Background

Uber Australia Pty Ltd (Uber) operates a rideshare platform connecting riders and drivers via its 'driver app' and 'rider app'. For the financial years from 2015 to 2020, the NSW Chief Commissioner of State Revenue (Commissioner) assessed Uber for approximately $81 million in payroll tax on payments it made to drivers. Uber objected to the payroll tax assessments, and after the objection was disallowed by the Commissioner, sought review in the Supreme Court of NSW.

At first instance, the NSW Supreme Court (in a single judge decision by Hammerschlag CJ) held there was a 'relevant contract' under section 32(1) of the Act under which the drivers worked for Uber.

However, notwithstanding that the arrangements gave rise to a 'relevant contract' between Uber and the drivers, Hammerschlag CJ found that the payments made by Uber to drivers were not payments that were 'for or in relation to the performance of work' performed by the drivers under the 'relevant contract' and so were not deemed wages paid or payable by Uber for payroll tax purposes. In coming to this conclusion, Hammerschlag CJ looked to the terms of the agreements between Uber, the drivers and riders and, in particular, Uber's role as described in those terms as a mere 'payment collection agent' in passing the amounts collected from riders onto drivers. Hammerschlag CJ concluded that there was no element of 'reciprocity or calibration' between the driver and Uber or the rider and Uber with respect to the money paid by the rider and instead, amounts Uber paid to the drivers were 'pursuant to an obligation to account, and no more' and so were not deemed wages.

The Commissioner appealed the Supreme Court decision to the NSW Court of Appeal.

Court of Appeal decision

The appeal was heard before a panel of 5 judges in the Court of Appeal who, in a unanimous judgment, ultimately found for the Commissioner.

Was there a 'relevant contract'?

The Court of Appeal agreed with Hammerschlag CJ that the arrangements between Uber and the drivers resulted in a 'relevant contract'. The Court noted that, in transporting riders to their destination, drivers were not providing assistance to Uber in 'some indirect or collateral way'. Rather, driving clearly generated a financial benefit for Uber in the form of a service fee and was the foundation of Uber's ridesharing business. Without the provision of the driving service, Uber's business could not function and so the Court found that the drivers clearly 'supplied' a service to Uber and that was done under a 'relevant contract' with Uber.

Could Uber rely on an exemption that the services supplied by drivers were ancillary to the use of goods?

There is an exemption for a contract being a 'relevant contract' if the work-related services are ancillary to the use of goods which are the property of the service provider (section 32(2)(a) of the Act).

The Court rejected Uber’s argument that this exemption applied because the work-related services were ancillary to the driver's use of their vehicle. The Court agreed with Hammerschlag CJ's finding in the Supreme Court decision that the use of the vehicle and the provision of the work-related services cannot be separated and even if they could be, it could not be said that the use of the vehicle was the principal or dominant feature of the contracts given the practical and economic significance of the drivers driving their vehicles to pick up and transport riders. The Court therefore held that the exemption did not apply to exclude the arrangement between Uber and the drivers from being a 'relevant contract'.

Were the amounts paid by Uber to the drivers taxable wages?

The Court disagreed with Hammerschlag CJ's finding that the amounts paid by Uber to the drivers were not 'for or in relation to the performance of work'. In coming to this conclusion, the Court said that Uber's claim that it was a mere collection agent was 'unpersuasive' and noted the significant role it had in organising rides and setting fares through the Uber app. It found that Uber’s payments to drivers were directly connected to the work performed, notwithstanding that they were derived from rider payments and Uber had an obligation to account for those amounts to the drivers. Specifically, the Court said that there was 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 (as the service fee).

The Court therefore found that the amounts paid by Uber to the drivers were deemed wages and upheld the Commissioner's payroll tax assessments on Uber.

Uber has not yet sought special leave to appeal the Court of Appeal decision to the High Court of Australia but given the quantum of the assessments, it would not be surprising if it did. It has until 28 August 2025 to lodge its application for special leave.

Significance

This decision confirms that there may be payroll tax ramifications for operators of gig economy platforms in relation to the amounts that are paid to contractors via those platforms, even where amounts are paid by a third party acting as a collection agent. The decision is also relevant to businesses in other industries which engage contractors, including medical centres and mortgage brokers, and comes following significant payroll tax uncertainty for players in the health/medical industry, following the decisions in Optical Superstore and Thomas and Naaz.

Businesses that engage contractors to provide 'work-related' services should review their contractor arrangements and consider the potential payroll tax implications to them under the 'relevant contract' provisions and the availability of any exemptions.

Subject to any appeal by Uber to the High Court of Australia, there is likely to be an increase in audit and enforcement action by each State or Territory Revenue office.