SoClean Pty Ltd v Chief Commissioner of State Revenue

1. [1]

   The plaintiff, SoClean Pty Ltd (SoClean), conducts a commercial cleaning business. Its clients are mostly shopping centre operators in the Sydney region. It entered into written contracts with those clients for the provision of cleaning services (the client contracts).

2. [2]

   During the years ending 30 June 2019 to 30 June 2023 (the relevant period), SoClean provided cleaning services at a total of 59 sites. In doing so, SoClean provided what it calls ‘day-to-day’ cleaning services including tasks such as mopping, vacuuming, cleaning bathrooms, wiping surfaces up to two metres high, emptying bins, replenishing consumables and so on. These day-to-day services were performed by SoClean’s own employees.

3. [3]

   SoClean also supplied what it calls ‘specialised’ cleaning services at these same sites. The specialised services included tasks such as deep cleaning of toilets, wiping surfaces above two metres high, stripping and polishing floors, carpet shampooing and pressure cleaning. These so-called specialised services were performed by subcontractors engaged by SoClean and not by SoClean’s own employees.

4. [4]

   During the relevant period, SoClean made payments totalling around $30 million to subcontractors in respect of the supply of specialised services to its clients. The principal issue in dispute is whether these amounts are taken to be taxable wages by reason of the provisions of Part 3, Division 8 of the Payroll Tax Act 2007 (NSW).

The assessments

1. [5]

   The assessments for the relevant period were issued on 10 July 2023. To the extent the assessments included amounts of payroll tax on the taxable wages paid to SoClean’s employees in respect of day-to-day services, those amounts are not in dispute. The dispute only concerns the payroll tax in respect of an amount referable to subcontractor payments for specialised services that, in the Chief Commissioner’s view, were taken to be wages by reason of s 40 of the Payroll Tax Act.

2. [6]

   It is relevant to understand the way in which the Chief Commissioner determined this amount. His starting point was a schedule of total subcontractor payments supplied by SoClean. However, the spreadsheet did not include subcontractor payments for the period 1 April 2023 to 30 June 2023, notwithstanding that SoClean made subcontractor payments for specialised services during this period.

3. [7]

   The Chief Commissioner then excluded the following amounts from those appearing on the schedule:

   1. (1)

      Payments in respect of services performed outside of New South Wales.

   2. (2)

      Payments in respect of what were, in the Chief Commissioner’s view, ad hoc services such as repairs, maintenance, pest control and ‘one-off’ cleaning services.

4. [8]

   Having excluded all of these amounts, the Chief Commissioner made a further 15% reduction to reflect the ‘non-labour’ component of the specialised services. This reduction was in error. The provision thought to require a reduction was s 35(2) of the Payroll Tax Act but that section does not apply to the calculation of amounts that are taken to be wages by reason of the employment agency provisions in Part 3, Division 8. Section 35(2) only applies to the contractor provisions in Part 3, Division 7.

5. [9]

   So far as subcontractor payments are concerned, the amount taken to be taxable wages for the purpose of issuing the assessments for the relevant period was therefore only 85% of actual payments for a part of that period (namely, 1 July 2018 to 31 March 2023), after excluding the payments referred to in paragraph [7] above.

6. [10]

   During the relevant period, SoClean made payments to 11 separate subcontractors. The total amount treated as taxable wages and assessed to payroll tax was worked out as follows:

7. [11]

   SoClean did not declare or pay tax on these payments, giving rise to what the Chief Commissioner saw to be an undeclared payroll tax liability. The assessments reflect that liability, together with 25% penalty tax and the market rate of interest. The assessed amounts together with interest as at 10 July 2023 were as follows:

8. [12]

   Following an unsuccessful objection, SoClean now applies for a review of the assessments pursuant to s 97 of the Taxation Administration Act 1996 (NSW). Given the matters described above, SoClean can only succeed in these proceedings if it is able to demonstrate that the amounts of subcontractor payments for specialised services that were taken to be wages should have been less than the amounts referred to in the table at paragraph [10] above. Because of the way these amounts were calculated, they include a buffer or discount in favour of SoClean exceeding 15%. As a practical matter, therefore, SoClean’s burden in these proceedings is to show that the assessments are excessive by more than 15%.

9. [13]

   SoClean and the Chief Commissioner agreed to conduct these proceedings by reference to a subset of 12 shopping centres (out of the total 59 sites) for which SoClean procured specialised services. For each site, the parties agreed to allocate a percentage reflecting the extent to which each site was agreed to represent the overall amount of the assessments. They further agreed as follows:

10. [14]

    The evidence was therefore limited to the procurement of specialised services for the 12 representative sites. There was good sense in approaching the matter in this way. It allowed the principal issues in dispute to be determined in a manner that was efficient and manageable, both from the point of view of the parties and the Court. However, as the Chief Commissioner points out, nothing in the parties’ agreement relieves SoClean of the need to overcome the 15% buffer or discount in order to succeed in relation to any given site.

The client contracts

1. [15]

   These four shopping centres are owned and managed by ‘Aventus’ entities. By the time of the final hearing, Bankstown Home Shopping Centre (Bankstown) had dropped off the list of ‘representative’ sites but, having heard the evidence about it, I will describe that site along with the others. Nothing really turns on this because, as I will explain, there were no payments to specialised contractors for Bankstown during the relevant period in any event.

2. [16]

   SoClean entered into written cleaning contracts for these sites, commencing 1 April 2018. For reasons that were not explained, only the Service Agreement between Aventus Properties Pty Ltd atf Aventus Bankstown Unit Trust and SoClean was in evidence, although the Chief Commissioner accepts that the contracts for the other Aventus sites were in the same form. The contract for the Bankstown site contained specifications for both ‘internal’ and ‘external’ centres. Bankstown was an ‘external’ centre, and so only that cleaning specification applied. Other Aventus sites, such as Belrose Super Centre (Belrose), were ‘internal’ centres, and so the ‘internal’ specification applied.

