Uber payroll tax hit - case analysis: compliance insights on contract substance and platform models

The unanimous New South Wales Court of Appeal decision in the Uber payroll tax case marks a turning point for Australia’s gig economy and platform-based businesses. The Court ruled that payments to Uber drivers are “wages” under the Payroll Tax Act, overturning the previous decision in Uber’s favour. This serves as a warning to all businesses using contractor and centralised payment models to urgently reassess payroll tax risks. Industries such as healthcare, education, finance, insurance, and domestic services must review and adapt their business structures to ensure compliance with evolving payroll tax obligations. 

From Uber to broader industry - A new turning point in payroll tax compliance

On 1 August 2025, the New South Wales Court of Appeal (NSWCA) handed down its unanimous decision in Chief Commissioner of State Revenue v Uber Australia Pty Ltd [2025] NSWCA 172, overturning the earlier Supreme Court decision in Uber’s favour. The five-judge bench upheld the Chief Commissioner’s payroll tax assessments, classifying payments made by Uber to drivers (being passenger fares collected via the platform less Uber’s service fee) as “wages”. The assessments amounted to approximately AUD 81 million.

This case represents more than a dispute between Uber and the NSW revenue authority; it is a pivotal judgment with implications for the gig economy, contractor arrangements and platform-based business models. The principles affirmed by the Court extend well beyond ride-sharing and may apply broadly across industries such as healthcare, finance, education, insurance and domestic services. In essence, any model structured around “platform intermediation — payment collection — service fee deduction — contractor settlement” must now be reconsidered for payroll tax exposure.

While Uber has announced its intention to apply for Special Leave to appeal against this decision to the High Court of Australia, regardless of whether leave is granted or the decision upheld or overturned, the ruling sends a clear signal: the boundaries between platform-based business models and payroll tax obligations are being redefined by both tax authorities and the judiciary. Businesses relying on the traditional perception of “contractor relationships” or “collection agency” structures may face significant tax risks ahead.

Uber’s business model and the origins of the tax dispute

Understanding the case requires revisiting Uber’s operating model. In Australia, Uber’s app connects passengers and drivers. Upon completion of a trip, the passenger pays the fare to Uber through the app. Uber deducts a service fee (a percentage of the fare) and remits the balance to the driver.

Contractually, Uber designated itself as a “limited payment collection agent,” asserting that passenger payments were in substance made directly to drivers, with Uber acting only as a collection intermediary. Uber maintained that drivers served passengers, not Uber, and that its remittance to drivers was merely a clearing function, not a wage payment.

Revenue NSW rejected this interpretation, arguing that Uber’s business model fundamentally relied on drivers’ labour. Without drivers’ services, Uber could not facilitate rides or earn service fees. Thus, the payments made to drivers were intrinsically linked to their work and therefore constituted “wages” under the Payroll Tax Act 2007 (NSW). For the 2015 - 2020 income years, Revenue NSW issued payroll tax assessments totalling approximately AUD 81 million, which became the focal point of the dispute.

Uber’s core arguments

Uber’s defence strategy rested on three key arguments:

1. Service Recipient
   Uber argued that drivers provided transportation services to passengers, not Uber. The platform merely facilitated transactions and was not the recipient of the service. Therefore, Uber could not be the “payer of wages.”

2. Nature of Payments
   Uber contended that it acted solely as a collection agent. Fares belonged to drivers; Uber simply collected, deducted service fees and remitted the balance. This clearing process should not be construed as Uber paying “wages”.

3. Statutory Exemption
   Uber referred to section 32(2)(a) of the Payroll Tax Act, seeking to rely on the “ancillary to the use of goods” exemption. It argued that driving services were ancillary to the use of drivers’ own vehicles and thus excluded from the definition of a “relevant contract.”

While parts of these defences found traction at first instance - particularly the claim that Uber’s payments were not “in respect of work performed” - the Court of Appeal overturned these findings.

The Court of Appeal’s core reasoning

The NSWCA’s reasoning centred on three principal findings:

1. Dual service provision
   The Court held that drivers’ services benefited not only passengers but also Uber directly. Uber’s service fee revenue depended entirely on drivers completing trips. Therefore, drivers’ services were supplied to both passengers and Uber. Drawing on precedents from Optical Superstore and Thomas and Naaz, the Court confirmed that contractor services can be provided to multiple parties simultaneously.

