The impact of this case on ATO policy is discussed in Decision Impact Statement: General Aviation Maintenance Pty Ltd and Commissioner of Taxation (2010/5564-5567).

GENERAL AVIATION MAINTENANCE PTY LTD v FC of T

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2012] AATA 120

Decision date: 28 February 2012

Frank O'Loughlin (Senior Member)

1. The Applicant was paid for providing facilities that enabled people to make video recorded or unrecorded tandem parachute jumps. In the course of these activities the Applicant paid, among others, tandem master parachutists. Tandem masters were trained and appropriately licenced or certified parachutists to whom the Applicant's customers were harnessed for a parachute controlled descent. They were responsible for packing parachutes, for operating the parachute equipment to control the parachute descents and for making video recordings of the descents. Tandem masters were paid an amount per jump, and additional amounts for packing the parachutes used and for making video recordings.

2. The Applicant did not make contributions to a superannuation fund for tandem masters and one of them, the Tandem Master, has lodged a complaint. If the Applicant was required to make contributions, then the Applicant will have an individual superannuation guarantee short fall and a superannuation guarantee short fall within the meaning of ss 19 and 17 of the Superannuation Guarantee (Administration) Act 1992 (C'th) and will be liable to charge imposed by the s 5 of the Superannuation Guarantee Charge Act 1992 (C'th).

Issues for determination

3. This matter turns on the applicability of s 12 of the Administration Act which governs whether the Tandem Master was the Applicant's employee for the purposes of that Act.

4. The Applicant contends that the Tandem Master was neither its employee (according to the general usage of the term) nor a person working under a contract that was wholly or principally for the Tandem Master's labour. In addition, if the Tandem Master was such a person, the Applicant contends that the amount of salary or wages that was subject to superannuation guarantee charge did not include amounts paid to produce video recordings.

5. The Respondent contends that the Tandem Master was the Applicant's employee and/or was a person working under a contract that was wholly or principally for the Tandem Master's labour. The Commissioner did not make any specific contention concerning amounts paid to produce video recordings. Rather, he simply contended that all amounts paid were subject to the charge.

6. The Applicant did not address s 12(8) of the Administration Act in its submissions and the Respondent did so in passing.

7. For the reasons that follow, the Tandem Master was either an employee of the Applicant (as the term is commonly understood) or deemed to be so for the purposes of the ss 12(3) or (8) of the Administration Act.

Relevant legislation

8. Section 12 of the Administration Act regulates who is an employee for the purposes of that Act and s 11 regulates the amounts that are subject to the charge.

9. Section 12 provides as follows:

"(1) Subject to this section, in this Act, employee and employer have their ordinary

ATC 4627
meaning. However, for the purposes of this Act, subsections (2) to (11):

(a) expand the meaning of those terms; and

(b) make particular provision to avoid doubt as to the status of certain persons.

….

(3) If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

….

(8) The following are employees for the purposes of this Act:

(a) a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment;

(b) a person who is paid to provide services in connection with an activity referred to in paragraph (a) is an employee of the person liable to make the payment;

(c) a person who is paid to perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast is an employee of the person liable to make the payment.

…."

10. Section 11 provides as follows:

"(1) In this Act, salary or wages includes:

(a) commission; and

…

(ba) payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract; and

…

(d) payments to a person for work referred to in subsection 12(8); and

…"

11. Some immediate observations need to be made concerning s 11. It is an inclusive prescription, not an exhaustive definition. Thus any amount of salary and wages (as the terms are generally understood) paid to an employee as per the Administration Act will be salary or wages for the purposes of that Act. Further, amounts referred to in s 11(1)(ba) and (d) are limited by reference to the labour of the recipient as well as the work referred to in s 12(8).

Facts that bear upon the relevant legislation

12. To determine whether, and if so the extent to which, these provisions apply, it is necessary to consider the Applicant's business operations and the role of the Tandem Master in them in more detail.

13. During the quarters ended 31 March 2005 to 30 June 2008 when the Applicant made payments to the Tandem Master, the applicant conducted a regulated business that included promoting and providing parachute controlled descents to drop zones in Queensland. This business used or exploited business names that included Paul's Parachuting. These operations were conducted under the auspices of regulations formulated and adopted by the Australian Parachuting Federation which derived its authority to regulate parachute controlled descents from the Civil Aviation Safety Authority pursuant to authorisations under the Civil Aviation Regulations 1988 (C'th).

