Southern Cross Group Services Pty Ltd v Chief Commissioner of State Revenue

Supreme Court of NSW|2019-04-09|Before: Ward CJ, Basten JA

Judgment

HER HONOUR: In this matter, the plaintiffs, Southern Cross Group Services Pty Ltd (first plaintiff) and Southern Cross Group NSW Pty Ltd (second plaintiff), seek a review, pursuant to s 97 of the Taxation Administration Act 1997 (NSW) (Administration Act), of payroll tax assessments issued to them by the Chief Commissioner of State Revenue (NSW) (the Chief Commissioner) on 29 September 2016 in respect of the financial years ended 30 June 2011 to 30 June 2014, respectively. The Chief Commissioner in those assessments has assessed the plaintiffs for additional payroll tax pursuant to the employment agency provisions contained in Div 8 of Pt 3 of the Payroll Tax Act 2007 (NSW) (Payroll Tax Act). The plaintiffs seek a revocation of the assessments in question.
It is not in dispute that: the subject of the review are the assessments (as opposed to decisions on the objection) (Chief Commissioner of State Revenue v Paspaley [2008] NSWCA184 at [28], [53] per Basten JA, Giles and Campbell JJA agreeing); the proceedings are an "appeal" for the purpose of the Supreme Court Act 1970 (NSW) (see s 19(2) of that Act and s 97(4) of the Administration Act); the review is a de novo review not limited to the material before the Chief Commissioner (Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue (2011) 245 CLR 446; [2011] HCA 41 at [12]-[22]; Grain Growers Ltd v Chief Commissioner of State Revenue [2015] NSWSC 925 at [7] per Black J); and the plaintiffs bear the onus of proving their case on the balance of probabilities (s 100(3) of the Administration Act) i.e., they must disprove, to the ordinary civil standard of proof, the basis of assessment advanced by the Chief Commissioner (see Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 8F).

Background

During the relevant years, the plaintiffs operated a business as private security contractors. They held a master security licence for that purpose; and employed or engaged security personnel (security guards) each of whom held his or her own individual security licence.
The first plaintiff was the main contracting entity for the business. It entered into written agreements (security contracts) with clients for the provision of security services and personnel; and it employed or engaged security guards who provided security services to those clients. It also acted as subcontractor to other security companies. For the purposes of the security contracts, the first plaintiff used its own security staff, together with additional staff supplied by third party subcontractors. From July 2012, the first plaintiff contracted with the second plaintiff for the latter to supply those additional staff (which the second plaintiff also did through subcontractors). Thus, at various times, both plaintiffs had subcontracts with third parties for the provision of additional security staff to the first plaintiff (security subcontracts).
The first plaintiff's main clients fall broadly within two categories: first, property managers or operators (as opposed to the property owners themselves) of shopping centres and other facilities (including Westfield shopping centres, ALDI supermarkets, Strathfield Plaza shopping centre, the Sydney Exhibition Centre, the Citigate Central hotel (Novotel Sydney Central), the Met Centre shopping centre, and the Shangri-La Hotel, Sydney); and, second, other security companies (such as Chubb Security, Prosegur Security and Wilson Security). For the purposes of argument in the present proceedings, attention was focussed on the largest of those security contracts: being the contracts relating to the Westfield shopping centres, the Sydney Exhibition Centre and to Wilson Security (see T 1.48).
The nature of the services to be provided under the security contracts entered into between the first plaintiff and its clients was summarised in the plaintiffs' submissions and tables were provided by way of aides memoire, identifying for each financial year information under headings such as the 'sub-contractor hours' and the 'subcontractor value' in respect of the various contracts. Those services may be summarised as follows with respect to the various clients: 1. in respect of the Westfield security contracts: general security duties at Westfield shopping centres (including security patrols; crowd control; loss/theft prevention; escorting staff carrying cash), as well as additional duties (general mall management; escorting visitors; assisting Centre Management staff with customer service duties and enquiries; carrying out errands as required; attending to non-security related incidents and tasks; and providing first aid where necessary); 2. in respect of the Sydney Exhibition Centre: provision of security services specified in a tender response dated 13 December 2013; (a copy of which was not in evidence); 3. in respect of Wilson Security: provision of such security services as are requested from time to time by Wilson Security in relation to Wilson Security's customers; and 4. in respect of Prosegur Australia: provision of "First Line Maintenance", "Escort/Guarding" and "Guarding" services to Prosegur's customers (including Rooty Hill RSL).
In each case, the first plaintiff provided security personnel who attended the relevant sites as directed by the first plaintiff's clients; the security guards wore client-branded uniforms (measured and supplied by the clients); and the security guards were under the clients' instruction.
The security subcontracts between the first or second plaintiff and their subcontractors are in standard form; and provide for the subcontractors to provide such security services as the first or second plaintiff requests from time to time.

