Human resources tax developments in Australia - September to November 2016

What you need to know

Payroll Tax

Taxation and Related Legislation (Miscellaneous Amendments) Act 2016 (Tas)

The Taxation and Related Legislation (Miscellaneous Amendments) Act 2016 (Tas) received Royal Assent on 31 October 2016. The Act makes a number of significant amendments to Tasmanian tax law, including:

• amendments to the Payroll Tax Act 2008 to harmonise Tasmanian law with Victorian and NSW laws relating to various contractor anti-avoidance provisions; and
• amendments to the Taxation Administration Act 1997 to extend the standard reassessment timeframe from three to five years (or four financial years where land tax was paid by instalments), to enable the Commissioner to remit unfair preference payments directly to a liquidator to the extent that he is lawfully required to do so, and to enable the Commissioner to offset refunds of overpaid tax (and interest payable on such refunds) against other tax liabilities of the taxpayer.

Revenue Ruling PTA 040 (NSW)

In Revenue Ruling PTA 040, the NSW Office of State Revenue has clarified how it will apply the exemption from payroll tax for defined superannuation benefits in respect of services rendered or performed by an employee before 1 July 1996 in light of the decision in Qantas Airways Limited v Chief Commissioner of State Revenue [2015] NSWSC 826.

The Payroll Tax Act 2007 (Cth) and Pay-Roll Tax Act 1971 (Cth) both generally impose payroll tax upon superannuation contributions, subject to an exemption for superannuation contributions made "in respect of services rendered by an employee before 1 July 1996". Where an employer makes a contribution to a defined benefit plan which has both liabilities attributable to services rendered by employees before 1 July 1996 (i.e. in respect of which the contributions would be exempt) and liabilities attributable to other services rendered by employees (i.e. in respect of which the contributions are subject to payroll tax), the employer's contribution must be apportioned between liable and exempt contributions. The Ruling provides that where an employer's contribution must be so apportioned, the method of apportionment should be certified by an actuary, and provides an outline of a reasonable approach to apportionment.

Draft Revenue Ruling TAA.004v03 (Vic)

The Victorian State Revenue Office has released Draft Revenue Ruling TAA.004v03, an update to Revenue Ruling TAA.004v02, explaining how the Commissioner applies s 100 of the Taxation Administration Act 1997 (Vic), which provides the Commissioner with the discretion to permit a person to lodge an objection to an assessment (other than a compromise assessment) outside of the prescribed 60-day period for lodgement of objections.

Amendments to Revenue Ruling TAA.004v02 are minor. Most notably, prejudice to the Commissioner and to the taxpayer in granting permission to lodge an objection out of time are expressly included as relevant factors for the Commissioner's consideration.

Brisbane Bears – Fitzroy Football Club Ltd v Commissioner of State Revenue (Qld)

In Brisbane Bears – Fitzroy Football Club Ltd v Commissioner of State Revenue [2016] QSC 231, the Supreme Court of Queensland has held that payments made to players and coaches employed by the Brisbane Bears – Fitzroy Football Club Ltd in relation to the use of image rights were liable to payroll tax.

For the relevant period, the players were covered by a collective bargaining agreement as well as a standard playing contract which provided that players would make a stipulated number of appearances for the purposes of game development and promotion, and that players would not unreasonably withhold consent to the use of their image in some aspects of this promotion. Players could subsequently enter into individual 'Additional Services Agreements' to be compensated for partaking in additional promotional or marketing activities. Coaches similarly entered into standard coaching contracts and separate 'Marketing & Promotional Services Agreements' which were not relevantly different to the contracts entered into by the players.

The taxpayer argued that payments to players and their associated entities under Additional Services Agreements (and to coaches under Marketing & Promotional Services Agreements) were for the exploitation of an asset, being the name, image, likeness and reputation of the player/coach, rather than for services provided by the player/coach as employee of the club. Consequently, as payments made for the exploitation of an asset would not be 'wages', they would not be subject to payroll tax. The Court dismissed the taxpayer's appeal, ruling that the agreement by the player/coach to permit the club to use their image was integral to the agreement to provide the promotional and marketing services. Therefore, payments relating to the use of image rights had the true characterisation of payments to an employee in consideration of promotional or marketing services rendered by the employee and were subject to payroll tax.

