Novus Capital Ltd v Chief Commissioner of State Revenue

[2018] NSWCATAD 72

Civil and Administrative Tribunal

New South Wales

• Amendment notes

Medium Neutral Citation:	Novus Capital Ltd v Chief Commissioner of State Revenue [2018] NSWCATAD 72
Hearing dates:	7, 8, 9, 12, 13 and 14 December 2016.
Date of orders:	29 March 2018
Decision date:	29 March 2018
Jurisdiction:	Administrative and Equal Opportunity Division
Before:	NS Isenberg RFD, Senior Member
Decision:	1. I revoke the Assessments under review in respect of the 2009 to 2014 years inclusive.  2. I direct the parties to bring in short minutes of orders within 21 days of the publication of this decision, reflecting the findings in these Reasons.
Catchwords:	REVENUE LAW – Payroll Tax Act 2007 – Division 7 contractor provisions – grouping - payments to third persons - interest – penalties – evidence of reasonable care – credit of witnesses.
Legislation Cited:	Administrative Decisions Review Act 1997 Corporations Act 2001 (Cth) Evidence Act 1995 (NSW) Income Tax Assessment Act 1997 (Cth) Interpretation Act 1987 (NSW) Pay-roll Tax Act 1971 (NSW) Pay-roll Tax Act 1971 (VIC) Payroll Tax Act 2007 (NSW) Taxation Administration Act 1996 (NSW)
Cases Cited:	B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187 B&L Linings Pty Ltd v Chief Commissioner of State Revenue (NSW) (No. 3) [2007] NSWADTAP 32 Boston Sales and Marketing Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 139 Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788 Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor (RD) [2004] NSWADTAP 19 revised Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184 Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 Ferella & Anor v Chief Commissioner of State Revenue [2014] NSWCA 378 Levitch Design Associates Pty Ltd atf Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215 Re Zuccala Homes Pty Ltd and Commissioner of State Revenue (Victoria) (1994) 94 ATC 2084 Trust Co. of Australia Ltd -v- Chief Commissioner of State Revenue [2002] NSWADT 21
Category:	Principal judgment
Parties:	Novus Capital Ltd (Applicant) Chief Commissioner of State Revenue (Respondent)
Representation:	Counsel: P Afshar (Applicant) M Kimber SC with S Kaur-Bains and T Russell (Respondent)     Solicitors: King & Wood Mallesons (Applicant) Crown Solicitor’s Office (Respondent)
File Number(s):	2016/00377933 (160151 Legacy number)
Publication restriction:	Nil

REASONS FOR DECISION

Background

1. Following an audit, of which the Applicant, Novus Capital Ltd (Novus) was given notice in January 2013, the Chief Commissioner issued payroll tax notices of assessment to Novus on 28 November 2014 for the financial years ended 30 June 2009 to 30 June 2014 inclusive (the 2014 Assessments) (the Relevant Period).

2. On 15 April 2015 Novus objected to the 2014 Assessments. On 12 January 2016 the Chief Commissioner issued an objection determination (the Objection Determination) partly allowing and partly disallowing the objection and enclosed payroll tax notices of assessment dated 11 January 2016 for each year during the Relevant Period (referred to in the Objection Determination as “notices of reassessment”) (the Assessments) replacing the 2014 Assessments.

3. On 9 March 2016 Novus lodged an application with the Tribunal (the Application) seeking a review of the Objection Determination.

Statutory context

4. Payroll tax is a tax imposed by the Payroll Tax Act 2007 (NSW) (the Act) on employers (as defined) in respect of New South Wales wages (as defined) paid during each financial year. If total wages, including interstate wages (as defined) paid by an employer during a financial year, are below the statutory payroll tax threshold for that year, then no payroll tax is payable by that employer.

5. Section 13(1)(e) of the Act provides that “wages” includes any amount taken to be wages by any other provision of the Act. Interstate wages are dealt with below under the heading “Interstate wages”.

6. The Act provides that if employers are part of a group for payroll tax purposes, then only a single threshold deduction applies to the whole group rather than each member of the group benefiting from a separate threshold deduction. Pursuant to s 81 of the Act, the Chief Commissioner may recover the whole of the relevant tax from all or any one of the group members.

7. Division 7 of Part 3 of the Act provides that certain amounts paid or payable during a financial year by a person (taken to be an employer) for or in relation to the performance of work relating to a relevant contract (as defined) are taken to be wages paid or payable during that financial year.

8. The Assessments for each year from 2009 to 2012 comprise amounts for payroll tax, interest and penalties and for 2013 and 2014 specify amounts payable for payroll tax, relating to amounts taken to be wages paid or payable by Novus during relevant years.

Assessments of payroll tax

9. The assessed payroll tax falls into two categories.

1. The first category relates to what the Chief Commissioner asserts is the provision of services to Novus by or on behalf of thirteen individuals and one group of two individuals and one company, collectively referred to as Authorised Representatives (ARs), and payment by Novus to or on behalf of those ARs in consideration for the services and pursuant to relevant contracts under s 32(1).

2. The second category relates to payments made by Novus to Cennlen Pty Ltd (Cennlen). The Chief Commissioner asserts the payments are for the provision of services to Novus by Mr Gooley, a director of both Novus and Cennlen. The Chief Commissioner argued, at [52] – [57] in the Objection Determination and at [302] and [315], that these payments were liable to payroll tax as third-party payments under s 46(2)(b) and ss 6, 7, 8 and 13(1)(b) of the Act.

10. Novus contends in relation to the first category that there were no relevant contracts and even if there were, payments made pursuant to them were exempt under express provisions of Division 7.

11. Novus contends, in relation to payments by Novus to Cennlen, that there is no payroll tax liability, because:

1. Novus and Cennlen were grouped for payroll tax purposes;

2. the payments were not related to work performed by Mr Gooley; and

3. the payments relate to an agreement which predated the Act.

Imposition of interest and penalties

12. The preamble to the Taxation Administration Act 1996 (NSW) (the TA Act) states that it is “An Act to make general provision with respect to the administration and enforcement of the other taxation laws.” Section 4 of the TA Act provides that the Act is a taxation law for the purposes of the TA Act.

13. The TA Act provides for the imposition of both interest and penalties on taxpayers in defined circumstances and is dealt with below under the heading “Liability for interest and penalties”.

14. Novus contends that no interest or penalties are payable and, even if they are, the Chief Commissioner should remit all interest and penalties in full.

Jurisdiction of the Tribunal

15. Section 101(1) of the TA Act empowers the Tribunal to confirm or revoke the assessment, to make an assessment in place of the assessment or other decision to which the application relates, make an order for payment to the Chief Commissioner of any amount of tax that is assessed as being payable but has not been paid, to remit the matter to the Chief Commissioner for determination in accordance with its finding or decision, and to make any further order as to costs or otherwise as it thinks fit.

16. Section 96(1) of the TA Act provides that a taxpayer may apply to the Tribunal for an administrative review under the Administrative Decisions Review Act 1997 (NSW) (the ADR Act) of a decision of the Chief Commissioner that has been the subject of an objection if the taxpayer is dissatisfied with the objection determination.

17. The Application sought a review of the Objection Determination, rather than a review of the Assessments. However, the Tribunal’s review power relates to a decision which has been the subject of an objection, rather than the Objection Determination itself.

18. Section 97 of the TA Act, which empowers the Supreme Court to review a decision of the Chief Commissioner, is in similar terms to s 96. In Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184, Basten JA with whom Giles and Campbell JJA agreed said at [28]:

It is also important to note that the right of review under s 97 is given by reference to the operative decision of the Chief Commissioner and not to a ruling made on an objection. Although the existence of an objection is a necessary precondition to the power of review by the Court, and it is the taxpayer’s dissatisfaction with the determination of the objection which provides standing to seek review, it is the initial decision which is the subject matter of the review.

19. In Ferella & Anor v Chief Commissioner of State Revenue [2014] NSWCA 378, a matter involving a land tax dispute in which the Tribunal’s predecessor, the Administrative Decisions Tribunal, had held “the objection decision under review is affirmed", the Court of Appeal said at [10]:

The Chief Commissioner's decision that should have been the subject of the application for review by the Tribunal was the decision the subject of the objection, that is, the decision to make the assessment of land tax, not the decision on the objection (Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 at [28] and [53]). Nothing turns on this.

20. In the circumstances, and notwithstanding the wording of the Application, this matter is dealt with as if it were an application for a review of the Assessments, being reassessments of the 2014 assessments pursuant to s 9 of the TA Act, not a review of the Objection Determination.

21. In determining the Application, the Tribunal is to decide what the correct and preferable decision is, having regard to the material then before it, including any relevant factual material and any applicable written or unwritten law, s 63 ADR Act.

Material before the Tribunal

22. During the hearing, each party tendered thousands of pages of documents. Some of those documents were tendered as evidence, other documents were withdrawn. Several affidavits filed by Novus were not read and, although Mr Afshar stated during the hearing that those affidavits which were not read, would not be relied on, Novus made several written submissions after the hearing, asserting on numerous occasions, that the Tribunal should have regard to their contents.

23. Each of the parties filed multiple lengthy written submissions after the hearing. Before those submissions were filed, the Tribunal informed the parties that submissions filed after the hearing would replace all written submissions filed before the hearing.

24. Written submissions to which I have had regard, filed on behalf of Novus are:

1. final submissions in chief dated and filed 14 June 2017 (AS). I note that on 21 August 2017, AS supplement AS by the incorporation by reference of certain specific paragraphs from Novus’ written submissions dated 5 December 2016.

2. Novus’ submissions in reply dated 31 July 2017, (ASR).

3. further submissions in reply dated 22 September 2017, (AFSR).

25. Written submissions to which I have had regard, filed on behalf of the Chief Commissioner are:

1. final submissions dated 14 July 2017 (RS).

2. undated submissions filed 4 September 2017, referred to as additional submissions in response to AFSR (RSR).

