Paul Andrew Bennett and Craig Bradley Dix t/as FITNESS PAINTING and Property Maintenance v Higgins
[2005] WASCA 197
•19 OCTOBER 2005
PAUL ANDREW BENNETT AND CRAIG BRADLEY DIX t/as FITNESS PAINTING & PROPERTY MAINTENANCE -v- HIGGINS [2005] WASCA 197
| WESTERN AUSTRALIAN INDUSTRIAL APPEAL COURT | Citation No: | [2005] WASCA 197 | |
| Case No: | IAC:4/2005 | 1 AUGUST 2005 | |
| Coram: | WHEELER J PULLIN J LE MIERE J | 19/10/05 | |
| 20 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed | ||
| A | |||
| PDF Version |
| Parties: | PAUL ANDREW BENNETT AND CRAIG BRADLEY DIX t/as FITNESS PAINTING & PROPERTY MAINTENANCE MURRAY ROSS HIGGINS ATTORNEY GENERAL FOR COMMONWEALTH OF AUSTRALIA |
Catchwords: | Appeal Award of compensation for unfair dismissal Effect of taxation upon award Whether appellants obliged to withhold and remit to Commissioner of Taxation any part of the compensation ordered by the WAIRC to be paid "Eligible termination payment" Whether compensation ordered to be paid amounted to an eligible termination payment "In respect of" Obligation to withhold Statutory construction Section 109 Commonwealth Constitution Section 34 Industrial Relations Act 1979 (WA) Powers of Court of Appeal |
Legislation: | Income Tax Assessment Act 1936 (Cth), s 27A, s 221A Income Tax Assessment Act 1997 (Cth), Div 995 Pt 6.5 Industrial Relations Act 1979 (WA), s 7, s 23A, s 34, s 83B, s 83C, s 84 Judiciary Act 1903 (Cth), s 78A Tax Administration Act 1953 (Cth), s 12-35, s 12-85, s 15-10, s 16-5, s 16-20 The Commonwealth Constitution, s 109 |
Case References: | Dibb v Commissioner of Taxation (2004) 136 FCR 388 FCT v Scully (2000) 201 CLR 148 Le Grand v Commissioner of Taxation (2002) 124 FCR 53 McDowell v Baker (1979) 144 CLR 413 McIntosh v FCT (1979) 45 FLR 279 Northern Territory of Australia v GPAO (1999) 196 CLR 553 P v P (1994) 181 CLR 583 Reseck v FCT (1975) 133 CLR 45 Technical Products Pty Ltd v SGIO (Qld) (1989) 167 CLR 45 Wheeler v Philip Morris Ltd (1989) 97 ALR 282 Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 Bostok (Aust) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20 Cachia v Hanes [1994] 179 CLR 403 Coshott v Schmeirer [2002] NSWSC 1098 Dibb v Commissioner of Taxation 2003 ATC 4613 General Steel Industries Inc v Commissioner for Railways (NSW) [1964] 112 CLR 125 Grout v Gunnedah Shire Council (No 3) (1995) 129 ALR 372 Heidt v Chrysler Australia Ltd (1976) 26 FLR 257 Hollis v Vabu Pty Ltd (2001) 207 CLR 21 Kanan v Australian Postal & Telecommunications Union (1992) 43 IR 257 Macks, Re; Ex parte Saint (2000) 204 CLR 158 Matthews v Cool or Cosy Pty Ltd & Ors [2003] WASCA 136; 83 WAIG 2749 McLean; Ex parte (1930) 43 CLR 472 Naqvi v MBP (SA) Pty Ltd (1981) 36 ALR 379 O'Toole v Charles David Pty Ltd (1991) 171 CLR 232 Paperlinx v Skidmore (2004) 51 ACSR 614 Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 Telstra Corp Ltd v Worthing (1999) 197 CLR 61 Transport Workers Union of Australia Industrial Union of Workers, WA Branch v Tip Top Bakeries (1994) 58 IR 22 Van Dongen v Masters Dairy [2001] WASCA 1 Wollongong University v Metwally (1984) 158 CLR 447 |
JURISDICTION : WESTERN AUSTRALIAN INDUSTRIAL APPEAL COURT CITATION : PAUL ANDREW BENNETT AND CRAIG BRADLEY DIX t/as FITNESS PAINTING & PROPERTY MAINTENANCE -v- HIGGINS [2005] WASCA 197 CORAM : WHEELER J
- PULLIN J
LE MIERE J
- Applicant
AND
MURRAY ROSS HIGGINS
Respondent
ATTORNEY GENERAL FOR COMMONWEALTH OF AUSTRALIA
Intervenor
(Page 2)
ON APPEAL FROM:
Jurisdiction : WESTERN AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION
Coram : SHARKEY P, WOOD C, HARRISON C
Citation : [2005] WAIRC 1309
File No : FBA 1 of 2005
Result : Appeal dismissed
Catchwords:
