H R C Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 820

Date of judgement 16 February 2018 Proceeding No. 2016/00367931
Judge(s) Ward CJ in Eq
Court or Tribunal New South Wales Supreme Court
Legislation cited Interpretation Act 1987, ss 33, 34

Pay-roll Tax Act 1971, s 3C

Payroll Tax Act 2007, ss 3(1), 6, 7, 9(1), 13(1)(e), 31, 32, 35, 37, 38, 39, 40, 41, 46, 71, 81, 87

Pay-roll Tax Act 1971 (Vic), s 37

Pay-roll Tax Assessment Act 1941 (Cth)

Revenue Ruling No. PTA 027

Supreme Court Act 1970, s 19(2)

Taxation Administration Act 1996, ss 26, 27, 29, 45, 97, 100(3), 101(1)(d)
Catchwords TAXES AND DUTIES – pay-roll tax – employment agency contracts – interpretation of s 37(1) of the Payroll Tax Act 2007 (NSW) – meaning of “under which” – meaning of “procures the services of another person” – meaning of “for a client”

TAXES AND DUTIES – pay-roll tax – employment agency contracts – amounts taken to be wages – interpretation of s 40(1)(a) of the Payroll Tax Act 2007 (NSW)

TAXES AND DUTIES – pay-roll tax – penalty tax – whether taxpayer took “reasonable care to comply with the taxation law” within the meaning of s 27(3)(a) of the Taxation Administration Act 1996 (NSW)
Cases cited 2 Elizabeth Bay Road Pty Ltd v The Owners – Strata Plan No 73943 (2014) 88 NSWLR 488; [2014] NSWCA 409

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; [2009] HCA 41

Asciano Services Pty Ltd v Chief Commissioner of State Revenue (NSW) (2008) 235 CLR 602; [2008] HCA 46

Baini v The Queen (2012) 246 CLR 469; [2012] HCA 59

BTR Engineering (Australia) Ltd v Dana Corporation [2000] VSC 246

Caltex Oil (Australia) Pty Ltd v Feenan [1981] 1 NSWLR 169; [1981] 1 WLR 1003

Caterpillar of Australia Pty Ltd v Industrial Court of New South Wales (2009) 78 NSWLR 43; [2009] NSWCA 83

Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2

Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41; [1931] HCA 53

Coverdale v West Coast Council (2016) 259 CLR 164; [2016] HCA 15

CXC Consulting Pty Ltd v Commissioner of State Revenue (Taxation) [2012] VCAT 1992

CXC Consulting Pty Ltd v Commissioner of State Revenue [2013] VSC 492; (2013) 96 ATR 796

Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35

Fish v Solution 6 Holdings Ltd (2006) 225 CLR 180; [2006] HCA 22

Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127

Grain Growers Ltd v Chief Commissioner of State Revenue [2015] NSWSC 925

Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170; (2017) 350 ALR 658

Hollis v Vabu Pty Ltd (2001) 207 CLR 21; [2001] HCA 44

House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498; [2000] NSWCA 44

JP Property Services Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 1391

Marshall v Whittaker’s Building Supply Co (1963) 109 CLR 210; [1963] HCA 26

McDonald’s Australia Holdings Ltd v Industrial Relations Commission of NSW [2005] NSWCA 286; (2005) 223 ALR 78

Mutual Acceptance Co Ltd v Federal Commissioner of Taxation (1944) 69 CLR 389; [1944] HCA 34

On Call Interpreters and Translators Agency Pty Ltd v Federal Commissioner of Taxation (No 3) (2011) 214 FCR 82; [2011] FCA 366

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28

Qualweld Australia Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAP 249

Qualweld Australia Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 227; (2014) 100 ATR 339

Rinehart v Hancock Prospecting Pty Ltd [2018] HCA Trans 90 (18 May 2018)

Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95

RVO Enterprises Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 64; (2004) 55 ATR 445

Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252; [2010] HCA 23

Sydney Flooring Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 96; (2017) 105 ATR 546

SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 91 ALJR 936

Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (2011) 245 CLR 446; [2011] HCA 41

TCL Airconditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2009] VSC 553

UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852; (2016) 104 ATR 577

Value Engineering (Australasia) Pty Ltd v State Commissioner of Taxation (WA) (1985) 16 ATR 296

Winday International Pty Ltd v Chief Commissioner of State Revenue [2016] NSWCATAD 270; (2016) 104 ATR 125

Workers’ Compensation Board of Queensland v Technical Products Pty Ltd (1988) 165 CLR 642; [1988] HCA 28

Background

The Plaintiffs, H R C Hotels Pty Ltd (HRC) and Hotel Operations Solutions (HOS) supplied housekeeping staff, who were either their own employees or contractors, to several client hotels of the Platinum group of companies (Platinum) and Student Work Centre Australia Pty Ltd (SWCA). Subject to demand, additional housekeeping staff were sourced from sub-contractors.

