Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue; International Hotel Services Pty Ltd v Chief Commissioner of State Revenue

The Employment Agency provisions

1. Section 37 ('Definitions') of the Payroll Tax Act, as in force at the relevant time, provided that: (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. [emphasis per the original]
2. Pursuant to ss 38 and 39 of the Payroll Tax Act, the employment agent under an employment agency contract is taken to be an employer, and a person who performs work for or in relation to which services are supplied to a client under an employment agency contract is taken to be an employee of the employment agent.
3. Section 40 ('Amounts taken to be wages') provided: (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.
4. Section 41 ('Liability provisions') provided: 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 provided 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.

The Relevant Contract provisions

1. The relevant contract provisions as in force at the relevant times provided as follows. Section 32 ('What is a relevant contract') of the Payroll Tax Act provided: (1) In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person: (a) supplies to another person services for or in relation to the performance of work, or (b) has supplied to the designated person the services of persons for or in relation to the performance of work, or (c) gives out goods to natural persons for work to be performed by those persons in respect of those goods and for re-supply of the goods to the designated person or, where the designated person is a member of a group, to another member of that group. (2) However, a relevant contract does not include a contract of service or a contract under which a person (the designated person) during a financial year in the course of a business carried on by the designated person […] (c) is supplied by a person (the contractor) with services for or in relation to the performance of work under a contract to which paragraphs (a) and (b) do not apply where the work to which the services relate is performed: (i) by two or more persons employed by, or who provide services for, the contractor in the course of a business earned on by the contractor, or (ii) where the contractor is a partnership of two or more natural persons, by one or more of the members of the partnership and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, or (iii) where the contractor is a natural person, by the contractor and one or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor, … (3) For the purposes of this section, an employment agency contract under which services are supplied by an employment agent, or a service provider is procured by an employment agent, is not a relevant contract.

The penalty tax and interest provisions

1. Where there is a tax default (as defined in s 3 of the Administration Act) s 27(1) of the Administration Act provides for the imposition of penalty tax at 25% of the amount of the tax unpaid, subject to the succeeding provisions of the Division.
2. Subsection 27(3)(a) of the Administration Act relevantly provides that the Chief Commissioner may waive penalty tax in respect of a tax default if the Chief Commissioner is satisfied that the taxpayer (or a person acting on its behalf) "took reasonable care to comply with the taxation law".
3. Section 29 of the Administration Act relevantly provides that : (1) The amount of penalty tax determined under section 27 is to be reduced by 20% if, after the Chief Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out and before it is completed, the taxpayer discloses to the Chief Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined. (2) This section does not apply in respect of information disclosed by a taxpayer if the taxpayer is registered under a taxation law [as defined in s 4 of the Administration Act] and (a) the tax default involved a failure to lodge a return as required under that taxation law, or (b) the tax default involved a failure to pay tax by the date required under that taxation law.
4. Section 33 of the Administration Act further provides that the Chief Commissioner may "in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount".
5. As to the remission of interest, s 25 of the Administration Act provides that: The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount.

Issues

1. The following issues (which for ease of reference I have numbered sequentially), summarised below, have been identified by the parties as arising for determination in the present proceedings (see plaintiffs' submissions at [100]-[104], with which statement of issues the Chief Commissioner agrees; together with an issue raised for the first time in the plaintiffs' supplementary submissions - namely, issue 6 below; T 15.20-16.38).

Bayton Assessments 1. Whether or to what extent the arrangements between Bayton, its clients and its contractors fell within the definition of an "employment agency contract" in s 37 of the Payroll Tax Act. 2. Whether or to what extent any of the arrangements between Bayton and its contractors fell within the definition of a "relevant contract" in s 32 of the Payroll Tax Act (which turns on whether or to what extent the exception in s 32(2)(c) applied to those arrangements). 3. Whether there should be remission/reduction of all or some interest and penalties imposed upon the plaintiff by the Bayton Assessments.

IHS Assessments 4. Whether or to what extent the arrangements between International Hotel Services, its clients and its contractors fell within the definition of an "employment agency contract" in s 37 of the Payroll Tax Act. 5. Whether there should be remission/reduction of all or some interest and penalties imposed upon the plaintiff by the IHS Assessments.

Bayton/IHS Assessments 6. What amounts are taken to be wages pursuant to s 40(1)(a) of the Payroll Tax Act? Do the amounts taken to be wages include the payments from Bayton and International Hotel Services to their subcontractors (as the Chief Commissioner contends), or only the wages paid by those subcontractors to their individual workers (as Bayton and International Hotel Services contend)?

Plaintiffs' evidence

1. Evidence was adduced as to the nature of each of the businesses of its respective clients. First, in respect of corporate and commercial clients, Mr Katsinas gave evidence deposing as to his knowledge of the nature and conduct of the businesses or activities of those clients; there was evidence of material obtained from the internet as to the nature and conduct of the businesses of clients in that category; and the contracts between Bayton and each client were tendered. Second, in respect of the aged care and health sector clients (and the one school, St Maroun's College), affidavits were read from senior personnel of three clients in this sector (Uniting NSW.ACT (Uniting), Baldwin Living and Thomas Holt); there was material obtained from the internet as to the nature and conduct of the businesses of clients in that category; and the contracts between Bayton and each client were tendered.
2. For its part, International Hotel Services adduced evidence of the nature of the businesses of its respective clients by way of: affidavits from senior personnel of two of its clients in this sector (Lancemore Group, Medusa Hotel); material obtained from the internet as to the nature and conduct of the businesses of those clients; and the tender of most of the contracts between International Hotel Services and its clients.
3. Bayton and International Hotel Services rely on evidence of the nature of the services they have provided to their clients, including: whether the cleaners wear the Bayton or International Hotel Services uniform when performing their work; the hours during which the services were provided; whether the cleaners were supervised by managers from Bayton or International Hotel Services (as appropriate) and whether interaction with staff of the client was encouraged.
4. The plaintiffs prepared a number of schedules attached to their submissions (some of which were superseded and/or updated) containing a summary of relevant information about respective clients (to which I will refer collectively as the Features Schedules). Mr Katsinas had exhibited to his first affidavit affirmed 7 August 2018 (Mr Katsinas' first affidavit) different schedules containing some of the same (and additional) information in relation to Bayton and International Hotel Services' clients respectively, the accuracy of which he confirmed in his third affidavit affirmed 23 October 2018 (Mr Katsinas' third affidavit) at 11 and [17], respectively. I note for completeness that some of the Chief Commissioner's submissions appear to refer to this schedule which differs somewhat from the schedules attached to the plaintiffs' submissions (and amendments thereto). I raise this only to minimise the scope for confusion. References to the Features Schedules in these reasons are intended to encompass the collective group of schedules ultimately relied upon by the plaintiffs.
5. That evidence may be summarised as follows.

Bayton's corporate and commercial clients

1. Bayton has apportioned amounts paid to its contractors by industry classification (noting that its accounting system does not record amounts paid to each contractor in respect of work done for each individual client). Bayton calculates that over the relevant years 56% of the total amount Bayton paid to its contractors was for work performed in relation to its corporate and commercial clients, with 44% attributable to work performed in relation to the aged care and health clients (plaintiffs' submissions at [49]).
2. Bayton has a diverse range of corporate and commercial clients, including: Alcoa Australia Rolled Products Pty Ltd (AARP), which operates aluminium rolling mills; Downer EDI Group (Downer EDI), an infrastructure company that designs, builds and sustains assets, infrastructure and facilities for customers in Australia and New Zealand; Fuji Xerox Australia Pty Ltd (Fuji), an Australian subsidiary of Fuji Xerox Co Ltd which supplies photocopiers; Merck, Sharpe and Dohme (Australia) Pty Ltd (MSD), a wholesaler and manufacturer of pharmaceutical products; the National Institute of Dramatic Art (NIDA), a national education and training institute for the performing arts; and the Sydney Swans (Swans), an Australian Rules Football Club. (A list of the corporate and commercial clients was attached to Bayton's written submissions but will not here be reproduced.)
3. Mr Katsinas has deposed that there is no uniformity about the cleaning contracts entered into with commercial and corporate clients and that there is often little negotiation possible about contractual terms although with smaller contracts Bayton may have its own contract (Mr Katsinas' first affidavit at [43]).
4. The cleaning contracts with corporate and commercial clients operate in effect to outsource to Bayton the regular cleaning of the clients' commercial premises. The cleaning contracts generally specify: the location of the premises; the type of services to be provided (such as removal of rubbish, vacuuming or mopping particular areas, wiping bench tops, and cleaning windows); the number of cleaning staff to be provided; the number of hours to be worked by those staff; the times of day they are to provide the services; and the price of the services. In addition to standard cleaning services, Bayton will, upon request, provide specialised cleaning services such as, for example, high window cleaning and it is noted that Bayton remains contractually liable to the client for the performance of the specialised work.
5. Bayton's evidence (some of which is inconsistent - see below) is that, in most cases, the cleaning services provided to Bayton's corporate and commercial clients were either provided to sites that are not open to the public (such as was the case with Fuji and MSD) or provided out of the client's business hours; and that cleaning services are generally performed so as to minimise interaction with, and interruption to, the employees and activities of each of the corporate and commercial clients (plaintiffs' submissions at [35]).
6. Further, Bayton's evidence is that the cleaning services are supervised by Bayton managers, who regularly attend the client sites during the cleaning works to supervise the work (though in cross-examination Mr Katsinas accepted that in many instances there was no Bayton supervisor on-site for most of the time (see T 68.37)). Generally speaking, the supervisors in relation to the performance of the client contracts tend to be Bayton employees, with the cleaning staff provided by the subcontractors. Depending on the size of the client's business, Bayton and International Hotel Services have one or more supervisors on-site when contract works are being performed by the subcontractors.
7. Bayton cleaning staff, including subcontractors, are said in general to wear Bayton uniforms which are said to be distinctive and easily identifiable (plaintiffs' submissions at [36]) (though again there was some unreliability as to the evidence - for example, Mr Katsinas accepted in cross-examination that with respect to Dan Properties Pty Ltd (Dan Properties), cleaners wore uniforms with that client's logo - T 68.28). Mr Katsinas says that he makes regular visits to the clients to verify compliance with this practice.
8. Mr Katsinas' evidence is that in no cases were the Bayton contractors encouraged or invited to utilise the client's staff facilities (such as staff canteens) (plaintiffs' submissions at [37]). (The Chief Commissioner takes issue with the general proposition as to use of facilities, at least facilities other than staff canteens - see below.)

Bayton's aged care and health sector clients

1. Bayton's clients in this industry sector encompass mainly retirement villages and aged care facilities (but, as noted earlier, include one school and one hospital).
2. Bayton's cleaning contracts with these clients provide for the regular cleaning of residential units/rooms and common areas at these facilities. The facilities are open 24 hours a day (see plaintiffs' submissions at [45]). As with its corporate and commercial clients, Bayton says that there is no standard contract for its aged care and health sector clients, again noting that there is limited opportunity to negotiate those contracts.
3. As with its corporate and commercial clients, all cleaners who performed cleaning services at aged care and health sector client sites are required to wear Bayton uniforms, compliance with that requirement being verified by Mr Katsinas on his regular visits to those client sites (plaintiffs' submissions at [42]).
4. It is said that, except in exceptional cases, there is no direct supervision of Bayton contractors by staff of the aged care and health sector clients; rather, that such supervision is performed by the employed Bayton supervisors when they are on-site (plaintiffs' submissions at [43]). Again, it is said that in no cases were the Bayton contractors encouraged to utilise the client's staff facilities (such as staff canteens) (plaintiffs' submissions at [44]).
5. While Bayton accepts that its aged care and health sector clients "technically" operate around the clock, it says that there are periods in the 24-hour cycle in which there are periods of low activity and that Bayton provides cleaning services in this sector in a manner which minimises the impact of the cleaning services carried out by its contractors on the residents of the aged care facilities (plaintiffs' submissions at [45]). (So, for example, it is said that in relation to the Residential Aged Care facilities operated by Uniting, most cleaning of common areas is carried out in the early hours of the morning or later in the evening, in a way which minimises the impact on residents and staff.)
6. In written submissions, Bayton contends that the primary or core business of its aged care clients is the provision of aged care, achieved through the provision of buildings and appropriate amenities and the provision of appropriately qualified nursing and care certified staff. As to the retirement village operators, it is submitted that their core business is that of real estate (see T 25.34) since there is evidence that the profit made by the operators of the various retirement villages derives from the sale and re-sale of interests in long term leases to incoming residents of the villages (and see the evidence of Mr Burkett, the Chief Executive Officer of Baldwin Living, affirmed 23 July 2018, especially at 8); not the provision of administrative services (which include the cleaning of the facilities) in relation to the operation of retirement villages on a highly regulated non-profit or cost recovery basis only, with no direct on-charging of the cost of cleaning to residents. Moreover, one of the aged care sector clients accepted, in relation to the Uniting Residential Aged Care facilities, that the concept was creating the overall environment in which the resident could live (T 98.36 (Hodkinson)).

International Hotel Services' clients

1. All of the clients of International Hotel Services operate hotels or the like. International Hotel Services provides cleaning services to each of these clients in accordance with the scope of works which forms part of that client's contract with International Hotel Services.
2. It is said that while the hotel sites tend to operate around the clock, there are periods in their business cycle where there are periods of lower activity and that International Hotel Services provides its cleaning services in a manner which minimises the impact of its cleaning services on hotel guests. It is said that hotel clients generally prefer for rooms to be cleaned when guests are not present or have already checked out (and before the next check in occurs) and that if the scope of works includes public areas then these are generally required to be cleaned after 11pm and before the early morning check out (see plaintiffs' submissions as [52]).
3. International Hotel Services says that, except in exceptional cases, there is no direct supervision of International Hotel Services' contractors by staff of the hotel; rather, supervision is performed by the employed International Hotel Services supervisors when they are on-site.
4. International Hotel Services says that, for certain of the hotel clients, the International Hotel Services contractors are required to wear the hotel's uniform, whereas for other of the clients the contractors do not wear the hotel's uniform but wear either an International Hotel Services uniform or a black unmarked uniform (plaintiffs' submissions at [54]).
5. Relevantly, International Hotel Services has calculated the amounts that were included in the IHS Assessments referable to amounts paid to its contractors for work in relation to each client of International Hotel Services, as generated under its accounting system.

Acquisition of new clients

1. The plaintiffs' evidence is that the process by which each of Bayton and International Hotel Services acquires a new client is, broadly, that: Bayton or International Hotel Services will ascertain by word of mouth or tele-marketing that a new client requires cleaning services; the management team will assess the scope of works required to fulfil the contract and determine the appropriate number of cleaners required to complete the work; the scope of work is (typically) negotiated with the client (involving site visits by management with the client personnel); the scope of work informs the tender that the business proposes to the client to secure the work, which is then costed by Mr Katsinas and his staff; and the relevant plaintiff calculates an overhead charge to cover the cost of its own staff and management team, materials and equipment.

Insurance

1. Each of Bayton and International Hotel Services is contractually liable to its clients for the performance of its work and the evidence is that, if issues regarding performance of obligations under a contract are raised by a client, Bayton or International Hotel Services (as the case may be) assumes primary responsibility for those issues and any liability (including any reimbursement claims). Each of the plaintiffs maintains a number of insurances in relation to its cleaning operations and accepts liability claims from its clients if there is a failure to meet the relevant standards (plaintiffs' submissions at [24]-[25]).

Accreditation

1. Each of Bayton and International Hotel Services has achieved (and is required under the cleaning contracts to maintain) accreditation to Health and Safety AS 4801, Quality Management ISO 9001 and Environment ISO 14001 (plaintiffs' submissions at [26]). Emphasis is placed by the plaintiffs on the provision by them of "added value" (over and above the provision of cleaning services per se) to their clients (largely by reference to their accreditation for such purposes and their ability to ensure clients meet relevant accreditation standards), for the proposition that each of the plaintiffs is not just a service provider (T 13.14) and for the proposition that the plaintiffs are not providing services of workers "in and for the conduct of client's business" but, rather, for the plaintiffs' own businesses (T 12.33ff).

Development of software and other programs/policies

1. Bayton has developed an extensive software program called "i-Bayton Live" to provide up to date client reporting on Bayton's performance and achievement under its client contracts (plaintiffs' submissions at [27]). Bayton has also developed an internal procedure, quality, environment, health and safety policy (QEHS Policy), which is implemented through the Bayton intranet and which includes (by way of example) that contractors are to wear a Bayton or International Hotel Services uniform where one has been issued (plaintiffs' submissions at [28]). Further, both plaintiffs conduct training and induction programs on site at the clients' business (more extensive programs for International Health Services clients than Bayton clients).

