The recent case of South Australian Chamber of Commerce & Industry Incorporated v Commissioner of State Taxation (2017) SASC 127 continues a string of recent cases around Australia with employers seeking payroll tax exemption for wages paid under the exemptions available to charitable institutions.
In this matter the taxpayers were unsuccessful.
The taxpayer is a non-profit incorporated association. Its activities fall into five major areas:
- Developing and advocating policies to government and opposition.
- Providing services and products exclusively to members.
- Selling commercial services to businesses and employers generally.
- Conducting programs funded or subsidised mainly by government grants.
- Providing apprenticeship and trainee services funded by government grants.
It is useful to consider the decision of Justice Blue as it succinctly summarises the issues that matters such as these will turn on:
‘1. To be a charitable purpose within the meaning of s. 48 and under the general law, a purpose must be to provide a public benefit as opposed to a private advantage or benefit and it must fall within a recognised category of charitable purpose by reference to principle and authority (at -).
- For the purpose of s. 48, the purpose of an institution governed by a board of directors is to be ascertained by reference to the institution’s objects, the institution’s activities, the institution’s communications to members and what is said and done at board meetings. The subjective internal state of mind of individual directors not communicated to the board is irrelevant (at -).
- To comprise a dominant purpose within the meaning of s. 48, the purpose must be the ruling, prevailing or most influential purpose. A charitable institution can have a non-charitable purpose provided that it is incidental to the charitable purpose. It can have a non-charitable purpose independent of its charitable purpose, but it must be so minor that the charitable purpose remains the ruling, prevailing or most influential purpose (at -).
- The appellant has failed to prove that, on a stand-alone basis, its policy advocacy, member services or commercial services activities are undertaken for the purpose of advancing trade and commerce in South Australia (at ,  and ).
- The appellant has proved that, on a stand-alone basis, its dominant purpose in undertaking its subsidised programs and apprenticeship activities is to advance trade and commerce in South Australia (at  and ).
- On a holistic assessment, the appellant has not proved that its dominant purpose is to advance trade and commerce in South Australia (at  and ).
- For the purpose of s. 48(2), the reference to “work of a kind ordinarily performed” is a reference to work of a kind ordinarily performed by charitable institutions having the same charitable purpose as the institution characterised at the appropriate level of generality or specificity (at ).
- If the appellant had proved that its dominant purpose is to advance trade and commerce in South Australia, it is likely that it would also have established that all wages were paid to persons engaged exclusively in and for performing work of a kind ordinarily performed in connection with its charitable purpose. However, it is not necessary or appropriate to decide that question on a hypothetical basis (at  and ).
- Appeal dismissed (at ).’
This case further confirms the need for taxpayers that self-assess Payroll Tax exemption under the provisions of the payroll tax laws in each of the States and Territories to review and confirm that the organisation’s objects and activities are such the organisation is a charitable institution and eligible for exemption.
The case also reminds of the need to ensure a further test may need to be satisfied. This further test is (if required under the laws of the particular State/Territory) that the wages for which exemption is sought are paid to an employee engaged exclusively in work of a kind ordinarily performed in connection with the charitable purposes of the organisation. It is possible that only wages paid to certain employees will qualify for exemption – recall the NSW Grain Growers case! We also refer you to a TaxEd summary we published in 2015 setting out the rules for payroll tax exemption in each State/Territory for wages paid by charitable institutions.
It is also interesting to make a very broad observation regarding the Chamber of Commerce and Industry of Western Australia Inc. payroll tax case of 2012. This case decided that exemption was available under Western Australian payroll tax laws for that organisation. However, the West Australian Government quickly moved to change payroll tax laws to ensure exemption for certain organisations was only conferred subject to additional Government approval requirements. The observation is intended as a reminder that the specifics of each organisation (objects and activities) need consideration in the context of the payroll tax provisions on the relevant State/Territory.