3. [17]

   The contract for the Bankstown site contained the following provisions.

4. [18]

   The ‘description of services’ was as follows:

5. [19]

   The contract was initially for a term of 12 months. The contract sum was $97,639.10 per annum excluding GST, payable in monthly instalments.

6. [20]

   Under the heading ‘staffing’, the contract stated:

7. [21]

   Under the heading ‘standard of cleaning’ the contract stated:

8. [22]

   The contract provided that SoClean ‘must not subcontract or assign any right or obligation under this Contract without the [client’s] prior written consent’.

9. [23]

   Under the heading ‘provision of equipment’, the contract stated:

10. [24]

    Schedules to the contract specified the frequency with which certain tasks were to be performed for various areas of the building.

11. [25]

    In the case of ‘external’ centres such as Bankstown, the tasks ranged from daily (for example, emptying, cleaning and relining bins, sweeping, removing litter, inspecting and cleaning toilets and so on) to weekly (for example, removing cobwebs from awnings, walls and pylon signage, wiping external window ledges and so on) to monthly (for example, removing grime from ceiling air vents and return air grilles).

12. [26]

    In addition, there were a number of tasks that were required to be performed ‘as required’. Some such tasks were required to be ‘priced separately’, including ‘machine scrub ceramic toilet floors’, ‘pressure clean shopfront walls’, ‘high clean pylon signs’, ‘pressure wash dock area’ and ‘high level dust above 2 metres’. SoClean accepts that these are specialised services.

13. [27]

    In the case of ‘internal’ centres such as Belrose, the cleaning specification covered the required tasks and the frequency with which they were to be performed in the same way. As with the ‘external’ cleaning specification, there were several tasks to be performed ‘as required’ and which were to be priced separately, such as ‘atrium frame work and external windows’ and ‘high bulkheads and pelmets are to be dusted and cleaned’. SoClean accepts that these are specialised services.

14. [28]

    Whether or not SoClean actually procured specialised services depended on the particular site. At Bankstown, SoClean procured no specialised services. It did so only occasionally at Castle Hill Super Centre (Castle Hill). It did however procure subcontractors to supply specialised services more frequently at the other Aventus sites.

15. [29]

    Some such specialised services were the ‘as required’ services in the specifications. Others were not, such as deep hygiene cleaning of toilets, high cleaning, degreasing the carpark and deep scrubbing of floors. In the case of Marsden Park Home Shopping Centre (Marsden Park), for example, SoClean procured subcontractors to perform these tasks and did not pass the cost on to Aventus as a ‘specialised service’ cost.

16. [30]

    The Broadway Plaza Shopping Centre (Broadway Plaza) is located in Punchbowl. It is owned by RAM Property Nominees Pty Ltd and managed by Colliers International (NSW) Pty Ltd (Colliers). The cleaning contract for this site is a ‘Building Services Contract’ dated 1 July 2019 between the owner and SoClean. Colliers supplied a ‘tender cost schedule’ setting out the required cleaning areas and the required frequency of tasks.

17. [31]

    Under the Building Services Contract, SoClean was required to provide the ‘Services’ specified in Schedule C. An ‘overview’ of the ‘cleaning scope’ stated that SoClean ‘must provide all cleaning supplies, equipment and trained personnel to carry out and meet Colliers Specifications and requirements’. The ‘cleaning areas’ covered by the schedule were spelled out in detail and included ‘all floors, walls and internal columns’.

18. [32]

    Under the heading ‘Cleaning Services – Specific Works’, Schedule C provided as follows:

19. [33]

    The evidence did not include the management plan. I note that a cost schedule attached to the invitation to tender for the Broadway Plaza cleaning contract had specified the owner’s requirements as to the particular services that would be provided, including precise cleaning frequencies for various tasks (daily, weekly, monthly, quarterly or six-monthly); exact counts of items to be maintained (four urinal mats, 13 air fresheners); specific timing requirements (for example, tasks to be done at 7:00AM) and explicit standards for consumables and bins. Many of these tasks were so-called ‘specialised services’. It is reasonable to infer that any ‘management plan’ created for the purpose of Schedule C to the Building Services Contract addressed these same requirements.

20. [34]

    The contract fee was specified in Schedule B. The initial contract term was three years and the annual fees ‘inclusive of all costs’ but exclusive of GST were $169,341.68 for the first year, $174,421.93 for the second year, and $179,654.58 for the third year.

21. [35]

    The fee schedule contained a section specifying rates and charges. It also contained a section entitled ‘Ad-Hoc Periodocal [sic] Cleaning (completed by Applicant)’ which was as follows:

22. [36]

    These were mostly specialised services, as that expression is used by the plaintiff. The Building Services Contract elsewhere provided that SoClean was not permitted to subcontract services under the agreement without the owner’s consent.

23. [37]

    In addition to procuring the specialised services described in the agreement, SoClean also occasionally procured other specialised services for this site from time to time.

24. [38]

    Elara Village Shopping Centre (Elara Village) is located in Marsden Park. It is owned by Eildon Capital Group and is managed by Colliers. The cleaning contract was a ‘Building Services Contract’ commencing 14 November 2021 between SoClean and the owner. This contract is in many ways very similar to the contract in respect of Broadway Plaza. It was also a three-year contract with a set annual fee, increasing by 2.5% per annum. Schedule C was entitled ‘Scope of Services’. These services were very much like the kinds of services already described, save that they did not specifically refer to tasks that the plaintiff calls specialised services.