Contractors

1. Bayton and International Hotel Services have produced a list of contractors which were engaged during the relevant years. Their contractors are paid a standard rate, which is calculated by Mr Katsinas based on the relevant award plus allowances for such matters as overheads and profits.
2. Mr Katsinas' evidence is that each time a contractor signs a new contract with either Bayton or International Hotel Services, the following documents are obtained: a signed copy of a standard Bayton contract, and a statutory declaration concerning the contractor's liability to any payroll tax. It is noted that each of those statements contains a clear statement by the declarant that "[w]here the Subcontractor is required to be registered as an employer under the Payroll Tax 2007, the Subcontractor has paid all payroll tax due in respect of employees who performed work under the contract…". Included as part of the package of documentation provided by each contractor to Bayton are the various Certificates of Currency in relation to the workers' compensation or business insurance that is required to be taken out by each contractor. It is noted that the Certificates of Currency (certificates issued by an insurer to an employer) state, inter alia, the number of workers covered by the insurance (see s 163A of the Workers Compensation Act 1987 (NSW)) and that in many instances the Certificate of Currency discloses the number of workers in the contractor's business in respect of the annual period of currency.
3. In relation to the number of persons used by each contractor in the course of their work, Mr Katsinas has deposed that Bayton and International Hotel Services had, during the relevant years, a management policy of engaging contractors who had two or more persons working for the subcontractor entity (be it a sole trader, partnership or company); and that this policy was a management concern of his since his commencement as Chief Executive Officer. It is noted that it is stipulated in the QEHS Policy that before any new subcontractor is engaged there is to be a meeting with that subcontractor and Mr Katsinas. Mr Katsinas' evidence is that he met with new subcontractors engaged during the relevant years, and communicated the two-person requirement to each contractor. (It is submitted that instances where the two-person threshold was not met by a contractor were uncommon, and were regarded as errors, being more likely to occur with very small contractors doing small contracts or one-off jobs of low value - see Mr Katsinas' third affidavit at [14]-[15].)
4. There is evidence from various of the contractors engaged during the relevant years to the effect that: they engaged two or more persons in relation to work performed for Bayton; that the cleaners would always wear Bayton uniforms; and that the cleaners were supervised by Bayton managers.
5. Reliance is placed on the Certificates of Currency that were provided by each contractor engaged during the relevant years as evidencing where those contractors engaged two or more persons (see Schedule B to the plaintiffs' submissions). It is submitted that, over all of the relevant years, approximately 86% of the amounts paid by Bayton were paid to contractors who provided such business records or statements.

Evidence as to cleaning hours, uniforms and use of facilities

1. As adverted to above, there was some inconsistency in the evidence in relation to matters such as the hours of cleaning, wearing of uniforms and use of facilities (as between the affidavit evidence and the respective Features Schedules). In cross-examination, Mr Katsinas accepted that there were various inaccuracies in the features schedule exhibited to his first affidavit (though I accept that he was genuinely endeavouring to assist the Court in his evidence and he readily conceded where errors had been made; so I do not suggest that he was not a credible witness - simply, that his recollection and the information on which some of his evidence was based was unreliable in some respects).
2. In summary, the position in relation to these matters is as follows.

Corporate and commercial clients

1. As noted above, in Mr Katsinas' first affidavit at [44] deposed, in relation to the corporate and commercial clients, that: the contractors all wear a Bayton uniform; there is no direct supervision ("unless in an exceptional circumstance") of the Bayton contractors by staff of clients and, depending on the size of the client, Bayton employees will be on-site supervisors; and Bayton contractors attend the sites after the usual business hours of the clients. He deposed in his second affidavit also affirmed 7 August 2019 (Mr Katsinas' second affidavit) at [16] that, generally, cleaning services for corporate and commercial clients were provided outside of trading hours ("night cleaning") and, at [17]-[18], that in some instances, a corporate and commercial client would require one or more cleaners that conducted "day cleaning", who would be present during working hours (and that, generally, the role of the day cleaning was to be a "lighter clean of toilet and kitchen facilities" outside of usual meal times).
2. The position as disclosed in his affidavit (as adverted to above) was in some instances at odds with the Features Schedules that had been prepared and that he had affirmed as accurate to his knowledge, specifically in relation to the times when cleaning occurred and the duration of the provision of cleaning services. In that regard, the following illustrates some of the inconsistencies between the information provided in the Features Schedules (in particular, the updated version having been handed up to me on the second day of the hearing after Mr Katsinas' cross-examination) and Mr Katsinas' relevant affidavits. It does not purport to be an exhaustive list of those inconsistencies.

Best & Less

1. The Features Schedules state that cleaning occurred from 7.30am, which could extend into the opening of the store, but cleaners had to be off the shop floor by 9am (Schedule A1.1); whereas Mr Katsinas' second affidavit deposes that cleaning occurred as soon as the store was opened (at [24]). The affidavit of Adwar Shlemoun, the general manager of Brightstar Services Pty Limited (in liq) (Brightstar Services), affirmed 7 August 2018 says (at [9]) that cleaning of Best & Less stores typically was conducted between 7am to 9am, 7am to 9.30am and 7am to 10am. The cleaning equipment was provided by Bayton and Bayton's operation managers and supervisors would supervise the cleaning (Mr Shlemoun's affidavit at [11]-[12]).
2. Pressed as to whether Best & Less stores opened at 7am (T 81ff), Mr Katsinas in cross-examination said that "there were a few instances where in some of the regional stores, the store would allow for our cleaners to go onsite before they would actually open. But from a security point of view, they would prefer our staff to be there when their staff was there" (see T 82.14).

Downer EDI

1. According to the Features Schedules, cleaning occurred inside business hours (between 9am-12pm) (except at the Wagga Wagga site of Downer EDI when cleaning occurred between 7am and 2pm weekly) (Schedule A1.1).
2. At [35] of Mr Katsinas' second affidavit he deposes that: "[w]ith one exception, Bayton only ever provided night cleaning. At the Wagga Wagga site of Downer EDI, Bayton services were provided between 7am and 2pm, once per week. These services were a full clean".
3. When asked about this discrepancy in cross-examination, Mr Katsinas stated that he believed that the affidavit was more accurate than the schedule "when it comes to the times" (T 83.26).

Fuji

1. According to the Features Schedules, cleaning occurred generally from 6pm (but day cleaning also occurred at two sites) (Schedule A1.1).
2. However, Mr Katsinas' second affidavit at [40] summarises the cleaning services provided for the respective sites as follows: Mascot - two cleaners for day cleaning; three cleaners for night cleaning; Guildford - five hours per week; Artarmon - two shifts of five hours per week; Parramatta - two cleaners for night cleaning; Rosehill - one cleaner for day cleaning; two cleaners for night cleaning; and Macquarie Park - one cleaner for day cleaning; four cleaners for night cleaning. Mr Katsinas' second affidavit, therefore, suggests that day cleaning occurred at three sites (at least).

Sterling House 88 Pty Ltd

1. The Features Schedules state that it is unclear the hours when cleaning services were provided (Schedule A1.1). However, the cleaning occurred for 3.5 hours Monday to Friday, three hours on Saturday and for 0.5 hours on Sunday (Schedule A1.1).
2. However, Mr Katsinas' second affidavit deposes that cleaning occurred outside of trading hours (at [16]).

Aged Care and Health Sector clients

1. As noted, it was submitted that cleaning was carried out at times to minimise impacts on residents and staff such as the early hours of the morning or later in the evening (plaintiffs' submissions at [45]) with no direct on-charging of the cost of cleaning to residents (plaintiffs' submissions at [117]).
2. According to Mr Katsinas' first affidavit at [48]: the contractors all wear a Bayton uniform on-site at the aged care facilities; there is no direct supervision of the Bayton contractors by staff of clients (and, depending on the size of the client) Bayton employees will be the on-site supervisors; Bayton complies with a general client direction to minimise the impact of its cleaning services carried out by its contractors.
3. Uniting, Baldwin Living and MA Housing are examples of the services provided by Bayton to its aged care and health sector clients.

Uniting

1. According to the Features Schedules, it was unclear at what time cleaning services were provided for Uniting (Schedule A2.1). However, the affidavit of David Hodkinson, formerly Head of Procurement for Uniting, affirmed 22 August 2019 (at 15) states that most common area cleaning is carried out either in the early hours of a morning or later in the evening. Further, cleaning times for residents' rooms vary - "[s]ome residents are completely mobile and with those residents Bayton contractors are required to clean rooms when the room is unoccupied. Some residents are bed-bound and in these cases the cleaning function has to be performed while the resident is in the room" (affidavit of Mr Hodkinson at 15). The contractors wear Bayton uniforms (affidavit of Mr Hodkinson at [14]).
2. The affidavit of Carlos Isaacs, the Director of Layla Cleaning Services (Layla Cleaning) which provided services to Bayton in relation the services Bayton provided to Uniting, sworn 6 August 2018 deposes that: "Generally the hours of service would be a mixture depending on the work required. Sometimes the hours of work would be "full-time" and sometimes it would be a few hours a week" (affidavit of Mr Isaacs at [11]); the cleaning equipment was provided by Bayton (affidavit of Mr Isaacs at [13]); the work was supervised by Bayton's staff who would issue instructions (affidavit of Mr Isaacs at [14]); and the cleaners would always wear Bayton uniforms (affidavit of Mr Isaacs at [15]).
3. Generally, the cleaning services would be four hours daily, sometimes a few times a week (affidavit of Joel Donesa, Director of Feel 10 Years Younger Pty Ltd (Feel 10 Years Younger) which provided services for Bayton which included providing internal cleaning services for Uniting, affirmed 3 August 2018 at [11]). The cleaning was supervised by Bayton's staff who would issue instructions (affidavit of Mr Donesa at [13]); and the cleaners always wore Bayton uniforms (affidavit of Mr Donesa at [14]).

Baldwin Living

1. According to the Features Schedules, it is unclear as to the hours when cleaning was provided to Baldwin Living (Schedule A2.1). It is stated, however, that the number of hours worked were generally 1.5, three or 4.5 hours per day (Schedule A2.1).
2. Bayton staff wear Bayton uniforms; are not supervised or directed by Baldwin Living staff (unless there is a special circumstance); there is minimal interaction between residents and Bayton staff when engaged in cleaning "other than the necessary courtesies"; on a regular (generally monthly) basis the Bayton supervisor will check on the standards and liaise with Baldwin Living (affidavit of Paul Burkett, Chief Executive Officer of Baldwin Living, affirmed 23 July 2018 at [15]). Neither Mr Burkett nor other Baldwin staff deal with issues directly with the cleaners on-site ("unless of course there is a safety or other similar issue involved") (affidavit of Mr Burkett at [15]).

MA housing

1. Cleaning services are provided between Monday and Friday, 7.5 hours daily (affidavit of Oswaldo Wong, Director of ORW Property Services which provided for Bayton internal cleaning services for Bayton's clients including MA Housing, sworn 3 August 2018 at [12]). According to the Features Schedules, it is unclear as to the hours when cleaning was provided (Schedule A2.1). The number of hours worked, however, based on the tender, is 38 hours per week plus two extra shifts of three hours per week (Schedule A2.1). The work was supervised by Bayton's staff; Bayton uniforms were worn; and directions in respect of cleaning work came from Bayton's employees (Mr Wong's affidavit at [13]-[15]).

International Hotel Services clients

1. Cleaning is carried out at times to minimise impacts on hotel guests (plaintiffs' submissions at [52]); supervision is performed by the employed International Hotel Services supervisors when they are on-site (plaintiffs' submissions at [53]). For certain of the hotel clients, the contractors are required to wear the hotel's uniform, whereas for other of the clients, the contractors do not wear the hotel's uniform but wear either an International Hotel Services uniform or a black unmarked uniform (plaintiffs' submissions at [54]).
2. According to Mr Katsinas' first affidavit at [52]: the uniform requirements of hotel clients vary; the hotels generally prefer that the rooms are cleaned when guests are not present or have checked out and before the next check in occurs and public areas are cleaned after 11pm and before early morning check outs begin to occur.

Lancemore Group (i.e., Mansion House, Larmont Hotel, Alamanda Hotel)

1. By way of example, International Hotel Services contractors and staff when they attend on-site for the Lancemore Group, wear black clothes that easily distinguish them from other hotel staff who wear branded uniforms and hotel branded name tags (affidavit of Adrian Dent, the Group Director of Operations of the Lancemore Group, affirmed 1 August 2018 at [13]); cleaning of the rooms is generally carried out when the room is vacant (affidavit of Mr Dent at [14]); International Hotel Services has a supervisor on-site when cleaning is carried out (affidavit of Mr Dent at [15]); and there is little interface and interaction between Hotel staff and cleaners (affidavit of Mr Dent at [16]).
2. For the Lancemore Group, the Schedule of Hotel Clients handed up on 12 February 2019 states that: the cleaners wear black; it is unclear from the contractor the number of hours cleaning occurs for; and it is unclear the hours in which the cleaning services are provided (however, public areas are cleaned during 11pm to 5am).

Relevant principles

1. Before turning to the respective parties' submissions, it is convenient here to set out the relevant principles.

Employment agency provisions

1. The legislative background to the employment agency contract provisions of the predecessor to the Payroll Tax Act (the Payroll Tax Act 1971 (NSW) (Payroll Tax Act 1971)) was set out by White J, as his Honour then was, in Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 (Freelance Global) (at [143]-[148]) and extracted by me in HRC Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 820 (HRC Hotel Services) (at [62]). I do not here need to set out those passages again. His Honour identified the mischief to which s 37 of the Payroll Tax Act was directed, in UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852; (2016) 104 ATR 577 (UNSW Global) (at [30]; [41]) as being "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" referring to the situation where "a person procured the services of another to perform services in and for the purposes of its client's business where the person's status as employee or independent contractor might be unclear" (see UNSW Global at [39]-[42]).
2. The employment agency provisions have been considered in a number of first instance decisions since Freelance Global Ltd and UNSW Global: see JP Property Services Pty Limited v Chief Commissioner of State Revenue [2017] NSWSC 1391 (JP Property Services) (Kunc J) and HRC Hotel Services (and have been the subject of a number of other proceedings in this Court that have been heard but not yet determined).
3. Relevantly, the following propositions can be drawn from the cases decided to date in relation to those provisions: that the employment agency provisions were not intended to apply only to employment agents or labour hire firms as those expressions are said to be generally understood (Freelance Global at [150]); that s 37(1) should be construed as referring to a contract under which a person (the employment agent) procures the services of another person "in and for the conduct of the business of the employment agent's client" (UNSW Global at [62]); that the provisions apply to contracts where the services are provided by individuals "who would comprise, or would be added to the workforce of the client for the conduct of the client's business" (UNSW Global at [63]), to help the client "conduct its business in the same way, or much the same way, as it would do through an employee" (UNSW Global at [64]), where the service providers are "working in the client's business" (UNSW Global at [65]), and where the service providers "comprise, or are added to, the workforce of the client for the conduct of the client's business" (JP Property Services at [74]).
4. The words "in and for the conduct of the business" of the employment agent's client are not, as is evident from the extract of the section set out above at [21], contained in s 37(1) of the legislation. However, having had regard to the history behind the legislative provisions, as revealed by the extrinsic materials, in UNSW Global White J held that the operation of the statute should be confined by a purposive construction that his Honour considered was permitted by the text (see UNSW Global at [62]) to that effect, for the reason that giving the provisions their natural and ordinary or literal meaning (i.e., that the section simply requires that the services be provided "for" a client) would lead to an "absurd or unreasonable" result and would go far beyond the mischief intended to be addressed (UNSW Global at [46]; [49]).
5. In UNSW Global, his Honour considered that the employment agency contract provisions were not intended to apply to an entity unless the entity provided individuals "who would comprise, or who would be added to, the workforce of the client for the conduct of the client's business" (UNSW Global at [63]) or, in other words, persons who are in substance, working for the client in the same way as would an employee of the client (UNSW Global at [64]). His Honour concluded that where the services, although provided for the client's benefit, were not provided by the service provider working within the client's business, the employment agency provisions did not apply (UNSW Global at [65]).
6. Focus on whether services are provided "in and for" the conduct of the business of the employment agent's client has led to emphasis being placed in the plaintiffs' submissions (both in chief and in reply) in the present proceedings as to the nature of the business of their respective clients (and, in particular, the emphasis placed on the suggested distinction between the "core" business of a client and functions not seen as "core" or as central to the business of the client).
7. Reliance is placed by the plaintiffs on the observation made by Kunc J in JP Property Services that what is involved in making a determination as to whether services are provided "in and for" the conduct of an employment agent's client is a fact sensitive analysis of each of the service provided and the client's business and of the connection between the two (see JP Property Services at [75]); and, in particular, the statement by his Honour that such an analysis may include a consideration of whether the services are "ancillary" or "incidental" to the business of the client to whom the services are being provided (see JP Property Services at [79] and [86]).
8. In JP Property Services, critical to his Honour's conclusion that the employment agency provisions did not apply to the arrangements there in question was his Honour's determination that the cleaning services were ancillary or incidental to the business of the client in circumstances where the cleaning services were provided outside of normal trading hours of the relevant clients (namely, retail supermarkets) (see at [78]-[80], [92]).
9. In contrast, in HRC Hotel Services I did not approach the question by reference to whether the services provided were ancillary or incidental to the business (or "core" business) of the client. Rather, I approached the matter by considering whether the service providers (there, cleaners who provided services in relation to the cleaning of hotel rooms) were working "in and for" the conduct of the relevant client's business in the sense that they formed an addition to the workforce of a client of the employment agent. I considered that practical indicia that this was the case might include: whether the service providers wore the uniform of the client; whether and the extent to which the service providers were entitled to make use of the client's staff amenities; whether it would be objectively apparent to a customer of the client that there was any distinction between the service provider and an employee of the client; and the extent to which the service providers liaised with guests and other hotel staff in the services provided by way of the servicing and cleaning of hotel rooms (see HRC Hotel Services at [153]).
10. The plaintiffs in the present proceedings advance the proposition that what is relevant is the "leading, prevailing or motivating purpose" for the provision or procurement of the services in question (see T 12.46). They argue that the relevant test is whether the cleaning services provided to the respective clients were part of the "core business" of the clients (as opposed to being the core business of the plaintiffs) and they point to various matters in support of the conclusion that the cleaning services are ancillary and incidental to the clients' businesses (including: the hours when the cleaning services were provided; whether the cleaning staff wore the client's uniforms or used the client's staff facilities; and the manner in which the cleaners were supervised). They also emphasise the "added value" that it is said they provide (in terms of their accreditation and the provision of an "integrated package" - i.e., not simply the supply of cleaning services) and argue that there is an ongoing relevance of the contractor/employee distinction and what they refer to as the "results test" in considering how the service providers contribute to the conduct of the client's business. The plaintiffs maintain it is relevant to consider whether the services provided are "integral" to the clients' business (as opposed to being "merely necessary" to the clients' business) and argue that where a client has chosen to outsource an entire function (i.e., has made a conscious decision not to undertake the cleaning functions through the use of the clients' own staff) this indicates that the cleaning services are not core to the conduct of the client's business.
11. The Chief Commissioner, on the other hand, argues that JP Property Services should not be construed as laying down a general principle that incidental services provided outside of ordinary business hours cannot be provided in and for the conduct of a business (and that, to the extent that it suggests otherwise, at [79]-[80] and [92], the decision is clearly wrong and should not be followed). The Chief Commissioner (by reference, inter alia, to what was said in UNSW Global at [67]-[69]) emphasises the following as indicia that a person is working in and for the conduct of a client's business: that the functions are performed on-site and are necessary for the operation of the business (be they core or incidental functions, and whether during or outside normal business hours); that the functions are provided in the ordinary conduct of the client's business, with regularity or continuity (as opposed to being provided on an ad hoc basis or as "one-off" events); and that the work would otherwise have been done by the client's employees (arguing that the question is not whether the client would have done the work if it had not been outsourced to a given contractor but whether the client would have done the work if it had not been outsourced at all).
12. The Chief Commissioner accepts that, in determining whether an employment agency contract exists, it may be helpful to ask whether the person providing services is added to the workforce of the client or helps conduct the business in much the same way as an employee (referring to UNSW Global at [63]; JP Property Services at [72]; HRC Hotel Services at [153]) but submits that it would be a mistake to focus on whether the person providing services is an employee of the client or whether the indicia of an employer-employee relationship are present (cf plaintiffs' submissions at [136]), arguing that such indicia, if present, would negate the existence of an employment agency contract, because s 37(2) of the Payroll Tax Act provides that an employment agency contract does not include an employer-employee situation. Similarly, the Chief Commissioner submits that it is a mistake to focus on whether the person providing services is an independent contractor rather than an employee (cf the plaintiffs' submissions at [135]), noting that the employment agency provisions can equally apply to independent contractors (referring to UNSW Global at [63], JP Property Services at [51]).
13. On this issue, I have noted already that the construction given to s 37(1) in UNSW Global (at [62]) namely that "for" the client should be understood purposively as "in and for the conduct of the business of the employment agent's client" has been adopted and applied in both JP Property Services and HRC Hotel Services. It was not submitted by the parties that this construction was incorrect; or that it should not here be followed. There is nothing in s 37(1) (nor, as I read the decision in UNSW Global, is there anything in the construction there placed on that section) that in my opinion supports the further qualification (in effect contended for by the plaintiffs) that the relevant services should be for the client's "core" business or should be "integral" to the client's core business. Nor is there anything that I consider supports the notion that there is a distinction to be drawn between "core" services and "ancillary" or "incidental" services. I do not read the decision in JP Property Services as requiring such a distinction to be drawn (albeit that in that case the factor that appears to have been critical in his Honour's determination was as to whether the services were provided during or outside "normal" trading hours when the supermarkets were open to the public) but, if it does, then with respect I would not follow it.
14. Rather, I consider that in determining whether the employment agency provisions apply it is necessary to focus on the manner in which the services are provided for the client in order to form a view as to whether those services are being provided "in and for" the conduct of the client's business in the sense considered in UNSW Global. That involves considering the extent to which the indicia identified as relevant by the Chief Commissioner as well as the matters to which the plaintiffs point (such as the degree of independence of the service providers and the significance of the provision of an "integrated package" to the client). I remain of the view that the "results" test (for which the plaintiff advocated in HRC Hotel Services) is not helpful in this context in that the fact that a contract might provide for the provision of a particular outcome or result says little as to whether the provision of services for the purpose of achieving or producing that outcome or result is "in and for the conduct" of the relevant client's business.

