PENROWSE PTY LTD and COMMISSIONER OF TAXATION
[2013] AATA 10
[2013] AATA 10
Division TAXATION APPEALS DIVISION File Numbers
2012/2571
2012/2572
Re
PENROWSE PTY LTD
APPLICANT
And
COMMISSIONER OF TAXATION
RESPONDENT
DECISION
Tribunal Senior Member Dr K S Levy, RFD
Date 11 January 2013 Place Brisbane The Tribunal decides:
(a)the objection decision under review is set aside; and
(b)the matter is remitted to the Commissioner of Taxation for re-assessment of all underpayments of superannuation contributions (for administrative staff); and
(c)for the re-assessment of Superannuation Guarantee Charge amounts (for delivery drivers); and
(d)for the calculation of nominal interest components and administrative components (if any) for the relevant quarters of the audit; and
(e)for the issue of prescribed re-assessment notices.
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Senior Member Dr K S Levy, RFD
CATCHWORDS
TAXATION – Objection decision – Superannuation Guarantee Charge – Claim that part of employee payment was an allowance or reimbursement for expenses – Part of ordinary wages or income – Underpayment of superannuation contribution – Nominal interest component – Administrative component – Whether excessive – Decision under review set aside and remitted for re-assessment
LEGISLATION
Income Tax Assessment Act 1997 (Cth) s 290
Superannuation Guarantee (Administration) Act 1992 (Cth) ss 11, 12, 17, 19, 32, 36
Superannuation Guarantee (Administration) Regulations (Cth) r 7ASuperannuation Guarantee Charge Act 1992 (Cth) ss 5, 6
CASES
Case 153 10 TBRD 480
Murdoch v Commissioner of Pay-roll Tax (Vic) (1980) 143 CLR 629
Mutual Acceptance Co Ltd v Federal Commissioner of Taxation (1944) 69 CLR 389
The Federal Commissioner of Taxation v J Walter Thompson (Australia) Pty Ltd (1944) 69 CLR 227The Roads Traffic Authority of New South Wales v Commissioner of Taxation (1993) 43 FCR 223
SECONDARY MATERIALS
Taxation Ruling TR 92/15
REASONS FOR DECISION
Senior Member Dr K S Levy, RFD
INTRODUCTION
The applicant company conducts a business trading as “Gourmet Deliveries Queensland”. It was represented at the Tribunal hearing by Mr Barry Kent and his daughter Ms Justine Michelle Kent. The applicant is appealing against a decision of the Commissioner of Taxation in respect of assessments of Superannuation Guarantee Charge (SGC). These assessments followed an audit of the applicant company, in late 2010 and the first half of 2011, of its superannuation guarantee liabilities for five quarters, commencing 1 April 2009 and concluding the quarter ending 30 June 2010.[1]
[1] Periods: 1 April 2009 – 30 June 2009; 1 July 2009 – 30 September 2009; 1 October 2009 – 31 December 2009; 1 January 2010 – 31 March 2010; and 1 April 2010 – 30 June 2010.
The objection decision in relation to the assessments of SGC pertains to the records of the administrative staff and delivery drivers of the company for the relevant five quarters of the audit.
THE FACTS
The applicant company is a proprietary limited company which has been incorporated since 16 April 2008. In evidence at the Tribunal hearing, the applicant’s representatives advised that the business conducted since 16 April 2008 had also been conducted previously under other entity names for some years prior to 16 April 2008. The Tribunal heard it was previously located in Melbourne. The company then used accountants based in Melbourne and since relocating to Queensland it still uses the same firm of accountants in Melbourne.
Mr Barry Kent, on behalf of the applicant company, does not dispute the accounting records submitted by the Commissioner. These records show that the applicant employed administrative staff and a number of “delivery drivers”. The administrative staff were paid an hourly wage and the delivery drivers were paid an amount which was said to cover wages and private motor vehicle expenses associated with carrying out their delivery duties.
The applicant had an agreement with its drivers that their remuneration paid would be allocated as 80% for allowances for motor vehicle expenses and the remaining 20% would be regarded as wages.
The respondent advised the applicant on 14 December 2010 that an audit would be conducted of SGC periods for the five periods mentioned above. The applicant was invited to provide SGC statements for any underpaid superannuation contributions for those periods. No response was received by the Commissioner of Taxation to that invitation. The Commissioner then conducted the audit for those five periods and, using the annual payment summaries lodged with the Commissioner, regarded the “gross payments” as the amount upon which SGC liability would be based.