National Institute of Dramatic Art v Chief Commissioner of State Revenue

In National Institute of Dramatic Art v Chief Commissioner of State Revenue [2016] NSWSC 1471, the Supreme Court of NSW refused the taxpayer's application for a payroll tax refund, finding that the National Institute of Dramatic Art (NIDA) was a school or college within the meaning of cl 12(1)(c) of Sch 2 to the Payroll Tax Act 2007 (NSW) (the Payroll Tax Act) and therefore not exempt from payroll tax. 

Clause 12(1)(c) of Sch 2 to the Payroll Tax Act provides that wages paid by "a non-profit organisation (other than a school or college …) having as one of its objects a charitable … purpose" are exempt wages for the purposes of the Payroll Tax Act. It was common ground that NIDA is a non-profit organisation and that one of its objects is a charitable purpose. The application for a refund was rejected on the ground that NIDA was a school or college. NIDA contended that while it conducted a school or college, this was only a part of its activities and that when all of its activities were considered together, its essential character was that of a promoter of the arts rather than a college or school.

NIDA conducted activities through a variety of divisions, including relevantly: six graduate and undergraduate courses, the NIDA Open Program (offering a range of short-term and part-time courses in the arts) and a Vocational Education and Training program. NIDA argued that the word "school" refers to an "educational institution that promotes learning through a set curriculum taught by a professional body of teachers and subject to a formal assessment", under which definition only the running of some of its more formal programs would constitute conducting a school. However, the Court ultimately agreed with the Commissioner's broader formulation of the meaning of a "school" ... being "an institution where people, whether young, adolescent or adult, are instructed in some area of knowledge or activity." Accordingly, NIDA conducted a school not only through its undergraduate and graduate programs and its Vocational Education Training programs, but also at least through parts of its Open Program.

The court accepted that some of NIDA's operations, such as corporate development programs and venue and costume hire, were not the conduct of a school, but found that upon consideration of all of NIDA's activities, including their relative financial contributions to revenue and costs, NIDA as a whole was properly characterised as a school or college.

Australian Medical Council Ltd v Commissioner for ACT Revenue (Administrative Review) 

In Australian Medical Council Ltd v Commissioner for ACT Revenue (Administrative Review) [2016] ACAT 105, the ACT Civil and Administrative Tribunal has granted a taxpayer an extension of time to lodge objections against past payroll tax assessments in circumstances where the delay was explained by the taxpayer's reliance upon previous advice from the Commissioner. 

In 1996 the taxpayer requested that the Commissioner for ACT Revenue exempt it from payroll tax on the grounds that it was a 'charitable organisation' exempt from payroll tax under s 9(1)(b) of the Payroll Tax Act 1987 (ACT). This followed findings in 1994 and 1996 by the Federal Commissioner of Taxation that the taxpayer was exempt from income tax and fringe benefits tax on the grounds that it was a charitable institution. In May 2014, following advice from its auditor, the taxpayer successfully applied for payroll tax exemption as a charitable organisation. The Commissioner granted the exemption with effect from 2013/14, but did not refund payroll tax paid in previous income years. The taxpayer subsequently requested, and was refused, permission to lodge late objections in respect of its payroll tax assessments for the 2009/10 to 2012/13 years.

Section 102 of the Taxation Administration Act 1999 (ACT) (TAA) provides that an objection must be lodged with the Commissioner not later than 60 days after the notice of assessment is given to the taxpayer. Section 103 TAA, however, affords the Commissioner an unfettered discretion to permit a late objection. In considering whether the Commissioner ought to have exercised its discretion to permit the late objection, the Tribunal held that although unfettered, the discretion must still be exercised in accordance with the 'subject matter, scope and purpose of the TAA'. 

