Macsif Pty Limited v Chief Commissioner of State Revenue

[2007] NSWADT 116

CITATION:	Macsif Pty Limited v Chief Commissioner of State Revenue [2007] NSWADT 116
DIVISION:	Revenue Division
PARTIES:	APPLICANT Macsif Pty Limited RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	066137
HEARING DATES:	29 May 2007
SUBMISSIONS CLOSED:	29 May 2007
DATE OF DECISION:	1 June 2007
BEFORE:	Block J - ADCJ (Judicial Member)
CATCHWORDS:	Pay-roll tax - apprentices
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Apprenticeship and Trainee Act 2001 Pay-roll Tax Act 1971
CASES CITED:	Chief Commissioner of State Revenue v Incise Technologies [2004] NSWADTAP 19 Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21
REPRESENTATION:	APPLICANT A G Hocquard, accountant RESPONDENT S Free, barrister
ORDERS:	The decision under review is affirmed

Part A Introduction and General.

1 The decision which is under review in this matter relates to the financial years ending 30 June 2000, 30 June 2001, 30 June 2002 and 30 June 2003 (which are collectively referred to as "the relevant years"). In respect of the relevant years the Respondent issued assessments under the Pay-roll Tax Act 1971 ("the PRT Act ") in that the Applicant had not paid payroll tax in respect of trainees and apprentices. The Respondent included in his assessments interest, but confined to interest at the market rate, and thus not including premium rate interest. The Applicant objected to those assessments but only to those amounts which related to wages paid to apprentices. The Applicant at that time accepted that tax had been properly charged in respect of trainees; accordingly the Applicant paid that part of the assessments which related to the trainees. The objection was lodged outside the statutory time limit but the Respondent nevertheless decided to deal with it on the basis that it had been lodged within time. The objection was disallowed on 28 September 2006 and the Applicant (originally) sought a review of the decision by the Respondent to impose payroll tax in respect of apprentices in respect of the relevant years.

2 The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act 1997. Both parties furnished written submissions. The Tribunal admitted exhibits as follows: -

Exhibit A1 is an affidavit by Michael John Wisemantel dated 5 March 2007

Exhibit A2 is an affidavit by Kevin Patrick Peters dated 6 March 2007

Exhibit A3 is an affidavit by Andrew George Hocquard (who appeared for the Applicant in these proceedings) dated 6 March 2007

Exhibit A 47 is an affidavit by Andrew George Hocquard dated 7 March 2007

Exhibit A5 is a document entitled "July 1999 to May 2000 NSW payroll tax monthly remittance slips”

Exhibit A6 is a document entitled “June 1999 NSW payroll tax annual reconciliation”.

Exhibit R1 is an affidavit by Diane Riddle of the New South Wales Department of Education and Training dated 28 May 2007, and which contains a detailed analysis and description of the manner in which group apprenticeship schemes are set up and managed

3 In respect of all the exhibits, which are affidavits, the relevant witness was not required for cross-examination. .

Part B The law and the dispute

4 It is clear that the Applicant did not pay pay-roll tax in respect of wages paid to apprentices during the relevant years. During the relevant years the Applicant calculated its pay-roll tax liabilities on the assumption that the wages it paid to its apprentices were exempt from pay-roll tax.

5 It is necessary to distinguish between last relevant year and the other relevant years. In respect of all relevant years other than the last of them, pay-roll tax was payable under the PRT Act in respect of the apprentice wages paid by the Applicant, although at reduced rates. Pay-roll tax is payable on all taxable wages, as defined in the PRT Act (sections 6 and 7), subject to various exemptions. The relevant exemptions relating to wages paid to apprentices are contained in s. 10(1)(1), s. 10(1)(m) and s. 10A of the PRT Act.

6 The sections referred to the preceding clause provide:

10 Exemptions from pay-roll tax

(1) Subject to subsections (1A) and (2), the wages liable to pay-roll tax under this Act do not include wages paid or payable:

(l) to an apprentice within the meaning of the Apprenticeship and Traineeship Act 2001,

(m) to an employee who is employed in accordance with a group apprenticeship scheme or a group traineeship scheme approved for the time being by the Secretary of the Department of Education and Training

10A Exemptions from pay-roll tax of wages of apprentices

(1) In this section, apprentice has the same meaning as in the Apprenticeship and Traineeship Act 2001.

