16 July 2025
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In recent years, state revenue authorities have been deploying the “contractor provisions” in payroll tax legislation to target, with success, intermediaries that facilitate the provision of services between a worker and end-customer. A recent example is in relation to medical clinics, where the courts have found that general practitioners provide medical consulting services not only to patients, but also to the medical clinic. As a result, the amounts collected by the clinic from patients on the practitioner’s behalf are wages and subject to payroll tax.
A number of industries have been in focus by the state revenue authorities for the application of the contractor provisions, with the most recent case focused on the gig economy, specifically Uber’s rideshare driver arrangements. The first instance decision (in September 2024) suggested that there may have been a distinction in how the contractor provisions apply between arrangements typical of the gig economy compared to other industries. However, on 1 August 2025, five justices of the Court of Appeal of the Supreme Court of New South Wales unanimously found that there is no such distinction. Businesses which benefit from the mental or physical labour of third parties in circumstances where the business facilitates payments to the third party should consider whether their arrangements may be subject to payroll tax.
Contractor provisions
In broad terms, the deemed employer under a relevant contract is subject to payroll tax on the deemed wages it is taken to have paid (or are payable) under that contract. In this regard, section 32(1)(b) of the Payroll Tax Act 2007 (NSW) (Payroll Tax Act) provides that:
a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person — …
(b) has supplied to the designated person the services of persons for or in relation to the performance of work, or …
Section 35(1) of the Payroll Tax Act goes on to provide:
For the purposes of this Act, amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract or the re-supply of goods by an employee under a relevant contract are taken to be wages paid or payable during that financial year.
[our emphasis].
First instance decision
In September 2024, Uber Australia Pty Ltd (Uber) successfully challenged payroll tax assessments issued by the New South Wales Chief Commissioner of State Revenue (Commissioner) totalling A$81 million for the 2015 to 2020 financial years (Uber Case). Broadly, the Supreme Court[1] (Hammerschlag CJ) had held that Uber’s driver contracts were “relevant contracts” for the purposes of the relevant contract provisions in the Payroll Tax Act. However, his Honour also found that the payments made by Uber to drivers under the driver contracts were not “for or in relation to the performance of work” and thus not deemed wages that were subject to payroll tax.
The Commissioner appealed against this decision. Uber also cross-appealed against various findings made by Hammerschlag CJ at first instance.
Court of Appeal decision
On 1 August 2025, the Court of Appeal of the Supreme Court of New South Wales (Court of Appeal) constituted by five judges handed down its decision in Chief Commissioner of State Revenue v Uber Australia Pty Ltd 2025 NSWCA 172 (Uber Appeal). The Court of Appeal unanimously allowed the Commissioner’s appeal and dismissed Uber’s cross appeal.
Critically, the Court of Appeal agreed with the Commissioner that the primary judge had erred in finding that the payments from Uber to the drivers were not “for or in relation to the performance of work”.
Uber had sought to draw support for its statutory construction arguments from the legislative history of the relevant contract provisions which suggested the relevant contract provisions were concerned with disguised employment relationships and were not designed for a gig economy business. However, the Court of Appeal was unmoved, noting that such arguments distract from the application of the statutory text. The Court of Appeal cautioned against assuming that gig economy business models were not within the intended scope of the relevant contract provisions.
Supply of services to Uber
The Court of Appeal had no issue in upholding the conclusion of the primary judge that drivers provided a service to both riders and Uber when providing a transportation service to riders. The Court of Appeal found that the transportation of riders formed the foundation of Uber’s business in so far as it concerned ridesharing. This service was clearly “supplied” to Uber as it generated a financial benefit for Uber. If the drivers did not perform their driving service, Uber’s contractual right to debit riders and collect its service fees would not have been engaged.
A contract “under” which
One argument made by Uber was that the driver contracts imposed no obligation on the drivers to perform the driving services and as such, it could not be said that the driving services had been supplied to Uber “under” the driver contracts. In support of its position, Uber sought to rely on the High Court decision in the Sara Lee[2] case, which Uber submitted required the “source of the obligation” (i.e. the obligation to perform driving services) to be determined. However, the Court of Appeal agreed with the Commissioner that Sara Lee is not binding on the construction of the Payroll Tax Act because the word “under” takes its meaning from the context in which it occurs and Sara Lee was concerned with a different statutory context.[3]
Construing the word “under” based on the text, context and purpose of the relevant contract provisions, the Court of Appeal found that the driver contracts were “clearly” contracts under which Uber had the driving service supplied to it. This was because drivers had no reason to perform the driving services other than to be paid and it is the driver contract that confers the legal right on the driver to be paid each time that service is performed. The Court of Appeal also observed that the driver contracts governed or controlled the performance of the driving service.
For or in relation to the performance of work
At first instance, it was held that in order for a payment to be “for or in relation to work”:
- a payment must be in the character of remuneration to be “for” work; or
- there must be some form of reciprocity or ascertainable calibration between the money paid and the work done for the payment to be “in relation to” the work.
