A couple of recent payroll tax cases caught my eye when I returned to work and was staring at the screen wondering when it was time for my first Corona of the day.
The cases themselves were not particularly significant but the both showed common characteristics of a number of payroll tax disputes in which I have been involved. Those characteristics:
1. The taxpayer has never appreciated the breadth of the payroll tax.
2. The taxpayer has been audited previously by the respective Office of State Revenue and no assessment had issued. They effectively get the all clear from the Office of State Revenue.
3. Another more recent audit concludes that the taxpayer does have a payroll tax liability and a retrospective assessment issues.
4. The taxpayer is (rightfully) aggrieved and objects. The objection is disallowed and the taxpayer appeals to the Appeals Tribunal.
5. The taxpayer is self-represented in the Tribunal, and largely unprepared for arguing the case.
6. The taxpayer loses.
In Terick Pty Ltd v Comr of State Revenue [2015] VCAT 1901, a self-represented taxpayer has been unsuccessful before the Victorian Civil and Administrative Tribunal in a matter concerning a payroll tax assessment in relation to its inclusion in a payroll tax group for the financial years ending 30 June of 2008 to 2011.
I do not intend to go into detail about why the de-grouping application was unsuccessful other than to say that, overall, the Tribunal concluded that the degree of control and dependence of the other businesses was sufficient to mean that the businesses were not run substantially independently of one another. Accordingly, it held the taxpayer had failed to discharge the onus of proving that it was independent and not connected with any of the other businesses.
What did come out of the case for me was that the taxpayer was investigated for the period 2003 to 2007 and was de-grouped by the Commissioner. The taxpayer contended (and it seems that the Commissioner did not disagree) that nothing had changed between the earlier investigation and the investigation leading to the assessment. It argued that the Commissioner should be prevented from issuing retrospective assessments. This is broadly what estoppel is.
The Tribunal said:
As I have already mentioned, estoppel is not applicable in this type of situation. That is, there can be no estoppel against the operation of the statute. .. I sympathise with the applicant in the sense that Mr Driscoll pointed out that it has created a financial difficulty for the applicant on the basis that the applicant believed that it would not be grouped in payroll tax and thus it now has a burden to meet that it would not have to meet otherwise. Had this been pointed out to the applicant during the years in question, from a financial management point-of-view it would have been a lot easier for it. However, that is not something I can take into account.
In Styling Australia Pty Ltd v Comr of State Revenue [2015] VCAT 1792, another taxpayer (also self-represented) has been unsuccessful before the Victorian Civil and Administrative Tribunal in a matter concerning a payroll tax assessment relating to payments to workers for the period from 1 July 2010 to 30 June 2013.
The taxpayer was a proprietor of an organisation which provided hosting and promotional staff for events, functions, carnivals and marketing campaigns. The Commissioner decided the taxpayer was an employer for payroll tax purposes in relation to the promotional staff that the taxpayer supplied to its clients. The Tribunal agreed.
Once again, the reasons are not particularly ground breaking and add little to the large volume of “employee/contractor” cases. The taxpayer’s case suffered from a lack of witnesses to support its position, leaving the Tribunal to rely on the Commissioner’s evidence.
What is interesting is that the taxpayer maintained that there was an investigation in relation to the period from 1 July 2005 to 30 June 2010 whereby the Commissioner did not assess the applicant for payroll tax in that period. As such, it argued it should be able to rely on that, and should not be liable to pay tax now pursuant to the new assessments.
The Tribunal said, in response to that argument:
“It is clear, that the investigations that the respondent made during the period referred to above, were a different period to the present, and it is not clear that the same material was presented before the respondent. In any event, a previous decision of the respondent cannot operate as an estoppel against the proper construction and application of the Act, and cannot prevent the Commissioner from performing his statutory duty to administer taxation laws. … Further, even if the respondent gave the applicant incorrect advice, such advice is not capable of creating an estoppel in the present situation. “

Let’s have a closer look at that last sentence.
“Further, even if the respondent (in this case, the Commissioner) gave the applicant (the taxpayer) incorrect advice, such advice is not capable of creating an estoppel in the present situation.”
Read “tough luck for the taxpayer”.
The various taxing authorities have practices that can reduce the exposure of taxpayers but the Offices of State Revenue in particular only provide comfort in very select circumstances. So just because a business has been audited previously and found not to have a payroll tax liability does not mean that they may not be assessed retrospectively in a future payroll tax audit. And that business cannot rely on any findings (or non-assessment) in the previous audit as a defence.
I have been involved in a number of these cases and it is difficult to explain to clients how their business practices have not changed, the law has not changed but they can be subject to retrospective assessments of up to six years.
Lessons for us all
1. The payroll tax legislation can be very broad and far-reaching. Moreover, interpretations by the Office of State Revenue can change subtly over time. Businesses should review possible areas of exposure, especially grouping, employees and the relevant contracts provisions, on a regular basis.
2. A non-assessment in a previous audit will not protect you from a retrospective assessment in a future audit. An audit clearance letter will usually not help because of the vague wording typically included.
3. If a business does want to take the matter to appeal, it should seek professional advice. Even if you do not want a lawyer representing you at the Tribunal (which can be expensive), you should be aware of what you need to prove, and your chances of success.