The Trustee For Virdis Family Trust t/a Rickard Heating Pty Ltd and Commissioner of Taxation (Taxation)

[2022] AATA 3

The Trustee For Virdis Family Trust t/a Rickard Heating Pty Ltd and Commissioner of Taxation (Taxation) [2022] AATA 3 (5 January 2022)

Division: SMALL BUSINESS TAXATION DIVISION

File Number(s):      2021/1535

Re:The Trustee For Virdis Family Trust t/a Rickard Heating Pty Ltd

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Mr Robert Reitano, Member

Date:5 January 2022

Place:Sydney

I affirm the Respondent’s decision, dated 15 December 2020, to disallow the objection dated 5 November 2019.

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Mr Robert Reitano, Member

CATCHWORDS

Superannuation guarantee charge  – whether the superannuation guarantee charge is owed – whether someone is an employee or contractor for the purposes of the Act – extended definition of employee and employer - whether someone works under a contract that is wholly or principally for the labour of the person – the ordinary meaning of employee and employer – undesirability of determining disputed matters without all the evidence - decision under review is affirmed.

LEGISLATION

Superannuation Guarantee (Administration) Act 1992 (Cth) s 12

CASES

Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118

REASONS FOR DECISION

Mr Robert Reitano, Member

5 January 2022

1. A cornerstone of the Superannuation Guarantee Scheme, established by the Superannuation Guarantee (Administration) Act 1992 (Cth) (Act), is that employers, as defined by the Act, who do not make superannuation contributions for the benefit of an employee, as also defined by the Act, to complying superannuation funds are liable to pay a Superannuation Guarantee Charge, which includes the amount of the contributions that should have been made.

2. On 5 November 2019, the Virdis Family Trust trading as Rickard Heating Pty Ltd (Rickard) lodged an objection to the Superannuation Guarantee Charge assessments made by the Commissioner of Taxation (Commissioner) for each of the quarters from 1 October 2013 to 31 March 2018. These assessments were made on 22 May 2019 by the Commissioner following an audit of Rickard’s superannuation guarantee obligations. 

3. On 15 December 2020, the Commissioner disallowed the objection (Decision). On 14 March 2021, Rickard lodged an application for a review of the Decision.

4. I have reviewed the Decision and have decided to affirm it. I explain my reasons for doing so below.

   THE ISSUE

5. The issue is whether Rickard is liable for the Superannuation Guarantee Charge, which comprises unpaid superannuation contributions, interest at statutory rates on those unpaid contributions and an administrative charge, because it did not make superannuation contributions to Mr Darren Pirie (Mr Pirie).

6. The question about whether a Superannuation Guarantee Charge should be imposed requires a determination about whether Rickard was, in respect of Mr Pirie, an ‘employer’ and whether Mr Pirie was an ‘employee’ of Rickard, having particular regard to the definitions of those words in s.12(1) and (3) of the Act.

7. Sub-sections 12(1) and (3) of the Act provide:

   (1) Subject to this section, in this Act, employee and employer have their ordinary                meaning. However, for the purposes of this Act, subsections (2) to (11):

   (a)expand the meaning of those terms; and

   (b)make particular provision to avoid doubt as to the status of certain persons.

   . . .

   (3)  If a person works under a contract that is wholly or principally for the labour of                 the person, the person is an employee of the other party to the contract.

8. It is important to point out that the definition of ‘employer’ and ‘employee’ in s.12 is wider than its ‘ordinary meaning’, and most probably is wider than what people, even business people, would ordinarily understand it to mean. Section 12 acknowledges the widening of the definition by using the words ‘for the purposes of this Act’ and ‘expands the meaning of those terms’ and ‘make[s] particular provision to avoid doubt as to the status of certain persons’. The apparent objective is to widen the class of people who are to be treated as employees for the purpose of the Act and the purpose of making superannuation contributions to this people.

9. The Commissioner contends that Mr Pirie was a person who worked ‘under a contract that is wholly or principally for the labour of the person’ or, alternatively, that Mr Pirie was an employee and Rickard an employer in the ‘ordinary meaning’ which is taken to be reference to their common law meaning. 

10. If either alternative is correct, it follows that Rickard is liable for the Superannuation Guarantee Charge, the objection should be disallowed, and the Commissioner’s decision affirmed.

