ML Griffiths and RD Griffiths and RJ Griffiths and Commissioner of Taxation

[2009] AATA 482

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 482

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/4055

TAXATION APPEALS   DIVISION		)
Re		M.L GRIFFITHS & R.D. GRIFFITHS & R.J. GRIFFITHS

Applicant

And COMMISSIONER OF TAXATION  

Respondent

DECISION

Tribunal Mr A Sweidan, Senior Member  

Date29 June 2009

PlacePerth

Decision The Tribunal affirms the decisions under review  

....(sgd) Mr A Sweidan .

Senior Member

CATCHWORDS

Superannuation - Guarantee Assessments - whether person an employee - whether alleged agreement not to make superannuation contributions effective - whether penalties correctly imposed - decisions under review affirmed

LEGISLATION

Superannuation Guarantee Charge Act 1992

Superannuation Guarantee Administration Act 1992

CASES   

Stevens v Brodribb Sawmilling Pty Ltd (1986) 160 CLR 16
Hollis v Vabu (2001) 207 CLR 21
Zuijs v Wirth Brothers Pty Ltd (1955) 93 CLR 561
Humberstone v Northern Timber Mills (1949) 79 CLR 389
World Book (Australia) Pty Ltd v FCT 92 ATC 4372
Queensland Stations Pty Ltd v FCT 70 CLR 539

REASONS FOR DECISION

29 June 2009	Mr A Sweidan, Senior Member
Background

1.      This application relates to objection decisions by the respondent in respect of:

a.Superannuation Guarantee Charge Default Assessments made in respect of the applicant partnership in relation to the years ended 30 June 2001, 30 June 2002 and 30 June 2003 and the quarters ended 30 September 2003, 31 December 2003, 31 March 2004, 30 June 2004, 30 September 2004, 31 December 2004, 31 March 2005 and 30 June 2005 pursuant to s.36 of the Superannuation Guarantee Administration Act 1992 (SGAA).  These were issued to the applicant on 20 June 2007; and

b.assessments for Additional Superannuation Guarantee Charge by way of penalty made under section 59(1) of the SGAA made on 4 July 2007.  These impose additional charge at the rate of 15%.

2.      An objection was lodged by the applicant against these assessments on 23 July 2007 (see T31 and T32).  This was disallowed in full by the respondent on 21 January 2008 (see T42).  The "Reasons for Decision" attached to that decision primarily address the question whether Mr Gronow was an employee of the applicant.

3.      However, the applicant, through their tax agent, lodged a second objection on 15 April 2008.  The reason for this seems to have been a general dissatisfaction with penalties, "nominal interest component" and "administration charge" associated with the above assessments.  That objection was also disallowed in full by the respondent – this time on 21 May 2008.  The attached "Reasons for Decision" to that decision focused on those issues.  The decision (dated 21 May 2008) to disallow that second objection is the decision (according to applicant’s application for review) that the applicant asks the Tribunal to review. However as it initially appeared at the hearing that the applicant sought review of both decisions the Tribunal has with the consent of the respondent reviewed both decisions notwithstanding that in the course of the hearing the applicants’ representative stated that applicant was prepared to pay the amounts of the Default Assessments without penalties.       

Relevant Legislation

4.      By section 3 of the Superannuation Guarantee Charge Act 1992 (SGCA) the SGCA "is incorporated and is to be read as one with" the SGAA.  The effect of this is that terms used in sections 5 and 6 of the SGCA such as "superannuation guarantee shortfall" and "employer" have the same meanings as the corresponding terms used in the SGAA.

5.      Superannuation Guarantee Charge is imposed by s.5 of the SGCA on any "superannuation guarantee shortfall" of an "employer" for a "quarter" (or in relation to the period up to 30 June 2003, a "year").

6.      Pursuant to s.6 of the SGCA the amount of superannuation guarantee charge payable on a superannuation guarantee shortfall of an employer for a quarter (or a "year" in respect of periods up to 30 June 2003) is an amount equal to the amount of the shortfall. 

7.      Pursuant to s.16 of the SGAA the superannuation guarantee charge ("SGC") so imposed is payable by the "employer".  According to s.12 (1) of the SGAA "subject to this section, in this Act, employee and employer have their ordinary meaning".

8.      Although "the applicant" is a partnership the SGAA "applies" in any event "as if a partnership were a legal person" – see s.72 of the SGAA.

