Commissioner of State Revenue v The Optical Superstore Pty Ltd as trustee for Os Management S Trust And Others According to the Attached Schedule

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2018 0125
S APCI 2018 0126
S APCI 2018 0127
S APCI 2018 0128
S APCI 2018 0129

S APCI 2018 0130

COMMISSIONER OF STATE REVENUE	Applicant
v
THE OPTICAL SUPERSTORE PTY LTD AS TRUSTEE FOR OS MANAGEMENT S TRUST AND OTHERS ACCORDING TO THE ATTACHED SCHEDULE	Respondents

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JUDGES:	McLEISH, T FORREST and EMERTON JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	25 July 2019
DATE OF JUDGMENT:	12 September 2019
MEDIUM NEUTRAL CITATION:	[2019] VSCA 197
JUDGMENT APPEALED FROM:	[2018] VSC 524 (Croft J)

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TAXATION AND REVENUE – Payroll tax – Contractor provisions – Optometrists directed consultation fees due from services to public be paid to store owner to be held on trust for optometrist – Optometrists required to be paid reimbursement amount from trust calculated by reference to hours worked – Balance of consultation fees payable to trustee as occupancy fee for use of premises – Whether amounts reimbursed to optometrists were ‘amounts paid or payable … for or in relation to the performance of work’ – Payroll Tax Act 2007 s 35(1), Pay-roll Tax Act 1971 s 3C(2)(c) – Whether Tribunal finding foreclosed judge from considering whether amounts ‘paid or payable’ – Whether judge erred in construing meaning of ‘paid or payable’ – Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) (2009) 239 CLR 27, Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503, applied – Whether distributions to beneficiary under express trust comprised funds already owned by beneficiary – Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 93 ALJR 807, applied – Whether judge incorrectly distinguished Murdoch v The Commissioner of Pay-Roll Tax (1980) 143 CLR 629, Newcastle Club Ltd v Commissioner of Taxation (1994) 53 FCR 1, Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127.

WORDS AND PHRASES – ‘paid’ – ‘payable’.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Ms P A Neskovcin QC with Ms M L Baker	Solicitor for the Commissioner of State Revenue
For the Respondents	Mr C M Sievers	AG Tax Lawyers Pty Ltd

McLEISH JA
T FORREST JA
EMERTON JA:

An optical dispensary business known as ‘The Optical Superstore’ was carried on by the trustee of four related trusts which either owned the stores or licensed them to other parties. Optometrists or entities associated with them entered into agreements with the trustee, as a result of which the optometrists undertook eye tests for members of the public in the stores.

The Commissioner of State Revenue issued payroll tax assessments in respect of each of the six financial years from 2005 to 2011. Among other things, the Commissioner assessed the trustee for payroll tax on the basis that amounts transferred from its bank account to a number of optometrists or related entities in the relevant years were taxable wages for payroll tax purposes by reason of the operation of the ‘contractor’ provisions in ss 31–36 of the Payroll Tax Act 2007 and s 3C of the Pay-roll Tax Act 1971. The assessments were issued to the trustee and other respondents on the basis that they were ‘grouped’ pursuant to ss 72 and 74 of the 2007 Act and s 9A of the 1971 Act.

The respondents successfully challenged the assessments in the Victorian Civil and Administrative Tribunal (‘the Tribunal’). An appeal to the Trial Division by the Commissioner was dismissed. The Commissioner now seeks leave to appeal against that decision to this Court, by six relevantly identical applications, one for each of the six years in question.

Agreements with optometrists

Although there were agreements involving different trustees and corporate entities other than the optometrists in person, nothing turns on these details and it is convenient to refer principally to the trustee and the optometrists themselves.[1]
[1]The principal trustee, in four different capacities, is the first, third, fourth and fifth respondent. Although the ninth and tenth respondents were also trustees under relevantly identical arrangements, it is convenient to refer simply to ‘the trustee’.

Under the agreements between the trustee and the optometrists, the trustee was described as ‘the Landlord’ and the optometrists were described as ‘the Tenant’. Clause 1(i) of the agreements provided as follows:

1.(i) The Landlord offers to the Tenant and the Tenant accepts the contract with the Landlord to occupy its consulting room on a non-exclusive basis as a supplier of Optometric Services pursuant to the Occupancy Fee Formula as described in Clause 3 of the First Schedule from the commencement date described in Clause 2 of the First Schedule until the contract is terminated as hereinafter provided.

By cl 1(ii) the Landlord provided the premises to enable the Tenant to carry out optometric services.

The payment of the occupancy fee was provided for in cl 2 of the agreement as follows:

Occupancy Fee Formula
2.(i)The Tenant’s Occupancy Fee shall be as set forth in Clause 3 of the First Schedule …
(ii)The Tenant shall bulk bill patients to Medicare in the normal course of business or charge other fees as considered appropriate by the Tenant ... All Medicare accounts shall be rendered to Medicare in the name of the Tenant and payment sent to the Landlord at the Landlord's Post Office addresses specified in the Medicare Application for a Provider in the Group Pay Link section.
(iii) The Landlord agrees not to hold a premises security deposit or premises bond. In consideration of this, the Tenant agrees to pay all fees received for Optometric Services into a bank account in the name of the Landlord and nominated by the Landlord which the Landlord shall hold in trust for the Tenant and the Landlord shall re-imburse to the Tenant amounts each month in accordance with the Occupancy Fee Formula.

…
(v)The Tenant hereby agrees to nominate the Landlord or the relevant Landlord’s associate as the Group Pay Link for Medicare cheques on the Health Insurance Commission, Application for Provider Number for an Optometrist form.
(vi) On submission by the Tenant to the Landlord at the end of each month of;
(a)the number of hours worked each day at the schedules [sic] rates or at the consultation fee percentages described in Clause 3 of the first schedule; and
(b)the reasonable out of pocket expenses as described in Clause 3 of the First Schedule the Landlord shall remit by electronic funds transfer to an account nominated by the Tenant the amount due to the Tenant within seven days.

(vii)The balance remaining of fees collected for Optometric Services after payment of the Tenant’s remuneration shall be kept by the Landlord as payment for the Landlord’s Business Premises occupancy fee. GST shall be added by the Landlord to the occupancy fee and charged to the Tenant by the Landlord. The Landlord shall issue a tax invoice to the Tenant for the value of the occupancy fee.

Clause 3 of the First Schedule relevantly provided:

Gross Consultation fees received, being Medicare and non-Medicare fees, less Re-imbursement Rates, detailed below, equals the Landlord’s Business Premises fee, not including GST. GST will be billed at the end of each three month Business Activity Statement period. If the Gross Consultation fees received does not exceed the amount re-imbursed to the Tenant, the Landlord shall classify the amount paid as a reimbursement which is in excess of the Gross Consultation fees paid as a Location Attendance Premium and pay GST to the Tenant on this amount and issue a recipient created GST Tax Invoice to the Tenant.
RATES EFFECTIVE FOR CONSULTATIONS …
…
Rates based on 21 appointment slots per day. Patient no-shows or cancellations do not affect this rate. Greater or lesser appointment slots are paid on a pro-rata basis based on 21 appointment slots being scheduled. The deemed number of hours worked per day is fixed at 7.6 hours except for exceptional circumstances and the Landlord’s spreadsheet should be used for standardization of calculations.
…

The Tribunal addressed the practical operation of the occupancy fee formula and made the following findings which are not in dispute:

(a) All fees charged for the provision of optometric services by the optometrists (‘consultation fees’) were required to be paid to the trustee to be held in its bank account. The optometrists were required to nominate the trustee as the recipient of any Medicare payments to which they were otherwise entitled. If a patient was not covered by Medicare, the invoice was rendered by the optometrist, but payment was required to be made direct to the trustee.