Appeal - Award of compensation for unfair dismissal - Effect of taxation upon award - Whether appellants obliged to withhold and remit to Commissioner of Taxation any part of the compensation ordered by the WAIRC to be paid - "Eligible termination payment" - Whether compensation ordered to be paid amounted to an eligible termination payment - "In respect of" - Obligation to withhold - Statutory construction - Section 109 Commonwealth Constitution - Section 34 Industrial Relations Act 1979 (WA) - Powers of Court of Appeal
Legislation:
Income Tax Assessment Act 1936 (Cth), s 27A, s 221A
Income Tax Assessment Act 1997 (Cth), Div 995 Pt 6.5
Industrial Relations Act 1979 (WA), s 7, s 23A, s 34, s 83B, s 83C, s 84
Judiciary Act 1903 (Cth), s 78A
Tax Administration Act 1953 (Cth), s 12-35, s 12-85, s 15-10, s 16-5, s 16-20
The Commonwealth Constitution, s 109
Result:
Appeal allowed
(Page 3)
Category: A
Representation:
Counsel:
Applicant : Mr D G Taylor
Respondent : Ms K L Scoble
Intervenor : Mr D M J Bennett QC & Ms L B Price
Solicitors:
Applicant : Graham McCorry
Respondent : Construction Forestry Mining & Energy Union of Workers
Intervenor : Australian Government Solicitor
Case(s) referred to in judgment(s):
Dibb v Commissioner of Taxation (2004) 136 FCR 388
FCT v Scully (2000) 201 CLR 148
Le Grand v Commissioner of Taxation (2002) 124 FCR 53
McDowell v Baker (1979) 144 CLR 413
McIntosh v FCT (1979) 45 FLR 279
Northern Territory of Australia v GPAO (1999) 196 CLR 553
P v P (1994) 181 CLR 583
Reseck v FCT (1975) 133 CLR 45
Technical Products Pty Ltd v SGIO (Qld) (1989) 167 CLR 45
Wheeler v Philip Morris Ltd (1989) 97 ALR 282
Case(s) also cited:
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Bostok (Aust) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20
Cachia v Hanes [1994] 179 CLR 403
Coshott v Schmeirer [2002] NSWSC 1098
Dibb v Commissioner of Taxation 2003 ATC 4613
(Page 4)
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] 112 CLR 125
Grout v Gunnedah Shire Council (No 3) (1995) 129 ALR 372
Heidt v Chrysler Australia Ltd (1976) 26 FLR 257
Hollis v Vabu Pty Ltd (2001) 207 CLR 21
Kanan v Australian Postal & Telecommunications Union (1992) 43 IR 257
Macks, Re; Ex parte Saint (2000) 204 CLR 158
Matthews v Cool or Cosy Pty Ltd & Ors [2003] WASCA 136; 83 WAIG 2749
McLean; Ex parte (1930) 43 CLR 472
Naqvi v MBP (SA) Pty Ltd (1981) 36 ALR 379
O'Toole v Charles David Pty Ltd (1991) 171 CLR 232
Paperlinx v Skidmore (2004) 51 ACSR 614
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16
Telstra Corp Ltd v Worthing (1999) 197 CLR 61
Transport Workers Union of Australia Industrial Union of Workers, WA Branch v Tip Top Bakeries (1994) 58 IR 22
Van Dongen v Masters Dairy [2001] WASCA 1
Wollongong University v Metwally (1984) 158 CLR 447
(Page 5)
1 WHEELER J: I have had the advantage of reading in draft the reasons for decision of Le Miere J. I agree with those reasons and have nothing to add.
2 PULLIN J: I have read the draft reasons prepared by Le Miere J. I agree with those reasons and have nothing to add.
3 LE MIERE J: The appellants appeal from the decision of the Full Bench of the Western Australian Industrial Relations Commission ("WAIRC") dismissing an appeal by the appellants from a decision of an Industrial Magistrate to enforce an order of the WAIRC.
Introduction
4 The respondent worked for the appellants as a painter until July 2003 when the appellants terminated his engagement. The respondent applied to the WAIRC for an order pursuant to s 23A of the Industrial Relations Act 1979 (WA) ("the IR Act") on the grounds he had been unfairly dismissed from employment with the respondents in a harsh, oppressive and unfair manner. The respondent claimed that at all times he was employed under a contract of service as a painter on various jobs run by the appellants. The appellants maintained that the respondent contracted to them under a contract for services and was an independent contractor.
