According to a decision by the Administrative Appeals Tribunal, the workers were treated as neither employees nor contractors.
That is, the brothel did not collect PAYG withholding tax, as is required with salary and wage earners, or demand they supply an ABN, as would need to be supplied for a contractor.
“There is no evidence either on the job sheets or otherwise that sex workers quoted their ABN to the applicant, much less that any had one,” the AAT said in detailed decision reaffirming the Tax Commissioner’s position.
“On the evidence, no sex worker gave the applicant an invoice relating to a supply to it by that sex worker, much less an invoice quoting that sex worker’s ABN.
Because the brothel’s owners won the right to have the matter heard in private, the decision contains only pseudonyms.
“The Cytherean”, it says, operates in Covent Garden, a reference to Harris’s List of Covent Garden Ladies, which was published in the 1700s as a guide to the prostitutes working in Georgian London.
The Cytherean’s accountant is Samuel Derrick, the man who is credited with Harris’s List.
After an audit of The Cytherean’s tax returns for the years 2013 to 2015, the ATO said the business owed $7.5 million in tax and penalties.
The brothel tried to argue it only provided rooms, and as such should only be liable for GST on a portion of the total bills paid by clients.
The AAT agreed the penalties imposed by the ATO were appropriate.
The decision takes aim at the brothel’s accountant, Mr Derrick, who displayed “gross indifference” to the GST payments and a failure to take reasonable care in relation to the PAYG withholding issue.
“We regard the applicant’s website reference to ‘fully inclusive’ as particularly telling against its case that sex workers made a private arrangement with a client for the provision of a sexual service and that there is a separate arrangement with the applicant in relation to room hire,” the decision says.
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