Infinity Security Group Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCATAD 28
Background
The applicant sought review of a determination by the Chief Commissioner, for the purposes of liability to payroll tax under the Payroll Tax Act 2007 (“Payroll Tax Act”), that the applicant was an “employment agent” and liable for payroll tax on payments it made to its subcontractors. The determination related to the provision of security guarding services by the applicant to its clients.
The applicant carried on business as a private security contractor. Under agreements with its clients, the applicant provided security guards to licensed venues such as pubs and clubs and at commercial businesses. It also acted as a subcontractor supplying guards to other security companies. In order to provide these services the applicant used its own employees as well as additional guards supplied by third party subcontractors.
The key legal issue in this proceeding was whether the arrangements between the applicant and its clients were “employment agency contracts” within the meaning contained in s. 37 of the Payroll Tax Act.
A further issue arose as to whether interest and penalty tax, which was included in payroll tax assessments issued by the Chief Commissioner, should be remitted and, if so, whether in whole or in part.
The Statutory Framework
The relevant provision of the Payroll Tax Act under consideration was s. 37(1), which states:
“For the purposes of this Act, an employment agency contract is a contract, whether formal or informal and whether express or implied, under which a person (an employment agent) procures the services of another person (a service provider) for a client of the employment agent.”
Applicant’s submissions
The applicant’s primary submission was that it does not procure the services of the security guards “for” (in the sense of “in and for the conduct of the business of”) its clients (referring to UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852 (“UNSW Global”) at [62] per White J, as his Honour then was). It was noted that this construction of s. 37 of the Payroll Tax Act was recently accepted by the Court of Appeal in Chief Commissioner of State Revenue v E Group Security Pty Ltd [2022] NSWCA 115.
In this regard the applicant submitted:
The Chief Commissioner submitted:
- it is part of the venue’s business to provide a safe environment by having security guards present;
- when the applicant’s guards are on duty they are always monitoring or interacting with the venue’s customers; and
- the applicant’s guards are present throughout the customer’s visit to the venue – they are likely to be the first and last people that customers interact with.
The Chief Commissioner also relied on the following matters as specific indicia that the applicant’s guards worked in and for the conduct of the clients’ businesses:
- the services were performed on-site;
- the applicant’s guards act on behalf of the client for the purposes of the clients’ businesses (as the guards are exercising the clients’ right to eject or exclude customers);
- the services are provided with regularity or continuity;
- the clients exercised significant supervision and control over the services (e.g the clients determined the hours and number of guards to be provided, clients set the dress code which was enforced by the guards and clients tell the guards that certain people are banned and the guards enforce that ban);
- there was substantial interaction between the guards and the clients’ staff, and between the guards and the customers; and
- there was a significant sharing of functions between the guards and the clients’ staff.
Applicant’s response to Chief Commissioner’s submissions
The applicant submitted:
- training was provided to the guards by the applicant, and not by the clients;
- the Security Industry Act 1997 mandates that the Applicant must maintain control over the security guards; and
- any interaction with customers were part of the guards’ role in providing security services, and the guards were readily distinguishable as security.
Decisions
Senior Member Dunn referred to the judgment of Ward CJ (as Her Honour then was) in E Group Security Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1190 at [318], noting comments that:
- “the analysis is a fact sensitive one and much was made of the indicia identified in cases such as HRC Hotel Services when determining whether there is the requisite integration of the service providers into the relevant client’s workforce”;
- as her Honour also said, “the mere fact that two cases may concern the provision of services of security guards does not mandate a similar conclusion” (at [119]).
Pubs and clubs clients
Senior Member Dunn found that that the arrangements between the applicant and its pubs and clubs clients were not employment agency contracts within s. 37 of the Payroll Tax Act. Senior Member Dunn decided that the guards were not integrated into those clients’ businesses; and not effectively added to their workforces, such that they were not providing services “in and for” the conduct of those clients’ businesses.
Senior Member Dunn’s key findings in respect of the relevant factors included:
- the interactions between the guards and the customers (and between the guards and the clients’ staff) were all interactions which were necessary in order for the guards to perform their security duties;
- while the evidence did not establish that the applicant’s logo was clearly visible on the guard’s uniforms, “nonetheless the guards’ uniforms clearly identified them as security guards and distinguished them from the clients’ staff members” (at [120(4)];
- the clients did not have control over the guards in the performance of their security duties, in particular, the security guards were trained by the applicant, rostered on by the applicant, took their instructions from and were supervised by either their Infinity supervisor or the applicant;
- as “a matter of law, the security guards could not actually have been added to the clients’ workforces” (at [120[7]), because of the operation of the Security Industry Act 1997;
- whist there was some overlap between the guards’ security functions and the staff’s non-security functions, “as a general rule the security guards generally carried out the security duties they were trained to do and the venue staff did not” (at [120[9]); and
- whilst it was part of the clients’ businesses to provide a safe environment for customers, it does not follow that the venues were in the business of providing security services.
Senior Member Dunn concluded that “the services provided by the guards were not services provided to help conduct the client’s business in the same way, or much the same way, as it would through an employee. They were generally quite separate and distinct services which, in fact, the employees generally did not and could not provide” (at [123]).
Other clients
In respect of the arrangements between the applicant and its clients other than its pubs and clubs clients (“Other Clients”), Senior Member Dunn found that the applicant had not discharged its onus of establishing those arrangements were not employment agency contracts, or that the assessments were incorrect. Senior Member Dunn noted that, in relation to the applicant’s provision of guards to other security companies: “Such arrangements strike me as being of an entirely different nature and the services that the guards would likely be providing under those arrangements might well be the same as the services of the workforce of those clients” (at [126]).
Interest and penalty tax
As the applicant had made no submissions as to interest or penalty tax, Senior Member Dunn found that the interest and penalty tax imposed in respect of so much of the assessments as relates to the payments made to the Other Clients should stand.
Orders
- The Assessment be remitted to the Chief Commissioner for determination in accordance with these Reasons for Decision.
- If the Applicant wishes to pursue an application for costs in this matter:
- the Applicant shall give to the Tribunal and to the Chief Commissioner, within 7 days after publication of these Reasons for Decision, written submissions as to costs and as to whether the Tribunal should determine the question of costs without an oral hearing;
- the Chief Commissioner shall give to the Tribunal and to the Applicant, within 14 days after publication of these Reasons for Decision, his written submissions as to costs and as to whether the Tribunal should determine the question of costs without an oral hearing;
- the Applicant shall, within 21 days after publication of these Reasons for Decision, give the Tribunal and the Chief Commissioner any submissions in reply to the Chief Commissioner’s submissions.
Link to decision