(b) The consultation fees were paid into the trustee’s main operating account. However, this was done using bank deposit books in the names of each of the optometrists. In the bank statements issued to the trustee, it was possible to identify to which optometrist a particular deposit related because the deposits were tagged with reference numbers reflecting the optometrist and the store at which the services were provided.

(c) At the end of each month, the optometrist submitted the number of hours worked in a given store. After the number of hours was signed off, a monthly payment was made to the optometrist (‘the reimbursement amount’). That amount was calculated by multiplying the number of hours worked by the applicable rates at the time. The way in which the rates were calculated depended on the number of consultations that the optometrist was prepared to provide.

(d) The optometrist did not raise any invoice to the trustee for the reimbursement amount, on the basis that it was considered to be a return of moneys belonging to the optometrist.

(e) The balance of the consultation fees were retained by the trustee as payment of the occupancy fees due from the optometrist, which were invoiced, together with GST, on a quarterly basis.

(f) The potential for the reimbursement amount to exceed the gross consultation fees was dealt with by making provision in cl 3 of the First Schedule for a ‘location attendance premium’ to be paid to the tenant.

(g) In practice, the location attendance premiums calculated under cl 3 of the First Schedule were initially treated as loans to the optometrist, with a recipient-created invoice only being issued to the tenant if the loan balance at the end of the year was positive. The trustee would then pay GST to the tenant on the net location attendance premium amount.

Payroll tax assessments

As noted, the Commissioner issued payroll tax assessments in respect of each of the relevant years. The assessments were issued to the trustee as the nominated member or designated group employer of a payroll tax group constituted by each of the respondents. That treatment of the respondents is not now in issue.

The Commissioner assessed the trustee for payroll tax on the basis that the amounts transferred from its bank account to various optometrists in the relevant years were taxable wages for payroll tax purposes by reason of the operation of s 3C of the 1971 Act and ss 31-36 of the 2007 Act. The respondents objected to the assessments. By notice of determination dated 12 November 2014, the Commissioner partially allowed those objections by accepting that the group was entitled to a threshold deduction. The Commissioner disallowed the objections in all other respects.

By letter dated 22 December 2014, the respondents requested that the matter be referred to the Tribunal under s 106 of the Taxation Administration Act 1997, and this was eventually done on 23 December 2016.

Legislative provisions

The parties agreed before the Tribunal and in the Trial Division, as they still do, that the provisions of the 1971 Act and the 2007 Act are materially to the same effect. It is therefore convenient to concentrate on the provisions of the 2007 Act and to describe either statute as ‘the Act’.

Section 6 imposes payroll tax on all ‘taxable wages’. By s 7, it is the employer by whom taxable wages are paid or payable who is liable to pay payroll tax on those wages. Section 11 defines taxable wages. In broad terms, wages are taxable where there is a connection with the jurisdiction of one of the kinds set out in the section.

The meaning of ‘wages’ is found in pt 3 of the 2007 Act. Relevantly for present purposes, it means ‘wages, remuneration, salary, commission, bonuses or allowances paid or payable to an employee’, including (critically for present purposes) ‘an amount that is included as or taken to be wages’ by a provision of the Act: s 13(1)(e). Similarly, the definition of ‘employer’ in s 3 defines that term to mean ‘a person who pays or is liable to pay wages’ including ‘a person taken to be an employer’ by or under the Act. The word ‘paid’ includes ‘provided, conferred and assigned’: s 3.

Division 7 of pt 3 is headed ‘Contractor provisions’. The provisions operate on ‘relevant contracts’. The definition of that expression in s 32 relevantly provides:

(1)In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person—
…
(b)has supplied to the designated person the services of persons for or in relation to the performance of work; or
...

(2)However, a relevant contract does not include a contract of service or a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person—
… [paragraphs omitted]

Section 33 then specifies who is to be taken to be an employer. The relevant provision for present purposes is s 33(1)(b), which provides that a person to whom, under a relevant contract, the services of persons are supplied for or in relation to the performance of work is taken to be an employer.

Section 34 provides that a person who performs work for or in relation to which services are supplied to another person under a relevant contract is taken to be an employee in respect of the relevant financial year.

The legislation goes on to provide for the amounts which are taken to be wages under a relevant contract. Section 35 relevantly provides:

(1)For the purposes of this Act, amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract … are taken to be wages paid or payable during that financial year.
(2)If an amount referred to in subsection (1) is included in a larger amount paid or payable by an employer under a relevant contract during a financial year, that part of the larger amount which is not attributable to the performance of work relating to the relevant contract … is as determined by the Commissioner.

…

Tribunal’s decision

The issues for determination by the Tribunal were more extensive than those that now remain in contention. Apart from the question of the grouping provisions already referred to, the questions were whether the agreements were ‘relevant contracts’ and, if so, whether the trustee paid amounts to the optometrists for or in relation to the performance of work which therefore were deemed to be taxable wages. The Tribunal was also called upon to address exemptions from the contractor provisions and arguments relating to the imposition of penalty tax and interest.

The Tribunal gave its decision on 5 February 2018. It decided that the agreements were relevant contracts on the basis that they were contracts under which the trustee had supplied to it the services of the optometrists for or in relation to the performance of work within the meaning of s 32(1)(b). The services in question were the optometry services provided to customers at the trustee’s stores.[2] By reason of that finding, the trustee was deemed by s 33(1)(b) to be an employer for the relevant years and the optometrists were deemed by s 34 to be employees. Those findings are no longer in issue.
[2]The Optical Superstore Pty Ltd v Commissioner of State Revenue [2018] VCAT 169 [84]–[85] (‘Tribunal Reasons’) (Member Tang).

The Tribunal also decided that the location attendance premiums as finally determined at the end of each financial year and paid to the optometrists were to be treated as wages under s 35(1) of the 2007 Act and s 3C(2)(c) of the 1971 Act, being amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract. The Tribunal held that this followed from the fact that the services of the optometrists were provided to the trustee, as well as to patients of the optometrists.[3] That finding is also not now in issue.
[3]Ibid [115]–[116].

However, the Tribunal held that the other amounts paid to optometrists, being the net consultation fees, were not amounts paid or payable by an employer for or in relation to the performance of work relating to a relevant contract within the meaning of s 35(1). It is that finding which the Commissioner seeks to have reversed in the proposed appeals.

The Tribunal found that the consultation fees were held by the trustee on express trust for the optometrists. The Tribunal held that it was ‘clear that there are payments made from the bank account’ of the trustee to the optometrists; the question was whether those payments were ‘for or in relation to the performance of work’.[4]
[4]Ibid [90].

