Trustee for the Farant Family Trust and Commissioner of Taxation
[2013] AATA 358
[2013] AATA 358
| Division | TAXATION APPEALS DIVISION |
| File Number(s) | 2012/3167-3168 |
| Re | Trustee for the Farant Family Trust |
| APPLICANT | |
| And | Commissioner of Taxation |
| RESPONDENT |
DECISION
| Tribunal | Senior Member CR Walsh |
| Date | 30 May 2013 |
| Place | Perth |
Decision Summary
The Tribunal affirms the Commissioner’s objection decision dated 31 May 2012.
(Sgd) C.R.Walsh……………...............
Senior Member C R Walsh
CATCHWORDS
INCOME TAX – PAYG (Pay As You Go) withholding – whether delivery drivers employees of Applicant or independent contractors – common law meaning of “employee” considered – whether Applicant failed to withhold from the payments it made to the delivery drivers during the relevant periods – whether Applicant liable to an administrative penalty for its failure to withhold from the payments it made to delivery drivers during the relevant periods – whether the penalty imposed on the Applicant by the Commissioner should be remitted in whole or in part - Commissioner’s objection decision affirmed
LEGISLATION
Taxation Administration Act 1953 (Cth) – s 14ZZK(b)(i) - Schedule 1 - s 12-35 – s 16-30 – s 298-20
CASES
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 164
ANZ Savings Bank Ltd v Federal Commissioner of Taxation 94 ATC 4844
Minister for Immigration and Ethnic Affairs v Pochi (1980) 4 ALD 139
Re Kirby and Collector of Customs (1989) 20 ALD 369
Gauci & Ors v Federal Commissioner of Taxation (1975) 135 CLR 81
McCormack v Federal Commissioner of Taxation 79 ATC 4111; 80 ATC 4179
Macmine Pty Ltd v Federal Commissioner of Taxation 79 ATC 4133
World Book (Australia) Pty Ltd v Federal Commissioner of Taxation 92 ATC 4327
De Luxe Red and Yellow Taxi Cabs Co-op (Trading) Society Ltd v Federal Commissioner of Taxation 97 ATC 4770
Commissioner of Taxation v De Luxe Red and Yellow Cabs Co-operative (Trading) Society Ltd and Others (1998) 82 FCR 507
Vabu v Federal Commissioner of Taxation 96 ATC 4898
Hollis v Vabu 2001 ATC 4508
Queensland Stations Pty Ltd v Federal Commissioner of Taxation (1945) 8 ATD 30; (1945) 70 CLR 539
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) Aust Torts Reports 80-000; (1985-1986) 160 CLR 16
Federal Commissioner of Taxation v Barrett & Ors 73 ATC 4147; (1973) 129 CLR 395
Federal Commissioner of Taxation v J Walter Thompson (Aust) Pty Ltd (1944) 7 ATD 401; (1944) 69 CLR 227
Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561
Humberstone v Northern Timber Mills (1949) 79 CLR 389
Federal Commissioner of Taxation v Burness (as trustee for property of Robert Bottazzi, a bankrupt) 2009 ATC 20-135
Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Federal Commissioner of Taxation 2008 ATC 20-015
Federal Commissioner of Taxation v Traviati 2012 ATC 20-321
SECONDARY MATERIALS
Taxation Ruling TR 2005/16, titled “Income Tax: Pay As You Go – withholding from payments to employees”
REASONS FOR DECISION
Senior Member C R Walsh
30 May 2013
INTRODUCTION
Central to this application is whether certain drivers were “employees” of Ferrac International Pty Ltd, the trustee for the Farant Family Trust (Ferrac), for the purposes of the Pay As You Go (PAYG) withholding provisions in s 12-35 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA).
Specifically, Ferrac seeks a review of the Commissioner’s objection decision (dated 31 May 2012) which disallowed Ferrac’s objection (dated 30 March 2012) to a “Notice of assessment and liability to pay penalty” (issued on 24 February 2012) for the amount of $36,774.
BACKGROUND TO APPLICATION
Ferrac entered into a “Delivery Agreement” with Quality Bakers Australia Pty Ltd (Quality Bakers) for the delivery of the bakery products of Quality Bakers to a number of it clients (Delivery Agreement).
During the period relevant to this application, Ferrac engaged a number of “drivers” to make the deliveries it was required to make under the Delivery Agreement.
