Commissioner of Taxation v Scone Race Club Limited
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 1158 of 2019 (Full Federal Court))
Date published: 7 August 2020

Summary of decision:
This Decision impact statement outlines the ATO's response to this case which concerns whether, for the purposes of subsection 12(8) of the Superannuation Guarantee (Administration) Act 1992 (SGAA), Scone Race Club Limited (the Club) was liable to pay riding fees to jockeys engaged to ride in races and barrier trials during the relevant period.

Overview of facts:
From 1 July 2009 to 30 June 2014 (inclusive), the Club (via Racing NSW) paid riding fees to jockeys in respect of riding in horse races and barrier trials conducted at the Scone racecourse. | During this period, the Club was governed by the Rules of Racing of Racing NSW, which incorporated both the Australian Rules of Racing and the Local Rules of Racing. Local rule LR 72 read in part: (1) Clubs shall pay such fee for a jockey or apprentice jockey in consideration for their riding a horse in a race or a barrier trial as may be set from time to time by the Board [that is, Racing NSW]. | Section 12 of the SGAA has regard to the terms 'employer' and 'employee' for the purposes of that Act. | While subsection 12(1) of the SGAA confirms that each of those terms have their ordinary meaning, the remaining subsections of section 12 expand and clarify the meaning of those terms. | Relevantly, subsection 12(8) of the SGAA provides (emphasis added): The following are employees for the purposes of this Act: (a) a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment | As a result, the Commissioner of Taxation formed the view that under subsection 12(8) of the SGAA, the Club was the employer of jockeys to whom it had paid riding fees. | Note: The Commissioner did not form the view that the Board was the 'employer' of jockeys per the ordinary meaning of that term, or for any effect other than under the superannuation guarantee (SG) legislation. | In relation to the quarters in which there were SG shortfalls, the Commissioner issued superannuation guarantee charge (SGC) assessments to the Club. | The Club put forward the view that although it happened to pay riding fees (via Racing NSW) to jockeys, it was not liable to make such payments - and only did so on behalf of the owners and trainers of the horses being ridden, due to historical administrative practices. | Issues decided by the Court | This case involved an appeal by the Commissioner to the Full Federal Court from a decision by the Federal Court which found in favour of the Club. | In a majority decision, the Full Federal Court allowed the Commissioner's appeal, finding that the Club was the entity liable to make payment of riding fees to jockeys. | Steward J, with whom Derrington J agreed, did not consider the Club to have discharged its onus of proof with regard to the assessments of SGC being excessive (section 14ZZO of the Taxation Administration Act 1953). | His Honour felt there was extensive evidence against the Club's claim that it was not the entity liable to pay riding fees, including the following: • The actual payments of riding fees were made by Racing NSW as agent for the Club via a Stakes Payment System (being a centralised system operated and managed by Racing NSW). No payments of riding fees were made by any horse owners or trainers. • Neither the Club nor Racing NSW sought to recover such fees from the horse owners or trainers. The complete assumption of the economic burden of paying riding fees by the Club is at odds with the proposition that owners were legally liable to pay such fees. • The riding fees were accounted for by the Club as a race day expense, with a witness called by the Club accepting that payment of the fees 'reduced the profit of the club'. • A witness called by the Club stated that the jockeys were considered subcontractors of the Club, and as such, the Club was 'reporting the GST as we would with any other subcontractor though the BAS system'. This approach meant the Club claimed input tax credits for the payment of riding fees, and that it treated the jockeys as making taxable supplies. The claiming of such input tax credits by the Club is consistent with the presence of a legal liability to make such a payment (section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999). • The concept of the Club treating the amount of riding fees as 'returns to owners' is not consistent with a conclusion that any liability was imposed on owners. Instead, it seemed more like a subsidy. • Considering that one way for the Club to claim it was not liable to pay riding fees was to demonstrate with whom that liability instead rested, it was telling that no evidence was called from any owner, trainer or jockey - particularly when most arrangements between owners (or trainers) and jockeys were verbal rather than in writing. Nor were any written contracts tendered. • Examples of statements of accounts sent by Racing NSW to the Club, to an owner, to a trainer and to a jockey showed the only entity that was debited with a 'rider payment' was the Club. This is consistent with Racing NSW on-charging to the Club the riding fees it paid via the Stakes Payment System. | • The actual payments of riding fees were made by Racing NSW as agent for the Club via a Stakes Payment System (being a centralised system operated and managed by Racing NSW). No payments of riding fees were made by any horse owners or trainers. • Neither the Club nor Racing NSW sought to recover such fees from the horse owners or trainers. The complete assumption of the economic burden of paying riding fees by the Club is at odds with the proposition that owners were legally liable to pay such fees. • The riding fees were accounted for by the Club as a race day expense, with a witness called by the Club accepting that payment of the fees 'reduced the profit of the club'. • A witness called by the Club stated that the jockeys were considered subcontractors of the Club, and as such, the Club was 'reporting the GST as we would with any other subcontractor though the BAS system'. This approach meant the Club claimed input tax credits for the payment of riding fees, and that it treated the jockeys as making taxable supplies. The claiming of such input tax credits by the Club is consistent with the presence of a legal liability to make such a payment (section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999). • The concept of the Club treating the amount of riding fees as 'returns to owners' is not consistent with a conclusion that any liability was imposed on owners. Instead, it seemed more like a subsidy. • Considering that one way for the Club to claim it was not liable to pay riding fees was to demonstrate with whom that liability instead rested, it was telling that no evidence was called from any owner, trainer or jockey - particularly when most arrangements between owners (or trainers) and jockeys were verbal rather than in writing. Nor were any written contracts tendered. • Examples of statements of accounts sent by Racing NSW to the Club, to an owner, to a trainer and to a jockey showed the only entity that was debited with a 'rider payment' was the Club. This is consistent with Racing NSW on-charging to the Club the riding fees it paid via the Stakes Payment System. | In contrast to these findings, Griffiths J (dissenting) was of the view that: ... the issue of the proper construction of LRR 72 falls to be determined by reference to its text, when viewed in the light of context and purpose. There was ample evidence to support the primary judge's findings regarding the industry understanding, when viewed in the context of industry custom and practice with particular reference to the practical and accounting operation of the [Stakes Payment System] and the policy of "owner returns". | His Honour agreed with the primary judge's views that the Club was in effect paying riding fees on behalf of owners, being expenses which the owners previously paid directly to jockeys prior to the centralised administrative arrangement coming into being.

