XL Retail Services Pty Ltd v Chief Commissioner of State Revenue [2025] NSWCATAD 22

Background

XL Retail Services Pty Ltd (the Applicant) is a company that provides commercial cleaning and trolley collection services to supermarkets and other retail businesses. It engages subcontractors to provide these services.

In the period from 1 July 2016 to 30 June 2022 (the Relevant Period), the services provided by the Applicant to its clients included daily cleaning, periodic floor maintenance, trolley collection and regular cleaning of distribution centres. These services were mostly provided under written contracts. Six of the contracts between the Applicant and its clients were the subject of the proceedings (the Contracts).

The key issues were:

1. whether the Contracts were ‘employment agency contracts’ within the meaning of section 37(1) of the Payroll Tax Act 2007 (NSW) (the ‘PTA’);
2. whether the Chief Commissioner’s assessments of payroll tax in relation to the Contracts were made in accordance with the legal interpretations and assessment practices generally applied by the Chief Commissioner in relation to matters of the same kind during the Relevant Period, including whether there was a contravention of Revenue Ruling PTA 027 (‘the Ruling’); and
3. whether market rate interest and 25% penalty tax should be remitted.

The Statutory Framework

Part 3, Division 8 of the PTA provides that certain amounts paid or payable in respect of the provision of services in connection with an ‘employment agency contract’ are taken to be wages paid or payable by the ‘employment agent’ and are, therefore, subject to payroll tax. The relevant provision of the PTA under consideration was section 37(1), which provides:

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.

Submissions

The Applicant submitted that the degree of control that the clients had over the work performed under the Contracts was not sufficient to bring the Contracts within Division 8.

The Applicant further submitted that the following factors were in its favour:

1. there was minimal interaction between the Applicant’s personnel and the customers or staff of the clients; and
2. the services provided were specialist in nature and not of a kind that could be provided by the employees of the clients.

The Chief Commissioner submitted that, applying the reasoning and principles set out in the leading Court of Appeal authority of Chief Commissioner of State Revenue v Integrated Trolley Management Pty Ltd [2023] NSWCA 302 (‘ITM’), the Applicant should be found to be an employment agent based on the following factors:

1. the regularity and continuity of the services;
2. the clients’ direction and control over the services;
3. the fact that work was performed on the clients’ premises rather than elsewhere; and
4. the fact that clients would otherwise use their own employees to perform the services.

Decision

Payroll tax

The Tribunal found that the Contracts were ‘employment agency contracts’ within the meaning of section 37(1) of the PTA because, under the Contracts, the Applicant procured the services of persons ‘in and for’ the conduct of its clients’ businesses, per the formulation set out in UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852. This conclusion was largely based on the Tribunal’s findings regarding the regularity and continuity of the services, and the degree of control exercised by the clients over the services. In particular, the Tribunal found as follows:

1. the services had to be delivered on a continuous and regular basis, sometimes daily and otherwise at given intervals on a periodic basis. The very nature of cleaning services required that the work be performed on a regular and continuous basis, as part of the ordinary conduct of the clients’ businesses, which was “a matter of considerable relevance going to the determination of whether the services and work in question fall within Div 8” (at [73]);
2. contrary to the Applicant’s submission, there is nothing in the language of Division 8 that requires continuity of individual personnel (at [74]);
3. the Contracts contained provisions which gave each client “a substantial degree of control over the workforce deployed at its premises by the Applicant” (at [78] to [82]) including:
   1. provisions requiring compliance with “reasonable directions” of the client;
   2. prohibitions on subcontracting without the consent of the client; and
   3. other provisions allowing for various controls over individual cleaners regarding dress, alcohol and drug use, behaviour, training requirements and compliance with client policies;
4. even if the evidence of the Applicant was that there was no direct communication between the workers and the clients, the clients’ powers to give reasonable directions, and provisions giving the clients a means for communication on a regular basis with the management of the Applicant to deal with issues arising in the provision of services, meant that the clients maintained a substantial degree of control over the workforce supplied by the Applicant (at [84]); and
5. contrary to the Applicant’s submission, Division 8 does not require clients to directly control or supervise individual workers (at [89] to [91]).

The Tribunal also noted that the following factors were irrelevant to the application of the ‘in and for’ test:

1. the level of interaction between the Applicant’s personnel and the customers or staff of the clients (at [76] and [108]);
2. whether the Applicant’s personnel used client facilities (at [108]);
3. whether the Applicant’s personnel wore uniforms with the Applicant’s branding (at [109]);
4. whether the Applicant’s personnel used equipment provided by the Applicant (at [109]);
5. whether, during the Relevant Period, the Applicant’s clients had the capability to provide the same services in-house (at [99]); and
6. whether the services required specialist accreditation or skills, noting that the cleaning and trolley collection services were not services of a kind that must, by their nature, be provided by an independent third party outside the control of the client, such as independent audit services (at [101]).

Revenue Ruling PTA 027

The Tribunal found that, as the Applicant had not complied with the procedures outlined in the Ruling to ascertain which party in a ‘chain of on-hire arrangement’ is liable for payroll tax, the Applicant could not sustain any claim that it was not liable for payroll tax on the basis of the Ruling.

Interest

The Tribunal found that there was no basis to remit the market rate of interest, as the tax defaults were not beyond the control of the Applicant and there was no fault on the part of the Chief Commissioner that resulted in the tax defaults occurring.

Penalty tax

The Tribunal determined that the 25% penalty tax should be wholly remitted under section 33 of the Taxation Administration Act 1996 (NSW) (TAA), or otherwise determined not to be payable under section 27(3) of the TAA, on the basis that the Applicant took reasonable care during the Relevant Period to comply with its payroll tax obligations. This is because the Tribunal found that the Applicant had relied on what it understood to be the conclusion in the Supreme Court decision of JP Property Services Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 1391, that ‘out of hours’ cleaning services provided to supermarkets and other businesses were not caught by Division 8.

Orders

1. The assessments under review are revoked.
2. The Tribunal assesses the amount of payroll tax and interest set out in the Respondent’s notices of assessment to be payable by the Applicant in accordance with the notices.
3. Penalty tax is remitted in full.

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