Tax Disputes Rule #2
Never underestimate the willingness of tax authorities to make your life miserable in unexpected ways.
Payroll Tax Grouping and your Self-Managed Superannuation Fund
Commissioner of State Revenue v Can Barz Pty Ltd & Anor [2016] QCA 323 2 December 2016
The extreme complexity of taxation laws can mean that you won’t even know that you are facing unexpected tax liabilities. The payroll tax grouping rules are a classic example of the dangers. Broadly, these rules can operate to “group” businesses and entities on the basis of specified relationships (such as the use of common employees or common directors) so that payroll tax thresholds are not separately available and the businesses and entities in the group are jointly and severally liable for the payroll tax liabilities of other group members.
The end result can be that your family trust (even if it doesn’t employ anyone) can be liable for payroll tax obligations of businesses that are only remotely related. Ignorance of these rules won’t help you if the Payroll Tax Commissioner comes knocking.
Given that a SMSF is legally just a trust, albeit one that has to operate within a very strict legislative environment, and payroll tax is a major source of state and territory money, it should not come as too big a surprise that revenue authorities have attempted to “group” non-employer SMSFs with related employing businesses, and to use private superannuation savings to fill government coffers.
As members of an SMSF will either be natural persons acting as SMSF trustees, or individuals as directors and shareholders of a SMSF trustee company, it is likely that the payroll tax grouping rules will be triggered if these individual are also controllers of other entities that do have employees.
The Queensland Court of Appeal decision in Can Barz accepts that a SMSF can be part of a payroll tax group, but then looked at the question of whether the SMSF assets can be attacked by the Commissioner to satisfy group payroll tax debts.
In this case the custodian trustee under a limited recourse borrowing arrangement contracted to sell a property and the Commissioner issued garnishee notices with the aim of having the buyer, the real estate agents or the custodian trustee pay the sale proceeds to the Commissioner rather than allowing that money to end up in the hands of the trustees of the SMSF.
In the first instance, and on appeal, the Queensland Supreme Court held that while the trustees of the custodian arrangement and the SMSF were each jointly and severally liable for payroll tax under the grouping provisions, monies receivable by them from the property sale were subject to the relevant trusts (i.e. the trustees did not have a beneficial interest in the proceeds) so that the proceeds were not amounts liable to be paid to the trustees (and susceptible to garnishee notices) because the trustees right to payment was not beneficially held by the trustee in the sense that the trustee was not free to use the money for their own interests.
Because the court found in the taxpayer’s favour regarding the construction of the garnishee provisions, it was not necessary to consider the taxpayer’s further argument that the Superannuation Industry Supervision Act rules would in any case prevent a fund trustee applying fund property for the payment of payroll tax liabilities arising under the grouping provisions.
Three lessons from this litigation:
Never underestimate the willingness of tax authorities to make your life miserable in unexpected ways.
Payroll Tax Grouping and your Self-Managed Superannuation Fund
Commissioner of State Revenue v Can Barz Pty Ltd & Anor [2016] QCA 323 2 December 2016
The extreme complexity of taxation laws can mean that you won’t even know that you are facing unexpected tax liabilities. The payroll tax grouping rules are a classic example of the dangers. Broadly, these rules can operate to “group” businesses and entities on the basis of specified relationships (such as the use of common employees or common directors) so that payroll tax thresholds are not separately available and the businesses and entities in the group are jointly and severally liable for the payroll tax liabilities of other group members.
The end result can be that your family trust (even if it doesn’t employ anyone) can be liable for payroll tax obligations of businesses that are only remotely related. Ignorance of these rules won’t help you if the Payroll Tax Commissioner comes knocking.
Given that a SMSF is legally just a trust, albeit one that has to operate within a very strict legislative environment, and payroll tax is a major source of state and territory money, it should not come as too big a surprise that revenue authorities have attempted to “group” non-employer SMSFs with related employing businesses, and to use private superannuation savings to fill government coffers.
As members of an SMSF will either be natural persons acting as SMSF trustees, or individuals as directors and shareholders of a SMSF trustee company, it is likely that the payroll tax grouping rules will be triggered if these individual are also controllers of other entities that do have employees.
The Queensland Court of Appeal decision in Can Barz accepts that a SMSF can be part of a payroll tax group, but then looked at the question of whether the SMSF assets can be attacked by the Commissioner to satisfy group payroll tax debts.
In this case the custodian trustee under a limited recourse borrowing arrangement contracted to sell a property and the Commissioner issued garnishee notices with the aim of having the buyer, the real estate agents or the custodian trustee pay the sale proceeds to the Commissioner rather than allowing that money to end up in the hands of the trustees of the SMSF.
In the first instance, and on appeal, the Queensland Supreme Court held that while the trustees of the custodian arrangement and the SMSF were each jointly and severally liable for payroll tax under the grouping provisions, monies receivable by them from the property sale were subject to the relevant trusts (i.e. the trustees did not have a beneficial interest in the proceeds) so that the proceeds were not amounts liable to be paid to the trustees (and susceptible to garnishee notices) because the trustees right to payment was not beneficially held by the trustee in the sense that the trustee was not free to use the money for their own interests.
Because the court found in the taxpayer’s favour regarding the construction of the garnishee provisions, it was not necessary to consider the taxpayer’s further argument that the Superannuation Industry Supervision Act rules would in any case prevent a fund trustee applying fund property for the payment of payroll tax liabilities arising under the grouping provisions.
Three lessons from this litigation:
- In the tax world, what you don’t know can hurt you;
- You should never underestimate the Commissioner’s willingness to test the boundaries and make your life miserable in unexpected ways; and
- Sometimes, the good guys win.