Issues decided:
This case involved an appeal by the Commissioner to the Full Federal Court from a decision by the Federal Court which found in favour of the Club. In a majority decision, the Full Federal Court allowed the Commissioner's appeal, finding that the Club was the entity liable to make payment of riding fees to jockeys. Steward J, with whom Derrington J agreed, did not consider the Club to have discharged its onus of proof with regard to the assessments of SGC being excessive (section 14ZZO of the Taxation Administration Act 1953). His Honour felt there was extensive evidence against the Club's claim that it was not the entity liable to pay riding fees, including the following: • The actual payments of riding fees were made by Racing NSW as agent for the Club via a Stakes Payment System (being a centralised system operated and managed by Racing NSW). No payments of riding fees were made by any horse owners or trainers. • Neither the Club nor Racing NSW sought to recover such fees from the horse owners or trainers. The complete assumption of the economic burden of paying riding fees by the Club is at odds with the proposition that owners were legally liable to pay such fees. • The riding fees were accounted for by the Club as a race day expense, with a witness called by the Club accepting that payment of the fees 'reduced the profit of the club'. • A witness called by the Club stated that the jockeys were considered subcontractors of the Club, and as such, the Club was 'reporting the GST as we would with any other subcontractor though the BAS system'. This approach meant the Club claimed input tax credits for the payment of riding fees, and that it treated the jockeys as making taxable supplies. The claiming of such input tax credits by the Club is consistent with the presence of a legal liability to make such a payment (section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999). • The concept of the Club treating the amount of riding fees as 'returns to owners' is not consistent with a conclusion that any liability was imposed on owners. Instead, it seemed more like a subsidy. • Considering that one way for the Club to claim it was not liable to pay riding fees was to demonstrate with whom that liability instead rested, it was telling that no evidence was called from any owner, trainer or jockey - particularly when most arrangements between owners (or trainers) and jockeys were verbal rather than in writing. Nor were any written contracts tendered. • Examples of statements of accounts sent by Racing NSW to the Club, to an owner, to a trainer and to a jockey showed the only entity that was debited with a 'rider payment' was the Club. This is consistent with Racing NSW on-charging to the Club the riding fees it paid via the Stakes Payment System. • The actual payments of riding fees were made by Racing NSW as agent for the Club via a Stakes Payment System (being a centralised system operated and managed by Racing NSW). No payments of riding fees were made by any horse owners or trainers. • Neither the Club nor Racing NSW sought to recover such fees from the horse owners or trainers. The complete assumption of the economic burden of paying riding fees by the Club is at odds with the proposition that owners were legally liable to pay such fees. • The riding fees were accounted for by the Club as a race day expense, with a witness called by the Club accepting that payment of the fees 'reduced the profit of the club'. • A witness called by the Club stated that the jockeys were considered subcontractors of the Club, and as such, the Club was 'reporting the GST as we would with any other subcontractor though the BAS system'. This approach meant the Club claimed input tax credits for the payment of riding fees, and that it treated the jockeys as making taxable supplies. The claiming of such input tax credits by the Club is consistent with the presence of a legal liability to make such a payment (section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999). • The concept of the Club treating the amount of riding fees as 'returns to owners' is not consistent with a conclusion that any liability was imposed on owners. Instead, it seemed more like a subsidy. • Considering that one way for the Club to claim it was not liable to pay riding fees was to demonstrate with whom that liability instead rested, it was telling that no evidence was called from any owner, trainer or jockey - particularly when most arrangements between owners (or trainers) and jockeys were verbal rather than in writing. Nor were any written contracts tendered. • Examples of statements of accounts sent by Racing NSW to the Club, to an owner, to a trainer and to a jockey showed the only entity that was debited with a 'rider payment' was the Club. This is consistent with Racing NSW on-charging to the Club the riding fees it paid via the Stakes Payment System. In contrast to these findings, Griffiths J (dissenting) was of the view that: ... the issue of the proper construction of LRR 72 falls to be determined by reference to its text, when viewed in the light of context and purpose. There was ample evidence to support the primary judge's findings regarding the industry understanding, when viewed in the context of industry custom and practice with particular reference to the practical and accounting operation of the [Stakes Payment System] and the policy of "owner returns". His Honour agreed with the primary judge's views that the Club was in effect paying riding fees on behalf of owners, being expenses which the owners previously paid directly to jockeys prior to the centralised administrative arrangement coming into being.

