Modelling agencies were taken to be employers of models and thus liable for payroll tax. The taxpayers (each for a separate period of time) operated a business, acting as agents for persons seeking work as models in advertising and promotional material. The business also involved entering into contracts with clients to supply the services of models. This is an interesting but ultimately unsatisfying case about the extent of ‘gloss’ that is justifiable, in interpreting the ‘agency’ provisions in the NSW Payroll Tax Act.
The Chief Commissioner relied on the employment agency provisions (ss 37-42) of the Payroll Tax Act 2007 (NSW) to assess the taxpayers. The Civil and Administrative Tribunal (NSW) affirmed the assessments and an Appeal Panel dismissed the taxpayers’ appeal.
The Supreme Court has dismissed the taxpayers’ appeal against the Appeal Panel’s decision, finding there was no error of law in its decision.
In doing so, the Court rejected submissions by the taxpayers that the employment agency provisions only apply if:
- the relationship between the service provider and the client is “employee-like”; and
- the work is required to be performed “at” the workplace of the client, or that it be integral to or part of the “core business” of the client.
The Court also rejected a submission that the employment agency provisions do not apply where the service provider “is quintessentially independent, is retained to provide a result for the client and is not integrated into the client’s business”.
The case turned upon what degree of ‘gloss’ on the express words of the statute are justified. It had been fairly widely accepted that to make these ‘agency’ provisions work a certain level of gloss was required – as determined in UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852. But in interpreting these UNSW Global words, other cases further interpreted this words, building an apparent array of tests, built only on judges the words of the initial gloss. One of these cases was Bayton Cleaning Co Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 657 and this case revolved around what they called the ‘Bayton Factors’. The Tribunals attempted to apply those factors but not to the satisfaction of the taxpayer, who brought this appeal. The Court decided the matter on the basis that there had been no ‘error of law’ and said that this was not the correct vehicle to determine the scope of the justifiable ‘gloss’ on these provisions. That would be better done, when the issue is raised before the Court at first instance.
CATCHWORDS
TAXES AND DUTIES – payroll tax – liability – employment agency contracts – agency contracts with clients to provide services of models – whether agency’s contracts with models are “employment agency contracts” – did models work “in and for the conduct of the business” of the agency’s clients – fact-sensitive inquiry – UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852; 104 ATR 577discussed
STATUTORY INTERPRETATION – principles – whether literal meaning produced absurd results – reading down employment agency contract provisions by implied limitations – importing concepts from repealed provisions – purposive construction – use of extrinsic materials to divine purpose – Payroll Tax Act 2007 (NSW), Pt 3 Div 8
STATUTORY INTERPRETATION – extrinsic materials – legislative history –Pay-roll Tax Act 1971 (NSW)
Extracts from judgement
1 BASTEN J: The plaintiffs (each for a separate period of time) operated a business, acting as agents for persons seeking work as models in advertising and promotional material. The business also involved entering into contracts with clients to supply the services of such models. The clients involved both major retailers and separate production companies, the latter providing material on contract for other businesses, such as retailers.
2 The respondent, the Chief Commissioner of State Revenue, assessed the plaintiffs’ liability for payroll tax under the Payroll Tax Act 2007 (NSW).
3 Payroll tax is payable by an employer who pays “taxable wages”. Taxable wages are wages paid or payable by an employer for services performed. The term “wages” means not only remuneration, commission, bonuses and allowances, but also “an amount that is included as or taken to be wages by any other provision of this Act”. The “other provision” relied upon by the Chief Commissioner was s 37, which appears in Pt 3, Div 8 of the Payroll Tax Act, a Division entitled “Employment agents”.
4 Before the Chief Commissioner, the plaintiffs filed an objection on the basis that their contracts were not covered by s 37. The Chief Commissioner rejected the objection and the plaintiffs sought review of that decision by the Civil and Administrative Tribunal (NSW) (“the Tribunal”). On 15 September 2020 the Tribunal, constituted by Senior Member N S Isenberg, affirmed the decision under review, subject to minor amendments which are of no consequence for present purposes.[4] The assessment so confirmed included amounts for interest and penalty tax.