Audit of Ferrac
On 19 September 2011 the Commissioner notified Ferrac that it had been selected for an audit of its compliance with certain employer obligations comprising PAYG withholding (for the period 1 July 2009 to 30 June 2011), superannuation guarantee (for the period 1 July 2009 to 30 June 2011) and fringe benefits tax (for the period 1 April 2009 to 31 March 2011) (Audit).
On 20 February 2012 the Commissioner wrote to Ferrac advising it of the outcome of the Audit. In summary, the Audit determined that all of the drivers Ferrac paid throughout the relevant period were common law “employees” of Ferrac and not, as contended by Ferrac “independent contractors”. This conclusion was based on the following:
These contractors were paid solely for their labour. They did not own or lease their own vehicle, they did not have any control and they did not delegate any of the work, furthermore they did not have their own workers. The supermarkets, for which [Ferrac] held delivery contacts, associated [Ferrac’s] workers as being [its] employees and they require security clearance to enter the premises. The workers identified themselves as being part of [Ferrac’s] business and they wore a vest containing [Ferrac’s] business name. The packers signed in and out of the supermarkets identifying themselves as being part of [Ferrac’s] business. They did not carry on their own businesses and [Ferrac] held the risk. For example if [a Ferrac] truck was to break down, [Ferrac] would wear the cost. [Ferrac] also advised us that if a worker was ill, it was [Ferrac’s] responsibility to find someone to do the run or often attempted to do it yourself and that the reason [Ferrac] was no longer trading was because [it] found it difficult getting reliable drivers.
The Audit also identified that:
(i)for the 2010 year, Ferrac failed to withhold a total of $82,166 from the payments is made to the following drivers:
·Ms Susan Madeline Daniell;
·Mr Tyeron David McClellan;
·Mr Bruce Thomas; and
·Mr Anh Tuan Tran;
(ii)for the 2011 year, Ferrac failed to withhold a total of $64,928 from the payments it made to the following drivers:
·Mr Jason Crowley;
·Ms Michelle Jane Lingham;
·Mr Tyeron David McClennan; and
·Mr Anh Tuan Tran;
(iii)Ferrac had failed to withhold PAYG withholding amounts (totalling $147,094) from the payments it made to the relevant drivers; and
(iv)Ferrac’s failure to withhold resulted from a “lack of reasonable care” on its part and that a penalty of 25% should be imposed.
Notice of Assessment
As a result of the Audit, on 24 February 2012 the Commissioner issued Ferrac with a “Notice of assessment and liability to pay penalty” for the quarters ended 30 September 2009 to 30 June 2011 (Assessment).
Objection & Objection Decision
Ferrac objected to the Assessment on 30 March 2012 broadly on the basis that the drivers concerned were “independent contractors” (and not “employees” of Ferrac) and that Ferrac “was right in not withholding PAYG contributions and superannuation guarantee contributions from the fees payable to them” (Objection).
The Objection was disallowed by the Commissioner on 31 May 2012 (Objection Decision).
Application to Tribunal
On 30 August 2012 Ferrac applied to the Tribunal for a review of the Objection Decision on the basis that the Commissioner erred in law and in fact in finding that the relevant delivery drivers were “employees” of Ferrac for the purposes of s 12-35 of Schedule 1 to the TAA and that the penalties imposed on Ferrac, for failing to withhold for the relevant periods should be remitted in full.
Evidence before Tribunal
Ferrac’s evidence before the Tribunal in this application comprised:
· an “Affidavit” (i.e. witness statement) of Mr Ferdinand Torres, dated 30 August 2012 (which was tendered as “Exhibit A1”), as well as the verbal testimony of Mr Torres. Mr Torres is a director and shareholder of Ferrac;
· various on-line “ABN Lookups” for the delivery drivers concerned (which were tendered as “Exhibit A2”); and
· an “Affidavit” (i.e. witness statement) of Mr Anh Tuan Tran, dated 1 November 2012 (tendered as “Exhibit A3”). Mr Tran was one of the delivery drivers who worked for Ferrac in the relevant period. Mr Tran did not appear before the Tribunal and give oral evidence.
The Commissioner’s evidence before the Tribunal in this application comprised:
· two volumes of “Sub-section 37(1AB) Statement in Lieu”, commonly referred to as “T Documents”, (tendered together as “Exhibit R1”); and
· an Australian Taxation Office print-out containing information about delivery driver, Mr Tran (tendered as “Exhibit R2”).