5 The WAIRC found that the respondent was an employee and that he was unfairly dismissed by the appellants. The WAIRC ordered the appellants to pay the respondent compensation of two weeks pay at 38 hours per week at the rate of $26.40 per hour making a total of $2,006.40.
6 On 21 March 2004 the appellant's agent wrote to the respondent's solicitors stating amongst other things:
"The finding that your client was an employee at the material time has tax implications for our client.
In addition to the obligation to deduct as an eligible termination payment 47.5 percent of the compensation ordered, a total of $950.00, our client is also obliged to deduct the PAYG instalments due in respect of your client's earnings of $2,588.80 in July 2003. That tax liability amounts to $1,229.68.
Those deductions leave nothing to pay to your client."
(Page 6)
7 On 24 March 2004 the respondent's solicitors responded to the appellant's agent stating that the respondent did not authorise the appellants to make any deduction from the amount they had been ordered to pay.
8 On 28 March 2004 the appellant's agent replied stating, amongst other things:
"[The respondent] is not in a position to authorise or not authorise the deduction of monies from the compensation ordered by the Commission to be paid to him. [The appellants are] obliged by Australian taxation legislation to deduct tax from this sum and remit it to the ATO and is exposed to a penalty if this is not done."
9 The respondent's solicitor responded by letter dated 1 April 2004 in which they again demanded payment and suggested that the appellant's were wrong in their view of the law. On 19 April 2004 the appellants wrote directly to the respondent repeating the substance of their letter of 21 March 2004 to the respondent's solicitors. The respondent's solicitors replied by letter of 24 May 2004 demanding payment of $2,006.40 as ordered by the WAIRC within seven days failing which enforcement proceedings would be commenced.
10 The appellants did not pay to the respondent the amount they were ordered to pay by the WAIRC or any amount. Instead the appellants remitted the sum of $2,006.40 to the Australian Taxation Office in purported compliance with their obligations under Commonwealth taxation legislation.
Proceedings in the Industrial Magistrates Court
11 The respondent applied to the Industrial Magistrates Court pursuant to s 83B of the IR Act for the enforcement of the order of the WAIRC. The respondent sought an order that the appellants pay the sum of $2,006.40, costs and a penalty to be imposed by the Court. The claim was prepared and filed by Ms Scoble in her capacity as industrial officer for the Construction, Forestry, Mining and Energy Union of Workers.
12 The appellants opposed the respondent's claim on the ground that the monies that the WAIRC had ordered the appellants to pay to the respondent had been paid to the Australian Taxation Office in accordance
(Page 7)
- with the provisions of the Commonwealth legislation. The appellants contended that their tax obligations were such that they were required to deduct the tax that they did and remit it to the Australian Taxation Office. The appellants submitted that the requirement to comply with Commonwealth taxation laws is paramount and takes precedence over any requirement to pay the respondent.
13 The Industrial Magistrate rejected the appellant's contentions for the following reasons. The contentions of the appellants would render the order of the WAIRC nugatory. The WAIRC's order was a judicial pronouncement that cannot be overridden or rendered nugatory. The order of the WAIRC made no reference to any amount being deducted from the sum of $2,006.40 by reason of tax or for any other reason. The Court was required to enforce that order and could not go behind it. If the appellants had an issue concerning the WAIRC's ability to make the order that it did then they could have appealed the decision but they had not done so.
14 The Industrial Magistrate made the following findings. The appellants had failed to comply with the order of the WAIRC. A review of the correspondence passing between the parties and their representatives established that the appellants were extremely unhappy with the finding that the respondent was at the material times an employee and the initial unhappiness had developed into a high degree of bitterness. The appellants had embarked on a course of action, which had had the effect of circumventing the decision of the WAIRC that the respondent be paid compensation. The appellant's failure to comply with the WAIRC order was wilful and aimed at rendering the order nugatory so as to deny the respondent the fruits of his judgment.
15 The Industrial Magistrate made the following observations and findings in relation to penalty. The appellants had wilfully breached the WAIRC order and it was appropriate to impose a penalty. The sole mitigatory factor was that there was nothing before the Court to indicate that the appellants had committed any prior act of that type. Although the appellants had wilfully breached the order the penalty should not be disproportionate with the amount in question, that is the amount of $2,006.40. The Industrial Magistrate ordered the appellants to pay a penalty of $750.00 payable to the respondent.