Superannuation Guarantee Shortfall

9.      An employer's "superannuation guarantee shortfall" for a quarter (or for a year up to and including 30 June 2003) is defined in s.17 of the SGAA as the total of:

a.the employer's "individual superannuation guarantee shortfalls" for the quarter (or year); and

b.the employer's "nominal interest component" for the quarter (or year); and

c.the employer's "administration component" for the quarter (or year).

Individual Superannuation Guarantee Shortfalls

10.     According to subsection 19(1) of the SGAA an employer's "individual superannuation guarantee shortfalls" for a particular employee for a quarter is equal to the total "salary or wages" paid by the employer to the employee for the quarter multiplied by the relevant "charge percentage" divided by 100.

11.     Subsection 19(2) provides that the "charge percentage" is "9" – except where, pursuant to sections 22 or 23, the employer has made relevant superannuation contributions in respect of the employee in respect of the quarter, in which case the charge percentage would be reduced, depending on the amount of the contribution.  That is not relevant here, however, as it has never been the applicant's case that he has made any relevant superannuation contributions in respect of the years and quarters in question.  The grounds of his objection are limited to an assertion that he was not an employer.

12.     The present subsections 19(1) and 19(2) only apply to quarters beginning on or after 1 July 2003.  They were introduced into the SGAA by Act no.51 of 2002 [Taxation Laws Amendment (Superannuation) Act (No.2) 2002].  Former subsection 19(1) was in similar terms to the present subsection 19(1) except that the "charge percentage" was determined by former subsections 21(3) and 21(6).  The designated charge percentages were 8% for the years ended 30 June 2001 and 30 June 2002 and 9% for the year ended 30 June 2003.

Salary or Wages

13.     "Salary or wages" has its ordinary meaning for the purposes of s.19 of the SGAA.  Essentially it includes any payments made by an "employer" to an "employee" for services rendered by the employee to the employer.  By s.11 of the SGAA it also includes certain payments made for services rendered by persons who come within the various extensions to the definition of "employee" contained in s.12 of the SGAA.

14.     Certain salary or wages are not taken into account for the purposes of s.19.  By section 27(1)(a) salary or wages paid to an employee who is over 70 years of age are excluded.  In the present case neither Mr Gronow nor Kristy McAuley were over 70 at any relevant time.

15.     Pursuant to subsection 27(2) if an employer pays an employee less than $450 by way of salary or wages in a month, the salary or wages so paid are not to be taken into account for the purpose of making a calculation, in relation to the employer and the employee, under section 19.  Without having accessed actual payroll records, the respondent has relied on annual totals of salary or wages for each of Mr Gronow and Kristy McAuley obtained from the relevant PAYG payment summaries issued by the applicant to these individuals.  In each case if one divides the relevant annual total by 12, the result is well in excess of $450 for each worker. 

16.     In calculating the applicant's relevant "individual superannuation guarantee shortfalls" in respect of Terrance Gronow and Kristy McAuley the respondent has relied on the PAYG payment summaries issued by the applicant to each of them.  These amounts are listed in paragraphs 13 and 17 respectively of the respondent's Statement of Facts Issues and Contentions ("SFIC").  These amounts are also shown under "salary and wages" next to the applicant's ABN (17987365645) in each of ST19 to ST26 inclusive, which are extracts from the relevant income tax returns of Terrance Gronow and Kristy McAuley.

17.     In respect of the quarters ended 30 September 2003, 31 December 2003, 31 March 2004, 30 September 2004, 31 December 2004 and 31 March 2005 the respondent has calculated the applicable salary and wages by multiplying Terrance Gronow's relevant yearly salary and wage (i.e. received from the applicant) by the number of days in the relevant quarter and then dividing that amount by 365.  In respect of the quarters ended 30 June 2004 and 30 June 2005 respectively, the relevant salary and wages were determined by subtracting the salary and wages attributed to previous quarters in each year from the total salary and wage for the year.  In that regard see paragraph 20 of the respondent's SFIC.

