Health Service Pty Ltd v Chief Commissioner of State Revenue

[2014] NSWCATAD 83

NSW Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:	Health Service Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 83
Hearing dates:	26 May 2014
Decision date:	23 June 2014
Jurisdiction:	Administrative and Equal Opportunity Division
Before:	A Verick, Senior Member
Decision:	The assessments under review are set aside.
Catchwords:	TAXES AND DUTIES - Payroll tax - Employment agency contracts - Whether taxpayer procured the services of workers for clients - Whether contracts were employment agency contracts when worker in a common law employer/employee relationship - Whether Division 8 in Part 3 of Payroll Tax Act 2007 constitutes an exclusive regime to determine liability under an employment agency contract
Legislation Cited:	Payroll Tax Act 2007 (NSW) Administrative Decisions Tribunal Act 1997 Administrative Decisions Review Act 1997 New South Wales Civil and Administrative Tribunal Act 2013 Taxation Administration Act 1996 (NSW) Payroll Tax Act 1971 (NSW) Pay-Roll Tax Amendment Act 1987 (NSW) State Revenue Legislation (Miscellaneous Amendments) Act 1998 (NSW) State Revenue Legislation Further Amendment Act 1999 (NSW) Industrial Relations Act 1991 (NSW) Industrial Arbitration Act 1940 (NSW) Fair Trading Act 1987 Pay-roll Tax Act 1971 (Vic) Taxation Administration Act 1997 (Vic)
Cases Cited:	Drake Personnel Ltd v Commissioner of State Revenue [2000] VSCA 122 Moore Park Gardens Management Limited v Chief Commissioner of State Revenue [2004] NSWSC 417 Moore Park Gardens Management Ltd v Chief Commissioner of State Revenue [2006] NSWSC 115 Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 Refrigerated Express Lines (A/Asia) Pty. Ltd. v. Australian Meat And Live-Stock Corporation And Others (No. 2) 44 FLR 455
Category:	Principal judgment
Parties:	Health Service Pty Ltd Chief Commissioner of State Revenue
Representation:	Counsel I Latham (Applicant) S Kaur-Bains (Respondent) Binetter Vale Lawyers (Applicant) Crown Solicitor (Respondent)
File Number(s):	136078

reasons for decision

1. The Chief Commissioner ("the respondent") assessed the Health Service Pty Ltd ("the applicant") to payroll tax for the years ended 30 June 2010 to 30 June 2012 and the period 1July 2012 to 30 March 2013. The applicant objected to the assessments on the grounds that the wages paid during the relevant period were exempt wages under s 40 of the Payroll Tax Act 2007 (the "PRTA 2007"). But the respondent disallowed the objection. This is an application pursuant to s 96 of the Taxation Administration Act 1996 ("the TA Act") for the review of the relevant assessments issued to the applicant.

1. This application was instituted in the Revenue Division of the Administrative Decisions Tribunal ('the ADT') under the provisions of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). On 1 January 2014, the ADT with a number of other Tribunals in New South Wales, were abolished and their jurisdiction and functions integrated into the Civil and Administrative Tribunal of New South Wales ('the NCAT') established under the Civil and Administrative Tribunal Act 2013 ('the NCAT Act'). Because the proceedings in this matter were 'unheard proceedings' on 1 January 2014 as defined in clause 6(1) of Schedule 1 to the NCAT Act, they 'are taken to have duly commenced in NCAT and heard and determined instead by NCAT' (Clause 7(1)). This decision is, accordingly, a decision of NCAT.

Background

1. The parties provided a joint written statement of 'the material facts on which the parties were able to agree' -

(1)   Health Service Pty Ltd ("Health Service") is a company duly incorporated and trades under the business name Essential Home Care.

(2)   Health Service is in the business of providing home based aged and disability care services ("the Service") to amongst other organisations, non-profit organisations defined in section 48(1)(c) of the Payroll Tax Act 2007 (NSW) ("PRTA 2007") ("Relevant Clients").

(3)   Health Service is remunerated by the Relevant Clients for the provision of the Services.

(4)   Health Service is a business that operates for profit.

(5) Samples of the contracts governing the relationship between Health Service and the Relevant Clients are set out at Tabs 38-43 of the documents filed in the Tribunal in this matter pursuant to section 58 of the Administrative Decisions Review Act 1997 (NSW) ("the section 58 documents") ("the Service Agreement").

(6)   Health Service enters into contracts of employment with relevant workers ("Workers"), who are qualified to undertake the work required under the Service Agreements. A representative employment contract is annexed to this statement and marked "A" for casual employees and marked "B" for part-time employees ("Contracts of Employment").

(7)   Health Service does not employ full-time employees to provide services to the Relevant Clients.

(8)   Health Service sends Workers to perform the services required to be carried out under the Service Agreements.

(9)   The Workers perform the services required to be carried out under the Service Agreements.

(10)   Health Service invoices the Relevant Clients for the services provided by it under the Service Agreements.

(11)   The Relevant Clients pay Health Service for the provision of services under the Service Agreements.

(12)   Health Service remunerates the Workers under the Contracts of Employment.

(13)   The relevant amounts in dispute, the subject of the assessments, have been paid by Health Service to the Workers under the Contracts of Employment.

(14) For the following assessment periods the Relevant Clients set out in the documents at Tab 19 of the section 58 documents are payroll exempt entities under Part 4 of the PRTA 2007 but not under Division 4 or 5 of that Part, section 50 or clause 5 of Schedule 2:

(a)    1 July 2009 to 30 June 2010;

(b)    1 July 2010 to 30 June 2011;

(c)    1 July 2011 to 30 June 2012; and

(d)    1 July 2012 to 30 March 2013.