Assessments

The Chief Commissioner determined that the arrangements between the respective plaintiffs, their clients and subcontractors were "employment agency contracts" within the meaning of s 37(1) of the Payroll Tax Act. By assessments dated 29 September 2016, the Chief Commissioner assessed the plaintiffs to payroll tax on the amounts they paid to their subcontractors under the security subcontracts during the relevant years on the basis that those amounts were taken to be wages under s 40(1)(a) of the Payroll Tax Act (and liable to payroll tax under ss 6, 7 and 13(1)(e) of the Payroll Tax Act). As the plaintiffs had failed to pay that tax, the Chief Commissioner applied the market rate of interest on the unpaid tax, and imposed a 25% penalty tax. The amount in dispute is $1,655,652.69, plus penalty tax and interest.

Issue

The issue in the present proceeding is whether the security contracts, and the contract between the first and second plaintiffs, are "employment agency contracts" falling within the definition in s 37 of the Payroll Tax Act. The plaintiffs contend that they are not, on the basis that the relevant contracts are not with the "end users" of the services provided by the service providers sourced by the plaintiffs. The plaintiffs do not press their claim for remission of penalty tax and interest on any ground other than that the assessments under review are excessive; and hence their case on penalty tax and interest stands or falls with their case on s 37 of the Payroll Tax Act.
Broadly speaking, what the plaintiffs contend is that the mischief to which the employment agency contract provisions are addressed is the avoidance of payroll tax by the end user (in the present case, say, the owner of the Westfield shopping centre or the Wilson Security client; not the entity with whom the plaintiffs contract). In other words, the plaintiffs say that they are (at least) one step removed from the "end user" and that the employment agency contract provisions should not be construed as applicable to contracts of intermediaries in the chain between the service providers (here, the security guards) and the end user (here, say, the owner of the Westfield shopping centre). The plaintiffs submit that the proposition that there might be more than one employment agent in the chain between ultimate service provider and the end user should be rejected (on the basis that such a construction is unnecessary in order to address the mischief to which the legislation was intended to address and would lead to untoward or unreasonable results).
Although it is conceded that the word "end user" does not appear in s 37, the plaintiffs place weight on statements made in the second reading speech (see below at [19]) at the time of introduction of amendments to the legislation (in which there is reference to end users). The plaintiffs argue, as I understand it, that on the proper construction of the provision, there can be only one employment agent in the chain and that that employment agent must be the closest entity to the end user (in the present case, by way of example, if the end user is the owner of the Westfield shopping centre, then the employment agent must be the property manager or operator who procures the services of the security guard from the plaintiffs). The plaintiffs submit that the client of the employment agent remains, from beginning to end, the ultimate end user (see T 23.23).
The Chief Commissioner argues that the legislation contemplates that there may be multiple employment agents liable to pay payroll tax for the same set of wages (referring to s 41, which operates to ensure that double taxation is not imposed on the same set of wages) (see T 36.44ff) and that the Chief Commissioner has a discretion (if there be more than one employment agent in the chain) to impose payroll tax on any particular one of those employment agents (assuming, of course, that payroll tax has not already been paid by another employment agent in the chain) (see T 38.31ff).

