Victory for taxpayers: High Court denies payroll tax appeal

The decision made by the NSW Court of Appeal in Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd [2020] NSWCA 126 was an unsatisfactory outcome for the NSW chief Commissioner of State Revenue’s (Commissioner). Thus, the Commissioner applied to the High Court for special leave to appeal the decision which was readily denied. The High Court found the appeal would be unsuccessful as it had inadequate prospects.

Background:

The defendant, Downer EDI Engineering Pty Ltd (taxpayer) had an agreement with Foxtel to deliver and install television equipment at Foxtel’s customer’s homes between July 2009 and June 2013. The taxpayer employed subcontractors to complete the menial instalment tasks; Gathering the equipment, transporting it to the customer’s homes, conducting a safety examination, installing the equipment, ensuring the system works and demonstrating it to the customers.  

Modified payroll tax assessments for the year were distributed to the taxpayer by the Commissioner. The Commissioner asserted that the payments received by the independent subcontractors were made under the ‘relevant contracts’ and thus were subject to payroll tax.  The matter to be determined is whether the services supplied by the contractors were additional to the provision of goods under the subcontract.

Decision:

The Commissioner’s appeal for special leave from the Supreme Court of NSW was dismissed from the Court of Appeal on the basis that the taxpayer was not subject to payroll tax on expenses to subcontractors. The Court determined that the subcontractor’s services provided were additional to the supply and/or use of the goods.

The decision by the court that installation services were additional to the provision of the equipment under the subcontract was based on the fact that in the absence of the equipment being supplied, it would offer no value to the customer until they were installed. Thus, the court held that the services being supplied to the taxpayer enabled it to satisfy its requirements under contracts with end users.

The Commissioner sought to appeal the decision of the court of Appeal contending that the interpretation of the ‘supply of goods’ was misconstrued. The application for special leave was rejected as it had ‘insufficient chance of success and therefore did not warrant the grant of special leave’ according to Justice Gageler. 

Current Applications:

This case is an example of the uncompromising pursuit that the Revenue of NSW and the Victorian State Revenue are undertaking, these authorities are attempting to ensure that taxpayers are compliant with their payroll tax. It should be noted that the provisions under the payroll tax regulations may not be as wide or narrow as the authorities may be attempting to interpret.  

For more information contact:

Rob Warnock
Principal Lawyer
T: 03 5226 8541
E: rwarnock@ha.legal

Alexander Gulli
Lawyer
T: 03 5226 8573
E: agulli@ha.legal