The Relevant Contract provisions - "two-person" exemption

1. The issue raised in the present case in relation to the relevant contract provision is as to whether the exemption in s 32(2)(c) applies (i.e., whether the services are provided by two or more persons employed by, or who provide services for, the contractor in the course of a business carried on by the contractor) (commonly referred to as the "two-person" exemption).
2. It is relevant here to note that the plaintiffs place emphasis in this context on the consideration given by the Court of Appeal (Meagher JA, Payne JA and Sackville AJA) to the two-person exemption in B&L Linings v Chief Commissioner of State Revenue (2008) 74 NSWLR 481; [2008] NSWCA 187 (B&L Appeal) and, in particular, the acceptance by the Court of Appeal (at [87]) of the conclusion by the Appeal Panel of the NSW Administrative Decisions Tribunal (in B&L Linings v Chief Commission of State Revenue (No 3) [2007] NSWADTAP 32 (B&L Appeal Panel) at [107]), that it is not necessary to prove that every single payment made to a contractor was for services provided by two-persons. What Allsop P (as his Honour then was) said (at [87] of the B&L Appeal), Giles and Basten JJA agreeing, was that: … From a practical point of view, the provision creating the two-person exemption would be unworkable if a taxpayer seeking to invoke it with respect to a series of payments made to one or more independent contractors was compelled to adduce documentary and/or oral evidence establishing, with regard to each individual payment, both (a) the engagement of one or more identified 'second persons' by the contractor in order to carry out the task that the contractor had agreed to perform for the taxpayer and (b) actual participation in this task by the second person or persons. A case like the present, involving numerous small-scale tasks that were performed by numerous contractors and (allegedly) numerous 'second persons', illustrates clearly why such a requirement would impose an undue burden on taxpayers and, indeed, on the Commissioner. The Commissioner would be bound to scrutinize detailed evidence of this nature before deciding whether any claim for the exemption should be accepted.
3. The plaintiffs here rely on this decision for the proposition that it is sufficient for them to prove that the majority of the arrangements in question (a figure they put at around 86%) fall within the "two-person" exemption contained in s 32(2)(c).
4. While the Chief Commissioner acknowledges that, in B&L Appeal, the Court of Appeal accepted that the "two-person" exemption may be established by evidence of general practice and that evidence need not be adduced in respect of each individual payment made to subcontractors (and the Chief Commissioner accepts that a practical approach which does not put the parties to unreasonable evidential burdens should be undertaken), it is nevertheless submitted that Bayton must still discharge its onus of proving the existence of its evidence of general practice in this regard. Insofar as Bayton has submitted that "any probative evidence will be enough to weigh the balance [of probabilities] in [Bayton's] favour if there is no contrary evidence" (see plaintiffs' submissions at 99), the Chief Commissioner argues that this is not supported by the authorities. It is submitted that Allied Pastoral establishes, to the contrary, that in taxation reviews the ordinary civil standard of proof applies (at 8F, 14E); that Jones v Dunkel inferences (Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8) can be drawn (at 13C-D); and that some evidence may require corroboration, particularly where "objective facts cast doubts upon the mere sayso of the taxpayer" (at 10F) (as the Chief Commissioner argues is the case here).

Deemed wages

1. In HRC Hotel Services (at [181]), I considered the issue as to deemed wages that was raised again in the present case (see in the plaintiffs' supplementary submissions).
2. The dispute in essence was as to whether the deemed wages included the payments from the employment agent to its subcontractors (as the Chief Commissioner here contends) or only the wages paid by those subcontractors to individual workers (i.e., less any profit element retained by the subcontractors) (as the plaintiffs there contended).
3. I considered it significant that the construction there advanced by the plaintiffs gave no work for the words "in relation to" to do in s 40(1)(a) of the Payroll Tax Act, noting that those words are recognised to be of "considerable breadth". I concluded that: … those words expand the reach of the deemed wages under s 40(1)(a) beyond the actual amounts paid to the additional housekeeping staff. Were it otherwise, the section could simply have referred to wages or amounts paid to the service provider without the inclusion of the words "in relation to".
4. The plaintiffs in the present case contend for the opposite conclusion (see the submissions advanced in that regard below).

Penalty tax and interest

1. The concept of reasonable care was explained in Qualweld Australia Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 227; (2014) 100 ATR 339 (Qualweld) at [95] (quoting RVO Enterprises Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 64; (2004) 55 ATR 445 (RVO Enterprises) at [23]), and cited in HRC Hotel Services at [184]: In each case, it is essentially a question of fact whether the taxpayer has taken reasonable care in attending to its tax obligations. Factors that would indicate that a taxpayer took reasonable care include reasonable attempts to comply with the tax law, reasonable professional and other enquiries to ensure compliance, reliance on professional advice or on official published views of the tax law. Factors which indicate that a taxpayer failed to take reasonable care include oversight or forgetfulness to meet with obligations, failure to maintain adequate records and procedures to prevent errors from occurring, not seeking professional advice and errors in complying with the law.
2. In relation to penalty tax, reliance is placed by the plaintiffs on the decision of Commissioner of State Revenue (Vic) v Snowy Hydro Ltd [2012] VSCA 145; (2012) 43 VR 109 (Snowy Hydro) where the Court of Appeal in Victoria held (at [171]) that the obtaining of legal advice by the taxpayer was sufficient to demonstrate that the taxpayer took "reasonable care" under the analogous Victorian penalty tax provisions, notwithstanding that the relevant advice was not disclosed to the Court.
3. That decision was considered in Winston-Smith v Chief Commissioner of State Revenue [2018] NSWSC 773 (Winston-Smith) by Emmett AJA and (at [84]) his Honour held, in the context of an application for review of a decision declining to grant an exemption from liability for duty charged under Ch 4 of the Duties Act 1997 (NSW) and for the remission of interest in respect of the duty so charged, that the taxpayer's decision not to produce certain advice meant that no inference could be drawn as to whether the taxpayer was acting in good faith in applying that advice. An appeal from that decision was recently dismissed (Winston-Smith v Chief Commissioner of State Revenue [2019] NSWCA 75), though the question as to "reasonable care" was not raised on the appeal.
4. In Thomas v Commissioner of Taxation [2015] FCA 968, the question of "reasonable care" for the purposes of the penalty tax provisions in income tax law was considered by Greenwood J in the Federal Court of Australia. There, the taxpayer's position depended on the outcome of trust law proceedings that were being conducted in the Queensland Supreme Court, which affected the characterisation of certain franking credits. The taxpayer and the taxpayer's adviser had taken a position which was dependent upon a certain conception of franking credits and the way in which they might be treated, which position was ultimately found to be wrong. His Honour (at [585]) concluded that the taxpayer had acted reasonably and his position was also reasonably arguable, having regard to: the views that the tax adviser had formed; the position that was ultimately adopted by the primary judge in the Queensland Supreme Court proceedings (which was consistent with those views formed at the time by them); the difficulty each of the parties had had in coming to grips with their respective contentions; and the statements in the relevant taxation ruling (which his Honour considered were are at the least confusing and said had not surprisingly been withdrawn).

Bayton Assessments

1. Bayton submits that none of the arrangements between Bayton, its clients and its contractors fell within the definition of an "employment agency contract" in s 37 of the Payroll Tax Act and, accordingly, that the Bayton Assessments should be reduced by the s 40 amount for each of the relevant years for the following reasons.
2. First, it says that, in respect of the corporate and commercial clients, the businesses and activities carried on by those clients were "wholly distinct from cleaning services provided by the contractor service providers". By way of example, it is submitted that the contract cleaners who cleaned the offices of Fuji (or who cleaned the head office of MSD "generally" after hours) were not performing anything other than a function that was ancillary or incidental to the business of Fuji (or MSD). It is submitted that, while the cleaning services were provided for the benefit of those clients, it was not the case that the cleaners were added to the workforce of the client for the conduct of the client's business and therefore were not procured "in and for" the conduct of the business in the sense set out in UNSW Global. It is submitted that this can be said equally of "each and every" corporate and commercial client summarised in the Features Schedules.
3. Second, that the cleaning services were provided "out of hours" (night cleaning) and/or to businesses which were not in any event open to the public.
4. Third, that: cleaners were clearly identified as relating to the Bayton business by virtue of the fact that they wore Bayton uniforms; the cleaners were not encouraged or invited to access staff amenities and facilities, such as staff canteens; and the cleaners were supervised by the Bayton managers (and not the clients of Bayton) who regularly attended the client site during the cleaning works to supervise the work.
5. Fourth, that it would be "objectively apparent" to a customer of the client that there was a clear distinction between the service provider cleaner and an employee of the client (cf HRC Hotel Services at [153]).
6. It is submitted that the same analysis applies in respect of the aged care and health sector clients, except that: the core business of clients in that sector is the provision of aged care, achieved through the provision of buildings and appropriate amenities and the provision of appropriately qualified nursing and care certified staff, and the aged care and health sector clients technically operate around the clock with periods of low activity in the 24-hour cycle, with Bayton providing its cleaning services in a manner which minimises the impact of those services on the residents of the aged care facilities. It is again emphasised in this context that the cleaners wore Bayton uniforms and it is submitted that it would be objectively apparent to a customer of an aged care and health sector client that there was a distinction between the service provider cleaner and an employee of the client (cf HRC Hotel Services at [153]).
7. In relation to the retirement village operator clients, Bayton argues that there are additional reasons that support the conclusion that cleaning services are incidental and ancillary to the business of a NSW State regulated retirement village provider, noting that: retirement village operators provide administrative services (which include the cleaning of the facilities) in relation to the operation of retirement villages on an effectively non-profit basis, with no direct on-charging of the cost of cleaning to resident; the profit element is derived from the sale and re-sale of long-term leases to incoming tenants of the village; and recurrent cleaning has little to do with the sale and re-sale of long-term leases (being at its highest incidental and ancillary to that activity). Further, it is noted that, in relation to Commonwealth regulated aged care providers, charges are imposed on a highly regulated basis, pursuant to a funding formula and, again, there is no direct on-charging of the cost of cleaning to residents.
8. It is submitted that it should be inferred, from the evidence of Mr Katsinas, together with the evidence of Mr Hodkinson (formerly Head of Procurement for Uniting) and Mr Burkett (Chief Executive Officer of Baldwin Living), that the nature of the businesses conducted by each of the 11 aged care and health sector clients is broadly as described in the affidavits of Mr Hodkinson, Mr Burkett and Mr Katsinas (other than in respect of St Maroun's College which is a secondary school, MA Housing which provides care for needy persons as well as aged care and Lifehouse at RPA which is a specialist facility within a hospital) (reliance being placed on the approach to onus set out in B&L Appeal Panel and taken in JP Property Services at [25]-[27]).
9. While Bayton primarily contends that none of the arrangements between Bayton, its clients and its contractors fell within the definition of an "employment agency contract" in s 37 of the Act, it is contended in the alternative that the arrangements that relate to work done in relation to: either the corporate and commercial clients, or, in the alternative, the aged care and health clients, do not fall within the definition of an "employment agency contract", or further in the alternative, on some other basis.
10. In that regard Bayton refers to the analysis of the apportionment of the amounts that were paid to its contractors for work in relation to the corporate and commercial clients on the one hand, and the aged care and health clients on the other, or ask that the matter be remitted to the Chief Commissioner to be determined after consideration of the Court's reasons and the provision of further material from Bayton.
11. In the event that the employment agency provisions do not apply, then the critical question according to the plaintiffs which arises in determining whether or not the arrangements between Bayton and its contractors fell within the definition of a "relevant contract" in s 32 of the Payroll Tax Act is whether the "two-person" exemption in s 32(2)(c) applied to those arrangements. Bayton submits that it has discharged its onus of proving that the exception in s 32(2)(c) does apply, pointing to Mr Katsinas' evidence as to Bayton's management policy (that being a management concern of his on which he insisted) of only engaging contractors who had two or more persons working for the subcontractor entity (be it a sole trader, partnership or company); and to the large numbers of contractors and individual payments made to those contractors during the five relevant years.

IHS Assessments

1. The same analysis and conclusions as set out in respect of the employment agency provisions are relied upon in respect of International Hotel Services, except that the plaintiffs here emphasise: that the core business of clients in the hotel sector is the provision of accommodation to guests; that services were provided when the hotels were open (in a manner which minimised the impact of the cleaning services on hotel guests); and that, in some instances, the International Hotel Services contractors were required to wear the uniform of International Hotel Services' client.
2. Accordingly, International Hotel Services submits that none of the arrangements between International Hotel Services, its clients and its contractors fell within the definition of an "employment agency contract" in s 37 of the Payroll Tax Act, and accordingly, that the IHS Assessments should be reduced by the s 40 amount for each of the relevant years.
3. In the alternative, International Hotel Services contends that the amounts paid to the contractors for work done in relation to International Hotel Services clients that did not require the contractors to wear the uniform of their hotel did not fall within the definition of an "employment agency contract" in s 37 of the Payroll Tax Act, for the reason that it would be objectively apparent to a customer of the client that there was a clear distinction between the service provider and an employee of the client. During the relevant years those clients were: Mawland Quarantine Station; Urban Street St Leonards Sydney; Four Seasons Public Areas; Nepean Shores; Medusa; York Hotel; Regents Court; Echoes Boutique Hotel; Azure Apartments; Citigate Central; Pullman Sydney Hyde Park; Watson's Bay Boutique Hotel; The Tank Stream; Old Clare; 57 Hotel; Comfort Inn North Shore, and St Marks Lodge (plaintiffs' submissions at [132]).
4. It is submitted that, in relation to International Hotel Services, the Court ought infer from the evidence of Mr Katsinas, together with that of Mr Dent (Group Director of Operations of Lancemore Group), that the nature of the businesses conducted by each of the International Hotel Services' hotel clients is broadly as described in the relevant affidavits (reliance again being placed on the general approach to onus in that regard in B&L Appeal Panel and in JP Property Services at [25]-[27]).