(15) For the following assessment periods the Relevant Clients set out in the documents at Tab 19 of the section 58 documents have provided a declaration to Health Service, in the form approved by the Chief Commissioner, to the effect that if the wages of Health Service employees had been paid by the Relevant Clients, such wages would be exempt wages:

(a)   1 July 2009 to 30 June 2010;

(b)   1 July 2010 to 30 June 2011;

(c)   1 July 2011 to 30 June 2012; and

(d)   1 July 2012 to 30 March 2013.

(16)   The Workers are not employees of the Relevant Clients.

Issues

1. The parties also provided a joint written statement of issues that the parties had identified -

(1) Whether the application arises under the Administrative Decisions Review Act 1997 (NSW) (formerly the Administrative Decisions Tribunal Act 1997 (NSW) or under the Civil and Administrative Tribunal Act 2013 (NSW)?

(2)   Whether Health Service Pty Ltd ("Health Service") and the relevant workers ("Workers") whose services are provided by Health Service to non-profit organisations ("Relevant Clients") are in a common law employee/employer relationship?

(3)   Whether Health Service pays wages to the Workers?

(4)   Whether Health Service, who pays wages to the Workers, is liable to payroll tax on the wages under the Payroll Tax Act 2007 (NSW) ("PRTA 2007") or whether the wages are exempt from payroll tax?

(5) Whether Health Service is an employment agency for the purposes of Division 8 of Part 3 of the PRTA 2007 and if so, what are the consequences?

(6)   If Health Service is an employment agency, are the payments that it makes to the Workers exempt from payroll tax on the basis that:

(a) Section 40(1) of the PRTA 2007 would not apply, had the Worker been paid by the Relevant Clients as an employee; and

(b)   The Relevant Client has given a declaration to that effect, in the form approved by the Chief Commissioner, to Health Service as the employment agent?

(7) Whether the correct and preferable decision is that pursuant to section 27(3) of the Taxation Administration Act 1996 (NSW) ("TAA 1996") penalty tax for the assessment period 1 July 2010 to 30 June 2011 ought to be reduced to nil?

(8) Whether the correct and preferable decision is that pursuant to section 25 of the TAA 1996 interest for the assessment period 1 July 2010 to 30 June 2011 ought to be reduced to nil?

(9)   What order should be made as to costs?

1. I have dealt with issue 1 in paragraph (2) above. This is a decision of the NCAT. The parties at the hearing indicated that it was common ground that the workers engaged by the applicant are in a common law employee/employer relationship and in the relevant period were paid wages by the applicant. The concession disposed of the questions that were raised by issues 2 and 3.

1. The remaining issues, essentially, relate to the operation of the employment agents provisions found in Division 8 of the PRTA 2007.

Legislative Provisions

1. Payroll tax is imposed under the PRTA 2007 on all taxable wages: s 6. Under s 7 the employer by whom the taxable wages are paid is liable to pay payroll tax on the wages.

1. 'Employer' is defined in s 3 and -

means a person who pays or is liable to pay wages and includes

(a) the Crown in any of its capacities, and

(b) a person taken to be an employer by or under this Act, and

(c) a public, local or municipal body or authority constituted under the law of the Commonwealth or of a State or Territory unless, being an authority constituted under the law of the Commonwealth, it is immune from the operation of this Act.

1. Section 10 defines 'taxable wages' as wages that are taxable in New South Wales but specifically provides that 'exempt wages are not taxable wages'.

1. 'What are wages', relevantly, are set out in s 13 -

(1)   For the purposes of this Act, wages mean wages, remuneration, salary, commission, bonuses or allowances paid or payable to an employee, including:

...

(e) an amount that is included as or taken to be wages by any other provision of this Act.

1. The employment agents provisions were in the relevant period and currently are as follows:

Division 8 Employment agents

37 Definitions

(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.

(2) However, a contract is not an employment agency contract for the purposes of this Act if it is, or results in the creation of, a contract of employment between the service provider and the client.

(3) In this section:

contract includes agreement, arrangement and undertaking.

38 Persons taken to be employers

For the purposes of this Act, the employment agent under an employment agency contract is taken to be an employer.

39 Persons taken to be employees

For the purposes of this Act, the person who performs work for or in relation to which services are supplied to the client under an employment agency contract is taken to be an employee of the employment agent.

40 Amounts taken to be wages

(1) For the purposes of this Act, the following are taken to be wages paid or payable by the employment agent under an employment agency contract:

(a) any amount paid or payable to or in relation to the service provider in respect of the provision of services in connection with the employment agency contract,

(b) the value of any benefit provided for or in relation to the provision of services in connection with the employment agency contract that would be a fringe benefit if provided to a person in the capacity of an employee,

(c) any payment made in relation to the service provider that would be a superannuation contribution if made in relation to a person in the capacity of an employee.

(2) Subsection (1) does not apply to an employment agency contract to the extent that an amount, benefit or payment referred to in that subsection would be exempt from payroll tax under Part 4 (other than under Division 4 or 5 of that Part, section 50 or clause 5 of Schedule 2) had the service provided been paid by the client an employee, if the client has given a declaration to that effect, in the form approved by the Chief Commissioner, to the employment agent.

