NSW Payroll Tax Case | Chief Commissioner of State Revenue v Downer

Published August 2020

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Let’s now look at a payroll tax case in New South Wales. Now this payroll tax case is a little along the line of the employee vs contractor type of decision, although it’s not precisely the same. So the issue was whether payments made to sub-contractors by the taxpayer to install Foxtel equipment were subject to payroll tax in New South Wales. And it went to the New South Wales Supreme Court of Appeal, that’s the highest court in New South Wales, and the appeal was dismissed. That is, the taxpayer was not required to pay payroll tax on the amounts.

So here’s just a diagram on what was going on. Firstly, number 1, we have a potential Foxtel customer who wishes to become a Foxtel customer. They then subscribe and Foxtel, number 2, engages, in this case the taxpayer, Downer Engineering, to install the equipment at the subscriber’s household, the set-top box, perhaps the satellite dish, cables and so on. Now Downer sub-contracted this work to various workmen, and workmen would then, when they got the order for the work, they would go to the Downer warehouse, get the equipment, go out to the subscriber’s house and install it. So the issue was whether the payments that were made by Downer Engineering to the workmen for their subcontracting work, whether that was something that attracted payroll tax in New South Wales.

Now the issue was over the particular wording in the New South Wales Payroll Tax Act, but it does apparently have an application across the country. So the issue is this: whether the work of the workman was exempt from payroll tax because that was ancillary to the supply of goods or ancillary to the conveyance of goods. So we know that payroll tax is a tax on work, employment, that sort of thing. But what happens when you have goods in the mix? Is it for the goods? Is it for the installation? And how do we deal with that?

Well the exemption is in relation to work that is ancillary to the conveyance of the goods, and so that needs to be understood. So the taxpayer argued that in fact the work of the workman was ancillary to the conveyance of the goods, that is the set-top box and the satellite and so forth. They said, the taxpayer, that the sub-contractor purchased the equipment, and transferred the legal title in most things to the eventual Foxtel customer, so there was a supply of goods, and that when we’re talking about the labour that the workmen were undertaking, is that the use of the word ‘ancillary’ shouldn’t be seen as being subordinate or subservient to the conveyance of goods. So one view is that if the installation is just a little bit then payroll tax doesn’t apply. What they were saying is, well, it doesn’t matter if it’s a little bit or a big bit, compared to the goods, it’s still ancillary to the supply of the goods, that’s the taxpayer’s argument.

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The Commissioner said of course that they didn’t agree with that, and that they said, well, no, the work of the workman is actually a discrete task, it is something that is sufficiently weighty of itself to say that payroll ought to apply to it and that it wasn’t there for an ancillary to the installation of the equipment at the subscriber’s house. Further, the Commissioner argued that there was no supply of goods at all, because they said that the title in the Foxtel equipment at all times remains with Foxtel. So the idea is that when you cease to subscribe for Foxtel, you must return the equipment, you don’t own it. And so that point was right in as far as the title doesn’t actually transfer to the Foxtel subscriber.

So what did the Court say? Well the court said that in fact the installation services were in ancillary to the supply of the goods, and the installation services were something that naturally went with the supply of the goods, and were therefore were ancillary to it. So they’re just applying the plain meaning of the words.

In relation to the question of whether there was a supply of the goods, it is true that the title didn’t change, but yet the court still held there was a supply within the meaning of the Payroll Tax Law. And this is because that once the equipment was installed, the customer had possession and use of the relevant equipment as a bailee for reward. So the customer is holding the equipment, they’ve paid for that, but they don’t get the title to the equipment, but it has been supplied to them, in that they are a bailee for reward. And so the court then held, well that’s a supply from the point of view of the Payroll Tax Act, so therefore we have installation services that are ancillary to the supply of goods, and therefore the payments to the workmen were exempt from payroll tax. Now that was a decision in the New South Wales Court of Appeal. The Commissioner can appeal to the High Court if they wish to do so, but that remains to be seen.

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