The relevant 'mischief' as identified in UNSW Global

1. In relation to both Bayton and International Hotel Services, the plaintiffs argue in addition that the arrangements do not reflect the mischief which the employment agency provisions are designed to combat (UNSW Global at [39]-[41]); rather, it is said, the contractors are operating their own independent businesses, and would not (without the interposition of Bayton or International Hotel Services) have been characterised as employees of the clients (reference here being made to the factors considered by the High Court in Hollis v Vabu Pty Ltd (2001) 207 CLR 21; [2001] HCA 44 to point towards the couriers being employees, including that: the couriers could not be stated as operating their own enterprise (at [45]); the couriers "were presented to the public to those using the courier service as emanations of Vabu" (at [50]); and the degree of control over the couriers (at [57]-[58])).
2. It is submitted that Bayton and International Hotel Services provide more than just the cleaners; rather, they provide a number of value added services and products that demonstrate that their respective clients are receiving a packaged product. In this regard, reference is made to the following features of the service offered by them (and are relied upon as refuting the submission by the Chief Commissioner that cleaning is not a highly skilled task requiring outside expertise - plaintiffs' submissions in reply at [24]): accreditation, which is a necessary pre-condition to working in the health and aged care sectors; the provision of uniforms for cleaners where they do not use the client uniforms; in many instances (mostly for Bayton but some for International Hotel Services), the provision of cleaning equipment; in many instances (mostly for Bayton but some for International Hotel Services), the provision of consumables, such as cleaning products; scheduling of the cleaners; development of and access to the iBayton-Live system; and the provision of supervision and feedback on cleaners.
3. It is said that the added value that Bayton and International Hotel Services provide is offered as part of the overall cleaning package for which clients are not separately charged; and, thus, that Bayton and International Hotel Services are providing an "inseparable or indivisible package of services and benefits to their clients", not merely the cleaners' labour. It is said that that labour "is inseparable from the packaged, synthesised offering that is provided to the client".
4. The plaintiffs argue that the fact that both Bayton and International Hotel Services provide packaged benefits to the client, which includes the services of the cleaners but also added value, provides further support for the submission that the cleaning services are not "in and for the conduct" of the businesses of the clients for the following three reasons.
5. First, that when considering the counter-factual (i.e., what the client would do if it did not hire Bayton or International Hotel Services), it is a "commercial reality" that commercial competitors exist with comparable offerings to Bayton and International Hotel Services. It is submitted that in this instance, the evidence suggests that the clients would not merely hire their own employees to complete the cleaning (as they would lose the value that is added by Bayton and International Hotel Services); rather, the clients would find another outside entity who would be an independent contractor. It is submitted that this is not "a simple case of merely hiring human beings to replace the integrated cleaning services provided by Bayton and [International Hotel Services]", as that would "leave out the value added component, which is central to a smooth and efficient cleaning function".
6. Second, insofar as White J in UNSW Global (at [62]) indicated that it was necessary to distinguish services "in and for the conduct" of a business from those that merely benefit a client's business, it is submitted that Bayton and International Hotel Services provide a packaged offering to their clients; and that, without Bayton and International Hotel Services, the clients could not simply hire the employees to receive the same benefits. In this regard it is said that the clients do not have the infrastructure and it is not part of the conduct of their respective businesses to undertake the additional tasks that are undertaken by Bayton and International Hotel Services. Thus, the plaintiffs argue that even though it may be accepted that the cleaning services which are provided (with the added value of Bayton and International Hotel Services) are of benefit to the clients' businesses, those services are not provided "in and for the conduct" of those businesses.
7. Third, it is submitted that the packaged offering provided by Bayton and International Hotel Services is not part of the conduct of a client's business. The plaintiffs say that while it may be necessary for the clients to receive the cleaning services in order to conduct their respective businesses; those cleaning services are not part of (and not "in and for the conduct" of) those businesses. It is submitted that this distinction reflects the analysis of the High Court in Commissioner of Taxation of the Commonwealth of Australia v Murry (1998) 193 CLR 605; [1998] HCA 42 (where, although the taxi licence allowed "its holder to conduct a profitable business" it was not itself a source of goodwill). Similarly, here, it is said that, while the benefit arising from the packaged offering that is provided by Bayton and International Hotel Services (and which includes the services of the cleaners) may be a necessary condition for the clients to conduct their respective businesses, those services form no part of the actual conduct those businesses. In other words, it is said that the cleaning services benefit the businesses, but "do not contribute to their conduct in the requisite sense". In that regard, it is said that, while it may be necessary for, say, a manufacturer of photocopiers, or a drama school, to have clean workspaces, it cannot be said that the cleaning of those workspaces forms part of the "conduct" of those businesses (plaintiffs' submissions in reply at [30]).

Deemed wages

1. Insofar as I considered in HRC Hotel Services that, if s 40 taxed only those amounts that were paid to the service provided (there, the housekeepers), then there would be no work for the words "in relation to" to do, the plaintiffs argue that those words do indeed have work to do on their construction of s 40 and maintain that only payments for the contract worker are captured by the section.
2. The plaintiffs argue that the words "in relation to" are intended to ensure that amounts paid to "proxies" of the contract worker are captured. It is said that they are an integrity measure, to ensure that payments, which are for all purposes payment in respect of the provision of services are captured, irrespective of whether they are actually paid to the contract worker.
3. The plaintiffs submit that the relevant task is to identify what the amounts "paid or payable" must be "in relation to"; and that, having regard to the text of s 40, to be taxed those amounts must be "in respect of" the provision of services in connection with the employment agency contract. It is submitted that the words "in respect of" are "limiting words" (i.e., that they limit the scope of the words "in relation to") and that this provides an operation to s 40 that is consistent with the concept of wages throughout the Payroll Tax Act, namely, that they are amounts paid to employees even though the tax liability falls on an employer.
4. Reference is made to s 39, which provides that for the purposes of the Payroll Tax Act, the "person who performs work" for or in relation to which services are supplied to the client under an employment agent is "taken to be an employee of the employment agent". It is submitted that the person identified in s 39 must be a natural person (i.e., "an actual human being") since he or she is deemed to be an "employee" (in other words, "the actual worker").
5. The plaintiffs argue that the preferred construction of s 40, in light of s 37 read together with s 39, is that, for the purposes of s 40, the amounts that are "in relation to" are only those amounts that are "in respect of" the "provision of services" in connection with the employment agency contract: i.e., those amounts that are paid for the natural person who provides the labour connection with the "employment agency contract" in s 37, and who is, therefore, the deemed employee of the employment agent under s 39.
6. It is submitted that that construction also accords with s 40(b), which taxes amounts "that would be a fringe benefit if provided to a person in the capacity of an employee" (a natural person), and s 40(c) which taxes amounts which "would be a superannuation contribution if made in relation to a person in the capacity of an employee" (a natural person). In other words it is said that the scope of ss 40(b) and (c) is limited to amounts paid in respect of labour.
7. The plaintiffs argue that, by corollary, it would be inconsistent with the deeming in s 39 and the scope of ss 40(b) and (c) if amounts that were paid in connection with an employment agency contract that were not in respect of such labour were taxed (including, for example, amounts for materials, or equally, amounts that represented a profit component for the employment agent derived from the conduct of the employment agent's business).
8. It is said that the preferred construction still leaves the words "in relation to" with "work to do": specifically, that those words will operate to capture amounts that are not "paid or payable" to the service provider, but are nevertheless in respect of the labour of the deemed employee, for example payments by direction to a third party, or other forms of disguised payments or proxy payments.

Relevant Contract provisions

1. As to the relevant contract provisions, the plaintiffs emphasise the evidence adduced by them that they contend establishes that "in the vast majority of cases" the contracts between the subcontractors and the plaintiffs require the provision of at least two persons to complete (pointing to the scope of works taken from each contract, and the evidence summarised at Schedule B1). Reference is also made to the fifth affidavit of Mr Katsinas affirmed 7 February 2019 (Mr Katsinas' fifth affidavit), which identifies the practice of the plaintiffs in engaging subcontractors due to the nature of the plaintiffs' clients and the plaintiffs' large scale undertaking.
2. It is further submitted that the subcontractors' Certificates of Currency identify that, in the vast majority of cases, the subcontractors provide their services by way of two or more persons. The plaintiffs say that the Certificates of Currency identify the industry that they service, so that there could be no suggestion that the workers are other than cleaners or staff associated with cleaners.

Penalty tax and interest

1. The plaintiffs submit that each of Bayton and International Hotel Services took "reasonable care" to comply with the taxation law, and that the penalty tax assessed in respect of each of the Bayton Assessments and the IHS Assessments ought be waived under s 27(3)(a) of the Administration Act for the following reasons.
2. First, it is said that, prior to the decision in Freelance Global in February 2014, it had not been held by any Court that the employment agency provisions under the Payroll Tax Act (or the Payroll Tax Act 1971) were not intended to apply only to employment agents or labour hire firms as those expressions are generally understood or that such firms were not the only intended focus of the provisions; and that, at no time prior to the Freelance Global decision, did the Chief Commissioner issue a public ruling or other guidance to taxpayers to the effect that the employment agency provisions were not intended to apply only to employment agents or labour hire firms as those expressions are said to be generally understood.
3. It is submitted that, in those circumstances, it can hardly be said that Bayton and International Hotel Services, in not regarding the employment agency provisions as applying to the respective cleaning businesses, were not taking reasonable care to comply with the taxation law. It is further submitted that there is no public material or material relating to Bayton and International Hotel Services which shows that the Chief Commissioner took a different view of the employment agency provisions to that which was taken by the plaintiffs prior to February 2014.
4. Second, the plaintiffs point to the practice of each of Bayton and International Hotel Services during the relevant years, each time a contractor signed a new contract with either Bayton or International Hotel Services, to obtain a statutory declaration from the contractor concerning the contractor's liability to any payroll tax. It is accepted that those statements are made for other purposes (reference being made in this context to Sch 2 Pt 5 of the Payroll Tax Act), but it is submitted that the fact that each of Bayton and International Hotel Services required a clear statement from each contractor to the effect that the contractor had paid all payroll tax due in respect of employees who performed work under the contract is a matter that supports a conclusion that Bayton and International Hotel Services took reasonable care to comply with the Payroll Tax Act.
5. Third, it is noted that, in relation to the relevant contractor provisions, Bayton and International Hotel Services had, during the relevant years, the management policy referred to earlier and it is submitted that in those circumstances it ought be concluded that Bayton took reasonable care to comply with the Payroll Tax Act in relation to satisfying the exemption in s 32(2)(c) of that Act. (It is further said that this conclusion is reinforced by the fact that the Bayton Assessments were not made on the basis of the relevant contractor provisions.)
6. Fourth, it is said that each of Bayton and International Hotel Services retained M&P prior to the current audit and, subsequently, retained M&P and Mr Rydon to advise in relation to the Chief Commissioner's investigation and in relation to the Payroll Tax Act. In those circumstances, based on Snowy Hydro, it is submitted that the obtaining of such advice is a matter that supports a conclusion that each of Bayton and International Hotel Services took "reasonable care" to comply with the Payroll Tax Act. Relevantly, it is said that, unlike the position in Winston-Smith, neither Bayton nor International Hotel Services relies on a particular piece of advice but, rather, the fact that experienced advisors were retained.
7. Finally, it is noted that in each audit report the Chief Commissioner acknowledges that Mr Palumbo was co-operative, provided all the requested documents on time, and that Mr Palumbo, Mr Jenkins and Mr Alan attended meetings with the Chief Commissioner to provide the Chief Commissioner with an understanding of the business operations.
8. The plaintiffs argue that the conduct and circumstances in the present case can be distinguished from those in HRC Hotel Services where the finding was that the taxpayer had not taken the requisite "reasonable care" (at [189]). First, they point out that they are not only seeking remission in whole of the assessed penalty tax on the grounds of "reasonable care" pursuant to s 27(3)(a) of the Administration Act; but are also seeking, in the alternative, remission in part pursuant to the discretion conferred on the Court by s 33 of the Administration Act. It is submitted that, pursuant to that discretion, something less than conduct that amounts to "reasonable care" might justify a partial remission of penalty tax. Second, that in this case the taxpayers had longstanding external chartered accountants (M&P) who prepared their accounts during the review period, thereby demonstrating that the taxpayers had a proper regard to their taxation and compliance obligations generally. Third, that in this case, the audit which took place in relation to the 2001-2003 years (and which was the subject of a notice to produce issued by the plaintiffs pursuant to which nothing was produced) was of the taxpayers themselves, and not a related entity, meaning that the fact that there is no evidence that this audit raised the Employment Agency Provisions is directly relevant to the state of knowledge of the operation of those provisions that the taxpayers ought reasonably to have held in relation to the application of those provisions during the relevant years.
9. In the alternative, if it were not be concluded that each of Bayton and International Hotel Services took reasonable care to comply with the taxation law, then the plaintiffs say that, by virtue of their conduct during the Chief Commissioner's investigation, the penalty tax assessed in respect of each of the Bayton Assessments and the IHS Assessments ought be reduced by 20% pursuant to s 29(1) of the Administration Act.
10. In the further alternative to the application of s 27(3)(a) or s 29(1) of the Administration Act, it is submitted that there should be a reduction (pursuant to s 33 of the Administration Act) of the amount of penalty tax assessed in respect of each of the Bayton Assessments and the IHS Assessments in whole or, alternatively, in part.
11. Finally, insofar as interest is concerned, it is submitted that pursuant to s 25 of the Administration Act the amount of interest assessed in respect of each of the Bayton Assessments and the IHS Assessments should be reduced in whole or, alternatively, in part.
12. It is further submitted that, in the event that only a proportion of the amounts that were assessed are subject to payroll tax under the Payroll Tax Act, orders based on the respective and appropriate apportionment of those amounts as set out in Schedule B and elsewhere in the evidence should be made or else the Assessments should be remitted to the Chief Commissioner.

Chief Commissioner's submissions

1. The Chief Commissioner argues that the word "procure" in s 37(1) "requires the expenditure of care or effort by the employment agent" to engage the services of the service provider (citing Freelance Global at [115]), noting that, here, Bayton and International Hotel Services clearly procured the services of their subcontractors to perform work under the head cleaning contracts; and that the "service provider" referred to in s 37 of the Payroll Tax Act need not be a natural person (referring to p 11 of the Explanatory Note to the Payroll Tax Bill 2007 (NSW) where it is stated that "[d]ue to the wide concept of person, a service provider may include a company, a partnership or a natural person" and explains that "the natural person who in fact performs the work is taken to be an employee of the employment agent".
2. The Chief Commissioner submits that the "service provider" under s 37 of the Payroll Tax Act can be any kind of entity and is not necessarily "the [natural] person who performs work under an employment agency contract" (s 39) and that, on this construction, the "service providers" under the Bayton and International Hotel Services cleaning contracts (the employment agency contracts) are the subcontractors, while the deemed employees under s 39 are the cleaning or housekeeping staff (natural persons).

