Southern Cross Community Healthcare Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1317

Background

The Plaintiff provides in-home care services for severely disabled, frail, and aged persons (“participants”) by arranging for care services to be provided by Support Workers. Various Funders paid the Plaintiff for the provision of these services. The Support Workers were engaged and remunerated by the Plaintiff.

On 11 July 2017, the Plaintiff received payroll tax assessment notices for the years ended 30 June 2012, 2013, 2014, 2015 and 2016 (“the Relevant Tax Years”) compromising $6,184,685.11 in payroll tax, and $867,731.82 of interest. On 4 March 2021, the Plaintiff commenced proceedings seeking to set aside the assessments.

Issues in dispute

The following key issues as to liability arose in these proceedings (at [21]):

1. Whether:
   1. the arrangements between the Plaintiff and Support Workers were employment agency contracts under Division 8 of Part 3 of the Act;
   2. If so, whether the exemption in cl. 8 of Schedule 2 of the Payroll Tax Act (“the Act”) applied.
2. if the arrangements between the Plaintiff and the Support Workers were not employment agency contracts, whether the Support Workers were “employees” of the Plaintiff; and
3. if the Support Workers were not employees, whether payments to any of those Support Workers satisfied the 90-day exemption under the relevant contracts provisions in s. 32(2)(b)(iii) of the Act.

Submissions

Issue 1 – Application of employment agency contract provisions:

The Plaintiff submitted that its contract with each Support Worker involved the procurement of the services of the Support Worker for a particular Funder, under an employment agency contract within the meaning of s. 37 of the PT Act; the Participant was the consumer or end user of the services provided by a Support Worker; the Participant was not the client for the purposes of the Payroll Tax Act 2007 (“the Act”).

The Plaintiff submitted that, even if the contracts are employment agency contracts, the wages paid are exempt from payroll tax under cl. 8 of Sch. 2 of the Act for the following reasons:

• Each of the Funders, being either a NSW Government or Commonwealth Government entities, is “the Crown”;
• Each of the Support Workers works in connection with a public hospital or Local Health District, and the work is of a kind ordinarily performed in connection with the conduct of public hospitals or the Local Health District concerned, though adapted for the home environment; and
• Each of the Support Workers is engaged exclusively in that kind of work.

The Chief Commissioner submitted that no employment agency contract existed because:

• The Plaintiff provides services and those services were not “provided” by the Funders; and
• The Funders are not “clients” of the Plaintiff for the purposes of the s 37; the Plaintiff procured the services of a Support Worker for a Participant as the client, not for a Funder.
• The Support Workers could not be said to work in and for the conduct of the Funders’ businesses.

The Chief Commissioner submitted that even if the contracts were employment agency contracts, the contracts did not satisfy the exemption under cl. 8 of the Act because:

• The Support Workers do not provide their services for public hospitals or Local Health Districts and do not work in connection with public hospitals or Local Health Districts; and
• The Support Workers do not undertake work of a kind ordinarily performed in connection with public hospitals or Local Health Districts; and
• The Funders, they were not “the Crown in right of NSW” but were the Crown in right of Victoria or of the Commonwealth (which are not exempt).

Issue 2 - whether the Support Workers were “employees”

The Plaintiff asserted that each Support Worker was engaged as an independent contractor having regard to the totality of the relationship, the absence of employee benefits, services were performed away from the Plaintiff’s premises and a uniform was not required to be worn, among other indicia.

The Chief Commissioner submitted that the relevant factors weighed in favour of a finding that the Support Workers were employees of the Plaintiff, including that:

• the Plaintiff provided supervision and training,
• Support Workers were required to adhere to a Code of Conduct and a “Duties Plan”,
• Support Workers were to carry a Southern Cross identification card and to attend regular team meetings, and
• delegation of duties was not generally permitted, and
• there was no evidence that the Support Workers conducted their own businesses.

Issue 3 – whether the 90-day exemption under the relevant contracts provisions applied

The Plaintiff submitted in the alternative to issue 1 and 2A, that some of the payments made by it to Support Workers fall within the exclusion in s. 32(2)(b)(iii) of the Act because they were made to Support Workers who provided services for a period of less than 90 days in any Relevant Tax Year. The Plaintiff contended that “day” within s. 32(2)(b)(iii) should be construed as referring to an eight-hour working day.