14. The Federation's operational rules required that:

(a) a parachutist customer needed at least a Federation Student Licence to make a tandem descent;
(b) all tandem descents be made under the supervision of a chief instructor of the member organisation and the drop zone safety officer of a training organisation (who could also be the chief instructor); and
(c) tandem masters, chief instructors and drop zone safety officers required specific certifications and licenses.

15. During the quarters ended 31 March 2005 to 30 June 2008:

(a) the Applicant was not a member of the Federation. The Federation's constitution

ATC 4628
limited membership to Clubs (any club or organisation, including a company that had purposes consistent with those of the Federation), individuals who are members of Federation Clubs (Clubs that are already members) and life members;
(b) a club named Paul's Parachuting Club was such a member. It was the member organisation and all of the activities conducted by the Applicant were conducted under the supervision of the chief instructor of the Club;
(c) the Applicant advertised the services it offered and procured bookings (directly and through agents) for tandem descents either with or without video recordings of the descent. A photographic image of the Tandem Master dressed in the Applicant's uniform was used as part of this advertising;
(d) the Applicant ensured that the customers completed documentation required to obtain a Federation Student License;
(e) the Applicant provided transport services to collect customers and transport them to an airstrip from which its operations were conducted;
(f) the Applicant owned and operated aircraft from which tandem descents were made;
(g) the Applicant paid the pilots of the aircraft;
(h) the Applicant owned and maintained the parachutes used for the tandem descents;
(i) the Applicant paid a levy to the Federation and fees to Paul's Parachuting Club;
(j) the Applicant paid the chief instructor and other service providers (such as parachute packers if parachutes were not packed by tandem masters and drop zone safety officers if not the chief instructor);
(k) the Applicant paid tandem masters amounts calculated by reference to what they were asked to do. If they packed parachutes they were paid an amount for that, if they made a video recording of the decent they were paid an amount for that and they were paid amount for the tandem descent. If tandem masters did not attend their rostered days they were not paid. There was some flexibility in that tandem masters rostered on could arrange substitute tandem masters to attend on their rostered days;
(l) the chief instructor set the manifest and determined the pairings of customers and tandem masters, the jump order within a rotation, and the jump rotation order. The Applicant was not involved in these features of the tandem descent activities;
(m) where required by a customer the Tandem Master, using his own equipment, made video recordings of the tandem descents and then, again using his own equipment placed that recording on a CD or DVD to be supplied to the customer. The blank CD or DVD onto which the recording of the descent was copied bore the Applicant's advertising logos. The Tandem Master was not paid by the customer for the recording. He was paid by the Applicant an additional amount to undertake these tasks;
(n) the Tandem Master frequently, if not exclusively, wore the Applicant's uniform while providing the services he provided;
(o) the Tandem Master was required to attend at times specified by the Applicant, to treat the Applicant's customers in a courteous manner and to maintain the appearance, grooming, and hygiene expected within the tourism industry;
(p) the Applicant paid the Tandem Master a total of $148,861, $77,365 for packing parachutes and undertaking tandem descents and the balance, $71,496, for video recordings;
(q) the Tandem Master sought and obtained a grant from Centrelink that was available to owners of businesses affected by Cyclone Larry in March 2006. Such an application tends to suggests that the Tandem Master did not regard himself as an employee, possibly a contradiction to the claim made that superannuation contributions should have been made which led to the present application. It should be observed that the merits and legitimacy of the assistance grant are not before the Tribunal and are matters for Centrelink; and
(r) there was not a written employment contract signed by the Tandem Master, nor were there any payments for annual or sick

ATC 4629
leave. There was a written contract between the Tandem Master and the previous owner of the Applicant's business. The Applicant purchased the business on 24 July 2004 and the Tandem Master continued to provide his services after the change in ownership under what can be inferred to be unchanged arrangements. Subsequently the Applicant provided a draft contractor agreement that the Tandem Master did not sign. That document is evidence that the Applicant regarded itself as party to a contract with the Tandem Master which it now contends was not the case.