26. At [14] Novus provided a “document schedule” and described the materials produced by the parties to the Tribunal as:

Exhibit number	Document name	Transcript Reference
A1	FOLDER OF IMPORTANT DOCUMENTS TABBED AND PAGINATED AND COMPRISING 310 PAGES	T5:29
A2	MATRIX OF AUTHORISED REPRESENTATIVES	T8:6
A3	FOUR TABBED AND PAGINATED VOLUMES OF DOCUMENTS	T12:36
A4	FOUR-PAGE DOCUMENT HEADED "NOVUS CAPITAL LTD ROLE PURPOSE STATEMENT MANAGING DIRECTOR"	T108:40
A5	AFFIDAVIT OF RUSSELL KRAUSE SWORN 07/12/16 [incorrectly noted as “R5”]	T160:27
A6	AFFIDAVIT OF ANDREW WALSH DATED 25/07/16	T294:11
A7	AFFIDAVIT OF STEPHEN STREETER DATED 05/08/16	T294:19
A8	AFFIDAVIT OF NICHOLAS KAPES	T294:26
A9	AFFIDAVIT OF WAYNE GOOLEY DATED 06/12/16	T294:31
A10	DOCUMENT ON CHATSWOOD WEALTH MANAGEMENT LETTERHEAD STATED TO BE AN INVOICE NUMBER 1 OF 2014 DATED 15/01/14 ADDRESSED TO ROBERT LU	T336:36
A11	DOCUMENT ON CHATSWOOD WEALTH MANAGEMENT LETTERHEAD STATED TO BE INVOICE NUMBER 1 OF 2011 DESCRIPTION BEING ETRADE BROKERAGE IN THE SUM OF $1,500 DATED 05/01/12 TO ROBERT LU	T337:26
A12	BUNDLE OF PARLIAMENTARY EXTRINSIC MATERIALS	T440:31
A13	SUPPLIER PAYMENT HISTORY	By letter dated 2 May 2017
R1	SECTION 58 DOCUMENTS SEVEN VOLUMES	T93:3
R2	RESPONDENT'S BUNDLE OF KEY DOCUMENTS	T119:37
R3	AFFIDAVIT OF NADYA JUSTINE HADDAD SWORN ON 16/11/16 TOGETHER WITH EXHIBIT NJH1	T126:22
R4	FINANCIAL RECORDS OF THE APPLICANT FOR THE FINANCIAL YEARS ENDING 30/06/04 TO 2008	T144:1
R5	BUNDLE OF NOVUS CAPITAL CORPORATE TRANSACTION DOCUMENTS	T190:22
R6	AUTHORISED AGREEMENTS	T442:8
R7	LETTER FROM CROWN SOLICITOR'S OFFICE TENDERED	T442:21
R8	AGREED STATEMENT OF FACTS	T444:3
R9	NOTICE TO PRODUCE AND RESPONSE	T444:45
R10	15 AUTHORISED REPRESENTATIVE AUTHORITIES AND CERTIFICATIONS	T445:11
R11	EMAILS TENDERED, ADMITTED WITHOUT OBJECTION	T446:21

27. At [11] the Chief Commissioner submitted that a list of affidavits read and not read was set out at Annexure 1 to RS and said:

… During the hearing, because five witnesses for Novus were not available to be cross-examined, namely Messrs Yeo, Swarbrick, Mifsud, Mudd and Ireland, discussions took place as to what the status of their affidavits were that were prepared for the hearing and the documents behind each of the affidavits and statements from those witnesses provided to the OSR during the audit and contained in the Section 58 Documents ... Novus’s counsel told the Tribunal that the body of the affidavits of [these persons] were not read or relied upon. The annexures to those affidavits were tendered on the basis that it was a question of submissions as to what weight, if any, ought to be given to the annexures …

28. Both parties relied on oral submissions by counsel during the hearing.

29. The parties agreed on the facts set out in both Exhibit R8 (AF) and a document of Additional Agreed Facts filed on 12 May 2017 (AAF).

30. On 12 May 2017 the parties also filed a replacement for Exhibit A2 and a “Supplier Payment History” as Exhibit A13.

31. I refer below to relevant aspects of AF, AAF, the replaced Exhibit A2 and the Supplier Payment History where appropriate.

32. As well as considering the written submissions and certain documents in the document schedule, I also considered the transcript of the hearing, which was available to both parties when preparing their written submissions.

33. Some affidavits by witnesses other than the witnesses whose affidavits were not read have been allocated singular exhibit numbers. Affidavits by all other witness are contained in folders of documents referred to in the document schedule.

34. Mr Afshar informed the Tribunal that the affidavit of Mr Krause dated 5 August 2016 which was behind tab 2A volume 4 of Exhibit A3 was not relied on and that affidavit and its Annexures should be removed from the folder. I observe that Novus uplifted the affidavit and annexures and they have not been considered for the purpose of these reasons.

35. On 5 December 2016 the Tribunal received a letter of that date from the solicitors for Novus. With that letter were WG1 (without any of the annexures referred to in that affidavit); a copy of an affidavit by William Mudd made 20 July 2016; and a letter dated 2 April 2015 from John M Kite, to the Office of State Revenue. Mr Kite’s letter states it provides comments in response to an Office of State Revenue (OSR) letter of 27 February 2015. Attached to Mr Kite’s letter was a bundle of documents said to relate to accounts of Novus including summaries of payments by Novus during the Relevant Period. Mr Afshar said at T11.13 he would tender the spreadsheet. Mr Kite’s letter was not separately tendered.

36. In these reasons, unless stated to the contrary:

1. references to paragraphs of written submissions by the Chief Commissioner are to paragraphs of RS;

2. references to written submissions on behalf of Novus are to paragraphs of AS;

3. references to legislative provisions are to provisions of the Act;

4. extracts of documents reproduced in these reasons do not include footnotes from those documents;

5. WG1 and WG2 refer respectively to affidavits made by Mr Gooley on 29 November 2016 and 6 December 2016;

6. the word “year” means “financial year”;

7. the expression “document schedule” refers to the schedule of documents at [14] in AS which is reproduced at [26] above;

8. references to page numbers of oral evidence and submissions preceded by “T”, “TS” or “T/S” are to pages of the transcript of the hearing, and as appropriate to the line number of extracts from relevant pages.

37. Section 36 of the Civil and Administrative Tribunal Act 2013 (NSW) (CAT Act) sets out the guiding principle to be applied to proceedings before the Tribunal. That principle requires the Tribunal to interpret the CAT Act and procedural rules so as to facilitate the just, quick and cheap resolution of the real issues in the proceedings. Having regard to the voluminous documents tendered to the Tribunal, counsel were informed at the commencement of the hearing that they should not assume that any particular page of tendered documents would be considered by the Tribunal unless counsel had expressly referred to the page and given the Tribunal a reason to consider it.

38. Several thousands of pages of tendered documents were not referred to by counsel or the witnesses. The phrases “no evidence” and “no evidence before the Tribunal” in these reasons means that no relevant evidence was brought to the attention of the Tribunal, whether or not such evidence was included in the documents listed in the document schedule.

39. Oral submissions during the hearing and written submissions AS, ASR, AFSR, RS and RSR have been considered and are referred to in these reasons as appropriate.

Onus

40. Section 100(3) of the TA Act states “The applicant has the onus of proving the applicant’s case in an application for review.”

41. Novus conceded its statutory onus at [25] but sought to limit the onus at [26] and [27] by submitting:

26    Novus is not required to prove each fact that underlies its contentions in relation to the application of the Contractor Exemption and, importantly, the 90-day Exemption. … any approach to the contrary would place an undue burden on Novus, the respondent and the Tribunal. For example, Novus is not required to prove what an AR did each and every day over a period of 5 years. It is enough that Novus demonstrates, on the balance of probabilities, that section 32 of the Act does not apply and, if it does, the exemptions thereto are enlivened….

27.   In all the circumstances. Novus contends that it has discharged its onus in relation to all of the disputed matters and should prevail.

42. Novus relied on B&L Linings Pty Ltd v Chief Commissioner of State Revenue (NSW) [2007] NSWADTAP 32 (B&L Linings) at [105] to [107] in respect of its submission in [26]. The Appeal Panel in that matter said:

105 Implicitly, the Appellants, in basing their claim to exemption on evidence of this nature, invited us to accept the proposition that the requirements of s. 3A(1)(f) could be satisfied with regard to the payments made to all 15 of the relevant entities by showing that the standard practice adopted by L & B and these entities involved arrangements falling within the scope of this provision. To put this point in another way, we have been invited to rule that the Appellants, in seeking to invoke the exemption for all of L & B’s payments to these 15 entities, are not inevitably bound to adduce evidence specifically demonstrating that such an arrangement was an attribute of each and every task performed for it by each and every one of these entities.

106   This was not a proposition that Mr Latham specifically addressed, though the general tenor of his submissions was clearly opposed to it.

107   In general terms, we agree with this aspect of the Appellants’ argument. From a practical point of view, the provision creating the two-person exemption would be unworkable if a taxpayer seeking to invoke it with respect to a series of payments made to one or more independent contractors was compelled to adduce documentary and/or oral evidence establishing, with regard to each individual payment, both (a) the engagement of one or more identified ‘second persons’ by the contractor in order to carry out the task that the contractor had agreed to perform for the taxpayer and (b) actual participation in this task by the second person or persons. A case like the present, involving numerous small-scale tasks that were performed by numerous contractors and (allegedly) numerous ‘second persons’, illustrates clearly why such a requirement would impose an undue burden on taxpayers and, indeed, on the Commissioner. The Commissioner would be bound to scrutinise detailed evidence of this nature before deciding whether any claim for the exemption should be accepted.

43. In response, the Chief Commissioner relied on ss 100(3) and 119 of the TA Act and case law.

44. Section 119 of the TA Act states:

119 Evidence of assessment

Production of a notice of assessment, or of a document signed by the Chief Commissioner purporting to be a copy of a notice of assessment, is:

(a) conclusive evidence of the due making of the assessment, and

(b) conclusive evidence that the amount and all particulars of the assessment are correct, except in objection or review proceedings when it is prima facie evidence only.

45. The Chief Commissioner’s submissions included:

6.   The appeal panel in Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [30] to [37] said (emphasis added):

30.   … The starting position is that the Tribunal must accept that the assessments are correct and that there is no entitlement to an exemption. If neither party adduced any evidence, the assessments would stand. This suggests that the Appellant’s case must move the Tribunal away from the starting position.

31. …. In B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187; (2008) 74 NSWLR 481 (the Judgment) Allsop P (Giles and Basten JJA agreeing) at [104] held that the requisite standard of proof in such cases is the “balance of probabilities”. At [87] of the Judgment Allsop P said:

“The Appeal Panel correctly stated that the appellants bore the onus of proof of establishing the facts on which they rely in objecting to the assessments.”

