Uber appeal: taxpayer alert

On 1 August 2025, the New South Wales Court of Appeal handed down its decision in Chief Commissioner of State Revenue v Uber Australia Ltd, overturning Uber’s earlier success, and upholding the Chief Commissioner’s payroll tax assessments. These assessments levied payroll tax on amounts that Uber remitted to drivers in New South Wales (representing amounts collected by Uber from passengers as fares, less service fees charged by Uber to drivers). All of the substantive issues were decided in favour of the Chief Commissioner in a unanimous decision constituted by a bench of five judges.  

Following this decision, Revenue NSW and revenue authorities in other States and Territories are likely to step up compliance activities in relation to payroll tax in the gig economy. The Court of Appeal’s decision could have significant consequences for platform and/or marketplace operators as well as other businesses with contractor-heavy workforces, such as in the health and financial services sectors.

Uber has announced its intention to make an application for special leave to appeal the decision to the High Court. Despite a flurry of decisions at the single judge and Court of Appeal levels, the High Court is yet to hear a payroll tax case concerning the gig economy.

Key Takeaways

1. Relevant contract - The Court upheld the primary judge’s decision (and rejected Uber’s cross-appeal on this issue) that the driver contracts were “relevant contracts” to which payroll tax could apply under Division 7 of the Payroll Tax Act 2007 (NSW) (the “contractor provisions”). Central to this was the Court’s finding that driving was a service that was supplied to Uber under Uber’s contracts with drivers (the driver contracts). The Court rejected Uber’s argument that the relevant driving service was provided to passengers rather than to Uber, principally because the driving service generated a financial benefit for Uber in the form of the service fees that it collected from drivers and which formed the foundation of Uber’s business. Whilst not affecting the overall outcome, the Court found that drivers also supplied to Uber the services of rating passengers and referring other drivers, although the “referring service” was supplied under separate contracts. 
   
   
2. Paid or payable under the contract – The amounts that Uber remitted to drivers were “paid or payable” by Uber and were “for or in relation to the performance of work” because the payments related to the driver’s performance of the driving service. The Court held that this was the case even though Uber paid the amounts under a payment collection agency arrangement (that is, the passenger’s legal obligation was to pay the driver and Uber acted as payment agent in collecting and remitting fares to drivers). In this regard, the Court of Appeal affirmed earlier decisions in Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197; Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40.
   
   
3. Exceptions – Uber also sought to rely on a number of statutory exceptions, including an exception for the supply of services that are ancillary to the use of goods provided by the party that supplies the services (in this case, the use of the driver’s car). The Court upheld the primary judge’s decision (and rejected Uber’s cross-appeal on this issue), holding that the driving service was “one and the same” as the use of the vehicle. The driving service supplied was therefore not ancillary to the use of the vehicle. 

Background

Uber is the operator of a “rideshare system” that connects riders who wish to be transported with drivers who offer those services for a fee. These connections are achieved through Uber’s “Rider App” and “Driver App”, and Uber’s contractual arrangements with drivers and riders. Those contracts emphasise that Uber’s business is to provide “lead generation services” in return for a service fee. Whilst Uber’s software determines the fare applicable to a rider’s trip request, it is a driver’s choice whether to accept trips and fares presented to them. When a driver accepts a fare, the rider’s obligation to pay the driver arises under a contract between driver and rider. Under Uber’s driver contracts, Uber is appointed as a “limited payment collection agent” in respect of the rider’s fare. Uber collects payment from the rider and ultimately remits that fare, less its service fees, to the driver.

The New South Wales Chief Commissioner of State Revenue issued payroll tax assessments to Uber of approximately $81 million in respect of the 2015 to 2020 financial years, on the basis that Uber was liable to payroll tax calculated on the net amounts remitted by Uber to drivers.

In September 2024, Uber successfully challenged those payroll tax assessments in the Supreme Court. While finding that Uber’s contracts with drivers were “relevant contracts” for the purposes of the contractor provisions, Hammerschlag CJ determined that amounts paid by Uber to drivers were not “for or in relation to the performance of work” under section 35(1) of the Payroll Tax Act. More information on the material facts and first instance decision can be found in our earlier alert here.