25. [39]

    However, Mr Gill, the National Operations Manager of SoClean during the relevant period, explained that ‘as a practical matter’ various of the specified tasks necessitated the performance of specialised services in order to meet the client’s expectations. This occurred as Mr Gill deemed necessary. Specialised services provided in this way included:

    1. (1)

       Cleaning cobwebs, dirt, dust, and marks above two metres.

    2. (2)

       Cleaning gum marks, stains off external pavements.

    3. (3)

       Cleaning carpark fittings.

    4. (4)

       Spot cleaning carpet stains and marks.

    5. (5)

       Removing graffiti.

    6. (6)

       Spot cleaning and damp wiping horizontal surfaces above two metres.

    7. (7)

       Varnishing timber floors.

    8. (8)

       Certain cleaning of urinals.

    9. (9)

       Picking up sharps.

26. [40]

    Some specialised services for Elara Village were invoiced to the owner separately, such as for occasional hygiene deep cleaning and hot water pressure washes. The cost of most specialised services for Elara Village were however not invoiced to the owner but were absorbed by SoClean.

27. [41]

    Kellyville Village Shopping Centre (Kellyville Village) and The Ponds Shopping Centre (The Ponds) are both in Kellyville. They are owned by the trustees of the ISPT Retail Australia Property Trust, being ISPT Pty Ltd, ISPT Custodians Pty Ltd and ISPT Nominees Pty Ltd (collectively, ISPT) and are managed by Colliers. SoClean and ISPT entered into a cleaning contract commencing 26 March 2021 for these and other sites.

28. [42]

    The contract and cleaning schedules specify all of the day-to-day, week-to-week and month-to-month cleaning tasks which SoClean was required to perform. The specifications also described ‘additional contract items’ such as slip testing, strip and seal, high dusting internal above two metres, cut back and seal, toilet deep cleaning, external high cleaning above two metres and carpark degreasing and scrubbing. These tasks were all required to be performed at specified frequencies throughout the year (ranging from once per year to four times per year) at an agreed total cost per annum.

29. [43]

    SoClean procured specialised services at Kellyville Village and The Ponds. In the case of Kellyville Village, specialised services were provided every month for the first six months, and then twice per year. In the case of The Ponds, these services were provided more frequently. Mr Gill decided in his discretion when it was necessary for these tasks to be performed.

30. [44]

    Kings Langley Shopping Centre (Kings Langley), Lennox Village Shopping Centre in Emu Plains (Lennox Village), and North Rocks Shopping Centre (North Rocks) were owned by entities associated with Challenger Investment Partners Ltd and were managed by Jones Land Lasalle (JLL). SoClean had similar cleaning contracts with the owner for each site, commencing 1 February 2023.

31. [45]

    Schedule 2 to each of these cleaning contracts specified the scope of cleaning services. Several terms in Schedule 2 have been redacted, but that is the form in which the contracts were executed. Nothing turns on the redactions.

32. [46]

    Schedule 2 otherwise contained detailed, prescriptive descriptions of the cleaning services to be provided. The schedule also specified numerous presentation standards for different areas and features of the sites.

33. [47]

    The schedule included certain tasks that the plaintiff acknowledges to be specialised services, such as external pressure washing of paving, degreasing of the carpark, high glass cleaning, and floor slip testing. These tasks were all said to be performed ‘as required by JLL’.

34. [48]

    Specialised services were provided at each of these sites, although the floors at Kings Langley required more regular pressure washing and deep washing than at the other sites. There was also a moving walkway at North Rocks that required regular, sometimes monthly, cleaning by way of specialised service.

35. [49]

    Some of the specialised services performed at these sites were the specific specialised services referred to in paragraph [47] above. Others were procured by SoClean in order to meet general presentation standards in the agreements. SoClean accepts that certain of the presentation standards necessitated the use of subcontractors as a practical matter.

36. [50]

    The cost of procuring specialised services for these sites was generally not passed on to the owner.

37. [51]

    Narellan Town Centre Shopping Centre (Narellan Town Centre) was owned by Greenfields Narellan Holdings Pty Ltd and D Vitocco Constructions Pty Ltd and was managed by Dart West Retail Pty Ltd (Dart West). There was a tripartite ‘Cleaning Contract’ for this site between the owners, SoClean and Dart West. The contract commenced on 12 November 2019.

38. [52]

    The contract stated that:

39. [53]

    Under the heading ‘site specification’ the contract stated that:

40. [54]

    The specification listed the areas and features of the site to be cleaned. It then stated:

41. [55]

    In addition to these tasks, which SoClean accepts required specialised services, SoClean occasionally procured subcontractors to perform other specialised services in order to maintain the general presentation of the shopping centre. The costs of these services were absorbed by SoClean. These works were performed on an ad hoc basis at SoClean’s discretion.

42. [56]

    SoClean did not invoice the owner for these services. Rather, it absorbed the cost.

43. [57]

    I note that the tender document which appears to form part of the contract contained costings for several specialised services, including cleaning of the high glass atrium, carpet shampooing, high dusting and deep cleaning of car parks and the loading dock.

44. [58]

    Rhodes Central Shopping Centre (Rhodes Central) was owned by Rhodes Central Retail Pty Ltd and was managed by Structure Retail Management Pty Ltd (SRM). The owner and SoClean were parties to a ‘Cleaning Services Contract’ commencing 28 July 2021.

45. [59]

    As with most of SoClean’s other cleaning contracts, there was a schedule containing detailed specifications as to the required services. Several of these were specialised services, such as cleaning full height internal and external glass walls. Other tasks, although not described as such, necessarily required specialised services such as meeting certain presentation requirements for flooring, cleaning certain kinds of stains, steam cleaning and carpet shampooing.

46. [60]

    All of these tasks were performed by subcontractors at varying frequencies, as determined by SoClean and the SRM operations manager. There was no roster for these services. The frequency with which they were performed depended on factors including the nature of the service, the condition of the shopping centre, the amount of foot traffic, weather conditions and so on.