The Tribunal distinguished the decision of White J in Freelance Global Ltd v Chief Commissioner of State Revenue, on which the Commissioner had relied.[5] It will be necessary to return to that decision later in these reasons. The Tribunal concluded:

Having found that there was an express trust in place between the Trustee and each Optometrist Entity in relation to the Consultation Fees, the payments to them (albeit net of the Occupancy Fees they contractually owed to the Trustee) was necessarily a return of their moneys and cannot be viewed as a payment for or in relation to the services provided to the Trustee … .[6]
[5][2014] NSWSC 127 (‘Freelance Global’).
[6]Tribunal Reasons [110].

Decision in Trial Division

The Commissioner sought leave to appeal from the orders of the Tribunal under s 148(1) of the Victorian Civil and Administrative Tribunal Act 1998. The questions of law identified by the Commissioner for the purposes of the proposed appeal dealt with the construction of the words ‘amounts paid or payable … for or in relation to the performance of work relating to a relevant contract’ in s 35(1). The application for leave to appeal and the appeal were heard together on 4 September 2018.

In his decision on 21 September 2018, the primary judge identified two live questions arising on the appeal. The first was whether the moneys which were distributed from the trusts to the optometrists were ‘paid or payable’ to those optometrists. The second was whether those distributions were made ‘for or in relation to the performance of work relating to a relevant contract’.[7]
[7]Commissioner of State Revenue v The Optical Superstore Pty Ltd [2018] VSC 524 [18] (‘Reasons’).

In respect of the first issue, the judge observed that it was critical to recall that the flow of money in respect of which the Commissioner sought to collect payroll tax was the return of money held on ‘express trust’ by the trustee for the relevant optometrist. He stated that the submissions of the Commissioner proceeded on the basis that the Court was not required to consider the first issue because the Tribunal had found that the distributions from the express trust were payments and the respondents had not indicated that they sought to contest that finding. However, the judge held that the use of the word ‘payments’ in the reasons of the Tribunal was liable to mislead and that the Tribunal should not be taken to have found that the distributions were payments within the meaning of s 35(1). The judge held that it was not entirely clear whether the Tribunal reached its conclusion because the return of moneys held on express trust was not a ‘payment’, because it was not ‘for or in relation to the performance of work’ or because it was not ‘a payment for or in relation to the performance of work’. The judge concluded that the question of ‘payment’ was not beyond the scope of the appeal. He stated:

In any event, the question of whether a return of money by way of a distribution under an express trust is a payment is subsidiary to the position for which the Commissioner now contends — that the distributions from the express trusts were payments for or in relation to the performance of work relating to a relevant contract — and as this Court is duty bound to consider the veracity of that contention it is necessary to consider the veracity of any premises of that contention which are thought to be dubitable.[8]

[8]Ibid [25].

The judge held that it may be incongruous to describe the provision of money to a beneficiary by way of a distribution made under an express trust as a ‘payment’. He said that the money distributed in that situation ‘already belongs to “the beneficiary” in equity and as a matter of common sense’.[9] The judge then referred to dictionary definitions of the word ‘pay’ and drew attention to two relevant elements of those definitions. First, he held that it was inherent in the notion of payment that money was conveyed and exchanged for something else. Secondly, the judge held that ‘there must be some disunity between the payee and the payer’.[10] He said:

This is, in a sense, an incident of the first element of ‘payment’: a person cannot exchange money with themselves. But moreover, there cannot even be a flow of funds if the payee and the payer are identical. That being said, the nature of the disunity which is required is not clear, and it is suggested that it is context dependent. For example, if one transfers a quantity of cash from the left hand to the right, that is clearly not a payment, but it is less clear whether the transfer of money between two bank accounts held in the same name could constitute ‘payment’ in the broadest sense of that term. Thus, the ordinary meaning of ‘payment’ is not fixed and is context dependent. It may require that the flow of funds is not gratuitous and it seems to require that there be disunity — of some kind — between the payee and the payer.[11]

[9]Ibid [26] (emphasis in original).

[10]Ibid [27].

[11]Ibid.

Turning to the legislation, the judge started with the definition of ‘paid’ in s 3. By that definition, ‘paid’, in relation to wages, ‘includes provided, conferred and assigned’, and ‘pay’ and ‘payable’ have corresponding meanings. The judge said that this made it clear that ‘payment’ for the purposes of the legislation does not require that the transfer of money is an exchange for something else. However, the judge considered that the requirement that there be disunity between the payee and payer appeared to apply. In other words, whether a return of funds to a beneficiary under an express trust is a ‘provision’, ‘conferral’ or ‘assignment’ of funds turned on the same considerations as whether such a distribution was a ‘payment’, namely, ‘can one provide, confer, assign or pay money to oneself’?[12] The judge held:

That a ‘payment’ within the meaning of the PTA cannot arise where the payee already has a beneficial interest in the sum to be transferred is, in my view, concordant with the overall scheme and structure of the PTA which is concerned with the imposition of tax upon wages and the passing of money which resembles wages rather than upon the transfer of legal title in money to the holder of the beneficial interest.[13]

[12]Ibid [29].

[13]Ibid [45].

The judge concluded that the meaning of ‘payments’ within the 2007 Act ‘does not extend to a return of money by one person to another in circumstances where the second person earned that money from providing services to a third party and directed the money be deposited in the bank account of the first person and held in trust’.[14]
[14]Ibid [46].

The judge therefore held that the amounts transferred to the optometrists were not ‘paid or payable for or in relation to the performance of work’ within the meaning of s 35(1), with the effect that payroll tax could not be collected in respect of those amounts and the appeal must fail. He went on to consider whether, in any event, the distributions were ‘for or in relation to the performance of work’ (assuming that they were properly regarded as ‘payments’). On this issue, the judge decided in favour of the Commissioner. He concluded:

What is critical in determining whether the distributions were for or in relation to the performance of work is the breadth of the phrase ‘in relation to’ both generally and in the context of the PTA. Once that is accepted, it is plain that in circumstances where the distributions were—in substance—made as a result of the provision of optometry services by the Optometrist Entities, those distributions were for or in relation to the performance of work. Indeed the moneys which were distributed were earned through the relevant work, being the provision of optometry services to the public. Though it is true that the bulk of the work was done for patients, rather than the Trustee, as the Tribunal found, services were also provided to the Trustee.[15]
[15]Ibid [54].