32. The Appellant in this case pointed to the fact that in B & L Linings there is no express reference to s 100 of the TAA. However, their Honours were there considering the same statutory regime we are here considering. The reference to the onus of proof must be a reference to s 100(3) of the TAA.

33. Studdert J in Denham Constructions Pty Ltd & Anor v Chief Commissioner of State Revenue (1998) 40 ATR 416 at 425-426 said:

“I remind myself of the nature of these proceedings, and of the onus which the plaintiffs bore …. Having so reminded myself, I am not satisfied that a proper basis has been established to disturb the decision of the defendant.”

34. In Pharmos Nominees Pty Ltd v Commissioner of State Taxation [2012] SASC 24 at [53]- [54] Gray J said:

“Section 97 of the Taxation Administration Act provides:

On an appeal, the appellant has the onus of proving the appellant’s case.

The effect of section 97 is that Pharmos must prove that the amount assessed in fact exceeds its true liability to duty.”

35. The Appeal Panel in Chief Commissioner of State Revenue v Mr Espresso Group Pty Limited [2012] NSWADTAP 1 at [9] said:

“The [taxpayer] was required to place before the Tribunal below all necessary information to allow a decision to be made in respect of the dispute of fact.”

36.    These authorities support the proposition that an applicant must prove all matters necessary to enable a Tribunal to answer the statutory question in its favour. In light of the statutory regime and the clear expression in B & L Linings, we have not found it necessary to review the authorities in the Federal jurisdiction. [emphasis by the Chief Commissioner]

7.   In Levitch Design Associates Pty Ltd atf Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215 at [27], the Tribunal said (emphasis added):

In a review application under Part 10 of the Act, the applicant “has the onus of proving the applicant’s case” (s 100(3)). This requires the applicant to prove or establish on the balance (preponderance) of probabilities all matters necessary to enable a tribunal to answer the statutory question in the applicant’s favour, and all the facts on which the applicant relies to claim any exemption. The legislation does not place any onus on the Chief Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The burden on the applicant is not necessarily discharged by showing an error by the Chief Commissioner in forming a judgment as to the amount of the assessment. It is for the taxpayer to discharge the burden of proof by establishing what the correct amount of an assessment should be. … However, the taxpayer’s evidence is not to be regarded as prima facie unacceptable and “must of course be considered on its merits, in the circumstances of the case, without any prepossession, favourable or unfavourable”: McCormack v FCT (1979) 143 CLR 284 at 302 per Gibbs J.

8.   At [25] and [26] of Novus’s written submissions a suggestion is made by Novus that it only bears the onus of proof “to the extent that Novus proffers a positive case on the points that remain in dispute between the parties”, and then at footnote 21 Novus refers to the Objection Determination and seems to suggest that if the Objection Determination does not take issue with certain matters then the Chief Commissioner in these proceedings is not taking issue. This is not correct, for the reasons advanced above. The Chief Commissioner clearly states, as it has at all times in these proceedings, that for the purposes of these proceedings it only agrees the matters expressly agreed in the Agreed Facts documents.

9. As is clear from the above cases, the legislation does not place any onus on the Chief Commissioner to show that the assessments were correctly made. Section 119 of the TAA provides that production of the assessments is prima facie evidence of the amount and all particulars of the assessments. …

10.   As to [26] of Novus’s written submissions, the Chief Commissioner says that Novus must put enough evidence before the Tribunal for each year in question to prove that the relevant contract provisions in s. 32(1)(b) do not apply between Novus and each AR in question and for each year in question that the exceptions under s. 32(2) apply ... unless there is evidence before the Tribunal that the facts remained the same for all the years in question, the Tribunal has to have sufficient evidence before it for each AR and the way each AR carried out the work for each of the years in issue.

46. B&L Linings involved the supply and installation of plasterboard (gyprock) linings and cornices in various buildings. Work was carried out by subcontractors. The characterisation of the relationship between subcontractors and one of the applicants in the matter (L&B Linings Pty Ltd) was in dispute between the applicants and the Chief Commissioner. If the subcontractors were properly to be characterised as employees, the applicants were liable for pay-roll tax and the remuneration paid to the subcontractors would be wages and included in the relevant tax. If however they were independent contractors, an exemption from this tax would be available if either or both of two sets of further conditions were satisfied.

47. I observe that Novus referred specifically to [105] to [107] in B&L Linings to support its submission that it was “not required to prove what an AR did each and every day over a period of 5 years”. This assertion was repeated by Novus on several occasions in its written submissions in respect of several ARs when there was a lack of evidence before the Tribunal for Novus to support its case.

48. However, Novus did not refer to paragraphs [108] and [109] in B&L Linings which included:

108   In the [earlier decisions] we noted a similar recognition within the case law that an employer who wishes to prove that a group of workers whom he/she has engaged in accordance with an established system are independent contractors, not employees, may rely on evidence outlining the key features of the system. The employer need not adduce evidence from each of the workers regarding the specific details of their individual relationships with the employer.

109   On the other hand, what we have called evidence of the standard practice adopted by a taxpayer in dealing with contractors should not prevail in the face of countervailing evidence suggesting that in any particular instance the taxpayer failed to satisfy the requirements of the two-person exemption.

49. I also observe that in its reply in ASR to RS, Novus made no reference to the Chief Commissioner’s submissions at [6] and [7], nor did Novus dispute the validity of, or even mention, any of the authorities relied on by the Chief Commissioner in those paragraphs.

50. While I agree that “Novus is not required to prove what an AR did each and every day over a period of 5 years”, it remains necessary for Novus to support its submissions with probative evidence. In summary, I find that Novus cannot satisfy its onus merely by relying on unsubstantiated submissions without probative evidence.

Credit of Novus’ witnesses and weight to be given to Novus’ evidence

51. Novus submitted at [6] and [15] and at ASR [9.4] that the credit of its witnesses was not in issue in the proceedings and their evidence ought to be given its full weight. On the other hand, the Chief Commissioner submitted at [14(d)] “The credit of the witnesses is in issue” and made specific submissions concerning the credit of certain witnesses.

52. The Chief Commissioner had, prior to the hearing, requested that sixteen of the persons who provided affidavits in support of Novus be made available for cross-examination. A consideration of the transcript indicates that of the 16 witnesses, at least part of the written or oral evidence of at least seven witnesses, namely Ms Lu and Messrs Moloney, Gable, Glover, Kapes, Gooley and Krause, was challenged by the Commissioner during cross examination. Five of the witnesses who had been called did not attend for cross-examination.

53. On the last day of the hearing Mr Afshar conceded that his instructions were that all five of the ARs who did not attend for cross-examination “were not only informed that they were required but also given the dates of this hearing”, TS396.21. A short time later Mr Afshar informed the Tribunal that affidavits tendered in respect of all of the five ARs were not read and would not be relied on by Novus for the purpose of the proceedings, TS435.

54. Shortly before Mr Afshar’s statement that the five specific affidavits not be relied on, counsel for the parties had discussed the admissibility of the documents that sat “behind the affidavits” which were not being read. Mr Afshar submitted that the evidence of the documents ought not to be excluded and if it was a question of weight then the parties could make submissions about that weight. Mr Afshar said “There is no question that these documents are authentic”, TS399.1 and at TS404:

It is not unfair to the Commissioner to have to deal with invoices and other documentation that have been previously provided in circumstances where no cross examination is able to occur. It's not unfairly prejudicial to the Commissioner, it's a matter that can be dealt with in relation to weight and the parties' submissions can deal with that.

55. A short adjournment took place to enable Mr Kimber to obtain instructions in relation to the admissibility of those documents. Mr Kimber then informed the Tribunal that his instructions were that the Chief Commissioner did not oppose the approach that Mr Afshar had adopted subject to certain matters. Those matters related to Novus’ capacity to obtain the attendance of its witnesses for cross-examination; that those individuals who were within Australia responded in the months prior to the hearing to notices to produce by producing materials; that in relation to “business records” they would ordinarily go into evidence unless the prejudice was “red hot” and these would be “exceptions rather than the rule”. The Chief Commissioner acceded “to allow the documentary material to go in subject to later assessment of weight”. Mr Kimber referred to purported invoices as an example of documents which may concern the Chief Commissioner and said at T405-406:

… should there be any doubt about an invoice being an invoice or any doubt about the adequacy of the descriptor or within any invoice then obviously that is a problem for the applicant and not for us. We don’t bear the onus and if they haven’t called people to explain documents that are ambiguous in their own right … when we have concerns that would be their problem and the Tribunal should take that seriously into account when you come to assess the material … we will have some serious things to say about what weight should be attended to them ...

56. As it happened, Novus in its written post-hearing submissions, sought to renege on Mr Afshar’s express concession concerning affidavits not being read or relied on and sought to rely on the unread affidavits. I deal below with admissibility, and as appropriate, weight, in respect of each relevant affidavit and the documents which sat “behind the affidavits”.

57. Mr Gooley’s evidence in relation to invoices said to have been sent by Cennlen to Novus and payments by Novus to Cennlen was dealt with extensively in Mr Gooley’s cross-examination and referred to in some detail at [308] to [310] in RS. No specific reference to this evidence was made in Novus’ submissions in reply other than that Novus relied on the Licence Agreement and invoices from Cennlen to Novus and “Novus submits that witnesses’ (especially the ARs’) credibility was not squarely challenged in cross-examination. As such, the respondent has not discharged its obligations under Browne v Dunn.”

58. There is no doubt from my consideration during the hearing, and from reading the transcript of Mr Gooley’s cross-examination that several aspects of Mr Gooley’s evidence were subject to direct challenge during cross-examination on various occasions, and I so find.

Outline of the Division 7 scheme generally regarding “independent contractors”

59. There is no dispute that “contractor” provisions were introduced to payroll tax legislation in New South Wales in 1985 to catch schemes designed to avoid payroll tax. The structure of targeted schemes has varied since 1985 and as schemes changed over time, the anti-avoidance legislation has been updated.

60. The Chief Commissioner described the legislative history of s 32 as follows:

21 … The predecessor to s. 32 of the PRTA was s. 3A of the Pay-roll Tax Act 1971 (“the PRTA 1971”). Section 3A of the PRTA 1971 was cast in identical terms to s. 32 of the PRTA.