The taxpayer argued that there was an acceptable reason for the delay in lodging the objections because in the absence of any advice to the contrary from its auditors or solicitors, it assumed that the 1996 ruling that it was not entitled to an exemption from payroll tax was correct. In considering whether this was an acceptable explanation, the Tribunal held that although reliance on third party advice of itself will not ordinarily excuse a taxpayer, in light of the 1996 ruling, the taxpayer had no reason to doubt that it was not entitled to an exemption until the matter was raised by its auditors. Further, upon being made aware that it may be entitled to an exemption, the taxpayer acted promptly to seek redress. In light of all surrounding circumstances, the Tribunal found this to be an acceptable reason for the delay and that it would be unjust to refuse the taxpayer the opportunity to test their case for payroll tax exemption by denying lodgement of the late objection.

Smeaton Grange Holdings Pty Ltd & Ors v Chief Commissioner of State Revenue (NSW)

In Smeaton Grange Holdings Ptd Ltd & Ors v Chief Commissioner of State Revenue (NSW) [2016] NSWSC 1594, the Supreme Court of New South Wales has ruled that a disclaimer of interests under a discretionary trust was effective to prevent the operation of grouping provisions in the Payroll Tax Act 2007 (NSW) (Payroll Tax Act) and Taxation Administration Act 1996 (NSW) (TAA).

Tri-City Trucks (NSW) Pty Ltd (Tri-City Trucks) was a company in liquidation that was liable for outstanding payroll tax, interest and penalty tax. The Chief Commissioner issued assessments in respect of the outstanding liabilities to the two plaintiffs, Smeaton Grange Holdings Pty Ltd (Smeaton Grange) and Tri-City Smash Repairs Pty Ltd (Tri-City Smash Repairs), on the basis that they were members of a group of companies of which Tri-City Trucks was a member. The Chief Commissioner contended that they were members of the same group by operation of the grouping provisions in ss 72 and 74 of the Payroll Tax Act (and equivalent provisions of the TAA). The grouping provisions operated by virtue of a combination of Mr Michael Gerace's directorship and direct and indirect interests in the three companies, however relevantly, the Chief Commissioner accepted that the grouping relied upon Mr Gerace's beneficial interests under two discretionary trusts: the Smeaton Trust and the Gerace Family Trust.

The dispute related to the effectiveness of various deeds poll executed by Mr Gerace under which he disclaimed any interest that he might have had under the Smeaton Trust and Gerace Family Trust. Four principal issues arose as to the operation of the disclaimers, all of which were decided in favour of the taxpayers:

• First, it was open under the general law for a discretionary object to disclaim their right to be considered as a future object of the trustee's discretion to appoint income. 
• Second, the disclaimers by deed were effective and revocable without the need for consideration.
• Third, it was not too late for Mr Gerace to disclaim his interest because he had not at any earlier stage determined to accept the position as discretionary object of either trust.
• Fourth, the disclaimer was capable of operating retrospectively.

Accordingly, the disclaimer effectively revoked Mr Gerace's interest in the two trusts with the consequence that the taxpayers were not members of a group with Tri-City Trucks and were not liable for its outstanding tax debts. 

Fringe Benefits Tax

International Tax Agreements Amendment Act 2016 (Cth)

The International Tax Agreements Amendment Act 2016 (Cth) received Royal Assent on 20 October 2016 and amends the International Tax Agreements Act 1953 (Cth) to give legislative effect to the Agreement between Australia and the Federal Republic of Germany for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance.

Effective from 1 April following the date on which Australia and Germany exchange instruments of ratification, the amendments will mean that fringe benefits that would otherwise be taxable in both Contracting States are taxable only in the Contracting State that has the sole or primary taxing right in respect of the underlying employment income to which the fringe benefit relates.

Enterprise Tax Plan Bill 2016 (Cth)

The Enterprise Tax Plan Bill 2016 (Cth) has been introduced into the House of Representatives on 1 September 2016 proposing to increase the aggregated turnover threshold for access to most small business tax concessions to $10m. This will have a consequential effect of expanding the availability of the FBT car-parking exemption in s 58GA of the Fringe Benefits Tax Assessment Act 1986 (Cth).

