Handbrake firmly on: Uber liable for payroll tax on payments to drivers in New South Wales

The New South Wales Court of Appeal has found that Uber is liable to pay approximately $81 million in payroll tax, overturning the decision of the New South Wales Supreme Court (Chief Commissioner of State Revenue v Uber Australia Pty Ltd [2025] NSWCA 172).

The Court of Appeal held that Uber received a service from the drivers when they transported riders, deriving a financial benefit through service fees from each fare. This service fee was deemed a fundamental purpose of the contractual arrangement between Uber and the drivers. The Court also accepted that a contractor can provide the same service to two recipients (in this case, the rider and Uber).

The Court rejected the earlier reasoning that some "reciprocity or ascertainable calibration between the money paid and the work done" was required in order for a payment to be "for or in relation to the performance of work" under section 35 of the Payroll Tax Act 2007 (NSW). Instead, the Court of Appeal found that the direct relationship between the driving service and Uber's receipt of the service fee was sufficient to meet this test.

This decision adds to several others which have found that businesses collecting and remitting payments on behalf of service providers may fall within the scope of payroll tax obligations when the contractors' services are integral to the operation of the business (see Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40 concerning medical practices and Commissioner of State Revenue v Optical Superstore Pty Ltd [2019] VSCA 197 concerning arrangements with optometrists).

Uber's operations and contractors under the Payroll Tax Act

Uber operates a "rideshare system" that connects riders seeking transport with drivers via its Driver App and Rider App.

The Uber rideshare system has several key features which were relevant to the dispute:

• At the end of each trip, riders automatically pay the fare electronically and Uber deducts its service fee from the rider's payments (generally 20-25% of the fare) and pays the balance to the driver.

• The Apps incorporate a rating system which allows riders to rate the drivers and drivers to rate the riders at the end of each trip.

• Uber has an incentive program under which it pays money to its drivers or partners who successfully refer potential new drivers to Uber.

The mechanics of the Uber rideshare system are set out in written contracts between Uber and its:

• drivers (Driver Contract);

• partners (Partner Contract); and

• riders (Rider Contract).

Revenue NSW assessed that Uber was liable to approximately $81 million in payroll tax on the payments remitted to its drivers under the Payroll Tax Act 2007 (NSW) for the financial years 2015 to 2020.

In 2024, Uber successfully challenged the Assessments in the New South Wales Supreme Court before Chief Justice Hammerschlag, who found that payroll tax was not payable on most payments to drivers. Revenue NSW appealed this decision to the Court of Appeal.

This decision related to the contractor provisions in Division 7 of the Payroll Tax Act:

• Under section 32(1)(b), a relevant contract is a contract, agreement, arrangement or undertaking under which services are provided for or in relation to the performance of work to a person carrying on a business;

• Under section 33(1)(b), a person who receives services from others under a relevant contract for or in connection with work is treated as an employer;

• Section 34 works alongside section 33(1)(b), treating the party providing the services as an employee;

• Section 35(1) provides that any amounts paid or payable by an employer "for or in relation to the performance of work" under a relevant contract are considered wages for payroll tax purposes; and

• Specific exclusions apply under section 32(2) to exclude certain services from being subject to payroll tax.

The Chief Commissioner identified the following to be services supplied by drivers to Uber:

• transporting riders to the pickup point, taking rider on board and driving them to their destination (driving);

• giving feedback about riders at the end of each trip (rating); and

• referring people to Uber for the purpose of them becoming drivers (referring).

Did the drivers provide services to Uber under a relevant contract?

The Court of Appeal concluded that the drivers supplied transportation services to Uber under the Driver Contracts. In coming to its conclusion, the Court of Appeal dealt with two sub-issues.

1.Was the driving service supplied to Uber?

Principally, the direct financial benefit (in the form of a service fee) Uber derived from the driving services was, in the view of the Court of Appeal, sufficient to conclude that Uber were supplied a service and uphold the primary judge's findings. The Court of Appeal focused on the "financial benefits" which Uber received from the arrangement with drivers:

"The transportation of riders to their destination (the driving service) is not merely of assistance to Uber in some indirect or collateral way. It clearly generates a financial benefit for Uber in the form of a service fee, and is the foundation of Uber ’s business insofar as it concerns ridesharing./p>

Central to that business is the collection of money directly from riders on a per-trip basis, of which Uber keeps a significant part by way of service fee. The driver’s performance of the driving service is the very thing which engages Uber’s legal rights to do so, conferred by Uber’s contracts with the rider (to collect the money) and with the driver (to keep part)."