22. Section 3A of the PRTA 1971 (and therefore s. 32) had its origins in s. 3C of the Pay roll Tax Act 1971 (Vic). The provisions were intended as an anti-avoidance measure aimed at catching arrangements designed to avoid payroll tax, by severing the employer-employee relationship through the use of contractors to replace wages staff:

61. This description was not challenged by Novus and I accept it.

62. There is also no dispute that the Act was introduced with effect from 1 July 2007 as part of inter-state harmonisation of payroll tax legislation.

63. Both parties agreed that the Parliamentary intention in respect of the contractor provisions included the principle that bona fide independent contractors would not be caught by the legislation. One of the issues between the parties is the extent to which the ARs are “independent contractors” in the context in which the Minister for Employment and Minister for Finance used that phrase in the second reading speech on 13 November 1985.

64. Both parties relied to an extent on the decision of Gzell J in Bridges Financial Services Pty Ltd v Chief Commissioner of State Revenue [2005] NSWSC 788 (Bridges Financial Services). In that matter the applicant (Bridges), which was a stockbroker, an agent for various life insurance companies and authorised to deal in securities, authorised 79 people based in New South Wales to act as its representatives. His Honour said:

2 … Bridges paid commission and brokerage and some fees with respect to transactions initiated by the representatives. It did not include those amounts in its returns of wages and, in consequence, did not pay pay-roll tax with respect to those amounts under the Pay-roll Tax Act 1971.

3   The Chief Commissioner issued notices of assessment to Bridges on the basis that the amounts were wages paid to employees as such or, alternatively, on the basis that the representatives were deemed to be employees.

4 From an adverse decision of the Chief Commissioner on its notice of objection, Bridges applied to this court for a review of the Chief Commissioner’s decision under the Taxation Administration Act 1996, s 97(1)(a).

….

219 Section 3A of the Pay-roll Tax Act 1971 was introduced by the Pay-roll Tax (Amendment) Act 1985. In his second reading speech, the Minister for Employment and the Minister for Finance said that bona fide independent contractors would not be caught by the legislation (Hansard, Legislative Assembly, 13 November 1985 at 9558).

220 It was submitted on behalf of the plaintiff that s 3A(1)(b) of the Pay-roll Tax Act 1971 should be confined to circumstances in which nothing other than the supply of services to the designated person was involved. It was submitted that in this way the purpose of the legislation, as recorded in the second reading speeches, would be achieved. It was submitted that on this basis the provision did not apply to the representatives because the arrangements between Bridges and them achieved more than the mere provision of the services of the representatives and amounted, in effect, to a joint venture between Bridges and the representatives under which each conducted a business co-operatively or, alternatively, a joint venture under which the representatives introduced capital assets represented by their interests in trail commissions from previous clients.

221 I reject that submission. The structure of the Pay-roll Tax Act 1971, s 3A is to define, in broad terms, a relevant contract. If an arrangement answers that description, the second step is to determine whether any of the exceptions apply. It is because of the exceptions, that the legislation does not catch bona fide independent contractors. It is because of the non-application of an exception that the object of taxing the putative subcontractor who works exclusively, or primarily, for one person under a contract whose object is to obtain the labour of that person, is achieved. If s 3A(1)(b) were confined in the manner submitted on behalf of Bridges, there would be little scope for the operation of the exceptions.

222   It was also submitted that the provision did not apply because the contract with the representatives did not oblige them to provide any financial advice on behalf of Bridges to any clients. They could do so if they chose. I reject that submission. Once a representative chose to supply Bridges with services, those services were provided under the contractual arrangements between the representative and Bridges.

65. Division 7 states “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”, s 35.

Relevant contract issue

66. Section 32(1) provides the definition of “relevant contract” as follows:

(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:

(a) supplies to another person services for or in relation to the performance of work, or

(b) has supplied to the designated person the services of persons for or in relation to the performance of work, or

(c) ….

67. Section 32(2) states what is not a relevant contract for the purposes of the Act:

(2) … 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:

…

(b) is supplied with services for or in relation to the performance of work where:

…

(iii) those services are provided for a period that does not exceed 90 days or for periods that, in the aggregate, do not exceed 90 days in that financial year and are not services:

(A) provided by a person by whom similar services are provided to the designated person, or

(B) for or in relation to the performance of work where any of the persons who perform the work also perform similar work for the designated person,

for periods that, in the aggregate, exceed 90 days in that financial year, or

(iv) … or

(c) is supplied by a person (the "contractor") with services for or in relation to the performance of work under a contract … where the work to which the services relate is performed:

(i) by two or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or

…

(iii) where the contractor is a natural person, by the contractor and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor,

…

68. Sections 33 and 34 define employer and employee as follows:

1. s 33(1)(b) states:

… a person to whom during a financial year, 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 in respect of that financial year.

2. s 34 (a) states:

… a person who during a financial year 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 that financial year.

69. Novus describes the s 32(2)(b)(iii) exemption as the “90 day exemption” while the Chief Commissioner describes it as the “90 day exception”. Novus describes the s 32(2)(c) exemption as the “contractor exemption” while the Chief Commissioner describes it as the “two person exception”. For uniformity I use the expressions “90-day exemption” and “two-person exemption” for ss 32(2)(b)(iii) and 32(2)(c) respectively.

70. Novus makes numerous claims in AS including [7] to [9], [208] and [209] that there is no relevant contract between Novus and any AR. In the alternative, Novus claims that even if there is otherwise a relevant contract either or both of the exemptions in s 32(2)(b)(iii) and s 32(2)(c) apply so that the particular contract which would otherwise be caught by the Act is excluded from the s 32(1) meaning of “relevant contract”.

71. Novus submitted:

7.   In issue in this proceeding is the interpretation and correct application of the relevant provisions of the Act to the contracts between Novus and each of the ARs and the way, in which each of the ARs conducted his/her business. Based on the evidence, the Tribunal would find that the ARs are truly independent contractors (in the form of small business owners) and that the contract between each of them (as individuals) and Novus (AR Agreements) does not constitute a “relevant contract” pursuant to s 32(1) of the Act. …

….

Section 32(1) and relevant contract

…

186.   There are many types of AR Agreements in evidence in this case but there is no substantive difference between their terms as they pertain to payments to ARs. …

…

188.   A “Client” is defined in the AR Agreements as a person who is “introduced” to Novus, by clear inference, by the ARs.

189.   “Authorised Representative” is defined by reference to the Corps Act as a person who “is to provide financial services on behalf of the Licensee”.

190.   “Services” means “provision of Financial Product Advice, Dealing in a Financial Product, and Arranging for a person to Deal in a Financial Product and includes but is not necessarily limited to making a recommendation in respect of the issue, variance, termination or disposal of a Financial Product or Financial Product Advice, or arranging or facilitating the issue, variation termination of disposal of a Financial Product or financial services, or providing any other service of a kind approved by the Licensee in writing”.

191.   The ARs are to “provide the Services”. In consideration for providing the Services and acting in accordance with AR Agreements, Novus is required by the IARA to pay “the brokerage and other fee splits... after deduction of any facilities charges, professional indemnity insurance contribution or other costs as set out in Schedule 2 and any other costs incurred on behalf of the Authorised Representative...”.

…

204.   When one analyses the AR Agreements in context …There are no “services” that ARs provide to Novus under the AR Agreements. … there are no services that flow from Novus to the ARs either. No consideration flows from Novus to the ARs; the respondent has not pointed out any. The real consideration flows from the ARs’ client by way of fees or brokerage to the ARs. Novus receives money for the use of its AFSL …

205.   In Bridges, by the terms of the parties’ agreement, consideration flowed from Bridges to the representative in the form of a portion of revenue generated by the representatives from selling Bridges’ products, or other products, to clients of Bridges and clients from Bridges’ referral sources. There is no such consideration in this case.

…

207 … the AR Agreement is a licensing agreement for ARs to provide services to their clients in compliance with the requirements of the Corps Act.

72. The Chief Commissioner’s response to Novus’ contention includes:

19   … Relevant Contracts exist, pursuant to s. 32(1)(b) of PRTA, between Novus and each of the 15 ARs in issue. This is because a “contract” (which involves looking at the whole arrangement) exists between Novus and each of the ARs under which Novus, in the course of its business of operating a financial services business, is provided with the “work-related” services of the ARs, who render services to the clients on behalf of Novus.

Novus’ Contentions

20.   In its written submissions, Novus contends that s 32(1)(b) of the PRTA is not engaged, so there is no relevant contract, for the following reasons:

(a)   Neither the services nor the remuneration pertaining thereto have been identified by the Chief Commissioner (at [183]).

(b)   Were the Tribunal to identify the services and the remuneration, it would conclude that no consideration flowed from Novus to the ARs and that the ARs did not provide work-related services to Novus (at [185]).

(c)   The “client” referred to in the various authorised representative agreements is not the client of Novus but the client of the AR (at [192]).

….

23. Gzell J in Bridges Financial Services v Chief Commissioner of State Revenue (2006) 222 ALR 599 (“Bridges Financial Services”) at [218]-[219] said of s. 3A of the PRTA 1971 (emphasis added):

“In introducing the bill to the Victorian Legislative Assembly, the Treasurer, in his second reading speech, stated the objective of the legislation to be to catch relationships where a subcontractor worked exclusively, or primarily, for the one person and the object was to obtain his labour. At Hansard, Legislative Assembly, 27 October 1983, p 1581 the Treasurer said:

‘In essence, the legislation is intended to catch those relationships where the sub-contractor works exclusively for or primarily for the one person and where the object of the contract between the parties is to obtain the labour of the sub-contractor.

… In his second speech, the Minister for Employment and the Minister for Finance said that bona fide independent contractors would not be caught by the legislation: Hansard, Legislative Assembly, 13 November 1985, p 9558.”

24. Subsequent to its inclusion in the Pay-roll Tax Act 1971 (Vic), s. 3C was “transposed” and enacted as s. 9 of the Accident Compensation Act 1985 (Victoria). The legislative objective in enacting the “Relevant Contract” provisions in the payroll tax legislation was described by Murphy J in the Victorian Supreme Court in Mayne Nickless Ltd v Mackintosh [1989] VR 878 at 882 (“Mayne Nickless”) as follows:

“S.9 of the Act was introduced into the Accident Compensation Act 1985, being taken from the Pay-roll Tax (Amendment) Act 1983 which had inserted s.3C into the Principal Act. Its purpose in that Pay-roll Tax Act was to counter avoidance by employers of the payment of pay-roll tax by the engagement of new staff as contractors rather than as employees …

It was intended to operate ‘to remedy’ this situation and was designed ‘to ensure that all the required transactions are caught and also to combat tax avoidance’. The emphasis throughout the explanatory memorandum is laid on casting a wide net in order to catch all those workers or employers, who might seek by a stratagem to avoid the payment of pay-roll tax, otherwise applicable to an employer/employee relationship. The emphasis is placed upon the stratagem, whether initiated by the ‘worker’ or by the ‘employer’, and thus there are included exemptions designed to exempt, what I may broadly call, certain normal business transactions.”