16. The existence and/or constitution of Paul's Parachuting Club during quarters ended 31 March 2005 to 30 June 2008 is not clear. Evidence regarding the Club's constitution, committee, governing body, decision makers' identities, or financial affairs was not led. It is apparent that there was a club by that name that was a member of the Federation. It is also apparent that it was connected in some way to the Applicant's business, but findings beyond that concerning the existence of Paul's Parachuting Club and the role it played cannot be made. Accordingly, there is not sufficient evidence to support a finding that any relevant contract was between the Tandem Master and the Club.

Conclusions

17. The immediate conclusion that arises from the foregoing facts is that it was the Applicant who contracted with the Tandem Master. There is insufficient evidence to come to any other conclusion in the face of the contractual relationship between the Tandem Master and the Applicant's predecessor owner of the business, the continuation of the Tandem Master's activities after the change in ownership, and the Applicant's payments to the Tandem Master for the services he provided. What remains is whether the contractual relationship was one of employment (as the term is generally understood) or whether the Tandem Master was an employee for the purposes of the Administration Act.

18. Determining whether the Tandem Master was an employee requires a holistic examination of the relationship between the parties.^[1] See Hollis v Vabu 2001 ATC 4508 ; (2001) 207 CLR 21 at 33 [24] per Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ. Labels ascribed to a relationship do not change the proper characterisation of a relationship if the label is inconsistent with the substance. Neither the labels (nomenclature) nor the manner in which an amount is calculated is necessarily determinative.^[2] Federal Commissioner of Taxation v Broken Hill Pty Company Ltd [2000] ATC 4659 Hill J at 4668 and 4670; and more generally Interest Deductibility What Are The Principles And Have They Changed M M Gordon (when Her Honour was a practicing member of the Bar) in a paper entitled, given to a Taxation Institute of Australia seminar in June 2003. Accordingly, placing a contractor label on a relationship will not change the characterisation it truly has.

19. The Tandem Master's services were an integral part of the Applicant's business. Without services of the kind provided by the Tandem Master there was no business. The Tandem Master's image was also used as part of the Applicant's advertising and the CDs and DVDs produced bore the Applicant's advertising logos, both of which demonstrate further integration. The controls over attendance, grooming and treatment of the Applicant's customers are further illustrations of the integration of the Tandem Master's activities with the Applicant's business.

20. The performance of services under the supervision of the chief instructor, possibly also be an employee of the Applicant, was guided and informed by regulations of the Federation made under the auspices of the Civil Aviation Regulations. This does not mean there was relevant control by someone apart from the Applicant sufficient to break an employment nexus between the Tandem Master and the Applicant.^[3] See Zuijs v Wirth Brothers Pty Ltd (1955) 93 CLR 561 at p 571 per Dixon C.J., Williams, Webb and Taylor JJ. The examples of employment relationships where employees' activities are supervised by someone other than the employer are many. Closely analogous to the Applicant's circumstances, airline pilots are required to observe operational and safety controls and supervision exercised by people other than their employers. Wider afield, professional sportsmen who are employees of sporting club are required to observe the controls and supervision of employees of the sport's organising bodies umpires. Third party control and supervision does not break an employment nexus between the party engaging and paying a person to undertake a task if there is otherwise one there. The Applicant was able to exercise a range of other controls as previously noted.

21. A service provider can be paid on a piecemeal basis. That fact does not alter what is otherwise an employment relationship.^[4] See the observations of Bromberg J in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) 2011 ATC 20-258 ; [2011] FCA 366 at [277]

22.

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It is difficult to see that there was a contract to produce a result. A person falling to earth is the result of universal gravitation.^[5] Described by Sir Isaac Newton in Philosophice Naturalis Principia Mathematica 1687. Contracting to utilise skills to bring that event about safely is more of contract of service or a contract to perform a task in a particular way. Moreover, adding the video recording services, notwithstanding the significance of the proportion of the total paid representing payment for these services, is incidental to the main service provided by the Applicant to its customers. The main service provided was taking the customers to an elevation above the ground in a small plane from which it is safe to make a parachute descent and facilitating the parachute descent. That is the core of the Applicant's business without which there would be no video recordings made or provided to customers.

