On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (VID 409 of 2009)
Judgment date: 13 April 2011
Date published: 6 December 2011

Summary of decision:
Outlines the ATO's response to this case which concerned whether interpreters and translators engaged by the taxpayer, were employees within the ordinary meaning of the term or were independent contractors.

Overview of facts:
The taxpayer conducts a business providing interpreting and translating services to its clients. It enters into contractual arrangements with clients who seek interpreter and translation services, and provides these services primarily through its panel of interpreters and/or translators. | The taxpayer did not make superannuation contributions on behalf of the interpreters and translators it engaged. | Following an audit regarding the superannuation obligations of the taxpayer, the Commissioner concluded that the interpreters and translators engaged by the taxpayer were employees under subsections 12(1) and/or 12(3) of the SGAA. | The taxpayer contended that the interpreters and translators it engaged were engaged as independent contractors, and were not employees under subsections 12(1) and/or 12(3) of the SGAA. | Issues decided by the court | Bromberg J held that the taxpayer failed to discharge its burden of proof of establishing that the interpreters and translators it engaged were engaged as independent contractors, and were not employees under subsection 12(1) of the SGAA. Bromberg J also held that, if the interpreters and contractors were not employees under subsection 12(1), they would be employees under the extended definition in subsection 12(3) of the SGAA. | Subsection 12(1) | In relation to the ordinary meaning of who is a common law employee, consistent with authorities on the question, Bromberg J held that in determining whether a person is an employee or an independent contractor it is necessary to make an objective assessment of the nature of the relationship that person has with the entity that takes the benefit of that person's work and to look to the real substance of the relationship in question, taking into account not only the contractual terms agreed to but also the system operated under and the work practices which establish the 'totality of the relationship'. | Following his consideration of the totality of the relationship, Bromberg J found that the interpreters and translators engaged by the taxpayer were employees within the ordinary meaning of the term, and were therefore employees under subsection 12(1) of the SGAA. | Subsection 12(3) | In relation to the expanded meaning, in obiter dicta, Bromberg J considered that subsection 12(3) should be construed in the context of section 12 as a whole and the evident purpose of that section conveyed by the SGAA. Bromberg J's view was that subsection 12(3) is designed to facilitate occupational superannuation being paid in relation to the exchange of work for remuneration when an independent contractor provides personal services "in an employment-like setting" which is not of a domestic or private nature. | His Honour considered that the question of whether such employment-like settings exist may be best answered by asking: '[w]hether, in all the circumstances, the labour component of the contract in question could have been provided by the recipient of the labour employing an employee?'. Bromberg J considered that although the context was quite different, the decision in Neale v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 supported the construction of subsection 12(3) that he had arrived at, insofar as he had concluded that subsection 12(3) only applies in relation to contracts for the personal performance of work by the worker who is a party to the contract (at [309]). | Bromberg J also considered the decision of the NSW Court of Appeal in World Book Australia Pty Ltd v Commissioner of Taxation (1992) 108 ALR 510 (World Book), where the Court considered that a contract for a result was outside the scope of the description "a contract that is wholly or principally for the labour of the person". Bromberg J's view was that the Court in World Book applied this qualification because of the potential consequences of a wide interpretation of the term. Bromberg J sought to distinguish the approach taken in World Book noting that: • The potential for subsection 12(3) to have an extreme operation is negated when reference is made to the context in which the subsection is found together with the underlying purpose of the SGAA; • The context of section 12 and underlying purpose of the SGAA were very different to the legislation considered in World Book (which examined the definition of 'salary and wages' as then found in section 221A of the Income Tax Assessment Act 1936); • The focus upon the single criterion of whether the contract is a contract for an outcome or result is inconsistent with the modern day multi-factorial approach to the totality test; and • The distinction between a contract for labour and a contract for the product of that labour is illusory in all but the most obvious cases. | • The potential for subsection 12(3) to have an extreme operation is negated when reference is made to the context in which the subsection is found together with the underlying purpose of the SGAA; • The context of section 12 and underlying purpose of the SGAA were very different to the legislation considered in World Book (which examined the definition of 'salary and wages' as then found in section 221A of the Income Tax Assessment Act 1936); • The focus upon the single criterion of whether the contract is a contract for an outcome or result is inconsistent with the modern day multi-factorial approach to the totality test; and • The distinction between a contract for labour and a contract for the product of that labour is illusory in all but the most obvious cases. | Accordingly, Bromberg J concluded that it was not appropriate to construe subsection 12(3) as excluding a contract for a given result. His Honour's conclusion in this respect is contrary to the existing line of authority on the meaning of "a contract that is wholly or principally for the labour of the person" that was applied to subsection 12(3) of the SGAA in the NSW Supreme Court of Appeal decision of Vabu Pty Ltd v Commissioner of Taxation (1996) 33 ATR 537 (Vabu). | Bromberg J also rejected the taxpayer's contention that subsection 12(3) only related to contracts involving the provision of tools and equipment, on the basis that the contention had no textual support or underlying policy justification. | Bromberg J was not satisfied that the contracts between the taxpayer and its workers were not contracts for the interpreters to perform work personally and accordingly held that, if the interpreters and translators were not employees in accordance with the general law, they would be employees of the taxpayer within the expanded meaning provided by subsection 12(3). | His Honour also noted that even if he was wrong in his construction of subsection 12(3), and a contract for a given result falls outside the scope of the subsection, he was not satisfied that the contracts of the relevant interpreters and translators were not for their labour but were instead for an agreed result.