Nominal Interest Component

18.     The relevant nominal interest components in relation to each relevant quarter and year are set out in column B of the table in para 21 of the SFIC.  As stated in para 27 of the SFIC, pursuant to s.31 of the SGAA the nominal interest component in relation to an employer for a quarter is the amount that would accrue by way of interest on the total of the employer's individual superannuation guarantee shortfalls for the quarter (or year as the case may be) if interest were calculated at the rate applicable under the regulations for the purposes of that section from the beginning of the quarter (or year as the case may be) in question until the date on which superannuation guarantee charge in relation to the total would be payable under this Act.  Pursuant to regulation 7A of the Superannuation Guarantee (Administration) Regulations 1993 (“SPGAR”), “the rate applicable under the regulations” is 10% per annum.

Administration Component

19.     The relevant administration components in relation to each relevant quarter are set out in column C of the table in para 21 of the SFIC.  As stated in para 28 of the SFIC, pursuant to s.32 of the SGAA, for periods beginning on or after 1 July 2003 an employer’s administration component for a quarter is the amount worked out using the formula:

Base Amount + [N x per capita amount]

where:

"base amount" is the amount (if any) prescribed in the regulations.

"N" is the number of employees in respect of whom the employer has an

individual superannuation guarantee shortfall for the quarter.

"Per capita amount" is $20 or such other amount as is from time to time prescribed

No “base amount” is prescribed by the SPGAR. “N” is “1” in respect of all quarters commencing on or after 1 July 2003.  Accordingly, the administration component is $20 for all such periods.

20.     For years ending on or before 30 June 2003 the definition of "base amount" was "$50 or such other amount as is from time to time prescribed".  The definition of "per capita amount" was $30 or such other amount as is from time to time prescribed.  No other relevant amounts were prescribed.

Grounds of Objection

21.     So far as the SG Charge assessments themselves are concerned (i.e. as distinct from the Additional SG Charge assessments made under s.59 of the SGAA) the only grounds of objection appear to be that:

a.as a result of the applicant's assertion that Mr Gronow agreed, as a term of his engagement with the applicant, that he would not be paid superannuation, the applicant had no obligation to make superannuation contributions on his behalf and was thus not liable to superannuation guarantee charge; and

b.Mr Gronow was in any event not an employee of the applicant but rather an independent contractor – this appears from the applicant's responses to the "Principal Questionnaire" (T41) completed by the applicant.

22.     The applicant does not dispute that Kristy McAuley was its employee or that the SG Charge assessments for the years ended 30 June 2001 and 30 June 2002, so far as they relate to her, are correct.

Issues and Tribunal’s Findings

Was Mr Gronow an “employee” for the purposes of the SGAA?

Was Mr Gronow an “employee” according to ordinary concepts?

23.     It is the view of the Tribunal that Mr Gronow was clearly an employee of the applicant at the relevant times.  In that regard the Tribunal refers generally to the Commissioner’s public ruling “SGR 2005/1 – Superannuation Guarantee: who is an employee?” and the authorities cited therein.  According to para 9 of SGR 2005/1 whether a person is an employee of another is a question of fact to be determined by examining the terms and circumstances of the contract having regard to the key indicators expressed in the relevant case law.  Defining the contractual relationship is often a process of examining a number of factors and evaluating those factors within the context of the relationship between the parties.  No one indicator of itself is determinative of that relationship. The totality of the relationship between the parties must be considered. 

24.     If, as found by the Tribunal, Mr Gronow was in fact an "employee" for the purposes of the SGAA then the fact that he might have reached an agreement with the applicant that the applicant need not make any superannuation contributions on his behalf is irrelevant.  The SGAA simply imposes an obligation to pay SG charge if certain conditions are met – in particular if salary or wages are paid to an employee in a relevant period and if no, or insufficient, superannuation contributions are made on the employee's behalf in relation to that period. The parties cannot “contract out” of this obligation.  

25.     The classification of a person as an employee for the purposes of the SGAA is not solely dependent upon the existence of a common law employment relationship.  Relevantly for present purposes the definition also includes a person who works under a contract that is wholly or principally for the labour of the person (subsection 12(3) of SGAA). 

26.     Quoting again from SGR 2005/1 (paras 24 to 28 inclusive)

24. The relationship between an employer and employee is a contractual one. It is often referred to as a contract of service. Such a relationship is typically contrasted with the principal/independent contractor relationship that is referred to as a contract for services.  An independent contractor typically contracts to achieve a result whereas an employee contracts to provide their labour (typically to enable the employer to achieve a result).

