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In this significant payroll tax case, the question before the Court was whether the tax appellants were entitled to treat, for payroll tax purposes, their common law employees as service providers under Div 1B Payroll Tax Act 1971. After extensively canvassing the legislative history and the positions in other States, Holmes CJ found the tax appellants were not.
24 June 2020
The tax appellants were contracted to provide services via their employees to two institutions, the Anglican Church Grammar School (“ACGS”) and the Children’s Health Queensland Hospital and Health Service (“CHQ”). . Significantly, each institution was exempt from paying payroll tax on its employees’ wages. . The appellants were assessed by the Commissioner on the basis that they were liable to pay the payroll tax of their employees who did work for ACGS and CHQ. . While the appellants objected to this assessment, the Commissioner upheld his assessment. The appellants then appealed the objection decision to the Supreme Court. .
On appeal, the appellants submitted that they were “employment agents” for the purposes of Div 1B Payroll Tax Act 1971 (“PTA”). . Section 13J(1) of the PTA would treat payments made by an employment agent to the individual they pay to perform services to the employment agent’s client as wages subject to payroll tax. . However, s 13J(2) provides that s 13J(1) does not apply where the employment agent’s client is exempt from payroll tax. . As both ACGS and CHQ are exempt from payroll tax, the appellants contended that s 13J(2) applied, such that they were not liable for payroll tax. .
After extensively canvassing the legislative history and positions in different States, Holmes CJ considered that the starting place for resolving this dispute lay in the text of the PTA. . On this point, her Honour found the common law concepts proposed by the Commissioner unhelpful in informing how the phrase “procure the services of another” in s 13G(1), which defines employment agency contracts, should be construed. . On its face, that phrase could encompass “where an employer enters a contract of employment with the employee for the specific purpose of having that employee provide services in and for the business of a client”. . However, it was less clear whether s 13G(1) extends to employees who were on the employer’s books prior to being engaged by the client. .
To determine this question, Holmes CJ looked to the broader context of Div 1B, the mischief Div 1B was intended to address and the purpose underlying the PTA as a whole. . Turning to the context of Div 1B, her Honour observed that if entities which were already employers fall within its ambit, then Div 1B deems to be employers entities which are already in fact employers. . That would be superfluous, especially given the clear legislative intent underlying Div 1B was to extend liability to payroll tax. .
The appellants submitted that much was to be made of the omission, from 2008, of a “specific exclusion in relation to the situation where the worker was employed by the employment agent” in the definition of “employment agent contract”. –, . However, Holmes CJ did not find the absence of this specific exclusion “particularly telling” as “employers who might be regarded as employment agents were already caught by the general provisions” of the PTA. .
Turning then to s 13J(2) itself, Holmes CJ noted that it only applies to the deeming provision in s 13J(1) – “it does not say that wages paid by an employment agent are taken not to be wages”. . To hold otherwise would be contrary to the legislative intent of expanding liability for payroll tax which underlies Div 1B. . Further, s 13J does not displace the definition of “wages” in the schedule to the PTA. . Instead, the definition in the schedule adds to the definition of wages amounts deemed to be wages under the PTA, including under s 13J. .
On this construction, “Div 1B was not intended to apply to common law employees, and the expression ‘procure services of another’ was correspondingly not intended to apply in the circumstance where an employer directs, or even engages, an employee to provide services for a client”. . Holmes CJ did not consider that “recourse to extrinsic material leads to any different view”. –. While New South Wales might have departed in 2017 from the position it had theretofore shared with Queensland, the absence of similar amendments in Queensland suggests that it did not intend to extend the employment agent provisions to common law employees. .
In the event, the taxation appeal was disallowed. .