Payroll Tax – Non labour component of relevant contracts (NSW)

In Complete Wardrobes and Shower Screens Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 97, the NSW Civil and Administrative Tribunal (NCAT) affirmed the decision by the  Chief Commissioner of State Revenue that the Applicant’s contracts with its sales agent and installers were not contracts for the conveyance of goods. Further, the Applicant was only entitled to significantly reduced deductions in respect of the non-labour component of payments made under the contracts and the Commissioner was not  bound to deductions in respect of the non-labour components of the contracts that had been previously applied under a compromise assessment from an earlier payroll tax audit.

In handing down its decision in favour of the applicant, NCAT noted that:

  • While the installers conveyed goods in the course of providing their services, the  contracts were not contracts for the conveyance of goods. Instead, the contracts were for the provision of installation services  of shower screens and/or wardrobes for clients of the Applicant. Any work involving the conveyance of goods was found to be ancillary to the provision of installation services, and
  • Even though both sales agents and installers were understood to have costs that were relevant for the purposes of determining the non-labour component (ie. maintaining vehicles, mobile phones, insurance, supplying and maintaining tools etc.), as specific evidence of these costs was not provided, NCAT was unable to rule against the reduced non-labour component allowed by the Chief Commissioner.

As the contracts were found not to be for the conveyance of goods, they were not exempt contracts under s32(2)(d)(i) of the Payroll Tax Act 2007 (the Act) and were therefore taxable, subject to the allowable deduction in respect of the non- labour component of payments made under the contracts. In the absence of sufficient evidence being provided by the Applicant in respect of the non-labour component, NCAT affirmed the reduced deductions allowed by the Chief Commission of 25 per cent and 0 per cent for payments made to installers and sales agents respectively.

Documents submitted by the Chief Commissioner suggested that the contractors would need to change their invoicing system to clearly highlight the labour costs from expenses and materials if a higher non-labour component was to be allowed.

Payroll Tax – Employment Agency Contracts (NSW)

In Health Service Pty Ltd v Chief Commission of State Revenue [2014] NSWCATAD 83, NCAT found that the employment agency contract provisions in the Act were able to be applied to an employer in a common law relationship with the worker who ultimately provided the services to the end-user client.

Following the recent case, Freelance Global Ltd v Chief Commissioner of State Revenue [2014] NSWSC 127 (see our April edition of TaxTalk Monthly for details), the NCAT agreed that contracts between Health Service and its clients were clearly employment agency contracts and found no reason to suggest that the employment agency contract provisions should be read narrowly so as not to apply to common law employers. Accordingly, arrangements with common law employees that fall into these provisions should be subject to payroll tax as employment agency contracts, rather than under the general wages taxing provisions in the Act, as the more specific provision is deemed to override the general provision.

While this would not have typically impacted the taxpayer’s payroll tax liability as wages paid to common law employees are ordinarily taxable, as the workers were providing a service to the end- user client who was a non-profit organisation that was exempt from payroll tax and Health Service had been provided with a signed declaration to that effect by the end-user client as required by the Act, payments made to these workers by Health Service as part of the employment agency contract were exempt from payroll tax under s40(2) of the Act.

Payroll Tax - Bills currently before Parliament

Following the recent announcement of the various State Budgets, there are a number of new bills currently being considered by Parliament as follows:

  • State Revenue Legislation Further Amendment Bill 2014 [NSW] – Amendments to the Payroll Tax Act 2007 to clarify and restrict a number of contractor exemptions including services ancillary to the conveyance of goods by vehicle, services provided in relation to the procurement of persons who want to be insured and services provided in relation to the door-to-door sale of goods solely for domestic use.
  • State Revenue Legislation Further Amendment Bill 2014 [NSW] – Amendments to the Payroll Tax Rebate Scheme (Jobs Action Plan) Act 2011 to permit a rebate to be claimed for an internally transferred employee who is employed in a new job.
  • Taxation Legislation Amendment Bill 2014 [WA] – Amendments to the Pay-roll Tax Assessment Act 2002 to restrict the existing payroll tax exemptions that apply to charities that have been established and carried on for the promotion of trade, industry or commerce, unless the sole or dominant purpose of that charity is the relief of poverty, the advancement of education or the advancement of religion.
  • Payroll Tax Amendment Bill 2014 [ACT] – Amendments to the Payroll Tax Act 2011 to remove the ‘genuine employer’ exemption found at Schedule 2, Part 2.3, section 2.14 (1) (g), which was available to employment agents on wages paid to subcontractors where the subcontractor was a bona fide employer in its own right. The removal of this exemption is designed to increase the level of consistency between the states and reduce complexities in administration and application.