|Date of judgement||7 June 2019|
|Judge(s)||Ward CJ in Eq|
|Court or Tribunal||Supreme Court of NSW|
Taxes and duties – payroll tax – employment agency contracts – review of assessments pursuant to s 97 of the Taxation Administration Act 1997 (NSW)
A2 v R; Magennis v R; Vaziri v R  NSWCCA 174
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation  1 NSWLR 1
Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue  NSWSC 657
Chief Commissioner of State Revenue v Paspaley  NSWCA184
Ex parte Fitzgerald; Re Gordon (1945) 45 SR (NSW) 182
Harrison v Melhem (2008) 72 NSWLR 380;  NSWCA 67
Krakouer v The Queen (1998) 194 CLR 202;  HCA 43
Re Bolton; Ex parte Beane (1987) 162 CLR 514;  HCA 12
The plaintiffs (Southern Cross Group Services Pty Ltd (First Plaintiff) and Southern Cross Group NSW Pty Ltd (Second Plaintiff)) provided security services and personnel to clients such as shopping centre managers, and acted as subcontractors to other security companies.
The first plaintiff entered into arrangements with its clients, including shopping centre managers, to provide security services. It used its own security staff, together with additional staff supplied by third party subcontractors. From July 2012, the first plaintiff contracted with the second plaintiff for the latter to supply additional staff, which the second plaintiff did through subcontractors.
The Chief Commissioner issued payroll tax assessments to the plaintiffs in respect of the financial years ended 30 June 2011 to 30 June 2014. In those assessments, the plaintiffs were assessed for additional payroll tax pursuant to the employment agency provisions contained in Division 8 of Pt 3 of the Payroll Tax Act 2007 (NSW) (“the Act”).
The Plaintiffs sought a revocation of the assessments in question.
Section 37 of the Act provides that:
(1) For the purposes of this Act, an employment agency contract is a contract, whether formal or informal and whether express or implied, under which a person (an employment agent) procures the services of another person (a service provider) for a client of the employment agent.
(2) However, a contract is not an employment agency contract for the purposes of this Act if it is, or results in the creation of, a contract of employment between the service provider and the client.
(3) In this section:
contract includes agreement, arrangement and undertaking.
Section 41 of the Act provides that:
Subject to section 42, if an employment agent under an employment agency contract:
(a) by arrangement procures the services of a service provider for a client of the employment agent, and
(b) pays payroll tax in respect of an amount, benefit or payment that is, under section 40, taken to be wages paid or payable by the employment agent in respect of the provision of those services in connection with that contract,
no other person (including any other person engaged to procure the services of the service provider for the employment agent’s client as part of the arrangement) is liable to pay payroll tax in respect of wages paid or payable for the procurement or performance of those services by the service provider for the client.
The key issue was whether, on the proper construction of the employment agency contract provisions, where there is a chain of contractual arrangements leading up to procurement of the services of “service providers” for a “client” (the “end user”), it is only the “employment agent” closest in that chain to the “end user” on whom liability for payroll tax arises.
The plaintiffs submitted that on the proper construction of s. 37 of the Act, there can be only one employment agent in the chain, and that employment agent must be the closest entity to the “end users” of the services. They submitted that they were at least one step removed from the “end user”, and so were not employment agents for the purposes of assessing payroll tax.
The Chief Commissioner submitted that the legislation contemplates that there may be multiple employment agents liable to pay payroll tax on payments for the same services, and that the Chief Commissioner had a discretion to impose payroll tax on any one of those employment agents.
In respect of the first plaintiff, the Chief Commissioner argued that factors, including the guards working on site in client uniforms, and under the client’s direction, show that the security guards were working in and for the conduct of its client’s business.
In respect of the second plaintiff, the Chief Commissioner submitted that the contract between the first and second plaintiffs was an employment agency contract as the security guards procured by the second plaintiff were added to the workforce of its client, the first plaintiff.
The Chief Commissioner further submitted that the plaintiff’s argument that the only employment agent was the one closest to the “end user” client should be rejected as there is no reference to it in the Act, it would introduce unnecessary complications and ambiguity, and it introduces a false dichotomy in assuming that a worker can only work in one business at a time.
The Court held that where there is a chain of contractual arrangements leading up to the procurement of the services of another person or persons for an end user, there may be more than one employment agent liable for payroll tax and it is not only the employment agent closest in that chain to the end user who is liable. The Court therefore confirmed the Chief Commissioner’s assessments.
In reaching its conclusion, the Court found that the Act (in s. 41) contemplated that there might be more than one person liable to pay payroll tax, as otherwise s. 41 would not have been necessary. The Court noted that the Chief Commissioner’s administrative procedure and ruling (Ruling No. PTA 027 which provided that the employment agent ‘closest to the ultimate client’ would be liable for relevant payroll tax) do not have binding force.
Two further factors the Court considered in rejecting the plaintiffs’ “end user” argument were the potential ambiguity in identifying an end user, and the lack of reference to the phrase “end user” in the Act.
The Court rejected the plaintiff’s argument that only the employment agent closest to the end user was liable for payroll tax and held that where there is a situation of multiple employment agents, the Chief Commissioner has discretion as to where the imposition of payroll tax should lie. The Court found that the Chief Commissioner should have discretion as this would avoid the structuring of arrangements in order to avoid payroll tax liability and protect tax revenue in circumstances where the entity “closest to the end user” was insolvent.
The Court concluded that the plaintiffs’ respective contractual arrangements were arrangements under which each plaintiff, as an employment agent, procured the services of security staff for its client or clients, and that the services were provided in and for the conduct of the respective client’s business.
In reaching this conclusion, the Court considered the fact that the first plaintiff’s security staff worked on-site at the clients’ premises and wore the clients’ branded uniforms. The Court was also satisfied that the security guards procured by the second plaintiff were added to the workforce of the first plaintiff.
The Court ordered that the plaintiffs’ claim be dismissed with costs.