The primary judge decided that:

• Each of the activities of driving, rating riders, and referring new drivers constituted a “service” provided by drivers to Uber (not just to riders), because they were essential to Uber's business model, providing both economic and operational benefits. The services were provided to Uber for or in relation to the performance of work by the drivers and were provided “under” the driver contracts because, once a driver accepted a fare, the obligations on the driver were imposed by and sourced in that contract. Accordingly, Uber was supplied with the services of persons for or in relation to the performance of work within section 32(1)(b).
• The amounts paid or payable by Uber to the drivers were not “for or in relation to the performance of work” and therefore not “wages” within section 35(1). This was because the payments were not in the nature of remuneration – rather, the payments were made pursuant to an obligation to account for the money under the payment agency arrangement.
• Uber’s argument that the driving service was “ancillary” to the use of goods which were the property of the driver or partner (i.e. the vehicle) - and therefore fell within the statutory exclusion in section 32(2)(a) - was rejected. The driving service and the use of the vehicle were intertwined such that one was not ancillary to the other.

The Chief Commissioner appealed the primary judge’s decision that the amounts remitted to drivers were not paid or payable by Uber “for or in relation to the performance of work”. Uber filed a cross-appeal, challenging the primary judge’s decision on the other issues that had been decided in favour of the Chief Commissioner.

The specially-constituted five judge bench of the Court of Appeal allowed the Chief Commissioner’s appeal and dismissed Uber’s cross-appeal (with costs).  

Reasoning

The Court of Appeal’s decision hinged on three central issues:

1. Whether there was a “relevant contract” because the drivers had supplied the driving services to Uber under the driver contracts, in satisfaction of s 32(1)(b) of the Payroll Tax Act;
2. Whether amounts remitted by Uber to drivers were “paid or payable” “for or in relation to the performance of work”: s 35(1)
3. Whether the exception in s 32(2)(a) (relating to the supply of a service that is ancillary to the use of goods) applied to take the driver contracts out of the contractor provisions.

Relevant contract – Whether driving was a service supplied by drivers to Uber under the driver contracts

In its cross-appeal, Uber argued the primary judge wrongly concluded that driving was a service supplied by drivers to Uber under the driver contracts for the purposes of s 32(1)(b) of the Payroll Tax Act, because: first, it was not a service supplied “to” Uber; and secondly, it was not a service supplied “under” the driver contracts. Uber accepted that driving was a “service” that was in the nature of “work”.

Was driving a service supplied “to” Uber?

Uber submitted that the service was not supplied “to” Uber because the driving services were provided by drivers to riders and furthermore, the provision of the driving service to riders did not cause Uber to perform any obligations under a contract with that rider (because, unlike the facts in Accident Compensation Commission v Odco Pty Ltd [1990] HCA 43, Uber did not have a contractual obligation to provide riders with transportation services).

Further, Uber distinguished its circumstances from those in Thomas and Naaz (a case concerning the operator of a medical clinic at which doctors provided medical services to patients) because:

1. drivers had no obligation to use the Rider App, accept trip requests or perform trips, because they could use the Rider App as much or as little as they pleased and could cancel trips even after accepting them (unlike in Thomas and Naaz, where the clinic operator imposed obligations on doctors as to their attendance at the clinic and treatment of patients); and
2. further, drivers did not have to request leave, or give Uber any notice of leave, and were not restricted from using other rideshare applications.

Central to Uber’s argument was that the mere fact that the driving service was of assistance to or benefitted Uber in operating its business was not sufficient to make it a service supplied to Uber.

The Chief Commissioner argued that the driving service was supplied to Uber because it directly generated Uber’s entitlement to a service fee and increased the attractiveness of the software application (the “Rider value proposition”). The Chief Commissioner also submitted (and the Court accepted) that Thomas and Naaz had explicitly rejected the requirement, purportedly arising from Odco, for there to be any contract as between Uber and the rider for Uber to supply a driving service.

The Court of Appeal agreed with the primary judge’s view that the driving service generated a clear financial benefit for Uber in the form of a service fee, which is the foundation of Uber’s business. The Court of Appeal emphasised that the “driver’s performance of the driving service is the very thing which engages Uber’s legal rights to” collect money from riders and keep part of what is paid to drivers. After identifying the rights arising out of Uber’s contracts with the drivers and riders, the Court of Appeal concluded:

From Uber’s perspective, the exercise of the legal rights described above is not a mere collateral benefit of the contractual relationships it establishes with drivers and riders; it is a (if not the primary) purpose of those contractual relationships. Uber’s entitlement to exercise those rights depends on the driver’s performance of the driving service. Without the provision of such a service, Uber’s business could not function. In that sense, drivers clearly “supply” a service to Uber by doing something that is necessary for Uber to derive service fees and to continue its business. That is more than “simply performing an act that assists another” in some sort of Good Samaritan sense. Bearing in mind the purpose of Pt 3, Div 7 of the Payroll Tax Act, the service of driving is plainly a service supplied “to” Uber within the meaning of s 32(1)(b).