25. The Courts have considered the common law contractual relationship between parties in a variety of legislative contexts, including income tax, industrial relations, payroll tax, vicarious liability, workers compensation and superannuation guarantee. As a result, a substantial and well-established body of case law has developed on the issue. There are often many relevant facts and circumstances, some pointing to a contract of service, others pointing to a contract for services.  Whatever the facts of each particular case may be, there is no single feature which is determinative of the contractual relationship; the totality of the relationship between the parties must be considered to determine whether, on balance, the worker is an employee or independent contractor. Stevens v Brodribb Sawmilling Pty Ltd (1986) 160 CLR 16 at 29 per Mason J. The principle that the totality of the relationship between the parties to be considered to determine the nature of the contract at common law was adopted with approval by the majority of the High Court in Hollis v Vabu (2001) 207 CLR 21.

26. Consideration should be given to the various indicators identified in judicial decisions which have considered the employee/independent contractor distinction bearing in mind that no list of factors is to be regarded as exhaustive and the weight to be given to particular facts will vary according to the circumstances.

Terms and the circumstances of the formation of the contract

27. The fundamental task is to determine the nature of the contract between the parties. The terms and conditions of the contract, whether express or implied, in light of the circumstances surrounding the making of the contract, will always be of considerable importance to the proper characterisation of the relationship between the parties. 

28. Contractual arrangements often contain a clause that purports to characterise the relationship between the parties as that of principal and independent contractor and not that of employer and employee. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole - that is, the parties cannot deem the relationship between themselves to be something that is not. The parties to an agreement cannot alter the true substance of the relationship by simply giving it a different label.  If the underlying reality of a relationship is one of employment, the parties cannot alter that fact by merely having the contract state (or have the worker acknowledge) that the worker's status is that of an independent contractor. 

27.     Various indicia of whether an individual is an employee or an independent contractor at common law include:

a.Control – i.e. the degree of control that a person who engages another to perform work can exercise over the latter.

b.Does the worker operate on his own account or in the business of the payer?

c.Whether the substance of the contract is to achieve a specified result;

d.Whether the work can be delegated or subcontracted;

e.Whether the worker bears little or no risk for the costs arising out of remedying defects in carrying out the work;

f.Provision of tools and equipment and payment of business expenses;

g.The right to dismiss the worker;

h.The right to the exclusive services of the person engaged;

i.Provision of benefits such as annual or sick leave;

j.Deduction of PAYG tax instalment deductions from the workers pay.

Control

28.     From the tenor of Rob Griffith's answers to questions numbered 7, 8 and 11 of the "Principal Questionnaire" (see T41) it appears that he is arguing that Mr Gronow was an expert tradesman over whom he exercised little control.  However, in Zuijs v Wirth Brothers Pty Ltd (1955) 93 CLR 561, a decision of the High Court involving a trapeze acrobat engaged by a circus, Dixon CJ, Williams, Webb and Taylor JJ said, at 93 CLR 571-2:

The duties to be performed may depend so much on special skill or knowledge or they may be so clearly identified or the necessity of the employee acting on his own responsibility may be so evident, that little room for direction or command in detail may exist. But that is not the point. What matters is lawful authority to command so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters. Even if Mr. Phillip Wirth could not interfere in the actual technique of the acrobatics and in the character of the act, no reason appears why the appellant should not be subject to his directions in all other respects.

Assuming that the terms of the engagement fixed the character of the act and that from its very nature an acrobatic performance must be executed upon the unhampered responsibility of the performers, that does not remove the relationship from the category of master and servant. There are countless examples of highly specialized functions in modern life that must as a matter of practical necessity and sometimes even as a matter of law be performed on the responsibility of persons who possess particular knowledge and skill and who are accordingly qualified. But those engaged to perform the functions may nevertheless work under a contract of service. In the present case what has been proved in evidence all points to the conclusion that the relation between the parties was that of master and servant. If the power of selecting the person engaged must exist in the master in order that the contract may be one of service, that element was certainly present. If the fact that the remuneration takes the form of wages is a mark of the relationship, that was the case here. If a right in the master to suspend or dismiss for misconduct is something to be looked for, then again there could be little doubt that the appellant was subject to that discipline.