47. [61]

    The regularity with which any of these tasks was performed was a function of the expectations of the SRM operations manager as communicated to SoClean on a weekly basis. The SRM operations manager did not specify whether the work was to be done by a subcontractor. Rather, he communicated his expectations as to how the floor or other surface should appear.

48. [62]

    In the view of Mr Gill, Rhodes Central ‘was overserviced with very high client expectations as to presentation and cleanliness’.

49. [63]

    As far as I can tell, what made the specialised services ‘specialised’ was the fact that they were performed out of hours and by subcontractors, not by SoClean’s own employees.

50. [64]

    Most specialised services required the use of equipment which, in the relevant period, SoClean did not own. The kinds of specialised equipment used to deliver specialised services included equipment for maintaining different kinds of floors, pressure washers, scissor lifts and other equipment for accessing hard-to-reach places. SoClean had previously provided these kinds of services using its own employees and equipment but had found this part of its business to be relatively unprofitable. It had also had bad experiences involving employees causing damage while using some of the equipment.

The employment agency provisions

1. [65]

   The provisions by which payments to subcontractors may be treated as ‘taxable wages’ for the purposes of the Payroll Tax Act are contained in Part 3, Division 8. As I did in SKG Cleaning Services Pty Ltd v Chief Commissioner of State Revenue; Ezko Property Services (Aust) Pty Ltd atf The Ezko Unit Trust v Chief Commissioner of State Revenue [2025] NSWSC 1219 (‘SKG’), I again refer to the helpful conspectus of those provisions by Basten AJA (Ward P and Payne JA agreeing) in Chief Commissioner of State Revenue (NSW) v Integrated Trolley Management [2023] NSWCA 302 (‘Integrated Trolley Management’) at [23] to [26].

2. [66]

   Section 37 is as follows:

3. [67]

   Sections 39 to 41 then provide:

Identifying the issues in dispute

1. [68]

   The ultimate issue in dispute is whether the assessments are excessive. However, the parties were not in agreement about how that issue was to be approached.

2. [69]

   In its written submissions, SoClean contended that the determinative issues should be identified as follows:

3. [70]

   In oral submissions, SoClean submitted that the starting point was to determine whether there existed a ‘person’ or ‘persons’ described in s 39, being a person or persons who actually performed work for or in relation to which services were supplied to a client under an employment agency contract. SoClean submitted that it was only if such an individual could be identified that there could exist an amount that was taken to be wages by reason of s 40. It submitted that the need to identify such a person in the first instance reflects the object and purpose of the provision as explained by White J in UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852; (2016) 104 ATR 577 (‘UNSW Global’). In that case, his Honour said that the mischief to which the provisions were directed was ‘the avoidance of payroll tax through the interposition of an agent to give the appearance of a contractor relationship where one did not exist in substance’ (at [41]), such as where ‘a person procured the services of another to perform services in and for the purposes of its client’s business where the person’s status as employee or independent contractor might be unclear’ (at [30]). SoClean stressed that such a conclusion could only ever be reached where there was a ‘person’ identified in s 39 who performed their work with the requisite degree of regularity and subject to the requisite degree of control and direction of the client: Integrated Trolley Management at [86].

4. [71]

   The significance of this point to SoClean’s case needs to be understood in the light of some of its other submissions. In particular, SoClean submitted that because the evidence did not allow the Court to know who had actually performed the work of delivering the specialised cleaning services to SoClean’s clients, it was impossible to say that any persons performed their work with the required degree of regularity and subject to the required degree of control and direction from the client.

5. [72]

   SoClean summed this point up in the following passage of its closing submissions in reply:

6. [73]

   There are two basic difficulties with this attempt to frame the issues in dispute.

7. [74]

   The first is that in the scheme of Division 8, the role of s 39 is to deem the persons who provide services under an employment agency contract to be employees of the employment agent. At the same time, s 40 deems payments in respect of the provision of those services to be included in taxable wages. The combined effect of the deeming in ss 39 and 40 is that payments made to or in relation to the ‘service provider’ in respect of services supplied under an employment agency contract are taken to be taxable wages paid to persons who are taken to be employees, thus engaging the core taxing provisions of the Act, particularly s 11. It is by these deeming mechanisms that payments which the core taxing provisions have otherwise not included in taxable wages – being those payments identified in s 40 – come to be subjected to payroll tax.

8. [75]

   In the light of this, I do not accept that s 39 operates in the way SoClean submits, namely to ensure that the provisions do not apply unless and until the ‘persons’ to which this section refers have been positively identified. I do not accept that it ‘operates as a condition on liability to tax’ as SoClean submitted. I see no good reason to read such a limitation into the section. Part 3, Division 8 is intended to protect the integrity of the core taxing provisions: UNSW Global at [38]-[41]; Southern Cross Community Healthcare Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1317; (2021) 113 ATR 601 at [239]-[240] (Emmett AJA); Integrated Trolley Management at [28]. It would be inimical to that purpose if the provisions could not apply unless and until the Chief Commissioner knew who, precisely, had been procured by contractors engaged by the putative employment agent to actually perform the relevant services for its clients, which is how SoClean put its case.

9. [76]

   The second difficulty is that if, as SoClean submits, the evidence does not allow me to identify the actual workers who supplied the specialised services to SoClean’s clients, that would not be a sufficient reason to find that the assessments are excessive in any event. SoClean’s submission that it must succeed if the Court is unable to make a ‘positive finding under s 39’ proceeds on a misapprehension as to where the onus of proof lies: s 100(3) of the Taxation Administration Act. If, as SoClean insists, there is ‘no evidence’ about who actually provided the work and how they provided it, then that would be a good reason to dismiss the application, not uphold it.

10. [77]

    I therefore do not accept SoClean’s framing of the issues in dispute.

