7 March, 2016
What you need to know
This Bulletin outlines recent Human Resources Tax developments in December 2015 – February 2016 which may affect your business:
Payroll Tax
Styling Australia Pty Ltd v Commissioner of State Revenue (Review and Regulation) (Correction) [2015] VCAT 1792 – The Victorian Civil and Administrative Tribunal held that the hosting and promotional staff provided by Styling Australia Pty Ltd were employees and accordingly, it was liable to pay payroll tax on the wages.
Commissioner for ACT Revenue v G Kalsbeek Pty Ltd (Appeal) [2015] ACAT 90 – The ACT Civil and Administrative Tribunal confirmed the original decision of the Commissioner that G Kalsbeek Pty Ltd was liable to pay penalty tax on unpaid payroll tax.
Chan & Naylor Australia Pty Ltd v Chief Commissioner of State Revenue [2016] NSWCATAD 4 – The NSW Civil and Administrative Tribunal confirmed the decision of the Commissioner that the entities in question were a group for the purposes of the Payroll Tax Act 2007 (NSW).
Terick Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2015] VCAT 1901 – The Victorian Civil and Administrative Tribunal has upheld the determination of the Victorian Commissioner of State Revenue that Terick Pty Ltd should not be excluded from a group of four companies pursuant to section 79 of the Payroll Tax Act 2007 (Vic).
Fringe Benefits Tax
A reminder of changes applying from 1 April 2016 to the fringe benefits tax treatment of salary packaged meal entertainment and entertainment facility leasing expense benefits. Some of the changes apply to all employees while others apply to only not-for-profit employees.
Superannuation
The Australian Taxation Office has released the key superannuation rates and thresholds for the 2016-17 income year.
Hosting and promotional staff considered employees for the purposes of payroll tax
Summary
In Styling Australia Pty Ltd v Commissioner of State Revenue (Review and Regulation) (Correction) [2015] VCAT 1792, the Victorian Civil and Administrative Tribunal (VCAT) held that the hosting and promotional staff provided by Styling Australia Pty Ltd (Applicant) were employees of the Applicant and accordingly, the Applicant was liable to pay payroll tax.
Background
The Applicant provides hosting and promotional staff for events, functions, carnivals and marketing campaigns. The rate of payment for the staff was set by the Applicant, after negotiation with the client, and the Applicant was responsible for paying this amount. The client would inform the Applicant of details of the assignment and the Applicant would pass this information on to its staff. The Applicant and its staff entered into contracts entitled "service agreement – independent contractor" which outlined the rights and liabilities of both parties (Contract).
The Commissioner of State Revenue (Respondent) determined that the Applicant was an employer of its staff for the purposes of the Payroll Tax Act 2007 (Vic) (Act). The Applicant appealed this determination, arguing that the staff were independent contractors.
Decision
VCAT held that the Applicant's promotional staff were "employees" according to ordinary common law principles and that the amounts payable to the staff were "wages" within the meaning of section 13(1) of the Act. Accordingly, the Applicant was liable in respect of payroll tax on these wages.
In classifying the arrangement as one of casual employment, VCAT outlined the following relevant factors:
- any authority that the client had over the staff arose from the Contract;
- the staff were not entitled to subcontract or delegate the work, but rather were required to advise the Applicant if they were unable to attend, and any replacement was to be approved by the Applicant;
- the staff were forbidden from accepting employment with clients without the prior consent of the Applicant;
- the purpose of the Contract was not to obtain a specific result but rather for the provision of labour;
- the staff were not conducting their own business, but rather were working for the Applicant's business;
- the staff had no commercial, legal or financial risk; and
- the staff were remunerated for their lack of leave entitlements.
