Bond Brewing N.S.W. Ltd. v. Chief Commissioner of Pay-roll Tax (N.S.W.)

Judges:
David Hunt J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 27 February 1989.

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David Hunt J.

This is an appeal pursuant to sec. 33 of the Pay-roll Tax Act 1971 against a decision of the Chief Commissioner of Pay-roll Tax disallowing objections by the plaintiff (Bond Brewing New South Wales Ltd., formerly Tooheys Ltd.) against his assessments of pay-roll tax for the financial years ending 30 June 1983, 1984, 1985 and 1986 and for the period 1 July 1986 to 28 February 1987.

Pay-roll tax is levied pursuant to sec. 7 of the Act upon all ``taxable wages... as were paid or are payable'' during the relevant period. (An additional amount of pay-roll tax is also levied pursuant to sec. 16M, but it is sufficient for present purposes to refer only to that levied pursuant to sec. 7.) Section 8 makes such tax payable by the employer by whom the ``taxable wages are paid or are payable''. Section 6 provides that, subject to exemptions not here relevant, the wages liable to pay-roll tax are:

``... wages that are paid or payable by an employer after the month of August 1971 (whether in respect of services performed or rendered before, during or after that month), and -

• (a) are wages that are paid or payable in New South Wales (not being wages so paid or payable in respect of services performed or rendered wholly in one other State);
• (b) are wages that are paid or payable elsewhere than in New South Wales in respect of services performed or rendered wholly in New South Wales; or
• (c) are wages that are paid or payable elsewhere than in Australia in respect of services performed or rendered mainly in New South Wales.''

``Wages'' are defined by sec. 3 as meaning:

``... any wages, salary, commission, bonuses or allowances paid or payable (... whether paid or payable in cash or in kind) to an employee as such...''

In issue in this appeal is whether credit vouchers given by an employer to the spouse or domestic partner of certain employees, entitling the holder to purchase goods at a named department store, amount to such wages paid or payable by it as an employer to an employee as such in respect of services performed or rendered.

The circumstances in which the credit vouchers were given by the plaintiff were not in dispute, although the legal effect of what happened is disputed. Following a series of industrial disputes, the plaintiff and the Liquor Trades Union adopted an agreed disputes procedure which was subsequently incorporated into the Breweries (State) Award. After a period of industrial peace, the union representatives suggested to the plaintiff that their members should be rewarded by a week's additional pay. The plaintiff did not accept that suggestion. Instead, it gave the credit vouchers (originally valued at $200) made out in blank to the spouse or domestic partner of each member of the union employed by it. This was done at a social function in 1979 to which the employees and their spouses or domestic partners had been invited; the attendance rate was approximately 70%. Those members who did not attend the function collected the vouchers later, personally, from the plaintiff. Those who attended the function without a spouse or domestic partner were given the voucher directly.

This scheme was extended the next year in relation to the spouse or domestic partner of members of certain other unions employed by the plaintiff. The same procedure was followed. In 1981, no function was held and no vouchers were given out, following a sustained strike by employees during the latter part of 1980. The procedure was, however, resumed in 1983 and in each year subsequently during which the disputes procedure had been observed. No function was held and no vouchers were given out in relation to one of the unions in two of those subsequent years or in relation to all of the employees at one of the plaintiff's breweries in one of those years.

On at least one occasion, the widow of a former employee was sent a voucher. The letter accompanying it described the practice in this way:

``In recent years, Tooheys Ltd. has recognized the contribution employees make to productivity by presenting vouchers on a retail store to employees' wives or husbands.''

Other letters sent with invitations to the functions described the practice in this way:

``As you are aware, the Company in recent years has held functions for employees and

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their spouses at which spouses are presented with a productivity voucher.''

The value of the credit vouchers has increased over the years, and in 1986 it was $400. The amounts involved for the five periods in question were $331,710, $321,675, $297,285, $387,806 and $425,500, totalling $1,763,976.

The first issue taken by the plaintiff is that the value of the voucher was not ``paid or payable... to an employee as such'', and thus does not fall within the definition of ``wages'' in sec. 3. The second issue taken is that it did not amount to ``wages... paid or payable... in respect of services performed or rendered'', and thus does not fall within the definition of ``wages liable to pay-roll tax'' in sec. 6.

The plaintiff argues that, as the voucher was intended by it to be destined only for the spouse or domestic partner of the individual employees, and as it was given only to that person either directly or through the employee as that person's agent to receive it, there was no payment to the ``employee as such''. Whether or not the value of the voucher represents a reward for the employee's services (or, more properly, the services rendered by not going on strike), the plaintiff says, the value of the voucher is neither paid to nor intended for the employee as such: cf.
F.C. of T. v. J. Walter Thompson (Aust.) Pty. Ltd. (1944) 69 C.L.R. 227 at p. 234. The words ``as such'' in the then equivalent to the definition of ``wages'' in sec. 3 was emphasised by Latham C.J. in
Mutual Acceptance Co. Ltd. v. F.C. of T. (1944) 69 C.L.R. 389 at p. 396; and that emphasis was adopted in
Murdoch v. Commr of Pay-roll Tax (Vic.) (1980) 143 C.L.R. 629 at pp. 642-643.

