Legal database - View: Cases: IRG Technical Services Pty Ltd and Another v. Federal Commissioner of Taxation

IRG Technical Services Pty Ltd v Deputy Commissioner of Taxation
[2007] FCA 1867

(Judgment by: Allsop J)

IRG Technical Services Pty Ltd
v. Deputy Commissioner of Taxation

Court:

Federal Court of Australia

Judge:
Allsop J

Judgment date: 5 December 2007

Judgment by:
Allsop J

REASONS FOR JUDGMENT

Introduction

1 These are two appeals under Part IVC of the Taxation Administration Act 1953 (Cth) against the refusal of the respondent to grant Personal Services Business Determinations ("PSB determinations") pursuant to s 87-65 of the Income Tax Assessment Act 1997 (Cth) (the "1997 Act") in respect of the applicants, Mr Kenneth Daniel Owen as trustee for the Owen Family Trust and IRG Technical Services Pty Limited ("IRG"), which was wholly owned and controlled, by Mr Ian Rodney Green, for the years of income ending 30 June 2002 and 30 June 2003, respectively. Evidence in each proceeding was evidence in the other.

2 Before turning to the appeals, some common matters can be dealt with. (All references to statutory provisions are references to the 1997 Act, unless otherwise stated.)

Statutory background

3 Both applicants are "personal services entities", a term defined by s 86-15(2). Section 86-15 is relevantly in the following terms:

s 86-15 Effect of obtaining personal services income through a personal services entity

Amounts included in your assessable income

(1)
Your assessable income includes an amount of * ordinary income or * statutory income of a * personal services entity that is your * personal services income.
Example: Continuing example 1 in section 84-5: Assume that NewIT only provides services to one client. Ron's assessable income includes ordinary income of NewIT from providing the computer programming services, because the income is Ron's personal services income.

(2)
A personal services entity is a company, partnership or trust whose * ordinary income or * statutory income includes the * personal services income of one or more individuals.
Exception: personal services businesses

(3)
This section does not apply if that amount is income from the * personal services entity conducting a * personal services business.

...

(An asterisk denotes a term otherwise defined in the 1997 Act. I will not set out all such definitions. Many are well-known.)

4 Section 86-15 is found in the 1997 Act, Part 2-42, containing Divisions 84 to 87, which deal with "personal services income", a term which is defined by s 84-5 as follows:

s 84-5 Meaning of personal services income

(1)
Your * ordinary income or * statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would mainly be such a reward if it was your income).

(2)
Only individuals can have personal services income.

(3)
This section applies whether the income is for doing work or is for producing a result.

(4)
The fact that the income is payable under a contract does not stop the income being mainly a reward for your personal efforts or skills.

5 Division 84 is an introduction to Part 2-42, containing a guide in s 84-1 (though part of the Act, it is available only for the limited purposes set out in s 950-150: s 2-40) and two operative provisions: the definition of "personal services income" (see above) and s 84-10 which provides as follows:

s 84-10 This Part does not imply that individuals are employees

The application of this Part to an individual does not imply, for the purposes of any * Australian law or any instrument made under an Australian law, that the individual is an employee.

(It will be necessary to say something more of s 84-10 in due course.)

6 Division 85 concerns deductions relating to personal services income.

7 Division 86 is entitled "Alienation of personal services income" and concerns the treatment of income of another entity as personal services income of an individual from the rendering of personal services by that individual. The object of the Division is stated in s 86-10, as follows:

s 86-10 Object of this Division

The object of this Division is to ensure that individuals cannot reduce or defer their income tax (and other liabilities) by alienating their * personal services income through companies, partnerships or trusts that are not conducting * personal services businesses.

8 The phrase "personal services business" is defined, through s 995-1, in s 87-15, and relevantly for these proceedings in subsections (1) and (2) as follows:

s 87-15 What is a personal services business?

(1)
An individual or * personal services entity conducts a personal services business if:

(a)
for an individual--a * personal services business determination is in force relating to the individual's * personal services income; or

(b)
for a personal services entity--a personal services business determination is in force relating to an individual whose personal services income is included in the entity's * ordinary income or * statutory income; or

(c)
in any case--the individual or entity meets at least one of the 4 * personal services business tests in the income year for which the question whether the individual or entity is conducting a personal services business is in issue.

(2)
The 4 personal services business tests are:

(a)
the results test under section 87-18; and

(b)
the unrelated clients test under section 87-20; and

(c)
the employment test under section 87-25; and

(d)
the business premises test under section 87-30.

...

9 Both applicants made their application for PSB determinations under the results test. Section 87-18 sets out the results test as follows:

s 87-18 The results test for a personal services business

(1)
An individual meets the results test in an income year if, in relation to at least 75& of the individual's * personal services income (not including income referred to in subsection (2)) during the income year:

(a)
the income is for producing a result; and

(b)
the individual is required to supply the * plant and equipment, or tools of trade, needed to perform the work from which the individual produces the result; and

(c)
the individual is, or would be, liable for the cost of rectifying any defect in the work performed.

(2)
Paragraph (1)(a) does not apply to income:

(a)
that the individual receives as an employee; or

(b)
that the individual receives as an individual referred to in paragraph 12-45(1)(a), (b), (c), (d) or (e) (payments to office holders) in Schedule 1 to the Taxation Administration Act 1953 ; or

(c)
to the extent that it is a payment referred to in section 12-47 (payments to * religious practitioners) in that Schedule.

(3)
A * personal services entity meets the results test in an income year if, in relation to at least 75& of the * personal services income of one or more individuals that is included in the personal services entity's * ordinary income or * statutory income during the income year:

(a)
the income is for producing a result; and

(b)
the personal services entity is required to supply the * plant and equipment, or tools of trade, needed to perform the work from which the personal services entity produces the result; and

(c)
the personal services entity is, or would be, liable for the cost of rectifying any defect in the work performed.

(4)
For the purposes of paragraph (1)(a), (b) or (c) or (3)(a), (b) or (c), regard is to be had to whether it is the custom or practice, when work of the kind in question is performed by an entity other than an employee:

(a)
for the * personal services income from the work to be for producing a result; and

(b)
for the entity to be required to supply the * plant and equipment, or tools of trade, needed to perform the work; and

(c)
for the entity to be liable for the cost of rectifying any defect in the work performed;

as the case requires.

10 PSB determinations for individuals and (relevantly here) personal services entities are provided for in ss 87-60 and 87-65, respectively. Relevantly, s 87-65 provided as follows:

s 87-65 Personal services business determinations for personal services entities

Making etc. personal services business determinations

(1)
The Commissioner may, by giving written notice to a * personal services entity whose * ordinary income or * statutory income includes some or all of an individual's * personal services income:

(a)
make a personal services business determination relating to the individual's personal services income included in the entity's ordinary income or statutory income; or

(b)
vary such a determination.

(2)
The Commissioner may, in the notice, specify:

(a)
the day on which the determination or variation takes effect, or took effect;

(b)
the period for which the determination has effect;

(c)
conditions to which the determination is subject.

Matters about which the Commissioner must be satisfied

(3)
The Commissioner must not make the determination unless satisfied that, in the income year during which the determination first has effect, or is taken to have first had effect, the conditions in one or more of subsections (3A), (3B), (5) and (6) are met.

First alternative----results, employment or business premises test met or reasonably expected to be met

(3A)
The conditions in this subsection are that:

(a)
the entity could reasonably be expected to meet, or met, the results test under section 87-18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; and

(b)
the individual's * personal services income included in the entity's * ordinary income or * statutory income could reasonably be expected to be, or was, from the entity conducting activities that met one or more of those tests.

...

11 The terms of s 87-1 (the Guide to Division 87) should be noted:

s 87-1 What this Division is about

Divisions 85 and 86 do not apply to personal services income that is income from conducting a personal services business.

It is not intended that the Divisions apply to independent contractors .

A personal services business exists if there is a personal services business determination or if one or more of 4 tests for what is a personal services business are met.

Regardless of how much of your personal services income is paid from one source, you can self-assess against the results test to determine whether you are an independent contractor . The results test is based on the traditional tests for determining independent contractors and it is intended that it apply accordingly .

...

(Emphasis added, other than the section heading.)

12 In understanding the content of the results test, s 87-1, being a Guide in the 1997 Act, can be used for the following purposes set out in s 950-150(2):

...

Guides form part of this Act, but they are kept separate from the operative provisions. In interpreting an operative provision, a Guide may only be considered:

(a)
in determining the purpose or object underlying the provision; or

(b)
to confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision; or

(c)
in determining the provision's meaning if the provision is ambiguous or obscure; or

(d)
in determining the provision's meaning if the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable.

13 There was a measure of agreement upon the issues in the two appeals. These were set out in the "Respondent's Statement of Issues" filed in each proceeding. Expressed in a way that is referrable to both applicants, those issues were as follows:

(a)

It was agreed that the applicants were personal services entities whose ordinary income or statutory income included the personal services income of Mr Owen and Mr Green for the purposes of s 87-15.

(b)

Consequently, fees received by the applicants under their respective contracts with Dare Holdings Pty Limited ("Dare") were:

(i): a reward for the personal efforts and skills of Messrs Owen and Green;
(ii): personal services income of them under s 84-5; and
(iii): attributed to them as their ordinary income under s 86-15

unless the applicants had PSB determinations.

(c)

The results test in s 87-18(3) was the only basis upon which the applicants sought PSB determinations for the relevant years of income.

(d)

The applicant in each case bears the onus of proving that it or he satisfies the requirements of the results test in s 87-18(3) (and thus that the decisions refusing the PSB determinations should not have been made and that the PSB determinations should have been granted).

(e)

To satisfy the results test, the applicants must satisfy each of the requirements in s 87-18(3)(a), (b) and (c):

(i): whether the income received was for producing a result ((3)(a));
(ii): whether the relevant applicant supplied the equipment or tools needed to do the work from which the result was produced ((3)(b)); and
(iii): whether the applicant was liable for the cost of rectifying any defective work ((3)(c)).

(I have expressed (ii) above in the language used by the respondent in its statement of issues. The terms of s 87-18(3)(b) are that the personal services entity is " required to supply the plant and equipment, or tools of trade, needed to perform the work from which the personal services entity produces the result.")