Taxpayer's payroll tax default caused by failure to take reasonable care in circumstances that were not wholly beyond its control
Summary
The ACT Civil and Administrative Tribunal (ACAT) in Commissioner for ACT Revenue v G Kalsbeek Pty Ltd (Appeal) [2015] ACAT 90 confirmed the original decision of the Commissioner for ACT Revenue (Commissioner) that G Kalsbeek Pty Ltd (Respondent Company) was liable to pay penalty tax on unpaid payroll tax, as its default was not solely due to circumstances beyond its control.
Background
Mr. Geoffrey Kalsbeek (Director) was the director of the Respondent Company. At about the time of formation of the Respondent Company, the Director suffered a serious relapse of his illness and required aggressive medical treatment. As a result, he was unable to attend to the direction of the Respondent Company and handed over these duties to his senior employees, accountants and financial advisors. He did not properly return to his role until 2011.
The Respondent Company failed to pay their liability for payroll tax from the 2007/8 financial year to the 2012/13 financial year. The Commissioner made a determination that the accrued tax be paid together with interest and penalties. The extent of the penalties was disputed by the Respondent Company. At first instance, the ACAT found that part of those penalties should be set aside on the basis that, while the Respondent Company had failed to take reasonable care to fulfil its obligations under the Act, there were circumstances beyond the control of the Respondent Company which warranted the exercise of discretion in its favour. This decision was appealed by the Commissioner.
Decision
The ACAT was required to determine whether section 31(6)(b) of the Tax Administration Act 1999 (ACT) (Act) relieved the Respondent Company of this liability, that is, whether the "tax default happened solely because of circumstances beyond the taxpayer's control".
The ACAT stated that while the health of the Director as the controller of the Respondent Company was a major factor leading to the tax default, and that this was beyond the Respondent Company's control, this was not the "sole" cause. In particular, the Director appeared to have little knowledge of and have made little effort to acquaint himself with his obligations to pay payroll tax, even after he resumed his role in 2011. Further, each of the senior employees, accountants and financial advisers appeared to have failed in their caretaker duties in the Director's absence, in particular they failed to comply with their obligations to arrange for the payment of payroll tax. While these two issues may not have been major causes, they were nonetheless still causes that were not beyond the control of the Respondent Company. Accordingly, it could not be said that the default of the Respondent Company was solely due to circumstances beyond its control.
Commissioner's grouping decision confirmed
Summary
The NSW Civil and Administrative Tribunal (Tribunal) in Chan & Naylor Australia Pty Ltd v Chief Commissioner of State Revenue [2016] NSWCATAD 4 confirmed the decision of the Chief Commissioner of State Revenue (Commissioner) that the entities in question were a group for the purposes of the Payroll Tax Act 2007 (NSW) (Act) and were liable to pay payroll tax and associated interest and penalties.
Background
Mr Chan and Mr Naylor had director and/or shareholder interests in three different entities: Chan and Naylor Holdings Pty Ltd (CN Holdings), Chan and Naylor Australia Pty Ltd (CN Australia) and Chan and Naylor Pty Ltd (Chan and Naylor).
These entities operated different businesses, including:
- acting as a trustee;
- professional accounting and tax service business; and
- licencing and selling intellectual property, precedents and educational material.
The Commissioner made a determination that these entities formed a group for the purposes of the Act and assessed them on their payroll tax liability for the financial years 2009 to 2013. This assessment was appealed by CN Australia.
Decision
In coming to its conclusion, the Tribunal emphasised that the taxpayers in these circumstances bear the onus of proving, on the balance of probabilities, that they are not grouped for the purposes of the Act and that they are not liable to pay payroll tax, interest or penalties.
The Tribunal found that Mr Chan and Mr Naylor had a controlling interest, that is, they were able to exercise more than 50% of the voting power in each of Chan and Naylor, CN Holdings and CN Australia.
Therefore, pursuant to sections 70, 72(1), 72(2) and 74 of the Act, these entities were a group. The relevant facts which led to this decision were that at all relevant times:
- Mr Chan and Mr Naylor held one of only two shares issued by CN and were the sole directors of CN;
- Mr Chan and Mr Naylor were either two of three or two of four directors of CN Holdings; and
- CN Australia was a wholly owned subsidiary of CN Holdings.
