Background
The Plaintiffs, H R C Hotels Pty Ltd (HRC) and Hotel Operations Solutions (HOS) supplied housekeeping staff, who were either their own employees or contractors, to several client hotels of the Platinum group of companies (Platinum) and Student Work Centre Australia Pty Ltd (SWCA). Subject to demand, additional housekeeping staff were sourced from sub-contractors.
The Chief Commissioner determined that HRC was liable for payroll tax on payments to Platinum and SWCA for the additional housekeeping staff under the employment agents provisions of the Payroll Tax Act 2007. Penalty tax of 25% was also assessed. HOS was deemed to be jointly and severally liable for any payroll tax owed by HRC under the grouping provisions of the Act (ss 45 and 81).
HRC went into liquidation in August 2016. The Chief Commissioner then issued payroll tax assessments to the second plaintiff, HOS (which was not itself a party to the arrangements with any of the hotels in question), on the basis that HOS was jointly and severally liable for the payroll tax liability of HRC under the grouping provisions in s 81 of the Payroll Tax Act and s 45 of the Taxation Administration Act 1996 (NSW). HOS did not challenge this grouping determination or its joint and several liability for any primary liability of HRC, but it did challenge the assessments issued to HRC.
Determination of the issues
Issue 1: Were the contracts “employment agency contracts”?
The Court held that the arrangements were employment agency contracts within the meaning of s 37(1) of the PTA [152 – 153]. Ward CJ concluded that:
- In order to perform the obligation of cleaning and servicing hotel rooms to the requisite standard it was necessary for the Plaintiffs to procure the services of additional housekeeping staff under the sub-contracting arrangements in place with Platinum and SWCA;
- The fact that those services were procured for the purpose of performance of the obligations under the hotel client contracts (and without which services those obligations could not be fulfilled) means that the hotel contracts are ones “under which” the services were procured in the sense of the services being required to be supplied for the purposes of those contracts;
- The services were procured “for” the hotel clients’ businesses in the sense of “in and for the conduct of those businesses”;
- Although the contracts was structured by reference to room “credits”, in a practical sense the housekeeping staff formed an addition to the hotel’s workforce – they not only wore the hotel branded uniform, but they also liaised with guests and other hotel staff in the services provided by way of the servicing and cleaning of hotel rooms and they were entitled to make use of the hotel staff dining rooms during lunch breaks and the like;
- It is difficult to see how it would be apparent to the ordinary hotel guest that there was any distinction between a hotel employee and a member of the additional cleaning staff;
- The procurement of additional staff in order to meet contractual obligations means that the contracts are agreements “under which” services were procured because the services were required to be supplied for the purposes of the contracts;
- These services were procured “for” the conduct of the hotel clients’ business, not the business of HRC or HOS;
- The practical integration and similarity of the supplied staff to the hotels’ direct employees, including aspects such as the wearing of uniforms, telephone system links and common use of lunch facilities, also supported this conclusion.
Issue 2: Whether “deemed wages” were limited to remuneration paid to workers
The Court concluded that the amounts paid by the Plaintiffs to Platinum/SWCA are the amounts in respect of which payroll tax is payable. The Court rejected the Plaintiffs’ submission that only amounts payable to the additional housekeeping staff, which were the amounts paid “in respect of the provision of services”, were deemed wages. Ward CJ held that the words “in relation to” in s 40(1)(a) of the Act expand the reach of deemed wages beyond the actual amounts paid to the additional housekeeping staff [181].
Issue 3: Whether penalty tax should be remitted
The Plaintiffs sought remission of the imposed penalty tax on the basis that the managing director had turned her mind to the alleged liability during the relevant period but had reasonably assumed payroll tax was not payable. This assumption was based upon a 2010 audit determination concluding that payments from HOS to a sub-contractor, Platinum Group, were not liable for payroll tax on payments to sub-contractors, which led the Plaintiffs to a conclusion that similar arrangements would also not be liable.
However the Court determined that HRC did not establish that it took reasonable care to comply with its tax obligations because it did not form the assumptions based upon sufficient enquiries or professional guidance [188 – 189].
Orders
- Dismiss the plaintiffs’ further amended summons filed 2 August 2017.
- Order the plaintiffs to pay the defendant’s costs of the proceedings on the ordinary basis.
Link to decision
H R C Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 820
