|Date of judgement||7 June 2019|
|Proceeding No.||2018/52078; 2018/52068|
|Judge(s)||Ward CJ in Eq|
|Court or Tribunal||Supreme Court of New South Wales|
parts. 1, 2 of the Chicago Convention on International Aviation.
Surcharge purchaser duty – foreign person – ordinarily resident in Australia
Chief Commissioner of State Revenue v Paspaley  NSWCA 184
The plaintiffs sought review of the Assessments for payroll tax issued by the Chief Commissioner on the basis that the plaintiffs’ arrangements with their respective clients for specialised cleaning services are employment agency contracts within the meaning of s. 37(1) of the Payroll Tax Act 2007 (“the PTA”). The plaintiffs’ clients included hotel clients, aged care and retirement village clients, a number of commercial clients, one hospital and a school. For the purposes of the proceedings, the Chief Commissioner argued that in the alternative to the employment agency provisions, the arrangements between Bayton Cleaning Company Pty Ltd (“Bayton”) and its contractors are “relevant contracts” as defined in s. 32 of the PTA, and so are liable to payroll tax.
The plaintiffs argued that the arrangements are not employment agency contracts and, in the case of Bayton, that the “two-person” exemption in s. 32(2)(c) of the PTA applied and so the arrangements are not “relevant contracts”.
The Chief Commissioner applied the market interest rate on the unpaid tax, as well as 25% penalty tax. The plaintiffs sought a remission or reduction of the penalty tax and market rate interest on the basis that they took reasonable care to comply with the taxation law.
The Court rejected the plaintiffs’ argument that in order for the employment agency provisions to apply, the services provided must be integral or “core” to the client’s business, as opposed to “ancillary” or “incidental” services, finding no basis for such a qualification, as that involved reading words into s. 37(1) of the PTA which was unwarranted: , . The Court found no support for the plaintiffs’ submission that a distinction is to be drawn between “core” services and “ancillary” or “incidental” services, and considered that the decision in JP Property Services does not require such a distinction be drawn, and should not be followed if it does: .
Rather, in determining whether the employment agency provisions applied, the Court noted:
“it is necessary to focus on the manner in which the services are provided for the client in order to form a view as to whether those services are being provided “in and for” the conduct of the client’s business in the sense considered in [UNSW Global Pty Ltd v Chief Commissioner of State Revenue  NSWSC 1852; (2016) 104 ATR 577]”: –.
Notably, the Court considered that the provision of cleaning services after a commercial client’s normal business hours is no less the provision of a service “in and for the conduct” of the client’s business than the provision of those services during business hours: .
The Court considered the more meaningful factors in determining whether services are being provided “in and for” the conduct of the client’s business are “whether the services are provided on-site, whether they are provided with a degree of continuity or regularity (or are ad hoc), and the extent of interaction and supervision with or by the client’s staff (and, where relevant, the client’s customers or, in the case of retirement villages or aged care centres or hospitals or schools, the residents or users of services in those places)”: .
Having regard to the evidence as a whole, the Court concluded that the services that were procured for the plaintiffs’ respective clients were procured “for” those clients’ businesses in the sense of “in and for the conduct of those businesses”; and the cleaners and housekeeping staff in a practical sense formed an addition to the client’s workforce and provided those services in much the same way as the client’s staff would have done had the services not been outsourced: .
In relation to the hotel clients, although the cleaning staff provided did not always wear the client’s hotel-branded uniforms or make use of the client’s staff canteen or similar facilities, there was clearly interaction between the cleaning staff and the hotel’s staff and guests. Further, there was not always day-to-day supervision of the staff by the managers of International Hotel Services Pty Ltd (“IHS”), and the hotel client’s staff directly conveyed some level of day-to-day instruction to the cleaning staff: . In the case of one hotel client, the whole of the client’s cleaning staff were transitioned to IHS, reinforcing the court’s conclusion that those workers became, for relevant purposes, part of the hotel client’s workforce: .
In relation to the aged care/retirement villages’ staff, the Court emphasised that whether the services those staff provided constituted the clients’ “core” business was not determinative of the application of s. 37(1): . The Court noted that Bayton had “transitioned” a number of aged care facilities’ staff to Bayton employment, replacing in-house teams with its own cleaning services and therefore essentially providing an addition to the client’s workforce: .
In relation to Bayton’s corporate clients, the Court accepted that the segregation of the cleaning services from the commercial or corporate client’s business may lead to the conclusion that the services were not in and for the conduct of the client’s business in a particular case, such as where the services are engaged just once to deal with an unexpected cleaning problem.
However, the regular provision of cleaning services after the close of the commercial client’s business, like “the provision of after-hours typing services in a law firm”, was held to be required “in and for the conduct” of the relevant business: . The arrangements in question were thus held to be employment agency contracts and assessable to payroll tax: .
On the evidence, the Court considered it was reasonable to infer that contractors who either (i) invoiced Bayton fortnightly fees above $14,000.00 or (ii) serviced 11 or more places and generated approximately $10,000.00 or more in contract fees, were contractors who it is likely, on balance, provided the services of more than two persons to Bayton’s clients, through Bayton’s arrangements with those clients. This would have attracted the two-person exemption had the “relevant contract test” applied: .
If it had been necessary to decide, the Court would have considered it best to remit the matter to the Chief Commissioner to determine in accordance with the Court’s findings, given certain ambiguities in Bayton’s evidence: .
The Court confirmed that the amounts taken to be wages under s. 40(1) of the PTA and therefore liable to payroll tax under the employment agency provisions of that Act are the amounts paid by the employment agent to the subcontractors, rather than the amounts paid to the individual workers providing the service: –.
In relation to the issue of whether the penalty tax or market rate interest should be reduced or remitted, the Court cited the explanation given to the concept of taking “reasonable care to comply with the taxation law” in Qualweld Australia Pty Ltd v Chief Commissioner of State Revenue  NSWCATAD 227; (2014) 100 ATR 339 at , where reasonable attempts to comply with the tax law, reasonable professional and other enquiries to ensure compliance, reliance on professional advice or on official published views of the tax law were each identified as factors indicating the taking of reasonable care by the taxpayer: , .
In finding that penalty tax and market rate interest should not be reduced or remitted, the Court held that cooperation with the Office of State Revenue in its payroll tax investigation does not establish the taking of reasonable care to comply with the taxation law in the first place: . Further, the Court did not accept that retaining an external accountant would be sufficient to constitute reasonable care and to therefore avoid penalty tax: . Rather, the seeking of professional advice, which the plaintiffs had not done, would be more relevant in this regard: . In such circumstances where the plaintiffs had not exercised reasonable care, the Court did not consider that the Chief Commissioner was required to exercise the general discretion to remit under s. 33 of the TAA.
The Chief Commissioner’s Assessments for payroll tax were confirmed, and the penalty tax and market rate interest were not reduced or remitted. The plaintiffs’ claims were dismissed with costs.