Payroll Tax (NSW): Employment agency contract test confirmed

The NSW Court of Appeal has ruled there is no compelling reason to depart from the “employment agency contract” test set out in UNSW Global Pty Ltd v Chief Commissioner of State Revenue (NSW) ATC 2016 ¶20-599; [2016] CSNSF 1852 (UNSW Global).


The taxpayer was the principal operating company of a group of companies that provided security services to its customers. Following an audit, the Commissioner assessed the payroll tax on the taxpayer for the years ending June 30, 2016 to 2018. The assessments related to the payroll tax in respect of the salaries of the security officers whose services had been outsourced to third parties.

The issue was whether the arrangements between the taxpayer and its customers (or, alternatively, the arrangements between the taxpayer and its wholly-owned subsidiaries) were “temporary agency contracts» as defined in art. 37 of the Payroll Tax Act 2007 (NSW).

At trial, Chief Justice Ward found (at 2021 ATC ¶20-800; [2021] NSWSC 1190) that the arrangements by which the taxpayer provided babysitting services to clients did not constitute placement agency contracts and did not give rise to payroll tax liability. It was common ground before the main judge that the definition of “temporary agency contract” in s 37 should be interpreted in accordance with the reasoning in UNSW Global to [62]namely that an employment agency contract was a contract under which “a person retains the services of another person in connection with and for the conduct of the affairs of the client of the employment agency”.

The Commissioner appealed the first instance decision. However, before the appeal was heard it was suggested in Bonner & Anor v Chief Commissioner of State Revenue (NSW) 2022 ATC ¶20-826; [2022] NSWSC 441 that the construction in UNSW Global was flawed and warranted appellate review. The Commissioner amended his notice of appeal to include a review of existing case law.

The commissioner’s main argument was that the overall construction of the UNSW imposed an unwarranted gloss on the definition of temporary agency contract, thus departing from and restricting the legislative text, contrary to ordinary principles of statutory interpretation. In addition, the interpretation had negative practical consequences for the operation of the legislation (such as the exclusion from the scope of the legislation of cases where entities had services provided domestically).


According to the New South Wales Court of Appeal, there was a strong inference that the legislature should be taken to have approved construction in UNSW Global in circumstances where the commissioner had routinely introduced and championed legislation based on the provisions presumption of the placement agency contract, had always proposed the test initially proposed by him in 2016, and where the legislation had been reviewed very regularly.

The court said the construction in UNSW Global reflected a not anomalous meaning of the statutory words “procure the services of another person for a client of the employment agent” and accorded with the purpose of the law on payroll tax by taking relationships that do not correspond to traditional employer/employee relationships and treating them as such. Accordingly, there was no compelling reason to deviate from the UNSW Global test.

Source: Chief Commissioner of State Revenue (NSW) v E Group Security Pty Ltd 2022 ATC ¶20-833; [2022] NSWCA 115July 6, 2022.