25. That statement by Murphy J in Mayne Nickless was subsequently approved of by Ashley JA with whom Dodds-Streeton JA agreed in DSG Ltd v Victorian Workcover Authority [2008] VSCA 42 at [32] (“DSG v Victorian Workcover”): see also Re Zuccala Homes Pty Ltd and the Commissioner of State Revenue (Vic) (1994) 38 ATR 1326 at 1326 (“Zuccala Homes”).

26.   For the purposes of s. 32, s. 31 defines “contract” as “includes an agreement, arrangement or undertaking, whether formal or informal and whether express or implied”. …

in Newton v FCT (1958) 98 CLR 1, Lord Denning speaking for the Privy Council said of the word arrangement at 7-8:

the word “arrangement” is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons – a plan arranged between them which may not be enforceable at law. But it must in this section comprehend, not only the initial plan, but also all the transactions by which it is carried into effect.

27. For present purposes, the Supreme Court decision in Bridges Financial Services is the critical decision - being a case involving s. 3A(1)(b) of the PRTA 1971. In Bridges Financial Services, Gzell J said that the structure of s. 3A(1) of the PRTA 1971 (and, now s. 32(1) of the PRTA) is, in the first instance, to define in wide terms a “Relevant Contract” and then to determine, as the second step, whether any of the exceptions apply. Gzell J held that it was the work of the exceptions contained within s. 32(2) of the PRTA, rather than the general definition of Relevant Contract, to narrow the definition of “Relevant Contract”, so that the legislation does not catch bona fide independent contractors: Bridges Financial Services at [221] …

…

31. Justice Gzell … said of the structure of s. 3A of the PRTA 1971 at [221]:

“ … It is because of the exceptions, that the legislation does not catch bona fide independent contractors. It is because of the non-application of an exception that the object of taxing the putative subcontractor who works exclusively, or primarily, for one person under a contract whose object is to obtain the labour of that person, is achieved … ”

32. In Bridges Financial Services, referencing Accident Compensation Commission v Odco Pty Ltd (1990) 95 ALR 641 at 650-51, Justice Gzell, at [225], held that the reference to “services for or in relation to the performance of work” is no more than a requirement that the services be “work-related”.

33. Justice Gzell held that s. 3A(1) of the PRTA 1971 was satisfied in the circumstances in that a Relevant Contract did prima facie exist, because in providing services to clients of Bridges, the representatives, under the terms of the representatives agreement, provided services to Bridges. In this regard, at [226], Gzell J held:

“When a representative chose to recommend a financial plan to a client, and upon the client’s instructions lodged documentation to buy or sell securities in the name of Bridges as the authorised dealer, the representative supplied Bridges with services and that was done in terms of the representatives and agents agreement [the representative’s agreement] or in terms of the arrangements that agreement recorded. And the services were work-related and Bridges were supplied with them in the course of carrying on its business.” (emphasis and annotation added)

34. In Bridges Financial Services, Justice Gzell also quoted approvingly from the decision of the Victorian Administrative Appeals Tribunal in Re D & D Tolhurst Pty Ltd and Cmr of State Revenue (Vic) 1997 ATC 2179 (“D & D Tolhurst”). D & D Tolhurst was a case involving a stockbroker and licensed dealer who engaged investment advisors who wrote business in the name of the stockbroker who retained 60% of the brokerage fees earned by the advisors. The Tribunal (constituted by Mr Nettle) concluded that the advisors supplied Tolhurst with services under a contract. He said (quoted approvingly by Gzell J in Bridges Financial Services):

“There can be no doubt that there was an agreement or arrangement or understanding between Tolhurst and each of the advisors that the advisors would render services to the clients as the agent of Tolhurst, at the client’s request. In my view it follows, as a matter of plain language, that the advisors supplied services to Tolhurst by servicing the needs of the clients. By doing so they supplied services to Tolhurst for the purpose of its business, notwithstanding that they also at the same time supplied services to the clients.” (emphasis added).

35.   The Chief Commissioner submits that the case of Novus is relevantly indistinguishable from Bridges Financial Services with respect to the “relevant contract” issue. The arguments that have been advanced in this case against a finding of “relevant contract” were advanced but rejected by Gzell J in Bridges, namely that:

(a)   the clients were clients of the ARs and not clients of the “designated person”;

(b)   accordingly, the ARs did not provide any “services” to the designated person (Bridges and Novus, respectively) but only provided services to “their” own clients;

(c)   insofar as the ARs had contracts with the designated person and not with each individual client, it was only a reflection of the statutory regime for regulating the financial services industry – the designated person, as the AFSL holder, did not provide any services to clients in its own right and merely served as the vehicle / conduit by which the ARs operated their own financial services businesses; and

(d)   the ARs were never obliged by their contracts to provide any services on behalf of the designated person to any clients.

73. In its response in ASR, Novus repeats its submissions in AS “in particular [80] ff.” Paragraph [80] contains submissions by Novus in respect of what it calls “the business model of Novus”. Novus substantially relies, for its description of that business model, on Mr Gooley’s evidence and what it states at [80] as the sharing of that understanding of the business model by all the ARs. I comment below on both Mr Gooley’s evidence and the understanding allegedly held by the ARs as evidenced by both their affidavits and oral evidence.

74. In ASR at [13.3] Novus contends that the words “on behalf of the licensee” in the AR agreements, which the Chief Commissioner submits mean what they say, that is that for the purpose of the agreements, each AR is an agent of Novus, do not mean what they clearly state. Novus submits at [13] that the words in s 916A of the Corporations Act 2001 (Cth) which state that a financial services licensee may give an authorised representative a written notice authorising that person, “for the purposes of this Chapter, to provide a specified financial service … on behalf of the licensee” does not [expressly] specify “that the ARs are acting on behalf of the licensee for other purposes (e.g. for contract law purposes) ... the authorisation is analogous to a drivers’ licence – it merely enables the AR (driver) to carry on its business (driving) lawfully under a licence granted by the licensee”.

75. Novus continues at ASR [13.4] to state:

…. an authority given under section 916A is “to provide a specified financial service or financial services on behalf of the licensee” …. the phrase “on behalf of the licensee” is not specially defined. The context in section 916A(1) includes the limiting words “for the purposes of this Chapter”.

76. The relevant Chapter of the Corporations Act is Chapter 7 which encompasses the very wide field of “Financial services and markets”. Novus has not shown that the Corporations Act requires that the phrase “on behalf of the licensee” must be included in the AR agreements nor that the phrase applies only for the Chapter’s purpose. Novus has provided no legislative or caselaw authority in support of its restrictive interpretation of the words “on behalf of the licensee”. In the circumstances I do not find that Novus has satisfied its onus in relation to its interpretation of the phrase. Accordingly, I find that the phrase is to be given its ordinary contractual meaning in addition to any relevant requirements of the Corporations Act.

77. In summary, and having regard to the onus which Novus bears, I am not satisfied that:

1. there is no relevant contract for the purposes of Division 7 between each AR and Novus for any part of the Relevant Period during which each AR was a Novus AR, and.

2. for contractual purposes, the ARs were not agents of Novus as stated in the AR agreements.

78. I find that each AR agreement between Novus and an AR is a relevant contract for the purpose of Division 7 in relation to each year of the Relevant Period from the date that contract commenced until the date, if any, on which such contract was terminated. I also find that each AR was the agent of Novus for the contractual purposes of each AR agreement.

Relationship of Novus with clients

79. After initially denying it, Mr Gooley conceded at TS149 that “as between the clients and Novus, the contractual relationship is that the clients are clients of Novus”.

80. However, Mr Gooley maintained his opinion that, notwithstanding the agreement between Novus and the clients, Novus regards the clients as clients of the authorised representatives, not of itself.

81. I find that Mr Gooley’s latter opinion disregards both the terms of the agreement between Novus and the clients and the AR agreements between Novus and the ARs. Novus has provided no judicial authority to support Mr Gooley’s opinion and it is contrary to s 916B of the Corporations Act. I reject the opinion.

The 90-day exemption – s 32(2)(b)(iii) general issues

82. The exemption provided by s 32(2)(b)(iii) requires that services to Novus be provided in each relevant year for periods that in the aggregate do not exceed 90 days in that year.

83. Novus claimed that the 90-day exemption applied to Messrs Ireland, Mifsud, Mudd, Streeter and Swarbrick. Novus made Mr Streeter available for cross-examination. The remaining ARs did not attend the hearing and were not cross-examined.

82. Novus submitted at [9] that the Chief Commissioner’s approach “in the Objection Decision … namely to determine the 90 days by reference to the provision of “services”, that is, especially in relation to the traders, the number of days, on which trades occurred, ought to be followed by the Tribunal.”

83. Novus also submitted at [209] that “… the approach … ought to be by reference to the objective materials that are in evidence.”

84. However, Novus also submitted:

26.   Novus is not required to prove each fact that underlies its contentions in relation to the application of … the 90-day Exemption. In this kind of litigation, given the scope of the Relevant Years and given the diffuse nature of the relationship between Novus and the ARs, any approach to the contrary would place an undue burden on Novus, the respondent and the Tribunal …

…

61 … The Tribunal must identify the “services” and then consider the evidence to determine whether the 90-day Exemption is satisfied. It is important to note the following. The approach taken by the Appeal Panel in B&L Linings v Chief Commissioner of State Revenue (No 3) [2007] NSWADTAP 32, at [62] should be adopted. It is sensible and principled. Novus cannot be required to provide a detailed account of each day its relevant ARs worked during the course of five financial years ...

87. I have already rejected Novus’ implied argument that providing evidence as to work carried out or services supplied by or to the ARS is a requirement to provide a detailed account of each day’s work over a period of five years. That is not correct. Novus’ statutory onus requires that it provide probative evidence in support of its submissions, not merely unsubstantiated submissions.