The primary judge then went on to conclude that while there is ”undoubtedly some form of relationship” between the driver’s work and Uber’s payment (e.g. because if the driver did not drive, there would be no payment), this did not mean the payment was “in relation to” work. This was said to be because there was no reciprocity between the driver and Uber; the payment made by Uber was made pursuant to an obligation to account (i.e. as the driver’s payment collection agent). The primary judge concluded that:
What the rider pays the driver is for or in relation to the work done by the driver. What Uber pays the driver is in relation to the payment Uber has received, not in relation to the work itself.
The Court of Appeal held that the primary judge had erred in his construction of the phrase “for or in relation to work”, finding that his Honour’s construction of that phrase put an “unsupportable gloss” on the provision.
The Court of Appeal observed that the degree of connection required by the phrase “in relation to” will differ. Further, the nexus element requires a consideration of the role the phrase is intended to play in the statutory scheme in which the phrase is used.
In dismissing the primary judge’s approach, the Court of Appeal noted that the phrase “for or in relation to” work appears throughout the relevant contract provisions. Contrary to the approach taken by the primary judge, it should be construed consistently.
The Court of Appeal also remarked that while the primary judge stated that he accepted the authority of the decisions in Optical Superstore[4] and Thomas & Naaz[5], his Honour’s conclusions regarding the need for reciprocity or calibration for a payment to be “for or in relation” to work, and the lack thereof between Uber’s payment and the driver’s driving service, were in substance, inconsistent with and contrary to those decisions.
Having rejected the primary judge’s construction of the phrase “for or in relation to” and upholding the decisions in Optical Superstore and Thomas & Naaz, the Court of Appeal held that:
The payments by Uber to drivers are payments related to the work performed by the drivers in transporting riders, notwithstanding that these represent part of the payments received by Uber from riders in discharge of the riders’ obligation to pay for the transportation service obtained through use of the Rider App. They are calculated by reference to the driving service (e.g. duration and time of trip), less Uber’s service fee, which itself is just a percentage proportion of the fare (see judgment at [41]). There is, thus, a direct relationship between the performance of work and what was payable by Uber to drivers, along with what Uber itself was entitled to retain. The fact that Uber has an obligation to drivers to account for the amounts received (less the service fee) does not change the nature of the payments as being in relation to the performance of work.
[emphasis added].
Paid or payable
In brief, the Optical Superstore and Thomas & Naaz cases both, among other things, concluded that the fact that a party to a contract receiving an amount may have some contractual or beneficial entitlement to the money received does not preclude that amount from being “paid or payable” to them for the purposes of determining whether those amounts are deemed wages or not. In both those cases, money was collected from customers/patients on behalf of the optometrist / general practitioner before being remitted to the optometrist / general practitioner. In both cases, the remitted amounts were deemed to be wages for the purposes of the relevant contract provisions.
As part of its appeal, Uber submitted that to the extent the Optical Superstore and Thomas & Naaz decisions stand for this proposition regarding the meaning of “paid or payable”, those decisions were “plainly wrong” (this being the reason why the Court of Appeal was constituted with a bench of five judges). The Court of Appeal noted that in order to overturn these decisions, Uber must establish that there is a compelling reason to depart from them. On this point, the Court of Appeal not only held that Uber had failed to establish such a case, but that, on the contrary, the reasoning employed in Optical Superstore and Thomas & Naaz “is persuasive”. It was also observed that Uber’s submission that it acted as a “mere collection agent” was itself “unpersuasive” given Uber played a significant role in organising rides and setting the fares charged by the driver.
Where next?
The decision in the Uber Appeal confirms the broad operation of the “relevant contract” provisions found in Australia’s (other than Western Australia’s) harmonised payroll tax legislation.
Subject to any appeal, the Court of Appeal’s analysis may have wide-ranging implications not just for “gig economy” businesses but also other electronic platform operators that benefit from the mental or physical labour of workers in circumstances where that platform operator pays or facilitates payments to those workers.
The decision highlights that the application of these provisions is an exercise in statutory construction. The decision also highlights the importance of understanding how a revenue authority or Court might seek to characterise what “services” a business might be provided with, and whether payments relating to those services give rise to deemed taxable wages.
JWS' Employment and Tax teams are well placed to assist in identifying risk factors and are experienced in advising on and, if necessary, defending such matters.
[1] Uber Australia Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 1124 (Uber Case).
[2] Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 at [49].
[3] Namely, the Federal Income Tax Regime.
[4] The Optical Superstore Pty Ltd as Trustee for OS Management S Trust & Ors v Commissioner of State Revenue [2018] VCAT 169; Commissioner of State Revenue v Optical Superstore Pty Ltd [2018] VSC 524 and Commissioner of State Revenue v Optical Superstore Pty Ltd [2019] VSCA 197.
[5] Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259, Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2022] NSWCATAP 220 and Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40.