2. Rejection of the direct link between pay and work requirement

   At first instance, the primary judge at Supreme Court required a direct, specifically measured connection between the money paid and the work performed. The Court of Appeal found this approach to be incorrect. The statutory phrase “in relation to” is broad; as long as there is a real and meaningful link between payment and the work done, the definition of “wages” is met. In Uber’s case, payments to drivers were clearly tied to work factors such as trip length, distance travelled, and timing, making the relationship obvious.

3. Narrow Construction of Exemptions
   Uber’s reliance on the ancillary exemption failed. The Court held that driving was the core service, not a secondary or incidental feature of vehicle use. Transport was the contract’s central object. Moreover, section 32(2B)’s “incidental services exclusion rule” meant that even if certain parts of the contract may meet the exemption criteria, the overall exemption will be disqualified if there are other services under the contract.

Collection agency argument: form versus substance

A significant highlight of the judgment was the Court’s rejection of Uber’s claim to be merely a collection agent. Many platform businesses rely on this model to distance themselves from being classified as payers.

The Court emphasised that the decisive factor is not the flow of funds but the legal and economic substance. If a platform derives economic benefit from contractors’ services (e.g., via service fees) and exercises contractual governance and control, then payments remitted to contractors will be “wages”. The fact that customers originally provided the funds does not negate the wage character.

This principle poses a fundamental challenge for platforms operating on “collection — net settlement — service fee deduction” models.

Dual service supply and constriction of exemptions

The Court reaffirmed that contractor services can simultaneously serve both customers and platforms, diverging from the traditional “single service recipient” view. As long as a platform derives consideration from contractors’ services, a relevant contract is likely to arise.

Exemptions are to be strictly construed. The “ancillary to goods” exemption applies only when labour is secondary to the contract’s subject matter. Where labour is the essence of the service, such as driving, consulting, or medical treatment, the exemption has little scope. 

Alignment with precedents

The Uber decision aligns with and extends existing case law:

• Optical superstore: Payments from an optical chain to optometrists were deemed “wages”, as services provided to customers also directly benefited the business.

• Thomas and Naaz: Medical practices were found to have relevant contracts with doctors, as the clinics benefited directly from the doctors’ services despite patients being the immediate recipients.

Together with Uber, these cases establish a clear precedents: where contractor services are integral to a business model and payments are closely tied to work performed, courts lean towards classifying them as “wages”.

Beyond the gig economy

Although directly concerning ride-sharing, the Uber decision’s implications extend far beyond. Any industry reliant on contractors may be impacted:

• Healthcare: Specialist doctors operating under clinic “facility fee + settlement” arrangements could fall within relevant contract provisions if clinics control bookings, patient allocation, and billing.

• Financial and insurance intermediaries: Commission-split models between AFSL licensees and representatives, or aggregators and brokers, may attract payroll tax if platforms govern pricing, compliance, and processes.

• Education, domestic services, repairs, and care: Platform-matching models based on “customer payments collected — service fees deducted — net settlements” face risks nearly identical to Uber’s.

Common misconceptions among businesses

The Uber ruling highlights three common misconceptions in payroll tax compliance:

• “Platform as intermediary” eliminates payroll tax risk: Not true. If contractor services are central to the platform’s business model, payroll tax liability may still arise.

• “Collection agency” status precludes “wages”: Incorrect. Customer-originated funds do not exclude platforms from being deemed payers.

• “ABN/GST registration” ensures exemption: Misleading. Exemptions hinge on contract substance and core service features, not contractor registration status or equipment ownership.

Looking ahead

Uber has announced its intention to apply for Special Leave to appeal against this decision to the High Court of Australia. Parallel legislative reviews are underway in NSW and other jurisdictions. Regardless of future developments, the ruling underscores the risks inherent in platform settlement models.

Given that payroll tax frameworks are harmonised across all states except Western Australia, other revenue authorities are likely to adopt similar enforcement positions. Businesses that delay adjustments risk facing both retrospective tax liabilities and penalties.

Balancing compliance and growth

The Uber case provides an important reminder: contractor arrangements are not a shield against payroll tax liability, “collection agency” labels cannot mask wage payments, and exemptions are increasingly narrowly construed.

For businesses, the challenge lies not in post-dispute defence but in proactively embedding compliance into contracts, payment structures and operational processes. Only by aligning legal substance with business practice can companies transform external regulatory risks into manageable internal order.

Payroll tax compliance may necessitate significant costs, but as this case illustrates, it is essential to sustainable growth. The balance between compliance and expansion is not optional, it is the foundation for long-term success.

For further assistance, please contact the PKF professional team.