The Supreme Court of Victoria has dismissed the Commissioner of State Revenue’s appeal and found that distributions to Optometrist Entities were not “payments” within the meaning of the payroll tax acts because the Optometrist Entities beneficially owned the funds which were to be distributed to them under the respective express trusts.

The Optical Superstore Pty Ltd (“the Trustee”) is the trustee of 4 related trusts which together carry on an optical dispensary business known as “The Optical Superstore”.

  • The stores, operated under the “The Optical Super Store” name (“Super Stores“), are either
    • owned by the Trustee (in its capacity as trustee of the First Respondent) or
    • are licensed by the Trustee (in its capacity as the trustee of either the Third or Fourth Respondents) to other parties (“Licensees“).
  • Throughout the period from 1 July 2005 to 30 June 2011, the Trustee, and also the Licensees and the trustees of the Ninth and Tenth Respondents, entered into contracts either directly with optometrists or with the companies or trusts through which the optometrists operated their respective businesses (collectively, “the Optometrist Entities”) in relation to the provision of optometry services at the Super Stores (“Optometry Agreements“).
  • Under the Optometry Agreements, the Optometrist Entities ultimately received money based on the number of hours the particular optometrist worked at the Super Stores, though this money was (for the most part) not paid to them by the Trustee out of the Trustee’s own funds.
  • Instead, the Optometrist Entities were required to ensure that their “Consultation Fees” – being both the money earned from bulk billing to Medicare and the money paid by patients directly – were paid to the Trustee directly who would hold that money on trust for the relevant Optometrist Entity.
  • This arrangement was established to obviate the need for the Trustee to hold a premises security deposit.
  • Further, each Optometrist Entity was liable to pay the Trustee an “Occupancy Fee” for the use of the Trustee’s premises, which was calculated as the total Consultation Fees for a particular period less the “Reimbursement Amount”.

The Commissioner of State Revenue argued that payment of these Reimbursement Amounts were deemed wages under the ‘relevant contract’ provisions of the Payroll Tax Act 2007 (and its 1971 predecessor).

These provisions are designed to tax payments to contractors for services ‘for or in relation to performance of work’ (s32(1)(a)), but not payments to employees (which are already taxable as actual ‘wages’).

  • Payments for these services are NOT deemed ‘wages’ if paid for services not ‘ordinarily required’ by the recipient; ordinarily required but for less than 180 days; provided for less than 90 days per financial year; or are also provided to the public (s32(2)).

The principal issue in the appeal was whether the Tribunal misconstrued the words “amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract” by excluding payments of money already belonging to the recipient.

The Court first examined the general meaning of ‘payment’.

27 Upon considering the nature of payment and perusing its dictionary definitions, two relevant elements of that word and its derivatives arise. First, inherent in the notion of payment is that money is conveyed in exchange for something else. See, for example, the definition in Macquarie Dictionary:[46]

pay1 /peI/ discharge (a debt, obligation, etc.), as by giving or doing something. give (money, etc.) as in discharge of debt or obligation. satisfy the claims of (a person, etc.) as by giving money due…

In this way, a donation does not seem to be a “payment”. However, another sense of “payment” merely requires a flow of funds, and this will be satisfied by a donation. Second, there must be some disunity between the payee and the payer. This is, in a sense, an incident of the first element of “payment”: a person cannot exchange money with themselves. But moreover, there cannot even be a flow of funds if the payee and the payer are identical. That being said, the nature of the disunity which is required is not clear, and it is suggested that it is context dependent. For example, if one transfers a quantity of cash from the left hand to the right, that is clearly not payment, but it is less clear whether the transfer of money between two bank accounts held in the same name could constitute “payment” in the broadest sense of that term. Thus, the ordinary meaning of “payment” is not fixed and is context dependent. It may require that the flow of funds is not gratuitous and it seems to require that there be disunity—of some kind—between the payee and the payer.

The Court then concluded, that in the context of the Payroll Tax Act, a return of money already belonging to the recipient, could not relevantly be a payment.

46 The relevant contract provisions impose payroll tax on amounts that are “paid or payable by an employer… for or in relation to the performance of work”. In this way, the [Payroll Tax Act] requires that amounts that can be characterised as “payments” by the employer to the employee be identified. The meaning of “payments” within the [Payroll Tax Act] does not extend to a return of money by one person to another in circumstances where the second person earned that money from providing services to a third party and directed the money be deposited in the bank account of the first person and held in trust. The amounts returned to the Optometrist Entities were not “paid or payable for or in relation to the performance of work” within the meaning of s 35(1) of the PTA with the effect that payroll tax cannot be collected in respect of those amounts. Accordingly, the appeal must fail.

(Comr of State Revenue v The Optical Superstore Pty Ltd [2018] VSC 524, Victorian Supreme Court, Croft J, 21 September 2018)

FJM 1.10.18

[LTN 188, 28/9/18; Tax Month – September 2018]


CPD questions (answers available)

  1. Was this a case about whether payments from the Super Store owner, to the Optometrist Entities, were deemed wages, under the relevant contractor provisions?
  2. Did the Super Store owner, make these payments out of its own money?
  3. Did the general meaning of ‘payment’ involve an exchange of money for something and the payer and payee being different people?
  4. Did the meaning of ‘payment’ in the Payroll Tax Act coincide with this meaning?
  5. Were the payments deemed wages?
  6. Why?



About the author