29.     See also the comments of Wilson and Dawson JJ in Stevens v Brodribb (supra) at 160 CLR 35:

In many, if not most, cases it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee. That is not now a sufficient or even an appropriate test in its traditional form in all cases because in modern conditions a person may exercise personal skills so as to prevent control over the manner of doing his work and yet nevertheless be a servant: Montreal v. Montreal Locomotive Works (1947) 1 DLR 161, at p 169. This has led to the observation that it is the right to control rather than its actual exercise which is the important thing (Zuijs v. Wirth Brothers Pty. Ltd. (1955) , at p 571) but in some circumstances it may even be a mistake to treat as decisive a reservation of control over the manner in which work is performed for another.

30.     and Dixon J in Humberstone v Northern Timber Mills (1949) 79 CLR 389 at 79 CLR 404:

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

31.     Mr Griffiths alleges that he did not control how Mr Gronow did his job on a day to day basis and that Mr Gronow "acted using his discretion as an independent contractor" (T41 folio 189 question 7).  He also alleges that he had no control over when Mr Gronow worked or the scheduling of work to be done (see T41 folio 190 question 8).  He also says that Mr Gronow had the right to refuse to do a particular job or task given to him.

32.     Mr Gronow says, however, that he was expected to attend at the applicant's premises every day, Monday to Friday, from 8.30am to 4.30 pm (see witness statement para 10, 16, 27).  He also says that while, for practical reasons (see witness statement para 17) he did printing jobs assigned to him in a particular order, he nevertheless regarded himself as bound to follow Mr Griffiths instructions if a particular job was to be given priority (witness statement para 18).  He also refutes any suggestion that he was able to pick and choose what jobs he would do (see witness statement para 33).

33.     There is also evidence that Mr Griffiths exercised significant control over the quality of what was produced.  At witness statement para 15 Mr Gronow says that he always printed a proof that had to be approved by Mr Griffiths or his son (and partner) Rodney before the final run.

34.     The Tribunal finds that given that it is not disputed that Mr Gronow was engaged on an hourly basis ($15.00 per hour), and that given the yearly amounts that he received from the applicant (see SFIC para 13) he must have actually worked close to 37.5 hours in most weeks (i.e. $15.00 per hour x 37.5 hours x 48 weeks = $27,000) Mr Gronow's version of events is clearly the more credible and is accepted by the Tribunal.

35.     This is also consistent with what Mr Gronow says at para 24 of his witness statement.  If Mr Gronow was not expected to attend every day, Monday to Friday at 8.30am, simply offering him time off in lieu (and not paying him) for working after 4.30 pm or on weekends does not make sense i.e. time off in lieu of what?

36.     An employer paying someone by the hour to be available 37.5 hours per week will require that work be done as directed by the employer.

Does the worker operate on his own account or in the business of the payer?

37.     In this regard see paragraphs 39 to 41 of SGR 2005/1.  The Tribunal finds that all the evidence points to Mr Gronow not operating his own business but rather operating within the applicant's business.  During the periods in question he worked exclusively for the applicant on a full time basis (i.e. 37.5 hours per week) and did not attempt to do printing work for others at the same time.  See witness statement paras 21 and 22.  He exclusively used the applicant's equipment and premises (apart from a few, small, relatively inexpensive hand tools) and had no significant expenses of his own.  He was an integratal part of the applicant’s business or organization.  He was not operating a separate business or organization of his own. 

38.     Mr Gronow was paid a weekly wage by the applicant who recorded the hours he worked and deducted tax and remitted this to the ATO on his behalf.  He did not submit quotes or invoices to the applicant – see Worker’s Questionnaire answer to question 23 – T40 folio 184 and Principal’s Questionnaire, answer to question 27 – T41 folio 194.  If he was truly operating his own business one would expect invoices to be issued.

Whether the substance of the contract is to achieve a specified result

39.     In this regard see para 42 of SGR 2005/1 and the quote contained therein from Sheller JA in World Book (Australia) Pty Ltd v FCT 92 ATC 4372 at 92 ATC 4334;

Undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor.

40.     For example see Stevens v Brodribb - truck owner/driver and "snigger" paid according to the volume of timber delivered to a mill (not employees), World Book (Australia) – encyclopaedia sellers paid only a commission for each set sold (not employees); Humberstone v Northern Timber Mills (1949) 79 CLR 389 – truck owner/driver paid on a weight and mileage basis for each job (not employee); Queensland Stations Pty Ltd v FCT 70 CLR 539 – payment of drover per head of cattle delivered (not an employee).

