Service Contracts and Application of Payroll Tax – Important Changes

In the very recent decision of JP Property Services Pty Limited v Commissioner of State Revenue, the Court found that contracts entered into for the performance of incidental services to a business do not attract the employee agency payroll rules, however, if the functions are integral to the business, then payroll tax will likely apply.

The Court held that whether the work was “integral” was based upon whether the service was performed to help the client conduct its business in much the same way as it would by way of an employee.

The case involved a service contract between UNSW Global and Franklins Supermarkets. UNSW would provide workers to clean the Franklins Supermarkets after hours. As the work was performed after business hours, it was not an “integral” part of the business and, therefore, payroll tax did not apply.

The court went on to say that if UNSW Global had provided cleaners that worked during business hours, payroll tax would apply because Franklins Supermarkets owed a duty of care to shoppers to keep the premises safe from spills, being an “integral” part of conducting business.

We strongly recommend that you review your current service relationships and underlying contracts in the context of this recent decision.

Please contact Meghan Warren, Principal, of our office on (03) 9822 8588 to discuss further.

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