14 The word "plant" is defined in s 45-20 (through s 995-1) in wide terms, most of which are not relevant to the circumstances of Mr Owen and Mr Green. It is sufficient to note that the definition included "articles, machinery, tools and rolling stock".

Essential factual context

15 It will be necessary in due course to examine the facts in each appeal in a little detail. Before doing so, and before dealing with the content and operation of the relevant provisions, the basic structure of the facts should be noted. The overlay and encrustation of detailed facts placed upon the essential structure tends to obscure its essential simplicity.

16 Each of Mr Owen and Mr Green was and is a skilled working engineer. Each has worked in the field of international construction, in particular the design and construction of oil and gas plants, for many years. In that time, each has worked solely as a so-called "contractor" obtaining work through labour procurement agencies such as those mentioned in these reasons. This method of recruiting skilled workers is common, but not uniform, in the international construction industry. Some centres such as Perth, Houston and Calgary use this method almost universally to obtain skilled engineers such as Mr Owen and Mr Green to be involved in the design and construction of plant and equipment.

17 Here, both Mr Owen and Mr Green were recruited to work on the design of a facility for Woodside Petroleum called an LNG (liquefied natural gas) train or plant. It was Woodside's fourth such plant. A joint venture of construction companies (the so-called Kellogg Joint Venture, or "KJV") was responsible for the construction of the LNG train 4, costing in the order of some billions of dollars. The KJV retained various labour procurement companies in order to obtain skilled engineers to work on the design of the LNG plant. Two such companies, HR Connect Pty Limited ("HR Connect") and Dare Holdings Pty Limited ("Dare"), entered into contracts with IRG and with Mr Owen in his capacity as trustee of the Owen Family Trust. HR Connect and Dare were independent of Messrs Owen and Green and of IRG. They were also independent of the KJV and Woodside (though they contracted with the KJV).

18 Thus, the KJV paid HR Connect and Dare for the procurement and provision of Messrs Owen and Green. HR Connect and Dare paid IRG and Mr Owen as trustee sums pursuant to their respective contracts. IRG and Mr Owen as trustee say that they are entitled to PSB determinations because they satisfy the results test in s 87-18(3). In making this assertion, it is important to appreciate that, through their counsels' submissions, they place most weight on the terms and effect of the two relevant contracts between the two personal service entities (IRG and Mr Owen as trustee), respectively, and Dare. (The contracts with HR Connect are not the subject of direct dispute, though, as will be seen, they assist to illuminate the issues and their resolution.)

19 The respondent, on the other hand, says that in applying s 87-18(3) one must "look through" to the reality at the level of the acquirer or taker of the personal services (at the level of KJV) to see how s 87-18(3) works in these particular circumstances.

20 The correct approach from, or prism through, which to examine the facts depends upon the proper construction and interpretation of the relevant provisions of the 1997 Act, in particular of s 87-18(3).

The meaning of the relevant provisions

21 The parties put detailed submissions on the proper approach to the construction and interpretation of the 1997 Act. I take the principles of statutory interpretation in the common law of Australia, so far as relevant to these proceedings, to be as follows. The relevant words of the statutory provision are read in the context of the statute as a whole and in their legal and historical context, having regard to the aim and purpose of the provision and the legislation, to any established canons of legal construction and to any inconvenience or improbability of result of any given construction. Such inconvenience or improbability of result may assist the Court to reach an available alternative construction reasonably open and more clearly conforming with the legislative intent otherwise discovered. No initial textual or other ambiguity need be divined before context is examined. Fundamental to the task is the giving of close attention to the text and structure of the relevant provisions as the words used by Parliament. This approach, expressed substantially in these terms by the Full Court in Braverus Maritime Inc v Port Kembla Coal Terminal Ltd (2005) 148 FCR 68 at 81 [36], was extracted from the decisions of the High Court such as K & S Lake City Freighters Pty Limited v Gordon & Gotch Ltd (1985) 157 CLR 309 at 312, 315 and 321; Bropho v Western Australia (1990) 171 CLR 1 at 20, citing, specifically, McHugh JA in Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404 at 421-424; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 381-382 [69]-[70] and 384 [78]; Eastman v Director of Public Prosecutions (ACT) (2003) 214 CLR 318 at 368 ftnt 99, agreed in by the whole Court: [1], [32]-[36]; Network Ten Pty Ltd v TCN Channel Nine Pty Limed (2004) 218 CLR 273 at 280-281 [10]-[12]; and Stevens v Kabushiki Kaisha Sony Computers Entertainment (2005) 224 CLR 193 at 206-208 [30]-[34] and 230-231 [124]-[125].

22 For the use of this approach in respect of respect of revenue statutes, see Jeffrey James Prebble Pty Limited v Commissioner of Taxation (2003) 131 FCR 130 at 137-144 [24]-[51]]; HP Mercantile Pty Limited v Commissioner of Taxation (2005) 143 FCR 553 at 564-568 [44]-[63]; and Cameron Brae Pty Limited v Commission of Taxation [2007] FCAFC 135 at [3].

23 The extent to which secondary material is to be considered in the ascertainment of context in "its widest sense": CIC Insurance 187 CLR at 408, may be seen to be affected by the Acts Interpretation Act 1901 (Cth), s 15AB(3): Stevens v Kabushiki Kaisha Sony Computers Entertainment 224 CLR at 230-231 [124]-[125].

24 The issue of the alienation of income from personal exertion was addressed in chapter 7 of the Review of Business Tax: A Tax System Redesigned, July 1999 (the "Ralph Report"). This chapter dealt with three specific concerns about equity in the taxation system: (a) the need for a minimum company tax, (b) deferring losses from non-commercial activities and (c) the alienation of income from personal services.

25 In respect of alienation of income from personal services, the Ralph Report noted an increased use of the technique of employing entities interposed between the acquirer of the services and the individual who performs, or is responsible for performing, the services. The practice, undertaken in order to attract a lower tax rate in the interposed entity, to obtain deductions in the interposed entity that would not or may not be available to the individual and to split income among family or associates of the individual (and thereby reduce overall tax rates and revenue), was seen to pose "significant issues of equity and ... a growing threat to the income tax base." (See the Ralph Report pp 287-288.) The Ralph Report recommended that a "systemic approach" be taken as follows at 289:

...The recommended approach is directed towards cases where income should be correctly attributed for taxation purposes to an individual who carries out personal services in a manner broadly similar to the way those services would be carried out if that person was an employee of the person or entity who required the services .

Recommended by the Review is an approach designed solely to address the taxation implications resulting from the commercial arrangements under which labour (including professional and creative activities) may be engaged. The approach does not impinge, and should not be seen as impinging, in any way on any commercial or contractual obligation that may be present between any or all parties concerned with the arrangement, nor as preventing similar arrangements being entered into in the future . Most importantly, the approach recommended does not, of itself, under any circumstances and for taxation or any other purpose make the service provider a common law employee .

Where an individual provides personal services through an interposed entity or a chain of interposed entities, however structured, and one of the interposed entities contracts with the end user of those services (` service requirer' ), the income derived from the contract (` payment in respect of personal services' ) is often split with members of the family of the individual performing the services (` service provider' ) thereby reducing the overall amount of tax payable .

Payments in respect of personal services include amounts that are wholly or predominantly for the labour or skill of an individual who performs that labour or exercises that skill including those rendered to provide a specific result or outcome. Personal services also include the performance of professional and creative activities.

[emphasis added]

26 At p 291 of the Ralph Report there was a discussion under the heading "employee-like manner", as follows:

The Victorian payroll tax arrangements, along with those that operate in other States and Territories, provide a model for framing the criteria to be considered in determining if payments in respect of personal services relate to services undertaken in an employee-like manner.

A range of criteria concerning the service requirer, the interposed entity and the service provider along with details of the manner in which the services are performed would need to be taken into account.

These criteria include:

•
the manner in which the services are being carried out having regard to the level of control exercised by the service requirer in relation to matters such as the time of work and actual hours of work required and where the services are to be performed;

•
whether the same services are also contracted to the public at large in the year of income;

•
the use by the interposed entity of substantial income producing assets as the predominant source of earning income, with the provision of personal services being incidental;

•
whether incidental services are provided in conjunction with the sale of trading stock;

•
the extent of the infrastructure provided by the interposed entity;

•
whether more than one person is contracted to, and actually provides the services to the service requirer; and

•
the degree of any entrepreneurial risk in the way that services are provided.

The responses to these criteria will determine if it can reasonably be concluded that the services are being provided in an employee-like manner. The Commissioner of Taxation will issue a detailed Ruling to provide guidance on the operation of these criteria.

27 At p 292 of the Ralph Report, the implications of the recommendation were elucidated as follows:

...The amount payable by the service requirer to the interposed entity will in effect be treated as though it passed through the interposed entity intact to the individual service provider. This will ensure that income in respect of personal services derived in an employee-like way is treated in the same way for income tax purposes as income actually derived by an employee.

...

This approach will not impact on genuine business undertakings, which provide services to the public generally. It will not affect the capacity of business to continue to engage third parties to perform services -- nor will it imply that the service provider was an employee of the service requirer.

But it will address income taxation inequities such as where two individuals are performing identical services in the same workplace but one seeks to split income through interposing an entity while the other is simply an employee who is taxed at normal marginal rates on such income. Alienation cases that are not employment-like will continue to be considered under the general principles of the taxation law, including the general anti-avoidance rule.

28 The applicants argued that it was not legitimate to take the Ralph Report into consideration. It was said to be too remote from the text of the legislation when the latter was supported not only by Explanatory Memoranda to the relevant Bills, but the Guides within the 1997 Act (in particular, s 87-1) that can be used to understand the purpose of the legislation. I reject those submissions. The Ralph Report was a seminal report in the development of revenue legislation in Australia. Its terms assist in understanding the mischief to which Part 2-42 was directed. They also assist in understanding the underlying purposes and conceptions to which Part 2-42 was directed: in particular, substance over form, equity in the equal taxation of individuals and a desire not to impinge upon real external contractual relationships or to tax real businesses as individuals.