41 Liability provisions

Subject to section 42, if an employment agent under an employment agency contract:

(a) by arrangement procures the services of a service provider for a client of the employment agent, and

(b) pays payroll tax in respect of an amount, benefit or payment that is, under section 40, taken to be wages paid or payable by the employment agent in respect of the provision of those services in connection with that contract,

no other person (including any other person engaged to procure the services of the service provider for the employment agent's client as part of the arrangement) is liable to pay payroll tax in respect of wages paid or payable for the procurement or performance of those services by the service provider for the client.

42 Agreement to reduce or avoid liability to payroll tax

(1) If the effect of an employment agency contract is to reduce or avoid the liability of any party to the contract to the assessment, imposition of payroll tax, the Chief Commissioner may:

(a) disregard the contract, and

(b) determine that any party to the contract is taken to be an employer for the purposes of this Act, and

(c) determine that any payment made in respect of the contract is taken to be wages for the purpose of this Act.

(2) If the Chief Commissioner makes a determination under subsection (1), the Chief Commissioner must serve a notice of the determination on the person taken to be an employer for the purposes of this Act.

(3) The notice must set out the facts on which the Chief Commissioner relies and the reasons for the determination.

(4) This section has effect in relation to agreements, transactions and arrangements made before, on or after the commencement of this section.

Legislative History: Employment Agency Contract Provisions

1. The employment agency contract provisions were first introduced in 1985 by the Pay-roll Tax (Amendment) Act 1985. The definition of 'employer' in s 3 (1) of the Pay-roll Tax Act 1971 (PRTA 1971) was extended to include "a person who is an employment agent for purposes of paragraph (f) of the definition of 'wages'". Paragraph (f) was added to the definition of wages, which was in the following terms -

(f) any amount paid or payable by way of remuneration by an employment agent (as described in subsection(4)) directly or indirectly to a person who was engaged to perform services for a client of the employment agent, or to some other person in respect of those services, as a result of which engagement the employment agent receives directly or indirectly payment, whether by way of a lump sum or an ongoing fee, during or in respect of the period when the services are provided by that person to the client;

1. Subsection 3(4) was added to 'describe' the employment agent for purposes of the extended definition of 'wages'. It was in the following terms:

(4) For the purposes of paragraph (f) of the definition of "wages" in subsection (1), a person (in this subsection referred to as the "agent") is an employment agent if the person procures by an arrangement the services of a person (in this subsection referred to as the "worker") for another person (in this subsection referred to as the "client"), under which arrangement -

(a) the worker does not become the employee of either the agent or client but does carry out duties of a similar nature to those of an employee; and

(b) remuneration is paid directly or indirectly by the agent to the worker or to some other person in respect of the services provided by the worker.

1. Section 3A was inserted to capture the arrangements which were, as described in the Explanatory Note to the Bill that introduced these provisions, 'several means of disguising the employer-employee relationship by contractual arrangements which have been increasingly resorted to in recent years by persons seeking to defeat the objects of the Principal Act' (PRTA 1971).

1. The provisions were amended in 1987 by Pay-Roll (Amendment) Act 1987. In brief, the change was described in the Explanatory Note to the Bill that introduced the amendments as follows:

Schedule 1(2) amends section 3A to provide that a person who supplies services under a relevant contract (such as an employment agent) will not be deemed to be an employer for the purposes of the Principal Act. The term "relevant contract" (as defined in section 3A) will still apply to a contract under which an employment agent arranges for services to be provided to a client, but the client will be the employer for the purposes of the Principal Act. (Emphasis Added)

1. A further amendment was made to the provisions by State Revenue Legislation (Miscellaneous Amendments) Act 1998. As explained in the Explanatory Note to the Bill introducing the amendments, the purpose of the changes was:

... to make employment agents, instead of the end-user, liable for pay-roll tax in respect of employment agency contracts, not being contracts of employment.

1. In particular, the amendments included the introduction of a new 'Employment agents' provision -

3C Employment agents

(1) For the purposes of this Act, an "employment agency contract" is a contract under which a person (in this section referred to as an "employment agent") by arrangement procures the services of another (in this section referred to as a "contract worker") for a client of the employment agent (by a means other than a contract of employment between the contract worker and the client) and as a result receives directly or indirectly payment in respect of the services provided by the contract worker to the client, whether by way of a lump sum or ongoing fee, during or in respect of the period when the services are provided.

(2) For the purposes of this Act:

(a) the employment agent under an employment agency is taken to be an employer, and

(b) the contract worker under an employment agency contract is taken to be an employee of the employment agent, and

(c) an amount, the value of a benefit or a payment, being:

(i) any amount paid or payable to the contract worker in respect of the provision of services in connection with an employment agency contract, and

(ii) the value of any benefit provided for or in relation to the provision of services in connection with an employment agency contract that would be a fringe benefit if provided to a person in the capacity of an employee, and

(iii) any payment made in relation to the contract worker that would be a superannuation benefit if made in relation to a person in the capacity of an employee,

is taken to be wages paid or payable by the employment agent.

(3) If it is not reasonably practicable to determine the extent to which an amount, benefit or payment constitutes wages under subsection (2) (c), the Chief Commissioner may accept a return, or make an assessment, in which the amount on which pay-roll tax is levied is determined on the basis of estimates.

(4) An employment agent is not liable to pay-roll tax under this Act in relation to an employment agency contract:

(a) if the contract worker is liable to pay pay-roll tax (as the employer of the person who actually provides the services to the client of the employment agent under the contract) in respect of wages paid for those services, or

(b) if the wages that the amount, value of the benefit or payment under subsection (2) (c) is taken to be would have been exempt from pay-roll tax under section 10 had the contract worker been paid those wages by the client of the employment agent, or

(c) if the client of the employment agent is not registered or required to be registered as an employer under this Act at the time the employment agency contract is entered into and a declaration to that effect has been given by the client to the employment agent.

