Employment agency contracts, for payroll tax purposes, can be
much broader than traditional labour hire or employment agency
arrangements. The recent decision in Qualweld Australia Pty Ltd
v Chief Commissioner of State Revenue  NSWCATAP 249
highlights how payments to genuine subcontractors can trigger
payroll tax liabilities under the 'employment agency'
Employment agency contracts
'Employment agency contracts' are defined as contracts
under which a person 'procures' the services of another
person for the client of the first person. The case authorities all
confirm that 'procures' has to be given a wide meaning.
In subcontracts, the risk is that the subcontractor's
services may be 'for' the client, as well as 'for'
the head contractor. If the head contractor has 'procured'
the services of the subcontractor for its client, then the payment
is deemed to be wages subject to payroll tax. To make it more
problematic, the exemptions that often apply to the 'relevant
contractor' provisions (e.g. providing services for less than
90 days or the contractor employing employees) do not apply to the
employment agent provisions.
The Qualweld litigation
The issue in Qualweld was whether the taxpayer was an
employment agent who procured the services of others for its
Qualweld specialised in welding services. It contracted with
clients to complete specific welding works. To fulfil its
contracts, Qualweld then contracted with subcontractors, such as
welders and boilermakers, to perform the work.
The Commissioner argued that Qualweld's business was no more
than providing its clients with the services of welders and
boilermakers. The Commissioner pointed to the fact that Qualweld
charged on hourly rates. Qualweld argued that its contracts were
not to procure the services of another person, but to achieve
Qualweld went into liquidation sometime after receiving its
assessments from the Commissioner, but the liquidator continued its
appeal. At first instance, the New South Wales Civil and
Administrative Tribunal held Qualweld was an employment agent. That
decision was then overturned on appeal with a direction for a
different tribunal to consider the evidence again. The
Qualweld litigation highlights the uncertainty that can
arise in construing whether a subcontract is also an
'employment agency contract' that triggers payroll tax.
Practical steps to help reduce the risk
Qualweld highlights the need to have effective
documentation. In tax disputes, the taxpayer has the burden of
proving any assessment is excessive. Supporting evidence is
important. If contracts are not procuring the services of a person
for a client, but are to achieve a particular result, then evidence
should be kept supporting that position. Written agreements should
be carefully drafted on this basis, and supporting records should
be maintained. This may involve keeping:
requests for quotes;
the corresponding quotes;
purchase orders; and
We are aware that the OSR is auditing this issue. If the OSR
form the view that payments to subcontractors are caught by the
employment agent provisions, the payments are deemed to be wages
subject to payroll tax. This generally has a substantial impact on
a business' net profit, particularly as assessments often cover
multiple income years, and can be exacerbated by interest and
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2010, 2011 and 2012
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2012 (Best Brisbane Firm)
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Australian Law Firm (revenue less than $50m)
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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