UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852

Date of judgement 21 December 2016 Proceeding No. 2014/140127
Judge(s) White J
Court or Tribunal Supreme Court of NSW
Legislation cited Industrial Arbitration Act 1940

Industrial Relations Act 1991

Interpretation Act 1987

Pay-roll Tax (Amendment) Act 1985

Pay-roll Tax (Amendment) Act 1987

Pay-roll Tax Act 1971

Pay-roll Tax Act 1971 (Vic)

Payroll Tax Act 2007
Catchwords TAX — payroll tax — employment agents — Taxpayer provided the services of experts to provide expert services in connection with litigation or in relation to some aspect of a client‘s business — experts retained by the Taxpayer were independent contractors — whether payments made by the Taxpayer to experts were wages pursuant to s 3C(2)(C) of the Pay-roll Tax Act 1971 and s 40 of the Payroll Tax Act 2007 — held that services provided for a client’s benefit but not provided by a service provider working in a client’s business not intended to fall within the scope of the employment agency contract provisions — work done by the experts retained by the Taxpayer was not done in the conduct of a client’s business — payroll tax assessment notice set aside
Cases cited Alcan (NZ) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; [2009] HCA 41

Certain Lloyd’s Underwriters v Cross (2012) 248 CLR 378; [2012] HCA 56

CXC Consulting Pty Ltd v Commissioner of State Revenue [2013] VSC 492

Delaney v Staples [1992] 1 AC 687

Drake Personnel Ltd v Commissioner of State Revenue (2000) 2 VR 635

Drake Personnel Ltd v Commissioner of State Revenue (Vic) (1998) 40 ATR 304; (1998) 98 ATC 4915

Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503; [2012] HCA 55

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

Health Service Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 83

Manly Council v Malouf (2004) 61 NSWLR 394; [2004] NSWCA 299

Park Trent Properties Group Pty Ltd v Australian Securities and Investments Commission [2016] NSWCA 298

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

Taylor v The Owners – Strata Plan 11564 (2014) 253 CLR 531; [2014] HCA 9

Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503

Background

UNSW Global Pty Ltd (“the Taxpayer”) sought a review of the decision of the Chief Commissioner of State Revenue (“the Chief Commissioner”) to assess the Taxpayer as liable to payroll tax for the period 1 June 2007 to 30 June 2012 pursuant to the employment agency provisions of the Pay-roll Tax Act 1971 (“1971 Act”) and Payroll Tax Act 2007 (“2007 Act”).

The Chief Commissioner contended that payments made by the Taxpayer to consultants were deemed to be wages pursuant to s. 3C(2)(c) of the 1971 Act in respect of the period from 1 June to 30 June 2007, and pursuant to s.40 of the 2007 Act in respect of the periods from 1 July 2007 to 30 June 2012.

UNSW Global is wholly owned by the University of New South Wales. It has a business unit called Unisearch that arranges the provision of expert opinions in various fields known as Expert Opinion Services (“EOS”).  It maintains a database of experts comprising academics employed by the University of New South Wales and experts external to the University. A law firm would typically make an enquiry with Unisearch as to the availability of an expert in a relevant field. Unisearch employees will then request a quote for the work and enter into a contract with the expert, and Unisearch in turn would contract with the client to provide the service at a fee that involved a mark-up.

Once an expert had completed a draft report it would be sent to Unisearch. The report was placed into a Unisearch template and format. The content of the report was wholly the responsibility of the expert, except that Unisearch would ensure that the letter of instruction had been answered and that the report referred to the Expert Code of Conduct.

A second service line of Unisearch was called Domestic Consulting which included laboratory testing. Consulting projects were undertaken in Australia and overseas. Regarding the domestic consulting services, the experts were engaged to provide expert services in relation to the client’s business. In most, but not all cases, the work of the expert involved providing a written report but in some cases could include providing training or facilitating a workshop. As above, the expert would provide a quote for the work and enter into a contract with Unisearch, and Unisearch in turn would contract with the client to provide the service at a fee that involved a mark-up.

Similar arrangements were made in respect of international consulting services. There were no standard client terms and conditions.

There is no dispute that the experts retained by Unisearch were independent contractors. They were not subject to control or direction by Unisearch in how they were to undertake their engagement.

The Statutory Framework

The relevant provisions of the 1971 Act are contained in s. 3C.

The relevant provisions of the 2007 Act are contained in Div. 8 of Pt. 3 (ss. 37-42).