Relevant provisions

Section 37 of the Payroll Tax Act provides 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.
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".
Broadly, therefore, the effect of Div 8 of Pt 3 of the Payroll Tax Act, in which ss 37-40 are to be found, is to impose payroll tax on employment agents who provide the services of third parties to their clients.
Section 41 provides that: 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 employment agency contract provisions were considered in Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 (Freelance Global) and UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852; (2016) 104 ATR 577 (UNSW Global) by White J, as his Honour then was; and more recently in JP Property Services Pty Limited v Chief Commissioner of State Revenue [2017] NSWSC 1391 (JP Property Services) by Kunc J and by me in both HRC Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 820 (HRC Hotel Services) and Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 657 (Bayton).
The legislative background to the employment agency contract provisions of the previous legislation (the Payroll Tax Act 1971 (NSW) (the 1971 Act)) was considered in Freelance Global (at [143]-[148]). Relevantly, his Honour there set out (at [146]) what was said by the Minister for Employment and Minister for Finance in 1985 when introducing the bill that became the Payroll Tax (Amendment) Act 1985: I turn now to the subject of tax avoidance. It is a most unfortunate fact that in every walk of life there is a small minority of people who, by their unscrupulous behaviour, spoil things for everyone else. Thus it is that there has been a significant increase over the years in the use of artificial schemes and contrived arrangements by taxpayers attempting to avoid their liabilities to taxation. This has occurred in the area of pay-roll tax, just as it has in other more celebrated fields such as income tax. This bill includes a number of measures which will catch schemes designed to avoid liability for pay-roll tax by severing the employer-employee relationship. Such arrangements have included the use of so-called contractors to replace wages staff. Typical of the situations that are known to exist and are the target of the legislation is the employer who, by arrangement with an employee, enters into a contract for service with the employee's family trust, partnership or company for the provision of the employee's services. The employee then performs the services for the employer but his salary is paid to the trust, partnership or company, resulting in the avoidance of pay-roll tax by the employer. Certain contracts will be exempted from liability for pay-roll tax, including contracts in excess of $500,000 where the contractor would need to hire staff and would therefore be liable for pay-roll tax. Bona fide independent contractors will not be caught by the legislation. A second are [sic] of avoidance that is dealt with by this bill is the use of employment agents. Such agents are being used increasingly by employers, particularly in the recruitment of professional people and also for temporary staff. In some cases it has been claimed, by virtue of the arrangements entered into, that the person whose services are provided is employed by neither the contract agent nor the client. The arrangements entered into have sometimes also involved the use of trusts, partnerships or companies. 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.
With effect from 1 January 1988, the legislation was amended (see the Payroll Tax (Amendment) Act 1987 (NSW)), such that the liability for payroll tax for workers engaged through an employment agent (as defined) was borne by the client "using the worker's services" (see the explanation given by the Minister at the time, as extracted at [147] of Freelance Global), rather than by the employment agent. However, there was a subsequent amendment (which followed the introduction in Victoria of comparable legislation, after the decision in Drake Personnel Ltd v Commissioner of State Revenue [2000] VSCA 122; [2000] 2 VR 635 (Drake Personnel)) again placing liability for payroll tax in respect of moneys paid for the services of contractors procured by an employment agent on the employment agent (rather than the client). At the time, the Minister said the following, making various references to the "end user": The Pay-roll Tax Act currently provides that wages paid to temporary staff provided through employment agents are taxable in the hands of the end user of the labour services. An administrative arrangement allows the agent to take responsibility for the tax but only if the end user agrees. Traditionally, the majority of temporary staff have been accepted as common law employees of the end user. Some are deemed to be employees under the relevant contract provisions. The relevant contract provisions are anti-avoidance provisions designed to bring to tax wages paid to persons who are, for all intents and purposes, performing duties similar to those of employees. Recent judicial pronouncements in other jurisdictions have confused the issue of liability to the point that employers and employment agents are unsure of their obligations. The uncertainty has prompted refund claims by employment agents which are likely to reach some $200 million in New South Wales alone. Those claims represent windfall gains for employment agents as the payroll tax would already have been passed on to the clients. To secure the traditional tax base and make taxpayers [sic] obligations and point of liability absolutely clear, the bill introduces specific provisions relating to payments to workers engaged through employment agents. The agent will now be liable for payroll tax, bringing New South Wales into line with Victoria, Western Australia, South Australia and Queensland. The other jurisdictions do not have specific agency provisions. [my emphasis]
The genesis of the term "end user" in this context is, thus, to be found in the explanation given by the Minister of the legislative change that was intended to deal with the effect of the decision in Drake Personnel and to place liability for payroll tax once again on the employment agent rather than the client "using the worker's services" (the client there being referred to as the "end user").
In UNSW Global, White J accepted the proposition that the Payroll Tax Act did not effect any change, in substance, to the provisions of the 1971 Act (see at [58]) and identified the "mischief" to which s 37 was directed as being "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" and "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" (see at [30]; [41]).