41.     It follows that the absence of such an undertaking is usually more consistent with an employee and a "contract of service" rather than a "contract for services" with an independent contractor.

42.     All of the evidence points unequivocally to the substance of the contract not being to produce a specified result.  It is not disputed that Mr Gronow was not paid for completing a particular job or jobs but rather by the hour.  He was expected to attend 37.5 hours per week and be available to do whatever printing jobs were requested of him.  As his witness statement shows, he was often sitting around waiting for others to complete preliminary work (see witness statement paras 16, 17 and 19).  Despite this, he still got paid every Friday, for 37.5 hours attended.

43.     The fact that jobs might be unfinished at the end of a week would not affect his right to be paid – see witness statement para 20.

44.     Mr Griffiths concedes that he had the right to terminate Mr Gronow's engagement "early" – i.e. presumably at any time - without Mr Gronow being entitled to claim any damages – see T41 folio 191 question 12.  This is not consistent with the substance of the contract being to produce a specified result.  If that was the case, unless the worker was himself in breach of the contract, one would expect the worker to be entitled to compensation for the loss of the chance to produce the specified result and thus obtain payment.

Whether the work can be delegated or subcontracted;

45.     See paragraphs 47-50 of SGR 2005/1 and authorities cited.  In Stevens v Brodribb at 160 CLR 26 Mason J regarded the fact that Gray, the truck driver, was permitted to employ his son as a driver, as significant and then said:

"The power to delegate is an important factor in deciding whether a worker is a servant or an independent contractor".

46.     Despite Mr Griffiths' answer to question 13 of the Principal Questionnaire (T41 folio 191) and his contrary evidence before the Tribunal, it is clear from his answer to question 14 and his other evidence before the Tribunal that Mr Gronow was expected to personally perform all tasks himself and was not permitted to farm out or sub-contract the work to someone else. 

47.     Mr Gronow confirms this at para 31 of his witness statement.

Whether the worker bears little or no risk of the costs arising out of remedying a defect in carrying out the work;

48.     See para 51 of SGR 2005/1.  A mere employee is not usually responsible for these costs but an independent contractor is.

49.     In his answer to question 26 of the Principal Questionnaire (T41 folio 194) Mr Griffiths conceded that the applicant and not Mr Gronow was responsible for remedying any defective work.  Mr Gronow confirms this – see witness statement para 32.

Provision of tools and equipment and payment of business expenses;

50.     See paras 52 to 57 of SGR 2005/1.  It has been held that the provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor.

51.     Mr Gronow supplied only a few inexpensive hand tools and items of protective clothing to the process.  His work related expenses were insignificant.  Everything of substance – i.e. the premises, printing press etc was provided by the applicant.  He was paid exclusively for his personal services.  There is no element of consideration for the provision of any equipment (i.e. unlike the truck owner/drivers in Stevens v Brodribb or Humberstone v Northern Timber Mills or the incurring of significant expenses by the drover in Queensland Stations Pty Ltd. 

52.     These cases can be contrasted with the decision of the High Court in Hollis v Vabu Pty Ltd 2001 ATC 4508 where bicycle couriers were held to be employees. Although the couriers had to provide their own bicycles, this cost was not considered to be significant enough to make them independent contractors. Mr Gronow’s expenses were very minor and probably not even in the same order as those of the bicycle couriers in Hollis v Vabu.

The right to dismiss the worker;

53.     This is nominated as an indicator that a worker is a mere employee by Wilson and Dawson JJ in their judgment in Stevens v Brodribb at 160 CLR 36.

54.     As noted above, Mr Griffiths appears to have regarded himself as able to dismiss Mr Gronow at any time without compensation – see T41 folio 191.

The right to the exclusive services of the person engaged

55.     See Wilson and Dawson JJ in their judgment in Stevens v Brodribb at 160 CLR 36. Clearly, someone who is in business for themselves is usually free to work for several clients at the same time but that is unusual for an employee. This indicator is related to whether the worker is entitled to delegate or subcontract the work. If the essence of the contract is that it requires the full-time personal services of the particular worker it is difficult to see how he or she could be anything but an employee in most circumstances. Also, it would be very unusual for an employer to allow an employee to work for a competitor at the same time.