Submissions

The Chief Commissioner contended that Unisearch procured the services of the expert consultants for its clients, and Unisearch received payment in respect of the services provided by the consultants to the clients. Therefore the Taxpayer was an employment agent under an employment agency contract and was taken to be an employer of the consultants whose services were procured for its clients.

The Taxpayer submitted that its contracts are outside the employee agency contract provisions because those provisions do not apply where the service provider is in substance an independent contractor. The Taxpayer also submitted that if the consultants were engaged directly by Unisearch’s clients, payments made to them would fall outside the payroll tax regime because they are genuine independent contractors. Further, the Taxpayer contended that the purpose of the legislation was to capture indirect employment arrangements, and to construe the employment agency contract provisions literally would be to give them an operation going well beyond what Parliament must have intended and would create anomalies that would be out of keeping with the context and purpose of the statute.

In the course of final oral submissions the Chief Commissioner accepted that if the employment agency contract provisions are applied literally they would bring many payments to genuine independent contractors within the scope of the payroll tax net that was not intended and would create anomalies. The Chief Commissioner contended that notwithstanding the definition of “employment agent” in s. 37 and s. 3C, the employment agency contract provisions applied only to a person who could otherwise be described as an employment agent in the ordinary sense of that term.

His Honour found this to be a surprising concession by the Chief Commissioner, further propounded by the Chief Commissioner’s agreement that EOS consultants typically did not perform services “in and for the purpose of, the ordinary conduct of the clients’ businesses” and were required to undertake only limited reporting, advisory and consultation tasks. However, the Chief Commissioner contended that the consultants engaged in the domestic consulting services were in a different position.

Decision

His Honour held the following: 

  • Sections 3C and 37 cannot be construed as applying only to the procuring of services by persons who are employment agents as that term might be commonly understood, as distinct from how that term is defined (rejecting the Chief Commissioner’s concession): [29].

  • The mischief against which the employment agency contract provisions were directed was the avoidance of payroll tax through the interposition of an agent to give the appearance of a contractor relationship where one did not exist in substance. The mischief to which the provisions were not directed is where the service provider was a genuine independent contractor whose services were provided to a client through an intermediary: [40].

  • On a literal construction of the employment agency contract provisions all of the payments to consultants engaged by the Taxpayer are taken to be wages paid by it under an employment agency contract. In this case, giving the provisions their natural and ordinary or literal meaning does lead to an absurd or unreasonable result: [43].

  • To the extent the text of the legislation permits, the provisions should be construed so as not to apply to all arrangements that could fall within their literal terms, but should be construed in accordance with the legislative intent as ascertained from the statutory context, including the juxtaposition of the employment agency contract provisions with the relevant contract provisions, the legislative history, and the extrinsic materials: [49].

  • Instead of a literal construction, his Honour applied a purposive construction, as mandated by s. 33 of the Interpretation Act 1987, and determined that the definition of an employment agency contract (ie a contract under which a person (the employment agent) “… procures the services of another … for a client of the employment agent” can be read as meaning a contract under which a person procures the services of another person in and for the conduct of the business of the employment agent. This, His Honour said was the intended scope of the provisions, that is, “to confine the operation of the phrase “for a client” in that way, rather than as meaning for the client’s benefit”: [62].

  • Whether the worker is to be characterised as an employee or a contractor, the employment agency contract provisions were intended to apply to cases where the employment agent provided individuals who would comprise, or who would be added to, the workforce of the client for the conduct of the client’s business: [63].

  • Where the services of the individual are provided through the intermediary, that is, the employment agent, to help the client conduct its business in the same way, or much the same way, as it would do through an employee, then the arrangement is within the intended scope of the section. But where the services, although provided for the client’s benefit, are not provided by the service provider working in the client’s business, the arrangement does not fall within the intended scope of the provision: [64]-[65].

His Honour determined that none of the payments made by UNSW Global to consultants who provided opinions or appeared as expert witnesses in the line of business called Expert Opinion Services, were taxable wages under the employment agents provisions. This was also the same in respect of work done by experts for clients in the domestic and international consulting project service lines. This is because in none of the cases of which specific evidence was given of particular projects, could it be said that the work of the experts whose services were procured by UNSW Global involved the carrying out by those experts of work in the client’s business, as distinct from for the client’s benefit: [68].

Orders

  1. The assessment issued by the Chief Commissioner dated 7 May 2013 should be revoked.

  2. The Chief Commissioner should pay the Taxpayer’s costs.

Link to decision

UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852

Last updated: 20 February 2017