29 The Explanatory Memorandum to the New Business Tax System (Alienation of Personal Services Income) Bill 2000 stated that Part 2-42 was to introduce new rules for the income tax treatment of certain personal services income. The general outline to the Bill stated as follows:-

... Personal services income is generally paid to an individual who provides the services or to a company, partnership or trust (interposed entity) through which the services are provided by an individual.

The measure will not:

•
apply where an individual or interposed entity is conducting a personal services business; and

•
affect the legal status of an interposed entity or deem an individual to be an employee for the purposes of an Australian law or instrument.

The rules are designed to improve the integrity of the tax system by addressing both the capacity of individuals and interposed entities providing the personal services of an individual to claim higher deductions than employees providing the same or similar services and the alienation of personal services income through an interposed entity.

These improvements will be achieved by:

•
limiting and clarifying the deductions available against personal services income at both the individual and interposed entity level; and

•
ensuring that, after allowing deductions to the interposed entity, any income remaining is attributed to the individual. Schedule 1 to the Taxation Administration Act 1953 is being amended to provide a collection mechanism for tax payable on any income so attributed.

30 The Explanatory Memorandum later stated at [1.14]:

The new arrangements will not impinge on any commercial or contractual obligations between parties affected by the measures and will not impact on genuine business undertakings. Nor will the measures treat the individual as a common law employee for taxation or any other purpose. The arrangements will achieve a consistent taxation treatment for personal services income irrespective of the structures in place to receive that income.

31 Part 2-42 was amended by the Taxation Laws Amendment Act (No 6) 2001 with effect from 1 July 2000. The general outline of the amendments in the Explanatory Memorandum to the Taxation Laws Amendment Bill (No 6) 2001 was in similar terms to those in the earlier Bill.

32 By these 2001 amendments section 87-18 was inserted into Division 87 in Part 2-42.

33 The 2001 Explanatory Memorandum discussed both the personal services business tests and the results test. These are discussed at [7.32]-[7.35] and [7.38]-[7.42], as follows:

7.32 It is necessary to consider the personal services business tests only if an individual (working as a sole trader or through an entity) has personal services income. Personal services income is income that is mainly a reward for a particular individual's personal efforts or skills. An entity's income from the rendering of personal services by an arm's length employee of the entity is not normally personal services income of such an employee, if the employee has no entitlement to that income of the entity other than as salary, wages, commissions, bonuses or allowances.

7.33 The primary rules about what is a personal services business are contained in section 87-15. The section will be amended to reflect the proposed changes to allow self-assessment of the results test for a personal services business and to allow the Commissioner to grant personal services business determinations regardless of whether 80& or more of an individual's personal services income is from one source.

7.34 The amendments to subsection 87-15(1) reflect the fact that all individuals and personal services entities will be able to apply for a personal services business determination. Therefore anyone who has a personal services business determination will be carrying on a personal services business. [Schedule 6, item 4, subsection 87-15(1)]

7.35 Taxpayers may self-assess whether they are conducting a personal services business against the results test, which is included in the list of personal services business tests in subsection 87-15(2). This will ensure that independent contractors are treated as conducting personal services businesses and therefore, are outside the measure. Subsection 87-15(3) is amended to reflect the fact that, regardless of whether 80& or more of an individual's personal services income is from one source, the individual or personal services entity can self-assess against the results test. In contrast, a taxpayer cannot self-assess against any of the other tests if 80& or more of an individual's personal services income is from one source. [Schedule 6, item 4, subsection 87-15(3)]

...

7.38 Proposed section 87-18 contains the results test. The conditions that make up the results test were previously contained in subsections 87-60(5) to (7) and subsections 87-65(5) to (7) as the further grounds on which the Commissioner could make a determination. These amendments will make those same conditions into a new personal services business test. [Schedule 6, item 4, section 87-18]

7.39 As a personal services business test, if an individual or personal services entity meets the results test, they will be conducting a personal services business. There is no need to obtain a personal services business determination although an individual or entity could apply for a determination if they were unsure. In addition, taxpayers could apply to the Commissioner for a private binding ruling about the potential application of Part IVA to their activities.

7.40 The results test is also the only personal services business test that is available for self-assessment where 80& or more of an individual's personal services income is from one source. If 80& or more of an individual's personal services income is from one source and the individual or personal services entity does not meet the results test, they will be a personal services business only if they obtain a personal services business determination. Without these amendments, if 80& or more of an individual's personal services income is from one source, the individual or personal services entity is conducting a personal services business only if they obtain a personal services business determination.

7.41 The existing conditions for the results test (which are traditional tests for determining whether a taxpayer is an independent contractor), are in subsections 87-60(5) and 87-65(5). The 3 conditions are:

•
the individual's personal services income is for producing a result (whether or not it is received by a personal services entity);

•
the individual or personal services entity is required to supply the plant and equipment, or tools of trade, needed to perform the work from which the individual or personal services identity produces the result; and

•
the individual or personal services entity is, or would be, liable for the cost of rectifying any defect in the work performed.

7.42 Previously the conditions in the results test were only relevant to a personal services business determination. As a result of these amendments, taxpayers will now be able self-assess against them. The discussion of these conditions can be found in the explanatory memorandum to the bill that introduced these provisions, the New Business Tax System (Alienation of Personal Services) Bill 2000.

34 It is clear that the expression "independent contractor" began to be infused, not only into the Explanatory Memorandum, but also the legislation itself. This conformed with the expressed aim of the Ralph Report not to "impact on genuine business undertakings". Though the Explanatory Memorandum, the Guide and the operative provisions of Part 2-42 do not use the expression "employee-like" or "employment-like", what is conveyed by these expressions can be seen to be at the heart of Part 2-42 and the operation of the results test.

35 It was submitted on behalf of the applicants that the adoption of the expression "independent contractor" in the Guide in s 87-1 and the terms of s 87-1 itself, together with the taxation rulings issued by the Australian Taxation Office, meant that there was no room for any penumbra of circumstances in which the results test might not apply, but the individual may still be seen as an independent contractor. It was submitted that this revealed a divergence from what was intended in the Ralph Report, by the linking of the results test to the jurisprudence concerning the distinguishing of the independent contractor from the employee.

36 The difficulty with this submission is that the Explanatory Memorandum and s 84-10 expressly contemplate that just because Part 2-42 applies to an individual (and, on this hypothesis, the individual's circumstances do not satisfy the results test) does not mean that the individual is an employee for the purposes of any Australian law or any instrument made under an Australian law. There is no doubt that s 87-18(3) and its elements of "result", necessary tools and liability for defects are to be understood against the background of the jurisprudence concerning independent contractors. Thus, in Commissioner of Taxation v Metaskills Pty Ltd (2003) 130 FCR 248, Lindgren J, in the course of reaching his decision, examined Part 2-42, particularly Division 87 and observed at [28]:

Broadly speaking, an individual or entity, who or which is an 'independent contractor' under traditional concepts should meet the results test. Indeed, the Revised Explanatory Memorandum to the Taxation Laws Amendment Bill (No 6) 2001 (Cth) stated (at para 7.6): 'the results test ... is based on the traditional tests for determining independent contractors'.

37 I agree with the following submission of the respondent:

While the "results test" is based on the common law criteria for characterising an independent contractor from an employee/employer relationship, the "results test" is satisfied by meeting 3 specified criteria (all being traditional indicia of a contract for service). Thus for the purposes of section 87-18(3) it is not necessary that all the recognised indicia of an independent contract are present. However, where many of the indicia of an independent contractor are present but the 3 "results test" criteria are absent the interposed entity or personal services entity is not entitled to a PSB Determination.

38 I was taken to taxation rulings dealing with the operation of the 1997 Act and the relevant revenue legislation. Whilst these rulings may in various degrees "bind" the Commissioner in the conduct of his duties, they do not bind me and were not shown to be secondary material that could be said to form part of the context of the legislation. The rulings, no doubt, contain the Australian Taxation Office's views of the relevant legislation. Those views on the meaning of the statute have, however, no particular weight coming from the arm of the Executive dealing with a statute with which it works daily: Corporation of the City of Enfield v Development Assessment Commission (2000) 199 CLR 135 at 151-154 [40]-[44]. The results test was discussed in [106]-[139] of TR 2001/8. The purpose and context of s 87-18(3) and the terms of the Guide in s 87-1 (made relevant for the purposes in s 950-150(2)(a),(b) and (c)) make relevant the well-known body of jurisprudence on the nature and characteristics of independent contractors to understanding the meaning and application of the provision. The rulings are of assistance in rehearsing the issues and discourse in that area. Both sides addressed at length upon that body of jurisprudence. Ultimately there was little, if any, difference between the contentions in this respect. It is unnecessary for me to undertake a detailed exegesis on the law distinguishing independent contractors from employees. It is sufficient to state the following.

39 The totality of the relationship between the parties is to be considered in order to ascertain the true nature of the relationship between the parties: Hollis v Vabu Pty Limited (2001) 207 CLR 21 at 33 [24] and Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at 29. Control, in the sense of capacity to control, is an important, but not determinative, factor in the essential enquiry as to whether the individual is the servant or employee of another, in that other's business, or whether the individual carries on a trade or business on his or her own behalf. In that latter sense, is the individual conducting his or her own business? See Hollis v Vabu 207 CLR at 38-39 [39]-[40], citing with approval what was said by Dixon J in Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-Operative Assurance Co of Australia (1931) 46 CLR 41 at 48 and Windeyer J in Marshall v Whittaker's Building Supply Co (1963) 109 CLR 210 at 211-23.

40 The essential question posed in Hollis v Vabu may be seen to take one towards the so-called "integration" test discussed in cases such as Stevenson Jordan and Harrison Ltd v MacDonald and Evans (1952) 1 TLR 101 at 111 and Bank Voor Handel En Scheepvaart NV v Slatford [1953] 1 QB 248 at 295.

41 The right to control the manner of exercise of the work is a "prominent factor" and the "surest guide": Stevens v Brodribb 160 CLR at 24 and 36, respectively. A high degree of control or direction as to the character of the result may, however, not gainsay a contract for services, rather may only identify the care with which the principal attends the result to be produced: see Queensland Stations Pty Limited v Federal Commissioner of Taxation (1945) 70 CLR 539.