56.     All the evidence points to Mr Gronow working exclusively for the applicant from the time that he agreed to work full time for the applicant, which was before 1 July 2000.  The fact that Mr Gronow was effectively paid a fixed weekly wage for much of the 5 year period in question is consistent with this.  In 1999, before he agreed to work full time for the applicant, he concedes that he did work on a casual basis for a few different employers, including the applicant, on a part time/casual basis – see witness statement paras 6 to 8.  But from the point that Mr Griffiths asked him to work full time for the applicant it was no longer possible for Mr Gronow to work for anyone else without terminating his employment with the applicant.

57.     Mr Griffith's assertion to the contrary in his answer to question 10 at T41 folio 190 is implausible in the circumstances.  His assertion that Mr Gronow did other jobs while working for the applicant can only relate to that initial period before he dismissed his other printer "Kim" and asked Mr Gronow to work full time (see Mr Gronow's witness statement paras 5 to 8).

Provision of benefits such as annual or sick leave

58.     Mr Gronow concedes that he agreed with Mr Griffiths, when he first agreed to work on a full time basis, that he would have no entitlement to paid holidays or sick leave.  While this is relevant it is not a decisive indicator.  Casual employees are frequently employed on that basis but they are still employees. 

The withholding and remitting of PAYG tax instalment deductions from the worker’s pay

59.     This circumstance is clearly more consistent with Mr Gronow being an employee rather than a contractor. 

60.     Mr Griffiths, however, says that this came about only because Mr Gronow would not provide him with an ABN and that without an ABN he would have been forced to withhold 47.5% from his pay, which he did not want to do.  In the Tribunal’s opinion this does not ring true.  Mr Griffiths acknowledges that he initially agreed to pay Mr Gronow "$15.00 per hour and pay his tax" – see T32.  The only reason Mr Griffiths would be seeking an ABN from Mr Gronow would be to relieve himself of the obligation to withhold tax from payments made to Mr Gronow - see subsections 12-190(1) and (2) of Schedule 1 of the Taxation Administration Act 1953 ("TAA"). But that was something Mr Griffiths had already agreed to do. The subsequent requests to Mr Gronow for an ABN (if in fact that happened at all) appears to be an attempt by Mr Griffiths to change the agreed terms of the contract after the event.

Extension of the definition of employee in subsection 12(3) of the SGAA

61.     Even if contrary to the findings of the Tribunal on this issue Mr Gronow was not an “employee” under ordinary concepts he was clearly an employee by reason of subsection 12(3) of the SGAA.  In that regard see paragraphs 11 and 64 to 78 of the SGR 2005/1 and the authorities cited therein. Mr Gronow was clearly remunerated either wholly or principally for his personal labour.  It is not disputed that he was required to perform the work personally (he had no right of delegation).  He did not supply any goods, materials or any significant plant or equipment like the drover in Queensland Stations or the truck drivers in Stevens v Brodribb or Humberstone v Northern Timber Mills.  He was also, for the reasons set out above, not paid to produce a specific result but rather by the hour, regardless of whether any specific result was achieved.

Additional Superannuation Guarantee Charge by way of penalty

62.     Pursuant to s.33 of the SGAA an employer who has a superannuation guarantee shortfall in relation to a quarter (or year) is obliged to lodge a superannuation guarantee statement (“SG statement”) with the Commissioner within prescribed periods.  By lodging an SG statement, an employer self assesses his SG charge liability. The applicant failed to lodge any such SG statements despite having SG shortfalls in the above periods.

63.     Pursuant to subsection 59(1) of the SGAA, if an employer fails to provide, when and as required under the SGAA, an SG statement, the employer is liable to pay, by way of penalty, an additional superannuation guarantee charge equal to double the amount of superannuation guarantee charge payable by the employer for the quarter (or year).  The Commissioner is given a general power of remission of the penalty pursuant to subsection 62(3) of the SGAA.

64. An additional administrative penalty obligation arises under subsection 284-75(3) of Schedule 1 to the Taxation Administration Act 1953 (“TAA”). This is 75% of the relevant liability – pursuant to item 7 of the table in subsection 284-90(1) and subsection 284-90(2) of Schedule 1 of the TAA. The Commissioner has a general power to remit that penalty pursuant to s. 298-20 of Schedule 1 to the TAA.

65.     The Commissioner’s Practice Statement Law Administration PSLA 2006/1 provides guidelines to tax officers for remission of these penalties.  The Tribunal agrees with the policy set out in this practice statement generally.