Proposed grounds of appeal

The Commissioner seeks leave to appeal on five proposed grounds. The grounds contend, first, that the Tribunal had already decided the question of ‘paid or payable’ in favour of the Commissioner, and secondly that the judge’s decision on that question was in error. The proposed grounds are as follows:

1.Where the respondents did not directly challenge the Tribunal’s finding that ‘it is clear that there are payments made from the bank account of the Trustee … to the Optometrist Entities …’, the learned appeal judge erred in deciding that there were no amounts ‘paid or payable’ by the trustee within the meaning of s 35 of the new Act and s 3C(2)(c) of the old Act.
2.The learned appeal judge misconstrued the words ‘amounts paid or payable’ in s 35(1) of the new Act and s 3C(2)(c) of the old Act by deciding that the expression was not apt to describe the transfer of legal title in money to satisfy a beneficiary’s equitable entitlement to that money.
3.The words ‘amounts paid or payable’ in s 35(1) of the new Act and s 3C(2)(c) of the old Act should have been construed broadly, so as to capture the provision, giving or transfer of moneys from a bank account of one entity to another entity irrespective of the existence of an express trust.
4.The learned appeal judge erred in determining that distributions to a beneficiary from an express trust are not ‘amounts paid or payable’ because the beneficiary always owned the funds held on trust and therefore property does not pass in the funds.
5.The learned appeal judge erred in distinguishing Murdoch v Commissioner of Pay-Roll Tax (Vic) (1980) 143 CLR 629, Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 and Newcastle Club Ltd v Commissioner of Taxation (1994) 53 FCR 1 on the basis that, in this case, the ongoing and pre-existing equitable interest held by the beneficiary in the funds held on trust had the effect that no amount ‘paid or payable’ was to be recognised for the purposes of s 35(1) of the new Act and s 3C(2)(c) of the old Act.

Commissioner’s submissions

The Commissioner submitted under proposed ground 1 that the Tribunal had found that the transfer of funds from the trustee to the optometrists was a payment. Its decision then addressed the question whether those payments were ‘for or in relation to the performance of work’. In the hearing before the Tribunal, the respondents did not initially dispute that a flow of money from one bank account to another could be a payment. It was said that it was only at the hearing of the appeal that the respondents submitted that the distributions were not capable of being characterised as ‘payments’ on the ground that they were already beneficially owned by the optometrists. It was submitted that the Tribunal had not found that the optometrists beneficially owned the consultation fees but merely recognised that the payments were sourced in the consultation fees. References to the ‘return of moneys’, it was said, should therefore not be read as a basis for departing from the Tribunal’s conclusion that the transfer of funds by the trustee to the optometrists constituted ‘payment’.

Under proposed grounds 2 and 3, the Commissioner submitted that the words ‘amounts paid or payable’ had been misconstrued by the judge. It was submitted that the phrase ‘amounts paid or payable’ should be given its ordinary meaning having regard to the statutory text as a whole and considered in its context. It was submitted that those considerations supported giving the words their widest possible meaning, apt to describe the transfer of funds from one bank account to another without inquiring into whether the recipient of those funds had a prior equitable interest in those funds or could have obtained some form of equitable relief that would have entitled it to immediate payment. The Commissioner submitted that the contractor provisions were introduced to ensure that it was not possible to avoid payroll tax simply because amounts were paid or payable outside an employment relationship. The provisions were deeming provisions which expanded the types of amounts paid or payable that were to be treated as wages for payroll tax purposes.[16]
[16]Mayne Nickless Ltd v Mackintosh [1989] VR 878, 882–3 (Murphy J, with Gobbo and Phillips JJ agreeing) (‘Mayne Nickless’).

The Commissioner submitted that the textual indications in favour of this construction included:

(h) the fact that the definition of ‘paid’ extended to the provision or conferral of amounts;

(i) the fact that amounts could be wages irrespective of whether there was an obligation to pay those amounts;

(j) the absence of any requirement in the Act that a transfer of funds have a relationship to the provision of labour, it merely being necessary in other contexts that the amount be paid or payable ‘by way of remuneration’ or ‘attributable to labour’;

(k) the fact that under the Act the source of payment is irrelevant provided that the amount given to or in respect of the employee has the relevant nexus to labour, work or services.

The Commissioner pointed to the express limitations incorporated in the contractor provisions that limit when an ‘amount paid or payable’ is to be subject to payroll tax, both in the definition of ‘relevant contract’ (especially in the exclusions to that definition) and in the relationship between the amount paid or payable and the performance of work under the contract that is required by the words ‘for or in relation to the performance of work’. It was submitted that the judge had erred in adding a further limitation by giving a restricted meaning to the words ‘paid or payable’.

The Commissioner also submitted that the transfer of funds by a trustee in satisfaction of a beneficiary’s equitable entitlement to receive a distribution is referred to as a ‘payment’ as a matter of ordinary parlance and in trust law.[17]
[17]Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481, 505 [37]; Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264, 271; Federal Commissioner of Taxation v Whiting (1943) 68 CLR 199, 215–6 (Latham CJ and Williams J), 219–20 (Starke J).

It was further submitted that the facts and circumstances surrounding the payment, including the source of the payment and the existence of a trust, were relevant to the question whether or not the requisite connection with the performance of work existed, not to the question whether the amounts were ‘paid or payable’.

Under proposed ground 4, the Commissioner contended that the proposition that a beneficiary of an express trust beneficially owns the assets of the trust was ‘arguably contrary to authority’.[18] The Commissioner contended that, at best, it might be possible to argue that a beneficiary under an express trust has an equitable right or entitlement commensurate to beneficial ownership in circumstances where a court of equity would grant relief to the person, in effect granting rights of ownership over the subject matter.[19] It was submitted that a court of equity would not grant relief to the optometrist commensurate with ownership of the consultation fees held on trust unless the optometrist could invoke the ‘rule’ in Saunders v Vautier[20] to terminate the trust. The respondents had not adduced any evidence concerning the liabilities of the trustee so as to establish that the right of reimbursement in exoneration of the trustee would not impede the ability of the optometrists to rely on that ‘rule’.[21]
[18]Reference was made to DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431, 474 (Brennan J); Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226, 246–7; Can Barz Pty Ltd v Commissioner of State Revenue (Qld) [2017] 1 Qd R 222, 229 [31] (Bond J); Re Transphere Pty Ltd (1986) 5 NSWLR 309, 311 (McLelland J).
[19]Ellison v Sandini (2018) 354 ALR 484, 502 [76]–[77] (Jagot J, with Siopis J agreeing); [2018] FCAFC 44.
[20](1841) 4 Beav 115; 49 ER 282.
[21]CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98, 120–1 [50]–[52] (‘CPT Custodian’).

In that regard, the Commissioner submitted that the trustee had a right of indemnity, conferring on it a beneficial interest in the trust funds.[22] The entitlement of the optometrists was to receive payment at the end of the month after having their timesheet signed off by the landlord. However, the trustee had a prior right of exoneration from the trust property for its liability to pay GST upon the occupancy fees it received, that being a liability incurred by the trustee in the execution of the trust.
[22]Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 93 ALJR 807, 819–20 [29]–[32] (Kiefel CJ, Keane and Edelman JJ), 828–30 [80]–[84] (Bell, Gageler and Nettle JJ), 839–40 [132]–[137] (Gordon J); [2019] HCA 20 (‘Carter Holt’).

A further practical difficulty in identifying what the trust fund was arose from the fluctuation in the loan account reflecting the location attendance premiums. It was submitted that when a reimbursement amount was paid to a tenant, the existence of the loan account meant that it was not possible to say whether the payment represented trust moneys or the trustee’s own money. In other words, the offsetting of amounts against the loan account meant that moneys might be paid on account of reimbursement amounts from the trustee’s own funds.