Bayton's corporate and commercial clients

1. The Chief Commissioner submits that whether the cleaning contracts were "employment agency contracts" for the purposes of s 37(1) of the Payroll Tax Act depends on whether the cleaning staff placed by Bayton at its clients' premises worked "in and for the conduct" of those clients' businesses (because, if they did, then the remainder of the s 37(1) definition is satisfied, since Bayton clearly procured the services of its subcontractors to help perform its obligations under the cleaning contracts).
2. The Chief Commissioner argues that, Bayton's cleaning staff (both its employees and the subcontractor staff) worked "in and for the conduct of" its clients' businesses because: the staff performed the cleaning work on-site at the clients' premises; the cleaning staff worked in the ordinary conduct of the clients' businesses; and the work would otherwise necessarily have been done by the clients' employees (cf the position in UNSW Global where the task outsourced was a highly skilled task requiring outside expertise).
3. As to the second of those propositions it is noted that: the staff received on-site training, usually over a period of three days and refreshed every 12 months (see T 47.25ff); the training covered topics including the proper method of cleaning, on-site safety drills and specific client requirements (noting [28] of Mr Katsinas' first affidavit and the QEHS Policy which Mr Katsinas agreed was typical in its contents - see T 44.15-25); that this was typically a contractual requirement; and that the clients would generally conduct the fire safety induction, with Bayton providing the remainder. The Chief Commissioner points to the fact that the cleaning work performed by the staff was a necessary part of the business, to ensure a safe, tidy and hygienic environment for customers and staff (and noting that "[t]he person responsible for cleaning the premises is technically integral to sustaining the business" - see 671122 Ontario Ltd v Sagaz Industries Canada Inc [2001] SCC 59, [2001] 2 RCS 983 at [42] (in the context of a discussion as to vicarious liability)). It is noted that the staff performed the work on-site on a regular basis, at least daily; and that there was reasonable staff continuity in the provision of cleaning services (see Mr Katsinas' first affidavit at [17]-[19] and T 49.2-6). The Chief Commissioner also points to the subcontractors' evidence in this regard (at [12] of Carlos Avalos' affidavit; [12] of Mr Donesa's affidavit; [15] of Chun Fang Meng's affidavit; and [11] of Mr Wong's affidavit). It is noted that the same cleaners frequently worked at the same commercial premises for months or even years and became familiar with the client's staff (T 67.14-19).
4. The Chief Commissioner argues that the work would otherwise have been done by the clients' employees (in contrast to the experts in UNSW Global), noting that cleaning is not a highly skilled task requiring outside expertise (albeit that the Chief Commissioner accepts that specialist accreditation is available and held by Bayton and International Hotel Services - see the plaintiffs' submissions at [26]); and says that cleaning can be and often is done by a business' own employees. It is submitted that, had Bayton's clients not outsourced their day to day cleaning, they would necessarily have done it themselves.
5. The Chief Commissioner further points to the following matters as indicative of the staff working "in" the client's business: that there is a cleaner's room at all of the sites where Bayton operates (used to store cleaning equipment and, if it is big enough, for cleaners to meet) and having such a dedicated room on-site at the client's premises is indicative of working in the client's business; that Bayton's contracts with clients had a standard clause providing for the use of "communication books" as part of the standard client resolution process and there was a communication and command structure between the clients and Bayton cleaners; that Bayton's cleaning contracts frequently included clauses permitting the client to object to Bayton engaging any person at the client's premises (and one client, DTZ Mondale, even participated in the selection of cleaners to work on-site); that Bayton's contract with Dan Properties stated that Bayton's employees would be perceived as Dan Properties personnel and that Bayton cleaning staff must work as a team with them and Dan Properties required Bayton's cleaners to wear a Dan Properties logo.
6. It is submitted that the above factors show that Bayton staff and subcontractors were working in and for the conduct of the clients' businesses.
7. As to the matters Bayton relies on against such a conclusion, the Chief Commissioner responds as follows.
8. First, in response to the argument that the cleaning services were "ancillary" or "incidental" to the businesses of Bayton's clients, in the sense that those clients did not operate cleaning businesses (plaintiffs' submissions at [108]-[110]), the Chief Commissioner says that a person can still work in and for a business (or be added to its workforce) by performing incidental functions of the business (referring to the examples posed earlier).
9. Second, in response to the submission that in most cases the cleaning services were provided out of hours and/or to businesses which were not in any event open to the public (see plaintiffs' submissions at [111] and Schedule A.1), the Chief Commissioner does not accept that this is an accurate characterisation of the position. The Chief Commissioner notes that services were often provided during business hours or when employees were likely to be present. In particular, it is noted that Mr Katsinas stated that "after hours" cleaning was done after 5 pm but accepted that it was "quite common" for people to work past that time (T 66.43-50). The Chief Commissioner says that the better view is that a person can work in and for the conduct of a business (or be added to its workforce) by performing incidental functions of the business outside normal business hours. Further, the Chief Commissioner says that whether the businesses were open to the public is irrelevant (since a business does not need to be open to the public in order to have people working in it).
10. Third, the Chief Commissioner points to Bayton's submissions that: its staff, including subcontractors, wore Bayton uniforms (plaintiffs' submissions at [36]; 112), a factor that the Chief Commissioner concedes is in Bayton's favour, but says is far from decisive (arguing that the Bayton uniform is not very distinctive); in no cases were the cleaners encouraged or invited to access staff amenities and facilities, such as staff canteens (plaintiffs' submissions at 112), which the Chief Commissioner says is, even if correct, at best a minor factor and which does not address whether cleaners in fact used such facilities; and that the cleaners were supervised by the Bayton managers (and not the clients of Bayton) who regularly attended the client site during the cleaning works to supervise the work (plaintiffs' submissions at 112), which the Chief Commissioner says again, even if correct, must also take into account that the Bayton managers would necessarily have liaised with Bayton's clients and passed on any directions or feedback to the cleaners, hence the cleaners were still integrated into the overall chain of command of the clients' businesses.
11. Fourth, insofar as Bayton submits that, given the above factors, it would be objectively apparent to a customer of the client that there was a clear distinction between the service provider cleaner and an employee of the client (plaintiffs' submissions at [113], referring to HRC Hotel Services at [153]), the Chief Commissioner argues that even if it was apparent that Bayton cleaners belonged to a separate corporate entity, and/or were independent contractors, that would not determine whether, in substance, they were working in and for the clients' businesses (referring to UNSW Global at [63], JP Property Services at [51]).
12. Insofar as Bayton's submissions rely on the Features Schedules, the Chief Commissioner points to various inaccuracies in the initial schedule that was exhibited to Mr Katsinas' first affidavit (to the correctness of which Mr Katsinas deposed in his third affidavit at 11), as demonstrating the unreliability of the schedule (and, I would extrapolate, casting doubt on the Features Schedules as a whole). The Chief Commissioner says that this schedule was not based on Mr Katsinas' personal knowledge (but based on incomplete, inconsistent and inaccurate information), pointing to inconsistencies or inaccuracies in: the list of Bayton's cleaning clients (see T 70ff); the information as to use of staff facilities, client/staff interaction, and cleaning times (see, in relation to the last, the cross-examination at T 81.21-T 83.23). The Chief Commissioner points to the cross-examination as to the manner in which the initial schedule and the corresponding (and in places inconsistent) information in Mr Katsinas' second affidavit of 7 August 2018 were prepared, to the effect that inconsistent information was given to Mr Katsinas which he then failed to cross-check (T 85.1-16).
13. The Chief Commissioner submits that the factors and evidence on which Bayton relies are insufficient to overcome the clear indications that its staff, including subcontractors, were working in and for the conduct of its clients' businesses; and, hence, that it follows that the cleaning contracts between Bayton and its corporate and commercial clients were "employment agency contracts" for the purposes of s 37 of the Payroll Tax Act and that payments from Bayton to its subcontractors in connection with those contracts are, therefore, taken to be wages under s 40(1)(a) of the Payroll Tax Act, and were correctly assessed to payroll tax in the Assessments.

Bayton's aged care sector clients

1. The Chief Commissioner notes that the cleaning contracts between Bayton and its aged care sector clients are similar in substance to the cleaning contracts with Bayton's corporate and commercial clients; and that, broadly, their effect is to "outsource to Bayton the regular cleaning of residential and common areas in aged care facilities".
2. The Chief Commissioner argues that a similar analysis applies as for corporate and commercial clients, namely that Bayton staff were working in and for the conduct of its aged care sector clients' businesses because: the cleaning services were provided on-site; they were necessary for the ordinary functioning of the clients' businesses; they were provided regularly and with continuity of staff; and they would otherwise have been performed by the clients' own employees. It is submitted that the fact that one of the clients (Uniting) still uses internal staff for the cleaning function at a number of its facilities (see 8] of the affidavit of Mr Hodkinson) confirms that employees of Bayton's clients would otherwise have done the cleaning.
3. It is noted that the plaintiffs point to three differences between Bayton's corporate and commercial clients and its aged care sector clients: first, that the core business of clients in the aged care sector is the provision of aged care, achieved through the provision of buildings and appropriate amenities and the provision of appropriately qualified nursing and care certified staff (plaintiffs' submissions at 115); second, that the aged care and health sector clients "technically" operate around the clock with periods of low activity in the 24-hour cycle, with Bayton providing its cleaning services in a manner which minimises the impact of those services on the residents of the aged care facilities (plaintiffs' submissions at 115); and, third, that aged care sector clients do not (and by regulation cannot) directly pass on the cost of cleaning to their residents, their income is rather through accommodation bonds (plaintiffs' submissions at [116]-[117]).
4. The Chief Commissioner argues that the above factors are either neutral or support the conclusion that Bayton staff were working in and for the clients' businesses (Chief Commissioner's submissions at [50]).
5. As to the first, the Chief Commissioner here says that if (which is not conceded) the distinction between "core" and "incidental" services carries weight, then it is relevant that cleaning services are part of, or close to, the "core" functions of an aged care facility. In that regard, it is noted, that Uniting states that an aspect of the relevant regulatory oversight is that "aged care providers must provide and maintain a clean and sanitised environment for their aged care residents", and, thus, a clean environment "is a necessary requirement" for the provision of aged care (see the affidavit of Mr Hodkinson at [17]); and that Thomas Holt, another aged care sector client, confirms that "[cleaning] forms part of the accreditation standards which Thomas Holt needs to achieve to continue operating" and that "[g]eneral cleaning of the facilities" is "necessary for [its] accreditations and funding" (referring to the affidavit of Wayne Snelson affirmed 25 January 2019 at [15], [22]). It is submitted (and I accept) that it is evident that regular cleaning is essential for the comfort and health of elderly residents who may not be able to do it themselves and that it is an essential part of the product offering.
6. As to the second, it is said that the fact that aged care facilities are open 24 hours a day precludes an argument that cleaning services occur outside their "ordinary business hours" but that, in any event, it appears most services are provided during the day (referring by way of example to the fact that at Thomas Holt facilities "Bayton staff attend on-site for between six to eight hours per day, commencing at 6.30am" - referring to the affidavit of Mr Snelson at 21). It is submitted that the fact that cleaning services are provided in a manner that minimises disruption is beside the point; and that, like the hotel room cleaners in HRC Hotel Services, the cleaners and the residents of the aged care facilities are in regular contact with each other.
7. As to the third, it is said that whether clients directly pass on the cost of the cleaning to their residents is not to the point; rather, that cleaning is still essential to their product offering, funding and accreditation.
8. The Chief Commissioner argues that the following factors are also relevant: the existence and use of a dedicated cleaner's room; that Bayton "spent quite a bit of time and effort" advising its aged care sector clients on "what [cleaning] systems and processes they need to have in place to ensure that they would pass their accreditation" and then implementing those systems and processes (and in that sense, Bayton cleaning staff were integral to those businesses); that Bayton promoted itself as seamlessly integrated in house teams with its own cleaning services (noting that in one case Bayton promoted that in 12 months Bayton had transitioned five aged care facilities and 20 staff to Bayton employment, i.e., the employees were transferred from the clients to Bayton while still cleaning the same sites and, thus, Bayton cleaners were working in and for the aged care businesses by performing cleaning functions the businesses had previously performed themselves); that Bayton staff received on-site training, usually over a period of three days, (which it is submitted suggests they needed to be familiar with the clients' businesses).
9. The Chief Commissioner notes that Mr Hodkinson explained that there was day to day interaction between Uniting staff and Bayton cleaners onsite (T 99.7ff) The [client's] site facilities manager […] would be the person, I guess, responsible to make sure that the services got done at the site and they may talk to the, talk to the cleaner or, or if they noticed anything, any area that wasn't done or there was a spill, they would interact with the cleaner, the Bayton cleaner and ask them to clean up the spill or do the work.
10. It is noted that Uniting's website promoted its aged care facility as providing "[f]reedom from the stresses of cooking, cleaning and laundry" and that Mr Hodkinson confirmed that cleaning is "an important [a]spect of the environment in which the resident lives, when they come into our care" (T 101.7). Further, that the same Bayton cleaners frequently worked in the same aged care premises for months or years and, over time, residents would come to know the cleaners, would become "accustomed to having the same faces" and may become "agitated" if the cleaners were suddenly replaced (T 40.8-25) and, thus, there was a need for continuity of Bayton staff to provide a familiar and comfortable environment for residents. In this regard the Chief Commissioner points to the evidence that one subcontractor, Mr Donesa, had been cleaning for Bayton at the same Uniting site, Wesley Gardens, for more than ten years; that during that time, he had come to know the Wesley Gardens staff, would have daily meetings with those staff to discuss the day's work, and would receive calls from them on his mobile phone; and that he had also come to know the residents, who knew his name and would often talk to him because they saw him every day, saying (at T 108.7) that "[b]asically it's just like a family when you always see each other. It's just like a, like a mother and father type thing".
11. It is submitted that other subcontractors likely had similar experiences through their regular contact with staff and residents.
12. The Chief Commissioner, thus, argues that the relevant indicia show that Bayton staff, including subcontractors, were working in and for the conduct of the businesses of Bayton's aged care sector clients and, hence, that the cleaning contracts between Bayton and its aged care sector clients were "employment agency contracts" for the purposes of s 37 of the Payroll Tax Act and payments from Bayton to its subcontractors in connection with those contracts are, therefore, taken to be wages under s 40(1)(a) of the Payroll Tax Act and were correctly assessed to payroll tax in the Assessments.

International Hotel Services' clients

1. The Chief Commissioner notes that the form of the cleaning contracts between International Hotel Services and its hotel clients differs but says that in substance each contract provided for International Hotel Services to supply and place housekeeping staff to work on-site at International Hotel Services client hotels and clean guest rooms in accordance with the hotels' standards and requirements. International Hotel Services charged a specified fee per room cleaned (referred to as a "credit"), and charged an hourly rate for additional cleaning of public/common areas within the hotels. In most, but not all cases, International Hotel Services housekeepers wore the uniforms of the hotels where they were placed (according to the Features Schedules; see plaintiffs' submissions at [132]).
2. Applying the above indicia, the Chief Commissioner argues that International Hotel Services' housekeeping staff worked in and for the conduct of its hotel clients' businesses because: the housekeeping work was done on-site at the client hotels; the work was done in the ordinary conduct of the clients' businesses (it being said that the servicing of rooms is necessary for a hotel's operations as part of what guests pay for when staying at a hotel (and, if relevant, it is submitted that cleaning rooms is a "core" service provided to hotel guests (in addition to the accommodation itself))); that the services were provided at least daily with at most "very rare" exceptions; and there was reasonable staff continuity in the provision of cleaning services, as Mr Katsinas deposes at [17]-[19] in his first affidavit); and that the work would otherwise have been done by the clients' employees.
3. It is submitted that these factors (on-site location, necessity, regularity, staff continuity, and doing work the clients would otherwise have done themselves) show that International Hotel Services staff were working in and for the conduct of the hotel clients' businesses and that this conclusion is only strengthened by the wearing of hotel uniforms in most cases.
4. The Chief Commissioner points to the following matters that he says further support that conclusion.
5. First, that International Hotel Services specialises in "top-up labour" (i.e., "adding to the clients' existing workforce with additional staff provided by [International Hotel Services]" - see T 38.43-T39).
6. Second, that International Hotel Services housekeeping staff undergo ten days of on-site training, covering the hotel's standards and requirements for cleaning rooms, such as the arrangement of towels and pillows.
7. Third, that International Hotel Services' biggest client for three of five years during the relevant period was the Amora Jamison hotel and that International Hotel Services had taken over the entire housekeeping department of this hotel. It is, thus, submitted that International Hotel Services staff were working "in and for" the hotel's business, by operating the housekeeping department.
8. Fourth, as adverted to above, that there is a cleaner's room at all of the sites where International Hotel Services operates (used to store cleaning equipment and, if it is big enough, for cleaners to meet - see T 49.22-34 (Katsinas); T 103.28-30 (Dent)); that hotels also generally had lockers or other areas for International Hotel Services housekeepers to put their bags and belongings.
9. Further indicia of integration into the hotel's workforce are said to be that: International Hotel Services housekeepers would greet hotel guests; International Hotel Services housekeepers would restock their cleaning trolleys from the hotel storeroom (T 59.48-T 60.5 (Katsinas); T 103.28-37 (Dent)); larger hotels had staff dining rooms where International Hotel Services housekeepers would go from time to time and interact with hotel staff; for smaller hotels, International Hotel Services housekeepers reported directly to the hotel manager; at Lancemore Group hotels, International Hotel Services staff (the executive housekeeper) had access to the hotel computer system to check which rooms had checked out; and the Lancemore Group originally employed its own cleaning staff, who in 2010 were transferred to International Hotel Services' employ.
10. In response to the matters relied upon by International Hotel Services in support of its contention that International Hotel Services housekeepers were not working in and for the hotels' businesses, the Chief Commissioner says the following.
11. First, as to the submission that housekeeping services were provided with a view to minimising disruption; for example, where possible, they were provided when guests were out of the room (plaintiffs' submissions at [52], [130]), the Chief Commissioner submits that this is a neutral factor (as housekeeping would be done this way regardless of who is providing the services).
12. Second, as to the submission that International Hotel Services housekeeping staff were supervised by on-site International Hotel Services supervisors, not by staff of the hotel (plaintiffs' submissions at [53]), the Chief Commissioner says that, even if this is correct, the International Hotel Services supervisors would necessarily have liaised with the hotel clients and passed on any directions or feedback to the housekeepers (for example as to which rooms were checking out and, thus, needed a more thorough clean, or as to the most efficient order in which to clean rooms on a given day) and, hence, the housekeepers were still integrated into the overall chain of command of the hotel clients' businesses.
13. Third, as to the submission that the International Hotel Services cleaning contracts do not "encourage [International Hotel Services] staff liaising with the client and its guests" (referring to the Features Schedules), the Chief Commissioner submits that this is "vague and overlooks the likelihood of at least some interaction, whether or not contractually encouraged".
14. Fourth, as to the submission that in a minority of cases, International Hotel Services housekeeping staff "do not wear the hotel's uniform but wear either an [International Hotel Services] uniform or a black unmarked uniform" (plaintiffs' submissions at [54]), the Chief Commissioner argues that International Hotel Services here advances an alternative (and unattractive) position that housekeeping staff who did not wear hotel uniforms were not working in and for the hotels' businesses (plaintiffs' submissions at [14], [132]) and submits that, whether or not the staff were wearing hotel uniforms, they were still in substance doing the same work and that the uniform cannot then make a decisive difference (arguing that the International Hotel Services uniform is not in any event very distinctive) and that other hotel departments also wore their own types of uniforms.
15. Fifth, insofar as International Hotel Services says that it contracted with its clients to provide "results" rather than "services" (plaintiffs' reply submissions at [35]-[38]) and that this informs the "fact sensitive analysis" to which Kunc J referred in JP Property Services, the Chief Commissioner submits that this distinction is unhelpful in the present context, and notes that arguments based on it (and on World Book (Aust) Pty Ltd v Commissioner of Taxation (1992) 27 NSWLR 377; Queensland Stations Pty Ltd v FCT (1945) 70 CLR 539; [1995] HCA 13) were rejected in JP Property Services at [67]-[68] and HRC Hotel Services at [90] and [116]. It is said that no mention is made of the suggested distinction between results and services at [66]-[69] of UNSW Global.
16. Finally, insofar as International Hotel Services relies on the Features Schedules, the Chief Commissioner again submits that this is unreliable, pointing to the following matters. First, that Mr Katsinas deposes in his first affidavit that the Features Schedules indicate "[t]he extent to which Bayton [and International Hotel Services] contractors can use staff facilities of the client" (at 52(iii)) but there was no such column (Mr Katsinas explaining that "originally it was there and we took it out", but could not explain why this occurred - see T 87.5-26). Second, that Mr Katsinas deposes that the Features Schedules indicate "[w]hat uniform or clothing the clients' staff wear on the client premises" (52(vii)) but again, there is no such column and Mr Katsinas admitted the affidavit "doesn't make sense" in that regard (T 87.38-T 88.8). Third, that the Features Schedules list the "Service times" as "before 2pm" in all but one case (that exception saying "after 11pm"), whereas the contracts merely say that check out rooms (where guests are checking out on a particular day) need to be done by 2pm, and some services would be provided until 4pm (T 88.15-40). Fourth, that the Features Schedules have a column headed "Does the hotel staff interact with our contractors (i.e. give directions to our cleaners etc)" and lists "N" for "No", in each case Mr Katsinas stated that by "interacting" he did not mean "communicating" (the ordinary English sense) but teaching a cleaner how to clean (T 90.1-13) (which is said to render that column of no use).
17. The Chief Commissioner, thus, argues that the factors (and the evidence) relied upon by International Hotel Services in this regard are of minimal weight and that the hotel room cleaning contracts should be held to be employment agency contracts. The Chief Commissioner argues that it follows that the International Hotel Services cleaning contracts were "employment agency contracts" for the purposes of s 37 of the Payroll Tax Act because they were agreements under which International Hotel Services procured the services of others (subcontracted housekeeping staff) to work in and for the conduct of its client hotels' businesses; and that payments from International Hotel Services to its subcontractors in connection with those head cleaning contracts are, therefore, taken to be wages under s 40(1)(a) of the Payroll Tax Act, and were correctly assessed to payroll tax in the Assessments.