(5) If, after a client gives a declaration referred to in subsection (4) (c) to an employment agent, the client becomes registered or is required to be registered as an employer under this Act, the client is liable to pay pay-roll tax in respect of the wages paid under the employment agency contract during each financial year in which the client is registered or is required to be registered.

1. The provision in s 3C(4)(c) was replaced in 1999 by the State Revenue Legislation Further Amendment Act 1999 with the following:

(c) if the client of the employment agent:

(i) is not registered or required to be registered as an employer under this Act; and

(ii) would not be required to be registered as an employer under this Act if the client were the employer in respect of the wages paid or payable under all the employment agency contracts to which the client is a party;

and a declaration to that effect has been given by the client to the employment agent.

1. The State Revenue Legislation Further Amendment Act 1999 also added to s 3C, new subsections (5), (6) (7) and (8) which dealt with changes in circumstances affecting the required declaration.

1. The provisions subject of the review were introduced when in 2007 the PTRA 1971 was repealed and re-enacted as PTRA 2007 with various changes to harmonise the Act with the equivalent payroll tax legislation of Victoria to increase inter-jurisdictional consistency.

Submissions

1. Counsel for the respondent submitted that, from the legislative history of the employment agency contract provisions, 'it can be discerned that the extended meaning of employer was introduced to capture payroll tax liability where a third party (employment agent) is interposed between what otherwise could be an employer/employee relationship between, for example, in this case the client and the worker, and where there is no contract of employment.'

1. Counsel further expanded the submission as follows:

44 Therefore, given that the purpose of the deeming provision is to extend the meaning of employer where there would otherwise not be an employer/employee relationship, means that where there is an employer/employee relationship already identified then the extended meaning of employer in section 3 is not engaged.

45 The above history does not suggest that the employment agency contract provisions were introduced to apply, even where there was found to exist an employment relationship between the so called "employment agent" and the worker. Rather, the above points to the contrary position being true, that is the extended meaning was enacted to create a legal fiction of an employer/employee relationship, where one did not otherwise exist, so to capture wages, which would otherwise not be subject to payroll tax.

46. Applying that analysis to the agreed facts means that given that an employer/employee relationship has already been identified, between Health Service and the worker, which makes Health Service and the worker, which makes Health Service liable for wages paid or payable to the employee, then resort does not need to be had to the extended meaning of employer in section 3 of the PRTA 2007.

1. Counsel submitted that the above construction -

... accords with the decision of the Court with the decision of the Court of Appeal in Drake Personnel Ltd v Commissioner of State Revenue [2000] VSCA 122 at [1] to [6] per Ormiston JA, [16] to [19], [29], [50], [54], [57] per Phillip JA and [79] per Buchanan, where their Honours held that the operation of s.3C of the Pay-roll Tax Act 1971 (Victoria) did not arise in that case as the temporary worker was an employee of Drake and therefore Drake was liable for payroll tax on that basis.

1. It was further submitted that -

48 This was the view of Justice Gzell in Moore Park Gardens Management Limited v. Chief Commissioner of State Revenue [2004] NSWSC 417 where his Honour said:

"36. First, the purpose of the Pay-Roll Tax Act 1971, s 3C(2) was to deem the employment agent, not otherwise an employer, to be such. For a person who was already an employer there was no point in the provision. The explanatory note to the State Revenue Legislation (Miscellaneous Amendments) Bill 1998 by which the section was introduced stated that the purpose of the introduction of the provision was: "To make employment agents, instead of the end-user, liable for pay-roll tax in respect of employment agency contracts, not being contracts of employment.

37. Even if the plaintiff's arrangements with the owners corporations fell within the definition of an employment agency contract in the Pay-roll Tax Act 1971, s 3C(1). I am of the view that s 3C(2) did not apply to it as it was already an employer and the exemptions in s 3C(4) should be limited to circumstances in which s 3C(2) was operative."

49 Therefore, applying the analysis of Justice Gzell, which appears to be in accordance with the statutory interpretation that has been outlined above, resort does not have to be had to the employment agency contract provisions in Division 8, as the agent is already in an employer/employee relationship and liable under the provisions identified above.

50 The decision of Justice Gzell in Moore Park was the subject of appeal in Moore Park Gardens Management Ltd v. Chief Commissioner State Revenue [2006] NSWSC 115 before Justices Handley, Santow and Bryson. The issue of statutory interpretation identified was not a matter that was fully argued before the Court of Appeal. However, Justice Santow did make some obiter comments as follows:

"The alternative basis for liability to pay-roll tax

79 In view of the conclusion I have reached above, it is not necessary for me to determine whether, were the exemption in s3C(4)(c) applicable, the appellant would nonetheless be liable as a common law employer pursuant to s6. That must depend on whether s3C constitutes an exclusive regime for determining the liability of an employment agent who procures the services of contract workers for a client or whether it is simply an extension of the general liability to the tax with an exemption applicable only to that extension.

80 That rationale for this regime is set out by the Minister in the earlier second reading speech. The regime regulates in detail the common situation of managing agents making available contract workers to a client under an employment agency contract such that, even if the contract of employment technically resides with the employment agent, nonetheless the contract workers are doing work for the client who is reimbursing the managing agent.

