On Friday 6 September 2024, the New South Wales Supreme Court handed down its decision in Uber Australia Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 1124. In the result, Uber Australia Pty Ltd (Uber) successfully challenged payroll tax assessments that had been issued to it by the Chief Commissioner of State Revenue (NSW State Revenue) totalling approximately $81.5 million.
The Court held that irrespective of the “relevant contract” provisions and the statutory exclusions available under section 32 of the Payroll Tax Act 2007 (NSW) (Payroll Tax Act), the payments made by Uber were not wages because they were not “for or in relation to the performance of work” as required under section 35 of the Act.
This decision is likely to be significant for both the NSW State Revenue and the Commissioners in other States and Territories more broadly with respect to how they approach their regulation of payroll tax compliance in the gig economy. The decision is also expected to impact a number of rideshare and delivery transport operators who have similar arrangements to Uber in Australia, and could have ramifications for businesses outside of the gig economy (for example, the financial and health services sectors).
Key Takeaways
- Uber has successfully challenged payroll tax assessments totalling approximately $81.5 million.
- The Supreme Court (Hammerschlag CJ in Eq) held that in Uber’s circumstances:
- “Relevant contracts” established: The contractual agreements between Uber and its drivers constituted “relevant contracts” for payroll tax purposes. This included both “Driver Contracts” and “Partners Contracts”.
- Statutory exclusions not available or insufficiently established: Generally, and with a few exceptions, the statutory exclusions relied upon by Uber in relation to the “Driver Contracts” and “Partner Contracts” were either not available or insufficiently established on the evidence. This included the exclusions regarding: ancillary services; the “90-day” rule; providing services to the public generally; and whether the services were being provided by 2 or more persons.
- However, payments by Uber to its drivers were not “for or in relation to the performance of work”: Uber had succeeded in demonstrating that amounts paid by Uber to drivers were not paid “for or in relation to the performance of work” by the driver under contract. Instead, these payments were made in Uber’s capacity as a payment collection agent. As such, the payments were not taken to be wages paid or payable by Uber to drivers for payroll tax purposes.
- This decision is a welcome result for platform operators and other businesses with contractor-heavy workforces who have been in need of greater legal certainty when assessing their own payroll tax positions. The judgment's findings in relation to “relevant contracts”, the availability of certain statutory exclusions, and the analysis of the payments between Uber and its drivers, will provide key guidance for taxpayers operating in this space.
- The Court’s decision follows a number of recent payroll tax cases that have considered the “relevant contract” provisions, including 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, and Loan Market Group Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 390.
- The reasons in this case have again demonstrated how the application of the Payroll Tax Act to modern business arrangement can be complex. This requires a thorough understanding of the taxpayer’s individual business, the relevant contractual framework, especially following the High Court’s decision in CFMMEU v Personnel Contracting [2022] HCA 1, and the attendant payments – with much turning on the facts and circumstances of each particular case.
- The Chief Commissioner has 28 days to file an appeal to the NSW Court of Appeal.
Background
Material facts
The facts in this case concerned “Uber’s rideshare system”. Broadly, this system put riders who wished to be transported by motor vehicle (riders) in contact with drivers of motor vehicles offering the driving services (drivers). A driver can be an individual operating on their own (being the majority of cases), or a person working for a person carrying on the business of providing transport services, that is, in essence, a taxi company (partners).
This system, and the connection between riders and drivers, is achieved by way of Uber’s software applications (apps) which include a “Driver App” and a “Rider App”. When a rider requests a trip through the Rider App, the request is sent to a driver via the Driver App. The apps then use a bespoke process called "batched matching" to minimize wait times for riders. Drivers themselves have the option to accept, ignore, or reject trip requests.
As to payments and invoicing, broadly:
- at a journey’s end, the rider automatically paid the fare electronically. This amount is collected by Uber on behalf of drivers. Uber then deducts a service fee from the rider’s payment (generally 20-25%) and remits the balance to the driver;
- invoices are available to riders via the Rider App from Uber on behalf of the driver. Invoices identify the driver and include the driver’s Australian Business Number (ABN), but not Uber’s.
The apps also include a rating system for both drivers and riders, allowing them to rate each other's experiences. Through the apps, Uber also collects the rating information provided by both drivers and riders.
Uber also had an incentive program for “referrals”, under which Uber paid money to drivers or partners who successfully referred potential new drivers to it (e.g. via in-app offers or promotional emails). Drivers were paid separately for successful referrals under this program. For example, at one stage, drivers were paid 10% of their referrals’ gross fares during their first 30 days on the road.
The above arrangements between Uber, riders, and drivers were set out in further detail in the various contracts that were put before the Court. This included the Driver Contracts (between Uber and drivers who were individual operators); the Partner Contracts (between Uber and drivers who were partner operators) and the Rider Contracts (between Uber and riders).
Against this background, the Chief Commissioner issued six payroll tax assessments to Uber totalling $81,515,923 for financial years 2015 to 2020 inclusive (the Assessments). The Chief Commissioner also imposed premium interest on Uber.