Statutory scheme
12 The source of liability relied upon by the Chief Commissioner, s 37 of the Payroll Tax Act, provides:
37 Definitions
(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.
13 There are certain consequential provisions. First, the employment agent under an employment agency contract is taken to be an employer: s 38. The “person who performs the work for or in relation to which services are supplied to the client under an employment agency contract is taken to be an employee of the employment agent”: s 39. Finally, and sufficiently for present purposes,[6] “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” is taken to be wages paid or payable by “the employment agent” under an employment agency contract: s 40(1)(a).
14 Each of ss 37-40 is to be understood as definitional. There are two other provisions in Div 8. Section 41 recognises that there may be more than one person liable for payroll tax on the amounts paid to the service provider, pursuant to Div 8. It precludes double liability. Section 42 is an anti-avoidance provision which operates where “the effect of an employment agency contract is to reduce or avoid the liability of any party to the contract to the assessment, imposition or payment of payroll tax.” The Chief Commissioner is empowered to disregard the contract.
Constraints supplied by judicial interpretation
Judicial glosses
15 In 2016, in dealing with assessments which had been made some 25 years after the commencement of s 37, the Court held that the intended scope of s 37(1), and in particular the words “procures the service of another … for a client of the employment agent”, was limited to “a contract under which a person procures the services of another person in and for the conduct of the business of the employment agent’s client.” (UNSW Global). The italicised words are a gloss on the statute. They have acquired a label – the “in and for” test.
16 The justification for this gloss on the statutory language will be considered below. However, uncertainty as to the intended scope of the additional words has led to a proliferation of glosses upon the gloss. Each additional phrase relied on for the purpose of limiting the statute has, on occasion, been applied as a matter of generality, without regard to (i) the circumstances in which it arose, (ii) the absence of textual support, and (iii) the other sections in Div 8.
115 This is a case where it is not possible to say that the drafter has made a mistake, or achieved an absurd and unintended result, where an alternative construction is reasonably clear. It follows that the general principles espoused, but departed from, in Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation should be applied. As stated by Gibbs CJ:
“It is an elementary and fundamental principle that the object of the court, in interpreting a statute, ‘is to see what is the intention expressed by the words used’…. It is only by considering the meaning of the words used by the legislature that the court can ascertain its intention. And it is not unduly pedantic to begin with the assumption that words mean what they say…. There are cases where the result of giving words their ordinary meaning may be so irrational that the court is forced to the conclusion that the draftsman has made a mistake, and the canons of construction are not so rigid as to prevent a realistic solution in such a case…. However, if the language of a statutory provision is clear and unambiguous, and is consistent and harmonious with the other provisions of the enactment, and can be intelligibly applied to the subject matter with which it deals, it must be given its ordinary and grammatical meaning, even if it leads to a result that may seem inconvenient or unjust. … The danger that lies in departing from the ordinary meaning of unambiguous provisions is that ‘it may degrade into mere judicial criticism of the propriety of the acts of the Legislature’, … it may lead judges to put their own ideas of justice or social policy in place of the words of the statute.”
116 It is not an acceptable construction of the statute to adopt language which has been used in the past but removed and replaced. The existing case law warrants appellate review.
Conclusions
117 Counsel for the plaintiffs disclaimed reliance on the so-called “Bayton factors”, referring to the approach identified in Bayton v Chief Commissioner. He submitted that the Court should uphold the appeal by construing s 37(1), and that the Appeal Panel was in error in addressing the case on the basis of the Bayton factors. However, he did not embrace the alternative construction suggested above.
119 Nevertheless, the issues raised above should not, and cannot, be resolved in this case. An assessment of the correctness of the approach of various judges of the Court, some more cautious than others, should await a case where it is directly addressed. It is sufficient that, whether on the arguably conflicted construction of the Act it was asked to apply, or on a different approach following more closely the text of Div 8, the appeal must be rejected.
(Bonner v Chief Commissioner of State Revenue [2022] NSWSC 441, NSW Supreme Court, Basten J, 13 April 2022.)
[Tax Month – April 2022 – Previous Month, 1.5.22] [LTN 72, 20/4/22]