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While the Uber decision offers welcome guidance on the ambit of the payroll tax provisions, each case will ultimately be decided on its unique facts.
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Uber Australia Pty Ltd v Chief Commissioner of State Revenue
18 October 2024
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Brief summary of the facts
The NSW Chief Commissioner (Commissioner) disallowed the objection by Uber Australia Pty Ltd (Uber) to six payroll assessments totalling $81,515,923 (plus interest) in respect of the 2015 to 2020 financial years.
As is widely known, Uber operates via its software applications (Apps) what is often described as a ‘rideshare system’, through which it puts riders who wish to be transported in contact with drivers who are offering transport services.
The Commissioner raised Uber’s assessments on the basis that the drivers were deemed ‘employees’ of Uber under the ‘relevant contractor provisions’ within the Payroll Tax Act 2007 (NSW) such that the net amounts remitted by Uber to the drivers constituted taxable wages.
Issue
The issue was whether amounts ‘paid’ by Uber to the drivers were subject to payroll tax under the ‘relevant contractor provisions’ on the basis that the drivers supplied Uber with services under a contract ‘for or in relation to the performance of work’.
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The ‘relevant contractor provisions’
The ‘relevant contractor provisions’ are largely harmonious across all Australian jurisdictions other than WA, and so the case is applicable to most Australian jurisdictions.
The provisions operate to expand the scope of payroll tax beyond the traditional employee/employer relationship to also cover amounts paid or payable ‘for or in relation to the performance of work’ relating to a relevant contract.
The Supreme Court of NSW (Court)
The Court observed the ‘conceptual complexities’ of applying the existing relevant contractor provisions to a system like Uber’s, ‘the likes of which did not remotely exist’ when the provisions were introduced. It also noted that the provisions were said to be introduced as an anti-avoidance measure, and that there was no suggestion that Uber was structured to avoid payroll tax.
Drivers supplied services in relation to the performance of work under a contract
The Court concluded that drivers were providing:
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transporting, rating, and referring ‘services’;
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those ‘services’ were ‘for or in relation to the performance of work’; and
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the services were supplied to Uber ‘under a (relevant) contract’.
Exclusions to payroll tax – largely unavailable
The Court considered each of the available exclusions and found that:
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the ‘ancillary services to the use of goods (vehicles) exclusion’ did not apply because, while rating was ‘ancillary’ to the use of a vehicle, ‘driving’ and ‘referring’ were not. Moreover, given the ‘additional’ (non-ancillary) services, the carve-out to this exclusion applied such that the ancillary (rating) service was not exempt either;
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the ‘90-day exclusion’ did not apply because contrary to Uber’s submission, that exemption was not based on a notional 7.6-hour day. Rather, any driving during a day, no matter how minimal, would count as a day towards the 90-day threshold;
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the ‘to the public generally exclusion’ would have theoretically been available for drivers that held taxi and hire car licences, but this was not substantiated by evidence; and
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the ‘two or more exclusion’ applied for ‘partners’ carrying on a business (in essence a taxi company) who supplied two or more drivers, but, in any event, the majority of the drivers were individual operators, not partners.
Payments were not for in relation to the performance of work
Despite these findings, the Court held that the payments from Uber to the drivers were not ‘for or in relation to the performance of work’ because the payments were made by Uber in its capacity as ‘payment collection agent’.
To be ‘in relation to’ the performance of work, the payment does not have to have the character of remuneration (not least of all because the person receiving the money does not have to be the person who does the work). But some form of ‘reciprocity or ascertainable calibration’ between the money paid and the work done is required.
In reaching its view, the Court emphasised the terms of the contracts, which showed that it was the rider, not Uber, who paid the driver – and invoices identified the driver and included the driver’s Australian Business Number (ABN), not Uber’s.
This finding stands in contrast to decisions concerning medical centres and the position adopted by the Revenue Offices in their rulings; namely that passing on fees collected by a medical clinic (as trustee) back to doctors (as beneficiaries) is sufficient to constitute a ‘payment’ to the doctors for payroll tax purposes. It didn’t matter that the doctors were always beneficially entitled to the money.
Unfortunately, the Court did not dedicate much of the judgment to explaining the distinction between this case and those dealing with medical centres other than rejecting Uber’s argument that no ‘payment’ was made by Uber to the drivers. It was held on the facts that the payment had an insufficient connection to the performance of work.
Perhaps the distinction with medical centres is that for some such centres, doctors are regarded as providing medical services to patients and the medical centre, whereas Uber drivers are solely driving the riders and not Uber - and are entirely paid by the riders and not Uber. On the other hand, there are similarities in that while Uber makes drivers available for riders, the medical centres are making doctors available for patients. Therefore, this case should have relevance to the medical space too, as the precise question of whether the payments had the requisite connection to the (medical) services was not specifically considered in the prior medical cases.
Takeaway
The Uber decision highlights the way states are continuing to test the boundaries of existing provisions to raise revenue - and is a further reminder of the wide scope of the ‘relevant contractor provisions’ and how the exemptions will continue to be administered and interpreted in a technical manner.
The precise terms of the contracts will also be examined and will be important to the ultimate outcome.
While the case provides some welcome guidance on the ambit of the provisions, it is apparent that each case will ultimately be decided on its unique facts and the forensic (litigation) decisions made by the parties.
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