Plaintiffs' submissions

As adverted to above, the plaintiffs contend that the relevant contractual relationships do not constitute the provision of services for the plaintiffs' clients. The plaintiffs characterise the position, having regard to the key contractual terms of the relevant contracts, as being that: the plaintiffs source "service providers", being the people who actually perform cleaning and security services (the service providers), i.e., the security guards; and the plaintiffs contract with other entities (the contractors), i.e., say, the shopping centre operators (or in the case of the second plaintiff, with the first plaintiff), who themselves have contracts (either directly or via other contractor(s)) to provide services to others (the end users), i.e., here, say, the owners of the shopping centres. The plaintiffs emphasise that there are no direct contracts as between the taxpayer and the end users with respect to the provision of the services of the service providers.
The plaintiffs argue that, notwithstanding that they procure the services of the service providers, this is done in the context of a "chain" of contractual relationships. In circumstances where: the plaintiffs do not have a direct contractual relationship with the end user (their agreement being with another contractor); and they are not the employment agent with the closest relationship with the end user.
It is submitted that even if the taxpayer (i.e., each of the plaintiffs) is considered an "employment agent" (though it is not conceded that, on the proper construction of the relevant section it is - see T 35.20-39), the taxpayer is not procuring the services of the service providers in and for the conduct of the business of the contractors, in the sense that the service providers do not help the contractors conduct their business in the same way (or much the same way) that the contractor's employees would. Thus, it is said that the relationship as between the contractors and the end users (with respect to the service providers) is at least one-step removed.
The plaintiffs here contend that the contractual relationships are not within the intended scope of the employment agent provisions as: the plaintiffs are not party to a contract "under which" they "procure the services of another person in and for the conduct of the business of the employment agent's client" (see [62] in UNSW Global); the plaintiffs do not, with their contracts with the contractors (as opposed to subsequent contracts where the end user is a party) "help the client (i.e., the contractor) conduct its business in the same way, or much the same way, as it would do through an employee" (see [64] in UNSW Global); and the plaintiffs do not, with their contracts with the contractors (as opposed to subsequent contracts where the end user is a party) "provide individuals who would comprise, or would be added to the workforce of the client for the conduct of the client's business" (see [63] in UNSW Global).
It is, thus, submitted that, although the services are provided for the relevant client (i.e., contractor's benefit), the services "are not provided by the service provider working in the client's business" (see [65] in UNSW Global); and that the service providers do not comprise, nor are they added to, the workforce of the client for the conduct of the client's business (see [74] in JP Property Services).
The plaintiffs emphasise that they have contracted with various entities which themselves are not the direct recipients of the relevant services; and argue that it is the employment agent closest to the client (i.e. the person for whom the services are actually provided) who is liable to pay payroll tax (submitted that it is the employment agent who is closest to the client (being the end user) who is procuring services "for" the end-client, in the sense of "in and for the conduct of those businesses" (referring to what was said at [153] in HRC Hotel Services).
The plaintiffs submit that the present matter is distinguishable on its facts from that considered in HRC Hotel Services; in that, there, the taxpayers had direct contracts with various hotels, which were referred to as "hotel client contracts" (see [24] in HRC Hotel Services). Emphasis is placed on the observation (at [114] in HRC Hotel Services) that: … the words "under which" require there to be a connection between the contract asserted to be the employment agent contract (here, the hotel client contracts) and the procurement of the services of the other person (the service provider, here the additional staff - or, as suggested at one point in the course of argument by Counsel for the Chief Commissioner, the subcontractor companies themselves from whom the additional staff were procured...). This requires consideration of whether the services or the service provider are procured in order for the party procuring those services to meet its obligations under the asserted employment agency contract. [emphasis added]
The plaintiffs point out that in the present case the contracts to which the plaintiffs are party are at least one step removed from those which were considered in HRC Hotel Services and, hence, that the relevant question here to be considered was not addressed in that case (namely, whether the plaintiffs, who do not have a direct contract with the end user, are procuring the services of the service provider "for a client of" the plaintiffs as required by s 37(1) of the Payroll Tax Act).
The plaintiffs argue that in both UNSW Global and JP Property Services there was a distinction drawn between, on the one hand, services provided to help the client conduct its business in the same way (or much the same way) as it would have through an employee and, on the other, services which are not provided by the service provider working in the client's business (although it may be provided for the client's benefit). The plaintiffs submit that, having regard to the relevant contractual terms outlined in their amended Schedule, the service providers (who may be procured by the taxpayer) do not provide services "for" the contractors but rather for the end users. They argue that, whilst the providers providing the services may be for the benefit of the contractors, the relevant test is whether they are enabling the end user (not being a client of the taxpayer) to help the end user conduct its business in the same way as the end user would have through its employees.
It is submitted that the consequences, if the construction contended for by the Chief Commissioner is correct, are unintended (having regard to the second reaching speech referred to above and the mischief there identified) and far-reaching, such that the Chief Commissioner's construction should not be adopted.

