An audit found Colin didn’t owe a cent. Then he was charged $1m in tax
Colin Walker, the managing director of cleaning and facility management company Mastercare, has been paying payroll tax for more than 40 years.
Walker was as confident as anyone could be that he’d got it right. Indeed, in 2023 Mastercare was audited for the four financial years ending 2016-17, and Walker says it found “we did not owe one cent, indeed we’d overpaid by $6000”.
Colin Walker: “I’m not seeking protection for the shonks … This is not that I’ve got a structure or set-up designed to avoid or evade payroll tax.” James Brickwood
But just a month later Mastercare was hit by Revenue NSW with a bill for more than $1 million for four years of payroll tax, plus interest and penalties.
Mastercare, which employs more than 100 people directly, had fallen foul of the Payroll Tax Act’s contractor provisions, and had been charged tax on the fees paid for more than 1000 workers of entities it subcontracts with.
The provisions are intended as an anti-avoidance measure, to capture labour hire and employment-like relationships. But Walker says the way they have been interpreted would unfairly see him foot the bill for other companies’ employees.
“I believe that Revenue NSW is interpreting this law aggressively,” he says, citing his own case and Integrated Trolley Management, which went into administration after it was hit with a hefty payroll tax bill for its use of contractors. “I feel like we’re being treated like enemies of the state.”
“In my case what they’re saying is: I am responsible for the payroll tax on the subcontractors I use. These are bona fide subcontractors, this is no sham. If it was a sham it would have been found in the audit.”
Payroll tax of 5.45 per cent is payable by companies with a total wages bill of more than $1.2 million in a financial year. In 2024-25, Revenue NSW is expected to collect more than $12.9 billion in payroll tax.
Parliamentary inquiry
The contractor and employment agent provisions are the subject of a NSW parliamentary inquiry. They have resulted in a revolt from a wide range of industries – security, cleaning, building services, dentists, mortgage brokers, finance brokers, waste and recycling contractors – and ongoing litigation over their application to the gig economy.
While it’s mainly businesses in NSW complaining for now, the issue could go federal as harmonised payroll tax laws mean other states and territories could follow NSW’s lead into a wide-ranging tax crackdown.
The same occurred when a precedent case on general practitioners was applied across Queensland, Victoria, NSW and South Australia – forcing GPs to lobby for an exemption in each state.
Walker quotes advice received from a senior counsel that a “taxation law is unjust if it is so uncertain that taxpayers are unable to confidently interpret and apply it”.
The uncertainty around the incidence of payroll tax has already generated much litigation.
Revenue NSW successfully argued in the Loan Market case that payroll tax was payable on commissions that had been paid to 6000 mortgage brokers in Australia and New Zealand.
But it lost a case to Uber Australia, when the gig economy rideshare company disputed a payroll tax bill of $81.5 million. The regulator has appealed to the NSW Court of Appeal, which will hear the case in March.
Walker said the legislation is “totally unfit for purpose”. He wants a six-month moratorium on collection of payroll tax followed by legislative change so that subcontractors and labour hire companies pay payroll tax for their own employees. If not, he will dispute his assessment in court.
“I’ve met 15 to 20 Labor people, Liberal people, crossbenchers, country [party politicians] – they’re all appalled with the retrospectivity … with the heavy-handed actions of Revenue NSW.
“I’m not seeking protection for the shonks … This is not that I’ve got a structure or set-up designed to avoid or evade payroll tax.”
Some want stronger action
But not all businesses are unhappy about application of payroll tax to contractors.
Hireup, a disability support business that uses a direct employment model, thinks the crackdown doesn’t go far enough. It submitted that the law “unfairly favours gig platform businesses by allowing those who act as payroll departments for independent contractors to bypass this tax”.
It suggested payroll tax be extended to the gig economy, arguing the “perfectly legal” loophole is costing NSW $100 million in revenue a year.
Mable, a care economy platform, argued against this, warning that independent contractors would be forced to “pass the cost on to their clients in increased rates” if payroll tax was applied to them.
In its submission to the inquiry, the Commissioner of State Revenue noted that payroll tax is not confined to traditional employer-employee relationships and had applied to employment agents and contractors since the mid-1980s.
“Over many decades, the policy underpinning the payroll tax legislation has therefore remained largely intact,” it said. Legal cases had not resulted in “new taxes or changed who is liable for tax”.
“Consequently, it is also incorrect to suggest that Revenue NSW retrospectively imposed liabilities in relation to these matters: the liability arises at the time the taxable wages are paid or become payable, and Revenue NSW may issue an assessment requiring the payment of tax calculated from the date of liability.”