66. In accordance with the suggestion in para 9 of PSLA 2006/1 the administrative penalty that arose under subsection 284-75(3) of Schedule 1 to the TAA has been remitted in full by the Commissioner.

67.     The penalty arising under s.59 of the SGAA (i.e. Part 7) has been partially remitted by the Commissioner in accordance with the table in paragraph 14 of PSLA 2006/1.  The remission of the applicant’s penalty was limited to the equivalent of 15% of the relevant SG charge because:

a.the applicant failed to self assess and voluntarily lodge SG statements;

b.the Commissioner was forced to issue a request for information in relation to the applicant’s SG liability on 22 February 2007 (see T6 and para 23 of the SFIC); and

c.the applicant did not respond to that request for information despite being given a reasonable opportunity to do so - see paras 24 and 26 of the SFIC. 

68.     Mr Griffiths alleges that a response to that request for information was sent but the Commissioner had no record of having received it.  However, in that regard it seems clear that nothing had been received from the applicant on 19 March 2007 – see T4 folio 22 which records a telephone conversation between an ATO officer and Rob Griffiths in which he advises that "the forms" have been passed onto Mr Griffiths' accountant and might take one to two weeks to complete.  Also from the tenor of Mr Griffiths’ letter dated 18 April 2007 (T32) it appears that nothing had been sent by that date either. 

69.     Paragraphs 16 and 17 of PSLA 2006/1 list various factors that could lead to a lower or higher level of remission than that suggested by the table in paragraph 14.

70.     Of the mitigating factors listed in paragraph 17, only the third and sixth dot points call for comment.  Mr Griffiths has asserted that Mr Gronow was a contractor and that the applicant made an honest mistake in fulfilling its obligations.  Mr Griffiths alleges that around 30 June 2000 he was unsure about whether he had any superannuation guarantee obligations in respect of Mr Gronow because of Mr Gronow’s alleged agreement (denied by Mr Gronow) that he did not want any superannuation.  He says that he then consulted his tax agent who suggested he seek advice from the ATO.  Mr Griffiths says that he duly wrote to the ATO in July 2000 seeking clarification but got no reply.  On that basis, he argues, presumably, that he made an honest mistake and/or that he has been misled by the ATO.

71.     Even if that letter was received, the applicant concedes that despite its uncertainty it failed to follow up that letter.  It is clear that the applicant was well aware that it could have SG obligations in that respect as a result of having obtained professional advice from its tax agent and being moved to seek written clarification from the ATO but deliberately chose not to follow this up.

72.     It should be noted also that the applicant has no explanation for its failure to make any superannuation contributions or to lodge an SG statement in respect of Kristy McAuley.

73.     Of the aggravating factors listed in para 16, the first dot point - i.e. that an employer has a history of failing to contribute superannuation for employees, to self assess the liability of SG charge, or to report the liability for SG on time is relevant. 

74.     SG charge default assessments were raised by the Commissioner against the applicant in respect of the years ended 30 June 1996, 30 June 1997 and 30 June 1998 on 19 June 2000 in respect of another employee called Kim Hardy.  No objection was lodged against those assessments.

75.     Mr Griffiths alleged at the time that the shortfall came about because, although he sent a cheque for $1,929.10 covering the applicant's obligations in respect of Kim Hardy from 23 Feb 1996 to 31 April 1997 to Royal & SunAlliance (see Supplementary T docs - ST4 folio 4) on 14 August 1997, that cheque was never presented by Royal & SunAlliance and receipt never acknowledged.  But even if this is accepted, it appears that apart from not following this matter through, the applicant failed to make any contributions at all for Kim Hardy for the period 1 May 1997 to 30 June 1998 in any event – see ST11 folio 12.

76.     In the circumstances, the Tribunal finds that the level of penalty assessed by the Commissioner is justified.

Decision

77.     The Tribunal affirms the decisions under review.

I certify that the 77 preceding paragraphs are a true copy of the reasons for the decision herein of Mr A Sweidan, Senior Member

Signed: ......(sgd) T Freeman...........
  Associate

Date/s of Hearing  16 June 2009
Date of Decision  29 June 2009
Applicants’ Representative      Mr R Griffiths
Respondent’s Representative  Mr R McGrade
  ATO Legal Services Branch