The Victorian Supreme Court has held that payments, for ‘roadside assistance’, that RACV contracted out, to the Taxpayer, which it then subcontracted, were not subject to payroll tax, under the ‘relevant contractor’ provisions.
In summary, the facts were these:
- The Royal Automobile Club of Victoria (RACV) provided ‘roadside assistance’ to its Roadside Members – with varying levels of cover.
- The RACV contracted out the provision of these ‘roadside services’ to the Taxpayer.
- The Taxpayer, in turn (as a head-contractor), engaged subcontractors, to attend Roadside Members (in the familiar yellow vans) after the RACV advised the needed assistance. This assistance was designed to get the motorist going again (if possible). The sub-contractors were individuals, companies and trusts.
- RACV paid the Taxpayer / Head-contractor certain amounts for the assistance given, that was covered by their policy with their members.
- However, not all of the roadside assistance, that the Subcontractors gave RACV members, was covered by their policy with the RACV. The things not covered included things like petrol, globes and battery terminals, which the subcontractor fitted or dealt with, as required.
- The Subcontractors gave this type of ancillary assistance to RACV members directly. This was not part of what the Taxpayer / Head-contractor paid them to do.
- Accordingly, the Sub-contractors had to stock various items, at their own expense, and recover payment for this ancillary type of roadside assistance, from the motorists, themselves. (This turned out to be critical.)
- Both kinds of Roadside Assistance were very similar, of course (that is both the assistance covered by RACV policy, and pay by the Taxpayer / Head-contractor and, also, the ancillary type of assistance, where the motorists paid the Sub-contractors, directly).
- The fact that the Sub-contractors provided this ancillary assistance, directly to RACV members, turned out to be critical, in avoiding the Taxpayer being assessed to payroll tax, on its payments to the Subcontractors.
The Commissioner of State Revenue assessed the Taxpayer, to payroll tax, on the payments it made, to its Subcontractors, for the (RACV covered) roadside assistance. He did this under the ‘relevant contractor’ provisions and the issue was whether one of the exemptions applied (and the Court held that it did).
The relevant payroll tax law works this way.
- Section 6 of the Payroll Tax Act 2007 (Vic), imposes payroll tax on ’employers’ who pay ‘taxable wages’. This includes employers paying employees wages (within their ordinary ‘common law’ meanings).
- This is extended to payments under certain contractor relationships – namely payments under ‘relevant contracts’ as defined in s32 of the Act. The payments are deemed ‘wages’ (s35), the payer is deemed to be an ’employer’ (s33) and the recipient, of the money, is deemed to be an ’employee’ (s34).
- A ‘relevant contract’ is defined, under s32, as a contract under which the “services of persons, for or in relation to the performance of work” are supplied to another person (who is deemed to be an ’employer’ under s33) – subject to certain exemptions.
- The relevant exemption, in this case, was in s32(2)(b)(iv), which provides as follows:
those services are supplied under a contract to which subparagraphs (i) to (iii) do not apply and the Commissioner is satisfied that those services are performed by a person who ordinarily performs services of that kind to the public generally in that financial year;
- It is worth noting that this exemption only applies when those in (i), (ii) & (iii) don’t apply. They exempt (broadly): services not ordinarily required by the recipient; services ordinarily required for less than 180 days and services the contractor provides (to that recipient) for up to 90 days, in any financial year.
- The net result (of the exemption in para (iv)), is that relatively long term contracts, with a single recipient, can still avoid payroll tax, if the contractor “ordinarily performs services of that kind to the public generally“.
The Court held that the yellow van Subcontractors’ contracts, with the Taxpayer / Head-contractor, were NOT ‘relevant contracts, under the above exemption, because they provided the ancillary roadside assistance, directly to the stranded RACV Roadside Members. The relevant findings were:
- That stranded motorists were the ‘public’ (to whom the Subcontractors would ordinarily provide this ancillary assistance, and some of whom they did actually provide that assistance, in that year).
- That ancillary assistance (paid by the stranded motorist) was, of the same ‘kind’, as the RACV covered assistance (for which they were paid by the Taxpayer / Head-contractor).
The Commissioner had argued:
- That, for the exemption to apply, the contractor had to offer services of that (same) kind, to the public, through a business that was independent of the (putative) ‘relevant contract’ business. In other words, he said that payroll tax applied because the Subcontractors’ businesses, were not independent of the RACV covered motorists, in respect of whom, they were paid by the Taxpayer.
- The Court held, however, that neither the statutory provision, itself, nor any authority on its interpretation, supported such a gloss, on the wording of this part of the statute.
(Nationwide Towing & Transport Pty Ltd v Comr of State Revenue (No 2)  VSC 609, Supreme Court of Victoria, Croft J, 26 October 2018.)
[LTN 216, 8/11/18; Tax Month – November 2018]
CPD questions (answers available)
- Did RACV contract out its Roadside Assistance to the Taxpayer, paying it for each serviced motorist?
- Did the Taxpayer subcontract this to various entities that went out in the yellow vans to give this assistance?
- Was it the payments, that the Taxpayer made to its subcontractors, that Commissioner assessed to payroll tax, on the basis that they were payments under so called ‘relevant contracts’?
- Did the Commissioner succeed, in this case?
- Did an exemption to the definition of ‘relevant contracts’ apply?
- In what provision was that exemption?
- Was it ancillary assistance, that the stranded RACV members paid for themselves, that was ‘of the same kind’ as the assistance covered by RACV (for which they were paid by the Taxpayer)?
- Were the stranded RACV members ‘the public’ for the purposes of this definition?