81 Thus I incline to the view that s3C is a self-contained regime exhaustively governing the liability to pay-roll tax of employment agents where there is no contract of employment between contract worker and client. However, I do not need to express a concluded view on that question."

51 Justice Bryson at 84 stated "I prefer not to make any observation on the subject with which Santow JA. Deals at paragraph 79 to 81. The appeal can be properly disposed of without addressing that subject." Justice Handley does not address the issue.

52 Justice Santow's comments are obiter and are of little precedential value as they are passing remarks on matters that had not been fully argued and therefore cannot be said to be a considered judgment. Further, his Honour did not have the benefit of detailed submissions as outlined above and His Honour was not referred to the Court of Appeal decision in Drake.

1. The respondent also placed some reliance on the nature of the employment agency contract in this matter. Counsel submitted that -

54 Section 37 of the PRTA 2007 is not engaged as there exists an employment relationship between Health Service and the worker and therefore Health Service does not procure the services of another person, but in running its own business with employees it directs them to do the work Health Service has contracted with the Client, it will do.

1. The applicant's case was simply set out by Mr Latham, counsel for the applicant as follows -

(1) The essence of the Applicant's position is that the Applicant was an employment agency for the purposes of s 40 of the Payroll Tax Act 2007 [the Act] in that it procures the services of another person (being the worker) for a client of the employment agent: see definition in s 37.

(2) Under s 40(1) of the Act, amounts paid to the workers are taken to be wages paid or payable by the employment agent.

(3) Under s 40(2) of the Act, section 40(1) does not apply to the extent that an amount, benefit or payment referred to in that subsection would be exempt from payroll tax had the worker been paid by the client as an employee if the client has given a declaration to that effect.

(4)   The parties are agreed that the clients are non- profit organisations and that such a declaration has been given.

(5)   Further, the Applicant submits that it should not be taxed under the general taxation provisions because the employment agency provisions constitute an exhaustive code for taxing employment agent contracts.

1. Counsel referred to the observations made by Santow JA in Moore Park Gardens at [79] - [81] with Handley JA agreeing and submitted that 'the majority clearly held that s3C is an exclusive regime dealing with employment agents where there is no contract of employment between contract worker and client'.

1. Counsel drew attention to the 'significantly different' wording of s 40 of the current PRTA 2007 from s 3C of the old law. It was submitted that s 40 'now deals with situations where the employment agent is the common law employer of the workers and where the employment agent engages them through independent contracts. There is no express reference to the provision of workers other than through a contract of employment. Section 40 applies to all employment agents, whether or not they employ the workers. On normal statutory principles, that specific provision would displace the more general provision that makes common law employers liable for payroll tax: Refrigerated Express 29 ALR 333 at 347.'

1. Counsel for the applicant also submitted that the Tribunal should reject the respondent's submission 'that the Applicant is not a party to an Employment Agency contract' because the 'Applicant has a contract with the workers under which it procures the services of those workers'. Reliance was also placed on the recent decision of the Supreme Court in Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127.

Consideration

1. The principal issue in this matter was whether the applicant is liable to payroll tax on the wages it pays the workers that perform services of its clients by reason of their common law relationship of employer and employee or the employment agency contract provisions apply regardless of the existence of an employer/employee common law relationship between the applicant and the workers.

1. The respondent's case was that the applicant 'is liable to pay payroll tax solely on the employer/employee relationship with the worker'.

1. The respondent primarily relied on the statutory construction of the relevant provisions on the basis of what was said by the Victorian Court of Appeal in Drake and in statements made by his Honour Gzell J in the first instance in Moore Park Gardens.

1. The employment agency contract provisions have been in the law, in one form or the other, since 1985 but this issue has not been directly considered or raised in litigation of these provisions. This issue was, however, highlighted by his Honour Santow in the Court of Appeal when considering the appeal in Moore Park Gardens.

1. In Drake (98 ATC 4915) in the first instance, her Honour Balmford J held that the temporaries were not common law employees but were deemed by s 3C of the Pay-roll Tax Act 1971(Vic) to be employees. Her Honour also held that some of the temporaries who provided services to Drake's clients for a period not exceeding 90 days in the financial year were exempt under s 3C(e)(iii) and that there will be many temporaries of whom it could be said that they were individuals ordinarily rendering services to the public generally and exempt under s 3C(e)(v). But the court found that evidence before her Honour did not enable to make any finding as to whether or not any individual temporary other than those who gave evidence, in fact met that description. However, her Honour held that it did not matter because, in any case, sections 19A/19B of the Pay-roll Tax Act 1971 (Vic) and sections 22/23 of the Taxation Administration Act 1997 (Vic) precluded making any refunds.

1. In her Honour's reasons for decision no mention is made of any submission by the applicant or the Commissioner that the employment agency contract provisions were not available to employers with common law employees.

1. On appeal, the Court of Appeal of Victoria took a different approach. His Honour Phillips J, who handed down the principal judgment, took the view that there was sufficient evidence to support the finding, as submitted by the Chief Commissioner, that the temporaries were employees of Drake according to ordinary concepts. Philips J agreed with the other findings of her Honour Blandford, but held the findings were of 'secondary importance' because 'the temporaries were employees of Drake according to ordinary concepts of the common law, so that s 3C was not called into play at all'.

1. Again, the parties in Drake before the Court of Appeal did not raise any issue as to the exclusive operation of the employment agency contract provisions. Lack of any serious discussion as to whether these provisions only apply when the employer and employee relationship has to be taken as such, the decision reached by Phillips J does not offer a conclusive view.