23. Related to the core elements of the Applicant's business is the equipment used by the Tandem Master in performing his work. The Applicant's equipment the plane, the parachute, and the harness equipment - was used for those elements. The Tandem Master used his own equipment to undertake non-core aspects of the operations of the Applicant's business. This is not sufficient to displace what is otherwise an employment relationship.

24. The Tandem Master did not have a true right to delegate his contractual obligations in the relevant sense. If he arranged a substitute he did not pay his substitute the Applicant did. This feature of the Applicant's arrangements does not sever what would otherwise be an employment relationship.

25. Balancing these features of the relationship between the Applicant and the Tandem Master the conclusion is that the Tandem Master was an employee (as the term is ordinarily understood). As such, all payments pursuant to that relationship were salary or wages. The payments the Applicant made to the Tandem Master do not become other than salary or wages because of the event upon which entitlements arise and/or the manner in which amounts are calculated. Moreover, commissions are included in salary or wages for the purposes of the Administration Act. A sum, typically but not always a set percentage of the value involved, paid to an agent in a commercial transaction is a commission.^[6] http://oxforddictionaries.com/definition/commission?q=commission. Piecemeal payments of fixed amount per unit of service performed can be accepted as a commission.

26. If that conclusion is wrong, then s 12(3) has a role to play.

27. The core element of the services provided by the Applicant was his expertise in controlling the tandem descents safely. Making a recording during the process was not the core element of the services but was nevertheless again a use of skill. In these circumstances, the contract can be regarded as at least principally for the Tandem Master's labour. Payments principally for labour will be salary or wages as defined. The Applicant has not established the proportion of the $71,496 paid for the video recording services relates to the digital file supplied to its customers as opposed to for the services provided in making the recordings. Accordingly, if s 12(3) were to be the only basis upon which the Applicant becomes liable to the charge, then the Applicant has not discharged its onus of demonstrating the proportion of the $71,496 that is not for labour.

28. Finally, although only agitated in passing by the Respondent, s 12(8) has a role to play if the amounts paid to the Tandem Master by the Applicant are not otherwise salary or wages for the purposes of the Administration Act.

29. Providing an activity that gives amusement or enjoyment can be accepted as provision of entertainment.^[7] http://oxforddictionaries.com/definition/entertainment?q=entertainment. That is sufficient for the Applicant to be an employee pursuant to s 12(8)(a).

30. The Applicant paid the Tandem Master to perform or to participate in entertainment, possibly sport, or a similar activity that involved physical or other personal skills. Further, the Applicant paid the Tandem Master to make a film or disc. That is a service falling within either ss 12(8)(b) or (c) such that the Tandem Master was an employee as defined.

31. The aggregate of the amounts paid by the Applicant to the Tandem Master is salary or wages as a consequence of the foregoing.

32. Before the hearing, the Commissioner conceded that his original assessments were excessive and the hearing proceeded on the basis that the amounts referred to at paragraph 15(p) above were correct.

ATC 4631

Decision

33. The Tribunal sets aside the Commissioner's objection decision and refers the matter back to the Commissioner to issue amended assessments reflecting the amounts referred to at paragraph 15(p) of the reasons for decision. The Tribunal affirms all other aspects of the Commissioner's decision.

Footnotes

^[1] See Hollis v Vabu 2001 ATC 4508 ; (2001) 207 CLR 21 at 33 [24] per Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ.
^[2] Federal Commissioner of Taxation v Broken Hill Pty Company Ltd [2000] ATC 4659 Hill J at 4668 and 4670; and more generally Interest Deductibility What Are The Principles And Have They Changed M M Gordon (when Her Honour was a practicing member of the Bar) in a paper entitled, given to a Taxation Institute of Australia seminar in June 2003.
^[3] See Zuijs v Wirth Brothers Pty Ltd (1955) 93 CLR 561 at p 571 per Dixon C.J., Williams, Webb and Taylor JJ.
^[4] See the observations of Bromberg J in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) 2011 ATC 20-258 ; [2011] FCA 366 at [277]
^[5] Described by Sir Isaac Newton in Philosophice Naturalis Principia Mathematica 1687.
^[6] http://oxforddictionaries.com/definition/commission?q=commission.
^[7] http://oxforddictionaries.com/definition/entertainment?q=entertainment.

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