly supervised he was subject to Mr Brilliant’s directions. The level of control that Mr Brilliant had over the worker would indicate an employer/employee relationship he submitted.

43.     I was satisfied from the evidence before me that in the relevant years Mr Makinadjian worked under the direction of Mr Brilliant, mainly in the latter’s premises, where he was engaged as a sewer, cutter, pattern-maker and production manager, and where he also washed silk and cleaned the workplace. On the basis of the pay he received, I preferred Mr Makinadjian’s evidence that he worked approximately 35 hours a week to Mr Brilliant’s two versions of his work times. Mr Brilliant had stated in his “Principal Questionnaire” that Mr Makinadjian worked 15 – 40 hours per week at will, not as specified by Mr Brilliant. I noted that in his oral evidence Mr Brilliant said that Mr Makinadjian worked 5 – 15 hours a week. 

44.     Mr Brilliant told me that he paid Mr Makinadjian weekly in cash, and that the amount varied from $200 to $900 a week on a “weekly reconciliation”, depending on the work which had been carried out in a particular week. Mr Brilliant said that he did not pay any taxes for Mr Makinadjian, or pay superannuation for him, as he regarded Mr Makinadjian as a contractor who could come and go at will.

45.     I was satisfied that notwithstanding Mr Makinadjian had registered a business name in 1995, and did not have the benefit of tax or superannuation guarantee payments made for him, that Mr Brilliant had the control necessary for him to be characterised as an employee.  The figures from his tax return indicated that he was paid as follows:

·     $30,940 in the 1995 year

·     $39,416 in the 1996 year

·     $24,435 in the 1997 year

46.     I was able to conclude this was not therefore the pattern of payment for a person whose amounts varied from $200 to $900 a week.  I was satisfied from the evidence that Mr Makinadjian worked approximately 35 hours a week at Mr Brilliant’s premises, and that it was work done as directed by Mr Brilliant who did not have any other employees. Mr Brilliant was the principal and directed the work of Mr Makinadjian, including dispatching him to where contractors sewed scarves, in order to deliver the material and collect the finished products.

47.     I am mindful, as discussed above, of the letters both Mr Brilliant and Mr Pardy wrote characterising Mr Makinadjian as an employee, and quoting his salary. Both persons admitted when giving evidence that the information given to Westpac Bank and the Department was inaccurate, and explained that the letters were written to assist Mr Makinadjian. I have noted that the salary figures given in the letters referred to above are not greatly divergent from the actual figures which Mr Makinadjian appears from his tax returns to have earned.

Integration

48.     A particularly significant factor in establishing the nature of the contractual relationship at common law is to determine whether the worker’s services are an integral part of the employer’s business under a contract of service as an employee, or providing services as an individual carrying on his or her own business under a contract for services as an independent contractor. This is known as the “business” or “integration” test.

49.     I have already noted above that Mr Makinadjian was engaged to perform work in and for the Applicant’s business as directed by the Applicant. I preferred Mr Makinadjian’s evidence that he worked on the equipment and in the premises Mr Brilliant provided at no cost to him. I am mindful that sometime during the relevant period, most likely in 1995, Mr Makinadjian also commenced doing work under his own ANI label. However I accept that Mr Makinadjian spent a normal working day with Mr Brilliant doing his work during the relevant period. His duties included sewing and cutting. He also assisted with washing the silk, and the other processes involved in painting the silk and wool for the production of scarves and other garments, as well as cleaning Mr Brilliant’s studio. Those duties satisfied me that he was contracting his labour and an integral part of the Applicant’s business.

50.     As to payment; I have noted from the submissions that where the substance of a contract is to achieve a specified result, there is a strong indication that the contract is one for services. In World Book (Australia) Pty Ltd v. FCT 92 ATC 4327 Sheller JA said: “Undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor”. In a contract for services, the contract specifies the services to be performed in return for an agreed payment. Satisfactory completion of the specified services is the result for which the parties have bargained.

51.     I am satisfied that Mr Makinadjian was paid a weekly wage to complete work with, and for, Mr Brilliant. He was not paid for the completion of piece work, and I am satisfied his work could not be characterised as a contract for services.

52.     Accordingly, I am satisfied that in regard to this aspect of the consideration, the work performed by Mr Makinadjian was an integral part of Mr Brilliant’s business and was within the ambit of an employer/employee relationship.

Delegation

53.     Under the heading of delegation I must consider the right of Mr Makinadjian to delegate work to another person. I have noted that an unlimited power to delegate work is an important indication that the worker is an independent contractor, and that delegation is generally implied in a contract for services where the emphasis is on the results to be achieved.

54.     Mr Brilliant’s evidence was that Mr Makinadjian could and did delegate work, and that his wife worked with him. Mr Brilliant also asserted that Mr Makinadjian paid the workers he hired.  He also stated that:

·     Mr Makinadjian was engaged on a job to job basis, rather than for a specific period of time or indefinitely.

·     The job, on a day to day basis, was left to the worker’s discretion.