1. In Moore Park Gardens the short facts were as follows. The taxpayer was a provider of cleaning services to a number of owners corporations in the Moore Park Gardens complex. To undertake the services, the taxpayer engaged a number of workers who were each assigned to a particular building. The taxpayer incurred all the costs including wages to the workers which were apportioned to each owners corporation and the taxpayer was reimbursed for the amounts.

1. In the first instance, his Honour found that the taxpayer was the employer of the cleaners and said that -

[35] The Pay-roll Tax Act 1971(NSW), s 3C in its original form did not, in my view, apply to the plaintiff for 2 reasons.

[36] First, the purpose of the Pay-roll Tax Act 1971 (NSW), s 3C(2) was to deem the employment agent, not otherwise an employer, to be such. For a person who was already an employer there was no point in the provision. The explanatory note to the State Revenue Legislation (Miscellaneous Amendments) Bill 1998 by which the section was introduced stated that the purpose of the introduction of the provision was: "To make employment agents, instead of the end-user, liable for pay-roll tax in respect of employment agency contracts, not being contracts of employment."

[37] Even if the plaintiff's arrangement with the owners corporations fell within the definition of an employment agency contract in the Pay-roll Tax Act 1971 (NSW), s 3C(1), I am of the view that s 3C(2) did not apply to it as it was already an employer and the exemption in s 3C(4) should be limited to circumstances in which s 3C(2) was operative.

[38] The second reason for the non-operation of the Pay-roll Tax Act 1971 (NSW), s 3C(4)(c) is that it required a declaration to have been given to the plaintiff by its clients, the owners corporations. The declarations were given in October 2002 said to be retrospective in effect to 1 January 2000.

1. No submission was made to his Honour Gzell J that the relevant provisions applied exclusively to all employment agency contracts. His Honour reached his conclusion, similarly as Phillips J did in Drake, unaided by submissions to the contrary view.

1. An appeal to the Court of Appeal (Handley, Santow and Bryson JJA) was dismissed. The principal judgment was handed down by Santow JA who held that:

[74] For s 3C to apply at all there must be an "employment agency contract" within the definition in s 3C(1). That definition presupposes that the relevant contract workers, here the cleaning staff, have their services procured by MPGM for the Owners Corporations, importantly by a means "other than a contract of employment between the contract worker and the client".

[75] I am satisfied that there is nothing in the evidence which indicates that the cleaners were employees of the Owners Corporations and that MPGM merely acted as their agent. All that appears is that their costs were reimbursed. MPGM recruits, instructs, pays, insures and provides for the superannuation and leave entitlements of the cleaners. The modest equipment required (buckets, mops, detergents, etc) is provided by the Owners Corporations (black, 5L-Q).

[76] In those circumstances, the threshold requirements of s 3C are satisfied. Hence, the section applies with these consequences:

(a) the employment agent, being MPGM under the employment agency contract, is taken to be an employer;

(b) the contract worker under the employment agency agreement is to be taken to be the employee of MPGM;

(c) the amounts paid or payable to the cleaning staff, though reimbursed to MPGM, must be taken to be wages paid or payable by MPGM so as to render MPGM subject to pay-roll tax unless;

(d) MPGM was potentially entitled to the exemption in s 3C(4)(c).

1. His Honour agreed with the respondent 'that it is not possible for the client of an employment agency to provide a s 3C(4)(c) declaration on a retrospective basis' and that, because the declarations were given after the client's liability arose, the taxpayer was not entitled to the exemption.

1. His Honour went on under the heading 'The alternative basis for liability to pay-roll tax' to make the following important observations:

[79] In view of the conclusion I have reached above, it is not necessary for me to determine whether, were the exemption in s 3C(4)(c) applicable, the appellant would nonetheless be liable as a common law employer pursuant to s 6. That must depend on whether s 3C constitutes an exclusive regime for determining the liability of an employment agent who procures the services of contract workers for a client or whether it is simply an extension of the general liability to the tax with an exemption applicable only to that extension.

[80] The rationale for this regime is set out by the minister in the earlier Second Reading Speech. The regime regulates in detail the common situation of managing agents making available contract workers to a client under an employment agency contract such that, even if the contract of employment technically resides with the employment agent, nonetheless the contract workers are doing the work for the client who is reimbursing the managing agent.

[81] Thus I incline to the view that s 3C is a self-contained regime exhaustively governing the liability to pay-roll tax of employment agents where there is no contract of employment between contract worker and client. However, I do not need to express a concluded view on that question.

1. The respondent's submission was that his Honour's 'comments are obiter and are of little precedential value as they are passing remarks on matters that had not been fully argued'. I do not agree. I think, so far as this Tribunal is concerned, his Honour's statement is a strong dictum, although said by way of obiter. I also think that, in the case of the current provisions under consideration, there are other indicators to form the view that Division 8 is a 'self-contained regime' dealing exhaustively with employment agency contracts for purposes of payroll tax.

1. Division 8 is headed 'Employment agents' but the Division should be more appropriately headed 'Employment Agency Contracts'. When the PTRA 1971 was amended to introduce a similar provision for the first time, it was appropriately headed 'Application of this Act to certain contracts'.

1. In my view, Division 8 is essentially designed to deal with the liability to payroll tax in relation to an employment agency contract.