The Commissioner has submitted that the superannuation guarantee contributions were paid on behalf of the administrative staff, although there were errors, but not on behalf of the delivery drivers. The applicant told the Tribunal that there had been a previous audit where the same system of recording was maintained but nothing irregular was found. Therefore, the applicant says he was entitled to assume that his calculations were correct. Mr Kent also told the Tribunal that he was advised some years earlier by an accountant that his practice was correct. He further claimed that the Australian Taxation Office had previously “accepted” that the company’s system or methodology was correct. Mr Scott Reeve, for the Commissioner, submitted that that assertion by the applicant was in the context that self-assessment returns were submitted rather than there having been an active audit or review of the self-assessment returns which resulted in an acceptance of the company’s payroll practices.
Essentially, the Commissioner’s case is that the amounts paid to delivery drivers by the applicant company were all part of income or wages but these were not included in the applicant’s calculations of SGC. The Commissioner’s case also relies on the fact that the delivery drivers were all employed under industrial agreements. Mr Kent, for the applicant company, argued that the amounts of “MVRE”, an acronym used in the company’s accounts for amounts paid to drivers for motor vehicle “allowances” or “reimbursements” of motor vehicle expenses, were not salary or wages but reimbursement of motor vehicle expenses.
ISSUES
The following issues are to be determined by the Tribunal:
(1)Were the amounts paid to the delivery drivers and shown in the accounting records of Penrowse Pty Ltd as “MVRE” ordinary wages or were they allowances or reimbursements of motor vehicle expenses; and
(2)Are the amounts of SGC calculated by the Commissioner excessive?
CONSIDERATION
The relevant law
Under the Superannuation Guarantee (Administration) Act 1992 (Cth) (“the Act”) employees are to be provided with a minimum of superannuation by their employer. This minimum level is 9% of the salary or wages of the employee. This is subject to a “maximum contribution base”. Where this is paid, it is deductible by the employer under s 290-60 of the Income Tax Assessment Act 1997 (Cth). If the employer defaults, that provision does not apply and, instead, a superannuation guarantee charge is imposed under s 5 of the Superannuation Guarantee Charge Act 1992 (Cth). The amount of SGC is determined under s 17 of the Act and is an employer’s superannuation guarantee shortfall (see s 6 of the Superannuation Guarantee Charge Act 1992 (Cth)), calculated as follows:
(a) The total of the employer’s individual superannuation guarantee shortfalls for the quarter; and
(b) The employer’s nominal interest component for the quarter; and
(c) The employer’s administration component for the quarter.
The nominal interest component in s 17(b) of the Act is 10% (see s 31 of the Act and reg 7A Superannuation Guarantee (Administration) Regulations 1993 (Cth)). The employer’s administration component in s 17(c) above is $20 per employee for the quarter (see s 32 of the Act).
The individual superannuation guarantee shortfall is prescribed in s 19 of the Act as the amount for each employee for a quarter calculated according to the following formula:
Total salary or wages paid to the employee for the quarter multiplied by charge percentage divided by 100.
The charge percentage is 9% (see s 19(2) of the Act). Section 19(3) of the Act provides that the total salary or wages payable to an employee for the purpose of calculating a superannuation guarantee shortfall is subject to a “maximum contribution base”.
The term “salary or wages” is defined in s 11 of the Act as having their ordinary meanings. Relevantly, it includes commission and payments under a contract between employer and employee. Section 12(3) of the Act provides that where a person works under a contract that is principally made in respect of the labour of the employee, that person is an employee of the other contracting party. Part 4 of the Act provides for assessments and default assessments (see s 36 of the Act). Notice of assessments and objections are to be made with respect to these assessments.
Issue 1 – Are amounts paid to delivery drivers ordinary wages or reimbursements?
The issue here is whether the amounts of “MVRE” in the applicant’s accounting records fall within the legal definition of ordinary income or wages or, alternatively, are they “reimbursements”.
The applicant does not oppose any of the amounts shown in the Commissioner’s assessment, subject to the fundamental question of whether the amounts of MVRE are in fact salary or wages. In respect of administrative staff, the Commissioner says superannuation was paid but there were underpayments in respect of two staff. In respect of delivery drivers, the applicant denies the MVRE amounts are salary or wages and are therefore not relevant to the calculation of SGC. The Commissioner says all of these amounts are “salary or wages”.
The Commissioner submits the term “salary” means a fixed periodical payment paid to a person for regular work or service. A “wage” or “wages” is an amount paid for work or services whether by the day or the week or on any other basis (see Macquarie Dictionary, 4th edition). Mr Reeve, on behalf of the Commissioner, submitted that these terms had been held by the High Court of Australia to have a particular meaning. For example, in Mutual Acceptance Co Ltd v Federal Commissioner of Taxation (1944) 69 CLR 389 (Mutual Acceptance) Latham CJ, at 396, said that “wages” were:
… payments made to an employee in connection with and by reason of his service as an employee or in respect of some incident of his service. Thus a merely personal gift by an employer to a person who happened to be an employee would not be included within ‘wages,’ though a bonus paid to employees because they were employees would be so included.