Finally, in relation to proposed ground 5, the Commissioner argued that the judge had erred in the course of distinguishing Murdoch v Commissioner of Pay-Roll Tax,[23] Freelance Global and Newcastle Club Ltd v Federal Commissioner of Taxation.[24] It was submitted that in each of those cases the source of the payment or the capacity in which the payment was made did not affect the status of the amount in question as having been ‘paid’. Therefore, while the source was different, the difference was not significant.
[23](1980) 143 CLR 629 (‘Murdoch’).
[24](1994) 53 FCR 1 (‘Newcastle Club’).

It was submitted that, in distinguishing these authorities, the judge had erred in relying on the proposition that the optometrists had a continuous pre-existing equitable interest in the moneys in question. The judge had appeared to accept that the ‘payment’ for payroll tax purposes would arise at the time that the equitable interests arose, whereas the optometrists’ entitlement to receive the reimbursement amount from the trustee was conditional on their hours worked being approved at the end of each month.

The Commissioner submitted that the optometrists had no right or entitlement to immediate payment notwithstanding their pre-existing and continuing equitable interest in the funds held on trust. As a matter of trust law, the pre-existing and continuous equitable interests would not prevent an amount from being ‘paid or payable’, either upon the beneficiary’s entitlement to demand the return of moneys becoming unconditional, vested and indefeasible, or upon moneys being transferred from the trustee in satisfaction of the beneficiary’s equitable entitlement.

Respondents’ submissions

The respondents supported the findings and reasoning of the trial judge. In relation to proposed ground 1, it was submitted that the Tribunal’s reference to ‘payment’ in [110] of its reasons (set out at [25] above) was a reference to the funds released to the optometrists net of the occupancy fees as referred to two paragraphs earlier. But in any event, it was necessary for the trial judge to construe the composite phrase ‘amounts paid or payable by an employer … for or in relation to the performance of work relating to a relevant contract’. The judge was correct to find that the meaning of ‘payment’ was context-dependent and that he was obliged to consider this issue. It was said to be implicit in the Tribunal’s findings that the money in question was held on express trust and that the return of the funds to the optometrists was necessarily a return of their own moneys. The Tribunal’s references to concepts of ownership and entitlement necessarily referred to ‘beneficial ownership’ and ‘beneficial entitlement’. It was pointed out that the Commissioner had not appealed against those findings.

The respondents submitted that the Tribunal had found that the money was held on trust. The money belonged to the optometrists, who could have called for it, subject only to the contractual obligation to pay the occupancy fee, but the trustee had no beneficial entitlement to the funds if the optometrists chose, contrary to their contractual obligations, to demand them in full.

In respect to proposed grounds 2 and 3, it was submitted that the fact that the contractor provisions were deeming provisions could not be used, without more, to argue for an expansive meaning of the term ‘paid or payable’. The judge was said to have been correct in stating that there was no intention revealed in the legislation to impose payroll tax liability on the passing of money that would not amount to a payment.[25] It was submitted that deeming provisions are to be construed strictly.[26] It was submitted that the legislation was a taxing statute and its provisions required clarity of language rather than inexactitude or indirect references. That was said to be particularly the case where the imposition of payroll tax on the return of one’s own funds was ‘counterintuitive to what one might expect having regard to the prevailing general law position and the otherwise usual incidence of payroll tax and federal taxes’.[27]
[25]Reasons [44].
[26]Wellington Capital Ltd v Australian Securities and Investments Commission (2014) 254 CLR 288, 314 [51] (Gageler J); Ellison v Sandini Pty Ltd (2018) 354 ALR 484, 533 [209]; [2018] FCAFC 44 (Jagot J, with Siopis J agreeing); Federal Commissioner of Taxation v Comber (1986) 10 FCR 88, 96 (Fisher J); Telstra Corporation Ltd v Australasian Performing Right Association Ltd (1997) 191 CLR 140, 174 (McHugh J).
[27]The respondents referred to Deputy Commissioner of Taxation v PM Developments Pty Ltd (2008) 173 FCR 247, 253–4 [27] (Logan J).

Under proposed ground 4, the respondents submitted that the first question, before construing the statute, was to ascertain the terms of the trusts upon which the relevant moneys were held.[28] There was no need to consider broader concepts of trust law in the abstract or to consider the potential implications under the Act of trust structures other than the trust in issue. It was submitted that the deposits into the trustee’s bank account were impressed with an express trust and the trustee held only bare legal title.[29] It was submitted that the trustee never acquired a beneficial interest in the moneys directed to be deposited into its bank account.[30] The respondents endorsed the observation of the Tribunal that, in the event of insolvency of an optometrist, the trustee in bankruptcy or liquidator could pursue the trustee for all of the consultation fees. In that circumstance, the trustee would be required to prove in the bankruptcy or liquidation for the contractual debt of the occupancy fee.
[28]CPT Custodian (2005) 224 CLR 98, 108 [10].
[29]Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1994) 29 ATR 311, 318; [1994] FCA 703 (‘Walsh Bay’); upheld on appeal (1995) 31 ATR 15; [1995] FCA 428.
[30]Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491, 501 (Gummow J), referring to Perpetual Trustee Co Ltd v Commissioner of Stamp Duties (NSW) (1941) 64 CLR 492, 510 (Dixon J). See also Legal Services Commissioner v Brereton (2011) 33 VR 126, 151 [97] (Tate JA, with Nettle and Ashley JJA agreeing).

It was submitted that the authorities relied upon by the Commissioner were a distraction because the present matter was readily distinguishable as a simple express trust whereby the trustee was to receive and hold the consultation fees earned by the optometrist on trust until the end of the month at which time the fees would be returned to the optometrist less the occupancy fee which the optometrist had a contractual obligation to pay. There were no identifiable liabilities to be incurred by the trustee in the administration of the trust. In any event, it was submitted, the focus was on the net consultation fees, being the moneys that were actually returned to the optometrists. Those funds were not affected by any right of reimbursement or exoneration that the trustee may have had.

The respondents submitted that any GST payable by the trustee was not an expense incurred in relation to the execution of the trust. It was a payment separate from the trust, being concerned with the occupancy fee alone. The Commissioner had not pointed to any other basis upon which the trustee might spend money in the execution of the trust and so questions of a trustee’s right of exoneration (or recoupment) from the trust property did not arise.

Under proposed ground 5, the respondents contended that the trial judge was correct to distinguish the authorities in question, on the basis that the source of funds in those cases had not been the beneficiary, and property had passed in the relevant moneys in the course of their distribution to the recipient.

Proposed ground 1

By his first proposed ground, the Commissioner contends that the trial judge ought not to have entered into the question whether the amounts in question were ‘paid’ at all, because the Tribunal had already determined that question in the Commissioner’s favour and there was no notice of contention challenging that finding.

That submission should be rejected. The question before the Tribunal was whether the amounts in question had been ‘paid … for or in relation to the performance of work’. There is no reason to think that the Tribunal broke this issue down into two parts in the same way as the judge did, rather than treating the expression as a composite phrase. Even if it is accepted that the respondents did not contest the point in the Tribunal, so that it was not in issue that the amounts in question had been ‘paid’, the Commissioner has not shown that the meaning of ‘paid’ was a question to which the Tribunal gave discrete attention. In those circumstances, it would be artificial to proceed on the basis that the issue in the Tribunal, and therefore in this Court, was confined to the application of the expression ‘for or in relation to the performance of work’. Instead, the Tribunal applied the composite phrase and the judge was correct to treat this as the issue before him. Leave to appeal on this ground should be refused.