ISSUES
The issues for determination by the Tribunal in this application are:
(i)whether the drivers were “employees” of Ferrac during the quarters ended 30 September 2009 to 30 June 2011;
(ii)whether Ferrac failed to withhold an amount from the payments it made to the drivers in the quarters ended 30 September 2009 to 30 June 2011, pursuant to s 12-35 of Schedule 1 to the TAA;
(iii)If “yes”, whether Ferrac is liable for a penalty under s 16-30 of Schedule 1 to the TAA equal to the amount that it failed to withhold from the payments it made to the drivers in the quarters ended 30 September 2009 to 30 June 2011; and
(iv)If “yes”, whether the penalty should be remitted in whole or in part pursuant to the discretion in s 298-20 of Schedule 1 to the TAA.
BURDEN OF PROOF
Pursuant to s 14ZZK(b)(i) of the TAA, Ferrac bears the burden of proving that the Assessment is excessive: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 164 and ANZ Savings Bank Ltd v Federal Commissioner of Taxation 94 ATC 4844. The standard of proof is on the balance of probabilities: Minister for Immigration and Ethnic Affairs v Pochi (1980) 4 ALD 139 and Re Kirby and Collector of Customs (1989) 20 ALD 369. The question for determination is whether the Assessment is wrong, such that Ferrac must prove that the Assessment is excessive and what the correct assessment ought to be.
There is no onus on the Commissioner to show that the Assessment is reasonable or supported by evidence: Gauci & Ors v Federal Commissioner of Taxation (1975) 135 CLR 81 at 89 per Mason J.
If Ferrac is unable to establish that the Assessment is excessive, then the Assessment must stand, irrespective of whether there are any facts or circumstances which would, on the face of it, support the Assessment: McCormack v Federal Commissioner of Taxation 79 ATC 4111; 80 ATC 4179 and Macmine Pty Ltd v Federal Commissioner of Taxation 79 ATC 4133.
RELEVANT FACTS & EVIDENCE
Prior to commencing work for Ferrac, Mr Torres (as a director of Ferrac) provided each delivery driver with an engagement letter detailing various aspects of the working relationship between Ferrac and the driver (Engagement Letters). Examples of the Engagement Letters are contained in Exhibit R1 at 44 to 61.
The Engagement Letters, which were all in substantially similar terms, stipulate the following:
(i) the area “run” that that driver was engaged to work on;
(ii) the rate at which the driver was to be paid;
(iii)that the driver was to pay his or her own taxes and superannuation; and
(iv)that the driver was to provide weekly invoices quoting their Australian Business Number (ABN).
An example of the content of a typical Engagement Letter (extracted from Exhibit R1 at 46) is as follows:
Dear [Driver’s name],
RE: Contract driver
As per our discussion, I hereby offer you the Contract Driver for area Run #1210 for [Quality Bakers]. The position offers to start under our agreement using the ABN contract system at the rate agreed of $1,400.00 per allocated work per week, provided that you have the option of completing the allocated work earlier.
As a contractor you must pay your own taxes, duties and other government charges. You will also be responsible for your own Superannuation contribution. The agreement to take effect, you must maintain insurance cover for the risks consistent with the nature of the work involve[d] (sic.).
You will need to issue me your weekly invoice with your ABN number and funds will be transferred weekly every Thursday.
Ferrac leased the delivery vehicles, which were used by the drivers to make the deliveries that Ferrac was required to make under the Delivery Agreement, from Quality Bakers.
Ferrac paid for all of the business costs associated with the delivery vehicles used by the drivers to make the deliveries that Ferrac was required to make under the Delivery Agreement, including, for example, fuel, registration, maintenance and servicing.
Pursuant to clause 12 of the Delivery Agreement (titled “Painting and Maintenance of Delivery Vehicles”), the delivery vehicles supplied by Ferrac to the drivers (which Ferrac leased from Quality Bakers) had signage on them chosen by Quality Bakers.
Clause 16 of the Delivery Agreement (titled “Engagement of Staff and Drivers”) provides that Ferrac was required to notify and get approval from Quality Bakers before engaging all of its drivers. That clause states, in part:
16.1Prior to the Commencement Date, [Ferrac] must notify [Quality Bakers] of the names and addresses of all its drives or other staff who, with the consent of [Quality Bakers], it will employ to carry out the obligations of this agreement.
16.2[Ferrac] may at its discretion but with the consent of [Quality Bakers] (which may refuse consent or limit at its sole discretion the term of such engagement) employ such other drivers and staff to assist in carrying out the obligations imposed by this agreement and shall forthwith notify [Quality Bakers] of the names and addresses of all staff employed.
16.3Any staff employed by [Ferrac] shall be introduced to the customers or the customers shall otherwise be informed of the intention that staff be involved in the discharge of [Ferrac’s] obligations und this agreement.
