Yesterday, the New South Wales Court of Appeal (Ball JA, with whom Leeming JA and Free JA agreed) delivered judgment in SKG Cleaning Services Pty Ltd v Chief Commissioner of State Revenue [2026] NSWCA 122, an important judgment concerning s.37(1) of the Payroll Tax Act and the employment agency contract provisions in that Act. The Court dismissed the appeal.
Adam Gerard, leading Richard Raffell, appeared for the Chief Commissioner.
The appellants conducted commercial cleaning enterprises under the terms of written contracts with their clients. They partly fulfilled the services required via subcontractor labour (service providers). The Chief Commissioner assessed the payments made by the appellants to the service providers as taxable wages on the basis that the client contracts were employment agency contracts within s.37(1). The primary judge (Hmelnitsky J) concluded that the appellants’ client contracts were all employment agency contracts.
The appeal concerned only a subset of the client contracts at issue at first instance. Underlying the appeal was the appellants’ contention that the client contracts could not be employment agency contracts because they did not provide the clients with a significant degree of control over the manner in which the service provider carried out their work, such that it could not be said that the nature of the relationship between the client and the service provider was akin to that of employer and employee. The appellants contended that control of this nature was an essential requirement.
In dismissing the appeal, the Court of Appeal reaffirmed that the expression ‘for a client’ in s.37(1) carries with it the concept that the services are provided ‘in and for’ the client’s business. The Court reaffirmed the observations made in Chief Commissioner of State Revenue v Integrated Trolley Management Pty Ltd [2023] NSWCA 302 that it is the connection between the ordinary conduct or activities of the client’s business and the services that are provided under the client contract, which give the client contract the character of an employment agency contract and whether a relevant connection exists is a question of fact and degree. The Court of Appeal concluded that whilst the degree to which the client has control over the activities of the service provider is a relevant factor to consider, it is neither critical nor determinative. The Court of Appeal also rejected the proposition that where reference was made in Integrated Trolley to the client having control over ‘the nature of the work’ to be performed this meant the client having control over the how the work was performed by the service provider.
The Court of Appeal concluded that where the primary focus is whether there is a relevant connection between the ordinary activities of the client’s business and the services that are provided to the client under the client contracts, the primary judge was correct to conclude that the cleaning contracts in this case were employment agency contracts.
A copy of the judgement is available here.