Chief Commissioner's submissions

The Chief Commissioner points to the construction given to s 37(1) in UNSW Global; JP Property Services and HRC Hotel Services and contends that the relevant test is whether the employment agent procures the services of individuals who would comprise or be added to the workforce of the client for the conduct of the client's business. The Chief Commissioner argues that the following are indicia as to whether service providers are working in and for the conduct of a business: first, the location of the work performed; second, whether the work is of a kind done "in the ordinary conduct of the client's business" (contrasting engagements for particular projects or one-off events with the provision of services as part of the usual or regular functions of the business and submitting that services are more likely to be provided in and for the conduct of a business if they are necessary for the business, are provided on a regular basis, and/or are provided by a continuous workforce (that is, with reasonable continuity of staff)); and, third, whether the work "would otherwise have been done by the [client's] employees".
The Chief Commissioner says that, here, the first plaintiff procured the services of subcontractors (including the second plaintiff) to perform work under the security contracts, and the second plaintiff procured the services of subcontractors to perform work under its contract with the first plaintiff (noting that the "service provider" referred to in s 37 of the Payroll Tax Act need not be a natural person). In this regard, the Chief Commissioner submits that in the present case, the "service providers" under the employment agency contracts (the security contracts and the contract between the first and second plaintiffs) are the subcontractors, while the deemed employees under s 39 of the Payroll Tax Act are the security guards (natural persons).
For the following reasons, the Chief Commissioner submits that the respective plaintiffs' security staff worked in and for the conduct of their clients' businesses.
As to the first plaintiff, the Chief Commissioner points to the plaintiffs' evidence: that, where the first plaintiff's client was a property or facility manager, the first plaintiff's security staff (employees and subcontractors) worked on site at the client's premises; where the first plaintiff's client was a security company (Chubb Security, Prosegur Security or Wilson Security), the first plaintiff's security staff worked on site at the premises where the security companies were providing security services to their own clients; that the first plaintiff's security staff wore uniforms measured and supplied by the client, with the client's branding (not either plaintiff's branding); and that the first plaintiff's security staff performed their duties in accordance with the client's instructions (i.e., under the direction of the property or facility managers or security companies) and, thus, were integrated into the client's business and command structure.
It is submitted that, since the security staff wore uniforms supplied by the client and branded with the client's logos, it may be inferred that: the security staff appeared from the outside to be employees of the client (because of the branded uniforms); the security staff interacted with the public (otherwise there would be no need for uniforms); and there was significant staff continuity (since otherwise, it is said, it would not be worth measuring and supplying a uniform for each security guard).
The Chief Commissioner argues that those factors (the guards working on site, in client uniforms, and under the client's direction) show that the security guards were working in and for the conduct of the client's business. (It is noted that in Knight Watch Security Services Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 223 (Knight Watch) at [84]-[88], Senior Member Isenberg relied on similar circumstances in concluding that the taxpayer had failed to show, through its evidence, that the security guards whose services the taxpayer procured were not working in the businesses of the taxpayer's clients (so as to prove that any amounts in the relevant assessments were incorrect).)
The Chief Commissioner points to the following additional factors that are said to confirm that the first plaintiff's security guards worked in and for the clients' business(es): first, the evidence that the plaintiffs "deliver an integrated service combining security, training and technology ensuring [their] clients, their [clients'] guests and staff experience a welcoming and safe environment" (and, thus, it is said that the first plaintiff's staff are integrated into the clients' businesses); second, that where the first plaintiff's client was a property or facility manager, the security services were provided to ensure a safe and comfortable environment for shopping centre customers and hotel guests (and, thus, it is said that those services were part of the clients' management and operation of the properties/facilities and occurred within the clients' businesses); third, that the role of a security guard is likely to involve regular interaction with the client's staff and customers, and therefore integration into the client's workforce ; fourth, that in the case of security companies, those companies operated businesses in which they provided security services and personnel to their clients and the first plaintiff's security staff were added to the workforce of those companies by providing security services to clients of those companies in the same way as those companies' own employees did; fifth, that the security contracts indicate the work was provided regularly over a period of years, not on a one-off basis; and, finally, that had the clients not engaged an external security contractor such as the first plaintiff, the clients would have needed to employ their own security staff (noting, by way of example, that Westfield property managers had their own internal security managers and could if necessary have employed internal security guards).