·     Mr Makinadjian set his own hours although Mr Brilliant indicated priorities based on customer orders  - “he organised his own work schedule”

·     As to quality control – “he was an excellent tailor – quality control was never an issue”.

55.     I noted that there were differing views from the Applicant and Mr Makinadjian on whether Mr Makinadjian could engage others to assist, but the evidence was that he did not engage others, and I preferred Mr Makinadjian’s evidence regarding his wife assisting him to that of Mr Brilliant. I accepted that during the relevant periods Mr Makinadjian’s wife worked, not with him, but in hospitals.

56.     I preferred Mr Makinadjian’s evidence that he worked approximately 35 hours a week at Mr Brilliant’s business. I make this finding on the basis, amongst other things of the annual income he received for the years 1995 and 1996 as derived from his tax returns. The annual income for those years is not consistent with Mr Brilliant’s evidence that Mr Makinadjian’s pay was calculated on a weekly basis, and that it could be between $200 and $900 per week.

57.     Mr Makinadjian’s registration of ANI as a business name in 1995, and the fact he may have done other work on his own or with others, does not impact on my finding that he was engaged to carry out work because of his expertise as a  tailor and worked approximately 35 hours per week for Mr Brilliant. Mr Brilliant has given ample evidence about this. I am satisfied from the evidence that Mr Makinadjian was not authorised to subcontract Mr Brilliant’s work or to employ others to perform the work, and the evidence is he did not do so. He was engaged to complete the work personally, as an employee would be.

Terms of Engagement and Risk

58.     There was no disagreement that there was no contractual relationship documented between the parties. Of course terms of engagement and work practices are considered important indicators in establishing the totality of the relationship.

59.     Mr Brilliant relied on the fact he kept few records, his evidence regarding Mr Makinadjian’s work hours, and the fact that he did not pay tax or the superannuation guarantee to submit Mr Makinadjian was a contractor.

60.     I am however satisfied from the evidence that during the relevant period Mr Makinadjian worked approximately 35 hours per week for Mr Brilliant as he said he did, and that, notwithstanding there were no records available either from Mr Brilliant or the worker, that he was paid a regular amount on a weekly basis. I am also satisfied that Mr Makinadjian used equipment and material provided by the Applicant, and that Mr Brilliant had control over the work provided to, and produced by Mr Makinadjian. The evidence before me indicated that Mr Makinadjian bore no risks in the business. The indicia point to Mr Makinadjian being an employee rather than a contractor.

MR BRILLIANT’S  WITNESSES

61.     A number of persons wrote letters and made statements which were annexures to, and tendered with Mr Brilliant’s affidavit. None were sworn statements, and none of the makers of those statements was called to give evidence. The majority refer to having met Mr Makinadjian at Mr Brilliant’s premises. There was no dispute he was working there at least for the relevant time between 1995 – 1997.  I was satisfied from the evidence before me that Mr Makinadjian registered the business name ANI in 1995, and that although he may have conducted some private business during the time he worked for Mr Brilliant, it did not detract from the fact I have found he was an employee during the relevant time. There was also no disagreement that he delivered scarves for hemming to Ms B Hyland, and collected them. The other information related to periods during, or after 1997, when I understand Mr Makinadjian had left Mr Brilliant. The relevant period for the superannuation guarantee is 1995 – 1997.

62.     As the statements were not sworn statements, and none of the makers of those statements were called to give oral evidence or be cross-examined, the statements are of little assistance to me in my decision making, and I have given little weight to them. However, for the sake of completeness a summary of each follows.

Ms B Hyland

63.     I had before me a statement of Ms B Hyland dated 25 October 1998. In it, she stated that she answered an advertisement in the local paper for a machinist, towards at the end of 1991, or early 1992.  Ms Hyland wrote that Mr Makinadjian and his partner held themselves out as contractors making up clothing, and gave her work to sew. She said that they were not satisfied with the result, did not pay her, and did not return with any other work. Ms Hyland wrote that she had started hemming hand painted silk scarves for Mr Brilliant, and met Mr Makinadjian again approximately a year later. She said that for the next three years he came to her house, dropping off and collecting scarves. She said that in 1995 her machine was “playing up” and Mr Makinadjian was dissatisfied with the standard of the sewing and deducted $200 from her payment. She said that she only found out in 1998 at the time of writing the present statement that Mr Brilliant knew nothing of that incident.  Ms Hyland stated that in 1997, Mr Makinadjian again brought her scarves and required the label, “ANI DESIGN”, to be attached, and paid her directly. She then realised these were not Mr Brilliant’s scarves.

Ms J Hannah

64.     Ms Hannah wrote on 10 November 1998 that she is a potter and met Mr Makinadjian in 1993 when he was working at Mr Brilliant’s studio. She wrote that she was selling her ceramics at a Sunday market in 1997 when she noticed Mr Makinadjian had a stand with garments and scarves, some of which looked like Mr Brilliant’s, but carrying the label “ANI DESIGN”.  Ms Hannah said that she informed Mr Brilliant of what she had seen.