42 The contract to produce a specified result is also a mark, though not a conclusive one, of the independent contractor: World Book (Australia) Pty Limited v Commissioner of Taxation 92 ATC 4327 at 4334.

43 In contracts for a result, the method of payment may be important - whether payment is for the identified results that have been contracted for or for time spent at work. The latter will not necessarily be determinative against a contract for a result, but it may be an important factor in that conclusion. Nor is the existence of a contract for results inconsistent with an employment relationship: see Hollis v Vabu 207 CLR 21.

44 The capacity of work to be delegated or subcontracted, if present, is a significant factor weighing in favour of a conclusion of an independent contractor. So is the question of risk of costs for defective work.

45 Provision of necessary tools and equipment has always been an important factor: Stevens v Brodbribb 160 CLR at 36-37; Queensland Stations 70 CLR at 548. This is so because it tends to reflect the operation of a separate business. But, as made clear in Hollis v Vabu 207 CLR 21 (where the delivery riders owned and maintained their own bicycles, but were found to be employees) this is not determinative.

46 Custom and practice are important as part of all the relevant circumstances to be examined.

47 As can be seen from this brief outline, the Parliament has used three elements as the framework in which to answer the question whether the "results test" is met. Set against this background of well-known jurisprudence, governed by the need to assess the substance of the relevant relationships and circumstances contained in s 87-18(3)(a),(b) and (c) and understanding the proper width of those provisions, it is necessary to turn to the facts of each case.

48 Before turning to the facts of the applications, it is necessary to say something about the approach to the interpretation and application of s 87-18(3), in the light of the context and purpose revealed by the Ralph Report, the Explanatory Memoranda and the text and structure of Part 2-42.

49 The applicants, in dealing with the elements in s 87-18(3)(a), (b) and (c), focused substantially on the contract between Dare, and IRG and Mr Owen as trustee, respectively. To go beyond that contractual boundary, so it was submitted, required the treatment of each such contract as a sham or required each such contract to be varied. Dare was the immediate source of the income that flowed to IRG and Mr Owen as trustee under each contract with Dare and that Part 2-42 would treat as the personal services income of Mr Green and Mr Owen, subject to PSB determinations being granted. Thus, the result produced for which the income was received was to be ascertained, so it was submitted, from the contract between Dare and the relevant personal services entity. Likewise, whether s 87-18(3)(b) and (c) were satisfied was to be assessed by reference to the relevant contracts with Dare. At other points in the applicants' submissions it was put that the relevant issue was whether Mr Green (or Mr Owen) was an employee or independent contractor of Dare.

50 That, in my view, is too limited an approach. It can be accepted that neither Mr Green nor Mr Owen was an employee of Dare. The whole purpose of s 87-18(3), as is plain from the secondary material, is to bring an eye guided by substance, not form, to the circumstances of the provision of the personal services to the party who acquires or receives them. The central relationship for examination (irrespective of the nature and number of interposed entities) is between the individual whose exertions produce the personal service income and the requirer or acquirer of those exertions or services. Thus, in assessing what the income is "for" and whether the income is "for producing a result" (in s 87-18(3)(a)), one directs attention to all the circumstances of the individual, and in particular, what the individual does at, and with, the ultimate acquirer or requirer of the services. Here, as will be seen in the next section on the facts, Dare is a labour procurement agency. (Nothing turns on the particular choice of words to describe its function.) Mr Green and Mr Owen were passed on to the KJV as skilled engineers, for which Dare received a commission. Mr Green and Mr Owen did not provide their services to Dare, but to the KJV. The personal service entities, IRG and Mr Owen in his capacity as trustee, contracted with Dare to bring about the provision of the services of the individuals to the KJV. The question whether the income was for producing a result directs attention to how the services were provided and what they brought about when they were deployed at the KJV. This may be assisted, but is not governed, by the terms of the contract with Dare.

51 As to s 87-18(3)(b), the notion of the personal services entity being "required" to do what is identified may be seen to direct attention to the source of any such requirement, the contract with Dare. The notion of requirement, the balance of the words of the paragraph and the need to examine the substance of the matter, however, direct attention to the requirements at the point of delivery of the services. Again, to that question, the content of the Dare contract is not irrelevant, but it is not determinative.

52 As to s 87-18(3)(c), the liability of the personal services entity will depend upon the rights and legal obligations created by the various parties. Again, this will be affected by the Dare contract but not governed by it.

53 Of course, s 87-18(4) affects all these questions.

IRG and Mr Green

54 Mr Green is an instrument electrical engineer qualified from the Institute of Incorporated Engineers in England. Among his qualifications are membership of the Instrumentation Systems and Automation Society and the Petroleum Society of America. He has worked as an instrument electrical engineer since about 1970. He came to Australia in 1977 and since then has worked on at least 20 projects in Australia.

55 IRG was incorporated in 1994. Since 1997, Mr Green has been its sole director and shareholder.

56 In July 2001, Mr Green was contacted by a Mr Conner who worked as a systems engineer on the LNG 4 plant. He asked Mr Green to send his CV to a Mr Mike Blake who was a senior engineer on the LNG 4 plant employed by the KJV. Apparently, the LNG 4 plant project needed a lead instrument engineer. Mr Green met with Mr Blake and they discussed work associated with the role of a lead instrument engineer for part of the development called the Trunkline Onshore Terminal ("TOT").

57 There was much emphasis in the case about the so-called "deliverables" in the project, being the results for which the income was said to be received. By the time this meeting took place, there had been completed for the TOT a basis of design ("BOD"), a front end engineering design ("FEED") and documents called process and instrument diagrams ("P&IDs"). These are documents which display an increasing level of design detail. From the P&IDs, engineers from the various disciplines developed detailed designs, wrote specifications, oversaw purchasing and prepared as-built drawings.

58 At the meeting with Mr Blake, the job was explained to Mr Green by showing him the P&IDs of the project and, in particular, the TOT. Mr Blake said "This is what we are looking for you to do". When Mr Green asked the extent of the work for him, Mr Blake said "The Trunkline On-shore Terminal, when can you start, we need someone urgently." In this conversation, Mr Blake told Mr Green that his role would be to determine the number and sorts of deliverables required by engineers working on the TOT and that management and quality assurance and control would be part of his role.

59 Mr Blake told Mr Green which employment agencies were being used by the KJV. These included HR Connect. Mr Green called HR Connect. The use of an employment agency was standard practice for the mining and construction industry in Western Australia.

60 Mr Green called HR Connect who sent documents to him. A Ms Buckland sent an email to "irgtech" which commenced "Dear Ian". The email stated:

Further to your conversation with Michael, HR Connect Pty Ltd is pleased to confirm your contract hire to the Kellogg Joint Venture.

The hourly rate is confirmed at $60 per hour and confirmed start date is 6 August 2001.

Documentation, including certificates of insurance for workers compensation and public liability, was requested.

61 On 25 July 2001, HR Connect sent Mr Green a contract under cover of letter which stated the following:

We are pleased to confirm your contract hire to Kellogg Joint Venture. All conditions for this hire are contained in the attached Contract Agreement of which there are two copies enclosed. Would you please review and sign both copies and return one copy to our office at your earliest convenience.

Please note the following:

•
Payments will be made to you on a fortnightly basis via direct funds transfer.

•
Your first pay period finishes on Friday, 17 August 2001.

•
We ask that you provide a Tax Invoice to HR CONNECT PTY LTD by the following Monday (of each pay period). To assist you with this process I have enclosed a sample invoice and a summary of invoice due dates.

•
Your first invoice will be due on Monday, 20 August 2001.

•
We also require an approved weekly timesheet. Could you please fax or email these to our office each Friday or no later than noon the following Monday.

...

[emphasis in original]

Notwithstanding what is in the second sentence of the above letter, it cannot be concluded on the evidence that the KJV was bound in any way by the terms of the contract between IRG and HR Connect (or Dare). The extent to which the KJV may be bound by HR Connect's or Dare's conduct and contract terms was not explored. It was not submitted that the KJV was bound by the terms of the HR Connect or Dare contract.

62 It is to be noted that HR Connect recognised the commercial essentiality that the arrangement was a "contract hire to Kellogg Joint Venture" The enclosed agreement was expressed to be for contractual services for incorporated contractors only. The agreement was three pages long, with 26 clauses and a schedule. By it, HR Connect "appointed" the party named and described in Item 1 of the Schedule (defined as the "Contractor" for the agreement) to perform the services of a "senior instrument engineer" and all other assignments that may be given to the Contractor by the KJV (defined as the Client) commencing on a nominated date (6 August 2001) and concluding on a nominated date (6 August 2002, or as required). In Item 1 of the Schedule, the following appeared:

ITEM 1

CONTRACT NO: 0355

COMPANY NAME IRG TECHNICAL SERVICES PTY LTD

ADDRESS [address given]

TELEPONE NUMBER [telephone number given]

NOMINATED PERSONNEL IAN GREEN

Thus, the identity of Mr Green was part of Item 1. This is only logical since the services required were to be undertaken by a skilled individual.

63 The HR Connect agreement provided for a fee of $60 per hour for a 9 hour day to be payable by HR Connect, payable fortnightly. The terms included the following:

(a): Clause 1 as follows:
The Contractor shall perform the Services for the Client on days and at the locations as specified by the Client where the Services are to be performed, in a skillful, competent, conscientious, expeditious and professional manner to the satisfaction of the Client, shall comply with all government regulations and requirements and shall comply with all of the Client's policies, procedures and rules.
(b): There was a term requiring timesheets to be filled in which were to substantiate a fortnightly invoice.
(c): The KJV was to provide office space, stationery, desktop computer and software, and all other equipment was provided by IRG.
(d): Clause 24, which sought to make clear the independent contractor relationship between HR Connect and IRG or Mr Green, as follows:
The Contractor shall not be subject to the control and supervision of the Company in performing the Services and nothing herein shall be construed as creating the relationship of employer and employee between the parties, nor the relationship of partnership. The relationship between the parties is one of principal and independent contractor and the Contractor is able to accept work from a range of principals but will exert his or her best endeavours to be available when required by the Client. Therefore, the Contractor does not have any right to payment for holiday pay, sick pay, long service leave or public holidays.