As to the second plaintiff, the Chief Commissioner says that the security subcontract was an "employment agency contract" for the purposes of s 37(1) of the Payroll Tax Act, being a contract under which the second plaintiff (the employment agent) procured the services of others (subcontractors, or individual guards) to work in and for the business of the second plaintiff's client (the first plaintiff); on the basis that the security staff procured by the second plaintiff were added to the workforce of the first plaintiff by providing security services to clients of the first plaintiff in the same way as the first plaintiff's own employees did.
The Chief Commissioner further says that, consistent with the position that the second plaintiff supplied staff to work in the first plaintiff's business, the second plaintiff's tax returns for the relevant years describe its main business activity as "Employment Placement and Recruitment Services" or "Employment agency operation" and submits that this confirms that the second plaintiff was an employment agent under s 37 of the Payroll Tax Act.
The Chief Commissioner contends that the "end user" construction advanced by the plaintiffs should be rejected: first, because there is no reference in s 37 (or in the Act as a whole) to an end user; second that introducing a concept of end user in a chain of contractual relationships would introduce unnecessary complications and ambiguity (posing the example as to who, in the context of hotels, is the end user of the cleaning services; or who, in the context of security guards is the end user of their services); and, third, that it introduces a false dichotomy (in that it assumes that one can only work in one business at a time) (see T 39.44-50.8).
The Chief Commissioner says that although the plaintiffs suggest the "end users" of their security services were the "responsible entities" or other property owners, it could equally be said that the end users were the shopping centre tenants or customers. Further, it is submitted that even if the term "end user" can be properly defined (and made relevant under the Payroll Tax Act), it is not clear that the plaintiffs' security staff were working in the businesses of the "end users"; rather, it is more likely, in circumstances where the property managers, not the owners, are the operational entities with day to day employees and staff that the plaintiffs' security staff were working in the managers' businesses, not those of the owners (although it is submitted that a person can clearly work in more than one business at the same time (referring to what was said in JP Property Services at 54 and [69] (citing Freelance Global at [173])). Thus, it is submitted that even if the plaintiffs' security staff were also working in the businesses of the "end users", that in no way detracts from the propositions advanced by the Chief Commissioner that: the security contracts were contracts under which the first plaintiff (employment agent) procured the services of others (subcontractors or security guards) to work in the businesses of the first plaintiff's clients (property or facility managers and security companies); and that the second plaintiff's contract with the first plaintiff was a contract under which the second plaintiff (employment agent) procured the services of others (subcontractors or security guards) to work in the businesses of the second plaintiff's client (the first plaintiff). The Chief Commissioner, thus, argues that the plaintiffs' argument sets up a "false dichotomy" between working in the businesses of the "end users" and working in other businesses along the contractual chain.
As to the plaintiffs' argument that there is no direct contractual relationship between the plaintiffs and end users, the Chief Commissioner says that a "client" of the employment agent need not be someone with whom the agent has a direct contractual relationship (giving, as an example, that of a barrister representing a litigant, which it is said shows, supported by s 39 of the Payroll Tax Act, that a person receiving professional or labour hire services can be someone's "client" even without a direct contractual relationship).
Finally, as to the argument by the plaintiffs that only the employment agent "closest" to the "end user" is liable to payroll tax, the Chief Commissioner argues that the effect of ss 37-41 of the Payroll Tax Act is that all employment agents in the chain are liable to pay payroll tax (though noting that, under certain circumstances, liability is excused under s 41 of the Payroll Tax Act).
The Chief Commissioner argues that the intent of s 41 is to ensure that, in the circumstances to which it applies, double taxation is not imposed on the same set of wages; noting that s 41 does not specify that any particular employment agent is liable to pay the payroll tax. The Chief Commissioner, thus, submits that the effect of the payroll tax regime is that all employment agents in the chain are liable for payroll tax, unless liability is excused under s 41.
Insofar as s 41 assumes that, absent that section, multiple employment agents may be liable to pay payroll tax for the same set of wages, the Chief Commissioner says that this provision would be unnecessary if (as the plaintiffs contend) only the employment agent closest to the "end user" is liable for payroll tax; and that this shows that the plaintiffs' construction of s 37 is incorrect, as there is no possibility of double taxation under that construction.
The Chief Commissioner further notes that a similar argument (that only the employment agent "closest" to the "end user" is liable to payroll tax) was considered and rejected in Knight Watch at [35]-[61].
The Chief Commissioner argues that this confirms that the security contracts, and the contract between the first and second plaintiffs, were "employment agency contracts" for the purposes of s 37 of the Payroll Tax Act, because they were agreements under which the plaintiffs procured the services of others (subcontractors and/or security guards) to work in and for the conduct of their clients' businesses; and says that there is no evidence that payroll tax has been paid (for example, by the property managers) so as to excuse liability under s 41 of the Payroll Tax Act.