Mr Reeve also submitted the amounts shown as “MVRE” and “wages” are both earnings of the drivers under an industrial award or agreement. He further submitted that “none of the payments are in fact referable to the use of their private motor vehicle” (Outline of Submissions, para 45).
Alternatively, the Commissioner argues that if the above submission is not correct, then he submits the amounts constitute allowances “paid to compensate the employees for the private vehicle expenses they were likely to incur in performing their employment duties” (Outline of Submissions, para 48). An “allowance” was held by Latham CJ in Mutual Acceptance, at 397, as representing “… higher wages paid on account of special conditions, and may fairly be described as part of wages in the ordinary sense” (emphasis added in Outline of Submissions, para 50). His Honour also distinguished, at 396, between an amount paid for the employee’s use as salary or wages in contrast to when a payment passes through the hands of the employee to a third person, the latter not being regarded as a payment to the employee.
Mr Reeve also referred the Tribunal to The Roads and Traffic Authority of New South Wales v Commissioner of Taxation (1993) 43 FCR 223 where Hill J of the Federal Court, at 231, said a payment did not need to relate to a specific service provided the amount is paid to the employee for services generally.
In this case, Mr Reeve also says there is no basis for regarding the amounts as “reimbursements” as there was no process for an employee “to vouch or substantiate expenses actually incurred” (Outline of Submissions, para 62). Therefore, the employer did not accept responsibility for the expenses but, rather, it was an amount paid to the employee to be responsible for their motor vehicle expenses which might arise. It was an agreement under a contract of employment or industrial agreement. Mr Reeve further submitted that the 80%:20% division of the amount paid was an arbitrary one and not based on any actual determination of expenses (see Case 153 10 TBRD 480). He argued specifically that 80% was likely to be a “massive amount”, an “unrealistic” amount, and the employee would be unlikely to perform his labour on that basis.
I accept the Commissioner’s submission. Whether 80% is unrealistic would depend on whether the 20% (as wages) would be a realistic net profit of the total amount received by someone running a similar business. On perusal of the gross amounts shown in Annexure A to the Outline of Submissions, which reveal motor vehicle expenses four times that of the gross wages for three month periods, it does not, on the face of it, seem realistic.
In Murdoch v Commissioner of Pay-roll Tax (Vic) (1980) 143 CLR 629, the High Court of Australia said a wide approach is required in the application of this term and it followed the principle adopted by the High Court previously in The Federal Commissioner of Taxation v J Walter Thompson (Australia) Pty Ltd (1944) 69 CLR 227 where it was held that “salary and wages” means all amounts which are paid by an employer as reward for an employee’s services. The description of the payment is not determinative but you must look to the substance of the payment to determine its character (see The Roads and Traffic Authority of New South Wales v Commissioner of Taxation (1993) 43 FCR 223; and see also Taxation Ruling TR 92/15)
In the circumstances, I am not satisfied that the evidence reveals any invoices or receipts to indicate the amounts of MVRE are reimbursements of actual expenses on behalf of employees. In any event, they seem to me to satisfy the legal definition of “wages” as set down by the High Court of Australia. The applicant therefore cannot succeed on Issue 1.
Issue 2 – Are the amounts of SGC calculated by the Commissioner excessive?
As Mr Kent does not dispute the amount shown in the MYOB records or in the figures attached as Annexure B to the Outline of Submissions (which is the Commissioner’s submission of the amounts of superannuation guarantee shortfall), it follows from the finding in Issue 1 that there are amounts which have been underpaid for administrative staff and there are shortfalls which should have been paid for delivery drivers. While the decision under review was correct in legal principle, there are amounts of underpayment which were not properly included in that decision as a matter of fact. I have examined the schedules in Annexures A and B and there appears to be a basis for the Commissioner’s submission, and Mr Kent’s acquiescence, to the fact that there have been underpayments. There are also amounts of nominal interest and penalties which need to be assessed. The Commissioner submits that the assessments of these amounts should be remitted to the Australian Taxation Office for calculation and issue of default re-assessments under the Act. In the circumstances, I am satisfied that this would be the most appropriate course.
DECISION
The Tribunal decides:
(a)The objection decision under review is set aside; and
(b)The matter is remitted to the Commissioner of Taxation for re-assessment of all underpayments of superannuation contributions (for administrative staff); and
(c)for the re-assessment of Superannuation Guarantee Charge amounts (for delivery drivers); and
(d)for the calculation of nominal interest components and administrative components (if any) for the relevant quarters of the audit; and
(e)for the issue of prescribed re-assessment notices.
I certify that the preceding 25 (twenty –five) paragraphs are a true copy of the reasons for the decision herein of Senior Member Dr K S Levy, RFD
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Associate
Dated 11 January 2013
Date of hearing 29 November 2012 Advocate for the Applicant Mr Barry Kent
Solicitor for the Respondent Mr Scott Reeve
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