16 The Industrial Magistrate found that the appellants frivolously and vexatiously defended the proceedings and that costs should be awarded in favour of the respondent. The Industrial Magistrate ordered the appellants
(Page 8)
- to pay the respondent $2,006.40 and to pay the respondent a penalty of $750.00 and to pay to the respondent costs fixed at $1,400.00
Appeal to the Full Bench
17 The appellants appealed to the Full Bench of the WAIRC from the decision of the Industrial Magistrate. The appeal grounds contained a number of complaints. The appellant's principal argument was that the Industrial Magistrate erred in law in failing to find that the appellants were obliged to deduct PAYG tax from the compensation ordered to be paid to the respondent and in finding that the appellants had failed to comply with the WAIRC order. The grounds of appeal asserted that the Industrial Magistrate erred in law in finding that the appellants had wilfully failed to comply with the WAIRC order and that they had done so with the aim of rendering the order nugatory so as to deny the respondent the fruits of his judgment. The grounds of appeal further asserted that the Industrial Magistrate erred in law in imposing a penalty on the appellants for breach of the WAIRC order, in ordering the appellants to pay to the respondents the amount already paid to the respondent's credit with the Commissioner of Taxation and in finding that the appellants frivolously and vexatiously defended the proceedings and ordering the appellants to pay the respondent's costs of the proceedings.
18 The Full Bench determined the appeal by reference to s 34(4) of the IR Act which provides:
"Except as provided by this Act, no award, order, declaration, finding, or proceeding of the President, the Full Bench, or the Commission shall be liable to be challenged, appealed against, reviewed, quashed, or called in question by any court –
(a) on any ground relating to jurisdiction; or
(b) on any other ground."
19 The Full Bench made the following findings. By opposing the respondent's application to the Industrial Magistrate on the grounds on which they did so the appellants challenged, appealed against, reviewed, quashed and called in to question the order of the WAIRC. The Industrial Magistrates Court had no jurisdiction or power to dismiss the application to enforce the order or to otherwise deal with the application on the grounds proposed. The amount paid by the appellants to the Australian Taxation Office was not paid in compliance with, or satisfaction of, the WAIRC order. The moneys were paid over the respondent's objection
(Page 9)
- and in defiance of their solicitor's request that the moneys be paid to him. The payment of moneys to the Commissioner of Taxation by the appellants was in direct breach of the words of the order of the WAIRC. The order was not complied with and a breach of it was committed. It followed that the order made by the Industrial Magistrate was entirely correct and the appeal was dismissed.
20 The Full Bench went on to find that the Industrial Magistrate was entirely correct in the orders made for costs and penalty. The appellant's defence before the Industrial Magistrate was entirely without merit and could never have succeeded. It was frivolous and vexatious.
21 After hearing further argument in relation to costs the Full Bench found that the appellant's argument based on s 109 of the Constitution before the Industrial Magistrate was an argument which was misconceived, without merit and untenable because it could not be raised before the Industrial Magistrate. The Full Bench ordered the appellants to pay to the respondent the respondent's costs of the appeal quantified at $3,244.50.
Appeal to this Court
22 The appellants appeal against the whole of the decision of the Full Bench. There are six grounds of appeal. Ground 1 is that the Full Bench erred in law in the construction or interpretation of the IR Act, the Income Tax Assessment Act 1936 (Cth) ("the ITA Act") and Sch 1 of the Taxation Administration Act 1953 (Cth) ("the TA Act") in that it failed to make any findings in respect of the principal ground of appeal to the Full Bench. Ground 2 is that the Full Bench erred in law in the construction or interpretation of the IR Act, the ITA Act and Sch 1 of the TA Act in that the Full Bench failed to consider, fully or at all, the provisions of Sch 1 and its interaction with the IR Act. Ground 3 is that the Full Bench erred in law in the construction of the IR Act, in that the Full Bench wrongly considered s 34 of the IR Act as relevant to the issues to be determined. Ground 4 is that the Full Bench erred in law in the construction of s 109 of the Constitution in that the Full Bench found that it was unnecessary to make any finding as to the merit of the constitutional arguments of the appellants. Ground 5 is that the Full Bench erred in law in construing s 83C of the IR Act by finding that the appellants' defence in the Industrial Magistrates Court was frivolous and vexatious. Ground 6 is that the Full Bench erred in law in ordering the appellants to pay the respondent's costs of the appeal in that the Full Bench failed to properly construe s 84 of the IR Act.
(Page 10)
23 The principal issues before the Court are whether the appellants were obliged to withhold the $2,006.40 it had been ordered to pay to the respondent, or some part of it, and remit that amount to the Commissioner of Taxation and whether by doing so the appellants discharged their obligation to pay that amount to the respondent under the WAIRC order. Those issues are raised by grounds 1 and 2 of the appeal.
Intervention by the Commonwealth
24 The Attorney-General of the Commonwealth of Australia intervened in these proceedings under s 78A of the Judiciary Act 1903 (Cth). The Commonwealth appeared by the Solicitor-General. The submission of the Commonwealth focused on what I have described as the principal issues. I now turn to consider those issues.
