The Queensland Court of Appeal upheld a Supreme Court ruling that 2 taxpayers did not purchase the services of their employees under employment agency contracts but were instead ordinary employers, submitting the compensation of employees for their payroll tax services.
The taxpayers were 2 companies that entered into contracts to provide services to a school and a hospital (the clients). Under the contracts, taxpayers were required to provide qualified personnel to perform the agreed services, supervise staff and ensure compliance with occupational health and safety requirements. The first taxpayer was reimbursed for all expenses, including salaries and social charges, and received an annual performance fee. The second taxpayer received fees, partly fixed and partly variable, at specified hourly rates for the labor supplied. Each of the taxpayers also entered into employment contracts with their own workers to provide the contractual services, under which the workers were employed full time at the clients’ premises.
The commissioner assessed the taxpayers for payroll tax on the grounds that they were ordinary employers. Taxpayers objected to the assessments, then asked the Supreme Court to review the commissioner’s decision to dismiss their objections. At first instance, the main question was whether the agreements between the taxpayers, their clients and their employees constituted an “employment agency contract” under Article 13G (1) of Division 1B of point 2 of the Payroll Tax Act 1971 (Qld) (the Act).
The taxpayers argued that the client contract and the employment contract taken together constituted employment agency contracts within the meaning of Article 13G. The taxpayers argued that they obtained a service under an employment agency contract by ordering their employees to provide a service to their client in order to fulfill contractual obligations. Payments would have been exempt from payroll taxes if they had been made directly by clients, both of which were charities. As the clients had made the required declaration, payments from taxpayers to employees should have been exempt under section 13J (2) of the Act.
The Commissioner argued that subsection 13J (2) did not apply since the taxpayers were ordinary employers. The Commissioner argued that the section only applied when the scope of the payroll tax had been extended to an employment agency under section 13J (1). The article did not apply to exclude payments of taxable wages where an employer / employee relationship was clearly established. Even if the article were to apply to ordinary employers, taxpayers had not obtained the services of others for their clients within the meaning of article 13G (1). Taxpayers were not placement agents but rather provided services to clients through their employees.
Supreme Court decision
At first instance, the Supreme Court (CJ Holmes) concluded that division 1B did not apply to taxpayers because the division did not apply to ordinary employers: 2020 ATC ¶20-751. According to Chief Justice Holmes, employers were not placement agents within the meaning of the definition in section 13G. The phrase “procuring the services of others” was not intended to apply when an employer orders, or even hires, an employee to provide services to a client. In addition, section 13J (2) could only apply to certain payments made by employment agencies and considered as wages for the purposes of payroll tax under section 13J (1). . The section does not exempt payments taxable under the general provisions of the Act.
From this decision, the taxpayers appealed to the Court of Appeal, where they mainly argued that Division 1B applied to a common law employer and that the dictionary definition of “salary” did not apply to an employment agency contract. As a result, they were entitled to exemption under section 13J (2) and no payroll tax applied. Taxpayers have pointed out that the corresponding New South Wales (NSW) payroll provisions (and, in particular, Section 3C (4) of the Payroll Tax Act 1971 (NSW) ) had been interpreted according to which the provisions relating to the employment agency contract applied to an ordinary law. employer. Taxpayers stressed the importance of consistent interpretation of Queensland law with “substantially the same” law in NSW and Victoria.
The Commissioner’s position was that the trial judge’s decision was correct. The “only meaningful interpretation” of the placement agent provisions in the context of the Act as a whole was one that did not apply these provisions to employer / employee relationships. In any event, Division 1B did not cover the area of liability to tax on the salaries of employment agents. The Commissioner recognized that section 3C (4) of the NSW Act may have had the effect requested by taxpayers. This section was intended to exempt any payment made by a placement agent to an employee under a placement agency contract. It could apply to any payroll tax liability, be it wages or other payment. However, Section 3C (4) was not and never had been part of Queensland law. The taxpayers’ argument was also based on the fact that the interpretation of the comparable NSW provisions was settled, which was in dispute.
Decision of the Court of Appeal
The judges of the Court of Appeal (Judge Morrison, Judge Philippides and Judge William) dismissed the appeal unanimously, finding that the interpretation adopted by the Chief Judge at trial and defended by the Commissioner was correct. Section 1B did not apply to common law employers and, therefore, employers were not placement agents. The key question of when Division 1B applied had to be considered in the context of the Act as a whole. In undertaking such a consideration, the various factors supporting an interpretation that the provisions of Division 1B did not apply to the employer / employee relationship became evident.
According to the principal judgment of William J, Division 1B operated to include payments made under employment agency contracts in wages and the liability for payroll tax under Division 1. It viewed placement officers as employers, workers providing services to clients as employees. , and amounts paid to such workers under employment agency contracts constitute wages for the purposes of the Act. The deeming provisions in effect created a “legal fiction” and would have no effect where what was deemed to be in reality the actual fact. This construction did not lead to any conflict between Divisions 1 and 1B. The taxpayers’ assertion that Division 1B operated as a code was not established on the basis of a review of the Act as a whole.
With respect to taxpayers’ recourse to the interpretation of comparable provisions in NSW, the court said that the language of section 3C of the NSW legislation was quite different from that of section 13J (2) of the law. The trial judge’s conclusion that taxpayers’ interpretation of subsection 13J (2) would require an impermissible “interpretation of the words” was not in error. The words of Article 13J (2) could not work to achieve the same result as Article 3C without something else. Therefore, recourse to the authorities in the NSW case did not provide any real help in the construction exercise undertaken.
Source: Compass Group Education Hospitality Services Pty Ltd & Anor v Commissioner of State Revenue (Qld) 2021 ATC ¶30-022;  QCA 98, May 11, 2021.