In a significant court dispute, Uber—the biggest ride-sharing firm in the world—overcame Revenue NSW and dismissed six payroll tax assessments totaling more than $81.5 million. The tax assessments were based on the claim that Uber drivers should be treated as employees of Uber, and Uber was thus obliged to pay payroll tax on the alleged salary it owed to its drivers.

Employers are obligated to pay payroll tax on all taxable wages provided to workers in accordance with the Payroll Tax Act 2007 (NSW). This legal framework also includes contractors. A contractor may be subject to payroll tax charges when they are engaged under a “relevant contract”. A relevant contract is a contract or agreement by which a contractor provides an employer with the services of a worker. The main concern in this case was whether Uber drivers could be considered employees under the Act. If so, Uber would have been required to pay payroll taxes on the compensation they received.

Uber defended itself by arguing that its drivers should not be subject to payroll taxes since they are independent contractors rather than employees. The case was brought to the New South Wales Supreme Court, which ultimately decided in Uber’s favour. The Act’s definition of “in relation to the performance of work” is what the court found Uber had not done when paying its drivers. Stated differently, the relationship that existed between Uber and its drivers did not conform to the traditional employer-employee model that was required in order to impose payroll tax.

The money that Uber paid or owed its drivers or partners was not considered to be wages, per the court’s decision, because it had nothing to do with or was not for the performance of work. Due to the suspension of the payroll tax assessments, Uber avoided having to pay millions of dollars in taxes.

Both Uber and businesses that engage in the contract economy stand to gain from the business’ success. The decision should serve as a cautionary tale for new businesses like Uber that depend on independent contractors since their legal needs may differ from those of more established companies that employ employees. The decision establishes a precedent that differentiates payroll tax obligations between contract labourers and employees.

Companies that use contractors must also take this situation into consideration. In order to avoid having to pay back overdue taxes, it highlights how important it is to precisely ascertain the legal validity of contracts with contractors. Businesses need to find out if the law requires them to treat their contractors as employees or independent contractors in order to ensure that they are complying with payroll tax laws.

For any questions you may have relating to business tax, please contact the business consultants at Bates Cosgrave.