The Tribunal upheld the Commissioner's decision to impose interest at the market rate and penalty tax at a reduced rate as the applicant was unable to show that there were exceptional circumstances or that reasonable care had been taken, as required for remission under the Taxation Administration Act 1996 (NSW).
Commissioner's payroll tax determination upheld by VCAT
Background
The Victorian Civil and Administrative Tribunal (VCAT) in Terick Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2015] VCAT 1901 has upheld the determination of the Victorian Commissioner of State Revenue (Commissioner) in respect of payroll tax to be paid by Terick Pty Ltd (Applicant) for the 2008 to 2011 financial years. The VCAT held that the Applicant should not be excluded from a group of four companies pursuant to section 79 of the Payroll Tax Act 2007 (Vic).
Summary
The Applicant submitted that its business was operated differently on a day to day basis from that of other businesses, especially because the managers of the businesses were different. The VCAT held that while day to day management is a factor to be taken into account, the more important factor is the overall control of the businesses. The Applicant and the other businesses had the same directors who had the overall oversight of all the businesses including that of the Applicant.
The Applicant also stated that the businesses were in different industries. However, the VCAT was of the opinion that the businesses were complementary to each other and the Applicant was "extremely dependent upon the other businesses for its operation". For example, the Applicant and other businesses had considerable inter-company loans, used the same external accountant(s) and had the same signatories to bank accounts. In addition, half of the Applicant's income came from hiring staff and equipment to the other members of the group.
Fringe benefits tax changes for employees – salary packaged meal and other entertainment benefits
Summary
A reminder of changes applying from 1 April 2016 to the fringe benefits tax (FBT) treatment of meal entertainment and entertainment facility leasing expense benefits (meal and other entertainment benefits) that are provided under a salary packaging arrangement. Some of the changes apply to all employees while others apply to only not- for-profit employees.
The following applies to all employees:
- all salary packaged meal and other entertainment benefits are reportable and will be included on the payment summary where the reporting exclusion threshold is exceeded; and
- the 50-50 split method and 12-week register method cannot be used by an employer for valuing salary packaged meal and other entertainment benefits, which may affect how much an employee can salary package.
For employees who work for a not-for-profit employer:
- a separate single grossed-up cap of $5,000 will apply for salary packaged meal and other entertainment benefits for employees of not-for-profit organisations able to access a general FBT exemption or rebate ($31,177 or $17,667 exemption; or $31,177 rebate)
- the amount of those benefits exceeding the separate grossed-up cap of $5,000 are included in calculating whether the value of all benefits an employee receives exceeds the general FBT exemption or rebate cap.
This means that from 1 April 2016 employees can receive such benefits worth between $2,329.59 and $2,549.98 (depending on whether their employer is entitled to GST credits) without exceeding the $5,000 cap.
Key superannuation rates and thresholds for the 2016-17 income year
Summary
The Australian Taxation Office has released the following key superannuation rates and thresholds for the 2016-17 income year:
- the concessional contributions cap amount is $30,000. The cap is $35,000 for those who are 49 or above of age on 30 June 2016;
- the non-concessional contributions cap is $180,000;
- the CGT cap amount is $1,415,000;
- payments from superannuation – the low rate cap amount is $195,000 and the untaxed plan cap amount is $1,415,000;
- the superannuation co-contribution maximum entitlement is $500, lower income threshold is $36,021 and the higher income threshold is $51,021;
- employment termination payments – life benefit termination payment is capped at $195,000 and death benefit termination payment is capped at $195,000 too;
- limit set for genuine redundancy and early retirement scheme payments – $9,936 base limit and $4,969 for each complete year of service;
- the maximum superannuation contribution base is $51,620.
For further information, please contact:
Geoffrey Mann, Partner, Ashurst
geoffrey.mann@ashurst.com