Proposed grounds 2 and 3

The applicable principles of statutory construction are those stated in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT)[31] by Hayne, Heydon, Crennan and Kiefel JJ:

This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy.[32]

[31](2009) 239 CLR 27 (‘Alcan’).

[32]Ibid 46–7 [47] (citations omitted).

It is clear that their Honours there regarded the ‘text’ as including the whole of the relevant statute and not just the word or words under immediate consideration. The Court elaborated on the role of contextual considerations external to the statute in Federal Commissioner of Taxation v Consolidated Media Holdings Ltd,[33] as follows:

This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text’.[34] So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself.[35]

[33](2012) 250 CLR 503 (‘Consolidated Media’).

[34]Alcan (2009) 239 CLR 27, 46 [47].

[35]Consolidated Media (2012) 250 CLR 503, 519 [39].

Alcan concerned the construction of a provision of Northern Territory stamp duty legislation. The Northern Territory Court of Appeal had construed the word ‘lease’ in the statute according to its common law definition rather than by reference to a definition in the statute, on the basis of an examination of context and legislative history, which was said to reveal that the purpose of relevant amendments was to increase the revenue raised by the statute. Hayne, Heydon, Crennan and Kiefel JJ held that this reasoning was not based upon the text but on ‘a generally ascertained intention to amend the legislation to increase the revenue’.[36] This imputed purpose had worked to destroy the effect of a clearly expressed definition.[37] Similarly, French CJ held that it was wrong to rely upon an imputed legislative intention that, as a taxing statute, the legislative purpose was to maximise the revenue raised, rather than paying regard to the clear words of the statute.[38]
[36]Alcan (2009) 239 CLR 27, 48 [52] (Hayne, Heydon, Crennan and Kiefel JJ).
[37]Ibid 48 [51]–[52].
[38]Ibid 32 [5].

The trial judge referred to these well-established principles at some length, citing a series of other authorities to the same effect. The Commissioner’s argument is not that the judge applied the wrong principles, but that he erred in the course of applying the correct principles. For the reasons that follow, that submission should be accepted.

After noting that dictionary definitions were not conclusive and that the word ‘pay’ was context-dependent, the judge’s analysis started, uncontroversially, with the statutory definition of ‘paid’. He considered that the definition did not require that payment be in exchange for something else, a feature identified in the dictionary definitions. However, the judge stated that a second feature, being ‘disunity’ between the payee and the payer appeared to remain.[39] He went on to note ‘the critical importance of the source of the distribution being the beneficiary’s own funds’, in the context of an express trust.[40] The ‘essential character of the payments as the return of moneys by way of distributions under an express trust’ was ‘incompatible with the distributions being “payments for or in relation to the performance of work”’.[41]
[39]Reasons [29].
[40]Ibid [36].
[41]Ibid [40].

The judge later described the ‘overall scheme and structure’ of the Act as being ‘concerned with the imposition of tax upon wages and the passing of money which resembles wages rather than upon the transfer of legal title in money to the holder of the beneficial interest’.[42]
[42]Ibid [45].

The critical question in the present case was whether the relevant amounts were ‘taken to be wages’ by the contractor provisions. Those provisions, like other provisions concerning the meaning of ‘wages’, apply to amounts which have been ‘paid’, or which are ‘payable’. Where the deeming provisions do not apply, the question is whether the wages are remuneration, salary, commission, bonuses or allowances paid or payable to an employee: s 13(1). Under the contractor provisions, the issue is relevantly whether an amount is paid or payable by an employer (including a person taken to be an employer) ‘for or in relation to the performance of work’. In both contexts, the Act operates upon flows of money. The question is whether it does not operate on such a flow in circumstances where the recipient of the money is already the beneficial owner of that money before receiving it.

The Commissioner submitted that a broad operation should be given to the contractor provisions, given their anti-avoidance purpose. The respondents submitted that, as deeming provisions, they were to be construed strictly. Neither submission should be accepted. There are no different rules applicable to taxing statutes.[43] Of course, the fact that the contractor provisions are plainly intended to subject to payroll tax payments that would not otherwise fall within the definition of ‘wages’ forms part of the statutory context in which the present question arises.[44] But that is of reduced significance in circumstances where the word ‘paid’ is used throughout the legislation. Even if that were not the case, it is not helpful to attach special significance to the suggested character of the provisions as ‘deeming’ provisions. In truth, the provisions are part of the scheme for defining the statutory concepts of ‘wages’, ‘employers’ and ‘employees’ and determining what payments are subject to tax. They are not creating a legal fiction which might warrant adopting a confined construction.[45] They are simply one part of an elaborate set of definitions.
[43]Alcan (2009) 239 CLR 27, 49 [57] (Hayne, Heydon, Crennan and Kiefel JJ).
[44]Mayne Nickless [1989] VR 878, 882–3 (Murphy J, with Gobbo and Phillips JJ agreeing). The observations in that case do not go beyond identifying the anti-avoidance purpose of the contractor provisions and the ‘wide net’ that is cast in that connection. The Court did not take the further step of calling for a ‘broad’ construction of the provisions. In any event, it was interpreting provisions of the Accident Compensation Act 1985 which had been translated from the payroll tax legislation.
[45]Cf Wellington Capital Ltd v Australian Securities and Investments Commission (2014) 254 CLR 288, 314 [51] (Gageler J).

Under the scheme, ordinary expectations of what constitute wages are of limited relevance. For example, amounts are capable of being ‘wages’ without there being an obligation to pay (in the case of bonuses) and in some circumstances where the source of the payment is a third party: s 46. The contractor provisions are perhaps the most prominent example of the manner in which the statute creates its own conception of what are ‘wages’. Those provisions contain detailed exceptions to the definition of ‘relevant contract’, in s 32(2). As noted, the contractor provisions operate by reference to the notion of amounts ‘paid or payable … for or in connection with work’. In this last respect they resemble the general definition of ‘wages’ in s 13(1), which contains tests such as whether a payment is ‘attributable to labour’, ‘by way of remuneration’ or ‘by way of commission’.

At no point does the statute articulate as a relevant inquiry whether the flow of money in question is beneficially owned by the recipient. As the judge recognised, any such inquiry can arise only if the words ‘paid or payable’ are read as implying that limitation. With respect to the judge, we do not think that they can.

The words ‘for or in relation to the performance of work’ specify that it is a connection between the amount provided and the performance of work which provides the criterion by which the provision of that amount is, or is not, taken to be wages. No other test is posited. In that context, there is no reason why ‘paid or payable’ does not mean simply the provision of money. The definition in s 3 expressly states that ‘paid’, in relation to wages, includes their provision. That reading is consistent with the ordinary meaning of the word. To read the word as being subject to a requirement that what is provided does not belong to the recipient is to assume a legislative intention which is not anchored in the statutory text or any identified context.