Clause 28 of the Delivery Agreement (titled “Uniforms”) provides:
28.1When performing its obligations under this agreement, [Ferrac] shall supply, and its officers, employees and agents wear, any uniform that [Quality Bakers] may from time to time require for such purpose, in accordance with instructions given by [Quality Bakers] from time to time.
28.2[Ferrac] shall keep and maintain all [Quality Bakers] clothing and uniforms clean and in a state of good condition and repair. [Ferrac] shall at all times maintain a clean and tidy appearance while performing its obligations under this agreement.
Evidence of Mr Ferdinand Torres
A summary of Mr Torres’ evidence (taken from both his witness statement and his testimony before the Tribunal) is as follows.
Prior to commencing work for Ferrac, Ferrac provided each driver with an Engagement Letter in the terms described above (in paragraphs 18 to 20). None of the delivery drivers signed the Engagement Letters. There was no written (executed) agreement detailing the relationship between Ferrac and the delivery drivers.
Although the Engagement Letters specified that the drivers would complete a specific delivery “run” in a particular area, the drivers had some flexibility to swap their “run” with another driver (i.e. to “mix and match their delivery schedule” with another driver, to make the delivery process on any one day run more smoothly). This would happen without Ferrac’s (or Quality Bakers’) prior approval. That is, there was some scope for the drivers to “negotiate” their delivery schedule. Typically, this renegotiation of “runs” would occur at the beginning of the delivery process at the premises of Quality Bakers (i.e. when the bakery products were being loaded for delivery that day). Mr Torres was not normally present at this time. However, if there was any problem with what the drivers proposed, Mr Torres would normally be contacted by the Quality Bakers customer services manager.
The drivers could not sell or assign there delivery “run” (as specified in the driver’s Engagement Letter). However, they could swap or trade their “run” or negotiate for another driver to do it.
Mr Torres met with the drivers on a weekly basis. He was not present at the premises of Quality Bakers supervising the drivers every day.
The delivery drivers did not own the vehicles that they drove to make the deliveries concerned. Rather, Ferrac leased the delivery vehicles from Quality Bakers and Quality Bakers had its logo on the delivery vehicles.
Ferrac paid for all of the business costs associated with the delivery vehicles, such as fuel, registration, maintenance and service costs. The drivers had no responsibility in relation to the delivery vehicles at all. On one occasion the engine of a delivery vehicle seized because it was dropping oil, despite having just been serviced, and Quality Bakers paid $18,000 to repair the engine.
The drivers delivered Quality Bakers’ bakery products, in delivery vehicles leased by Ferrac from Quality Bakers, to stores, canteens, schools etc. (who were clients of Quality Bakers).
Ferrac paid the drivers based on the completion by the driver of a particular “run”. They were not paid on an hourly rate. That is, the drivers would invoice Ferrac for their services and Ferrac would pay the driver based on the invoice received from him or her. The drivers completed their deliveries at their own pace. That is, irrespective of whether they performed their task in 5 hours, 8 hours or 12 hours, the driver would be paid the same amount by Ferrac. Thus, the drivers were paid for the work they completed.
It was immaterial what time the drivers reported to the designated store outlets they were delivering to, provided the driver packed and loaded the Quality Bakers’ products that they were delivering on a particular day by 4.00am to 4.30am that day.
If a driver did not turn up to work on a particular day, that driver did not get paid by Ferrac. The drivers were not paid any form of sick leave allowance by Ferrac.
If a driver was unable to do his or her allocated “run” (for example, because the driver was sick), the driver concerned would normally find a replacement driver to do his or her run. Often, the replacement driver was a relative of the delivery driver who had a licence to drive a truck. Typically, this would happen at Quality Baker’s premises without Ferrac’s prior approval. Because most of the drivers were known to Quality Bakers, the drivers (including replacement drivers) could obtain security key passes to the relevant designated store outlet directly from Quality Bakers (i.e. without Ferrac’s involvement).
Where a replacement driver did the allocated “run” of another driver, the replacement driver would invoice Ferrac for the work done and Ferrac would pay the replacement driver directly for that work. In other words, the replacement driver did not invoice the allocated driver and then the allocated driver in-turn invoiced Ferrac. Mr Torres did not question the invoices presented to him he just paid them.