On 24 April 2021, Uber objected to the Assessments. On 31 April 2021, the Chief Commissioner disallowed the objection.
Summary of issues
Broady, the Payroll Tax Act imposes payroll tax on all taxable wages paid or payable by an employer. Taxable wages are those paid or payable by an employer for or in relation to services performed by an employee wholly in this jurisdiction.
The key legal issue in this dispute concerned the proper application of the ”Contractor provisions” under Division 7 of the Payroll Tax Act and whether the payments made by Uber to drivers were properly treated as wages for payroll tax purposes.
Parties’ submissions
While the Chief Commissioner’s position “shifted significantly a number of times” over the period of the controversy, at trial the Chief Commissioner’s position was that Uber was liable to payroll tax on the basis that the majority of amounts paid by Uber to its drivers were wages (i.e. being amounts paid or payable for or in relation to the performance of work relating to a relevant contract).
Uber’s submissions proceeded, broadly, in three parts:
- First, that Uber’s contracts with drivers were not “relevant contracts” because the “transportation services” being provided by drivers were provided to riders, and not Uber. Further, the services were provided under the drivers’ contract with riders, and not under the drivers’ contract with Uber: per section 32(1)(b) of the Payroll Tax Act.
- Secondly, that Uber’s contracts with drivers and partners were excluded from the definition of “relevant contract” under one or more of the applicable statutory exclusions. This included the exclusions regarding: ancillary services (s 32(2)(a)); the “90-day” rule (s 32(2)(b)(iii); providing services to the public generally (s 32(2)(b)(iv)); and whether the services were being provided by 2 or more persons (s 32(2)(c)(i)).
In reply on this point, the Chief Commissioner’s argument was that the exclusions did not apply because of a specific statutory carve-out provision under section 32(2B) (concerning whether “additional” work had been provided). - Thirdly, that amounts paid by Uber to drivers were not paid “for or in relation to the performance of work” under that contract, and thus were not taken to be wages paid or payable by it: per section 35(1) of the Payroll Tax Act.
Reasoning
Relevant contract
In relation to whether the Driver Contracts and Partner Contracts were “relevant contracts” under section 32(1)(b), the Court held that the contractual agreements between Uber and its drivers constituted “relevant contracts” for payroll tax purposes. This included both Driver Contracts and Partner Contracts. This was on the basis that Uber was: supplied with services of persons for or in relation to the performance of work; and those were services that were supplied to Uber under contract.
As part of characterising the services provided, the Court found that three separate but related services were provided by drivers to Uber. This included:
- drivers transporting riders (i.e. “driving”);
- drivers giving feedback about riders (i.e. “rating”); and
- drivers referring people to Uber for the purpose of them becoming drivers (i.e. “referring”).
This breakdown of services, which was accepted by both parties at oral hearing, was referred to as the “trichotomy analysis”. The Court stated that, based on this framing, the driving services were for or in relation to the performance of “work”. It was unnecessary for the Court to decide whether the rating and referring services were also “work”.
Further, based on a review of the terms of the Driver Contracts and Partner Contracts, the Court held that even though drivers and partners had the right to determine if and when to provide services (e.g. use the Driver App and drive for gain, make referrals of new drivers, etc), the obligations imposed upon them if and when that right was exercised were imposed by, and sourced in, the contracts. As such, the services provided were supplied to Uber under contract.
Statutory exclusions
Generally, and with a few exceptions, the Court held that the statutory exclusions relied upon by Uber under section 32(2) of the Payroll Tax Act were either not available or insufficiently established on the evidence. We summarise below the Court’s findings in respect of each exclusion.
Ancillary services: Uber partially fell within the exclusion relating to ancillary services under s 32(2)(a) of the Payroll Tax Act, but was unable to rely on it.
The “rating” services provided by drivers to Uber were found to be for or in relation to the performance of work that was “ancillary” to the use of goods which were the property of the driver or partner (i.e. the vehicle). However, the Court held that the driving services and referral services did not fall within the exclusion as they could not be described as ancillary to the use of the vehicle. As a result, and due to this finding, an express statutory carve-out under section 32(2B) of the Payroll Tax Act was engaged to take Uber out of the exclusion. This was because Uber was also supplied “additional” services that do not fall within one of the exclusions (i.e. driving and referral services). The Court noted the “ironic consequence” of this outcome, and that instead of the trichotomy analysis adopted by the parties, “the adoption of the holistic analysis [of services] might have come to Uber’s rescue” (at [142]).
“90-day” rule: Uber was unable to rely on this exclusion as it did not establish that the 90-day threshold had been satisfied under section 32(2)(b)(iii) of the Payroll Tax Act. This exclusion generally would have applied if the services provided by a driver were supplied for less than 90 days during the financial year.