88. There is no evidence to support Novus’s submission that in relation to ”execution only” ARs, no relevant work was performed by any AR other than on the days on which trades took place. I reject that submission.

89. The Chief Commissioner’s submission at [81] is that whether the 90-day exemption applies depends on Novus discharging its onus of proving “as required by s. 100(3) of the TAA, that the said ARs, or any of them, provided the services to Novus for a period not exceeding 90 days in any of the relevant financial years”. That submission is based on the clear wording of the statute and on judicial authority referred to by the Chief Commissioner as noted above. I accept that submission.

90. The Chief Commissioner submitted at [87] that in the context of this issue:

the word ”day” means calendar day (i.e. 24 hours commencing at midnight) (refer Prowse v McIntyre (1961) 111 CLR 264 per Windeyer J at 278; refer definition of “midnight” in Interpretation Act 1987 (NSW) s 21(1)).

91. Novus did not dispute the submission and I accept it.

92. The Chief Commissioner submitted that the best evidence as to the number of days on which the ARs performed work for Novus would be the “client files“ each AR was contractually bound to keep. However, none of the five ARs who claimed low annual work levels annexed client files to their affidavits, merely relying on assertions that from their perusal of their own records they believed they worked for less than 90 days for Novus in certain financial years.

93. To the extent that client files were properly maintained by ARs it may well be that those files would constitute probative evidence. Novus, correctly in my opinion, submitted that it was open to the Tribunal “to make findings, on the balance of probabilities, both on evidence and inferences that are reasonably open to it based on that evidence.”

94. The Chief Commissioner submitted that in relation to the 90-day exemption and separate from the individual circumstances of the ARs considered:

1. Novus was on notice from January 2016 that strict proof would be required in relation to all ARs;

2. the best evidence as to the number of days on which the ARs performed work for Novus would be the “client files“ which each AR was contractually bound to keep. However, none of the five ARs who asserted low annual work levels annexed client files to their affidavits, merely relying on assertions that from their perusal of their own records they believe they worked for less than 90 days for Novus in certain financial years;

3. the evidence shows that in addition to the transaction “trades” and the focused work required for each trade, additional preparatory and administration was required to be performed by each AR in initially setting up each client before the first trade could be transacted for that client.

The amount of work required of ARs and client files

95. To the extent that:

1. the AR agreements required that ARs maintain client files detailing work done for each client;

2. the client files referred to in the AR agreements contained information concerning the work carried out by each AR for each client;

3. Novus conceded that it was entitled to require that the ARs provide their client files to it;

4. Novus was on notice for nearly 2 years prior to the hearing that the client files were required for the hearing; and

5. no client files were produced,

96. I do not accept that statements by the ARs that they had consulted their records, which presumably included the client files, and that those records confirmed that the ARs had carried out less than 90 days’ relevant work in each year, by themselves satisfied Novus’ onus on this point.

97. Mr Krause is a director of Novus. His affidavit in evidence included at [4] to [7] the work involved of an AR in setting up an account for a client with E*Trade and at [8] to [16] the work of both an AR and E*Trade in effecting a trade.

98. Mr Krause informed the Tribunal at TS164.23 that it was absolutely true that to get a particular client account up and running properly might involve a substantial amount of work. At TS165.5 he agreed that a lot of work could be associated with any particular trade before a decision was made, including providing recommendations and a statement of advice.

99. Mr Krause, as a Novus director, said the client files were required to be kept available for seven years. Mr Kimber put to Mr Krause the proposition that the primary record that would be the most reliable record to assist Novus to discern how much work an AR had done for any client would be the client file. Mr Krause responded at TS 179.29 “The client file, email, yes”.

100. Mr Kapes, an AR, said in cross-examination that for the purpose of his contract with Novus he was required to keep client files and that those files would be the best record of indicating what work he was doing for a particular client on a particular day or point in time.

101. Novus said at [61]:

… there is evidence, and agreed facts, as to the days, on which trades were executed by those ARs. Given that the “services” were “execution only” trading services, then the record of trades ought to satisfy the requirement of “services” being provided for “periods” that do not exceed 90 days.

102. Contrary to Novus implied submission that there is an obligation on the Chief Commissioner to establish the details of what “any client file would contain”, the onus lies on Novus to prove its case. Novus provided no satisfactory explanation for the failure to provide any client files or other evidence Objection Determination work carried out by the five ARs in respect of whom it claimed the 90-day exemption applied..

103. I find that Novus’ general submissions concerning the days’ worked by these ARs does not satisfy its onus to provide probative evidence as to how much work was performed and services were provided by any AR in addition to the number of agreed days on which trades occurred. Accordingly, I reject Novus’ blanket submissions that all five ARs in respect of whom the 90-day exemption was claimed had provided relevant services which in aggregate did not exceed 90 days in any relevant year.

104. I do not disagree that the approach taken by the Appeal Panel was sensible and should be adopted. However, that approach is based on data having been provided to the Appeal Panel and the Panel not merely relying on unsupported assertions.

105. Novus statement at [209] that the “Exemption ought to be by reference to the objective materials that are in evidence” is accepted. However, in this regard, Novus has not provided “objective materials … in evidence” rather it has at times relied on unsupported assertions or evidence as to the number of days on which trades took place, comprising only one aspect of work performed.

106. Novus is not being requested to prove “each fact that underlies its contentions”. However, in order for it to succeed it is required to prove its case on the basis of probative evidence and the balance of probability. I deal below with the evidence before the Tribunal of each of the five ARs in respect of whom the 90-day exemption is claimed.

107. Novus submitted at [60]:

… The Tribunal must identify the “services” and then consider the evidence to determine whether the 90-day Exemption is satisfied. It is important to note the following. The approach taken by the Appeal Panel in B&L Linings v Chief Commissioner of State Revenue (No 3) [2007] NSWADTAP 32, at [62] should be adopted. It is sensible and principled. …

108. There is requirement that the Tribunal must proceed in the manner asserted by Novus. I also note that the Appeal Panel at [62] in B&L Linings No 3 relied on documentary evidence regarding the number of days worked in a three-year period and that the evidence was corroborated by evidence from a tax return and accounting records. At [64] the Appeal Panel stated that it agreed with the submission that the data provided by the company sufficiently showed that services were provided for a period that did not exceed 90 days. This is substantially different to assertions by ARs that they had checked their own records without those records having been provided to the Tribunal.

Evidence and submissions concerning each AR in respect of whom the 90-day exemption is claimed

Ireland, Jon (90-day exemption)

109. The parties agreed at AF [4] that Mr Ireland had “entered into an Authorised Representatives Agreement [Ireland ARA] for share trading with Novus” in respect of relevant years.

110. I find that the Ireland ARA comprised a relevant agreement for the purpose of Division 7. Novus submits, and I accept, that the only year in dispute is 2012.

111. The issue is whether the 90-day exemption applied in 2012.

112. Novus agreed with the Chief Commissioner at AAF [1] that from “1 July 2011 to 30 June 2012 [Mr Ireland] placed trades for clients to purchase or sell shares on the execution and settlement services platform on 90 days”.

113. Novus claimed at [123] that Mr Ireland stated in his affidavit that “he provided services on fewer than 90 days during” 2012. I accept that this claim was made at [10] in Mr Ireland’s affidavit where he said that he had “reviewed all of my records” in making the claim.

114. Notwithstanding Mr Afshar’s statement during the hearing that Mr Ireland’s affidavit would not be relied on, Novus, in its post-hearing submissions sought to rely on that affidavit. If Novus had not attempted after the hearing to rely on Mr Ireland’s affidavit I would not have had regard to its contents in these reasons. However, as Novus has sought to rely on the affidavit I am satisfied that it is appropriate for the affidavit’s contents to be used as evidence against Novus.

115. I adopt the same approach throughout these reasons in respect of other affidavits which Novus sought to rely on in post-hearing submissions, although the affidavits were not read, because the deponents were not made available by Novus for cross-examination, and Mr Afshar informed the Tribunal that the affidavits would not be relied on.

116. I note that, notwithstanding Novus conceding that Mr Ireland placed trades on 90 days in 2012, Mr Ireland deposed to having reviewed all his records which showed that he had provided services on fewer than 90 days. Accordingly I am not satisfied that Mr Ireland’s affidavit is completely accurate.

117. Novus claimed at [123] that Mr Ireland had “provided “Execution-Only” services to his clients, which involved receiving orders from “a small number of clients that I had retained”, placing those orders … and then checking and confirming the orders.” I accept that words to that effect were included in Mr Ireland’s affidavit, at [7] and [8].

118. At [8] Mr Ireland provided some detail in relation to the manner in which he serviced his clients. He said that his clients provided him with trading orders. He placed the orders onto an order pad which was sent to a third-party. A trading representative of the third-party received the order and checked and confirmed the details. Once satisfied with the order, the representative placed the order on the stock market which executed a trade. At [7] Mr Ireland said he was not required to prepare any advice documents [in relation to the service he provided to his clients].

119. However, at [4] Mr Ireland said he “provided Share Advisory Services to a small number of clients that [he] had retained.” The discrepancy between the statement at [4] and the statements at [7] and [8] as to whether Mr Ireland provided any advice was not explained to the Tribunal nor was evidence provided as to when that advice was provided, nor as to how much time was involved in carrying out research and providing that advice.

120. Novus claims at [124] that Mr Ireland received $43,716 during 2012 and the Chief Commissioner claims at [113] that by reference to Annexure B to the Objection Determination the amount (from which the Assessments were calculated) is $48,292.

121. Mr Ireland said at [1] that he was “the Director of Felton East Pty Ltd” and at [3] he confirmed “that payments that were made by Novus to me, through my Service Company, Felton East Pty Ltd, have formed part of the” disputed Assessments.

122. It may be a matter of drafting rather than a matter of substance, but it appears to me that Mr Ireland conceded at [1] that the amount Novus paid his company was the amount included by the Chief Commissioner in the Assessments, not the amount claimed by Novus.