The drivers either supplied their own uniforms which complied with what was required by Quality Bakers under the Delivery Agreement (i.e. a high visibility vests, safety boots etc.) or Quality Bakers provided the drivers with the appropriate uniforms. The uniforms would generally bear no name or bear the Quality Bakers’ brand “Buttercup”. Ferrac did not supply the drivers with uniforms or monitor what the drivers wore. However, without a high visibility vest or safety boots a driver would be unable to gain access to the premises of Quality Bakers.
The drivers were not prevented from performing delivery work for other contractors of Quality Bakers, such as Mia’s Bakery, Tiptop Bread and Bovell Bakery.
The supermarkets and other outlets to which the delivery drivers made deliveries did not consider the drivers as employees of Ferrac but, rather, as being associated with Quality Bakers.
The delivery drivers did not sign in and sign out of the supermarkets or other outlets to which they made deliveries for Ferrac in fulfilment of its obligations under the Delivery Agreement with Quality Bakers. Their security access cards to the various supermarkets and outlets were issued directly to the delivery drivers by Quality Bakers.
All of the drivers provided Ferrac with an ABN before commencing delivery work for Ferrac. Ferrac regularly checked the ABNs of all the delivery drivers using the “ABN Lookup” web site in order to verify whether the business registration of the drivers was legitimate.
Ferrac did not withhold from the payments it made to the delivery drivers for PAYG purposes and did not pay the superannuation guarantee charge in respect of the delivery drivers during the relevant periods as it considered them to be independent contractors and not its employees. This is why, Mr Torres said, the Engagement Letters stated that the delivery drivers were required to pay their own taxes and superannuation.
Evidence of Mr Anh Tuan Tran
In summary, Mr Tran’s witness statement provides:
he carried on a business of his own under the trade name “Tuan Tran Transport” which has the ABN 14 818 493 208;
he understood from the Engagement Letter that he would pay his own tax, superannuation and workers compensation insurance and that Ferrac would not to this;
at the end of each financial year Ferrac gave him a statement (which was not a group certificate) summarising the monies it had paid him during the year;
he chose which orders to deliver and he issued Ferrac with invoices based on the work he chose and was only paid by Ferrac if he completed that work; and
he was free to do deliveries for other companies.
Mr Tran was not present at the hearing for cross-examination.
RELEVANT LAW & ANALYSIS
ISSUE 1 – Whether the drivers were “employees” of Ferrac
The critical issue in the present case is whether the drivers were “employees” of Ferrac throughout the quarters ended 30 September 2009 to 30 June 2011 within the common law or ordinary meaning of that term. That is, this application essentially turns on what was the true nature of the relationship between Ferrac and the delivery drivers that worked for it.
Section 12-35 of Schedule 1 to the TAA states:
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). [Emphasis added]
The term “employee” is not defined for the purposes of s 12-35 of Schedule 1 of the TAA and consequently takes its ordinary meaning.
The relationship between an employer and an employee is a contractual one. It has been referred to as a “contract of service” as opposed to a “contract for services”, which typically describes an independent contractor relationship: World Book (Australia) Pty Ltd v Federal Commissioner of Taxation 92 ATC 4327. An “employee” normally contracts to provide his or her labour to enable his or her employer to achieve a result. In contrast, an “independent contractor” typically contracts to achieve a result himself or herself: World Book (Australia).
The precise meaning of the term “employee” has long been problematic. As Hill J observed, at first instance in De Luxe Red and Yellow Taxi Cabs Co-op (Trading) Society Ltd v Federal Commissioner of Taxation 97 ATC 4770 (at 4780):
The usual question which arises in disputes of the present kind is whether the contractual relationship between two parties is one of employment or whether the person alleged to be an employee is in truth an independent contractor. The case law has thrown up a variety of judicial approaches and it may be fairly said that consistency in approach is often lacking.
In De Luxe Red and Yellow Taxi Cabs, Hill J found that the relationship which existed between various taxi drivers and taxi cab owners was one of “bailment” and not one of employment. This decision was upheld by the Full Federal Court on appeal in Commissioner of Taxation v De Luxe Red and Yellow Taxi Cabs Co-op (Trading) Society Ltd and Others (1998) 82 FCR 507.
An example of the difficulty that the courts have often had in determining the existence or otherwise of an “employment” relationship is highlighted by the decision of the New South Wales Court of Appeal in Vabu v Federal Commissioner of Taxation 96 ATC 4898 wherein the Court found that certain individuals working as bicycle couriers for the same company were independent contractors and not employees. However, five years later the Full High Court of Australia found, in Hollis v Vabu 2001 ATC 4508, that the very same bicycle couriers were in fact employees of Vabu.