Deemed wages

1. The Chief Commissioner relies upon the finding in HRC Hotel Services (at [180]), on what are said to be relevantly similar facts, that payments from an employment agent to its subcontractors were taken to be wages under s 40(1)(a) of the Payroll Tax Act and, thus, liable to payroll tax. As noted above, in that case I reached the conclusion that it did not matter whether the "service providers" under s 37(1) of the Payroll Tax Act were the subcontractors or the natural persons performing the services (see at [180]) because the same result would follow either way, concluding at [181] that the words "in relation to" in s 40(1)(a) expanded the reach of the deemed wages under s 40(1)(a) beyond the actual amounts paid to the additional housekeeping staff.
2. If the matter is here to be approached afresh, the Chief Commissioner argues that, on the proper construction of "service provider" in s 37(1) of the Payroll Tax Act, a "service provider" need not be a natural person, and that the "service providers" under the Bayton and International Hotel Services cleaning contracts (the employment agency contracts) are the various subcontractors, as opposed to the cleaners and housekeepers (natural persons). Hence, the Chief Commissioner argues that the amounts paid by Bayton and International Hotel Services to their subcontractors are captured as deemed wages under s 40(1)(a) because those amounts: were paid by Bayton and International Hotel Services (the employment agents and deemed employers) to the "service providers" (subcontractors); and were paid "in respect of the provision of services in connection with the employment agency contract[s]", namely cleaning and housekeeping services in connection with the Bayton and International Hotel Services cleaning contracts.
3. Alternatively, the Chief Commissioner argues that s 37(1), as applied to the Bayton and International Hotel Services cleaning contracts, would be construed such that the "service providers" are the cleaning and housekeeping staff (natural persons), not the subcontractor entities (as the plaintiffs contend in their supplementary submissions at [10]) for the reasons summarised in HRC Hotel Services at [158]-[179].
4. The Chief Commissioner emphasises that payroll tax is a tax on wages, including deemed wages, paid or payable by the employer; noting that the Payroll Tax Act provides that the tax is imposed "on all taxable wages" and that "[t]he employer by whom taxable wages are paid or payable is liable to pay payroll tax on the wages" (ss 6 and 7). An "employer" is defined as "a person who pays or is liable to pay wages", and includes "a person taken to be an employer by or under this Act" (s 3(1)); and "wages" includes "an amount that is included as or taken to be wages" under the Payroll Tax Act (s 13(1)(e)). It is noted that employers must register for payroll tax as soon as they pay wages in excess of the weekly threshold amount (s 86); and must then lodge monthly returns, and pay payroll tax, within seven days of the end of the month (or 21 days after the end of June) (ss 9, 87).
5. The Chief Commissioner also notes that certain provisions of the Payroll Tax Act extend the concepts of "employer" and "wages" in order to widen the tax revenue base (referring to ss 38 and 40 in this context). It is noted that s 38 provides that, for the purposes of the Act, "the employment agent under an employment agency contract is taken to be an employer" and that s 40(1) provides that the following amounts are "taken to be wages paid or payable by the employment agent under an employment agency contract": 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; 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; and 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.
6. The Chief Commissioner argues that, in an employment agency situation, the employment agent (here, Bayton or International Hotel Services) is taken to be an employer, and the amounts in s 40(1) are taken to be wages.
7. It is noted that s 40(1) does not specify, in terms, whether the amounts taken to be wages are the amounts paid: by the client to the employment agent; by the employment agent to its subcontractors (if any) or individual workers; or by the subcontractors (if any) to individual workers but that the scheme of the Act is that payroll tax is imposed on wages paid by employers (including deemed employers), and employers are those who pay wages (including deemed wages) (ss 6, 7). It is further noted that amounts on which payroll tax is imposed must be amounts known to the employer, so that the employer can register for payroll tax if required under s 86 of the Payroll Tax Act (upon exceeding the weekly threshold amount) and lodge monthly returns and pay monthly payroll tax in accordance with ss 9 and 87 of the Payroll Tax Act.
8. The Chief Commissioner says that it follows from the above that the amounts taken to be wages under s 40(1) must be amounts paid by (and, therefore, known by) the deemed employer; that is, paid by the employment agent (to its subcontractors or individual workers). It is submitted that when s 40(1)(a) refers to "any amount paid or payable", it does not mean "paid or payable by anyone" but, rather, means "paid or payable by the employment agent" and that the words "by the employment agent" which appear in the chapeau to s 40(1) should be understood as applying to, or qualifying, each subparagraph.
9. The Chief Commissioner notes that s 46 of the Payroll Tax Act provides that certain amounts are taken to be wages even if they are paid by or to third parties (rather than, for example, by the employment agent directly) but says that that is the exception to the rule and that in the ordinary case payroll tax is a tax on wages paid by employers (including deemed wages paid by deemed employers) and, in accordance with that rule, the amounts taken to be wages under s 40(1) must be amounts paid or payable by the employment agent (to subcontractors or individual workers). Reliance is placed (as it was in HRC Hotel Services) on the observation by Senior Member Isenberg in Winday International Pty Ltd v Chief Commissioner of State Revenue [2016] NSWCATAD 270 at [32] that: Having regard to s 40 it is necessary, that for amounts paid or payable to be taken to be wages those amounts must be paid or payable by an employment agent under an employment agency contract.
10. Reference is also made to the second reading speech for the 1985 amendments which inserted the employment agency provisions into the previous Payroll Tax Act 1971 referred to by White J in Freelance Global at [146], namely that: The legislation will confirm that payments by an employment agent made in respect of the provision of services to a client of the agent are liable for payroll tax. [emphasis added]
11. At [147]-[148] in Freelance Global, White J noted that amendments were made with effect from 1 January 1988 to make the client (rather than the employment agent) liable for payroll tax but that these were later reversed so that the employment agent would once again be liable for payroll tax. It is submitted that if the intention of the legislature was to restore the 1985 position then this confirms (in accordance with the second reading speech) that payments by the employment agent are liable to payroll tax.
12. Applying s 40(1) to the present case, the Chief Commissioner submits that the amounts paid by Bayton and International Hotel Services to their subcontractors are taken to be wages under s 40(1)(a) because those amounts: were paid by Bayton and International Hotel Services (the employment agents and deemed employers) to their subcontractors; were "in relation to" the cleaning and housekeeping staff provided by those subcontractors; and were paid "in respect of the provision of services in connection with the employment agency contract[s]", namely cleaning and housekeeping services in connection with the Bayton and International Hotel Services cleaning contracts.
13. As to the plaintiffs' submission that any amounts beyond those actual wages would not be "in respect of" the provision of services (see plaintiffs' supplementary submissions at [13]), the Chief Commissioner maintains that this is an unduly narrow reading of "in respect of the provision of services". The Chief Commissioner says that the words "in respect of" have a "wide meaning", subject to context, and refer to a connection or relation between two things (see Workers' Compensation Board of Queensland v Technical Products Pty Ltd (1988) 165 CLR 642, 653; [1988] HCA 49 (per Deane, Dawson and Toohey JJ)). On that basis, the Chief Commissioner submits that s 40(1)(a) is enlivened where "there is a sufficient connection between the amount paid by the employment agent and the provision of services by the service provider (individual worker, or subcontractor acting through individual workers)".
14. The Chief Commissioner submits that payments from Bayton and International Hotel Services to their subcontractors were "in respect of" the provision of services, because Bayton and International Hotel Services were paying those subcontractors for cleaning services provided by individual workers. The Chief Commissioner accepts that the amounts paid by Bayton and International Hotel Services to their subcontractors will have included a profit element on top of amounts paid by those subcontractors to individual workers, but says that those amounts (including the profit element) are still payments "in respect of", in the sense that they are sufficiently connected with, the provision of services, and so are deemed as wages under s 40(1)(a). It is submitted that it is a different question, and not presently relevant, whether separately charged "amounts for materials" would be "in respect of the provision of services" (see plaintiffs' supplementary submissions at [13]).
15. As to the arguments put forward by the plaintiffs for their construction of s 40(1)(a) (on which only the payments made by subcontractors to individual workers are taken to be wages), the Chief Commissioner responds as follows.
16. First, as to the plaintiffs' submission that such a construction is "consistent with the concept of wages throughout the Act, that they are amounts paid to employees" (plaintiffs' supplementary submissions at [9]), the Chief Commissioner says that, while actual wages must be "paid or payable to an employee" (s 13), deemed wages need not be (ss 35 and 40(1)(a)). It is submitted that what is relevant to an employment agency situation is the concept of deemed wages and that if attention were focussed on actual wages that would indicate an employer-employee relationship, which would negate the existence of an employment agency contract (s 37(2)).
17. Second, as to the plaintiffs' submission that, as the natural person providing services is "the deemed employee of the employment agent under s 39", the amounts paid "in relation to" those services under s 40(1)(a) must be "amounts that are paid for the natural person who provides the labour" (plaintiffs' supplementary submissions at [11]), the Chief Commissioner accepts that there must be a connection between the amounts paid and the provision of labour but argues that it does not follow therefrom that the only relevant amounts are those paid to the natural person.
18. Third, as to the plaintiffs' submission that their construction is supported by ss 40(1)(b) and (c) of the Payroll Tax Act (which tax amounts that would be fringe benefits or superannuation contributions if paid to an employee) and that the scope of s 40(1) "is limited to amounts paid in respect of labour" (plaintiffs' supplementary submissions at [12]), the Chief Commissioner again submits that all this shows is that there must be a connection between the amounts paid and the provision of labour and that it does not follow therefrom that only amounts paid to the labourer are captured as deemed wages under s 40(1)(a).
19. Fourth, as to the plaintiffs' submission that their construction of s 40(1)(a) still leaves the words "in relation to" with "work to do" (for example, insofar as those words would operate to capture payments by direction to a third party, or other forms of disguised or proxy payments, so long as they are "in respect of the labour of the deemed employee") (plaintiffs' supplementary submissions at [14]), while the Chief Commissioner accepts that this is correct, it is said that the same logic supports the Chief Commissioner's construction since s 40(1)(a) would operate to capture payments to subcontractors, so long as they are "in respect of", that is, sufficiently connected with, the labour of the deemed employee (natural person) providing services.
20. The Chief Commissioner identifies the following difficulties with the plaintiffs' construction of s 40(1)(a) (on which only the payments made by subcontractors to individual workers are taken to be wages).
21. First, that, given that Bayton or International Hotel Services is the employment agent (and, therefore, the deemed employer), payroll tax can only be imposed on payments made by Bayton or International Hotel Services, because it is only "[t]he employer [including deemed employer, s 3(1)] by whom taxable wages are paid or payable [who] is liable to pay payroll tax" (see s 7); which construction is said to be inconsistent with the scheme of the Payroll Tax Act, because it would impose payroll tax on payments made by subcontractors who are not the (deemed) employers.
22. Second, that s 40(1)(a) refers to "any amount paid or payable", not to "any wages paid or payable" and it is submitted that if the intention were only to capture actual wages, the latter form of words would be used (referring to HRC Hotel Services at [181]).
23. Third, that it is necessary to give effect to the words "in relation to" in s 40(1)(a) (which did not appear in the predecessor to s 40(1)(a), namely, s 3C(2)(c)(i) of the Payroll Tax Act 1971 (see Freelance Global at [9])), as made clear in Project Blue Sky v Australia Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 (Project Blue Sky) at [71] (per McHugh, Gummow, Kirby and Hayne JJ). It is noted that the words "in relation to" prima facie have a wide meaning (referring to Grain Growers Limited v Chief Commissioner of State Revenue (NSW) [2016] NSWCA 359 at [121] (per Beazley P, Bathurst CJ and Leeming JA agreeing)). The Chief Commissioner submits that, in s 40(1)(a) of the Payroll Tax Act, the words "in relation to" can only mean that payments by an employment agent will still attract payroll tax if they are paid to an interposing entity (for example, a subcontractor) rather than directly to an individual worker. The Chief Commissioner argues that this is consistent with the purpose of the employment agency provisions as anti-avoidance provisions (see Freelance Global at [146]) and that the existence of an interposing entity should make no difference.
24. Fourth, that s 87 of the Payroll Tax Act requires registered employers, including employment agents, to lodge monthly and annual returns calculating their payroll tax liability; tax being payable within seven days after the end of the month, or 21 days after the end of June (s 9(1)). The Chief Commissioner argues that the Payroll Tax Act, therefore, assumes that taxpayers will be able to calculate (and pay) their payroll tax in that time frame. It is submitted that, in the ordinary course, an employment agent (such as Bayton and International Hotel Services) who engages subcontractors would know what it pays those subcontractors but would not know what the subcontractors pay their individual workers and it therefore makes sense to deem, as wages, amounts paid by an employment agent to its subcontractors (as the employment agent knows those amounts and can include them in its returns), whereas it makes no sense for an employment agent's payroll tax liability to depend (as the plaintiffs contend) on information it would not ordinarily have (such as amounts paid by subcontractors to individual workers). It is noted that the subcontractors may themselves subcontract the work, making it even harder for the employment agent to ascertain what amounts were paid to individual workers. The Chief Commissioner argues that the inconvenience of the plaintiffs' construction points against it being correct (referring to Mutual Acceptance Co Ltd v Federal Commissioner of Taxation (1944) 69 CLR 389, 396; [1994] HCA 34 (Mutual Acceptance) where Latham CJ, accepted a similar argument in respect of Commonwealth payroll tax legislation; and CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408; [1997] HCA 2 (per Brennan CJ, Dawson, Toohey and Gummow JJ)).
25. Finally, it is said that a further inconvenience of the plaintiffs' construction of s 40(1)(a) is that, under s 86 of the Payroll Tax Act, employers (including deemed employers) must register for payroll tax as soon as they pay wages (including deemed wages) in excess of the weekly threshold amount. It is submitted that, on the plaintiffs' construction, employers would not ordinarily be able to work out whether they are required to register for payroll tax, because they would not ordinarily know what their subcontractors are paying to their individual workers (and, hence, whether those amounts exceed the relevant weekly threshold). It is submitted that the focus of s 86 is, again, on amounts "the employer pays or is liable to pay", not on the amounts received by individual workers.
26. Thus, it is submitted that the amounts paid by Bayton and International Hotel Services to their subcontractors are taken to be wages under s 40(1)(a) of the Payroll Tax Act, and hence are liable to payroll tax.