The Employee and Employer Relationship
25 An obligation on the appellants to withhold and remit to the Commissioner of Taxation any part of the compensation ordered by the WAIRC to be paid by the appellants to the respondent only arises if the appellants and the respondent were in an employer and employee relationship for the purposes of the Commonwealth taxation law and the PAYG system. There are no statutory definitions governing the employee and employer relationship for the purposes of a PAYG withholding obligation. The ordinary common law meaning is applicable. While there are definitions of employer and employee in s 7 of the IR Act, nothing turns on the differences between those statutory definitions and the ordinary common law meaning given to the employment relationship for the purposes of the relevant tax laws. It is common ground, at least subsequently to the making of the WAIRC order, that the appellants and the respondent were in an employer and employee relationship at the relevant times.
Commonwealth Tax Laws – The PAYG System
26 The relevant Commonwealth tax laws are set out in Sch 1. Schedule 1 was inserted into the TA Act with effect from 1 July 2000, to provide a uniform collection system to replace existing stand-alone collection systems such as the Pay As You Earn ("PAYE") system of deducting tax instalments from salary and wages outlined in Div 1AAA of Pt VI of the ITA Act. The uniform PAYG system operates by specifying withholding events that give rise to a withholding liability. The relevant operative provisions of the PAYG withholding system are the following provisions of Pt 2-5, Div12 of Sch 1 to the TA Act:
(Page 11)
- "Subdivision 12-B – Payments for work and services
…
Section 12-35 – Payment to employee
An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity)
…
Subdivision 12-C – retirement payments, eligible termination payments and annuities
…
Section 12.85 - Eligible termination payment
An entity must withhold an amount from an eligible termination payment it makes to an individual."
The Eligible Termination Payment
27 The term "eligible termination payment" in s 12-85 is defined in Div 995 of Pt 6-5 of the Income Tax Assessment Act 1997 (Cth) as follows:
"Eligible termination payment has the meaning given by subdivision AA of Div 2 of Pt III of the Income Tax Assessment Act 1936".
28 Subdivision AA of Div 2 of Pt III of the ITA Act is headed "Subdivision AA – Superannuation Termination of Employment and Kindred Payments". Section 27A(1) is the interpretation section for this subdivision and provides the following definition:
"Eligible termination payment, in relation to a taxpayer, means:
(a) any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, other than a payment …"
29 None of the listed exclusions in s 27A(1) are relevant to the present circumstances.
(Page 12)
30 Importantly s 27A(3) provides in relation to the definition of eligible termination payment that:
"A reference … to a payment made in respect of a taxpayer is a reference to a payment made (whether voluntarily, by agreement or by compulsion of law);
(a) during the life of the taxpayer:
(i) to or for the benefit of the taxpayer."
32 In Le Grand v Commissioner of Taxation (2002) 124 FCR 53, Goldberg J considered these earlier statements of the High Court in Reseck v FCT (supra) and the Full Federal Court in McIntosh v FCT (supra) in the context of whether an amount accepted by the applicant as an offer of compromise in respect of claims brought by him against his former employer in relation to the termination of his employment was an "eligible termination payment" for the purposes of s 27A(1) of the ITA Act. Goldberg J held that there need not be identified only one circumstance that gives rise to a payment before it can be said that the payment is made "in consequence" of that circumstance. A payment can
(Page 13)
- be made in consequence of a number of circumstances and, for present purposes, it is not necessary that the termination of the employment be the dominant cause of the payment so long as the payment follows, in the causal sense referred to in the authorities, as an effect or result of the termination. His Honour was satisfied that the payment made as a consequence of the acceptance of the offer of compromise was a payment in consequence of the termination of the applicant's employment and therefore an eligible termination payment for the purposes of s 27A(1) of the ITA Act.
33 In Wheeler v Philip Morris Ltd (1989) 97 ALR 282, Gray J of the Federal Court held that an award of damages for unfair dismissal and breach of contract was made in consequence of the termination and thus fell within the definition of an "eligible termination payment". Further, in Dibb v Commissioner of Taxation (2004) 136 FCR 388 where a payment was made pursuant to a deed of release in settlement of Federal Court proceedings for unfair termination of employment, the Full Federal Court adopted the analysis in Le Grand (supra) and applied the decisions in Reseck (supra) and McIntosh (supra) holding that payment of the lump sum settlement was in consequence of the termination of the employment and neither the events that occurred between the dismissal from employment and the settlement of the unfair dismissal proceedings nor the passage of time altered that fact.
34 The WAIRC order was that the respondent be paid compensation of two weeks wages for his unfair dismissal from the appellant's employment and was in consequence of the termination of employment. Accordingly, it is an "eligible termination payment" for the purposes of s 12-85 of the TA Act. The respondent did not contend otherwise.