Class rulings

Three class rulings and addendums to class rulings in relation to FBT have been released by the ATO:

• Addendum to CR 2014/74: Fringe benefits tax: employer clients of Emerchants Payment Solutions Limited who are subject to the provisions of either section 57A or section 65J of the Fringe Benefits Tax Assessment Act 1986 and make use of Emerchants' Meals and Entertainment Card facility.
• Addendum to CR 2016/43: Fringe benefits tax: employer clients of PBI Benefit Solutions Pty Ltd who are subject to the provisions of section 57A of the Fringe Benefits Tax Assessment Act 1986 that make use of the Westpac Entertainment Benefits Card facility.
• Class Ruling CR 2016/85: Fringe benefits tax: employer clients of Community CPS Australia Limited trading as Beyond Bank Australia who are subject to the provisions of either section 57A or section 65J of the Fringe Benefits Tax Assessment Act 1986 and make use of the Meal Entertainment Card facility.

PAYG

Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016 (Cth)

The Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016 (Cth) has been introduced into Parliament. The Bill is part of a package of Bills implementing proposed changes to the taxation of working holiday makers, often referred to as the "backpacker tax" in the media.

The Bill provides for a tax rate of 19% to apply to the taxable income of working holiday makers up to $37,000, effective from 1 January 2017, with ordinary tax rates applying to taxable income exceeding this amount. Employers of working holiday makers will be required to register with the ATO. Failure to register will result in the employer being required to withhold PAYG instalments at higher rates in accordance with a PAYG Withholding Schedule based on the tax rates applicable to income derived by non-residents.

Legislative Instruments

The ATO has made two legislative instruments affecting PAYG:

• Taxation Administration Act Withholding Schedules Correction October 2016 gives effect to the lower personal tax rate contained in the Treasury Laws Amendment (Income Tax Relief) Bill 2016 (which increases the threshold at which the 37% income tax rate commences from $80,000 to $87,000).
• PAYG Withholding Variation: Labour Hire reimbursements and allowances reduces to nil the withholding amount for certain travel allowances for expected expenses incurred by a labour hire worker or for reimbursement of actual expenses incurred by a labour hire worker.

Shaw v Deputy Commissioner of Taxation; Rablin v Deputy Commissioner of Taxation

In Shaw v Deputy Commissioner of Taxation; Rablin v Deputy Commissioner of Taxation [2016] QCA 275, the Supreme Court of Queensland Court of Appeal has overruled the primary judge's award of summary judgement against two directors of a company that was liquidated owing unremitted PAYG to the ATO.

Mr Shaw and Mr Rablin were directors of State Wide Trades & Labour Hire Pty Ltd (STL), against whom the ATO sought recovery of amounts withheld from payments to its employees, but which were not paid to the ATO. Relevantly, s 269-15 of Schedule 1 to the Taxation Administration Act 1953 (Cth) directly imposes an obligation upon directors to cause the company to comply with its obligation to pay withheld amounts to the Commissioner, while s 269-20 imposes a penalty upon a director who fails to comply with this obligation equal to the unpaid amount of the company's obligation. Section 269-35(2) provides a defence where the directors took all reasonable steps to cause the company to comply with its obligation, to cause an administrator to be appointed, or to cause the company to be wound up.

The application related to STL's failure to make a number of payments to the ATO during a period in which it faced cash flow difficulties. During the relevant period, Mr Shaw and Mr Rablin unsuccessfully attempted to extend STL's loan facilities and to refinance its debts so as to meet various debt obligations, before the company was eventually placed into liquidation. Mr Shaw and Mr Rablin sought to rely upon the defence in s 269-35(2), arguing that their attempts to refinance the debt constituted reasonable steps taken to cause the company to comply with its obligation. 

The Court held that the directors of STL were not obliged to pursue the options of liquidation or voluntary administration while they were taking all reasonable steps to enable STL to pay the amounts due to the Commissioner. Accordingly, the question of how long it was reasonable to pursue the refinancing option is a question of fact to be decided at trial. As the evidence presented was sufficient to establish that a defence under s 269-35(2) is potentially available to Mr Shaw and Mr Rablin, the decision to award summary judgement was in error.