Legal News & Analysis – Asia Pacific – Australia – Tax

The NSW Court of Appeal has unanimously found in favour of the appellant in its appeal against an earlier decision by Gzell J that remitted the matter back to the Chief Commissioner to reassess the payroll tax liability of the appellant in accordance with the primary judge’s reasons.

 
The appellant, Smith’s, sold snack foods and drinks in vending machines throughout Australia. They engaged independent contractors to service the machines. Smith’s required the contractors to sign a new Goods Distribution Agreement (GDA) each year. The contractor’s obligations under the GDA included distribution of goods, collection of cash, removal of spoiled products. Smith’s required the contractors to supply their own vehicle. The contractors were also trained to clean, maintain and repair the machines.

 
Smith’s contended that the GDA did not qualify as a “relevant contract” under s 32(1) of the Payroll Tax Act 2007 (2007 Act) and was therefore exempt from payroll tax, arguing that the services provided by its contractors were to be properly regarded as comprising solely of the conveyance of goods by means of a vehicle provided by the person conveying them. In the alternative, Smith’s contended that the services provided were ancillary to the conveyance of goods, such that the GDA was exempt from the definition of a “relevant contract”. The earlier Payroll Tax Act 1971 also applied to certain tax periods, but for most of the relevant purposes, the provisions were identical to the 2007 Act.

The Chief Commissioner submitted that the GDA qualified as a “relevant contract” and the exemption did not apply because not all services provided by the contractor were ancillary to the conveyance of goods by means of a vehicle. In this proceeding, the respondent cross-appealed, contending that the primary judge erred in dividing or slicing the “relevant contract” into exempt and non-exempt parts. The respondent also contended that certain services provided under the GDA were not ancillary to the carriage of goods and that the apportionment provisions did not apply.

In the first instance, the primary judge found that there were 19 identifiable services provided by the contractors under the GDA. Of these 19 services, he found that 4 services were the actual conveyance of the goods, 2 services were “ancillary” to the conveyance of the goods and 13 services were “not ancillary” to the conveyance of the goods. The primary judge therefore found that a GDA was not a relevant contract to the extent that it provided for an exempt service. On this basis, the primary judge remitted the matter back to the Commissioner for redetermination of the payroll tax liability of the appellant.

 
The Commissioner’s cross-appeal was allowed in part by the NSW Court of Appeal, finding that the primary judge erred in dividing or slicing the relevant contract into exempt and non-exempt parts. However, the NSW Court of Appeal otherwise found in favour of the appellant, in finding that the GDA was exempted from being a “relevant contract” under the 2007 Act on the basis that as a matter of characterisation of the GDA, the conclusion to be drawn is that the principal matter or subject of the GDA is the conveyance of goods. The other services provided under the GDA were merely ancillary to that conveyance of goods.

Therefore, the payroll tax assessments issued by the Commissioner to the appellant were set aside.

For further information, please contact:

Geoffrey Mann, Partner, Ashurst
[email protected]

Jadie Teoh, Ashurst
[email protected]

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