However, as Hill J said in De Luxe Red and Yellow Taxi Cabs (at 97 ATC 4770 at 4780), the classic formulation of (and starting point for determining) the distinction between master and servant (i.e. “employee”), on the one hand, and independent contractor, on the other, is that stated by Latham CJ in Queensland Stations Pty Ltd v Federal Commissioner of Taxation (1945) 8 ATD 30 at 31; (1945) 70 CLR 539 at 545 (commonly referred to as the “control test”), as follows:
If the work to be done by one person for another is subject to the control and direction of the latter person in the manner of doing it, the person doing the work is a servant and not an independent contractor, and prima facie his reward would be wages. An independent contractor undertakes to produce a given result, but is not, in the actual execution of the work, under the order and control of the person for who, he does it.
However, following many years of criticism of this “control test”, the cases have moved away from the “control test” and have instead applied a multifactorial approach to the determination of the character of the relationship of master and servant (or employer and employee): see for example Stevens v Brodribb Sawmilling Co Pty Ltd (1986) Aust Torts Reports 80-000; (1985-1986) 160 CLR 16 and Federal Commissioner of Taxation v Barrett & Ors 73 ATC 4147; (1973) 129 CLR 395. It was thought that the “control test” could result in decisions at odds with common sense and frequently failed to address the economic reality of a particular relationship. It was thought that a better approach was to look at the totality of the relationship between the worker and the payer: see Federal Commissioner of Taxation v J Walter Thompson (Aust) Pty Ltd (1944) 7 ATD 401 at 405; (1944) 69 CLR 227 at 232; Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561 and Humberstone v Northern Timber Mills (1949) 79 CLR 389 at 404 per Dixon J.
In Stevens v Brodribb, Mason J described (at Aust Torts Reports 67 at 446; 160 CLR 16 at 24) what he considered as being the “indicia” of employment as follows:
……the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this court has been to regard it merely as one of a number of indicia which must be considered in the determination of that question…..Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and the provision of holidays, the deduction of income tax and the delegation of work by the putative employee.
In Hollis v Vabu, the Full High Court identified (at 2001 ATC 4508 at 4509) the following factors as being relevant in distinguishing between employees and independent contractors:
(a)The bicycle couriers were not providing labour which required special skills or qualifications, and a bicycle courier was unable to make an independent career as a freelancer or to generate any ‘goodwill’ as a bicycle courier;
(b) The couriers had little control over the manner of performing their work;
(c)The couriers were presented to the public and to those using the courier service as emanations of Vabu. They were required to wear uniforms bearing Vabu’s logo;
(d) Vabu superintended the courier’s finances;
(e)The fact that the couriers were responsible for their own bicycles was a factor normally favouring independent contractor status, but is context reflected only that they were in a situation of employment which was more favourable to the employer; and
(f)This was not a case where there was only the right to exercise control in incidental or collateral matters. Rather, there was considerable scope for the actual exercise of control by Vabu.
In Taxation Ruling TR 2005/16, titled “Income tax: Pay As You Go – withholding from payments to employees”, the Commissioner describes features which have been regarded by the courts as “key indicators” of whether an individual is an “employee” or an “independent contractor”, as follows:
·The degree of “control” exercised over the worker by the payer;
·Whether the worker operates on his or her own account or in the business of the payer;
·Whether the contract is to achieve a specific result;
·Whether the work can be delegated or sub-contracted by the worker;
·Which party bears the “risk” for injury or remedying defects;
·Which party provides the tools and equipment necessary to carry out the job;
·Which party incurs the business expenses; and
·Other indicators of the contractual relationship between the worker and the payer, such as the provision of benefits such as annual leave and sick leave.
Although not binding on the Tribunal, the Tribunal considers that TR 2005/16 serves as a useful summary of the multi-factorial approach which has frequently been adopted by the courts to determining whether an employment relationship exists in a particular case.
The Tribunal considers that in the present case the relationship between Ferrac and the delivery drivers concerned is, on balance, one of “employment”. In reaching this conclusion, the Tribunal notes that no single factual matter is determinative. Rather, it is the cumulative weight of all the facts and evidence which leads the Tribunal to this conclusion.
In reaching the conclusion that the delivery drivers were common law “employees” of Ferrac (and not independent contractors), the Tribunal makes the following observations.