The Court found that the proper approach was to calculate the 90 days by reference to any single day in which services are supplied by drivers (irrespective of the hours over which the services were supplied). That is, if a driver supplied services of any kind in a day, that day is a day for the purpose of the calculation. The Court rejected Uber’s proposed approach, which was that the 90 day threshold should be calculated by reference to the total number of hours worked in a financial year, and applied consistently with the transportation industry awards which assumes a 7.6 hour day.
To the public generally: Uber was unable to rely on this exclusion as it did not lead sufficient evidence to establish whether drivers’ services were being provided “to the public generally” under section 32(2)(b)(iv) of the Payroll Tax Act.
During proceedings, the Chief Commissioner conceded that this exclusion was engaged with respect to some (but not all) drivers and partners. However, there was a dispute as to what criteria should be applied when determining whether a particular driver ordinarily performed taxi or hire car transport services to the public generally. The Court found that there was insufficient evidence led by Uber as to the frequency of those services being provided by drivers who also performed taxi or hire car transport services during the relevant period.
“2 or more persons” rule: Uber was able to partially rely on this exclusion under section 32(2)(c)(i) of the Payroll Tax Act. The Chief Commissioner conceded that for partners who supplied two or more drivers, this exclusion was available (and the Assessments would be adjusted accordingly). As noted in the judgment, however, the majority of drivers were individual operators, and not partners.
Whether payments from Uber to drivers were “for or in relation to” work
The Court held that there was an insufficient connection between the payments made by Uber to the drivers, and the work done by drivers under the Driver Contracts and Partner Contracts so as to make the payments “for or in relation to” that work. As such, the payments did not fall within section 35(1) of the Payroll Tax Act and were not to be taken as wages.
Importantly, the Court found that in respect of the driving services, and under the express terms of the Driver Contracts, the Partner Contracts, and the Rider Contracts: it was the rider who paid the driver, not Uber; and Uber acted in its capacity as a “payment collection agent”. In this respect, the Court concluded that there was (at [170]):
“[N]o element of reciprocity or calibration between the driver and Uber or the rider and Uber with respect to the money paid by the rider. Those elements exist only between the driver and the rider. The payment here is made pursuant to an obligation to account, and no more. What the rider pays the driver is for or in relation to the work done by the driver. What Uber pays the driver is in relation to the payment Uber has received, not in relation to the work itself.”
In coming to this conclusion, the Court also stressed the importance of the legislative purpose of Division 7 of the Payroll Tax Act, which was to “capture several means of disguising the employer-employee relationship by contractual arrangements which had been increasingly resorted to by persons seeking to defeat the objects of the Act”. The Court recognised that this was not the case in Uber’s circumstances and there was no suggestion that the Uber system was structured to avoid tax obligations (at [171]; see also [17]).
Remission of interest
Because Uber has succeeded with respect to the entirety of the challenged Assessments, no interest was payable.
In any event, the Court held that if the interest had been payable, it would have exercised its discretion to remit the “premium component” of the interest to nil. The reasons for this discretion included, without limitation:
- that Uber had cooperated with the Chief Commissioner, including entering into payment plans, paying all principal tax not in dispute, and provided relevant information to the Chief Commissioner when requested; and
- on the other hand, that the Chief Commissioner made “late” concessions and “significantly changed positions” during the course of the proceedings.
Observations
Framing of legal argument and the “trichotomy analysis”: It was important in this case that the Commissioner had based assessments (and submissions) on a “trichotomy analysis”, which identified three separate but related services having been provided by drivers to Uber. The application of the payroll tax provisions on the basis of a ‘trichotomy analysis’ is distinguishable from other cases which proceeded on a “holistic“ analysis: see Leeming JA in Thomas and Naaz [2023] NSWCA 40 at [45]. The Court also expressed “significant doubt” as to the soundness of the “trichotomy analysis”, albeit noting that Uber’s position could have been advantaged by adopting a holistic analysis.
Importance of analysing contracts and character of payment: Many disputes that relate to the “relevant contract” provisions focus primarily on the contractual agreements between the parties in determining whether a “relevant contract” arises, and whether a statutory exclusion is available. However, the statutory analysis does not end there. As demonstrated by this decision, it is also critical to analyse the character of each payment under these contracts to determine whether there is in fact a sufficient nexus between the payment made by the principal to the contractor and the underlying work performed by the contractor. Further, the importance of the High Court’s decision in CFMMEU in performing this analysis should not be underestimated.
Complexities with modern day payroll tax disputes: As noted by the Court, there are clear conceptual complexities when applying Division 7 of the Payroll Tax to a modern ride-sharing platform like Uber’s, the likes of which “did not remotely exist when the Division was introduced” (at [17]). In this sense, the importance of returning to the legislative purpose of these provisions (which was to combat payroll tax avoidance schemes) is a key consideration that informs the proper application of the “relevant contract” provisions. It will be interesting to see whether the Court of Appeal (if the decision is appealed) and other State and Commonwealth Courts adopt a similar approach in dealing with such taxing statutes going forward.