11. [78]

    Rather, I consider the issues in dispute to be as identified by the Chief Commissioner in his written submissions, namely:

12. [79]

    This framing of the issues better reflects the language of the provisions. Given the nature of the evidence and the arguments of the parties, I agree that it is appropriate to identify paragraph (a) as a discrete issue.

Were the specialised services provided ‘under’ the client contracts?

1. [80]

   SoClean submitted that the specialised services were not provided ‘under’ its client contracts. There were several aspects to this submission. To the extent the client contracts contemplated that specialised services were required, SoClean submitted that the services actually provided were not governed by the client contracts but were instead supplied under separate arrangements between it and the relevant subcontractor.

2. [81]

   To the extent specialised contracts were provided at SoClean’s own cost in order to meet presentation standards or because SoClean otherwise considered the services to be necessary, SoClean submitted that it was not obliged to do so by the relevant client contract. It submitted that it generally only provided specialised cleaning services so as not to incur the disapproval of the shopping centre operations manager who had the power to terminate the contract.

3. [82]

   In putting its case this way, SoClean relied very heavily on what was said by Basten AJA in Integrated Trolley Management about the weight to be given to the terms of the contract between the employment agent and the client. At [111], his Honour said:

4. [83]

   SoClean submitted that any service provided to its clients outside the express terms of its written client contracts cannot be characterised as having been procured under that contract, regardless of who provided the work and regardless of how they performed it. It submitted that the only specialised services that could be said to have been procured ‘under’ an employment agency contract were those specifically referred to in the written contract and for which the client was specifically obliged to pay under the written contract. For example, SoClean submitted that where SoClean engaged contractors at its own cost to deep clean toilets or to clean high windows in order to comply with SoClean’s general contractual obligation to keep premises clean, it could not be said that such services were procured ‘under’ the written contract between SoClean and its client because they were not mentioned in the contract. This was said to be so even where the cost of providing these kinds of services was contemplated by the parties and priced into the fee paid to SoClean by the client. It was also said to be so where specialised services were contemplated in the contract but where the services were arranged on an ‘as needed’ basis and where the cost was passed on to the client separately from the fee charged by SoClean.

5. [84]

   SoClean submitted that the use of the expression ‘under’ in ss 37 and 39, as opposed to ‘in relation to’, shows that the legislation is concerned only with those obligations ‘created by, in accordance with, pursuant to or under the authority of the contract’. It particularly relied in this respect on what was said in Chan v Cresdon Pty Ltd (1989) 168 CLR 242; [1989] HCA 63 at 249 and in Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35 at [42].

6. [85]

   These submissions take an unduly narrow view of the expressions ‘contract’ and ‘employment agency contract’ in s 37. ‘Contract’ is defined expansively by s 37(3) to include ‘agreement, arrangement and undertaking’. The expression ‘arrangement’, especially when juxtaposed against the expression ‘agreement’, is comfortably wide enough to encompass non-contractual arrangements. Furthermore, s 37(1) treats as an employment agency contract ‘a contract, whether formal or informal and whether express or implied’. It is also necessary to keep in mind that these provisions are integrity provisions which are intended to apply – at least – to arrangements designed to avoid the incidence of payroll tax. It is not appropriate to read or apply them in a pedantic or overly narrow way.

7. [86]

   In HRC Hotel Services Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 820; (2018) 108 ATR 84, Ward CJ in Eq said at [114]:

8. [87]

   However, it is important also to note what her Honour said at [116]:

9. [88]

   In Chief Commissioner of State Revenue v Uber Australia Pty Ltd [2025] NSWCA 172; (2025) 343 IR 243 the Court of Appeal (Ward ACJ, Mitchelmore, Kirk, Adamson and McHugh JJA) said the following at [104] about the expression ‘a contract under which’ in s 32(1), found in Part 3, Division 7:

10. [89]

    Their Honours added at [105] that there was much to be said for the proposition that the expression includes a contract ‘which is the source of the practical opportunity, or the practical requirement, to supply the services’. Although their Honours did not base their decision on that construction, a similar observation may be made about the expression appearing in s 37 (remembering that the latter is concerned with services ‘procured’ rather than ‘supplied’).

11. [90]

    In the present case, the ‘specialised services’ procured by SoClean were all services that SoClean considered to be both necessary and appropriate for the delivery of its contracted cleaning services to its clients. It procured these services on a very regular basis and at very considerable cost as part of its overall arrangements with its clients. In most cases, it was necessary for SoClean to procure ‘specialised services’ in order to discharge its own obligations to meet presentation or cleanliness standards in the client contracts. In many cases, it did so because the client contracts contemplated that certain ‘specialised services’ would be arranged from time to time, which is what SoClean did. In my view, all of the ‘specialised services’ in dispute were procured by SoClean ‘under’ its client contracts within the meaning of s 37.

Were the client contracts ‘employment agency contracts’?

1. [91]

   In Chief Commissioner of State Revenue v E Group Security Pty Ltd (2022) 109 NSWLR 123; [2022] NSWCA 115 at [42]-[47] the Court of Appeal confirmed that the expression ‘employment agency contract’ should be construed in the manner first identified by White J in UNSW Global. In that case, his Honour said at [62]:

2. [92]

   In Integrated Trolley Management at [49], Basten AJA (with whom both Ward P and Payne JA agreed; see also Payne JA at [7] to like effect) added the following to what had been said in UNSW Global and E Group about how s 37(1) is to be construed:

3. [93]

   Basten AJA held at [86] that services may be said to be performed ‘in and for’ the business of a client where they have ‘a degree of regularity and continuity, and where the nature of the work was to a significant degree under the control and direction of the client’. His Honour held that cleaning services will readily constitute employment agency contracts because ‘cleaning services are generally something necessarily carried out for the conduct of many businesses’ (at [113]) and that ‘the characterisation of cleaning … services as otherwise than services provided in and for the conduct of the client’s business is suggestive of error’ (at [54]).