The Obligation to Withhold
35 The relevant operative provisions of the PAYG holding system in Pt 2-5 of Sch 1 to the TA Act that are relevant to when the payer must withhold payment and when he is discharged from liability by doing so are as follows:
"Division 16 – Payer's obligations and rights
…
Subdivision 16-A – To withhold
…
(Page 14)
- Section 16-5 - When to withhold an amount
If Div 12 requires an entity to withhold an amount from a payment, the entity must do so when making the payment.
Section 16-20 – Payer discharged from liability to recipient for amount withheld.
Payer discharged from liability to recipient for amount withheld.
An entity that:
(a) withholds an amount as required by div 12; or
(b) …
is discharged from all liability to pay or account for that amount to any entity except the Commissioner."
36 The Solicitor-General submitted, and it was not disputed by either of the parties, that the words of s 16-5 in Sch 1 require the withholding to occur when making a payment. These laws do not require and do not permit a payer to withhold from a later payment a PAYG amount that should have been withheld from an earlier payment. The opportunity to withhold is lost once the full amount of the payment is made to the employee.
The Amount Withheld by the Appellants
37 As discussed above, the compensation of $2,006.40 required by the WAIRC order to be paid by the appellants to the respondent is properly characterised as an eligible termination payment. The appellants were obliged to withhold from that payment an amount worked out under the holdings schedules. It is common ground that the amount so calculated is $973.10.
38 The appellants withheld a further amount on the basis that they were obliged by the Commonwealth taxation legislation to deduct that further amount on account of the wages and salary payments made by them to the respondent in the course of his employment prior to the termination of his employment.
39 The definition of salary and wages in s 221A of Div 2 of Pt VI of the ITA Act to include an eligible termination payment is not relevant to
(Page 15)
- Sch 1. Division 2 of Pt VI applied to the PAYE deduction system. The PAYE deduction system ceased to operate in respect of salary and wage payments made after 30 June 2000. Consequently the Solicitor-General submitted that the appellant had no obligation to make a deduction under s 221C(1a) from the payment and remit it to the Commissioner of Taxation. The obligation under s 221C(1a) only applies to payments to an employee of salary and wages before 1 July 2000. That submission was not contested by the appellants and I accept it.
40 In respect of its obligation to pay $2,006.40 to the respondent, the appellants may rely upon s 16-20 of Sch 1 to the TA Act to say that it is discharged from all liability to pay or account for an amount properly withheld under s 12-85 provided it is the amount required by s 15-10 of Sch 1 to be withheld.
41 The appellants may not rely upon s 16-20 of Sch 1 in respect of the amount they withheld from the $2,006.40 in respect of the PAYG amounts that they did not withhold under s 12-35 at the time payments of salary and wages were made to the respondent in July 2003.
42 Thus, the appellants were required under Commonwealth tax law to withhold the amount of $973.10 from the payment of $2,006.40 to the respondent under the WAIRC order. Further, having remitted that amount to the Commissioner of Taxation the appellants were discharged from all liability to pay or account for that amount to the respondent. However, the appellants were not required under Commonwealth tax law to withhold any further amount from the payment of $2,006.40 to the respondent under the WAIRC order and were not discharged from their liability to pay the balance of that sum to the respondent.
The WAIRC Order
43 It is ordinarily to be presumed that it is the intent of the Parliament that jurisdiction conferred in general terms on a court or tribunal will be exercised within the context and confines of applicable law. In the absence of a clear legislative intent to the contrary, a law that confers jurisdiction in general terms will ordinarily be interpreted as not intended to confer jurisdiction to make an order authorising or requiring the doing of an act that is prohibited by the background of applicable law: see by analogy P v P (1994) 181 CLR 583 at 602 per Mason CJ, Deane, Toohey and Gaudron JJ and Northern Territory of Australia v GPAO (1999) 196 CLR 553 at 637 [222] per Kirby J. An order made pursuant to such a law will, therefore, also be interpreted in a manner that is consistent with the background of applicable law.
(Page 16)
44 This approach to the construction of a law, and court or tribunal orders, has particular application where s 109 of the Constitution would otherwise render the State law invalid to the extent of any inconsistency. It also has particular application where it is not reasonable or realistic to expect State court or tribunal orders to explicitly address all the possible taxation consequences that might flow from an order.
45 Applying this principle, the WAIRC order should be interpreted as operating against the background of compliance with the Commonwealth tax law referred to above. That is, the amount that was required under s 12-85 and s 16-5 of Sch 1 to the TA Act to be withheld from the compensation payment to the respondent and paid to the Commissioner of Taxation would be regarded, consistently with s 16-20 of Sch 1 to the TA Act, as having been paid to the respondent for the purposes of compliance with the WAIRC order.