Issues decided:
Bromberg J held that the taxpayer failed to discharge its burden of proof of establishing that the interpreters and translators it engaged were engaged as independent contractors, and were not employees under subsection 12(1) of the SGAA. Bromberg J also held that, if the interpreters and contractors were not employees under subsection 12(1), they would be employees under the extended definition in subsection 12(3) of the SGAA. | Subsection 12(1): In relation to the ordinary meaning of who is a common law employee, consistent with authorities on the question, Bromberg J held that in determining whether a person is an employee or an independent contractor it is necessary to make an objective assessment of the nature of the relationship that person has with the entity that takes the benefit of that person's work and to look to the real substance of the relationship in question, taking into account not only the contractual terms agreed to but also the system operated under and the work practices which establish the 'totality of the relationship'. Following his consideration of the totality of the relationship, Bromberg J found that the interpreters and translators engaged by the taxpayer were employees within the ordinary meaning of the term, and were therefore employees under subsection 12(1) of the SGAA. | Subsection 12(3): In relation to the expanded meaning, in obiter dicta, Bromberg J considered that subsection 12(3) should be construed in the context of section 12 as a whole and the evident purpose of that section conveyed by the SGAA. Bromberg J's view was that subsection 12(3) is designed to facilitate occupational superannuation being paid in relation to the exchange of work for remuneration when an independent contractor provides personal services "in an employment-like setting" which is not of a domestic or private nature. His Honour considered that the question of whether such employment-like settings exist may be best answered by asking: '[w]hether, in all the circumstances, the labour component of the contract in question could have been provided by the recipient of the labour employing an employee?'. Bromberg J considered that although the context was quite different, the decision in Neale v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 supported the construction of subsection 12(3) that he had arrived at, insofar as he had concluded that subsection 12(3) only applies in relation to contracts for the personal performance of work by the worker who is a party to the contract (at [309]). Bromberg J also considered the decision of the NSW Court of Appeal in World Book Australia Pty Ltd v Commissioner of Taxation (1992) 108 ALR 510 (World Book), where the Court considered that a contract for a result was outside the scope of the description "a contract that is wholly or principally for the labour of the person". Bromberg J's view was that the Court in World Book applied this qualification because of the potential consequences of a wide interpretation of the term. Bromberg J sought to distinguish the approach taken in World Book noting that: • The potential for subsection 12(3) to have an extreme operation is negated when reference is made to the context in which the subsection is found together with the underlying purpose of the SGAA; • The context of section 12 and underlying purpose of the SGAA were very different to the legislation considered in World Book (which examined the definition of 'salary and wages' as then found in section 221A of the Income Tax Assessment Act 1936); • The focus upon the single criterion of whether the contract is a contract for an outcome or result is inconsistent with the modern day multi-factorial approach to the totality test; and • The distinction between a contract for labour and a contract for the product of that labour is illusory in all but the most obvious cases. • The potential for subsection 12(3) to have an extreme operation is negated when reference is made to the context in which the subsection is found together with the underlying purpose of the SGAA; • The context of section 12 and underlying purpose of the SGAA were very different to the legislation considered in World Book (which examined the definition of 'salary and wages' as then found in section 221A of the Income Tax Assessment Act 1936); • The focus upon the single criterion of whether the contract is a contract for an outcome or result is inconsistent with the modern day multi-factorial approach to the totality test; and • The distinction between a contract for labour and a contract for the product of that labour is illusory in all but the most obvious cases. Accordingly, Bromberg J concluded that it was not appropriate to construe subsection 12(3) as excluding a contract for a given result. His Honour's conclusion in this respect is contrary to the existing line of authority on the meaning of "a contract that is wholly or principally for the labour of the person" that was applied to subsection 12(3) of the SGAA in the NSW Supreme Court of Appeal decision of Vabu Pty Ltd v Commissioner of Taxation (1996) 33 ATR 537 (Vabu). Bromberg J also rejected the taxpayer's contention that subsection 12(3) only related to contracts involving the provision of tools and equipment, on the basis that the contention had no textual support or underlying policy justification. Bromberg J was not satisfied that the contracts between the taxpayer and its workers were not contracts for the interpreters to perform work personally and accordingly held that, if the interpreters and translators were not employees in accordance with the general law, they would be employees of the taxpayer within the expanded meaning provided by subsection 12(3). His Honour also noted that even if he was wrong in his construction of subsection 12(3), and a contract for a given result falls outside the scope of the subsection, he was not satisfied that the contracts of the relevant interpreters and translators were not for their labour but were instead for an agreed result.