4. [94]

   In SKG, I found that arrangements consisting of little more than a set of cleaning specifications agreed between a business-owner and a commercial cleaning company could be characterised as employment agency contracts within the meaning of s 37 (at [50] and [96]). The evidence in that case revealed the close connection between the cleaning services supplied by the plaintiffs and the day-to-day cleaning requirements of the clients to whom the services were provided. I took the view that the doing of the cleaning work (including what was to be done, when it was to be done and how much time was to be spent doing it) was so much a function of the client’s requirements that it was appropriate to conclude that the work was supplied ‘in and for’ the client’s business.

5. [95]

   The evidence in relation to the ‘specialised services’ in this case falls well short of demonstrating that the services were not procured in and for the business of SoClean’s clients. Such evidence as there is in relation to the actual performance of the specialised services shows that, like the day-to-day cleaning services considered in SKG, they were procured in and for the business of each of SoClean’s clients. They were all procured for the clients ‘under’ arrangements with SoClean. They all occurred on-site at the client’s premises which, as I pointed out in SKG at [92], is not a neutral factor. Some of the work was done relatively frequently, such as deep cleaning of toilets, whilst other work was far less frequent, such as cutting and polishing floors, but all work was done with a degree of regularity and continuity. They are all services that might well have been performed by employees of the clients. None of the cleaning services were of a kind that a client could not itself perform with its own employees, should it choose to equip, train and pay them to do so.

6. [96]

   These general conclusions about the evidence are borne out by a consideration of the representative contracts.

7. [97]

   The services required to be provided by SoClean are set out at paragraph [18] above. The standards to which those services were to be provided are set out at paragraph [21] above. Evidence in relation to the performance of this contract was given by Mr Gill. Mr Gill said that it was necessary for SoClean to procure specialised services in order to meet the standards required under the contract. In addition, many of the specialised services in issue were specified in the client contract: see the terms reproduced at paragraphs [26] and [27] above.

8. [98]

   During cross-examination, Mr Gill said that Belrose received specialised services once or twice a year between 2018 and 2020, but that it received specialised services every month between June 2021 and June 2023. Castle Hill received specialised services between two and six times each year. Marsden Park received specialised services a few times a year between 2018 and 2019, but that increased to monthly between September 2020 and June 2023.

9. [99]

   SoClean was generally required to ensure that all services were provided to the client’s satisfaction. It was required to carry out all reasonable directions made by Aventus.

10. [100]

    In my view, the specialised services supplied at the Aventus sites were all supplied in and for the business of the client. All of the work was routine cleaning work, albeit work that was done after hours or only occasionally. It bore the same relation to the business of the client as the day-to-day cleaning work done by SoClean’s employees.

11. [101]

    The services and standards under the contract are described at paragraph [31] above. The contract enumerated many routine cleaning tasks, albeit that they were required on an ad hoc basis, that the plaintiff calls specialised services. These included deep cleaning toilets, deep cleaning the loading dock and garbage area, high cleaning, floor care and pressure cleaning. Many of these tasks were to be ‘quoted’, indicating a separate quote within the contractual framework.

12. [102]

    However, in cross-examination Mr Gill accepted that the cost of these specialised services was usually not passed on to Colliers. For the most part, SoClean absorbed the cost of providing these services.

13. [103]

    Evidence was also given in relation to the performance of this contract by Mr Schneider, who was the National Director – Retail of Colliers (the manager) from the start of the relevant period until September 2021. He said that specialised services were always separately quoted and invoiced. However, the evidence does not support this assertion. No such separate invoices were in evidence. I cannot accept Mr Schneider’s evidence that this is what always occurred. In my view, the position is as stated by Mr Gill, which is that SoClean generally absorbed these costs.

14. [104]

    As already mentioned, the evidence did not include the ‘management plan’ contemplated by Schedule C to the Building Services Contract which was required to contain a ‘complete programme for all cleaning tasks’. There is a ready inference that all of the specialised services now in dispute were services contemplated in the original invitation to tender and were priced into SoClean’s contract fee for the site generally. I note that many of the ad hoc periodical cleaning tasks listed in the fee schedule extracted at paragraph [35] above are the same as the cleaning tasks contemplated in the original invitation to tender. The only relevant distinction between the specialised services and the other services supplied by SoClean is that they were performed by contractors rather than employees.

15. [105]

    The contract included numerous provisions giving the client a say in who provided cleaning services, when they were to be provided, and how they were to be provided. The contract did not draw any distinction in this respect between the position of the client’s employees and that of subcontractors procured by SoClean to perform specialised services.

16. [106]

    All of the specialised services supplied at Broadway Plaza were in and for the business being conducted by the owners, being the shopping centre business. They were all routine cleaning tasks, although occurring at various intervals, and bore the same relationship to the business as any day-to-day cleaning task.

17. [107]

    I have described the contractual framework for the cleaning of this shopping centre at paragraphs [38] to [40] above. This shopping centre was also managed by Colliers. The contract terms are very much like those applicable to Broadway Plaza. Some of the cleaning tasks were specified as ‘annual’ tasks or else ‘as needed’. Mr Gill accepted that, as a practical matter, SoClean could only perform its obligations under the agreement by procuring specialised services. He also accepted that specialised services were procured for this site every month throughout the relevant period.

18. [108]

    As with Broadway Plaza, the cost of the specialised services was absorbed by SoClean. I am again unable to accept the contrary evidence of Mr Schneider on this point.

19. [109]

    I reach the same overall conclusions in relation to the specialised services procured for Elara Village as I reached in relation to the services procured for Broadway Plaza.