46 Such an approach to the interpretation of the WAIRC order does not render the relevant State law ineffective under s 109 of the Constitution, but enables the terms and operation of both the State and Commonwealth laws to co-exist.
Industrial Relations Act, s 34
47 The Full Bench erred in law in not holding that by withholding from the payment of $2,006.40 to the respondent under the WAIRC order the amount they were required to withhold under Commonwealth tax law the appellants were discharged from their liability to pay or account for that amount to the respondent and to that extent did not contravene the order of the WAIRC. Grounds 1 and 2 of the appeal are made out.
48 The Full Bench found that by their defence in the Industrial Magistrates Court proceedings the appellants had challenged, appealed against, reviewed, quashed or called into question the WAIRC order as prohibited by s 34 of the IR Act. Asserting an obligation to comply with laws such as the TA Act does not give rise to an issue with respect to s 34 of the IR Act. This approach does not involve "challenging, appealing against, reviewing, quashing or calling into question the order" as prohibited by s 34. Rather it involves interpreting what is required by the order consistently with the background of applicable law. The Full Bench erred in law in the construction or interpretation of the IR Act or the order of the WAIRC. Ground 3 of the appeal is made out. The appeal should be allowed and the decision of the Full Bench set aside.
(Page 17)
Powers of Court on Appeal
49 On the hearing of this appeal the Court may, amongst other things, vary, amend or set aside the decision the subject of the appeal and may remit the matter to the Full Bench for further hearing and determination according to law. It is in the interests of the parties that the matter be determined by this Court, if it can properly do so, rather than remit the matter to the Full Bench. Accordingly, I will now consider the orders the Full Bench should have made on the hearing of the appeal to the Full Bench.
Orders Full Bench should have made
50 The appellants first ground of appeal to the Full Bench was that the Industrial Magistrate erred in law in failing to find that the appellants were obliged to deduct PAYG tax from the compensation ordered to be paid to the respondent. I have found that the Industrial Magistrate did err in law in failing to find that the appellants were obliged to deduct PAYG tax from the compensation ordered to be paid to the respondent to the extent that the Industrial Magistrate should have found that the appellants were obliged to deduct $973.10 from the compensation ordered to be paid. The Industrial Magistrate was wrong to find that the effect of the appellants withholding from the compensation ordered to be paid the amount they were obliged to withhold under the Commonwealth taxation law was to render the order of the WAIRC nugatory or to go behind the order. The Industrial Magistrate erred in enforcing the order of the WAIRC by ordering the appellants to pay $2,006.40 to the respondent. The Full Bench should have allowed the appeal and set aside the order of the Industrial Magistrate that the appellants pay to the respondent $2,006.40.
51 The Industrial Magistrate ordered the appellants to pay a penalty in the sum of $750.00 payable to the respondent. The Industrial Magistrate ordered that penalty on the basis that the appellants had wilfully breached the order of the WAIRC by withholding any part of the compensation and remitting it to the Commissioner of Taxation in accordance with their obligations under the Commonwealth taxation legislation. The Full Bench should have set aside the penalty.
52 The Industrial Magistrate ordered the appellants to pay costs to the respondent on the basis that the appellant's contentions concerning the Commonwealth taxation legislation were misconceived and the proceedings were defended frivolously and vexatiously. The Industrial
(Page 18)
- Magistrate was wrong in that finding and the Full Bench should have set aside the costs order.
53 It remains to determine what orders should be made to dispose of this appeal.
Enforcement of WAIRC Order
54 On the respondent's application to the Industrial Magistrate the Industrial Magistrate may, pursuant to s 83B(4) order the employer to do any specified thing for the purpose of preventing any further contravention or failure to comply with the order. I have found that the appellants complied with the order to the extent of paying $973.10 to the Commissioner of Taxation. The appellants failed to comply with the order by not paying to the respondent the balance of the compensation ordered to be paid by the WAIRC that is the sum of $1,033.30. The appellants submit that they should not be ordered to pay $1,033.30 to the respondent because they have paid that sum to the Commissioner of Taxation to the credit of the respondent and the respondent has received the benefit of that payment. That is, if the appellants were to pay $1,033.30 to the respondent the respondent would receive a windfall, he would twice have the benefit of such a payment.
