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[2021] QCA 98
These proceedings concerned the construction of the provisions in Div 1B of the Payroll Tax Act 1971 relating to the payroll tax liability of “employment agents”. The Court of Appeal upheld the primary judge’s decision that Div 1B did not apply to a “common law employer” like the appellants. Furthermore, the Court confirmed that Div 1B did not displace the definition of “wages” contained in the Schedule to the Payroll Tax Act 1971 in relation to “employment agents” within the meaning of Div 1B. Thus, on a proper construction of the Payroll Tax Act 1971, the appellants were liable for payroll tax.
Morrison and Philippides JJA and Williams J
11 May 2021
The appellants provide services, using their own employees, to the Queensland Children’s Hospital and the Anglican Church Grammar School. [60]. These institutions, as charitable institutions, were themselves exempt from liability to pay payroll tax under s 14 Payroll Tax Act 1971 (“PTA”). The appellants were assessed by the respondent as liable for payroll tax in respect of their employees who worked for these institutions.
Division 1 of the PTA establishes the liability of employers to payroll tax in respect of, relevantly, wages paid to employees. [14]. Division 1B of the PTA extends that liability to circumstances where there is an “employment agency contract”, as defined in s 13G(1), through the operation of certain deeming provisions. [101]. Relevantly, s 13J(1) of the PTA treats payments made by an employment agent to the individual that they pay to perform services to the employment agent’s client as wages that are subject to payroll tax. However, by s 13J(2), s 13J(1) does not apply where the employment agent’s client is exempt from liability to payroll tax. [101]–[106].
The primary judge dismissed the appellant’s challenge to the respondent’s disallowance of objections made by the appellants to the assessment of payroll tax. [49]. Her Honour held that the appellants were not “employment agents” within the meaning of s 13G(1) of the PTA, as Div 1B was not intended to apply to “common law employers”. Furthermore, even if the appellants were “employment agents” within s 13G(1) of the PTA, they provided services through their own employees and so they were liable to pay payroll tax on wages paid to their employees in any event. [51].
Before the Court of Appeal, there were two central issues, although they were expressed somewhat differently by the appellants and the respondent. [53]–[59]. These were:
(1) whether Div 1B of the PTA applied to a “common law employer”; and
(2) if Div 1B did extend to the appellants, whether the definition of “wages” in the Schedule to the PTA applied to remuneration paid by an employment agent to an employee service provider, so as to make the employment agent liable to payroll tax? [3].
In the leading judgment, Williams J (Morrison and Philippides JJA agreeing) held that Div 1B does not apply to common law employers. Common law employers are not “employment agents” within the meaning of Div 1B of the PTA. [206]. Her Honour considered that Div 1B of the PTA operated to “bring arrangements for the provision of labour that would not otherwise be liable for payroll tax” within the liability for payroll tax. Div 1 “remains the main operative provision and is augmented by Division 1B”, which contains deeming provisions. [216]. Justice Williams explained that “[t]he deeming provisions in effect create a ‘legal fiction’ and would have no operation where that was actually the true fact”. That is, where the employment agent is in fact an employer that is liable for payroll tax. Common law employment relationships were outside the scope of Div 1B and were “not captured by the ‘legal fiction’”. [216].
As to the second issue, her Honour rejected the appellant’s submission that there was a conflict between Div 1B and Div 1 of the PTA. The only effect of s 13J(2) was to “cancel” the “legal fiction” established by s 13J(1). Accordingly, “it does not have an effect on the operation of the provisions in Division 1, and consequently has no impact on common law wages paid to an employee by an employer”. [217].
In a separate concurring judgment, Morrison JA also emphasised the use of deeming provisions in the PTA. [15]–[18]. In his Honour’s view, all that s 13J(2) did was “negate the deeming effect of s 13J(1)”; “it does not say that wages paid by an employment agent to its employees are to be taken not to be wages”. [38]–[45]. Nothing in Div 1B displaced the definition of “wages” in the Schedule to the PTA. [46].
In the result, the appeal was dismissed with costs. [221]–[223].
S Walpole of Counsel