20. [110]

    I have described the contractual framework for the cleaning of these shopping centres at paragraphs [41] to [43] above. These sites were also managed by Colliers.

21. [111]

    Specialised services were supplied to these shopping centres every month throughout the relevant period. Generally, the client was not separately invoiced for specialised services. I again reject Mr Schneider’s contrary assertion on this point. As with similar services procured at the other Colliers sites, the specialised services were procured by SoClean in order for it to comply with its own contractual obligations and the requirements of its client. The evidence also shows that, to the limited extent SoClean did separately invoice Colliers for specialised services at these sites, it did so at rates specified in the client contract for the relevant service.

22. [112]

    I therefore reach the same conclusion in relation to Kellyville Village and The Ponds as I reached above in relation to the other Colliers sites.

23. [113]

    The general contractual framework for the cleaning work at these sites is described at paragraphs [44] to [50] above. Mr Gill said that specialised services were supplied at these sites every month.

24. [114]

    The general cleanliness and presentation standards to be met by SoClean specified matters that required the kind of work described as ‘specialised services’, such as maintaining floors ‘free of scratches’ and periodically applying ‘a new floor finish’. Other tasks, such as ‘carpet shampoo’ and ‘strip and seal’, were listed on an ‘adhoc pricing sheet’ contained in Schedule 4 to the North Rocks contract.

25. [115]

    The manager of these sites, Challenger, retained significant control over who was permitted to work in the centres and their adherence to shopping centre policies. All of SoClean’s services were to be performed ‘in accordance with the directions given by [Challenger]’: clause 3.2(a)(iv). In addition, Schedule 2 to the contract contained Challenger’s comprehensive specifications for cleaning and presentation services. It contained detailed standards for public spaces, amenities and external areas. It also contained requirements for waste management, environmental practices and toilet supplies.

26. [116]

    The cost of supplying specialised services to these sites was generally absorbed by SoClean: see paragraph [50] above.

27. [117]

    I do not see any principled reason why I should reach a different conclusion in relation to the specialised services procured to clean these centres. The services were all procured by SoClean to comply with its cleaning obligations under its client contracts. It was as much ‘in and for’ the client’s business as any other cleaning work.

28. [118]

    The general contractual framework described at paragraphs [51] to [57] above suggests the same outcome in respect of Narellan Town Centre. The cleaning contract itself required SoClean to perform work that it calls specialised services, such as stripping, resealing and coating the floor at least twice each year and pressure washing all centre entrances on a monthly basis.

29. [119]

    Evidence in relation to Narellan Town Centre was also given by Mr Page, the general manager of Dart West, who fairly conceded in cross-examination that specialised services were generally not separately quoted or invoiced. Mr Gill said that specialised services were generally procured every month for Narellan Town Centre.

30. [120]

    Dart West, the manager, retained fairly significant control over who could work at the centre and their compliance with Dart West directions and policies. Under the heading ‘Control of Employees’, the contract contained extensive provisions giving Dart West a say in who worked at the centre, their behavioural and dress standards, their compliance with security and safety standards and so on.

31. [121]

    All of the specialised services procured for Narellan Town Centre were, in my view, supplied in and for the shopping centre business. They bore the same relationship to the business as day-to-day cleaning tasks. I see no principled reason to reach a different conclusion in relation to them.

32. [122]

    The contract for Rhodes Central is described at paragraphs [58] to [62] above. Mr Gill accepted in cross-examination that a significant number of the cleaning tasks which SoClean was required to perform under the contract were, in practice, performed by specialised service providers. These included matters such as removing cobwebs above two metres high, removing stains or spills using steam cleaning or carpet shampooing, cleaning walls, fixtures, fittings, lights, ledges up to three metres high, maintaining the floors with deep scrubbing, burnishing, deep wash and seal to maintain a high shine, topping up the floor sealer in high traffic areas, emptying sanitary and nappy bins, slip testing at entry points and car parks, cleaning the external glass of the lifts, removing oil stains and bird droppings, clearing drains and grates in the carpark, disinfecting waste bins, and supplying, maintaining and refilling deodorisers for the loading dock and refuse room.

33. [123]

    At least some of these specialised services were provided every month at Rhodes Central.

34. [124]

    Mr Gill accepted in cross-examination that the cost of performing most of these services was not passed on to the client. Rather, as with other shopping centres where similar costs were not passed on, the cost was absorbed by SoClean into the monthly fees payable under the client contract.

35. [125]

    Clause 4.8 and Schedule D (clause 22.1) of the client contract reserved significant powers of direction and control over cleaning personnel to the centre manager, SRM. Cleaners were required to abide by all policies and procedures of SRM and follow their directions. SoClean was required to perform services in accordance with any directions or requirements of SRM: clause 13.9(a).

36. [126]

    In my view, the cleaning tasks performed by so-called specialised contractors at Rhodes Central stand in the same position in relation to the client’s business as the day-to-day tasks performed by SoClean. All such services were procured under the client contract and were supplied in and for the business of the client.

37. [127]

    The plaintiff has failed to demonstrate that what it calls specialised services were not procured ‘in and for’ its clients. The evidence before me shows the contrary, namely that all such services were provided under employment agency contracts within the meaning of s 37 of the Payroll Tax Act.

The Revenue Ruling issue

1. [128]

   In its appeal statement, SoClean identifies the following issues in relation to Ruling PTA 027:

2. [129]

   However, in written submissions, SoClean did not argue that the assessments should be set aside on the basis that the Chief Commissioner had failed to assess the correct taxpayer in accordance with Ruling PTA 027. Rather, it argued that penalties and interest should be remitted because, among other things, the Chief Commissioner had not complied with his ruling as he had not assessed the employment agent ‘closest to the ultimate client’.