    FACTS

11. Rickard conducted a business selling and installing cooling and heating systems. In order to operate its business, it had a number of employees that were plumbers or apprentices. Mr Pirie was treated differently to them so far as the way he was engaged was concerned and so far as the making of superannuation contributions was concerned.

12. There was some dispute about the terms upon which Mr Pirie was engaged; however, there was no dispute that he was engaged, and that he was engaged to do work, and that he did that work as result of his engagement. There was also no dispute that superannuation contributions had not been made by Rickard on his behalf.

13. In the course of the Commissioner’s audit Mr Pirie answered enquiries from the Commissioner, by telling the Commissioner that he had an agreement with Rickard that arose from a conversation, perhaps conversations, that he had with Mr Gareth Sanders (Mr Sanders) who was a director of Rickard. He and Mr Sanders reached an agreement that Mr Pirie would work for an hourly rate which started as $33 an hour and increased over the years until it was $40 an hour, plus payment for a tank of a petrol a week. Mr Pirie said that, in practice, he would be allocated job sheets from Rickard at the start of the day. The job sheets directed him to all jobs that were to be performed. Mr Pirie said Rickard supplied all the materials and that he did not supply any materials at all. Mr Rickard said he paid his own expenses such as those relating to his van, which he used for work as well as for tools, and his mobile phone. Mr Pirie said he trained some of the apprentices of Rickard, and also worked with Rickard’s employees at times.

14. Mr Sanders told the Commissioner that Rickard had a written agreement with Mr Pirie -  a pro forma letter of engagement that was used for employees and sub-contractors alike. There were two such letters; one dated 19 September 2011 and a second dated 17 March 2017. Both appeared to be signed by Mr Pirie, but I have no way of telling whether that is right or not. As things turn out, it does not matter a great deal. The  main difference between the two  letters is the hourly rate of pay.

15. The letter dated 19 September 2011 identified Mr Pirie as being ‘employed’ ‘in the position’ of ‘Sub-contract Plumber’. Out of a series of possibilities which were ‘Full Time – Part Time – Casual – Sub-Contractor’, the words ‘Casual – Sub-Contractor’ were circled. The letter recorded that ‘The terms and conditions of your employment will be those set out in the Plumbing and Fire Sprinklers Award 2010 and applicable legislation’. That is a little odd as awards generally only apply to employees.

16. The letter went on to record ‘Your ordinary hours of work will be 40 hours per week, plus any reasonable additional hours that are necessary to fulfil your duties or as otherwise required by your employer’. Leave entitlements, ‘annual leave, personal leave carers leave, compassionate leave, parental leave, community leave and long service leave’, were to be in accordance with  ‘the Plumbing and Fire Sprinklers Award 2010 and the National Employment Standards’. After those words is the qualification ‘(excludes Sub-Contractors and Contractors)’. The letter also had terms concerned with notice of termination. The letter did not refer to anything about either Mr Pirie or Rickard letting someone else perform their part of the deal such as by assigning rights or delegating things; such as, in particular, the work to be done under the agreement.

17. The letter said, ‘You will be paid weekly at the rate of $37 per hour’. Alongside the rate of pay, in handwriting, are the words ‘contractor rate’. So far as superannuation was concerned, the letter said ‘[t]he employer will also make superannuation payments on your behalf in accordance with the Superannuation Guarantee (Administration) Act 1992 (excludes Sub Contractors)’ and specifically went on to provide ‘Sub-contractors under the terms will  look after their own superannuation…’ That was the position so far as the parties were concerned. Sub-contractors were ‘required to submit invoices weekly for hours worked to be paid weekly upon approval from management and payroll administrator’.

18. Importantly, the letter identified ‘Your obligations to the employer’ as being to ‘Perform all duties to the best  of your ability at all times’, ‘Use your best endeavours to promote and protect the interests of the employer and Rickard Heating Pty Ltd’ and ‘to follow all reasonable and lawful directions given to you by your employer, including complying with policies and procedures as amended from time to time’.

19. The second ‘letter of engagement’, dated 17 March 2017, was in much the same terms. The most significant difference was that the rate of pay increased to $40 per hour. It had previously been increased to $35, and then $37 per hour, although these changes appear not to have been documented. They were said to be the product of Mr Pirie putting his rate up, as he needed to, to cover expenses such as petrol, a mobile phone, insurance for his van, tolls and work clothes.

