Uber win pauses payroll tax $81m assessment under 'relevant contract' rules

A version of this article was published in the Thomson Reuters’ Weekly Tax Bulletin on 27 September 2024.

In a win for the taxpayer, the NSW Supreme Court recently handed down its decision in Uber Australia Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 1124. On 6 September 2024, Chief Justice Hammerschlag determined that Uber Australia Pty Ltd (Uber) was not liable for payroll tax on contracts with its drivers on the basis that the payments made under those contracts were not ‘taxable wages’.

Background

The Chief Commissioner of State Revenue (Chief Commissioner) issued Uber with payroll tax assessments totalling $81,515,923 for the 2015 to 2020 financial years. The Chief Commissioner also imposed interest at the premium rate on top of these assessments.

The assessments were based on amounts collected by Uber from customers who ordered rides through the Uber riders app (Riders) and later remitted to the drivers (Drivers). The Chief Commissioner argued that these amounts were ‘taxable wages’ paid or payable ‘for or in relation to the performance of work’ under a ‘relevant contract’ according to section 32 of the Payroll Tax Act 2007 (NSW) (Act).

Uber unsuccessfully objected against the assessments and took the case to the Supreme Court of New South Wales for a review. Uber made 3 main arguments:

1. The contracts with its Drivers were not ‘relevant contracts’ under section 32 of the Act because the Drivers were providing transportation services to the Riders, and not to Uber itself. 

2. The arrangements with its Drivers and other partners were excluded from the definition of a ‘relevant contract’ under one or more of the exclusions in section 32(2) of the Act. 

3. The amounts it paid to the Drivers were not paid ‘for or in relation to the performance of work’ under that contract, and therefore not considered wages under section 35(1) of the Act.

The Chief Commissioner conceded that some of the exclusions in section 32(2) of the Act would apply to Uber’s contracts. However, it was argued that some of the exclusions would not apply because the contracts allowed for additional services or work to be performed under that contract making the relevant exclusion non-applicable under section 32(2B) of the Act.

Decision of the Court

Ultimately, the Court ruled in favour of Uber.

The Court found that while the contracts between Uber and the Drivers were ‘relevant contracts’ for the purposes of section 32(1) of the Act, the amounts paid or payable by Uber to the drivers were not ‘for or in relation to the performance of work’ under those contracts.

As a result, the assessments issued to Uber were ordered to be revoked, along with the premium interest rate.

Chief Justice Hammerschlag made some important points about when payments may be treated as being made ‘for’ or ‘in relation to’ work under a contract. His Honour found Uber’s argument that payments ‘for’ work must take the character of remuneration was compelling. Additionally, for payments to be made ‘in relation to work’, he observed (at paragraph 170 of the judgement) that while the payment does not have to be in the form of remuneration, there must be ‘some form of reciprocity or ascertainable calibration between the money paid and the work done’.

While it was held that the Drivers were indeed performing work under their contracts with Uber, Chief Justice Hammerschlag found that there was ‘no element of reciprocity or calibration’ between the Driver and Uber.  He explained that the obligation to pay the Driver for a ride rests with the Rider at the end of the trip. Once Uber receives the payment through its app, Uber’s only responsibility is to pass the payment on to the Driver.  

This distinction was crucial in the case, as it helped determine that the payments Uber made to its Drivers were not taxable wages. His Honour found (at paragraph 181 of the judgement) that, ‘What the rider pays the driver is for or in relation to the work done by the driver. What Uber pays the driver is in relation to the payment Uber has received, not in relation to the work itself.’

The Court’s decision follows a number of recent payroll tax cases that have considered the ‘relevant contract’ provisions, including Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197 and Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40: see our previous articles - Payroll tax cuts announced in VIC and SA - relief for GPs and E Group Security affirms Employment Agency Contract test for Payroll Tax in UNSW Global

A different approach

Chief Justice Hammerschlag's view differs to the position taken in Loan Market Group Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 390 (Loan Market). Justice Richmond had a different interpretation of when payment is ‘for or in relation to the performance of work.’ On the phrase, Richmond J said (at paragraph 288) it requires ‘no more than a relationship, whether direct or indirect, between two subject matters’.

The broad interpretation, as seen in Loan Market, or a more limited one, as in Uber, indicates that the legal stance on when payments are made ‘for or in relation to the performance of work’ remains unclear, with the law open to different interpretations.

Payroll tax on “relevant contracts”

In New South Wales, payroll tax is imposed on taxable wages. Broadly, taxable wages are the payments an employer makes to an employee for the work they do.  

The ‘contractor’ provisions in Division 7 of the Act are designed to catch situations where parties try to disguise an employer-employee relationship as a principal-contractor relationship. Section 35 of the Act specifies that payments made under ‘relevant contracts’ are considered taxable wages.

The most common construction of a ‘relevant contract’ is where a person (defined as a ‘designated person’ in the Act) supplies another person with services ‘for or in relation to the performance of work’ as part of a business carried on by that designated person. In these cases, the designated person is treated as an employee of the person they are providing services to, and the payments made to them are treated as taxable wages.

There are some important exceptions to the ‘relevant contract’ rules. For example, a contract will not be considered a ‘relevant contract’ if:

1. The services provided by the contractor are ancillary to the supply of goods under the contract; or

2. The services being provided by the contractor are not ordinarily required by the person they are being provided; or

3. If the services are ordinarily required by the person they are being provided to, the services are provided by the contractor for less than 180 days in a financial year.

The terms of the contract between the principal and the contractor are important in these circumstances. Recent High Court decisions, such as CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 (CFMMEU) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek)) have emphasised that the terms of the agreement and the rights and obligations of the parties under those agreements should be given priority. The Courts have departed from the previous approach, which required an analysis of the relationship between the parties and how that relationship played out in practice, as seen in see Hollis v Vabu Pty Ltd [2001] HCA 44.

Interest

Chief Justice Hammerschlag found that since Uber had won in Court, no interest would be payable. However, his Honour held if the assessments against Uber had been upheld, the premium interest would have been waived for several reasons:

• The issues in the case were complex, and most of Uber’s arguments were reasonably arguable. 

• Uber had already paid all the principal tax that was not in dispute and had entered into a payment plan with the Chief Commissioner for the outstanding amounts.

• The Chief Commissioner had significantly changed his position since initially issuing the assessments, which indicated that the basis for the assessments were made was wrong.

• Uber had been cooperative with the Chief Commissioner, and there was no evidence of any wilful default on Uber’s part. 

Next steps

While this decision may be welcome news for businesses in New South Wales and those subject to the harmonised payroll tax provisions, it is important for practitioners to stay alert. The Chief Commissioner is likely to appeal the decision, which means the outcome could change.    

Businesses should get advice on how the ‘relevant contract’ provisions of the Act apply to their agreements. This decision, along with the High Court decisions in CFMMEU and Jamsek, highlights the importance of focusing on the terms of the agreement and the rights and obligations of the parties involved. It is crucial that agreements are properly drafted to reflect both the law and the intentions of the parties regarding their relationship.

If you have any specific questions or require help with your agreements and payroll tax investigation, please contact the writers.

Authors: Lisa To & Emma Swanson