The Court of Appeal did not find it necessary to consider whether the driving service is supplied to Uber because of the “Rider value proposition”. The Court of Appeal therefore concluded that there was no error in the primary judge’s conclusion that the driving was a service supplied to Uber.

Was the driving service supplied “under” the driving contracts?

Uber argued that the driving service would only be supplied “under” the driving contracts where the contract is the source of an obligation, or a right, to perform those services (citing the High Court’s decision in Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35), whereas drivers voluntarily choose to use Uber’s platform. The Court of Appeal determined that it was not bound by any previous authority on this point, concluding:

Uber’s proposition should be rejected on its merits. In particular, the fact that (at least before a given trip commences) the driver has no contractual obligation to Uber to perform the driving service is not to the point. The statutory question is not whether the driver has a legal obligation (or a legal right) to perform the driving service. It is whether, when the driver performs the driving service, it is a service which Uber has supplied to it under the contract with the driver.

The Court of Appeal explained that it was not a necessary feature of the contract that it conferred a legal right or imposed a legal obligation to perform. Significantly, the Court of Appeal concluded that the words “a contract under which [a person has services supplied to them]” could extend to a contract:

1. which is the source of the right or obligation to supply the services; or
2. which expressly refers to, and governs or controls, the supply of the services; or
3. which confers a right to be paid for supplying the services.

The Court of Appeal was satisfied that the driver contracts were contracts under which Uber had a driving service supplied to it.

Amounts ‘paid or payable’ ‘for or in relation to the performance of work’: s 35(1)

If it is accepted that the driver contracts are relevant contracts, section 35(1) of the Payroll Tax Act operates to deem amounts “paid or payable by” an employer “for or in relation to the performance of work” relating to a relevant contract to be “wages” subject to payroll tax.

Uber contended that the amounts remitted to drivers did not fall within this provision.

For or in relation to the performance of work

At first instance, the primary judge agreed with Uber’s argument that there was insufficient “reciprocity or ascertainable calibration between the money paid and the work done” to support a conclusion that the amounts were paid “for or in relation to the performance of work” under s 35(1) of the Payroll Tax Act.

The Chief Commissioner appealed and the Court of Appeal overturned the primary judge’s decision on this point, finding that that his Honour’s construction put an unsupportable gloss on the section. In particular, the primary judge’s notion of “reciprocity or calibration” was found to be contrary to the prior decisions in Thomas and Naaz and Optical Superstore. Textually, the Court of Appeal further found that the primary judge’s construction of “for or in relation to the performance of work” could not be accepted; it in effect only encompassed payments for work done “for” a designated person, and did not afford sufficient weight to the expansive phrase, “in relation to”.

The Court found that the payments by Uber to drivers were payments related to the work performed. The Court concluded that, in this respect, the payment relationships were not materially distinguishable from the facts considered in Thomas and Naaz or Optical Superstore. The Court of Appeal concluded:

The payments … are calculated by reference to the driving service (e.g. duration and time of trip), less Uber’s service fee, which itself is just a percentage proportion of the fare). There is, thus, a direct relationship between the performance of work and what was payable by Uber to drivers, along with what Uber itself was entitled to retain. The fact that Uber has an obligation to drivers to account for the amounts received (less the service fee) does not change the nature of the payments as being in relation to the performance of work.

The Chief Commissioner’s successful appeal on this issue reinstated Uber’s $81 million payroll tax liability.

Paid or payable

By way of cross-appeal, Uber also argued that the amounts are not relevantly “paid or payable’ under section 35(1) where Uber simply collected those funds on behalf of a driver (who was already entitled to receive those funds from the rider) and remitted those funds to the driver. Rather, Uber argued that the definition of “paid” in section 3(1) of the Payroll Tax Act (including “provided, conferred and assigned”) meant that the payment itself should be a quid pro quo, and the payee should not already be separately entitled to the amount. Uber accepted that this argument ran contrary to the existing authorities of Thomas and Naaz and Optical Superstore, but sought to have those decisions overturned or else distinguished by the specially-constituted appeal bench. The Court of Appeal rejected Uber’s argument, finding there was no clear reason to depart from the existing authorities. That Uber was acting as a mere collection agent was not a reason for distinguishing Thomas & Naaz (where it was unclear in that case whether such an agency relationship had arisen). The Court of Appeal did not agree that the definition of “paid” (including “provided, conferred and assigned”) connoted any concept of quid pro quo.