Determination

The fundamental issue on which this case turns is as to whether, on the proper construction of the employment agency contract provisions of the Payroll Tax Act, where there is a chain of contractual arrangements leading up to the procurement of the services of another person or persons (the service providers) for an end user (the client) it is only the "employment agent" closest in that chain to the end user on whom liability for payroll tax arises. I have concluded, for the following reasons, that the plaintiffs' contention to that effect is not correct.
First, although this is the factor on which I place least weight, there is the potential ambiguity as to the identification of the end user in any given circumstance. The reason I place little weight on this is because, although I accept that one might argue that the end user of the relevant services in the present case is, say, a shopping centre customer or visitor who is assisted by a security guard (as falls within the scope of the Westfield security staff for example) or, less obviously but no less importantly, users of the shopping centre who benefit from the protection of the covert surveillance of security staff against security threats (or, in the HRC Hotel Services scenario, the hotel guest who benefits from a clean room), such an extension of the concept of "end user" does not sit comfortably with the context in which references to the end user were made in the second reading speech extracted above. There, the concept of end user was to someone in whose hands wages paid to temporary staff are to be taxable (which could not sensibly encompass a shopping centre customer or hotel guest) or someone onto whom the payroll tax would already have been passed by the employment agent, thus, giving rise to potential windfall benefits for the employment agent (again, a scenario difficult to apply to the shopping centre customer or hotel guest, although I accept that indirectly such taxes might be encompassed in the charge for products or services).
Second, although there was certainly reference in the second reading speech to the concept of the "end user" (synonymously, in my opinion, with the concept of the client using the services of the workers or service providers), there is no reference to "end user" in the legislation. Care needs to be taken not to read into the legislation words that one considers (by reference to extrinsic materials) that the legislature might have intended. See for example, the admonition by Mason CJ, Wilson and Dawson JJ in Re Bolton; Ex parte Beane (1987) 162 CLR 514 at 518; [1987] HCA 12, albeit in a very different (there, criminal) context (discussed by the Court of Criminal Appeal in A2 v R; Magennis v R; Vaziri v R [2018] NSWCCA 174 at [422]): The words of a Minister must not be substituted for the text of the law. Particularly is this so when the intention stated by the Minister but unexpressed in the law is restrictive of the liberty of the individual. It is always possible that through oversight or inadvertence the clear intention of the Parliament fails to be translated into the text of the law. However unfortunate it may be when that happens, the task of the Court remains clear. The function of the Court is to give effect to the will of Parliament as expressed in the law.
In Harrison v Melhem (2008) 72 NSWLR 380; [2008] NSWCA 67 Spigelman CJ at [12] noted that statements of intention as to the meaning of a word in a second reading speech or parliamentary speech are usually not capable of assisting with the ascertainment of the meaning of the provisions.
In that regard, this is certainly not a case where I could form the opinion that a reference to end user was not included through inadvertence of the legislature (see for example Ex parte Fitzgerald; Re Gordon (1945) 45 SR (NSW) 182 at 186 per Jordan CJ; Krakouer v The Queen (1998) 194 CLR 202; [1998] HCA 43 at [63] per McHugh J).
Third, and most significantly in my opinion, the legislation contemplates that there might be more than one person liable to pay payroll tax (since otherwise s 41 would not have been necessary). True it is that this would encompass the possibility that both the client (or end user) and the employment agent closest in the chain might have a dual liability to pay payroll tax in respect of the same service providers, but there is no reason not to think that this would also encompass another employment agent in the chain of arrangements leading up to the ultimate provision of the service providers' services.