64 On 26 November 2001, a revised contract was entered into to provide for an increased remuneration.

65 The contract with HR Connect was terminated on 28 April 2002. Mr Green said that "I stopped using HR Connect". He gave a number of reasons in his evidence: that he thought they were too close to the KJV and that they refused to modify his contract to include in it detail of his work. Mr Green wanted this detail in the contract because of his concern as to the operation of the new tax arrangements in Part 2-42. He had a belief that his position would be strengthened in that respect by a clearer and more precise statement of the details of his work in his contract. Mr Green gave one week's notice and contemporaneously signed an agreement with Dare. This caused no interruption to Mr Green's work with the KJV.

66 The agreement between IRG and Dare was in writing and dated 7 May 2002, with a commencement date of 29 April 2002. Mr Green provided the description of the job that he was already doing for the KJV in item 9 of the schedule under the hearing "Assignment" as follows:

Instrumentation design. Liaise with Process Engineers for design of the TOT for Process and ESD Control. Size valves and instruments. Evaluate tenders and recommendations. Issue reports. Attend HAZOP meetings.

Deliverables: Specifications, Tenders for valves and instruments, Datasheets for valves and instruments, PEFS, Trenching layouts, Cable layouts and schedules, Technical clarifications and reports, Schedules/manpower plans.

Mr Green agreed in cross-examination that these were the integers of the role of an engineer on the job, broken into their elements and inserted into the schedule. That is, it was the description of the work expected of a lead instrument engineer working on a job such as the TOT.

67 The Dare contract was considerably longer than the HR Connect contract. The recitals sought to identify a notion of the production of results:

A. The Principal carries on the Principal's Business and makes use of contractors to complete certain assignments and deliver certain results for the Principal.

B. The Contractor carries on the business of a contractor accepting engagements from companies to undertake and complete certain assignments and deliver certain results.

C. The Principal is willing to engage the Contractor, subject to the terms and conditions set out in this Agreement.

The "Principal" was Dare, the "Contractor" was IRG (with Mr Green nominated as the "Contact Person") and the "Client" was the KJV.

68 Various clauses of the Dare contract were emphasised by the parties. Clause 3.1, under the hading "Assignment" contained the following:

During the Term, the Contractor will undertake and complete each Assignment specified and by the Expected Completion Date (if any) specified in Item 10 of the Schedule .

[emphasis in original]

This provision was an important plank in the applicants' arguments in both proceedings that the income was for producing a result - that is, it was submitted, what clause 3.1 and item 9 said. When one recognises, however, that item 9 (the definition of "Assignment") was simply a description of the kind of work expected of lead instrument engineers working on the TOT, it was really no more than a way of saying that IRG, through Mr Green, would cause the performance of the work of a lead instrument engineer on the TOT.

69 Clause 3.4 provided for the exercise of independent discretion, as follows:

Subject to the Contractor complying with its obligations under this Agreement, the Contractor must exercise its independent discretion as to the most appropriate and effective manner of completing each Assignment and satisfying the Principal's expectations of that Assignment.

70 Clause 4 dealt with plant equipment and tools as follows:

4.1 The Contractor must provide all plant and equipment and tools necessary to complete each Assignment including, but not limited to, those things specified in Item 7 of the Schedule .

4.2 The Contractor must ensure that the plant and equipment and tools are mechanically sound, and are in good, clean condition, both internally and externally and otherwise comply with any relevant legislation.

[emphasis in original]

71 Delegation was permitted by clause 6, clause 6.1 stating:

The Contractor may engage one or more Delegates to assist the Contractor to complete each Assignment.

A Delegate was defined as:

" Delegate " means an employee, agent or sub-contractor nominated by the Contractor to assist in completing an Assignment.

72 The applicant was to comply with all policies, guidelines and quality standards of the Principal and the Client, but this was not to affect the applicant's own judgment and skill.

73 The nature of the relationship between the applicant and the Principal was said to be that of independent contractor.

74 Pursuant to clause 12, payment was in an amount calculated in accordance with the Fee Arrangement which was set out in item 11 of the schedule, as follows:

Subject to the payment conditions in clause 12 of the Agreement, the Contractor and Principal elect to calculate the Fee payable by the Principal to the Contractor for progress of each Assignment as follows:

Unit Price $62.50

Unit Total for progress not to exceed $5,625.00 per fortnight. Unless with prior approval.

The above unit price covers cost for time engaged in carrying out the activities as specified in the assignment (Item 9) and incorporates both travel and equipment usage unless otherwise specified in the schedule.

On the evidence, it is plain that a unit was an hour and a "Unit Price" was a sum per hour; and a "Unit Total" being the maximum fortnightly sum. The terms of clause 12 were as follows:

12.1 Subject to this clause 12, the Principal will pay the Contractor an amount calculated in accordance with the Fee Arrangement for the satisfactory completion of each Assignment or part of an Assignment.

12.2 If the Principal is not satisfied that the Contractor has satisfactorily completed an Assignment, the Contractor will bear the liability and the cost of rectifying any defect in that Assignment and payment is not due and payable until the rectification is complete to the absolute satisfaction of the Principal.

12.3 Payment shall not be due unless and until the Principal receives a correctly tendered Tax Invoice. For the purposes of this subclause, a Tax Invoice will be correctly tendered if the Tax Invoice is set out in a manner that:

(a)
enables the Principal to ascertain the Assignment to which the Tax Invoice relates and the date of completion of the Assignment;

(b)
specifies the amount payable in respect of that Assignment and the method of calculation of that amount;

(c)
where an Assignment is incomplete and the Principal agrees (in its absolute discretion) to make a part payment, the estimated proportion of that Assignment (expressed as a percentage) that is completed at the date of the Tax Invoice; and

(d)
identifies the accompanied verifying documentation (where necessary and where reasonably requested by the Principal) which may include (but not limited to) receipts, timesheets and computer logs.

12.4 The Principal will make payment to the Contractor within 5 Business Days of the Contactor providing a correctly tendered Tax Invoice.

12.5 The Contractor acknowledges that it has sole responsibility in relation to payment (if any) of remuneration, superannuation, workers' compensation, taxes and expenses incidental to employment in respect of its own employees. The Contractor further acknowledges that its employees do not have, pursuant to this Agreement, any entitlement from the Principal in relation to any form of employment or related benefit.

12.6 The Principal will be entitled to set off against moneys to be paid to the contractor under this clause 12 any amount owing to the Principal by the Contractor in relation to this Agreement.

75 Once again, the provisions were worded to reflect a notion of payment for results. Once again, however, in the light of what the definition of assignment was, they provided, in substance, for nothing other than an hourly rate, up to a sum per fortnight, for performing the work of a lead instrument engineer on the TOT. The choice of language of the parties can be respected. What is plain, however, is that an hourly rate was payable, and the definition of assignment was comprised of the broad integers of the position undertaken by Mr Green - a lead instrument engineer on the TOT.

76 Clause 13 provided for certain reimbursable expenses above the payments under the fee arrangement.

77 Dare was not liable for any injury, damage or loss sustained by the applicant.

78 Mr Hicks gave evidence that the contract for proprietary limited companies, family trusts and partnerships and for other sole traders was standard. Tax was deducted prior to payment. Mr Hicks explained how items to the schedule were prepared. Item 6, the "Description of the Contractor's Business" was standard and provided by Dare. It stated:

Undertaking the performance and completion of specified contracts and assignments for the Principal and companies similar to the Principal.

Item 7 entitled "Plant and Equipment and Tools" was also standard. It stated:

Provide own laptop to run vendor software.

79 This agreement must be understood in the light of what Mr Green actually did at the KJV. He was, after all, working at their offices and not for Dare. Dare's position was, and was understood by all to be, a company which procured and administered the contract labour for the KJV for the construction of the LNG train 4.

80 Before examining what Mr Green actually did while working for the KJV, it is of assistance to understand the relationship between the KJV and Dare. IRG and Mr Green were not privy to the terms of the contractual arrangements between these two parties; however, the arrangement can be looked at to understand the structure of the interlocking relationships among the KJV, Dare, IRG and Mr Green (and Mr Owen in his individual and trustee capacities).

Dare and the KJV

81 In October 2001, Dare entered a contract with the KJV under which Dare provided qualified and experienced engineering and technical services. Under clause 5, the KJV would issue a service order in the form of annexure B to the agreement for "every individual Personnel to be provided". Requisitions or job specifications were issued to Dare by the KJV. Examples were given by Mr Hicks in evidence. Not surprisingly, a job description, including specific duties and responsibilities, was set out. For instance, the requisition for a senior instrument engineer included the following job description:

Will be required to work in the Field Instrument group and be responsible for the production of project deliverable's [sic] such as instrument specifications, instrument datasheets etc.

Will be required to work closely with the other teams within the instrument group and other engineering disciplines to ensure the instrument deliverable's [sic] are consistent and complete within the required project schedule.

82 Dare would then use its resources and contacts to identify possible personnel. Possibly suitable individuals would be asked to send their résumés to the KJV. A request for interview by the KJV would be made through Dare. The KJV would then conduct the interview and inform Dare of acceptance. A service or purchase order would then be issued. The pro-forma in evidence identified the individual, the position title, start and finish dates, supervision and rates of pay.

83 Dare was not informed of the specific tasks to be undertaken by the approved personnel.

84 Once Dare received a service order, it prepared a contract between it and the approved personnel or his or her relevant entity.

85 The legal relationship between the KJV and Dare was described in clause 22.1 of their agreement as follows:

The relationship between the parties will be that of principal and independent contractor and neither Supplier nor any of the Personnel will be deemed to be an employee or representative of Company.

86 By clause 3.1 of their agreement, Dare undertook to perform and carry out the "Services", which were defined as:

Services means any and all services to be performed and obligations undertaken by Supplier under this Agreement including those described in the Service Orders issued or contemplated to be issued under this Agreement.

The phrase "Service Order" was defined as:

Service Order means the document titled as such which contains details of that part of the Services to be performed by Supplier using the Personnel. Annexure B is a sample of a blank Service Order.

This opaque definitional mechanism can be perhaps translated as an obligation on Dare to exercise its best efforts to procure for the KJV suitably qualified personnel of a description given by the KJV to Dare.