Ms S Hay

65.     Ms Hay wrote a statement on Lifubo Pty Ltd letterhead dated 10 September 2008.  She described herself as a wholesaler of souvenirs and stated that she worked as a wholesale agent for Mr Brilliant, and had done so since 1992. She wrote that she first met Mr Makinadjian at Mr Brilliant’s studio in 1992 and saw him over a period of years. She stated (without specifying a date), that she had seen scarves with the ANI DESIGN label in shops, and that in 1997 Mr Makinadjian approached her to act as an agent for him.

Mr T Butt

66.     Mr Butt wrote a letter dated 26 October 2008 stating that he operates retail stores called Australian Choice. He stated that he has known Mr Brilliant for many years, and stocks his scarves for sale. He stated that in 1998 he was approached by a man offering to supply his stores with ANI DESIGN scarves which “appeared to be a poor copy of the Brilliant Silk scarves produced by Jack Brilliant”. 

Ms J Galbraith

67.     I had before me an undated statement of Ms Galbraith in which she said that she had known Mr Brilliant for many years, and that the Craft Contact Australia consultancy under whose banner she wrote, was an advisory marketing service for professional Australian craftspeople which operated out of Mr Brilliant’s premises from 1992 to 1999. She stated that she met Mr Makinadjian at Mr Brilliant’s studio, where he appeared to work in a relaxed atmosphere, where he had his own key, and came and went at will. She said that they were all surprised at Mr Makinadjian’s “sudden departure” in 1997. She stated that she next saw Mr Makinadjian with handpainted wool and silk products labelled ANI DESIGN which seemed like a poor copy of Mr Brilliant’s works at a trade fair in early 1998.

CONCLUSION

68.     I have considered the various indicia of employer/employee and contractor relationships, and noted that in Stevens v. Brodribb Sawmilling Company Pty Ltd, the High Court held that a number of common law tests should be given consideration in determining if a worker is an employee or a contractor.  I have come to the conclusion in considering the totality of the relationship between the parties, and noting that no single test will provide the answer, that the relationship between Mr Brilliant and Mr Makinadjian was one of employer to employee.

69.      I am satisfied on the basis of the evidence before me that:

·    Mr Brilliant engaged Mr Makinadjian to work for as a sewer, cutter, pattern-maker. Mr Makinadjian also washed silk and cleaned the workplace.

·    Mr Brilliant held Mr Makinadjian to the Westpac Bank and the Department of Immigration & Ethnic Affairs as his Production Manager.

·    There was no written contract between the Applicant and Mr Makinadjian.

·    The work was predominately performed at the Applicant’s business premises, although Mr Brilliant dispatched Mr Makinadjian to give work and collect sewing from sub-contractors.

·    The Applicant provided all of the equipment and materials to Mr Makinadjian, and paid him weekly.

·    Mr Makinadjian was not required to pay for use of the premises.

·    The Applicant held the ultimate control over Mr Makinadjian by providing direction as to what work was to be done, and what products to use.

·    Mr Makinadjian did not incur any financial risk, nor did he incur any financial loss.

70.     The particular tests I have considered and which are discussed in the paragraphs above, are:

Control
Integration
Results test
Delegation
Terms of Engagement
Risk

71.     I have found that in relation to each of these indicia, and in the aggregate I am satisfied that Mr Brilliant and Mr Makinadjian’s relationship was one of employer/employee. The contractual relationship of the worker to the Applicant was that of an employee according to common law tests mentioned above, and the totality of the relationship and the fundamental distinction identified in Hollis v Vabu of a worker who is not operating on his own account but as part of the business of another.

72. However I am also satisfied in the alternative that Mr Makinadjian falls within the extended definition in section 12(3) of the Act as with reference to his duties, his engagement was principally for his labour.

73.     A further question before me was whether the superannuation guarantee charges imposed on Mr Brilliant for the tax years 1995, 1996 and 1997 were correct. There was little documentary evidence regarding Mr Makinadjian’s remuneration as I have indicated in the paragraphs above.  The superannuation guarantee charges were imposed on the basis of calculations made by the Respondent on the figures given by Mr Makinadjian in his income tax returns. I have noted that notwithstanding Mr Brilliant’s oral evidence that Mr Makinadjian was paid greatly varying sums (from $200 - $900 per week), depending on the work performed, the Applicant provided figures to the ATO in an undated statement which appears at T10-33, and which did not differ greatly from those declared by Mr Makinadjian.

74.     I am not satisfied with Mr Brilliant’s evidence in regard to his claim that the superannuation guarantee charge imposed is excessive, and accordingly affirm the figures as calculated by the Commissioner. 

DECISION

75.     The Tribunal affirms the decision under review.

I certify that the 75 preceding paragraphs are a true copy of the reasons for the decision herein of Ms G Ettinger, Senior Member

Signed:         ................[sgd]................................................................
  Associate

Date of Hearing  9 March 2010
Date of Decision  16 April 2010
Solicitor for the Applicant          Mr J Flick, Flick Legal
Solicitor for the Respondent     Mr J Burne, ATO