In circumstances where the whole notion of ‘wages’ is the result of a complex statutory scheme, it cannot be imputed to the legislature that it did not intend to treat as wages amounts paid to a person beneficially entitled to receive those amounts. It is not pertinent to ask whether the amounts resemble wages in the ordinary sense, because the term as used in the Act is a statutory creation whose content is explicitly set out in detailed provisions. In that context, when the statute states that the provision of money is a payment, it should be given that operation.

The ordinary meaning of ‘payment’ readily embraces a payment of money to a person beneficially entitled to that money. When the entitlement is recognised and the money is provided to the person, it has been ‘paid’ to that person. That is so, whether the money is provided in cash or from a bank account. But in the latter case, it is especially clear that the money has been provided, and therefore ‘paid’, from one person to another, notwithstanding that the payer was obliged to make payment because the payee had a beneficial entitlement to the money. If the payer refused to do so, as a matter of ordinary language the beneficial owner could rightly insist that he or she be ‘paid’ their money.

Assuming, as the Tribunal and the judge found, that the optometrists in the present case beneficially owned the moneys transferred to them by way of reimbursement amounts, those amounts when transferred were therefore ‘paid’ within the meaning of the Act.

It follows that proposed grounds 2 and 3 should be upheld. The result is that the appeal should be allowed.

The remaining grounds assume that the trial judge’s construction of the words ‘paid or payable’ was correct but contest the application of that construction in favour of the respondents, based on the facts of the present case. In that sense they are alternative grounds upon which the Commissioner seeks to uphold his assessments (as amended). However, for the sake of completeness it is convenient to deal briefly with these grounds.

Proposed ground 4

The fourth proposed ground contends that distributions to the beneficiary of an express trust are not distributions of moneys beneficially owned by the beneficiary. The Commissioner submits, in particular, that the existence of the trustee’s right of indemnity and the requirement that optometrists submit timesheets, which needed to be approved before payment was made, indicated that it could not be said that the optometrists had a beneficial entitlement to the moneys held by the trustee by way of consultation fees (or, more relevantly, to that part of the moneys not required to meet the optometrists’ obligation to pay the occupancy fee).

As to the first aspect of the argument, it is not controversial that a trustee’s right of indemnity (whether in the nature of a right of exoneration or a right of recoupment from the trust property) is a proprietary interest in the trust property and that it may be satisfied in priority to the equitable interests of the beneficiaries.[46] It is less clear whether that right had any content in the present case. The only circumstance to which the Commissioner pointed in which a trustee’s indemnity might arise concerned the obligation of the trustee to pay GST to the Federal Commissioner of Taxation in respect of the occupancy fees it charged the optometrists. However, there was no finding in the Tribunal that such payments were made in the execution of the trusts. The obligation is provided for in the agreements in terms which recognise that the GST expense will be borne by the optometrists but which also imply that this is a contractual matter distinct from the occupancy fee. The agreements stated in cl 2(vii):

(vii)The balance remaining of fees collected for Optometric Services after payment of the Tenant’s remuneration shall be kept by the Landlord as payment for the Landlord’s Business Premises occupancy fee. GST shall be added by the Landlord to the occupancy fee and charged to the Tenant by the Landlord. The Landlord shall issue a tax invoice to the Tenant for the value of the occupancy fee.

[46]Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, 369–70; Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226, 246 [49]; Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2009) 239 CLR 346, 358–9 [43]; Carter Holt (2019) 93 ALJR 807, 819–20 [32] (Kiefel CJ, Keane and Edelman JJ), 828 [80] (Bell, Gageler and Nettle JJ), 839–40 [136]–[138] (Gordon J); [2019] HCA 20.

There is no provision for the GST to be deducted from the reimbursement amount. Rather, the language suggests that this amount is paid to the optometrist and that the trustee then retains the balance as the occupancy fee and separately charges the tenant for the payment of the GST.

The better view is that the obligation to pay GST arose in the course of the trustee’s business operating its various retail premises, and not in execution of the trust. The receipt of the occupancy fee, while made from the moneys held on trust, was done in satisfaction of the trustee’s contractual arrangements with the optometrists and the agreements contain no suggestion that the trustee could recover GST on such amounts from the funds it held for the optometrists.

There being no other basis suggested for limiting the optometrists’ beneficial interest in the trust moneys by reference to the trustee’s right of indemnity, this aspect of the Commissioner’s argument must fail.

As to the second aspect of the argument, concerning the requirement that timesheets be submitted and approved before the optometrists could be said to have any beneficial entitlement to the trust funds, in our opinion this argument does not avail the Commissioner either. The position of the optometrists before amounts are paid to them under the agreements is not relevant. The point is that, at the times when they were actually paid, the amounts were held by the trustees on terms that required that they be paid to the optometrists. Those terms cannot be viewed as merely contractual. The holding of the consultation fees in trust was stated in cl 2(iii) to be in consideration of the landlord agreeing not to hold a security deposit or bond, and the obligation to pay the reimbursement amount went to the heart of the trust obligation.

The Commissioner pointed to the possibility that, by operation of the loan accounts in connection with the location attendance premiums, it could not always be said that a reimbursement amount was paid from trust moneys rather than to offset a loan from the trustee. But such accounting considerations do not detract from the above conclusion that the reimbursement amounts were payable from a fund impressed with a trust for that purpose.

For these reasons, while leave to appeal on proposed ground 4 should be granted, the appeal does not succeed on that ground.

Proposed ground 5

The final proposed ground contends that the judge erred in his treatment of three authorities which he distinguished, in the course of finding that the optometrists had a continuous and ongoing entitlement to the moneys held on trust. Those cases may be briefly described.

Murdoch was a decision of the High Court concerning the liability to payroll tax of an employer who, in the capacity of trustee, made payments to employees from a discretionary trust. The trust conducted the business and provided for payments to employees, at the trustee’s discretion, from a proportion of net profits. A majority of the Court held that the payments were bonuses paid to employees ‘as such’.[47] The case is of very limited relevance to the present one. The judge rightly observed that the Court in Murdoch was not addressing the question whether the flow of money to an employee beneficiary was a ‘payment’.[48]
[47](1980) 143 CLR 629, 640 (Stephen J), 644–5 (Mason, Murphy and Wilson JJ).
[48]Reasons [34]–[35].

Looking beyond that question to the treatment of the particular payments as taxable, the Commissioner points out that the case shows that payment under a discretionary trust may be treated by the Act as a payment to an employee by an employer. However, that does not materially advance the question whether such a result might follow under the quite different arrangement here, where not only is the trust not discretionary but the funds have been paid into the trust at the direction of the putative employee. On no view was the money distributed in Murdoch the employees’ own money, which is the point upon which the judge distinguished the case.