1. Section 37(2) defines an 'employment agency contract' as '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'. (Emphasis Added)

1. It is important to note that the definition speaks of 'a person' who, for purposes of Division 8, is treated as 'an employment agent'. No attempt is made to define 'an employment agent' because the provision applies to any person who enters into an employment agency contract as defined. That clearly leads to the conclusion that it does not matter if the person is a common law employer or is not one who can be regarded as such. The Explanatory Notes relating to the Bill that introduced the PRTA 2007 noted in relation to the definition in s 37 that the term 'person' was used as a 'wide concept' and 'may include a company, a partnership or a natural person'.

1. I also find support for this view in the following recent statement made by his Honour White J in Freelance Global Ltd v Chief Commissioner of State Revenue when rejecting the taxpayer's submission that the 'legislative history demonstrates that it was Parliament's intention that employment agents provisions should apply only to employment agents or labour hire firms' -

... Undoubtedly it was Parliament's intention that the amendments should apply to such persons. It does not follow that that was the only intended application of the provision.

150. In my view, the provisions were not intended to apply only to employment agents or labour hire firms as those expressions are said to be generally understood. That appears from the text of s 3C and s 37 and by the language used in other legislation at the relevant times regulating the licensing of employment agents.

151. If s 3C (or s 37) were intended to apply only to the activities of employment agents, as that expression is said to be commonly understood, subs (1) would not have defined an "employment agent" for the purposes of the Act by reference merely to any person who by arrangement procured the services of another for a client of the employment agent etcetera. The section could simply have provided that an employment agency contract was one under which an employment agent procured the services of another for a client of the employment agent etcetera. If Parliament thought that there was not a common understanding of what an employment agent is, then there was a definition readily to hand in s 702 of the Industrial Relations Act 1991 (NSW) (and formerly in s 145B of the Industrial Arbitration Act 1940 (NSW)) which provided that a person carried on the business of a private employment agent if he acted as an agent for the purpose of finding or assisting to find a person to carry out work for a person seeking to have work carried out, or finding or assisting to find employment for a person seeking to be employed, whether pursuant to a contract of employment or otherwise (see later s 60P introduced to the Fair Trading Act 1987 in 2002).

1. Reading narrowly the provisions in Division 8 to confine them to persons other than 'common law employers' lead to some absurd results.

1. If the respondent's submission were correct that Division 8 has no application when there is a common law employment relationship between the employment agent and the worker, the concessions in s 40(2) would only apply to a person other than a common law employer. The suggested interpretation by the respondent not only produces a harsh, inequitable outcome but also two different regimes to deal with employment agents.

1. Another absurd outcome would be that a common law employer who enters into 'an employment agency contract to reduce or avoid the liability of any party to the contract' would not be subject to anti-avoidance provisions found in s 42 of Division 8. Section 42 refers to 'an employment agency contract' and sets out the consequences for parties to an employment agency contract that reduces or avoids liability to payroll tax. Any party to the contract is taken to be an employer for purposes of the PTRA 2007. Clearly, Parliament did not intend to restrict the operation of the anti avoidance provisions to employment agents other than common law employers.

1. I think some of the submissions made by the respondent were largely influenced by cases where this issue was not raised or fully argued. The submissions are also largely influenced on the view that Division 8, which inappropriately states that the division deals with 'Employment agents', is only applicable to non-common law employers who are taken to be employers under the Division. That might have been the case when the first provision to deal with these arrangements was introduced in 1985.

1. Historically, s 3(4) of the PTA 1971 provided as follows -

(4) For the purposes of paragraph (f) of the definition of "wages" in subsection (1), a person (in this subsection referred to as the "agent") is an employment agent if the person procures by an arrangement the services of a person (in this subsection referred to as the "worker") for another person (in this subsection referred to as the "client"), under which arrangement -

(a) the worker does not become the employee of either the agent or the client but does carry out duties of a similar nature to those of an employee; (Emphasis added)

...

1. The legislation in the original provision did not extend to arrangements where the worker was an employee of the agent or client. That was made clear in the Explanatory Note to the Bill which introduced the 1985 provisions -

The effect is that certain employment agents will be treated as employers, and money paid by them will be treated as wages, for the purposes of the Principal Act. (Emphasis Added)

1. If Parliament wanted a similar outcome with the current provisions, the definition in s 37 would have excluded an arrangement where there is an employer and employee relationship between the agent and the worker. The only arrangement excluded is an employment agency contract if it is, or results in the creation of, a contract of employment between the service provider and the client: s 37(2).

1. The starting point in considering the application of Division 8 to a particular set of facts is to identify, what was described in Freelance by his Honour White J at [99] as the 'critical question', whether there is a contract (which includes an agreement, arrangement and undertaking) which may be formal or informal, express or implied, under which a person (the employment agent) procures the services of another (the worker) for a client of the person.

1. Having defined an 'employment agency contract' in s 37, the provisions in s 38 to s 40 set out the consequences that determine liability to payroll tax under the PTRA 2007. The employment agent is taken to be the employer under s 38 and the person who performs work for or in relation to which services are supplied to the client under an employment agency is taken under s 39 to be the employee of the employment agent. Section 40(1) defines what amounts, benefits or payments are to be taken as wages for purposes of the PTRA 2007. Section 40(2) excludes any amount, benefit or payment for purposes of s 40(1), 'that would be exempt from payroll tax under Part 4 (other than under Division 4 or 5 of that Part, section 50 or clause 5 of Schedule 2) had the service provider been paid by the client as an employee, if the client has given a declaration to that effect, in the form approved by the Chief Commissioner, to the employment agent'.