The delivery drivers were engaged by Ferrac to provide their labour only to enable Ferrac to meet its contractual obligations to Quality Bakers under the Delivery Agreement: World Book (Australia). That is, the drivers were simply packing, loading and delivering Quality Bakers’ bakery products on behalf of Ferrac in satisfaction of Ferrac’s contractual obligations under the Delivery Agreement which Ferrac had with Quality Bakers. Despite the fact that the drivers may have had ABNs and that they provided those ABNs to Ferrac, it cannot be said that in the particular circumstances of this case that the drivers were carrying on business in their own right.
In the present case, the delivery drivers provide their labour to Ferrac to produce a result for Ferrac, being the satisfaction of Ferrac’s contractual delivery obligations to Quality Bakers under the Delivery Agreement: World Book (Australia). Based on the evidence before the Tribunal, the delivery drivers clearly conducted themselves in such a way that assisted Ferrac to comply with all of its contractual obligations under the Delivery Agreement it had with Quality Bakers.
The drivers were only paid for the labour they provided to Ferrac (i.e. packing, loading and delivering Quality Bakers’ bakery products to its clients in satisfaction of Ferrac’s contractual obligations to Quality Bakers under the Delivery Agreement) and not according to any contract the drivers had with Ferrac. That is, prior to commencing making deliveries for Ferrac, the drivers received Engagement Letters from Ferrac. However, no written contract between Ferrac and the drivers was ever executed.
If the delivery drivers were true independent contractors and were only engaged to do the specific “run” stipulated in the Engagement Letters, the drivers’ invoices to Ferrac would always reflect the specific amounts set out in the Engagement Letters and not vary in the way in which the invoices, which were tendered into evidence, show.
Although the Engagement Letters stipulated, among other things, the area “run” that a particular driver was engaged to undertake, the evidence of Mr Torre was that in reality the drivers had some scope or flexibility as regards their allotted “run”. The evidence was that the drivers could swap and change their run with another driver so that the deliveries on a particular day ran more smoothly. Further, the drivers were not required to deliver to the stores they were delivering the Quality Bakers’ products to by a specific time, provided they had packed and loaded those products by 4.00am to 4.30am). However, this by itself does not, in the Tribunal’s opinion, render the delivery drivers independent contractors. They were still conducting themselves in a way that assisted Ferrac to meet its contractual obligations to Quality Bakers under the Delivery Agreement.
Despite clause 16 of the Delivery Agreement, which, as discussed above, provided that Ferrac was required to notify Quality Bakers of the names and addresses of all its drivers and other staff who, with the consent of Quality Bakers, Ferrac would engage to carry out its delivery obligations under the Delivery Agreement, the evidence of Mr Torre establishes that in practice the drivers were allowed to find their own replacement driver for their allocated “run” if they were unable to themselves do the run for some reason (for example, due to ill health) and could obtain the necessary security pass for that replacement driver directly from Quality Bakers. This alone is, in the Tribunal’s view, insufficient to make the drivers independent contactors. That is, in doing this, the drivers were helping Ferrac to satisfy its contractual (delivery) obligations to Quality Bakers under the Delivery Agreement.
If the drivers were independent contractors in the true sense of that expression, and they were faced with a situation where they were unable to do their allocated “run”, what would normally occur is that the driver concerned would engage another driver to complete his or her run and then the driver would pay the replacement driver directly, himself or herself, but still charge Ferrac for their work. However, there is no evidence before the Tribunal to show that this is what happened in here.
Ferrac leased the delivery vehicles from Quality Bakers that the drivers used to make the deliveries for Ferrac in fulfilment of Ferrac’s contractual obligations to Quality Bakers under the Delivery Agreement. Pursuant to clause 12 of the Delivery Agreement the delivery vehicles leased by Ferrac and used by the drivers had signage on them chosen by Quality Bakers.
In the present case, all business costs associated with running the delivery vehicles which Ferrac leased from Quality Bakers and provided to the delivery drivers were met by Ferrac. This can be distinguished from the bailment arrangement which existed between the taxi drivers and the taxi owners in De Luxe Red and Yellow Taxi Cabs where the taxi drivers paid the taxi owners a percentage of their gross fares for the use of the cabs and the taxi drivers paid for their own petrol, the cost of keeping the cabs clean and so on.
The Tribunal considers that Ferrac’s provision of the delivery vehicles for use by the drivers (at no charge) and the fact that Ferrac paid for all of the business costs associated with the delivery vehicles is indicative of an employment relationship.