Relevant Contract - "two-person" exemption

1. As to the alleged management policy (of wherever possible only engaging contractors who had two or more persons working for the contractor) to which Mr Katsinas has deposed (subsequently corrected by Mr Katsinas to refer to all major Bayton contractors and all new International Hotel Services contractors - see his fifth affidavit at [6]), the Chief Commissioner says that, as described by Mr Katsinas, this policy appears to relate to the total number of employees working for each subcontractor, not to the number of employees who would work on any given subcontract and that the latter is the relevant question for the "two-person" exemption. The Chief Commissioner, thus, submits that this policy is of little relevance but in any event disputes the existence of the alleged management policy, noting that in cross-examination Mr Katsinas accepted (T 92.27-33) that Bayton had recorded all of its policies and procedures in various policy documents and that he had exhibited those policy and procedure documents to his affidavit but that those documents make no reference to the alleged management policy.
2. In particular, it is noted that this policy is not referred to in: the procedures manual(s) for Bayton and International Hotel Services, which includes detailed procedures for dealing with new subcontractors; any subcontract relating to approximately 140 individual subcontractors in Schedule B to the plaintiffs' submissions (it being noted that it would have been a simple matter for Bayton to require compliance with the policy as a term of the subcontracts); any annexures or exhibits to affidavits, comprising some 4,000 pages (T 96.22-35); or any of the subcontractor affidavits relied on by Bayton in these proceedings (it being submitted that it may be inferred that they could not corroborate the existence of the alleged policy - see Jones v Dunkel).
3. The Chief Commissioner argues that the alleged policy also sits "uneasily" with the fact that many of the head cleaning contracts either required only a few hours of services a day (and, thus, would have been carried out by one person) or expressly required just one cleaner for given periods (referring, by way of example, to the following contracts: Seaborn Broughton & Walton (2.5 hours per day); Brookfield Johnson (one day cleaner); Telstra (one cleaner for some periods); Equant Australia (one night cleaner); McKenzie Hall (where the scope of works only permitted one cleaner); and to each of the NIDA, Nolan and Laing+Simmons contracts) (see T 95.47-T 96.20). It is submitted that the number of cleaning staff for Bayton's contracts and subcontracts was clearly dictated by the needs of the client, not by the alleged management policy.
4. Further, the Chief Commissioner submits that, given the unreliability of the Features Schedules, the existence of the alleged management policy cannot be accepted on Mr Katsinas' word alone and that its existence is uncorroborated (in circumstances where it is said that corroboration would be expected, and there is evidence it did not exist insofar as it does not appear in the relevant policy documents). It is submitted that there should not be a finding on the balance of probabilities either that the policy existed or, if it did, that it was regularly conveyed to subcontractors and enforced.
5. As to the reliance placed by Bayton on the Certificates of Currency (see its Schedule B, indicating that 86% of its subcontractors during the relevant period provided workers compensation Certificates of Currency disclosing that the contractor engaged two or more persons; and see plaintiffs' submissions at [126]), the Chief Commissioner says that what those certificates disclose is simply the total number of insured workers for each subcontractor (which may well include administrative staff and staff working on contracts other than Bayton subcontracts). Thus, it is submitted that the certificates say nothing about how many workers provided services under any given Bayton subcontract or under the Bayton subcontracts generally; and, hence, they do not advance Bayton's case.
6. As to the affidavits relied upon by Bayton from various of its subcontractors, the Chief Commissioner notes that only three specifically depose that work under their respective Bayton subcontracts was done by two or more persons (namely: Mr Donesa of Feel 10 Years Younger at [12]; Mr Fang Meng of T & K Cleaning Service at [14]; [16]; and Adwar Shlemoun of Brightstar Services at [4]). The Chief Commissioner accepts that if this evidence is accepted, the "two-person" exemption would be established in respect of these subcontractors but says that this would have, at best, "a trivial effect" on the Bayton Assessments. It is noted that there are a total of approximately 140 subcontractors listed in Schedule B and the Chief Commissioner submits that there is no basis to infer from these three cases that the "two-person" exemption is established for the remaining subcontractors.
7. Thus, it is submitted that Bayton's evidence on the "two-person" exemption is deficient, and shows, at its highest, that the exception is made out for a few subcontractors. It is submitted that, those ones aside, all payments from Bayton to its subcontractors were payments under "relevant contracts" and, thus, deemed as wages under s 35 of the Payroll Tax Act and those payments were correctly assessed to payroll tax in the Bayton Assessments.

Penalty tax

1. The Chief Commissioner points to the distinction drawn in HRC Hotel Services (at [187]) between the reasonableness of an assumption as to whether tax was payable (there, argued to be based on the outcome of a previous audit) and the taking of reasonable care to comply with one's taxation obligations.
2. The Chief Commissioner submits that there is insufficient evidence on the taking of reasonable care in the present case. In particular, the Chief Commissioner argues that there is no evidence that Bayton and International Hotel Services received any advice on their payroll tax obligations at any time during the relevant years, or that they otherwise attempted during those years to understand and comply with those obligations. In addition, the Chief Commissioner notes that Mr Katsinas became Chief Executive Officer of Bayton and International Hotel Services in July 2006 and points to his evidence that, from that time through 2012, he "caused a restructuring of the way [International Hotel Services] in particular utilises the [sub]contractors by increasing their use substantially" ([17]). The Chief Commissioner submits that reasonable care would ordinarily require taking professional advice on the possible taxation consequences of a significant business restructure. Thus, the Chief Commissioner submits that Bayton and International Hotel Services have not shown they took reasonable care.
3. The Chief Commissioner argues that the further points raised in the plaintiffs' submissions at [137] do not advance the plaintiffs' position. First, insofar as the plaintiffs (plaintiffs' submissions at 137) point out that prior to Freelance Global (delivered on 28 February 2014), no court had held that the employment agency provisions in the Payroll Tax Act could apply beyond "employment agents or labour hire firms as those expressions are generally understood", the Chief Commissioner notes that nor had the contrary been held; and that s 37 is not expressed to apply only to such agents or firms. It is submitted that any uncertainty on this point simply underscores the need to obtain professional advice (which Bayton and International Hotel Services did not do, either before or after Freelance Global); that while it is true that the Chief Commissioner had not issued a public ruling "to the effect that the employment agency provisions were not intended to apply only to employment agents or labour hire firms as those expressions are said to be generally understood", the onus is on taxpayers to take reasonable care, not on the Chief Commissioner to issue public rulings; and that the documents produced do not show what was or was not raised during the 2016 audit but that, in any event, there is no evidence that Bayton and International Hotel Services relied on the outcome of that audit during the relevant years (i.e., 2012 to 2016), nor would they have been reasonable to do so given the passage of time and, for International Hotel Services, the 2006-2012 restructure. Further, it is submitted that even if Bayton and International Hotel Services or their officers, as lay people, made reasonable assumptions based on the outcome of an earlier audit, that does not show they took reasonable care (citing HRC Hotel Services at [187], [189]). It is submitted that the above matters do not show that reasonable care was taken.
4. As to the evidence of the practice of Bayton and International Hotel Services of obtaining, from each new subcontractor, a subcontractor's statement which includes a declaration that where the subcontractor is required to be registered for payroll tax, it has paid all payroll tax due in respect of work performed under the subcontract (plaintiffs' submissions at 137), the Chief Commissioner says that there is no evidence that Bayton and International Hotel Services enquired as to which if any of their subcontractors were required to be registered for payroll tax (noting that only subcontractors paying annual wages above $600,000 or $750,000 must be registered - see s 86 of the Payroll Tax Act and Schedule 1); nor that there was any enquiry by Bayton and International Hotel Services as to whether they would be liable for payroll tax in cases where the subcontractor was not registered.
5. As to the alleged management policy during the relevant years "of only engaging contractors who had two or more persons working for the subcontractor entity", as evidence that Bayton took reasonable care to comply with the Payroll Tax Act in relation to satisfying the "two-person" exemption in s 32(2)(c) of the Payroll Tax Act (plaintiffs' submissions at 137), the Chief Commissioner disputes the existence of this policy.
6. As to the retention of M&P prior to the current audit and the subsequent retention of that firm and of Mr Rydon (reliance being placed on the obtaining professional advice by reference to Snowy Hydro at [171]-[172]), (plaintiffs' submissions at 137), the Chief Commissioner says that there is no evidence of any payroll tax advice being given during the relevant years and that the fact that advice was later obtained cannot retrospectively cure the lack of reasonable care during the relevant years.
7. Finally, as to the emphasis placed by Bayton and International Hotel Services on their cooperation during the 2016 audit (plaintiffs' submissions at 137), it is submitted that such cooperation has no bearing on the question of reasonable care, either before or during the audit.
8. As to the alternative contentions by Bayton and International Hotel Services (that if they did not take reasonable care to comply with the taxation law, then in the alternative, penalty tax should be reduced by 20% (from 25% to 20%) under s 29(1) of the Administration Act (see plaintiffs' submissions at [138])), the Chief Commissioner notes that the Office of State Revenue audited Bayton and International Hotel Services commencing mid-2016, leading to the Assessments issued 21 December 2016. The Chief Commissioner points to s 29(2)(b), arguing that Bayton has been registered for payroll tax since 1997 and International Hotel Services since 1999. It is submitted that both were registered under a taxation law during the relevant years; and that their default involved a failure to pay tax by the date required under the Payroll Tax Act (s 9); and, therefore, that their failure to pay tax by the date required under the Payroll Tax Act (because they failed to pay that tax at all) means that s 29(2) of the Administration Act applies to exclude the remission of penalty tax under s 29(1).
9. As to the contention by Bayton and International Hotel Services that, by reason of taking reasonable care and cooperating during the audit, penalty tax should be wholly or partially remitted under s 33 of the Administration Act (plaintiffs' submissions at [139]), the Chief Commissioner points to a number of NCAT decisions that have read down the scope of the s 33 discretion. In particular, the Chief Commissioner refers to RVO Enterprises where, at [29], Judicial Member Verick held that: The law does not prescribe any guidelines nor has the respondent issued any rulings as to what circumstances would warrant a remission under s 33. Because "reasonable care" and "circumstances beyond the control" are matters that are to be taken into account under s 27(3), they are not matters that are relevant for a remission of penalty tax under s 33. Remission under s 33 would, in my opinion, be only warranted in exceptional and rare circumstances and notes that this reasoning was accepted and applied in Madikian v Chief Commissioner of State Revenue [2017] NSWCATAD 263 (at 59) and Levitch Design Associates Pty Ltd ATF Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215 (at [114]-[115]).
10. The Chief Commissioner accepts that in ABC Staff Hire Pty Limited v Chief Commissioner of State Revenue [2018] NSWCATAD 137 (ABC Staff Hire) (at [56]), Senior Member Perrignon observed that there was a possible "alternative view that the discretion to remit under section 33 is at large" but says that this was not decided in that case and the Chief Commissioner submits that RVO Enterprises is correct (or that, at the very least, to enliven s 33 of the Administration Act, the taxpayer must establish circumstances justifying remission of tax that do not involve taking "reasonable care" and do not involve "circumstances beyond the control" of the taxpayer). It is submitted that this follows from the principle that a statute must be read as a whole and on the prima facie basis that its provisions are intended to operate harmoniously (see Plaintiff S4/2014 v Minister for Immigration and Border Protection (2014) 253 CLR 219; [2014] HCA 34 at [42]).
11. The Chief Commissioner argues that if the discretion under s 33 of the Administration Act is at large, then this would tend to undermine s 27(3) of the Administration Act by allowing full remission of penalty tax in circumstances falling far short of those envisaged by s 27(3). The Chief Commissioner argues, by way of example, that if the taxpayer made only weak attempts, not reasonable attempts, to comply with the taxation law it could not seriously be suggested that penalty tax should be remitted proportionately by reference to the degree to which the taxpayer makes the effort that a reasonable taxpayer would have made to comply with its tax obligations.
12. It is submitted that, in practice, circumstances justifying remission under s 33 (being circumstances other than "reasonable care" and "beyond the control") would be rare and exceptional and that Bayton and International Hotel Services do not point to any such circumstances.
13. Alternatively, if the discretion under s 33 of the Administration Act is at large, the Chief Commissioner submits that it should not be applied in favour of Bayton and International Hotel Services, because there is no evidence that they ever sought professional advice on their payroll tax obligations or that they otherwise took an informed, considered and reasonable view of those obligations. It is submitted that the "deterrent value" of penalty tax is a relevant consideration (see ABC Staff Hire Pty at [58]), and would be significantly undermined if penalty tax were remitted in such cases.
14. Thus, the Chief Commissioner submits that there is no basis to remit penalty tax.

Interest

1. Pursuant to ss 21, 22 and 25 of the Administration Act, the Chief Commissioner applied the market rate of interest in respect of Bayton and International Hotel Services' tax default, but remitted the premium component (ordinarily an additional 8%).
2. Bayton and International Hotel Services contend that, for the reasons relied on in respect of penalty tax, the market rate of interest should be wholly or partially remitted under s 25 of the Administration Act (plaintiffs' submissions at [140]).
3. The Chief Commissioner submits that the market rate of interest can only be remitted in exceptional circumstances, referring to the decision of the Appeal Panel of NCAT in Lease A Leaf Property Pty Limited v Chief Commissioner of State Revenue [2011] NSWADTAP 41 (Lease A Leaf) (at [34]-[35]): [T]he market rate interest ... could rarely, if ever, be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time. Accordingly where an amount of interest is imposed by the application of the market rate, only exceptional circumstances would justify any remission. We think only a very narrow category of circumstances would justify any remission. These, without setting out any exhaustive list of circumstances, would in addition to cases where the 'tax default' is entirely due to a fault of the Chief Commissioner include situations completely out of the control of the taxpayer, such as postal strikes, serious illness of the taxpayer and natural disasters (bush fires, floods and earthquakes).
4. It is noted that those remarks were applied by the Appeal Panel (Seiden SC, Block and Bennett) in Al-Saeed and Associates Pty Ltd atf Al-Saeed Education and Welfare Trust v Chief Commissioner of State Revenue [2014] NSWCATAP 11 (at [56]-[57]). The Chief Commissioner submits that those statements correctly state the law and that, in the present case, Bayton and International Hotel Services have not shown any circumstances, exceptional or otherwise, that would justify remitting the market rate of interest.

Reply submissions

1. In reply submissions, the plaintiffs identify two differences in the approach between the parties: first, as to the appropriate level of focus that is to be placed upon the conduct of a client's business and how, if at all, the service providers contribute to it (the ongoing relevance of the contractor/employee distinction and the "results test"); second, as to the sufficiency of evidence.
2. As to the first, the plaintiffs argue that the tenor of the Chief Commissioner's submissions is to focus on the benefits provided to a client's business and that such an approach has been rejected by the courts (see for example in UNSW Global). The plaintiffs, in contrast, focus on identification of the contribution made by the service provider to the conduct of a client's business (and appear to maintain that when the service is provided as part of an integrated package this falls outside the ambit of s 37(1)).
3. As to the second, the plaintiffs contend that: in circumstances where the statutory test is focussed upon the role played (if any) by the service provider in the conduct of a client's business, to which the putative employment agent is "a mere outside observer", a client's business must be characterised in "rather high level terms", by reference to what is "core" as opposed to "ancillary" or "incidental" to that business. It is submitted that, with respect to the role played by the service provider, evidence of practice is highly relevant and that for these purposes (particularly in a business of significant scale) it is not necessary to prove the minutiae of every single circumstance; rather, that general evidence ought suffice.
4. As to the employment agency provisions, the plaintiffs emphasise that the test brought in by s 37 (and its predecessor) was not seeking to expand the tax net; rather it was to clarify the circumstances in which payroll tax arises and who would be liable. It is submitted that this was accomplished by articulating a test which does not focus on who is an employee and who is an independent contractor but, rather, focusses on the role that person plays in the conduct of the business of the client. It is submitted that this does not make the circumstance that the person supplying the services is an independent contractor irrelevant; rather, that that circumstance is relevant to determining if, and if so how, the person contributes to the conduct of the client's business. The plaintiffs argue that in order to say that a person is acting "in and for the conduct" of a business it is necessary to be able to say how they are contributing to the conduct of that business.
5. The plaintiffs pose the counter-factual as to what would apply if the plaintiffs did not provide the services they provide (i.e., whether those services would be provided by an employee of the plaintiffs' clients or whether they would instead be provided by another service provider akin to the plaintiffs) and they point to evidence from clients who have attested that they would not have used their own employees. The plaintiffs contend that when viewed with the history of the legislation, the test focusses on what is integral to the conduct of a client's business and not what is merely necessary to that client's business. It is said that, in that context, the fact that a client chooses to outsource an entire function, speaks to the conduct of that client's business and what is core to the conduct of that business.
6. Further, it is submitted that as it is the employment agent and not the client that bears the liability for the tax pursuant to s 40, the characterisation of the business of the client must necessarily be undertaken by a taxpayer who stands outside of the business of that client, i.e., the employment agent, who is a third party in respect of the client's business. It is submitted that the effect of this is that the employment agent has no practical course other than to identify high level indicia or hallmarks of what its client's business is and how it is conducted, and, having regard to those indicia, identify what is integral to the conduct of that business as opposed to what is incidental and ancillary to it, for the purposes of making a determination of whether the person it has procured is working "in and for the conduct" of that business.
7. While not determinative, it is submitted that the status of an independent contractor as a contractor, and the degree of independence, is one of the factors that is taken into account when conducting the "fact sensitive analysis" outlined by Kunc J in JP Property Services.

Issues 1 and 4: were the relevant Bayton/International Hotel Services arrangements employment agency contracts?