3. [130]

   Ruling PTA 027 is entitled ‘Employment agency contracts: chain of on-hire’. It relevantly states:

4. [131]

   It is important to see that the ruling then sets out a procedure for ‘Agent 1’ to follow if it is to be excused from liability. That procedure is as follows:

5. [132]

   The ruling reflects the fact that in certain circumstances there may be more than one person in a chain of on-hire who meets the description of an ‘employment agent’ in s 37. Where that is so, the Chief Commissioner accepts, on the terms stated in the ruling, that it may be appropriate only to assess one of them, being the employment agent closest to the ultimate client. However, an employment agent who believes themselves not to be the agent closest to the ultimate client and who wishes to avoid being assessed must at least comply with the procedure laid down in the ruling. That procedure is not a mere formality. It serves the important administrative function of helping to ensure that payroll tax is in fact paid, voluntarily, by the employment agent closest to the ultimate client.

6. [133]

   Ruling PTA 027 proceeds on the correct assumption that all employment agents in a ‘chain of on-hire’ are liable to payroll tax for the same work until one of them actually pays the tax, thereby relieving the others of liability by reason of s 41: Southern Cross Group Services Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 666; (2019) 110 ATR 16 at [55] and [58] (Ward CJ in Eq).

7. [134]

   SoClean did not follow the procedure in the ruling. It did not make any effort to determine whether another entity had paid or was willing to pay payroll tax in relation to the amounts paid to its ‘specialised service’ providers that were taken to be wages by reason of s 40.

8. [135]

   The factual basis for SoClean’s submission is not made out in any event. Each of the representative contracts was between, at least, SoClean and the ultimate client, being the shopping centre owner. In one case (Narellan Town Centre) the contract was a tripartite contract among SoClean, the owner and the manager. But that is immaterial, because the services were to be provided to the owner. In every case, SoClean is the employment agent closest to the ultimate client.

9. [136]

   It is also relevant to note that there is no evidence whatsoever about the contractual relationships between the shopping centre owners and the managers. It is impossible in these circumstances to conclude that the managers are the employment agents closest to the ultimate clients, as SoClean contends.

10. [137]

    SoClean’s argument that the Chief Commissioner has assessed SoClean contrary to Ruling PTA 027 is without foundation.

Penalty tax

1. [138]

   Penalty tax was imposed at 25%. The Chief Commissioner has a broad power in s 33 of the Taxation Administration Act to remit penalty tax: Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd (2020) 103 NSWLR 772; [2020] NSWCA 126 (‘Downer EDI Engineering’) at [149]-[150] (Bathurst CJ, Macfarlan and Meagher JJA agreeing). That section provides as follows:

2. [139]

   SoClean submitted that penalty tax should be remitted on the basis of one of the two grounds in s 27(3). That provision is as follows:

3. [140]

   In Downer EDI Engineering, Bathurst CJ said at [150], referring to what Ward CJ in Eq had said in Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 657; (2019) 109 ATR 879 at [301], that:

4. [141]

   As to s 27(3)(a), SoClean contends that there was not a step that it could have taken to better comply with its tax obligations. It says that it was advised by suitably qualified advisers (who, I presume, advised it that it had no liability in respect of payments for specialised services) and that it was cooperative in dealing with the Chief Commissioner, which I do not doubt. SoClean concedes that it did not obtain the statements prescribed by Ruling PTA 027 but says that this was reasonable and defensible given the advice it had received. It points out that it always accepted that it was liable for payroll tax in respect of its own employees. It submits that it took reasonable care to comply with the law.

5. [142]

   Next, as to s 27(3)(b), SoClean contends that the default occurred because of the Chief Commissioner’s failure to abide by Ruling PTA 027. SoClean submits that it:

6. [143]

   The matters raised by SoClean are not a sufficient reason to remit penalty tax. I do not accept that the assessed liability arises because of circumstances beyond the taxpayer’s control. To the contrary, the liability arises by reason of the client contracts which SoClean entered into with its various clients.

7. [144]

   Nor do I accept that Ruling PTA 027 has any bearing on the question of whether penalty tax should be remitted. For a start, the ruling is not legally binding. Further, SoClean did not comply with the ruling and, so far as I can tell on the basis of the evidence, could not have relied on it to be excused from liability even if it wanted to because it is the employment agent closest to the ultimate client. SoClean did obtain ‘Subcontractor’s Statements’ from its ‘specialist’ subcontractors, but they are not what is contemplated by Ruling PTA 027.

8. [145]

   Nor has SoClean established that it took reasonable care to comply with the law. I do accept that it was diligent in complying with the Payroll Tax Act insofar as tax on wages to its own employees was concerned. But it took an altogether different view, which I find to have been wrong, about compliance with the Payroll Tax Act insofar as tax on its very considerable payments to ‘specialist’ contractors was concerned.

Interest

1. [146]

   As in force on 10 July 2023 when the assessments were issued, s 25 of the Taxation Administration Act provided that the Chief Commissioner:

2. [147]

   The Chief Commissioner has remitted the premium component of interest. SoClean now seeks that the market component also be remitted.

3. [148]

   Although he has a broad power to do so, there are very good reasons why it is generally inappropriate for the Chief Commissioner to remit the market rate component of interest. To do so is to reward the late payment of a correctly assessed tax liability: Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19; (2004) 56 ATR 82 at [60]. To remit the market rate component is, in effect, to discount the amount payable: XL Retail Services Pty Ltd v Chief Commissioner of State Revenue [2025] NSWCATAD 22 at [125] (MacIntyre SM).

4. [149]

   There is no good reason to remit the market rate component in this case. SoClean had a liability which it did not pay. The ability to pay was within its control, as were the circumstances giving rise to the liability. It has had the benefit of non-payment for many years. SoClean’s complaints about Ruling PTA 027 take matters nowhere, for reasons I have already explained.

ORDERS

1. [150]

   The summons is dismissed with costs.