Based on the evidence before the Tribunal, the uniforms worn by the drivers (e.g. high visibility vests, safety boots etc.), even if in some instances the drivers provided those uniforms themselves, were uniforms which complied with Ferrac’s obligations to Quality Bakers, as regards uniforms, as set out in clause 28 of the Delivery Agreement. It follows from this, in the Tribunal’s view, that the drivers were conducting themselves as though part of Ferrac’s business (i.e. assisting Ferrac to achieve a result, being the satisfaction of its contractual obligations to Quality Bakers under the Delivery Agreement) and the drivers were not operating a business on their own account, to achieve a result for themselves: World Book (Australia). Further, based on the evidence, many of the drivers’ uniforms had logos on them associated with Quality Bakers’ brand “Buttercup” and not with any separate business of the individual drivers.
There is no evidence before the Tribunal to prove that the drivers paid for any of their own workers’ compensation insurance as was suggested by Ferrac.
There is no evidence before the Tribunal to support Ferrac’s assertions that the delivery drivers were “sourced” from Quality Bakers or that the delivery drivers worked for multiple contractors of Quality Bakers.
ISSUE 2 – Whether Ferrac failed to withhold an amount from the payments it made to the drivers in the quarters ended 30 September 2009 to 30 June 2011 for the purposes of s 12-35 of Schedule 1 to the TAA
Having found that the relevant drivers were “employees” of Ferrac throughout the quarters ended 30 September 2009 to 30 June 2011, it follows that Ferrac failed to withhold an amount from the payments it made to them in the quarters ended 30 September 2009 to 30 June 2011 for the purposes of s 12-35 of Schedule 1 to the TAA.
ISSUE 3 – Whether Ferrac is liable for a penalty under s 16-30 of Schedule 1 to the TAA equal to the amount that it failed to withhold from the payments it made to the drivers in the quarters ended 30 September 2009 to 30 June 2011
Section 16-30 of Schedule 1 to the TAA provides that an entity that fails to withhold an amount as required by the PAYG withholding provisions is liable to pay to the Commissioner a penalty equal to that amount.
Despite this, as stated above in the background, the Commissioner decided to remit the penalty by 75% under s 298-20 of Schedule 1 to the TAA. That is, rather than imposing a penalty on Ferrac equal to the amount that should have been withheld by it, it imposed a penalty of 25% on the basis that Ferrac’s failure to withhold resulted from a lack of reasonable care.
Having found that the relevant drivers were “employees” of Ferrac throughout the quarters ended 30 September 2009 to 30 June 2011 and that Ferrac failed to withhold an amount from the payments it made to them in the quarters ended 30 September 2009 to 30 June 2011 for the purposes of s 12-35 of Schedule 1 to the TAA, it follows that Ferrac is liable, pursuant to s 16-30 of Schedule 1 to the TAA, to pay the Commissioner a penalty equal to the amount that it failed to withhold.
ISSUE 4 – Whether the penalty should be remitted in whole or in part pursuant to s 298-20 of Schedule 1 to the TAA
The Commissioner’s discretion to remit an administrative penalty in whole or part is contained in s 298-20 of Schedule 1 to the TAA.
The Commissioner’s discretion in s 298-20 has been held to be unconfined, provided it is exercised within the boundaries of the subject matter, scope and purpose of the legislation: Federal Commissioner of Taxation v Burness (as trustee for property of Robert Bottazzi, a bankrupt) 2009 ATC 20-135.
Further, “special circumstances” need not be established and the relevant question to be determined when exercising the discretion to remit is whether the outcome would be “harsh”, having regard to the taxpayer’s particular circumstances: see Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Federal Commissioner of Taxation 2008 ATC 20-015 and Federal Commissioner of Taxation v Traviati 2012 ATC 20-321.
Based on the facts and evidence before the Tribunal, there is nothing in the particular circumstances of the present case to warrant a remission, in whole or in part, of the administrative penalty imposed, pursuant to s 298-20 of Schedule 1 to the TAA. That is, the imposition of the relevant penalty would not, in the Tribunal’s opinion, result in a harsh outcome in Ferrac’s particular case: Dixon Holdsworth and Traviati.
DECISION
For the above reasons, the Tribunal considers that Ferrac has not discharged its burden of proof, on the balance of probabilities, that the Assessment was excessive and affirms the Objection Decision.
| I certify that the preceding 83 ( eighty three) paragraphs are a true copy of the reasons for the decision herein of Senior Member C R Walsh. |
(Sgd) D.A Chapman……...................
Associate
Dated 30 May 2013
| Date of hearing | 7 March 2013 |
| Date final submissions received | 15 March 2013 |
| Representative for the Applicant | Ms V Symons |
| Representative for the Respondent | Mr F Maloney |
0
12
0