Nor was the value of the voucher payable to the employee, because at no time was the individual employee entitled to receive it:
Hayward v. James (1860) 28 Beav. 523 at pp. 528-529; 54 E.R. 467 at p. 469;
Haydon v. Rose (1870) L.R. 10 Eq. 224 at pp. 227-228. The plaintiff points out that it was under no obligation (express, implied or customary) to provide the vouchers each year; and that the vouchers were in fact not provided in years where the dispute procedure was not observed by the employees.

The destination was thus intended to be and was in fact the spouse or domestic partner of the employee: Murdoch's case at p. 644. In relation to those few employees who had no spouse or domestic partner and who received the vouchers directly, the plaintiff says simply de minimus non curat lex. The evidence did not disclose the amount involved in relation to such vouchers, but the obvious inference is that it was small.

The Chief Commissioner argues that all of the vouchers were bonuses payable at the direction of the individual employee to the person whom he or she had selected to receive it. He says that the plaintiff gave the voucher to the person whom the employee had nominated as his or her spouse or domestic partner only at the employee's direction. The value of the voucher was therefore paid to the employee. In my view, that argument of the Chief Commissioner fails at both the factual and the legal levels.

Money is paid to an employee only where that employee, after receiving it, becomes the owner of the money in the sense of having the complete disposition and the control of it: Mutual Acceptance Co. Ltd. v. F.C. of T. at p. 396. The intention of the plaintiff here was clearly enough to pass the property in the voucher only to the spouse or domestic partner of the employee (whoever that other person may be), and not to the individual employee. Property does not pass until the parties to the transaction intend it to:
McEntire v. Crossley Bros Ltd. (1895) A.C. 457 at pp. 463, 467 and 469. Even accepting that it was for the employee to nominate just who was his spouse or domestic partner, the fact is that it was only to that person that property in the voucher was intended to pass. If property in the voucher did not pass to the employee at any time, as I am satisfied that it did not, then the employee had no power to direct to whom the voucher was to be given. The value of the voucher was never given to him.

The plaintiff has also argued that, if there were no obligation upon the plaintiff to give the voucher to the employee (as it is clear that there was not), there was no discharge of any obligation by the plaintiff's acceptance of such a direction from the employee:
F.C. of T. v. P. Iori & Sons Pty. Ltd. 87 ATC 4775 at p. 4780. The notion of direction is therefore inapplicable.

The Chief Commissioner's reply was that the word ``payable'' in each of sec. 3, 6 and 8 is

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not a term of art, and that it includes anything payable in fact (in cash or in kind) and whether or not in satisfaction of a legal obligation. It includes any process by which income finds its way into the pocket of the individual employee:
Latilla v. I.R. Commrs (1944) A.C. 377 at pp. 384-385.

I do not accept that the word ``payable'' when used in the collocation ``paid or payable'' in a statutory definition of the concept of ``wages'' was intended by the legislature to encompass payments of quite the indeterminate type contemplated by Lord Porter in that case. In any event, it is unnecessary for me to resolve that issue here, as the plaintiff succeeds, in my view, upon its earlier argument. This was not a direction case at all.

I am satisfied, therefore, that the vouchers were not ``paid or payable... to an employee as such'', and thus that their value did not fall within the definition of ``wages'' in sec. 3. That is sufficient to dispose of the appeals, but it is as well that I refer briefly to the second issue taken by the plaintiff, that the value of the voucher did not amount to ``wages... paid or payable... in respect of services performed or rendered''.

The Chief Commissioner argued that the vouchers represented a bonus paid in respect of services rendered by the employees by complying with the disputes procedure and not going on strike. Bonuses are included within the definition of ``wages'' in sec. 3.

The plaintiff argued that the gift of the voucher was attributable not to the performance of any service by the employees but only to a recognition of the good industrial behaviour of the unions concerned. It says that such a payment (even if made to the individual employee) would not have fallen within the terms of sec. 26(e) of the Income Tax Assessment Act 1936, and so should not fall within the concept of wages under this statute.

But, if the voucher had been intended for and was in fact given to the employee, it was clearly enough a reward to him or her in recognition of the extent to which the employee had contributed to the financial well-being of the plaintiff by not going on strike; it was a reward for the employee's contribution to industrial peace. It would have been a payment in respect of services performed or rendered. It thus amounted to a bonus: Murdoch's case at p. 642. The plaintiff itself described the document as a ``productivity voucher''. Upon such a basis, the payment (if made to the employee) would even more clearly seem to be income within the meaning of sec. 26(e) of the Tax Act than was the ``encouragement'' payment considered by the High Court in
Smith v. F.C. of T. 87 ATC 4883. But again, it is unnecessary for me to determine that particular issue.

I am satisfied that, if the vouchers had been ``paid or payable... to an employee as such'', they would have also amounted to ``wages... paid or payable... in respect of services performed or rendered''. Nevertheless, the plaintiff has succeeded upon the first issue which it has taken.

Accordingly, the plaintiff's appeals are allowed to the extent that there must be excluded from the taxable wages assessed by the Chief Commissioner the amounts totalling $1,763,976 which are in issue in these appeals. I direct the Chief Commissioner to amend his assessment accordingly. I order him to pay the plaintiff's costs. Liberty to apply.