Application of the “ancillary” exception in s 32(2)(a)

In its cross-appeal Uber also argued that the driving service was ancillary to the use of the driver’s vehicle, such that the exception under s 32(2)(a) of the Payroll Tax Act applied (with the result that the driver contracts would not be “relevant contracts”).

The Court of Appeal summarised this issue as involving three core matters in dispute:

1. Whether the primary judge erred in concluding that the driving service was the same as the use of the vehicle (as Uber argued);
2. In any event, whether s 32(2)(a) is satisfied even if they are the same thing (as Uber argued); and
3. Whether the exception does not apply because the primary or principal matter or object of the contract is not the supply or use of drivers’ cars (as the Chief Commissioner argued).

First, the Court of Appeal decided that the primary judge was correct to conclude that the driving service was one and the same as the use of the vehicle. The driving service could not be ancillary to the use of the driver’s vehicle because the driving service is not subsidiary, incidental, accessory or auxiliary to the use of the car. The Court rejected the distinction sought to be made by Uber between the tangible use of the vehicle and the intangible benefit received by Uber. It was enough that the vehicle, being the driver’s property, is used to provide the driving service.

Secondly, the Court rejected Uber’s alternative argument that s 32(2)(a) was essentially directed towards the circumstance where the fact that a contractor was bringing significant machinery indicated that the contractor was operating or carrying on their own business. The Court said that, to the contrary, the extrinsic materials suggested the exception was designed to focus on circumstances where labour is not the most valuable part of what is being done (i.e. the individual’s contribution is not significant). 

Finally, the Court accepted the Chief Commissioner’s argument that the principal or primary characteristic of the contracts cannot be said to be the use of the vehicle (such that driving would be ancillary to it). Given the practical and economic significance of the drivers driving their vehicles to transport riders, their provision of services could not be considered any less significant than the use of their vehicles. Therefore, the exemption under s 32(2)(a) was held not to apply to the driving services.

The Court of Appeal also considered whether other services (rating and referring) were provided under the driver contracts and whether those other services gave rise to any exception. The referring service was not considered to be provided under the driver contract. The rating service was provided under the driver contract and was found to be ancillary to the use of the vehicle. However, the Court concluded that the s 32(2)(a) exception could not apply because the principal characteristic of the driver contract was not the use of the vehicle. The Court also clarified that s 32(2B) operates to prevent reliance on an exception under 32(2) if any additional services are supplied under the contract that are not covered by the relevant exception.

Observations

1. Applying old legislation to new problems - Uber made “high level” arguments that the purpose of the contractor provisions was to target relationships that were in substance employment relationships but which had been arranged as a contractor relationship to avoid the incidence of payroll tax. Uber argued that the purpose of the contractor provisions when introduced did not contemplate types of arrangements such as a platform like Uber’s, especially given that such a business model did not exist when the contractor provisions were introduced in the 1980. Rather, Uber argued, the provisions were primarily intended to combat payroll tax avoidance schemes. The Court of Appeal was critical of these arguments, stating that “[t]hese sort of high level arguments raised by Uber do little to advance debate on the issues in dispute in this case”. The Court of Appeal said it should not be assumed that the contractor provisions should only be construed as applying to the types of business structures that existed when they were introduced.
   
   
2. Broad view on contractual arrangements – The Court of Appeal took a broad view of what it means for services to have been provided “under” a contract for the purpose of s 32(1)(b) of the Payroll Tax Act. The Court of Appeal’s finding regarding the kinds of contractual arrangements that might fall within the meaning of this provision may have broader consequences outside of the ridesharing platform industry. With respect, we question the Court of Appeal’s readiness to disregard the terms of the contractual arrangements between the parties in favour of the “financial benefits” analysis in light of the fact that all platform providers benefit from the fees that their customers pay to use their platforms, but that does not make the relationship between all platform providers and their customers akin to an employer - employee/dependent contractor relationship. We query whether the result would be the same if Uber had less market share.
   
   
3. Broad view on payment arrangements - The Court of Appeal’s rejection of the primary judge’s analysis of the required connection between the payments and services provided will likely encourage State revenue authorities to consider how these provisions of the Payroll Tax Act might be applied in a broader range of circumstances in the gig economy and other sectors using contractors. This is particularly in light of the Court of Appeal’s willingness to disregard the terms of the contractual arrangements between the parties. As a result, we anticipate that State revenue authorities across Australia with similar regimes as NSW will increase their compliance activities in relation to these contractor provisions in the Payroll Tax Act.