2. Was the driving service supplied "under" the Driver Contracts?

The Court of Appeal adopted a wide construction of "a contract under which" in section 32(1) of the Payroll Tax Act, finding that it includes contracts that:

• create the right or obligation to supply services;

• govern or control the supply of services; or

• confer a right to payment for services.

The Court of Appeal concluded that the driving services were supplied to Uber under the Driving Contracts:

"Applying that construction (and in particular pars (2) and (3)) to the facts here, the driver contracts are clearly contracts under which Uber has the driving service supplied to it. Drivers have no reason to perform the driving service except to be paid, and they perform that service in the context of the driver contracts."

The Driver Contracts were also found to govern or control the supply of the rating service, such that the rating service was supplied to Uber under the Driver Contracts.

Were the services excluded under section 32(2) of the Payroll Tax Act?

Section 32(2)(a) of the Payroll Tax Act provides an exclusion to a "relevant contract" where the services supplied to Uber are ancillary to the use of goods (i.e. the motor vehicle) which are the property of a driver.

Uber argued that the driving service and rating service were both ancillary to the use of the driver's vehicle which engaged the exception under section 32(2)(a) such that the Driver Contracts should not be treated as "relevant contracts".

The Court of Appeal did not accept this argument, finding that the driving service was inseparable from the use of the motor vehicles and could not be characterised as being "ancillary" to the driver's use of the motor vehicle. Additionally, the Court of Appeal considered that the exemption should not apply because "transportation" was the dominant feature of the Driver Contracts not the use of the drivers' cars (as required for an exemption under section 32(2)(a) to apply).

While the rating service was found to be ancillary to the driver's use of the vehicle, the exception under section 32(2)(a) could not apply because of the Court of Appeal's conclusion that the dominant feature of the Driver Contracts was not the use of the drivers' car.

Were the amounts collected by Uber and remitted to its drivers "paid or payable" by Uber "for or in relation to the performance of work"?

For or in relation to work

The Court of Appeal rejected the primary judge's construction of section 35(1) and found that the term "for or in relation to work" does not require "reciprocity or ascertainable calibration" between payment and the work performed.

The term "in relation to" was found to be broader than how the primary judge interpreted it and required consideration of the nature and strength of the relationship between the amounts paid or payable and the work performed by the drivers. In finding that there was a direct relationship between the payments made by Uber to the drivers, the Court of Appeal observed that the payments were calculated by reference to the driving service (e.g. the duration and time of the trip), and removed Uber's service fee which was simply a percentage of the fare.

Paid or payable

The Court of Appeal also considered Uber's submission that the amount remitted to its drivers were not "paid or payable" in the sense required by section 35(1), as Uber simply collects funds on behalf of its drivers and then remits them to the drivers. In making its submission, Uber challenged the correctness of the decisions made by in Thomas and Naaz and Optical Superstore.

The Court of Appeal refused to depart from prior authority with the result that the payments made to its drivers were "paid or payable" in the requisite sense. In this respect, the Court of Appeal referred to the Victorian Court of Appeal's observation that "the ordinary meaning of 'payment' readily embraces a payment of money to a person beneficially entitled to that money".

Implications for taxpayers who engage contractors

There is an ongoing NSW Parliament inquiry into the application of the contractor and employment agent provisions in the Payroll Tax Act. Following a hearing on 21 March 2025, we understand that NSW Parliament are in the process of drafting a formal report which will be tabled in Parliament. The inquiry findings may be influential in determining whether legislative reform will be directed towards the contractor provisions.

Until either of these eventuate, the decision has significant implications for businesses who engage contractors, particularly those who are structured to collect money on a contractor's behalf and remit a percentage of that amount to the contractor. These arrangements are common across the gig economy where services are provided on an on-demand basis and where an employment relationship may not be required or suitable to the arrangement.

A proactive approach to reviewing contractual arrangements will best serve businesses who are unsure whether they may fall within the contractor provisions in light of the Court of Appeal's decision. Receiving professional advice and early engagement with revenue authorities based on that advice could help reduce the penalties and interest which revenue authorities may apply to amounts of underpaid payroll tax.