The Chief Commissioner determined that HRC was liable for payroll tax on payments to Platinum and SWCA for the additional housekeeping staff under the employment agents provisions of the Payroll Tax Act 2007.  Penalty tax of 25% was also assessed.  HOS was deemed to be jointly and severally liable for any payroll tax owed by HRC under the grouping provisions of the Act (ss 45 and 81). 

HRC went into liquidation in August 2016. The Chief Commissioner then issued payroll tax assessments to the second plaintiff, HOS (which was not itself a party to the arrangements with any of the hotels in question), on the basis that HOS was jointly and severally liable for the payroll tax liability of HRC under the grouping provisions in s 81 of the Payroll Tax Act and s 45 of the Taxation Administration Act 1996 (NSW). HOS did not challenge this grouping determination or its joint and several liability for any primary liability of HRC, but it did challenge the assessments issued to HRC.

Determination of the issues

Issue 1: Were the contracts “employment agency contracts”?

The Court held that the arrangements were employment agency contracts within the meaning of s 37(1) of the PTA [152 – 153].  Ward CJ concluded that:

  • In order to perform the obligation of cleaning and servicing hotel rooms to the requisite standard it was necessary for the Plaintiffs to procure the services of additional housekeeping staff under the sub-contracting arrangements in place with Platinum and SWCA;

  • The fact that those services were procured for the purpose of performance of the obligations under the hotel client contracts (and without which services those obligations could not be fulfilled) means that the hotel contracts are ones “under which” the services were procured in the sense of the services being required to be supplied for the purposes of those contracts;

  • The services were procured “for” the hotel clients’ businesses in the sense of “in and for the conduct of those businesses”;

  • Although the contracts was structured by reference to room “credits”, in a practical sense the housekeeping staff formed an addition to the hotel’s workforce – they not only wore the hotel branded uniform, but they also liaised with guests and other hotel staff in the services provided by way of the servicing and cleaning of hotel rooms and they were entitled to make use of the hotel staff dining rooms during lunch breaks and the like;

  • It is difficult to see how it would be apparent to the ordinary hotel guest that there was any distinction between a hotel employee and a member of the additional cleaning staff;

  • The procurement of additional staff in order to meet contractual obligations means that the contracts are agreements “under which” services were procured because the services were required to be supplied for the purposes of the contracts;

  • These services were procured “for” the conduct of the hotel clients’ business, not the business of HRC or HOS;

  • The practical integration and similarity of the supplied staff to the hotels’ direct employees, including aspects such as the wearing of uniforms, telephone system links and common use of lunch facilities, also supported this conclusion.

Issue 2: Whether “deemed wages” were limited to remuneration paid to workers

The Court concluded that the amounts paid by the Plaintiffs to Platinum/SWCA are the amounts in respect of which payroll tax is payable.  The Court rejected the Plaintiffs’ submission that only amounts payable to the additional housekeeping staff, which were the amounts paid “in respect of the provision of services”, were deemed wages.  Ward CJ held that the words “in relation to” in s 40(1)(a) of the Act expand the reach of deemed wages beyond the actual amounts paid to the additional housekeeping staff [181].

Issue 3: Whether penalty tax should be remitted

The Plaintiffs sought remission of the imposed penalty tax on the basis that the managing director had turned her mind to the alleged liability during the relevant period but had reasonably assumed payroll tax was not payable.  This assumption was based upon a 2010 audit determination concluding that payments from HOS to a sub-contractor, Platinum Group, were not liable for payroll tax on payments to sub-contractors, which led the Plaintiffs to a conclusion that similar arrangements would also not be liable.

However the Court determined that HRC did not establish that it took reasonable care to comply with its tax obligations because it did not form the assumptions based upon sufficient enquiries or professional guidance [188 – 189].

Orders

  1. Dismiss the plaintiffs’ further amended summons filed 2 August 2017.

  2. Order the plaintiffs to pay the defendant’s costs of the proceedings on the ordinary basis.

Link to decision

H R C Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 820

Last updated: 28 June 2018