123. Novus submitted:

124.   Only the 2012 year is in dispute in relation to Mr Ireland. He received $43,716.39 during that year. The parties agree that Mr Ireland placed trades for his clients on 90 days during 2012. The starting point is the objective evidence. The days, on which Mr Ireland traded support the submission that he falls within the 90-day Exemption. The amount of money he received – which on any view is minimal and very close to the figure the respondent accepted as the threshold – also support the proposition that Mr Ireland’s activities were minimal. Furthermore, the list of trades provided to the Tribunal demonstrates that Mr Ireland was placing one, and only occasionally more than one, trade on any of the days he traded. Even if the Tribunal is minded to allow some preparation time for the placement of trades, it would accept that that preparation work would have been performed during the rest of the 90 days, when Mr Ireland was not trading. Given the matters above, which support Mr Ireland’s statements, the Tribunal would accept that he satisfies the 90-day Exemption.

124. Novus submitted at [124] that “the list of trades provided to the Tribunal demonstrates that Mr Ireland was placing one, and only occasionally more than one, trade on any of the days he traded.”

125. I have no recollection of the “list of trades” of Mr Ireland referred to by Novus at [124], or of any other AR of Novus, being brought to the Tribunal’s attention at any time. The expression “list of trades” does not appear in any of the transcript, AS (other than at [124]), ASR or AFSR.

126. The transcript at page 2 indicates that some documents were produced by certain persons, including Mr Ireland, pursuant to the issue of summonses. The documents were made available to both parties. At T42 both parties indicated that those documents were not required. The Chief Commissioner indicates in footnote 26 that a summons was issued to Mr Ireland and trading days were produced. It may be that the list was in those documents.

127. However, there is no evidence before me of any such trading list. Accordingly, I reject the submission that “Mr Ireland was placing one, and only occasionally more than one, trade on any of the days he traded.”

128. There is no evidence to support Novus’ submission at [124] concerning the amount of preparation time required for Mr Ireland’s trade placement.

129. Having regard to Novus’ onus and the lack of evidence to support Novus’ submissions that Mr Ireland satisfied the 90-day exemption, I reject the submissions. I am not satisfied that the 90-day exemption applies to Mr Ireland in 2012.

Mifsud, Joe (90-day exemption)

130. There is no AR agreement in evidence between Mr Mifsud and Novus. However, the parties have proceeded on the basis that he was a Novus AR.

131. The extract from ASIC’s database at page 282 of Exhibit NJH1 shows that Mr Mifsud was a Novus AR from 3 May 2010 until 1 March 2012 and was authorised to “Deal in a financial product/Apply for, acquire, vary or dispose of financial products on behalf of another” and “Provide general financial product advice.”

132. The parties agreed in AAF:

2. From 1 July 2010 to 30 June 2011 Joe Mifsud placed trades for clients to purchase or sell shares on the execution and settlement services platform on 83 days, otherwise any other work undertaken by Joe Mifsud is not agreed and will be the subject of submissions as to whether the exception in s 32(2)(b)(iii) of the Payroll Tax Act 2007 applies.

133. Novus’ claim is that the 90-day exemption applies. That is, Mr Mifsud did not provide services, during 2011, for periods which in the aggregate exceeded 90 days.

134. I find for the purpose of the proceedings that Mr Mifsud was a Novus AR during 2011 and that he was a party to one or more AR agreements with Novus and that that agreement or those agreements formed a relevant contract for the purpose of Division 7.

135. Novus submitted:

119.   Mr Mifsud ... is a mortgage broker. He received payments through his company, Eagle Range Pty Ltd. He says he worked fewer than 90 days during the Relevant Years…

120.   In 2011, Mr Mifsud received $59,853.239 … The objective evidence is consistent with the statement in Mr Mifsud’s affidavit to the effect that he worked fewer than 90 days during each financial year. Further, like Mr Swarbick, Mr Mifsud provided “execution only” services, which did not involve time consuming advisory work. Even allowing for a reasonable amount of time for Mr Swarbick to complete any paperwork or research for clients – and remembering that just because he did a trade on a particular date, it does not mean that he did nothing for the rest of the day – the Tribunal would find that, on balance, Novus has demonstrated that Mr Mifsud satisfied the 90-day Exemption.

136. Novus provided no evidence in support of its submission that Mr Mifsud “provided execution only services”. This submission contrasts with the excerpt from ASIC’s database referred to above that Mr Mifsud was authorised to “Provide general financial product advice.” In the circumstances I am not satisfied that Novus submission which implied that Mr Mifsud provided no advice services is accurate. I reject the submission.

137. Novus submitted at footnote 242 “For the same reasons as expounded in relation to Mr Swarbick’s evidence, Mr Mifsud’s evidence should be given its full weight notwithstanding the fact that he could not be made available for cross-examination.”

138. The mere fact that Novus agreed that trades were placed by Mr Mifsud on 83 separate days is not in my opinion evidence that no services were provided by Mr Mifsud to clients, and therefore to Novus, on any other days. Mr Afshar conceded during the hearing that Mr Mifsud resided in New South Wales. Shortly before Mr Mifsud was expected to appear to give evidence, Mr Afshar informed the Tribunal that Mr Mifsud was not contactable. Mr Afshar also conceded that no effort had been made to issue a summons to Mr Mifsud in order to ensure his attendance.

…

342   In so far as Novus relies in [29]-[31] and [211] of its written submissions on public statements regarding the availability of the exception for bona fide independent contractors, whether or not a contractor is to be characterised as genuinely independent can only be assessed by the statutory criteria selected by Parliament. For the reasons advanced earlier in these submissions, none of the ARs of Novus (apart from Stephen Hogan in 2013) to whom disputed payments were made, ever satisfied the statutory tests for independence…

742. The Chief Commissioner replied in RSR to Novus submissions in certain documents. Relevantly, the Chief Commissioner’s summary of certain of Novus’ submissions and his response include:

King & Wood Mallesons letter of 26 July 2016

5.39(b) to (c)    Novus seeks to have the interest remitted on the basis that it is unreasonable for the Chief Commissioner to impose the market rate where the Chief Commissioner's officers were significantly wrong in their application and understanding of the law to the facts and substantially extended the period of review (to almost 2 years) by that fact.

Reply       The Chief Commissioner disputes that it was at fault in any respect so as to warrant a reduction of the market rate interest which was imposed. During the objection stage the wages figure was reduced but this was because Novus provided further information which was not provided earlier during the audit stage. The audit was complicated and was extended due to Novus continually providing different figures for the wages ..

743. Novus reply to RSR included:

4.   As to the respondent’s submissions pertaining to paragraph 5.39(b) to (c) and (d) of the Opening Submissions … Novus sought to and did provide extensive materials throughout the process, which was either simply ignored by the respondent without proper explanation or treated by him in error as demonstrated by the fact that the figures used are clearly wrong (as set out in Novus’ submissions in chief).

Novus’ position in summary

744. Novus placed substantial emphasis in its submissions in its reliance on:

1. “clear advice” by its auditors shortly after the introduction of the Act (1 July 2007) and legal advice dated and received by it on 4 September 2013.

2. a public statement by NSW Treasury.

3. its interpretation of the second reading speech and in particular the meaning of the term “bona fide independent contractors”.

4. the “diffuse” nature of its relationship with its ARs; and

5. that payments to Cennlen were made in accordance with the Licence Agreement and that agreement had been entered into prior to the Act commencing.

Analysis of the law in respect of interest

745. The TA Act relevantly provides the following in respect of the imposition of interest:

21 Interest in respect of tax defaults

(1) If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day for payment until the day it is paid at the interest rate from time to time applying under this Division.

22 Interest rate

(1) The interest rate is the sum of:

(a) the market rate component, and

(b) the premium component.

….

25 Remission of interest

The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount.

746. Unlike the express legislative guidance in respect of the application of penalty tax, there is no legislative guidance as to the circumstances in which the Chief Commissioner, or in this case the Tribunal, should exercise the s 33 discretionary power to remit either or both of the market or premium components of interest.

747. In Trust Co. of Australia Ltd v Chief Commissioner of State Revenue [2002] NSWADT 21, Verick JM 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 the 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.

748. In Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor (RD) [2004] NSWADTAP 19 revised (Incise Technologies) the Appeal Panel of the then ADT considered an appeal by the Chief Commissioner against a decision by the ADT (Verick JM) to reduce penalty tax and to relieve the applicant taxpayer from payment of the premium rate component of interest. In the course of its reasons for decision the Appeal Panel said at [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 [50] 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.

749. In Levitch Design Associates Pty Ltd atf Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215, Sorensen SM referred at [107] to [109] to Incise Technologies at [60] and to the decision of Verick JM in Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 at [27] extracted above. Sorensen SM said at [110], in rejecting the taxpayer’s submissions in that matter, that he was not satisfied that the taxpayer had demonstrated any exceptional circumstances to justify remission of the market rate component of interest.

Analysis of the law in respect of penalty tax

750. The TA Act relevantly provides for the imposition of penalty tax, and its remission in whole or in part, at ss 26 to 33.

751. Sections 26 and 27(1) impose penalty tax at the rate of 25% of the amount of tax unpaid in the event of a tax default. Novus is seeking remission of the whole of the 25% penalty.

752. Pursuant to s 27(3)(a) and (b), the Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if the Chief Commissioner is satisfied either that Novus (or a person acting on behalf of Novus) took reasonable care to comply with the Act, or the tax default occurred solely because of circumstances beyond the control of either Novus or a person acting on behalf on Novus because of circumstances beyond the control of either Novus or that person.

753. Section 28 reduces the s 27 penalty by 80%, to 5% of the amount of tax unpaid if, before Novus was informed that an investigation was to be carried out, Novus had disclosed to the Chief Commissioner sufficient information to enable nature and extent of tax default to be determined.

754. Section 29 reduces the s 27 penalty by 20%, to 20% of the amount of tax unpaid if, before the investigation was completed, Novus disclosed to the Chief Commissioner in writing, sufficient information to enable the nature and extent of the tax default to be determined.

755. Section 33 permits the Chief Commissioner, in such circumstances as the Chief Commissioner considers appropriate, to remit penalty tax by any amount.

Analysis of Novus’ submissions and the material before the Tribunal

Advice to Novus by its auditors that Novus has no liability to pay payroll tax

756. In WG2 Mr Gooley said:

Advice concerning application of payroll tax

26   Prior to 2007, Novus received advice from Boroughs, its auditor, to the effect that Novus would not be liable to pay payroll tax under the law prior to the introduction of the Act. Boroughs never provided any contrary advice to the effect that the Act changed that position.

27   In or around 2007 or 2008, a representative from Boroughs provided to me and the board of Novus, advice to the effect that Novus’ payroll tax position was unaffected by the introduction of the new legislation.