87 Dare invoiced the KJV once timesheets were available at the end of each month.

The work of Mr Green at the KJV

88 There was no change in the work or duties of Mr Green or the manner of their performance brought about by, or associated with, the change from HR Connect to Dare. Neither company (HR Connect or Dare) had any involvement in Mr Green's work on the LNG-4 project. Mr Green's work was performed for, and overseen by, the KJV.

89 The detail of the work undertaken by Mr Green was uncontroversial. Mr Green described, first of all, what he did as an instrument engineer: designing control systems which incorporate control values and shut down valves for oil and gas engineering projects. The description by Mr Green of the work of an instrument engineer, which I accept, was as follows: the consideration of P&IDs to determine what instruments were required; in respect of valves, the calculation of specifications for control and shut down valves; the incorporation of specifications and designs into a tender document that could be released for tender by a company in the position of the KJV; the evaluation of tenders received from vendors who would provide the valves and like machinery pursuant to the tenders; this process of consideration required an engineer in Mr Green's position to consider the price and QA/QC procedures that the vendors had in place, their management structure and their manufacturing schedule; and the making of a recommendation to the client based on the tender evaluation conducted by someone in Mr Green's position.

90 In various places in his evidence, Mr Green described his work on the TOT. He was responsible for managing the instrument design on the TOT. He was involved in the whole design process, the QA/QC procedures and ultimately was responsible for the delivery of the instrument design for the TOT by the required date. He was situated on a floor with other engineers who worked on the TOT. Theoretically, he could have worked from home at times. However, it was quite plain on the whole of the evidence that for him (and Mr Owen) this would have been inconvenient, and in all likelihood, unsatisfactory, if done other than occasionally. Mr Green said that he spoke with Mr Blake on a daily basis, going up to his office for these conversations. The work done by Mr Green, which I will describe below, required the production of individual schedules and documents in a staged process, so that ultimately the tender documents and specifications and drawings could be prepared on time for the prospective vendors of the goods to tender and thereafter, if accepted, to produce the goods. It can be accepted that it is a legitimate use of the English language to describe these as the production of "deliverables". However, in reality, what Mr Green was doing was working as a skilled engineer for the KJV in the KJV's professional business on a particular project in careful consultation with his peers and with his supervisors to create all necessary documents for the satisfactory design and construction of a complex engineering plant.

91 The first piece of work that he was asked to complete was an estimate for costing for the TOT, which was part of the BOD. His estimates were provided to the estimator on the LNG 4 project, who was responsible for producing overall estimates.

92 Mr Green then prepared a list of deliverables based on the P&ID document. Deliverables were described by Mr Green as a term used in the oil and gas industry to refer to the outputs in a physical form for certain stages of the project. This can be accepted, and I do. It is a word helpful to describe the results of work done as an engineer in this kind of project.

93 Mr Green produced a manpower curve used to hire people and related to the instrumentation for the TOT.

94 Mr Green stated that he carried out other work on the project, describing that other work as comprising deliverables as follows:

•: reports for management on the progress of the instrumentation of the TOT, required for weekly minuted meetings which he attended
•: deviations being changes to the scope of the project
•: data sheets describing equipment
•: specifications for valves and instruments
•: schedule updates and design changes
•: wiring diagrams and layout drawings
•: a cause and effects matrix

95 Mr Green stated that cross-disciplinary communication with other engineers was vital to his work. He was in constant consultation with other engineers. In effect, he worked in a highly skilled, efficient organisational structure in which he played a central role as lead instrument engineer.

96 Teamwork and communication between the engineer and disciplines working on the project were essential for the iterative process by which deliverables were completed and approved by the client. Deliverables in this sense were, as Mr Green said, documents, software, and anything developed by the engineers to hand over to the client, without which the plant could not be built. Staff engineers and contract engineers of the KJV worked as an integrated team, although staff members were at the higher management level. (The evidence of Mr Green when understood in its substance and context is to this effect).

97 Mr Green signed off documents that had to be reviewed by a number of engineers as part of a careful and rigidly adhered to quality assurance and quality control procedure.

98 Mr Green was required to submit copies of his timesheets which were signed by persons identified as supervisors. Mr Green did not receive holiday pay or sick pay and was paid on the basis of substantiated hours. There was some discussion in the evidence as to whether he would be paid for hours beyond 45 per week. The evidence was that if Mr Green thought he needed to work additional hours to do what was required to be done, he would do so, and, in some circumstances, he would not be paid for that. However, looking at all the evidence, the 45 hours per week comprised the standard required working week for skilled engineers of Mr Green's background. The evidence disclosed that it was an adequate and reasonable estimate for him to perform what was expected of him in the design of the TOT within the estimated and flexible time frame of his anticipated participation on the project. If, however, the work, including variations, required him to spend extra time, his evidence disclosed that he would expect to be paid for that extra time. The way Mr Green described extra time for which he would be paid and not be paid was as follows. If he worked more than the contracted 45 hours doing work he was required to do, he would record it and expect to be paid for it. If however, the extra time was "off his own back", then he did not expect to be paid for it and would not record it. He expected to be paid for all time that he recorded. He said (somewhat ambiguously) that about 20% of the time he worked in excess of 45 hours per week. Looking at his affidavit in this regard and having seen Mr Green, it is clear to me that there was a measure of professional pride involved. The standard hours were 45 per week. It was expected that Mr Green be able to perform his work within that period. Sometimes, he worked longer hours. If, however, a particular variation or change required further hours to be worked by him, which he thought was reasonable for the client to pay, he would record it. This is not an unfamiliar approach in responsible professional people paid by the hour but who are engaged on a measurable task.

99 Mr Green did not have any particular additional expenses on this project.

100 Looking at all the evidence, in my view, Mr Green was performing work as an engineer which can be described as the production of deliverables, but, in substance, was the performance of services of a skilled engineer in exchange for an hourly contractual rate for a given number of hours in the week which was flexible upwards if, in all the circumstances, it was reasonable for a professional of his calibre to spend more than 45 hours per week on the job.

101 Turning to the equipment used by Mr Green, he said that his own personal laptop was an essential tool in the performance of his work. There was some contest in the evidence as to whether Mr Green used his laptop. Taking all the evidence into account, it is tolerably clear that Mr Green did use his laptop and the data on his laptop to perform calculations using vendor programs and other programs that Mr Green had stored or developed. Mr Green also used computers at the KJV office and KJV equipment to access documents. The information on the computers at the KJV office which was necessary included databases, spreadsheets, instrument indexes and specifications. All project documentation was designed and created on the project computers. To perform his work, Mr Green needed office space, stationery, a desk, a desktop PC and access to the KJV document control system and intranet data for research. All this was provided by the KJV including software, email, templates for datasheets, project procedures, client standards, specifications and the quality control system.

102 There was some difference between Mr Owen and Mr Green in their evidence as to whether they were able use their own computers on the KJV system. Mr Green indicated in evidence, quite clearly, that he is was prohibited from doing this. Mr Owen seems to have been allowed after some security and virus checking. I do not think the difference matters.

103 Mr Hicks threw some light on this from his knowledge. He said that the client (in this case the KJV) usually provided all software to keep a tight control on the standards to be complied with and to achieve the standard and uniformity that it required. To this extent, he said that the scale of projects undertaken by clients such as the KJV was so large that individual personnel were unable to provide all the necessary tools and equipment to carry out their assignments. These tools and equipment that were provided by the KJV included computing infrastructure, software, and data. This was necessary to achieve the standard of uniformity that a client required.

104 Thus, I find that the KJV provided equipment in the form of a computer system and office and Mr Green supplemented that by recourse to his own computer and data system to bring about the preparation of documentation on the KJV computer system. The integration of the performance of the work on the KJV computer system and the need, as Mr Hicks said, for a standard of uniformity in a large-scale project reflected the integrated way Mr Green worked in consultation with a large number of skilled engineers, with whom he needed to discuss the preparation of the relevant documents.

105 As to rectifying work, it is plain that the QA/QC process on larger projects such as this was very stringent and any problems were picked up and fixed quickly. The closely interrelated and co-ordinated work of all the engineers, together with the checking of work as part of the integrated process of document development, meant that the notion of rectifying work was somewhat attenuated in practice. Thus, the likelihood of such a defect arising requiring rectification and being attributable to Mr Green was small. Nevertheless, I am prepared to accept that if defective work were to be effected by Mr Green, there could be circumstances in which he would be called upon to rectify it. However, the process of data sheet and drawing preparation was such that the incremental nature of correction through the process of dialogue among skilled engineers, including supervisors, meant that incremental error was part of the process picked up in quality control to which there was not any individual holding to account by the docking of wages based on an assessment of time.

106 There was no clause in the contract between Dare and the KJV requiring personnel provided by Dare to have any responsibility for rectifying any defects found in the course of the performance of their work. Nevertheless, in the light of the Dare contract and in the light of the treatment by the KJV of persons such as Mr Green as contractors, if there could be identified a consequence of defective work by him then I am prepared to accept that he would have been exposed to both criticism and action.

107 The notion of delegation was debated. Certainly, in the Dare contract, Mr Green was entitled to delegate the task. However, it is plain from the evidence that the KJV chose Mr Green with his skill to be the lead engineer. It is inconceivable that Mr Green could delegate any work on the project without the express consent of the KJV. The whole point of the selection process was to gain a skilled engineer for a highly responsible job on a very valuable piece of plant development. It was Mr Green who the KJV chose, not an unknown delegate of Mr Green.

Arguments of Mr Green

108 Apart from the focus upon the Dare contract, which, for the reasons that I have given, is misplaced, the submissions also were directed to the work for the KJV as it was undertaken by Mr Green. The conclusion that there was a contract for a result was urged on the basis, primarily, of there being a series of results (the deliverables), which were produced in an independent unsupervised way, for which, in effect, the hourly payment paid for. There was much evidence by Mr Green (and by Mr Owen) seeking to express what they did in this way. Detailed submissions were put on the minutiae of the evidence. It is not a matter of disbelieving or rejecting this evidence. I simply do not view the work performed by Mr Green (or Mr Owen) in this way. Looking at all the evidence as a whole, and viewing the matter as one of substance, Mr Green was working within an integrated business of the KJV in the design of the LNG 4 train. He was one of a number of senior and skilled engineers working as a team in producing, by an iterative process, across a variety of engineering disciplines, the documentation necessary for the design and construction of the plant. Mr Green was not conducting his own individual business, nor was IRG. He was working in close co-operation with other contract and staff engineers in the KJV's business designing and constructing the plant. He was paid for that, by the hour.