(2) The wages liable to pay-roll tax under this Act do not include:

(a) in the case of a first year apprentice (being a person who is recognised by the Department of Education and Training as a first year apprentice under the Apprenticeship and Traineeship Act 2001 ) — 75% of the wages paid or payable to the apprentice, or

(b) in the case of a second year apprentice (being a person who is recognised by the Department of Education and Training as a second year apprentice under the Apprenticeship and Traineeship Act 2001) — 50% of the wages paid or payable to the apprentice, or

(c) in the case of a third year apprentice (being a person who is recognised by the Department of Education and Training as a third year apprentice under the Apprenticeship and Traineeship Act 2001) — 25% of the wages paid or payable to the apprentice.

(3) Nothing in this section affects section 10 (1) (m).

(4) This section has effect in respect of wages paid or payable for services performed or rendered on or after 1 July 1999 and before 1 July 2002.

7 Prior to the commencement of the Apprenticeship and Traineeship Act 2001, the relevant Act governing apprentices (and containing the definition of "apprentice") was the Industrial and Commercial Training Act 1989. For the purposes of this decision there is no relevant difference between the two statutes.

8 Section 10A of the PRT Act, quoted previously in these reasons, contains a partial exemption from pay-roll tax in respect of wages paid to apprentices from 1 July 1999 to 30 June 2002 (s. 10A(4)). The effect of the partial exemption in s. 10A was that pay-roll tax in respect of such wages was calculated on a reduced portion of the wages paid. For wages which are paid (or payable for services performed or rendered) to apprentices on or after 1 July 2002, s.10(1)(1) provides a complete exemption from pay-roll tax; (see in this context the savings and transitional provisions and in particular clause 12 of Schedule 6 to the PRT Act).

9 The Respondent has given the Applicant the benefit of the full exemption in s. 10(1)(1) for apprentice wages paid after 1 July 2002. Accordingly the real issue was as to whether the Applicant was liable for pay-roll tax for wages paid to apprentices in the relevant years other than the last of them. There was never any contention that the apprentices employed by the Applicant during that time were not apprentices within the meaning of the Apprenticeship and Traineeship Act 2001 (or the predecessor to that Act). On that basis the Respondent calculated the pay-roll tax liability for those years based on the reduced rates set out in s. 10A. The Applicant thus received the benefit of the partial exemption provided by section 10A. of the PRT Act. The Applicant however contended (at the commencement of the hearing and for some time thereafter) that it should, in respect of the apprentices, have received a full exemption in respect of the apprentices.

10 Midway through the hearing, and after a brief adjournment to enable it to consider its position, the Applicant withdrew its application in respect of the substantive issue. Put in other words it accepted (albeit belatedly) that tax was correctly assessed in respect of the relevant years in relation to the apprentices. Having regard to that concession it became necessary only to consider whether interest which, as set out previously, been charged at the market rate should be remitted.

Part C Interest

11 In order to determine this remaining issue it is necessary to deal, albeit briefly, with the manner in which group apprenticeship schemes operate. Although Exhibit R1 contains a detailed description I do not consider it necessary to include the content of that exhibit.

12 A taxpayer can employ its own apprentices and where it does so those apprentices are not employed in accordance with a group apprenticeship scheme approved by the Secretary of the Department of Education and Training. In the alternative a taxpayer may be able to obtain the services of apprentices who are employed by a group apprenticeship scheme; where there is such a scheme it is that scheme which is in fact the employer of that apprentice and which is responsible for the apprentice’s entitlements even though the scheme may recover compensation from the taxpayer to the extent of such services as are provided to that taxpayer by an apprentice employed by a group apprenticeship scheme. Such an apprentice may furnish his services to different taxpayers during the course of his apprenticeship.

13 The position in respect of a group apprenticeship scheme is, in other words altogether different from the position where the taxpayer itself employs an apprentice even though in the latter case the apprenticeship contract must be registered and the progress of that apprentice is supervised. Such an apprentice will serve the taxpayer who employed him throughout the period of his apprenticeship.

14 The Applicant referred in particular to a (marked) dot point (the fifth) under the heading “Payments not liable” in Exhibit A5 reading as follows:

Wages paid to an employee who is employed under a group apprenticeship scheme or a group traineeship scheme approved by the NSW Department of Education and Training. In such schemes indenture papers are held by the scheme and not by the employer.

15 The Applicant referred also to the next succeeding (unmarked) dot point under the same heading in Exhibit A5 reading as follows:

Apprentice wages are reduced for the purposes of the calculation of pay-roll tax on the following basis:
first year apprentice - 75% reduction of the wages paid or payable to the apprentice

second year apprentice - 50% reduction of the wages paid or payable to the apprentice

third year apprentice - 25% reduction of the wages paid or payable to the apprentice

16 Exhibits A1, A2, A3 and A4 are couched in terms which are in some respects similar. Exhibits A1, A3 and A4 read as follows:

Exhibit A1 (Mr Wisemantel)

1. At the time of completing the Payroll Tax for Macsif Pty Limited I was lead to believe that I completed the Payroll Tax return in the correct manner in claiming all the Apprentices wages as being exempt of paying payroll tax.