ATO view of decision:
The decision of the Full Federal Court is consistent with the Commissioner's interpretation of subsection 12(8) of the SGAA. | Other race clubs which have had arrangements in place substantively similar to those involving the Scone Race Club Limited as discussed in this Decision impact statement, should review their arrangements and lodge SGC statements for any quarters in which they have an SG shortfall. | The Commissioner may also raise SGC assessments against those race clubs where SG shortfalls exist, and such shortfalls are brought to the Commissioner's attention. | Race clubs with SG shortfalls for the quarters between 1 July 1992 and 31 March 2018 may be eligible for the SG amnesty. The SG amnesty closes on 7 September 2020. | Where race clubs still have the above arrangements in place, they may also be required under subsection 389-5(1) of Schedule 1 to the Taxation Administration Act 1953 (regarding Single Touch Payroll reporting) to report to the Commissioner the riding fees they pay to jockeys. | Based on previous advice provided to the Commissioner, the race clubs most likely to be directly affected by the above approach are those based in New South Wales, South Australia and Victoria.

Administrative treatment:
None.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 11-5 Superannuation Guarantee (Administration) Act 1992 12 12(1) 12(8) 12(8)(a) Taxation Administration Act 1953 14ZZO Sch 1 389-5(1)
Case references: Scone Race Club Limited v Commissioner of Taxation [2019] FCA 976 2019 ATC 20-698 (2019) 373 ALR 676
Other references: Rules of Racing of Racing NSW The Australian Rules of Racing The Local Rules of Racing