1. The Division, in my view, deals exhaustively with the payroll tax consequences in relation to an 'employment agency contract' as defined in s 37. It is not a regime for employment agents' liability to payroll tax.

1. There is nothing in the provisions to suggest that its application is confined to persons other than an employer in a common law relationship with the worker as submitted by the respondent.

1. There remains the outstanding issue, as to whether in this matter there was in fact an employment agency contract as defined in s 37. The respondent's submission was that -

Section 37 of the PRTA 2007 is not engaged as there exists an employment relationship between Health Service and the worker and therefore Health Service does not procure the services of another person, but in running its own business with employees it directs them to do the work Health Service has contracted with the Client, it will do.

1. The applicant's position was that the applicant 'has a contract with the workers under which it procures the services of those workers' and that the applicant 'falls squarely within that section'. It was also submitted that the respondent had 'previously conceded in its letter of 12 November 2013 that an employment agency contract exists between Health Service, its employees and end-user clients'.

1. In Freelance, one of the two issues was whether there was an employment agency contract between the applicant and its clients. The case concerned independent contractors who were available to provide their services to the taxpayer's clients. Freelance did not maintain a pool of pre-screened independent contractors. Freelance entered into contracts with clients, mostly companies, who required the services of independent contractors. There was an unusual arrangement whereby an individual contractor would agree with the client as to the nature of the services required and the remuneration payable but Freelance undertook to arrange for the contractor to perform the services as a delegate of Freelance.

1. As part of the arrangement, the independent contractor was invited to apply to become a beneficiary of the Freelance Trust No. 1, a discretionary trust. Freelance invoiced the client on a regular basis for the services performed by the individual contractor. Freelance, on receipt of payments from the client, paid the contractor the moneys received less an agreed fee. These payments were paid as advances but, in practice, treated as distributions to the contractor as a beneficiary of the trust for the relevant financial year. The principal issue was whether the distributions paid to its contractor beneficiaries were taxable wages. The period in issue was over tax years that were subject to the old PRTA 1971 and the current PRTA 2007.

1. The taxpayer's case was 'that it did not procure the services of its beneficiary contractors for its clients'. This was on the basis that 'the services of the beneficiary contractor are procured by the client itself or by a recruitment agency acting for the contractor independently of and prior to any involvement by Freelance in the facilitation of the provision of those services'. It was also submitted that the relevant provisions only applied to employment agents and labour hire entities and Freelance was not such an entity.

1. The latter submission was rejected by his Honour, White J, as set out in paragraph [49] above.

1. In relation to the principal submission, his Honour examined the dictionary definitions of 'procure' and relevant cases which have considered the meaning of this term and concluded that -

115. I think the better view is that "procure" when used in s 3C and s 37 means more than facilitate or enable and requires that the employment agent cause the services of a contract worker (or service provider) to be provided to the employment agent's client, with the expenditure of care or effort by the employment agent. I do not accept that this can be done if the employment agent recruits the contract worker or service provider for the client.

1. On the facts in Freelance, his Honour took the following view:

119. In my view, Freelance procured the services of its contractors to its clients by producing them by endeavour. It set out to see that the services were provided and took appropriate steps to produce that happening by means of:

(a) its arrangements with its contractors for them to be admitted as beneficiaries of the Freelance Trust, and to receive distributions from that trust, which is a matter of practice and expectation, were in the amount of the remuneration received by Freelance by its clients less its management fee;

(b) its securing its contractor's agreement to the terms on which they were admitted as beneficiaries;

(c) in many cases, by making fixed distributions of income that were paid on terms that the contractors would provide services as reasonably requested by Freelance;

(d) by having an understanding and arrangement with its contractors for them to supply the services Freelance agreed to supply to its clients; and

(e) by entering into its contracts with its clients for the provision of services by its contractors.

1. In the present matter, there were different forms of agreements between the applicant and their clients. But, essentially, the applicant under the agreements undertook to provide services as and when required by the client. The applicant also undertook to provide an adequate number of contractor personnel to perform the services with due skill and care, in compliance with all applicable laws and in accordance with any reasonable direction given by the client. The applicant was also required to ensure that the contractor personnel had the necessary skills, competency and resources to perform the services.

1. These agreements, in my opinion, clearly fall within the definition of an employment agency contract found in s 37. I do not think because the contractor personnel are engaged as employees by the applicant to undertake the services, rather than as independent contractors, made any difference. I think the wide definition of 'procures' extends to a person procuring workers as employees to perform the contracted work. The workers were offered positions as 'casual community care worker' or 'permanent part time community care worker'. They performed no services for the applicant but were available to perform services as and when required as contract personnel under an employment agency contract entered into by the applicant with a client. I accept that the agreements between the applicant and individual worker were clearly arrangements to procure contract workers for the client.

1. For these reasons, the applicant should be taken to be an employer for purposes of Division 8 and is entitled to the exemption under s 40(2). There was no dispute that proper declarations had been given by the relevant clients to the applicant in this matter.

1. The above addresses issues 4-6 identified by the parties. In view of my conclusion on the principal issue, it makes it unnecessary for the determination of the questions raised in issues 7 and 8 relating to penalty tax and interest.

Costs

1. The only issue that remains is the question of costs in this matter. My own view, without the benefit of any submissions by the parties, is that there should not be an order for costs in this matter and that as directed by s 60(1) of the NCAT Act 'each party to proceedings in the Tribunal is to pay the party's own costs'.

Order

1. The assessments under review are set aside.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 23 June 2014