2. I phoned the Office of State Revenue on one occasion to confirm the procedure that I followed and the person informed me that this was correct or mislead me in believing that I was correct.

3. I attended the Office of State Revenue's seminar and was still lead to believe that the procedure I followed was also correct.

4. Every time a question is applied to the Office of State Revenue they never answer in layman's terms but answer in jargon that is very difficult to understand or ask you to refer to a certain section on their web site to no advantage.

5. The apprentices indenture papers states that they are lodged with the NSW Department of Education & Training. This to me says that it is lodged with a department of the NSW Government. This being the case it leads us to believe that we are able to claim the apprentices wages as an exemption.

Exhibit A3 (Mr.Hocquard)

I discussed with Kevin Peters, director of Macsif Pty Limited (hereafter referred to as "the company"), application of the term "group apprenticeship scheme" with respect to payroll tax on wages of apprentices employed at the company and related company Valley-Ag & Tractors Pty Limited which together form a "group" for the purposes of calculating payroll tax.

1 stated that the annual booklet containing the new years' monthly remittance slips, and software for both the past year and new year, contained a statement which quotes, with reference to "group employer scheme", "in such schemes, indenture papers are held by the scheme and not by the employer."

During the course of our conversation Mr Peters said that the originally signed indenture document was sent to the Department of Education and Training and the company kept one of the carbon copies. He also said that the company was not allowed to terminate the employment of an apprentice unless approval was obtained from the Department of Education and Training.

In a subsequent year, I telephoned the Office of State Revenue (hereafter referred to as "OSR") Newcastle office with respect to apprentices and the application of payroll tax.

I asked about the reduction of wages for different level apprentices. The OSR officer stated that this was correct and stated the procedure similarly to that described in the OSR Annual Reconciliation booklet.

I then asked about the group apprenticeship scheme and the payroll tax exemption. The officer stated that such a scheme resulted in an exemption for payroll tax to the extent of an apprentice's wages.

I made remarks regarding indenture papers being held by the scheme and that the company only held copies. The officer did not contradict me. The officer did not make any statement regarding any other procedure required or performed by the company, OSR, or any other organisation or government department which would allow the company to claim the group apprenticeship scheme exemption.

Exhibit A4 (Mr. Hocquard)

In the objection lodged with the Office of State Revenue relating to this claim, I referred to the Payroll Tax 2000 Annual Reconciliation.

I was intending to forward copies of this document as evidence. However, I am unable to locate it at this time to send within the required lodgement period.

I also do not currently have copies of subsequent years' booklets, however, the practice of OSR sending information with computer software by post ceased in either of the 2002 or 2003 years at which point the process was completed online.

The paragraphs relied upon as evidence of the Payroll Tax calculations over these years did not change and no further information was added to clarify or correct my understanding of this matter.

17 The deponent in respect of exhibits A3 and A4 was Mr Hocquard who is an accountant and who (as set out previously) represented the Applicant in these proceedings. He made a number of statements from the bar table which might perhaps be construed as evidence. He said that he and Mr Wisemantel both attended seminars (different seminars) and both made telephone calls to the Respondent. He initially made a call about four or five years ago to a female employee of the Respondent in the Respondent's Newcastle office. Mr Hocquard did not remember her name and he said that he was hazy about the discussion. He did say though that he asked her about the difference between ordinary apprentices and scheme apprentices in the context of payroll tax. He said, "I did not think that she was too helpful. She did not refer me to where I could get help. I tried to get help from her but she couldn't give it."

18 Mr Hocquard went on to say that he did not seek assistance from a more senior official in the Respondent's officers or for that matter makes any other efforts to ascertain the correct position.

19 In March 2005 the Respondent required the completion of a questionnaire, which resulted in the assessments. After receiving the assessments Mr Hocquard contacted a female employee of the Respondent (in his Parramatta office) and she in turn referred him to Mr Kerry Watkins with whom he had a conversation "prior to June 2006". He said that after the conversation "got vigorous", Mr Watkins said that it was only a registered group scheme, which conferred a complete exemption. Mr Watkins said also that it was not possible to "put all the information in a book."

20 Exhibit A1 (by way of one example) sets out that Mr Wisemantel attended a seminar and that he also on one occasion spoke to a person in the Respondent’s employ from whom he obtained information which was not correct. (See clause 2 of Exhibit A1). Exhibit A1 is sparse as to dates and other relevant detail. Much the same can be said of Exhibit A2, A3 and A4.

