Foez Dewan
Principal
Employment
By that very fact: ‘ipso facto’ clauses from 1 July 2018
29 June, 2018
Background
In August 2015, the Australian Taxation Office (ATO) ruled that Uber drivers must register for Goods and Services Tax (GST) regardless of turnover. Uber commenced a legal challenge to this finding and in July 2016 the matter was heard in the Federal Court of Australia.
Griffiths J handed down the decision on the 17 February 2017.
Issue to be determined
The issue to be determined was whether Uber drivers were operators who “supply taxi travel” for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). If Uber drivers do “supply taxi travel” they are required to be registered for GST purposes regardless of their turnover.
Enterprises with a turnover of less than $75,000 do not need to register for GST.
However, section 144-5 in Pt 4-5(I) of the GST Act provides an exception to this rule for operators who “supply taxi travel”.[1] That is, taxi drivers are required to be registered for GST even if their turnover is less than $75,000.
The GST Act defines the phrase ‘taxi travel’ as meaning “travel that involves transporting passengers, by taxi or limousine, for fares”.[2]
Uber’s submissions
Uber argued that its drivers were not considered taxi operators. Uber drivers could not use taxi ranks, pick up passengers on the roadside or drive in a bus lane or transit lane (unless transporting the required number of passengers).[3] Uber drivers did not need a physical marking on the vehicle identifying it as a taxi or a light affixed to it indicating its availability.[4]
Uber also claimed that technological differences set its drivers apart from traditional Taxi operators. For example:
- Traditional taxi vehicles must be fitted with a taximeter visible to the passenger which progressively calculates and displays the fare. Whereas the Uber app allows Riders to obtain an estimate of the cost of the ride.[5]
- At the end of the hire, the hirer must pay to the driver the authorised fare by tending cash or by using another approved payment method. Whereas Uber Riders pay for the trip through the app.[6]
Uber also argued, in the alternative, that where legislation for the purpose of revenue is directed to a particular sector of commerce or industry, the technical meaning which a word bears in that sector ordinarily prevails.[7] Section 144-5(I) was directed, at least in part, to the taxi industry and the term “taxi” has a recognised meaning in that industry arising from the regulation of that sector in each of the States and Territories.
The Commissioner’s submissions
The Commissioner of Taxation contended that the definition of “taxi travel” is to be construed as a whole and connotes the transportation, by a person driving a private vehicle, of a passenger from one point to another at the passenger’s direction and for a fare, irrespective of whether the fare is calculated by reference to a taximeter.[8]
The Commissioner also submitted that it was wrong for the applicant to argue that State and Territory regulatory regimes produce a “regulatory concept” of “taxi”.[9] As the GST Act is a federal taxing statute, the Commissioner submitted it was unlikely that Federal Parliament intended the definition of “taxi travel” to be determined by reference to State and Territory regimes applying to the taxi industry.[10]
Court’s finding
Applying principles of statutory interpretation outlined in the leading decision by the High Court in Project Blue Sky[11] his Honour held that the statutory text must be considered in its context including its legislative history and extrinsic materials.
The relevant explanatory memorandum to the Bill that introduced Division 144 made clear that the taxi exception was informed by an appreciation of difficulties arising as a result of some but not all taxi drivers being registered for GST purposes. The parliament was concerned to ensure that all persons who supplied “taxi travel” were subject to GST to ensure an equal tax impact on passengers. Having regard to this legislative purpose, his Honour noted the term ‘taxi travel’ should be broadly construed.
His Honour adopted the finding of Young J in Saga Holidays[12] that the GST Act should be construed in a practical and common-sense way. He concluded “I accept the [tax office] commissioner’s submission that the ordinary meaning of the word ‘taxi’ is a vehicle available for hire by the public and which transports a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taximeter.”[13]
Griffiths J found that Uber fell within this definition and could be designated as a taxi service. Accordingly, Uber drivers are required to register for GST despite the fact that the software and service offered by them may not have been contemplated at the time the GST Act was created.
[1] A New Tax System (Goods and Services Tax) Act 1999 s144-5(I).
[2] Ibid s195-1.
[3] Uber B.V. v Commissioner of Taxation [2017] FCA 110 at [12].
[4] Ibid.
[5] Ibid.
[6] Ibid.
[7] Ibid at [39].
[8] Uber B.V. v Commissioner of Taxation [2017] FCA 110 at [45].
[9] Ibid at [47].
[10] Ibid.
[11] Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28.
[12] Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191.
[13] Uber B.V. v Commissioner of Taxation [2017] FCA 110 at [135].