The Chief Commissioner did not contest a finding that a Support Worker engaged for no more than 90 days during a financial year would enliven the s. 32(2)(iii) exemption, but contended that any work on a “day” meant a calendar day, and any work on a calendar day counted as 1 day for the purposes of the exemption.

Decision

Issue 1 – Application of employment agency contract provisions:

The Court accepted the Chief Commissioner’s submission and held that the relationship between the Plaintiff and a Support Worker did not constitute an employment agency contract for the purposes of s. 37 of the Act. Emmett AJA cited UNSW Global Pty Ltd v Chief Commissioner of State Revenue (NSW)[2016] NSWSC 1852 (“UNSW Global”), stressing that s. 37 requires that it be demonstrated that the services were provided by the Support Worker “in and for the conduct of the business of the Funder” (at [238]). The indicia recognised in UNSW Global were applied in enumerating matters common to each contract between the Plaintiff and Support Worker (at [248]), which demonstrated that the Funder was not involved in the day-to-day activities of the Support Worker. This is because the Plaintiff “effectively acted as a barrier” (at [245]) between the Support Worker and Funder, rendering any relationship between them to be indirect, financial and prudential, rather than employee-like. That is, the Support Workers were not working in and for the conduct of the Funders’ businesses.

Even if an employment agency contract did exist, the Court held that the exemption in cl. 8 of Sch. 2 would not have applied. Emmett AJA was satisfied that the work for which wages are paid or payable must be of a kind ordinarily performed in connection with the conduct of public hospitals which was a narrowing factor, and was not intended to extend the exemption to any work that may have had a connection with a public hospital”. Rather the exemption only applied to wages paid to persons in respect of work of a kind ordinarily performed in connection with the conduct of public hospitals (at [257]-[258]).

Applying this construction, the Court held that the exemption only captures the workforce of public hospitals or Local Health Districts (at [282]). Moreover, the evidence did not establish that Local Health Districts carried out in-home attendant care services and thus the work performed by the Support Workers was found not to be of a kind “regularly, commonly or customarily” performed within a public hospital or Local Health District, per Grain Growers Ltd v Chief Commissioner State Revenue (NSW) (2016) 93 NSWLR 415 [120], [126].

Emmett AJA, relying on s. 13 of the Interpretation Act 1987 (NSW), also held that the reference to “the Crown” in cl. 8 of sch. 2 of the PT Act was a reference to the Crown in right of New South Wales (at [294]). No contrary intention appeared within the Act precluding this interpretation.

Issue 2 - whether the Support Workers were “employees”

The Court held at [389] that Southern Cross’s relationship with Support Workers lacked the elements necessary for the relationship to be characterised as an employment relationship at common law. A Support Worker could control their hours of work, could work for other agencies, could build goodwill through his or her relationship with a Participant and was not directly supervised by the Plaintiff (at [393]). The Court concluded that a Support Worker could fairly be characterised as an independent contractor and not as an employee (at [395]).

Issue 3 – whether the 90-day exemption under the relevant contracts provisions applied

The Court noted that the word “day” is not defined in the Act and there appears to be nothing in the explanatory notes to the Bills that introduced the exception into the legislation that casts light on this question of construction. The provisions in the Act are relatively identical to provisions of the Pay-roll Tax (Amendment) Act 1983 (Vic). The explanatory memorandum in relation to the introduction of the Victorian provisions stated that the exception was designed to exempt short-term engagements having regard to the fact that the general thrust of the legislative amendments was to tax payments under contracts that were long-term and were replacing the traditional contract of employment (at [404].

However, Emmett AJA rejected the Plaintiff’s contention that s. 32(b)(iii) of the PT Act should be construed as referring to 720 hours of work over a 90-day period. Rather, the Court found that the provision “is concerned with the regularity and continuity of the relationship between the contractor and employer”, not the number of hours worked by the contractor over a given period (at [408]).

Orders

The Court made the following orders at [449]:

1. Direct the plaintiff, no later than 14 days after the publication of these reasons, to bring in short minutes to reflect the conclusions reached (by the Court);
2. Order that the plaintiff pay the Chief Commissioner’s costs of the proceedings; and
3. Reserve leave to the parties to apply, no later than 28 days after the publication of these reasons, for further directions if there is a dispute as to the calculation of payroll tax or as to the costs of the proceedings.

Link to decision

https://www.caselaw.nsw.gov.au/decision/17c7c565d652e92c8c41495d