21 Mr Hocquard contended that the two dot points in exhibit A5 quoted previously in these reasons are misleading or inadequate in that they do not sufficiently inform taxpayers as to the position in respect of apprentices. I do not agree that the dot points are misleading or inadequate as contended by Mr Hocquard. In any event it was always open to him (and he is after all a qualified accountant) to ensure (if he was in any way unsure) that he was correctly informed; as just some course of action open to him he could have sought a ruling; he could have obtained legal advice, or he could have researched the law himself. He took none of these steps.

22 Interest was, as set out previously charged at the market rate only. In Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 at [24]-[29] Mr. A Verick a judicial member of this Tribunal said:

"24 The interest regime found in the TA Act is essentially designed to promote compliance of the relevant taxation laws. The interest regime also promotes equity between the taxpayers who meet their taxation. obligations on time and taxpayers who do not meet such obligations as and when required by law. In addition it compensates the state for loss of use of funds.

25 The market rate component would reflect the use by the party in question of the relevant amount of money on one hand, and the lack of use of the relevant funds by the state on the other. But the fixed premium rate component is a rate imposed by way of a penalty for the 'tax default' in question. A premium rate of interest is imposed where a 'tax default' is a result of some culpable conduct on the part of the taxpayer. The Chief Commissioner can also impose a penalty tax under s 26 of the TA Act in cases where more serious tax defaults occur due to deliberate conduct of taxpayers.

26 Different considerations should apply when applications for remission of market rate or premium rate interest are determined by the Chief Commissioner. In considering applications, the Chief Commissioner, of course, needs to take into account all the facts of each individual case.

27. In cases where an amount of interest is imposed by the application of the market rate, only exceptional circumstances would justify any remission. The narrow category of circumstances would include cases where the 'tax default' is entirely due to a fault of the Chief Commissioner. Other circumstances would include situations completely out of the control of the taxpayer, such as postal strikes, serious illness of the taxpayer and natural disasters (bush fires, floods and earthquakes)

28 On the other hand, a wider range of circumstances would be available to justify a remission of the premium rate interest. Cases where, as was the case in the present matter, there has been a change in ownership of a property and the lodgement of an “Initial Return” was not made due to some confusion as to its lodgement.

29 In the present matter, the agents of the taxpayer did take reasonable care in making inquiries with the Chief Commissioner's office about the initial return but due to some 'confusion' as to who was responsible to lodge the return there was a delay in lodging the initial return. There were clearly, circumstances to support a remission of the premium rate interest imposed in this case. The Chief Commissioner has correctly at the objection stage made a full remission of the of premium rate interest that was imposed when the original assessment was made."

23 In Chief Commissioner of State Revenue v Incise Technologies [2004] NSWADTAP 19 the Appeal Panel considered the circumstances in which it is appropriate to impose premium component of interest and considered the different objects served by the market rate and premium components of interest: It said in clause 60:"60 In our view the primary interest rate (the market rate component) is intended to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due. So a rate is set which fluctuates, and is connected to an external rate, the Reserve Bank's Accepted Bill rate. This, as we see it, is a component that could rarely, if ever, be waived, as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time. The Tribunal made the observation at (50j that to justify any remission of the market rate component of interest, it would be necessary to show that in some way the Commissioner contributed to the default. We agree with this observation."

24 Although it is perhaps arguable that the two dot points in Exhibit A5 previously referred to in these reasons might perhaps have been couched in language which was more explicit it cannot be said that it was couched in terms which entitle the Applicant to complain that it was deceived. The two dot points make it clear that a full exemption was available only in the context of a group apprenticeship scheme and that in respect of other apprenticeships a variable rate reduction is allowed depending on the year of service. The two dot points coupled with the evidence presented do not even remotely amount to conduct on the part of the Respondent, which was such that it could be described as a default by him. There were not on any basis exceptional circumstances as required by the decision in Trust Co (supra) or (as set out previously) default by the Respondent within Incise (supra). On the contrary it might be said that the Applicant chose to turn “a Nelsonian blind eye” to the fact that apprentices outside a group apprenticeship scheme are within the tax net although on a reduced basis. The Applicant was informed in precise terms during the hearing, and more than once, that there can never be an estoppel against the operation of the law.

25 It follows then that this is not a case in which interest can or should be remitted. As set out previously and following the concession made at the hearing as to the substantive issue, interest at the market rate remains the only issue and it must be decided against the Applicant; accordingly the decision under review must be affirmed.