ATO view of decision:
Bromberg J's conclusion that the interpreters and translators were employees of the taxpayer within the meaning of employee under subsection 12(1) of the SGAA is consistent with the ATO's submissions in the case. | Bromberg J's additional conclusion that, if the interpreters and translators are not employees under subsection 12(1), they would be employees of the taxpayer within the extended meaning of employee under subsection 12(3) of the SGAA, is also consistent with the ATO's submissions in the case. However, the reasoning differs from the ATO view expressed in SGR 2005/1. His Honour's observations in this regard were obiter dicta. Although they are, with respect, to be given great weight, the principles established in Vabu - based on the earlier decisions of the High Court in Neale and the New South Wales Court of Appeal in World Book - represent the current authority on the application of subsection 12(3). Hence, the Commissioner will continue to administer subsection 12(3) in accordance with the Vabu line of authority. | The ATO will therefore maintain the views set out in SGR 2005/1.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None

Legislative references: Superannuation Guarantee (Administration) Act 1992 (Cth) 12(1) 12(3)
Case references: Hollis v Vabu Pty Ltd (2001) 207 CLR 21 2001 ATC 4508 47 ATR 559 Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 63 ALR 513 Neale v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 [1955] HCA 18 World Book Australia Pty Ltd v Commissioner of Taxation (1992) 108 ALR 510 92 ATC 4327 23 ATR 412 Vabu Pty Ltd v Commissioner of Taxation (1996) 33 ATR 537 96 ATC 4898 Roy Morgan Research Pty Ltd v Commissioner of Taxation (2010) 184 FCR 448 2010 ATC 20-184 76 ATR 264 Associated Translators & Linguists Pty Ltd v Commissioner of Taxation [2010] AATA 260 78 ATR 937
Subject references: Superannuation guarantee charge Definition of employee