109 It was said that he was not supervised. I think that is somewhat tendentious. A "supervisor" signed timesheets. He was, it is true, a skilled engineer, requiring little supervision. But the co-ordinated team environment, involving regular managerial meetings which he attended, the regular updating of schedules and drawings, the cross-disciplinary input into schedules and drawings and the QA/QC checking and signing were all part of the controlled work done for the KJV.

My conclusions as to IRG and Mr Green

110 For the above reasons, in my view, the income of Mr Green (the personal services income of the relevant individual included in IRG's income) was not for producing a result. Without restricting what I have already said, it was for the performance of work as a skilled engineer in the business of the KJV as part of a co-ordinated team of engineers and remunerated on an hourly rate for such work. This work involved Mr Green producing, from time to time, documents, schedules and data sheets, and involved him in identifiable tasks and responsibilities. It would not be a reflection of substantial reality, however, to say that his income was for the results he produced. It was for his work as a skilled engineer, which work produced those results or outcomes, as a necessary professional consequence of the work of a skilled lead instrument engineer on such a project.

111 This conclusion is enough to see the dismissal of the application. The parties' arguments, however, dealt with s 87-18(3)(b) and (c) as well. It is a test case.

112 The meaning and operation here of s 87-18(3)(b) is not straightforward. If the provision is read as requiring all plant and equipment, or tools of trade, that may, in any given case, lead to harsh and capricious results. On the other hand, if it is taken to refer simply to such plant and equipment or tools of trade as are not supplied by the principal (the putative "employer"), the provision has little content as a test of the relationship. Undoubtedly, custom and practice will be important. Also, it may be difficult, as it is here, to detach this "test" from that of (a).

113 In taxation ruling 2001/8, the ATO has given the following guidance:

...[H]aving regard to the words of the law and the purpose of the provision, ...if no equipment or tools are needed, it is arguable that the provision will always be met in these circumstances. Also, [s 87-18(4)] allow[s] regard to the custom or practice of individuals or entities (other than employees) "to be required to supply" the equipment or tools "needed to perform the work", "as the case requires" suggesting that equipment and tools are not required if they are not needed to perform the work. They also highlight the distinction between independent contractors and employees. This reflects the purpose of the 'results test', the object of the condition in [s 87-18(3)(b)] being to ensure that individuals or personal service entities who claim to be independent contractors do in fact provide the necessary equipment or tools where genuine independent contractors would be expected to do so.

114 With respect, that is a well-expressed and serviceable working exposition. To give the provision (as it should be given) a sensible working meaning conformable with its place in the context of the jurisprudence concerning independent contractors, I am prepared to adopt this approach.

115 I should at this point note that the evidence of Mr Green identified, in some detail, the things that Mr Green or IRG possessed and used that could be described as tools of trade. IRG had a computer. Mr Green and IRG also had numerous applications and computer programmes concerning calculation of natural gas properties, calculation of dimensions of valves, standards and their application, vendors' software and other applications.

116 As I have said, these were used by Mr Green on his laptop in the conduct of his work at KJV.

117 Thus, whilst Mr Green and IRG undoubtedly supplied some tools of trade, and the kind of tools of trade that would be expected to be provided, the KJV also supplied necessary equipment and tools (the office, the computer system and the information on that system that I have described).

118 Mr Green was not required (by the KJV) to provide any plant and equipment or tools of trade. He did in fact have recourse to his own computer and database, but he was not required by the KJV to bring that to the work. The KJV provided all necessary office equipment and tools of trade. Section 87-18(3)(b) was not satisfied.

119 For the reasons that I gave earlier, in my view s 87-18(3)(c) is satisfied.

120 For these reasons, the application WAD174 of 2004 should be dismissed. The test case procedure means that I need make no orders as to costs.

Mr Owen

121 The Owen Family Trust is a discretionary trust, the detail of which it is unnecessary to describe, save to say that Mr Owen and his family are the relevant interested parties. It traded under the name Total Dynamics. It was, and is, treated as a tax entity for the purposes of the 1997 Act and other relevant revenue legislation.

122 Mr Owen is also an instrumentation engineer with thirty years' experience. His qualifications are an Instrument Measurement and Control Technicians Certificate and a City and Guilds General Engineering Certificate. His career commenced with British Nuclear Fuels, UK in 1966 (at the age of 17 years) and since then he has worked for (to use language neutrally) many companies as a senior instrument designer and engineer. Much of this work has comprised participation in the design and construction of major infrastructure projects, and in particular oil and gas, resource, minerals and mining projects, not only in Australia, but around the world. Mr Owen is a highly skilled and highly experienced instrument engineer.

123 In the early part of his career, until 1974, Mr Owen worked as an employee with Nuclear Fuels, UK. Since then he has always worked, as he described it, as a "contractor" - hired through an agency, for a specific job, without sick or holiday pay or superannuation, and without deductions for tax.

124 Like Mr Green, the ability of Mr Owen to obtain work rests upon his reputation for skill and competence, work being found by contacts and word of mouth. On occasions, he was approached by engineering clients engaged in conducting or managing a project. At other times, Mr Owen, armed with his CV, would approach agencies whose business it was to recruit personnel for the type of construction projects with which Mr Owen had experience.

125 Mr Owen began to work at the Woodside LNG 4 project in 2000. In October 2000, Mr Owen was looking for work and telephoned Mr Edward James, a senior instrumentation engineer with the KJV for the LNG 4 project. Mr James told him that the KJV was looking for instrument engineers, amongst other skilled persons, and mentioned the LNG train 4 project. Mr James referred him to Mr Blake who, one week later, interviewed Mr Owen. The interview took place at the offices of the KJV. Mr Edward and Mr Blake were present, though the discussion took place mostly between Mr Blake and Mr Owen who had not met before. The meeting lasted about half an hour. Mr Blake and Mr Owen discussed, in general terms, the proposed job, which was to procure instrumentation for the LNG 4 facility. They also discussed manning requirements of instrumentation engineers for the job. Mr Blake said that he was looking for two more instrument engineers to work with Mr James on the "ramp up" phase of the project. (This is the phase of the project just after initial design.) Mr Blake said to him that "we need a couple of guys for the ramp up". After the interview, Mr Owen was confident that he would get the job. From the discussion, he understood that the job would last for about four years.

126 About another week later, Mr Owen was contacted by HR Connect or the KJV Human Resources Department. Whoever it was who contacted him said words to the effect that he had the job and asked what his rate was. He gave an hourly rate to the person. The only aspect of that conversation that he can remember is being told that he had the job and the discussion about pay. However, from his experience in dealing with these kinds of contracts, he believed (and I accept him) that he probably had a conversation with an officer of HR Connect dealing with the details in his CV that he had already provided.

127 Mr Owen received the HR Connect contract in the mail after he commenced work on the LNG 4 plant. He could not recall whether it was a week or some months after he started. He gave it a cursory glance and signed it.

128 The HR Connect contract was in substantially the same form as was Mr Green's HR Connect contract. No particular aspect of it differentiated Mr Owen's position from Mr Green's.

129 In May 2002, Mr Owen decided to stop using HR Connect as the intermediary and chose Dare. In his affidavit, Mr Owen said that the main reason why he changed from HR connect was that he wanted "deliverables listed in the contract after receiving general correspondence from the ATO and reading various newspaper articles about the ATO's attitude with regard to contractors in the industries that I worked in and the introduction of the PSI". Fundamentally, this was the same reason as Mr Green. Each wanted to maximise the legitimate characterisation of their position under relevant provisions of the taxation legislation such as s 87-18(3).

130 Mr Owen's Dare contract was in substantially the same form as that between Dare and IRG. As Mr Green had provided the terms of the description of the job he was doing for the KJV for item 9 of the schedule, so did Mr Owen. He provided a hand written sheet which identified the job description as:

Description: Instrument design, liase [sic] with process dept and instrument vendors for the calculation, specification and award of all flowmeters.

Under that, in his handwriting describing the "deliverables", was the following:

Deliverables: Requisition specifications

Evaluation/recommendation reports

Instrument flowmeter datasheets

Flowmeter selection & calculations

Technical clarifications & reports

Both these descriptions, in terms, found their way into item 9 of the schedule under the heading "Assignment".

131 The fee arrangement in item 11 was, in substance, the same as in the contract between IRG and Dare.

The work of Mr Owen at the KJV

132 In changing from the HR Connect contract to the Dare contract, there was no change in the work or duties that Mr Owen performed for the KJV. As with Mr Green, Dare had no involvement in Mr Owen's work on the LNG 4 project.

133 Mr Owen described his "key deliverable" for the project as specifications or data sheets for each flow meter required for the project. Each flow meter had to be designed to certain specifications. The specifications depended upon the conditions that were present at that part of the plant where the flow meter was located. He did not determine what these conditions would be and obtained that information from other disciplines on the project. Obtaining that information and liaising with the other engineering disciplines was part of Mr Owen's work.

134 He described the data sheets as starting off as pro-forma forms generated by the KJV which listed all the information that may be relevant in determining the design specifications of the flow meters. It was Mr Owen's job to provide for the data sheet enough input parameters or information based on the conditions with which he was given to specify exactly what type of flow meter was required to be tendered for and produced.

135 The data sheets were brought to a certain state before being sent to vendors to tender upon. Information would come back from those vendors and once a vendor was chosen, the vendor information would go into the completed document. It was part of the expertise of Mr Owen (and Mr Green) to provide sufficient information in the data sheets to permit a vendor to provide the right equipment. The type of information that was required varied from item to item.

136 Mr Owen said that part of his expertise was issuing the right data sheets at appropriate stages in the project. He said it was no use issuing data sheets before particular items and conditions had been identified and provided by other engineers. He described the following documents as "internal deliverables" for the project: instrument lists, notes on progress schedules and reviewing and signing off drawings produced by instrument designers. Based on the length of time he worked on the LNG 4 project, Mr Owen estimated that he produced approximately 300 data sheets for different pieces of equipment.