1. Relevantly, as noted above, in UNSW Global his Honour accepted that a literal construction of s 37(1) of the Payroll Tax Act in relation to the expression "for a client" would go far beyond the mischief intended to be addressed by that provision (see at [44]; [49]); and applied a purposive construction of that section, reading the word "for" in the phrase "for the client" as meaning "in and for the conduct of the business of the employment agent's client", as distinct from merely "for the client's benefit" (see [62]).
2. In the present case, as I understand it, the plaintiffs' submission in effect is that one must focus on the nature of the client's business, arguing that where the services procured for that client are ancillary to the client's core business, then the provision of the services of individuals for that purpose do not add to or form part of the workforce of the client (i.e., the individuals are not working "in and for the conduct of the [core] business" of the relevant client) and further arguing that where there is a "truly independent business" operated by the contractor, or where the provision of the services forms part of an integrated package that adds value to the client over and above the provision of the services themselves, then this is a factor tending to the conclusion that the services are not provided "in and for the conduct" of the client's business within the meaning of s 37(1).
3. I accept that what is required is a fact sensitive analysis and that there may be nuances in the application of the test, as the plaintiffs submit. However, as I indicated earlier, I see no basis for reading into the legislation the requirement that the services provided be integral to the client's business or "core" services as opposed to "ancillary" or "incidental" services. I cannot see that the provision of cleaning services after the normal hours of business of a commercial client, for example, is any less the provision of a service "in and for the conduct" of the client's business than the provision of cleaning services during business hours.
4. Insofar as the issue whether individuals are working "in and for the conduct of the business of the employment agent's client" is determined by reference to whether the "individuals provided by the employment agents comprise, or are added to, the workforce of the client for the conduct of the client's business" (to adopt the language in JP Property Services per Kunc J at [72]) or the individuals' services are provided to help the client conduct its business "in the same way, or much the same way, as it would through an employee" (to adapt the language of White J in UNSW Global), the more meaningful factors, in my opinion, are whether the services are provided on-site, whether they are provided with a degree of continuity or regularity (or are ad hoc), and the extent of interaction and supervision with or by the client's staff (and, where relevant, the client's customers or, in the case of retirement villages or aged care centres or hospitals or schools, the residents or users of services in those places).
5. The starting point for statutory construction is to consider the ordinary and grammatical meaning of the words of the provision in question, having regard to their context and legislative purpose (see generally, Project Blue Sky; SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 91 ALJR 936 at [14] (per Kiefel CJ, Nettle and Gordon JJ)).
6. The difficulty I have with the emphasis placed by the plaintiffs on the "core" business of the relevant clients and whether the services procured for those clients are ancillary to that core business, is that this involves reading into the section words that are not there. I do not consider that such an approach is warranted and I do not consider that it necessarily follows from with the construction given to s 37(1) of the Payroll Tax Act in UNSW Global. It is not in my opinion necessary in order to address the mischief to which the section was directed; nor is it necessary to ensure that the accepted interpretation of s 37(1) of the Payroll Tax Act would not have "far-reaching and unintended consequences".
7. In my opinion, the services that were procured "for" the respective clients of Bayton and International Hotel Services (both commercial/corporate and aged/health care sector clients in Bayton's case and the hotels in the case of International Hotel Services) were procured "for" those clients' businesses in the sense of "in and for the conduct of those businesses". I consider that, having regard to the evidence as a whole, in a practical sense the cleaners and housekeeping staff did form an addition to the client's workforce and did provide those services in much the same way as the client's staff would otherwise have done had the services not been outsourced (even accepting that Bayton and International Hotel Services add value or provide an integrated package by reference to their ability to satisfy accreditation standards or the like).
8. There are, in essence, the following categories of clients: the hotel clients; the aged care and retirement village clients; the commercial clients; one hospital; and a school.
9. The hotel clients are perhaps the clearest example of the cleaners or housekeeping staff forming an addition to and comprising in effect part of the hotel's workforce. In HRC Hotel Services, I considered it relevant that the staff there provided wore a hotel branded uniform, liaised with guests and other hotel staff in the services provided by way of the servicing and cleaning of hotel rooms, were entitled to make use of the hotel staff dining rooms during lunch breaks and the like, and that it would be difficult for a hotel customer to distinguish from other hotel staff. In the present case, I accept that not all those elements are equally present, though in a number of instances the cleaning/housekeeping staff here do wear the hotel branded uniforms. True it is that there is evidence that the cleaners/housekeeping staff do not make use of the client's staff canteens or the like, though it beggars belief that they cannot make use of staff facilities such as toilets (and such evidence as there was on this issue supported the conclusion that they can). As for the supervision/complaint processes, although the evidence was that complaints are generally dealt with at a higher level than via the individual contractors (and there is a process whereby direction as to work generally flows through from the plaintiffs not the client), there is obviously also interaction between hotel guests and hotel staff on the one hand and the cleaners on the other; there is not always day to day supervision on-site by the International Hotel Services managers; and some level of day to day instruction is conveyed directly to the cleaning or housekeeping staff by hotel client staff. In one case, the cleaner/housekeeper reports directly to the hotel management.
10. My conclusion in this regard is reinforced by the fact that there was at least one instance (the Lancemore Group) where the whole of the relevant client's cleaning staff was "transitioned" to International Hotel Services. That makes clear that, in a very practical sense, the cleaning staff that formerly formed part of the client's workforce (whose services are now being provided through the auspices of International Hotel Services) are for relevant purposes part of the hotel client's workforce (albeit no longer employed directly by the hotel client).
11. As to the remaining categories of clients, the next most obvious example seems to me to be the aged care/retirement villages' staff. Mr Donesa was a prime example of this. He has been a cleaner at Uniting's Wesley Gardens facility for some years. He is familiar to the residents. He is not someone who might be called in once in a while to carry out some maintenance item or special one-off cleaning task. He regularly works there and for all intents and purposes would be seen as an addition to the Uniting staff.
12. Further, I cannot accept the proposition that the "core" business of retirement villages or aged care centres is real estate, even though I readily accept that the sale of interests in long term leases in the villages or the like is the source from which operators of such business would earn their profits. In much the same way, I cannot accept that the provision of clean rooms for hospital patients or retirement village or aged care centre residents is not an essential part of the service to be provided by those operating such institutions (albeit through outsourced specialist cleaners). But even if the characterisation placed on the businesses by the plaintiffs in this regard were to be accepted, I still would not consider that to be determinative of a conclusion that the cleaners were not providing services in and for the conduct of those businesses (because I reject the proposition that it is necessary that the services be for the core business of clients).
13. Again, it is relevant to note here that Bayton has promoted the fact that it has "transitioned" a number of aged care facilities with their staff to Bayton employment (T 39.30) and has promoted its ability seamlessly to replace in-house teams with its own cleaning services (T 39.26). There is no reason to think that that is not precisely what it does; and it speaks eloquently to the fact that what Bayton is providing is in essence an addition to the client's workforce.
14. Finally, as to the commercial and corporate clients, I accept that if the cleaning services were sufficiently segregated or divorced from the conduct of the relevant commercial or corporate client's business then this might lead to the conclusion that the services were not in and for the conduct of the client's business in a particular case (say, where the services of cleaners were required on a one-off basis to deal with an unexpected cleaning problem). However, I see no real distinction between the provision of cleaning services after an accounting office has effectively closed for the day and the provision of after-hours typing services in a law firm (to adopt an example postulated by the Chief Commissioner) - those services are equally required "in and for the conduct" of the relevant business.
15. Thus, I have concluded that all of the arrangements in question were employment agency contracts and assessable to payroll tax.

Issue 2 (Bayton only): "relevant contract" test

1. I have set out earlier the relevant provisions applicable to this issue. Strictly speaking it does not arise in circumstances where I have reached the conclusion that the arrangements in question were employment agency contracts. However, lest that conclusion be incorrect, I address the alternative basis on which the Chief Commissioner seeks to uphold the Bayton Assessments.
2. As noted above, Bayton prepared two schedules (schedules B1 and B) on which it relied in support of its submission that its subcontractor arrangements satisfy the "two-person" exemption under s 32(2)(c) of the Payroll Tax Act.
3. Schedule B1 is a table summarising the subcontractor arrangements between Bayton and its contractors. I have considered the extent to which, from the information contained in Schedule B1, it can reasonably be inferred that Bayton supplied at least two contractors for the performance of its contracts with both corporate and commercial, and aged care and health clients in order to satisfy the "two-person" exemption under the Payroll Tax Act s 32(2)(c). Schedule B1, among other things, records: "Contract fees per 2 weeks" (contract fees) and "No. of places of service" (places serviced).
4. I accept that it is reasonable to assume that, because the award rate for a cleaner of a Bayton contractor is $18.47, fortnightly contract fees exceeding $14,000.00 ($125/hour x 8 hours x 7 days x 2 weeks) are likely to have been generated by more than one employee. As to the places serviced, I consider that this information provides a less certain indication of whether more than one employee was being supplied to a Bayton client under the relevant contract. However, I consider it reasonable to assume that, if the number of places serviced was 11 or greater and generated approximately $10,000.00 or more in contract fees, those subcontractor agreements are likely to have been performed by more than one employee of the subcontractor.
5. Schedule B is a table summarising, for Bayton's contractors, the number of employees disclosed in Workers' Compensation Insurance Certificates of Currency provided by the contractors and payments made to those contractors for each of the 2012, 2013, 2014, 2015 and 2016 financial years.
6. It might be reasonable to infer that where a subcontractor disclosed for workers' compensation insurance purposes three or more employees, that this indicates that of those employees, then at least two are likely to have been cleaners (on the assumption that if the company's source of revenue is through cleaning it would be logical for most of the employees to be working as cleaners), although that is by no means the only available inference. However, it is not clear from the Certificates of Currency alone that those cleaners were all providing services to Bayton clients (as opposed to other employment agents' clients). Therefore, it is again necessary to consider the amount paid by Bayton to those subcontractors in order to be able confidently to infer that more than two persons provided services to Bayton clients.
7. Based on a review of the information in the respective schedules, it seems to me reasonable to infer that subcontractors who either (i) invoiced Bayton fortnightly fees exceeding $14,000.00 or (ii) serviced 11 or more places and generated approximately $10,000.00 or more in contract fees, were contractors who it is likely, on balance, provided the services of more than two persons to Bayton's clients, through Bayton's arrangements with those clients (thus, attracting the two-person exemption, had the "relevant contract" test otherwise been applicable).
8. On my reading of the schedules, that group of subcontractors comprises: 1. those invoicing fortnightly fees exceeding $14,000 over the period: Feel 10 Years Younger; Layla Cleaning Pty Ltd; Aries Cleaning Services Pty Ltd; Auslaund Services Pty Ltd; ORW Property Services Pty Ltd; Reef Cleaning Pty Ltd; Reef Cleaning Services; Sky Vision Cleaning Pty Ltd; Rema Property Services; Total Property Maintenance Aust Pty Ltd; Versatile Property Services Pty Ltd; Versatile Facilities Pty Ltd; New Vision Cleaning Pty Ltd; Platinum Way Facility Pty Ltd; and Silverline Cleaning Services Pty Ltd; and 2. those servicing 11 or more places and generating approximately $10,000.00 or more in contract fees over the period: Bright Star Services Pty Ltd; Rescue Cleaning Services NSW Pty Ltd; and Ausspot Cleaning Services.
9. As to the following subcontractor agreements, I am not satisfied on the evidence that it could be concluded that the "two-person" exemption was applicable (and, hence, I am not satisfied that Bayton has discharged its onus): Bay No 6 Pty Ltd; Dunmerri Trust trading as Total Garden Solutions Wodonga Pty Ltd; We Caan Clean Solutions Pty Ltd; FAB & TAM; R & R WORX; Crystal Clean; Rodrigo; Monica Andrea Prieto Olarte; Ace Carpet Cleaners; Javier Andres Ospina Castro; Samich NSW Pty Ltd; Juan Ospina; Cipher Solutions Pty Ltd; Access Facilities Management Corp Pty Ltd; and Ozone Services Pty Ltd.
10. As to the following subcontractor agreements, the evidence leads me positively to conclude that the "two-person" exemption would not apply (due both to the small contract fees generated - the factor I consider most persuasive on this issue; but also that there appear to have been relatively few places serviced): Crown Cleaning Solutions Pty Ltd; D.K.V Cleaning Services Pty Ltd; Gsanz Pty Ltd; T & K Cleaning Services Pty Ltd; HCK Services Pty Ltd; Arpan Cleaning Services Pty Ltd; JHK Cleaning Services Pty Ltd; NCC Management Pty Ltd; Daily Industrial Cleaning Services; and MNA Cleaning & Maintenance Services Pty Ltd.
11. For the avoidance of doubt, I also note that the above does not include those clients which Mr Katsinas accepted in cross-examination were one-contractor clients (such as NIDA and M&P).
12. There is a degree of duplication in the schedules prepared by Bayton (see, for example, various of the Reef Cleaning Pty Ltd and Reef Cleaning Services entries). In the circumstances, therefore, had I considered that the relevant contract provision was otherwise applicable, I would have considered it best to remit the matter to the Chief Commissioner to determine this issue in accordance with the findings I have made, pursuant to s 101(1)(d) of the Administration Act.

Issues 3 and 5 (both Bayton and International Hotel Services): deemed wages

1. Turning then to the issue raised as to the amount to be taken to be wages under s 40(1)(a) of the Payroll Tax Act if it were to be concluded (as I have) that there was a liability to payroll tax, I consider that the Chief Commissioner has correctly assessed the plaintiffs to payroll tax when taking into account the entire amount paid by Bayton and International Hotel Services as the deemed wages pursuant to this provision.
2. The plaintiffs argue that the construction that I placed on the words "in respect of the provision of services" in HRC Hotel Services is incorrect and that the relevant wages in deemed to be wages pursuant to s 40(1)(a) of the Payroll Tax Act are only those paid to the deemed employee (i.e., the person who performs the work).
3. In HRC Hotel Services, the submission that was made by the plaintiffs there was that the purpose of the Payroll Tax Act was to tax amounts paid for personal services (the plaintiffs there referring to Mutual Acceptance where Starke J (at 401) said that, despite the generality of the definition of the word "wages", unless the contrary intention appears, the Pay-roll Tax Assessment Act 1941 (Cth) "is a tax upon wages, that is, upon payments made in cash or in kind for services rendered … [a]nd it is not, nor is it meant to be, a tax upon anything else").
4. The Chief Commissioner had submitted in HRC Hotel Services, that it followed, from the fact that the scheme of the Payroll Tax Act is that payroll tax is imposed on wages paid by employers (including deemed employers) and employers are those who pay wages (including deemed wages) (see ss 6, 7 of the Payroll Tax Act), that the amounts taken to be wages under s 40(1) must be amounts paid by the deemed employer - that is, by the employment agent (to its subcontractors or individual workers); and that, when s 40(1)(a) refers to "any amount paid or payable", it means paid or payable by the employment agent; arguing that the amounts taken to be wages under s 40(1) must be amounts paid or payable by the employment agent (to subcontractors or individual workers). Similar submissions were here made by the Chief Commissioner.
5. As noted above, I considered in HRC Hotel Services (see from [180]ff) that the construction advanced by the plaintiffs in that case gave no work for the words "in relation to" to do in s 40(1)(a) of the Payroll Tax Act; and that those words expanded the reach of the deemed wages under s 40(1)(a) beyond the actual amounts paid to the additional housekeeping staff. I accept that, on the construction advanced by the plaintiffs in the present case there is some work for the words "in relation to" to do. Nevertheless, I do not accept that the breadth of "in relation to" should be read down as the plaintiffs contend. In other words I do not see "in respect of" as relevantly limiting the breadth of "in relation to". Nor do I see that the consequence of expanding the reach of the deemed wages goes beyond the mischief sought to be addressed by the legislature.
6. Thus, I consider that the amounts paid to the subcontractors (even though they presumably include a profit element) were correctly identified as the amounts in respect of which payroll tax was payable.

Issue 3 (Bayton); Issue 5 (International Hotel Services): penalties and interest

1. I have noted above the explanation given to the concept of taking "reasonable care to comply with the taxation law" in Qualweld (at [95]). The factors that were there recognised as factors that would indicate the taking by a taxpayer of reasonable care to comply with the taxation law included: reasonable attempts to comply with the tax law; reasonable professional and other inquiries to ensure compliance; and reliance on professional advice or on official published views of the tax law. Factors that it was recognised would indicate that a taxpayer failed to take reasonable care included: oversight or forgetfulness to meet with obligations; failure to maintain adequate records and procedures to prevent errors from occurring; and not seeking professional advice and errors in complying with the law.
2. In the present case, the factors on which the plaintiffs place weight are the facts that they had at all relevant times retained the services of a professional external accountant and that they had complied with the audit carried out in 2016.
3. As to the former, if it were sufficient for this to constitute reasonable care then logically any company whose accounts were audited would be in a position to do no more than retain an accountant in order to resist the imposition of penalty tax. I accept that it is a factor that (taken with others) might demonstrate reasonable care to comply with the taxation law. However, what I consider would be more relevant in this regard would be the seeking of professional advice or the making of inquiries of the Australian Taxation Office or others directed to the issue as to whether any payroll tax liability had arisen or as to the structuring of arrangements with a view to ensuring that any payroll tax liability would be met. There does not appear to be evidence of that kind in the present case.
4. As to the latter, in Sydney Flooring Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 96; (2017) 105 ATR 546, a taxpayer's compliance with previous audit findings in relation to that very taxpayer was held insufficient to engage s 27(3) of the Administration Act. Here, the co-operation with the Office of State Revenue in its investigation into the payroll tax issue is commendable, but it does not to my mind establish the taking or reasonable care to comply with the taxation law in the first place.
5. I am therefore not persuaded that the plaintiffs have discharged their onus in relation to this issue so as to warrant a remission of the penalty tax pursuant to ss 25, 27(3)(a), 29(1) and 33 of the Administration Act. As to the alternative bases (the cascading submissions as to remission) put forward by the plaintiffs, I accept the Chief Commissioner's submission as to the inapplicability of s 29(1) due to the failure of the plaintiffs to pay the tax on the due date (see s 29(2)(b)); and, as to the application for remission under s 33 of the Administration Act the general discretion to remit, I do not consider that this general discretion should be exercised where there has been a finding that reasonable care has not been established and in the absence of some special circumstance to warrant the exercise of the discretion notwithstanding the absence of a finding of reasonable care.
6. Thus, I have concluded that the application for remission of the penalty tax in part or in full should be dismissed. In those circumstances, so too should be the application for remission of the market rate of interest (particularly having regard to what was said in Lease a Leaf - see [255] above).

Conclusion

1. For the reasons set out above, I have concluded that the arrangements in question are employment agency contracts within the meaning of s 37(1) of the Payroll Tax Act; that the payroll tax was correctly imposed on the amounts paid to the subcontractors "in relation to" the procurement of the additional staff; and hence that the Assessments for payroll tax should be confirmed. I have also concluded that the penalty tax and market rate interest should not be reduced or remitted.
2. I therefore make the following order in each of the proceedings: 1. Dismiss the plaintiff's claim with costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 June 2019