Newcastle Club was about the liability to income tax of payments made by a club to its employees by way of Christmas bonuses. The source of the payments was a fund to which club members contributed. The question was, again, whether the amounts had been paid to employees ‘as such’. In the Federal Court, Hill J applied Murdoch to find that, even assuming that the moneys were trust moneys, they were paid to the employees by virtue of the employment relationship and the services they had provided.[49] The fact that the moneys were sourced, not from the operations of the employer’s business, but from members’ donations, did not mean that the reasoning in Murdoch did not apply.[50] The observations already made about the relative lack of utility of Murdoch in resolving the present case apply equally to Newcastle Club. It may be accepted, as the Commissioner submitted, that the case does show that the source of the payment is not the critical determinant of liability. However, that is of limited assistance, because it is clear that the source remains relevant and the cases do not downplay its potential significance as a factor, albeit one among many, in determining whether an amount is ‘paid or payable … for or in relation to the performance of work’.
[49]Newcastle Club (1994) 53 FCR 1, 7–8.
[50]Ibid.

Freelance Global was the only one of these cases dealt with by the Tribunal. It involved an organisation that provided services to independent contractors who wished to provide their services to third parties. The company contracted with the third parties as clients and agreed to provide them with services without guaranteeing that a particular person would do the actual work. The company invited independent contractors to become beneficiaries of a discretionary trust. When the company invoiced its clients, it passed on the amounts received, less an agreed fee, to the individual contractors. Those payments were treated as advances from the trust fund. The trust deed gave the company a discretion as to whether it distributed any, and if so what, amount to the beneficiaries. In practice, the amount distributed matched the advances during the course of the year and the two sums were set off.

The case largely concerned the ‘employment agency contract’ provisions of the Payroll Tax Act 1971 (NSW), which correspond to ss 37-42 of the 2007 Act. However, White J also found that the arrangements fell within the contractor provisions, also corresponding to those in the Victorian legislation.[51] Both the Tribunal and the trial judge distinguished this case from the present on the basis that the contractors had no entitlement to payment unless and until the trustee determined to make a distribution, whereas in the present case the optometrists were having their own money returned to them. The Tribunal applied that reasoning in respect of the whole phrase ‘paid or payable … for or in relation to the performance of work’ whereas the judge treated it as going only to the question of ‘payment’.[52]
[51]Freelance Global [2014] NSWSC 127 [130], [173], [179].
[52]Tribunal Reasons [105]–[109]; Reasons [38].

In the end, none of these cases addressed the meaning of ‘paid or payable’ and each of them turned on facts different to the present arrangement. To the extent that the Commissioner sought to deploy them to show that, notwithstanding the continuous pre-existing equitable interest of the optometrists, the amounts they received by way of net consultation fees could still be ‘paid or payable’, the decisions were of little value. That argument was either good or bad, based on wider considerations of statutory interpretation and trust law, in which these cases did not assist.

We would refuse leave to appeal on this proposed ground.

Conclusion

For the above reasons, leave should be granted on proposed grounds 2, 3 and 4 and the appeal must be allowed. The Commissioner initially sought the remittal of the six matters to the Tribunal for rehearing, confined to the question whether the amounts in question were ‘paid or payable’ (the judge having determined that, if they were, they were ‘for or in relation to the performance of work’). However, at the hearing in this Court, senior counsel for the Commissioner accepted that, if the matter were to be reheard, the whole issue whether the amounts were ‘paid or payable … for or in relation to the performance of work’ ought to be decided by the Tribunal, on the basis that it may be problematic now to split that issue into two separate matters. Counsel for the respondents joined in that submission.

We were initially inclined to proceed on this basis, remitting to the Tribunal to determine according to law the question whether the amounts in issue were ‘paid or payable for or in relation to the performance of work’ within the meaning of s 3C(2)(c) of the 1971 Act or s 35(1) of the 2007 Act. However, on further reflection we do not consider this to be an appropriate disposition of the appeal as the Tribunal would be faced with the difficulty of being required to determine afresh a question on which the primary judge has already expressed a concluded view. No challenge has been made to the judge’s finding that, if the distributions were ‘payments’, then it was ‘plain’ that they were ‘for or in relation to the performance of work’.[53] Moreover, the respondents have not contested the judge’s conclusion that, if the distributions were assumed to be payments, there was no basis for distinguishing them from the location attendance premiums.[54] In that regard, it will be recalled that the Tribunal held that the latter amounts were payments for or in relation to the performance of work because the services for which the optometrists were paid were the services provided to the trustee (and the patients) which caused the agreements to be relevant contracts.
[53]Reasons [54].
[54]Ibid [55].

In these circumstances, we see no basis for remitting to the Tribunal the question whether the distributions were ‘for or in relation to the performance of work’. Nor, subject to anything the parties may wish to say, do we currently see any utility in having the Tribunal reconsider the ‘paid or ‘payable’ question. That is because we perceive no basis, at present, upon which it could be said that the distributions in question were not amounts ‘paid or payable’ as we have construed that expression. However, since the Commissioner did not seek a determination of that issue in this Court we will give the parties an opportunity to make submissions, if so advised, on that point and the relief that should follow.

In the circumstances, we will order that the orders of the Tribunal be set aside. We will direct the parties to submit draft orders, and submissions (if necessary), as to the consequential orders that should be made. We will also direct the parties to make any submissions as to costs (in the Court and the Tribunal). We encourage the parties to reach agreement on these matters, but propose in any event to deal with all outstanding issues on the papers.

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SCHEDULE OF PARTIES

FIRST RESPONDENT:	THE OPTICAL SUPERSTORE PTY LTD AS TRUSTEE FOR OS MANAGEMENT S TRUST
SECOND RESPONDENT:	MARGARET DOUGLAS AS TRUSTEE FOR THE DOUGLAS FAMILY TRUST
THIRD RESPONDENT:	THE OPTICAL SUPERSTORE PTY LTD AS TRUSTEE FOR NAME & PATIENT Q TRUST
FOURTH RESPONDENT:	THE OPTICAL SUPERSTORE PTY LTD AS TRUSTEE FOR OS NAME & CLIENT TRUST
FIFTH RESPONDENT:	THE OPTICAL SUPERSTORE PTY LTD AS TRUSTEE FOR THE OPTICAL PRODUCTS TRUST
SIXTH RESPONDENT:	CELESTIAL INHERITANCE PTY LTD
SEVENTH RESPONDENT:	MARGARET DOUGLAS AS TRUSTEE FOR THE CELESTIAL INHERITANCE FAMILY TRUST
EIGHTH RESPONDENT:	CELESTIAL INHERITANCE PTY LTD AS TRUSTEE FOR THE CELESTIAL INHERITANCE INVESTMENT TRUST
NINTH RESPONDENT:	OPTOM ADMIN PTY LTD AS TRUSTEE FOR BUSINESS ADMIN TRUST
TENTH RESPONDENT:	IAN NOEL MELROSE AS TRUSTEE FOR IO BUSINESS UNIT TRUST

Citations

Commissioner of State Revenue v The Optical Superstore Pty Ltd as trustee for Os Management S Trust & Ors According to the Attached Schedule [2019] VSCA 197

Most Recent Citation

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Commissioner of State Revenue v The Optical Superstore Pty Ltd [2018] VSC 524

Scott v Federal Commissioner of Taxation [1966] HCA 48

Official Receiver v Federal Commissioner of Taxation (Fox's Case) [1956] HCA 63

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[2019] VSCA 197

12 September 2019