20. In practice, Mr Pirie was told where he was required to work and he would then complete that work. He would keep a tally of the hours he worked, and each week he would render an invoice that had the number of hours he worked each day, the rate of pay and arithmetically the total amount due was calculated. The hours worked each week were not the same, but there were very many weeks when about 37 or more hours  were worked. It is not all that relevant, but the number of hours worked was at odds with the letter of engagement, which included a requirement of 40 hours a week. Invoices were only rendered for hours worked and not for anything else.

21. Mr Pirie was responsible for expenses such as petrol, mobile phone, insurance for his van, tolls and clothes. The arrangement regarding petrol changed towards the end of the relationship as I have mentioned. The materials were arranged by either party depending on the job, but they were always paid for by Rickard where work for Rickard was concerned.

22. If Mr Pirie was unable to attend work, he would ring up and notify Rickard of his absence. He would not be paid if he did not work. Mr Pirie took time off when he wanted to but when he did, he was expected to give notice of any period of absence. Mr Pirie did not arrange a replacement to do his work or delegate his work to someone else. If he was absent, a different Rickard employee would do the work. Mr Rickard at no time delegated the work he was to do. The facts that the letters record no such power, there appears to have been no conversation about such power, and the fact that it did not happen over number of years that Mr Pirie worked for Rickard strongly suggest that there was no such ability to do so. To be clear, to the extent that there was some faint suggestion that Mr Pirie could delegate his work, I reject any such suggestion.

23. At least early on in the relationship, Mr Pirie advertised his services as being available to others who might wish to use his labour. There was some disagreement about whether Mr Pirie did in fact advertise his services to others later on in the relationship. There was no dispute, however, that Mr Pirie was able to work for others while working for Rickard. Mr Pirie said because he was working ‘full time’ for Rickard he did not do a great deal of work for others, but he acknowledged that he was free to do so and at times did so, usually after hours on weekends.

24. There was an issue about what, if any, ‘uniform’ Mr Pirie was required to wear. He claimed Rickard required him to wear work shirts and jumpers identifying Rickard. Rickard said that it did not, although acknowledged at times Mr Pirie was seen wearing shirts with Rickard livery. There was also a dispute as to what was advertised on Mr Pirie’s van. It seems the van clearly had Mr Pirie’s advertising for his own business on it, although Mr Pirie and Rickard disagreed about whether he was required to affix Rickard signage to the windows and panels of his van as well. Mr Pirie said he had magnetic signs adverting Rickard on the side of his van, which he eventually disposed of because they were causing problems for the van. He also said the windows for the van were covered with advertising for Rickard. Mr Pirie organised his own public liability insurance, although Rickard looked after his workers compensation insurance.

    S 12(3) – ‘…WORKS UNDER A CONTRACT THAT IS WHOLLY OR PRINCIPALLY FOR THE LABOUR OF THE PERSON’

25. The first issue is whether or not Mr Pirie worked ‘under a contract that is wholly or principally’ for his labour. As I have observed, resolution of this issue by an answer in the affirmative means that it  is unnecessary to determine the alternative, that Mr Pirie was an employee in the ‘ordinary meaning’, that is according to the common law.

26. There is no doubt that Mr Pirie worked for Rickard over the period 31 December 2013 to 31 March 2018. He did so either under an oral contract, which involved him being paid an hourly rate to undertake various kinds of plumbing and other work related to Rickard’s business; or under a written contract that was comprised by either of the two letters of engagement. This also involved him being paid an hourly rate for much the same kind of work as I have described. It is not necessary to decide whether the contract was oral, as Mr Pirie claims, or whether it was written, as Rickard claims, as consideration of each alternative inexorably leads to the same conclusion.

27. In Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118 (Dental Corporation) the Full Court of the Federal Court of Australia at [82] identified the components of s.12(3) as requiring ‘that: (a) there should be a contract; (b) which is wholly or principally ‘for’ the labour of a person and (c) that the person must ‘work’ under that contract’. I shall approach the matter by dealing with each of those three components.

28. The first element concerns the existence of a contract. Irrespective of whether the contract was oral or written, it is clear that there was a contract between Mr Pirie and Rickard. It existed either because of a conversation or conversations where an oral agreement was struck about work being done by Mr Pirie and him being paid an hourly rate for that work, or because the letters of engagement were accepted as the basis for performing work for the stated rate of hourly pay. Either way, the first element is satisfied.