There was reference in the course of argument to the fact that the imposition of payroll tax liability on the plaintiffs (not being closest in the chain to the shopping centre owners or the like) is not consistent with the Chief Commissioner's own administrative procedure and ruling (a reference, as I understand it, to the Chief Commissioner's Revenue Ruling No. PTA 027 that was considered in Knight Watch (see [28]-[61]) - that Ruling providing that the Chief Commissioner will hold the employment agent "closest to the ultimate client" liable for relevant payroll tax (see [31] of Knight Watch)). However, it was not suggested that the ruling had any binding force (it being described in Knight Watch at [60] as representing no more than "an administration procedure adopted by the Chief Commissioner"). Nor do the Chief Commissioner's administrative processes have any legislative force (see the discussion from T 37.26).
True it is, that (as the plaintiffs contend) the mischief sought to be addressed by the employment agency provisions is met at one level by the construction put forward by the plaintiffs. However, I am not persuaded that reading the words of the section literally (albeit with the interpretation cast on them in UNSW Global, which I accept does involve the reading into the section of limiting words - namely, "in and for the conduct of the client's business" rather than "for the client"), so as to encompass employment agents falling intermediately within the chain of contractual arrangements (so to speak) or (as it was described in oral submissions) upstream or downstream of the end user (depending on which end of the chain one stands), leads to unreasonable or unforeseen consequences. Nor am I persuaded that any such consequences could not be adequately addressed in parties' contractual arrangements.
Rather, it seems to me that the mischief to which s 37 is addressed is further accommodated by leaving it to the Chief Commissioner's discretion, where there is a situation of multiple employment agents, as to where the imposition of payroll tax should lie: first, because this avoids the possible incentive of structuring arrangements through a series of intermediate contractual arrangements which might have the effect of avoiding payroll tax liability (though I am by no means suggesting that this was the case here) and, second, because this protects the tax revenue in circumstances where (as postulated in submissions for the Chief Commissioner) a "closest to the end user" test may result in an inability to recover tax if that entity were to become insolvent (see the discussion from T 38.31).
Accordingly, I have concluded that the plaintiffs' challenge to the assessments based on what I have termed the "closest to end user" argument does not succeed. Applying then the test articulated in UNSW Global and applied in JP Property Services and HRC Hotel Services to the present facts, as to whether the security staff are provided to the respective clients (the first plaintiff's clients in the case of the first plaintiff; and the first plaintiff in the case of the second plaintiff) in and for the conduct of the client's business, I am of the opinion that this test is satisfied.
The first plaintiff's security staff work on-site at the clients' premises and, albeit that they wear the clients' branded uniforms, they are sufficiently integrated into the clients' businesses to be seen as additions to the clients' workforces. I accept the submissions of the Chief Commissioner in this regard. This is perhaps most evident in the cases where (as with Westfield) there is already an internal security staff component to which the plaintiffs' service providers are added.
Similarly, I am satisfied that the security staff procured by the second plaintiff are added to the workforce of the first plaintiff for the purpose of the provision of their services to the first plaintiff's clients as are the first plaintiff's own employees (though I place no weight on the description included in the headings in the second plaintiff's tax returns in reaching that conclusion).
Thus, I have concluded that the plaintiffs' respective contractual arrangements are arrangements "under which" each (as an employment agent) procures the services of security staff for a client of the plaintiff; and that there is the requisite connection between the contractual arrangements and the provision of services "in and for the conduct of" the respective client's business.

Orders

For the above reasons, the assessments under review should be confirmed and the plaintiffs should pay the Chief Commissioner's costs. I therefore make the following order: 1. Dismiss the plaintiffs' summons 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

Taxation Administration Act 1997(NSW)

Payroll Tax (Amendment) Act 1987(NSW)

Payroll Tax Act 1971(NSW)

(Div 8, Pt 3) Supreme Court Act 1970(NSW)

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