137 He said that in producing his data sheets, he had to consider and review the types and functions of flow meters that had been specified in the initial design phase of the project and determine whether flow meters were required at all at certain points in the plant. He said that his job on the LNG 4 plant involved "extensive interface" with other engineers such as process engineers, piping engineers and mechanical engineers to obtain the relevant information so that he could specify the flow meters that is design and decide upon the type of flow meter. The data sheet for every flow meter was used to procure the various flow meters for the project from the vendors.

138 Mr Owen was also involved in the procurement process (as was Mr Green), including the examining and evaluating of tenders by vendors.

139 Mr Owen said that he was the member of the instrument engineer design team which at first consisted of Mr Blake as lead engineer and Mr Edward James, Mr Ken Dupey and himself as senior instrument engineers. There was also a man by the name of Johnson. This minimal team at the start expanded during the life of the project to increase to approximately 15 to 17 instrument and control engineers who were specifying all kinds of instruments, including control valves, pressure transmitters, temperature transmitters and analysers. The number of engineers dropped off as the project approached completion.

140 When he began, he was given the choice as to what he wanted to do on the project and he chose the design of flow meters.

141 Thus, Mr Owen's work was, like Mr Green's, the production of design documentation for individual pieces of equipment in particular flow meters which was undertaken using the KJV computer system and in close consultation with the engineering team which he described. Like Mr Green's work, Mr Owen's work was subject to careful quality control and to individual checking by engineers who signed off on the documentation.

142 Progress on the job was measured by what were called milestones, which were updated between every month and every quarter during the life of the project. The milestones for the instruments tied together the various disciplines on the project. It was, in effect, a critical path document identifying the state and progress of the project at any one time.

143 Mr Owen had access to standards and practices on the KJV database. Mr Owen's position as to supervision and control was much the same as Mr Green's. Both were skilled experienced professionals. Neither needed constant supervision. My comments on Mr Green's position, however, apply to Mr Owen. Mr Owen stated that so long as no concerns were being expressed by higher management on the progress of the project, Mr Blake left him to his own devices to assess what was required and when it was required and deliver as quickly as possible. That is not a statement of independent discretion, it is a statement that these men knew what was required, when it was required and did not need constant supervision as more junior or less experienced personnel would. However, as is plain from the evidence discussed in relation to Mr Green which was equally applicable to Mr Owen, there was careful interdisciplinary communication and meticulous quality assurance and control in the working up of the documentation.

144 Mr Owen prepared a weekly timesheet, which verified his hours of work and which he gave to Mr Blake. He did not work on weekends and did not work more than 45 hours a week, because it was not required for him to complete the task he had. Dare paid Mr Owen on the basis of the timesheets he submitted and not on the basis of the invoices he rendered to Dare. He rendered invoices to Dare irregularly, but this did not effect his regular pay from Dare, as Dare paid him on the basis of the timesheets submitted. Mr Owen understood the rate he was paid was near the top of the market rate and he accepted that he was paid for his time.

145 As to holidays and time off, he was able to take holidays by assessing where he was in the project and identifying a convenient break. It was, however, necessary for him to advise Mr Blake to ensure that the time he was taking off was convenient in the overall scheme of the project.

146 As with Mr Green, the issuing of the timesheets and the regular payments each fortnight did not coincide in any way with the issue of or completion of data sheets or other specifications on documents. Mr Owen accepted that it was impossible to estimate the cost of completion of a particular deliverable. He accepted that he could never be paid for producing any particular documentation or deliverable, because it was impossible to know the number required or when they might be produced. This evidence in cross-examination was admitted in IRG's case as well. (The cross-examination and re-examination of all witnesses was admitted as evidence in both proceedings.) On all the evidence, it is a safe conclusion that in the case of both men it would be impossible to identify any particular sum for any particular deliverable. Further, even if one could do so, it would be a wholly arbitrary calculation. The commercial arrangement between the KJV, Mr Green and Mr Owen was that they were paid by the hour for 45 hours per week, paid each fortnight.

147 As with Mr Green, the question of delegation was theoretical only. The KJV employed Mr Green and Mr Owen. Any delegation would have required, in effect, a new employment, or at least the clear approval of the KJV, in particular Mr Blake.

148 In relation to equipment Mr Owen used in his work with the KJV, Mr Owen's own evidence was that, with some limited exceptions, he did not use his personal laptop computer, home computer, software and files of past project information, standards and samples which were located at home. The only thing that he could provide were two to three lever arch files with standards and procedures for designing flow meters and some sizing software. When he began work on the project, the infrastructure had already been set up by the KJV, being the office and computer, IT department, etc. After he had established his workstation and started work on the project, he asked the IT department whether he could introduce vendor sizing programmes which belonged to him to upload into the KJV system. After they checked these programmes for viruses and approved them, he was able to upload those sizing programmes, into the system to use on the KJV hardware. Apart from the sizing programmes, the only thing that the brought to the LNG 4 project was reference hard-copy information from past projects at home. He said that the scale and scope of the LNG 4 project meant that there was nothing much else that he could have provided.

149 The importance of standardisation and uniformity with which Mr Hicks dealt in his evidence was a matter common to both cases.

150 Mr Owen accepted in cross-examination that without access to the KJV computer system for templates, documents, specifications, standards and QA/QC he would not have been able efficiently to perform his tasks.

151 As information built up in the computer system, it was accessible to all the engineers. Mr Owen stated that he went to the KJV database daily to access information. He said that to perform his work, the information available to him through the KJV computer system was both useful and essential. He indicated that the computer system also provided a programme such as Word and Excel for him to type for himself.

152 These comments by Mr Owen in cross-examination illuminate Mr Green's position as well.

153 Thus, although Mr Owen brought certain information and standards to the project by loading them onto the KJV database, he used extensively the equipment and computer system and information available at the offices of the KJV.

154 The central role of the KJV computer system and database can be seen by Mr Owen's discussion of its utility in the dealing with vendor information. Much of that information was found by Mr Owen using the KJV computer system.

155 The question of rectification in relation to the work done by Mr Owen was in much the same position as Mr Green. Neither maintained professional indemnity insurance. In relation to the work of both, the QA/QC process provided for the incremental correction of the work of all the engineers.

The arguments of Mr Owen and my conclusions as to Mr Owen.

156 The arguments put on behalf of Mr Owen in his capacity as trustee were much the same as put on behalf of Mr Green.

157 For the same reasons as I concluded that the income of Mr Green was not for producing a result, I conclude that the income of Mr Owen was not for producing a result. Like Mr Green, Mr Owen worked in the business of the KJV, controlled in the sense that I discussed in relation to Mr Green, being paid by the hour for doing the skilled and specialised work of an instrument engineer. In my view, for the same reasons which I expressed in relation to Mr Green, it would be a misuse of language to say that he was paid for producing a result or results. He was paid to work as a skilled engineer and expected in that work to produce data sheets. That is not being paid for results. The work was completed in an iterative fashion, through teamwork and co-ordinated skill and experience of a group of engineers working in the KJV's business designing the plant. All the documentation was produced in the business of the KJV, on the KJV computer system. Like Mr Green, Mr Owen did not produce his own documents. He participated in the production of documents which were the product of coordination, co-operation and supervision in which not only he, but others, signed off. The deliverables were the product of the work of Mr Owen (and Mr Green) and their colleagues.

158 As with Mr Green, the contractor agreement with Dare was the formal arrangement by which Dare was the procuring employment agent between Messrs Owen and Green on the one hand and the KJV on the other.

159 Mr Owen (and Mr Green) were selected to work for the KJV by KJV officers and were chosen for the professional skill to carry on the ongoing work assigned to them for as long as their service was required. In that service, they were expected to produce fundamental engineering drawings in co-operation with others and perform other tasks and duties for which they were qualified.

160 Like Mr Green, the expression by Mr Owen of the assignment in item 9 of his contract with Dare was in terms of the type of work that an instrument engineer in a project such as this would be expected to do. Expression of it in terms of "deliverables" does not transmogrify the work of an instrument engineer into the production of results.

161 For the same reason that I do not think Mr Green satisfies s 87-18(3)(b), I do not think Mr Owen did either. There may have been a difference between Mr Green and Mr Owen in the extent to which they used their own information. That may well reflect their own personal idiosyncrasies in the conduct of their professional work. On the evidence, Mr Owen appeared to have laid less stress on the personal information kept by him to which he deposed, than did Mr Green. In any event, as I said in relation to Mr Green, the place of each in the business of the KJV and their utilisation of the comprehensive computer and office systems provided by the KJV in that business meant that not only was a result not produced for the income, but also they were not required in their work with the KJV to supply the plant and equipment or tools of trade needed to perform their work.

162 In relation to s 87-18(3)(c), as with Mr Green, I am prepared to accept that this was satisfied.

163 For the above reasons, the application in matter WAD175 of 2004 should also be dismissed. For the same reason, there would be no order for costs.

164 I should say something about the evidence given by both Mr Green and Mr Owen. I have not disbelieved any of their evidence. Mr Green was somewhat more mechanical and wordy in his answers than Mr Owen. I do not intend that critically. Each was out of his natural element in giving evidence. Both were honest. Both are experienced and intelligent men. Each had attempted to organise his employment affairs in a way that would bring about the most advantageous taxation treatment. There was nothing inappropriate in that. Each worked in an industry where the provision of contracting was a usual way of presenting their services to prospective employers such as the KJV.

165 Mr Green gave one answer that he did not have taxation considerations in mind when reorganising his contract. I think he may have misunderstood the question in that respect. I think both gentleman had the provisions of what they understood to be Part 2-42 in mind when they entered these contracts. There was evidence that a prominent and well respected Perth law firm drafted the Dare contract.

166 The views that I have just expressed as to the evidence of Mr Green and Mr Owen I formed contemporaneously at the time of the hearing of the case, which were confirmed upon reading and re-reading the transcript.

167 Finally, I should express my gratitude to senior counsel, counsel and solicitors from both sides for the comprehensive assistance they gave me in the argument.

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