29. The second element involves an inquiry about what the purpose of the contract was ‘from the perspective of the person obtaining the benefit of the labour (i.e. the quasi-employer)’.  That directs attention to what benefit Rickard received for the oral agreement or the agreements that the letters of engagement constituted. Again, whether regard is had to the oral contract or the written one, the conclusion is the same. So far as the oral contract was concerned Rickard received, in return for the agreed hourly rate ($33, $35, $37 or $40 an hour), Mr Pirie’s labour. If the enquiry is informed by the letters of engagement, the question is answered the same way – although additionally defined by express reference to the position that Mr Pirie was appointed a ‘Sub-contract plumber’, his obligation to work hours (in return for pay and so it would seem other benefits provided for in the letters) and his various obligations to perform ‘duties to the best of his ability’, to use his ‘best endeavours to promote and protect Rickard’ and his obligation to ‘follow all reasonable directions’.

30. Whether the contract was oral or written, the obligation to work, to provide labour, was personal to Mr Pirie. There was no capacity, in either agreement, to delegate the obligation to work. Whether oral or written, the contract was performed consistent with its terms by Mr Pirie working, providing his labour, for numbers of hours each week in return for an hourly rate of pay. There was no other benefit that Rickard received from the agreement no matter what its form.

31. It is true that in performing work under the contracts, Mr Pirie paid some expenses: for petrol (at least for a large part of the period under consideration), for a mobile phone, insurance, tolls, and clothes. Even if it is accepted that Mr Pirie provided ‘consumables’ relevant to his work such as gas, washers, screws and the like, that was hardly the benefit of the contract for Rickard. The main or substantial object of the contract was to secure Mr Pirie’s labour: the contract was ‘wholly or principally’, that is ‘mainly’ or ‘substantially’, for the provision of Mr Pirie’s labour. If Mr Pirie were not providing his labour, there would have been no contract with him.

32. Further, whether Mr Pirie was conducting his own business or not is not relevant when Mr Pirie contracted to give to Rickard only his labour.

33. The third element for consideration is that the person must, in fact, work under the contract. There is no dispute that Mr Pirie did work under the contract, whether oral or written, over the relevant period in issue.

34. The contract in this case was the paradigm kind of agreement that would be caught by the expression ‘works under a contract that is  . . . principally for the labour of the person’.

35. It follows that the Commissioner was correct to decide that Mr Pirie was an employee of Rickard under the extended definition in s.12(3) of the Act and, so, Rickard was liable to pay superannuation on his behalf, and thus, the Superannuation Guarantee Charge.

    THE ORDINARY MEANING OF EMPLOYER AND EMPLOYEE

36. Having determined that Mr Pirie was an employee because of s.12(3) of the Act, it is not necessary to determine whether there was an employment relationship between Mr Pirie and Rickard within the ordinary meaning as contemplated by s.12(1) of the Act.

37. It is also undesirable to do so, given the significant matters over which there is dispute which might tip the matter one or another. Mr Pirie was not involved in the hearing and was not required to be available to be asked questioned or cross examined about his answers to questions posed to him by the Commissioner or Mr Sanders and nor was Mr Sanders or anyone else from Rickard challenged or questioned on their position in the questionnaire.

    ANOTHER MATTER

38. It is important to make clear that the Superannuation Guarantee Scheme has no regard for private arrangements that may have made to pay amounts of one kind or another as a substitute for superannuation contributions, nor for arrangements that are made to avoid obligations created by the Act: if superannuation contributions are not made to employees as defined by the Act, the Superannuation Guarantee Charge will apply regardless. It is not for parties to a private contract to determine when the law contained in the Act should apply. Far less is it for the Tribunal to determine that issue other than in accordance with the legislative prescription. The fact that Mr Pirie agreed to pay his own superannuation contributions or agreed that Rickard should not pay them is irrelevant to the liability of to pay the Superannuation Guarantee Charge.

    DECISION

39. I affirm the Respondent’s decision, dated 15 December 2020, to disallow the objection dated 5 November 2019.

I certify that the preceding 39 (thirty-nine) paragraphs are a true copy of the reasons for the decision herein of Mr Robert Reitano, Member.

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Associate

Dated: 5 January 2022

Date(s) of hearing:	17 December 2021
Applicant:	Self-represented
Solicitors for the Respondent:	Mr P. Pillay, Australian Taxation Office