757. The Chief Commissioner submitted at [341] “Copies of this [pre-1 January 2007] advice were not produced.”

758. I observe that in respect of paragraph 26 of WG2:

1. the advice Mr Gooley deposed had been given by Boroughs before 1 January 2007, Novus provided:

1. no evidence as to the details of the advice nor the factual or legal basis on which Boroughs presumably relied in order to be able to provide the advice nor Boroughs’ reasoning for the advice.

2. no documents from Boroughs to support Mr Gooley’s assertion that Boroughs had given any such advice;

3. no officer from Boroughs confirmed that such advice had been provided; and

4. no explanation for not providing any of the information referred to in the preceding three sub paragraphs;

2. Mr Gooley’s statement that Boroughs had never provided any contrary advice to the effect that the Act changed that position, Novus provided no confirmation from any officer or employee or consultant to Novus nor from any officer of Boroughs.

759. I observe that in respect of paragraph 27 of WG2 and the advice Mr Gooley deposed had been given by a representative of Boroughs in or around 2007 or 2008 to himself and the board of Novus, Novus provided:

1. no identification of the representative of Boroughs;

2. no copy of the written advice if the advice was in writing nor the details of the advice if it was given orally nor the factual or legal basis on which Boroughs presumably relied in order to be able to provide the advice nor Boroughs’ reasoning for the advice;

3. no confirmation by any Novus board member of the receipt of any such advice or the circumstances in which such advice was received; and

4. no explanation for not providing any of the information referred to in the preceding three sub paragraphs.

760. It seems to me that the “specific exemption paid to financial planners” on which Novus submitted that it relied prior to 1 July 2007, would have been important to Novus. Having regard to the large amount of detailed documentation and affidavits which Novus has produced for the purpose of these proceedings I am not satisfied that Novus, in failing to provide any evidence in support of Mr Gooley’s affidavit and failing to provide any reason for not providing such supporting evidence, has satisfied its onus of proving the existence or content or timing of the advice referred to in either [26] or [27] nor that any other director received any such advice.

Legal advice to Novus from KB Legals as to its liability to pay payroll tax

761. Novus submitted at [75] that it had taken reasonable steps to comply with the Act. It gave several reasons at [76] in support of that submission including that it had received legal advice on 4 September 2013 which “confirmed the position”.

762. In evidence from pages 57 to 69 in Exhibit R1 is a letter of advice dated 4 September 2013 (the September advice) to the Board of Directors of Novus, marked for the attention of Mr Gooley. The letter is from KB Legals – Solicitors.

763. The September advice does not state that it confirms any advice previously given. It refers to previous correspondence and states:

… Novus is subject to a payroll tax audit and you seek legal advice on the liability of contractors contracted to Novus and in particular commission/brokerage and fee payments made as directed by and to its Authorised Representatives and Contractor/Consultants….

764. The September advice includes certain observations, refers to some information provided by some Novus ARs, some judicial authorities, some legislative provisions, and the contents of certain documents.

765. The conclusions in the September advice include the opinion that:

1. Novus ARs are not “employees and would instead be viewed by law as independent contractors quite clearly”;

2. “third party assistance is provided to the Authorised Representatives of a sufficient magnitude to satisfy the exemption provided in Section 3A(2)(c) of the Payroll Tax Act 2007” (sic); and

3. “the general exemptions [in the Pay-Roll Tax Act 1971] would still apply to the Authorised Representatives of Novus by reason of the modus operandi in which the Authorised Representatives conduct their respective businesses”.

766. The September advice was apparently sent to OSR by Novus’ external accountant, Mr Kite and is referred to in KB Legals letter of 18 November 2013, at page 47 of Exhibit R1.

767. I find on that Novus was entitled to and could rely on the September advice. However, I also find that it could not have relied on that advice prior to its receipt on 4 September 2013.

Reliance on a public statement by NSW Treasury and its interpretation of the second reading speech and the meaning of the term “bona fide independent contractors”.

768. With respect, there is no doubt as to the correctness of the statement “It is trite but necessary to observe that the legislation must be the starting point when considering whether a party is liable to payroll tax or, for that matter, any other tax” which appears at [39] in the reasons for judgment in Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184.

769. In my opinion, while a second reading speech may assist in setting a context in which legislation was passed by Parliament, neither that speech nor a media release by a government agency, replace clear wording used in the legislation. I also note that Novus provided no authority in support of its submission.

770. I have commented above on the difference between what may be regarded as an independent business of a contractor for other purposes and what the legislation requires for a contract to be excluded from the definition of ‘relevant contract’ in Division 7 and that I am not satisfied by Novus’ submissions in that regard..

Reliance on “the diffuse nature of Novus’ relationship with its ARs”

771. The Shorter Oxford English Dictionary defines the adjective “diffuse” as “1. Confused; vague, doubtful 2. Spread out in space; widespread, disbursed” while the Macquarie Dictionary, Revised Third Edition defines “diffuse” as “spread widely”.

772. The relationship between Novus and each of its ARs has been conceded by Novus, and each AR who gave evidence, to be based on one or more written contracts. It is certainly true that Mr Gooley and several of the ARs described their respective relationship with Novus in ways which did not accord with the written contract(s) including in areas such as rights and obligations of the ARs concerning “clients” and the contractual relationship concerning ECSS.

773. However, I am not satisfied that the nature, however described, of Novus’ relationship with its ARs assists Novus in any way in its submission for remission of the market rate of interest or of the imposition of a statutory penalty under the TA Act.

Novus relied on its submission that payments to Cennlen were made in accordance with the Licence Agreement and that agreement had been entered into prior to the Act commencing.

774. I stated above that I was not satisfied that any payments from Novus to Cennlen were made under the Licence Agreement rather than being a continuation of emoluments for services provided by Mr Gooley to Novus.

775. I also found above that the fact that the Licence Agreement pre-dated the commencement of the Act may have assisted Novus if the Chief Commissioner had based part of the Assessments, in respect of payments by Novus to Cennlen, on a determination under s 47(1). However, the Chief Commissioner stated in his reply in RSR (and at [302]) that he no longer made that assertion.

Findings in respect of interest

776. The Chief Commissioner submitted, and Novus did not refute, that interest was charged to Novus on the amount outstanding under the Assessments in accordance with the market rate component and not the premium rate component.

777. I have had regard to the reasons given in Trust Co. of Australia, Incise Technologies and Levitch Design for the imposition of the market rate to compensate the Government of New South Wales for not having the benefit of the tax payment from the time it was due and that not charging that rate would discriminate against taxpayers who met their obligations on time.

778. From my above analysis, I am not satisfied that Novus has demonstrated any exceptional circumstances to justify the remission of the whole or any amount of the interest included in the Assessments nor that there has been any material contribution by the Chief Commissioner to the default such as to activate the s 25 discretion in favour of Novus. Novus has not provided any authority in support of its position and I reject its submissions in relation to the Chief Commissioner’s decision to require it to pay the market rate component of interest in accordance with the TA Act.

Findings in respect of penalty

779. It is essentially a question of fact whether Novus took reasonable care in attending to its tax obligations. Regard must be had to the nature of the obligation requiring the exercise of reasonable care and the particular circumstances in which Novus found itself.

780. Accordingly, it is for Novus to satisfy the Tribunal, with evidence, of ameliorating matters and Novus’ particular circumstances are to be considered in applying the test.

781. In so far as it is relevant to the imposition of a penalty, Novus submitted that it took reasonable care to comply with its payroll tax obligations by acting on the advice it received from its auditors both before and shortly after the commencement of the Act and the legal advice it received from KB Legal on 4 September 2013.

782. In relation to the remission provisions:

1. I am not aware of evidence of any relevant disclosure by Novus before it was informed of the investigation. Accordingly, s 28 does not benefit Novus.

2. it seems to me that Novus denies there is any tax liability and I am not aware of evidence of any relevant disclosure by Novus before the completion of the investigation. I note in this regard that following completion of the audit of which Novus was given notice in January 2013, the 2014 Assessments were issued on 28 November 2014. I also observe Mr Afshar’s advice to the Tribunal in his opening address on 7 December 2016 that a set of accounts showing what he said were the amounts Novus had actually paid to ARs bank accounts was provided to the Chief Commissioner on 13 April 2015, more than four months after the 2014 Assessments were issued. Accordingly, I am not satisfied that Novus is entitled to the benefit of the reduction in penalty tax allowed for by s 29.

783. I have had regard to the material before me, including:

1. communications between the Chief Commissioner and representatives of Novus from notification of Novus as to the commencement of the audit in 2013 until the issue of the Assessments, and subsequent communications in respect of the objection and the Objection Determination; and

2. Mr Afshar’s concession during the hearing that Mr Kite, provided records, containing what were described as details of payments from Novus’ bank account(s) to bank accounts of the ARs, to the Chief Commissioner in 2015, in respect of an audit which commenced some two years earlier and in respect of which Assessments pursuant to the investigation had already issued;

784. Payroll tax is imposed by the Act and is self-assessing in so far as employers are required to register, lodge monthly returns and make payments within a specified number of days after each relevant month. I am not satisfied that there is any requirement that a Notice of Assessment must be issued prior to the taxpayer’s liability to pay tax arising.

785. The Relevant Period commenced on 1 July 2008.

786. There is no evidence before me to the effect that the failure to pay tax (on a monthly basis) occurred solely because of circumstances beyond Novus’ control or the control of any person acting on behalf of Novus.

787. I found above that Novus relied on the September advice and I am satisfied that from 4 September 2013 it is arguable that Novus, in relying on that advice, may well have taken reasonable care to comply with the taxation law. However, I also found that Novus could not rely on the September advice in respect of any liability arising before 4 September 2013.

788. Accordingly, I am not satisfied on the balance of probability that there should be any reduction in the penalty imposed by the Assessments in respect of any taxation liability which arose during the Relevant Period before 4 September 2013.

Decision and orders

789. Having regard to the above findings, on the material before me I make the following orders:

1. I revoke the Assessments under review in respect of the 2009 to 2014 years inclusive.

2. I direct the parties to bring in short minutes of orders within 21 days of the publication of this decision, reflecting the findings in these Reasons.

**********

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Amendments

29 March 2018 - Registrar's certification was placed twice at the conclusion of decision.

Decision last updated: 29 March 2018