Securecorp (NSW) Pty Ltd v Chief Commissioner of State Revenue [2019]

Background

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.

Main issue

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’s submission

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 [40]).

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 [58].  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.

Chief Commissioner’s submission

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 [65].

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:

1. The employment agency provisions were intended to apply to cases where the employment agent provided individuals who would comprise, or would be added to, the workforce of the client for the conduct of its business (UNSW Global at [63]);
2. Individuals are considered to be working “in and for the conduct of the business of the employment agent’s client” if they comprise, or are added to, the workforce of the client for the conduct of its business and if the services help the client to conduct its business in the same or similar way as it would through an employee;
3. ,Individuals are considered to not be working “in and for the conduct of the business of the employment agent’s clients”  if they are services which, although provided for the client’s benefit, are not provided by the service provider working in the client’s business (JP Property Services at [72], cited in HRC at [107]).The Chief Commissioner then suggested three indicia of service providers working “in and for the conduct of a business”:

1. The work is done on-site;
2. The work is done “in the ordinary conduct of the client’s business” (UNSW Global at [69]); and
3. The work would otherwise have been done by the client’s employees (UNSW Global at [68]).The Chief Commissioner submitted that if the security staff that Securecorp placed at its clients’ businesses worked “in and for the conduct” of those particular businesses, then the rest of the definition in s. 37(1) would be satisfied.The Chief Commissioner disputed Securecorp’s arguments for seven reasons, set out at [70] of the decision. In brief:

1. The word “client” should be given its ordinary meaning and Securecorp’s focus on “end users” does not fit in with this approach;
2. Securecorp’s definition of the term “end user” is divorced from the text of s. 37;
3. Second reading speeches are rarely of assistance in elucidating the meaning of particular words;  there is no basis for defining the word “client” in s. 37 to mean “end user”;
4. There could be numerous entities that receive the ultimate benefit of Securecorp’s services;
5. Securecorp’s arguments are inconsistent with HRC and JP Property Services;
6. It is doubtful that the shopping centre property managers are employment agents because they (and not the owners of the shopping centres) are the operational entities whose  role is leasing, managing, operating, promoting, maintaining and administering the shopping centres; and
7. A person can work in more than one business at the same time;  there may be more than one client and more than one employment agent within a “chain”.

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.

Decision

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.

The end user concept

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.

The business of the client

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.

Claims of double taxation, inconvenience and absurd results

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 [93].

Orders

1. Summons dismissed.
2. Plaintiff to pay the defendant’s costs.

Link to decision

Securecorp (NSW) Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 744