55 It is common ground that the appellants paid $1,033.30, together with the $973.10 withheld in relation to the employment termination payment, to the Commissioner of Taxation for the credit of the respondent. However, in his evidence before the Industrial Magistrate the respondent said that he had not received credit for the payment made by the appellants to the Commissioner of Taxation. In his evidence-in-chief the respondent was asked if he was aware of any payment made by the appellants to the Australian Tax Office in respect to the compensation ordered to be paid to him. The respondent replied that he had received two pieces of paper from the appellants with some amounts on them but when he rang the tax department they had said that the papers were irrelevant and that when he did his tax at the end of the year those payments were not on his tax credits. In cross-examination the respondent said that he had not received credit from the taxation department for the sum of $2,006.40 paid by the appellants to the Commissioner of Taxation. The appellant's advocate asked the respondent to produce his relevant tax records. The respondent did not do so. The Industrial Magistrate had earlier refused to order the respondent to produce his tax records for inspection. Consequently, there was no evidence before the Industrial Magistrate to establish whether or not the
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- respondent had received credit for the sum of $2,006.40 paid by the appellants to the Commissioner of Taxation. That is an unsatisfactory state of affairs. Evidence produced to this Court to which I will shortly refer demonstrated that the respondent had received credit for the whole of the sum remitted by the appellants to the Commissioner of Taxation. This demonstrates the undesirability of the Industrial Magistrates Court dealing with the matter without having required the respondent to produce his income tax records.
56 During the hearing of this appeal the Court informed the Solicitor-General that the Court would be assisted in resolving this appeal by knowing the precise matters which had occurred in relation to the payment of $2,006.40 by the appellants to the Commissioner of Taxation. Junior counsel for the Commonwealth then informed the Court of those matters. The documents provided by the Commonwealth to the Court established the following. In his income tax return for the year ended 30 June 2004 the respondent claimed the sum of $1,033.00 as tax withheld from his salary and wages of $2,332.00. The respondent also claimed tax withheld of $973.00 in relation to the employment termination payment of $2,006.00 that is the compensation ordered to be paid to him by the WAIRC. The assessment documents showed that the respondent's assessment had been calculated on the basis of allowing credit for the $1,033.00 payment and the $973.00 payment.
57 The respondent's income tax return and assessment for the year ended 30 June 2004 demonstrate that he received the benefit of the sum of $2,006.40 paid by the appellants to the Commissioner of Taxation. Indeed, he had claimed that benefit with his income tax return. In those circumstances the appellants should not be ordered to pay $2,006.40, or any sum, to the respondent by way of an order to enforce the WAIRC order.
58 The appellants failed to comply with the WAIRC order in so far as they were not entitled to withhold the sum of $1,033.00 and were obliged by the order to pay that sum to the respondent. However, in all the circumstances it is not appropriate that a penalty be imposed upon the appellants. That is so for two principal reasons. First, the appellants withheld the sum of $1,033.00 under the belief that they were obliged to do so by the Commonwealth taxation legislation. That belief was mistaken but it was based upon advice from their accountant. Even if the appellants were prompted to seek, or to act on, that advice by the "bitterness" found by the Industrial Magistrate, I would hesitate to penalise them for acting in accordance with the advice of a qualified
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- adviser in respect of complex legal obligations. Secondly, at the time of the enforcement proceedings they had paid the whole of the compensation ordered to be paid by the WAIRC for the benefit of the respondent and the respondent accepted the benefit of that payment.
59 The appellants should not be ordered to pay the costs of the proceedings before the Industrial Magistrate. Their defence of the proceedings was not frivolous or vexatious.
60 The appellants seek orders that the respondent pay their costs of the proceedings before the Industrial Magistrate and the appeal to the Full Bench. The contentions of the respondent before the Industrial Magistrate and before the Full Bench were based upon a legal argument which I have held to be erroneous. However, the argument is not so lacking in merit as to make the institution of the proceedings before the Industrial Magistrate or the resistance to the appeal to the Full Bench frivolous or vexatious. Indeed, both the Industrial Magistrate and the Full Bench accepted the respondent's arguments.
61 There is a further basis on which it is said that the respondent instituted the proceedings before the Industrial Magistrate frivolously or vexatiously. That is that the respondent commenced those proceedings to enforce the order of the WAIRC when he had already received the benefit of the payment of the compensation amount by the appellants to the Commissioner of Taxation. The material placed before this Court by the Commonwealth demonstrated that the respondent had received the benefit of that payment and indeed claimed credit for that payment in his 2004 income tax return. However, that was a matter that arose during the course of the appeal. The respondent did not have an opportunity to give evidence as to his state of mind when he instituted the proceedings in the Industrial Magistrates Court. In all the circumstances it is not appropriate to find that the respondent instituted the proceedings in the Industrial Magistrates Court frivolously or vexatiously.
Disposition of Appeal
62 I would allow the appeal and amend or vary the decision of the Full Bench by allowing the appeal from the Industrial Magistrate, setting aside the orders of the Industrial Magistrate and ordering in lieu that the application for enforcement of the WAIRC order and for penalties and costs be dismissed.
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