Latest instances: employment company contract provisions within the Payroll Tax Act 2007 (NSW)

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Recent cases: employment agency contract provisions in the Payroll Tax Act 2007 (NSW)


Two current selections within the Supreme Court docket of NSW help in confirming the scope of the problematic ’employment company contract’ provisions within the Payroll Tax Act 2007(NSW).

Key takeouts

Taxpayers must be conscious that’s irrelevant the place a subcontracting relationship falls within the chain of employment (in relation to provision of shopper providers) – they might nonetheless be liable to pay payroll tax.

The related take a look at is whether or not the employment agent supplied people who would comprise, or who could be added to, the workforce of the shopper for the conduct of the shopper’s enterprise.

Subcontracting preparations involving the supply of incidental providers occurring outdoors of peculiar enterprise hours might now be thought of ‘in and for the conduct of a shopper’s enterprise’.

Though these had been NSW selections, taxpayers with operations in different States and Territories must be aware of the potential tax liabilities when participating subcontractors, because the current selections might give income authorities within the different States and Territories the impetus to overview these preparations.

Handed down on 7 June 2019 and 21 June 2019 respectively, Southern Cross Group Providers Pty Ltd v Chief Commissioner of State Income [2019] NSWSC 666 (Southern Cross Group Providers) and Securecorp (NSW) Pty Ltd v Chief Commissioner of State Income [2019] NSWSC 744 (Securecorp (NSW)), have confirmed that the place there are a number of employment brokers in a series of employment brokers, the Chief Commissioner retains his discretion in figuring out the place the payroll tax legal responsibility will fall. The employment company contract closest to the shopper (or ‘finish consumer’) of the providers isn’t related within the Chief Commissioner’s evaluation of tax legal responsibility. Importantly, the selections look like at odds with Income NSW’s ruling PTA-027 which states that the employment agent closes to the final word shopper might be regarded by the Chief Commissioner because the agent who’s accountable for the payroll tax.

Broadly, the ’employment company contract’ provisions apply to subcontracting preparations beneath which an individual (’employment agent’) procures the providers of a employee (a ‘service supplier’) to offer providers to the employment agent’s purchasers. The end result is that employment brokers are liable to pay payroll tax in relation to the quantities paid to the service suppliers.

Whereas the scope of the provisions have lengthy been topic to debate, lately, the selections UNSW International Pty Ltd v Chief Commissioner of State Income [2016] NSWSC 1852 (UNSW International) and JP Property Providers Pty Restricted v Chief Commissioner of State Income [2017] NSWSC 1391 have assisted with narrowing the operation of the provisions. Below UNSW International, the existence of an employment company contract is decided by a consideration of whether or not the subcontractors comprise or add to the workforce of the shopper in or for the conduct of the shopper’s enterprise.

Events concerned within the instances

Each Southern Cross Group Providers and Securecorp (NSW) concern broadly related info, with each entities being within the enterprise of procuring safety guards for his or her purchasers. Moderately than detailing the precise entity names, references to the varied entities have been simplified to Consumer, Mgmt Co, the Safety

Contractors (or the Taxpayers) and the Service Suppliers (i.e. the subcontractors):

  • Property managers, operators and different safety firms (Mgmt Co) had contracts with property house owners (Consumer) to handle the operational facets of the companies.
  • Mgmt Co contracted with safety companies (Safety Contractors or the Taxpayers) for these safety contractors to offer safety providers.
  • The Safety Contractors contracted with numerous safety brokers (and infrequently, subcontractors once more) (Service Suppliers) to offer providers to Mgmt Co (and, due to this fact, the Consumer).

Choices made that impression employment company contract’ provisions

The Court docket rejected the submission of the Safety Contractors that s 37 is directed on the employment company contract closest to the top consumer of the providers, being the contract between the Consumer and Mgmt Co. Each judgments supplied the identical three causes for his or her selections, being:

  1. The laws makes no reference to the final word finish consumer of the suppliers’ providers. This time period was adopted from the Minister’s second studying speech. This extra legislative materials shouldn’t be used to substitute or override statutory language.
  2. ‘Finish consumer’ is an inherently ambiguous time period. It may possibly seek advice from quite a lot of events, together with the Consumer however might lengthen to clients or customers.
  3. The laws expressly contemplates the existence of a number of employment brokers stopping double taxation in s 41. Subsequently, s 37 can not function solely as between the closest employment agent and finish consumer as this may recommend there may be solely ever one agent accountable for payroll tax.

Accordingly, the Court docket confirmed the proper evaluation for figuring out the existence of an employment company contract is that articulated in UNSW International as ‘meant to use to instances the place the employment agent supplied people who would comprise, or who could be added to, the workforce of the shopper for the conduct of the shopper’s enterprise’. The conduct of the safety subcontractors was held to be indicative of people forming a part of the shopper’s workforce and due to this fact the topic of employment company contracts. The related components favouring the Chief Commissioner being:

  • The situation of the work (the subcontractors labored on web site, which in a earlier case, Knight Watch Safety Providers Pty Ltd v Chief Commissioner of State Income, was thought of indicative that the service suppliers had been working within the peculiar conduct of the purchasers’ enterprise).
  • Carrying of uniforms (for instance, the safety guards wore client-branded uniforms).
  • Work within the peculiar course of the shopper’s enterprise (providers needed for the enterprise, common/steady workforce as towards explicit initiatives or one-off occasions).
  • Compliance with the Consumer’s course and instruction, together with complying with directions of a web site supervisor (employed by the Consumer).
  • The work the subcontractors carried out might in any other case have been performed by the Consumer’s staff.



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