|Date of judgement||21 June 2019|
|Court or Tribunal||Supreme Court of New South Wales (Equity)|
Corporations Act 2001 (Cth), Ch 5C
Interpretation Act 1987 (NSW), ss. 34(1), 34(2)(f)
Payroll Tax Act 2007 (NSW), ss. 8-9, Div 8 of Pt 3
Pay-roll Tax Act 1971 (NSW)
Pay-roll Tax (Amendment) Act 1987 (NSW)
Pay-roll Tax (Amendment) Act 1985 (NSW)
State Revenue Legislation (Miscellaneous Amendments) Act 1998 (NSW)
Supreme Court Act 1970 (NSW), s. 19(2)
Taxation Administration Act 1996 (NSW), ss. 97(4), 100(3)
Payroll Tax, Employment Agency Contracts
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27;  HCA 41
Bayton Cleaning Co Pty Ltd v Chief Commissioner of State Revenue  NSWSC 657
Drake Personnel Ltd v Commissioner of State Revenue (Vic) (Supreme Court (Vic), Balmford J, 23 June 1998, unrep)
Federal Commissioner of Taxation v Consolidated Media Holdings (2012) 250 CLR 503;  HCA 55
Freelance Global v Chief Commissioner of State Revenue  NSWSC 127
H R C Hotel Services Pty Ltd v Chief Commissioner of State Revenue  NSWSC 820
Knight Watch Security Services Pty Ltd v Chief Commissioner of State Revenue  NSWCATAD 223
JP Property Services Pty Limited v Chief Commissioner of State Revenue  NSWSC 1391
Norrie v NSW Registrar of Births, Deaths and Marriages (2013) 84 NSWLR 697;  NSWCA 145
Re Bolton; Ex parte Beane (1987) 162 CLR 514;  HCA 12
Smith’s Snackfood Company Ltd v Chief Commissioner of State Revenue (NSW)  NSWCA 470
Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue of New South Wales (2011) 245 CLR 446;  HCA 41
UNSW Global Pty Limited v Chief Commissioner of State Revenue  NSWSC 1852; 104 ATR 577 Waugh Hotel Management Pty Ltd v Marrickville Council  NSWCA 390
Securecorp is a provider of security services under contractual arrangements with entities that include Westfield Shopping Centre Management Co Pty Ltd (“Westfield”) and Jones Lang LaSalle (NSW) Pty Ltd (“JLL”). The Chief Commissioner issued Securecorp with payroll tax assessments on the amounts that it had paid to its subcontractors under security subcontracts for FYE2012 to FYE2015.
The main issue was whether Securecorp’s contracts with Westfield and JLL were employment agency contracts under s. 37 of the Payroll Tax Act 2007 (NSW) (“the Act”). At the hearing, Securecorp only challenged the assessments relating to these contracts.
Securecorp submitted that on the proper construction of s. 37, where there is a chain of contractual arrangements, it is only the “employment agent” closest in that chain to the “end user” of the services that is liable for payroll tax. It was submitted that Securecorp was not the closest “employment agent” to the end user in this case.
Further, Securecorp submitted that the expression “end user” should be construed as being the entity which has the ultimate benefit of the workers’ services; that is, the employment agent closest to the end user. In this case, Securecorp said that Westfield and JLL should be construed as the employment agents closest to the “end users”.
Securecorp said that, unless its construction is adopted, the outcome would extend “far beyond the mischief to be addressed” by the legislation. Significant weight was given to the second reading speech and State Revenue Legislation (Miscellaneous Amendments) Bill 1998 (NSW). Securecorp submitted that the Act was only meant to “secure the traditional tax base” and not broaden it (UNSW Global at ).
The alternative submission put by Securecorp was that it was not procuring the services of the service providers in and for the conduct of the businesses of Westfield and JLL in the sense that the providers did not help Westfield and JLL conduct their businesses in the same way that their employees would.
Finally, if more than one employment agent could be liable for payroll tax in respect of the same services, Securecorp said that arbitrary consequences would result as the Act does not provide a mechanism through which one agent in the chain can work out if another agent has already paid payroll tax . Regarding s. 41, Securecorp submitted that this provision assumes that there may be more than one person who is liable for payroll tax but it does not identify “the other person” as being another employment agent for the purposes of an arrangement.
The Chief Commissioner submitted that Securecorp had put its case on a narrow basis, having addressed only one part of the definition of an employment agency contract i.e. whether Securecorp provided services of its subcontractors “for a client” (or clients) of Securecorp .
Further, the Chief Commissioner submitted that the most recent decisions on employment agency contracts (UNSW Global, JP Property Services and HRC) establish the following propositions:
Finally, the Chief Commissioner submitted that the intent of s. 41 is to ensure that double taxation is not imposed on the same set of wages and that if the employment agent closest to the end user were the only agent liable for payroll tax then the words in s. 41 would have no work to do. It was noted that a similar argument had been put and rejected in Knight Watch.
Justice Payne concluded that Securecorp’s arguments should not succeed. He found that the relevant contractual arrangements are employment agency contracts for the purposes of payroll tax liability under s. 37 of the Act.
Justice Payne found that Securecorp’s proposed construction of the words in s. 37 “the services of another person (a service provider) for a client” as intending to identify an “end user” was incorrect. His Honour found that this construction placed a limitation upon the operation of the section, inconsistent with its language and statutory purpose. The Minister’s use of the term “end user” in the relevant second reading speech was intended to emphasise that liability for payroll tax would change from the client who obtained the services to the agent who procured the workers for the client (referred to as the “end user”). His Honour stated that care should be taken not to use extrinsic material to read into legislation words that one thinks the legislature may have intended.
Justice Payne noted that the test adopted by White J in UNSW Global, that the relevant services be procured by the taxpayer “in and for the conduct of the business of the employment agent’s client”, is correct. However, the Court rejected Securecorp’s argument that the test required a search for the “business” of a client in the sense of the ultimate end user of the services. His Honour held that the “client” within s. 37 is the recipient of services – in this case, Westfield and JLL – even if those entities were not the so-called “end users” of those services.
In any event, His Honour considered that Westfield and JLL were “end users” of Securecorp’s security services as they were the operational entities that provided security services to the shopping centres and office building owners in the course of their businesses. Further, His Honour found that Securecorp had failed to prove that the contractors were not working in the businesses conducted by Westfield and JLL.
His Honour held that s. 41 of the Act addresses any possible “arbitrary consequences” identified by Securecorp, including the possibility of double taxation and absurdity .