ATO ID 2002/22: GST and provision of superannuation support for contractors
Date of decision: 8 October 2001
Business line: Indirect Tax

Issue
Do superannuation support contributions, made on behalf of an entity, an independent contractor, by the recipient of the entity's services, form part of the consideration for the entity's taxable supply of services to the recipient under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Decision
No, superannuation support contributions, made on behalf of the entity, by the recipient of the entity's services, do not form part of the consideration for the entity's taxable supply of services to the recipient under section 9-5 of the GST Act.

Facts
The entity is an independent contractor that is carrying on an enterprise in Australia. In the course of this enterprise, the entity is contracted to provide specified services to a recipient. These services are wholly or principally for the entity's labour and are a taxable supply under section 9-5 of the GST Act. The entity is paid an agreed fee for the services. In addition to the agreed fee, the recipient is required under the Superannuation Guarantee (Administration) Act 1992 (SGA Act) to pay superannuation support contributions for the entity at a prescribed rate. Both the entity and the recipient are registered for goods and services tax (GST).

Reasons for decision
Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply if: The entity is making a taxable supply of services to the recipient. However, it needs to be determined whether the payment of the superannuation support contributions form part of the consideration for the entity's taxable supply of services to the recipient. The superannuation support contributions have been made as a result of the operation of subsection 12(3) of the SGA Act. This subsection expanded the common law definition of an employee to include contractors who are engaged 'wholly or principally' for their labour. In this case, the entity is contracted wholly or principally to provide labour to the recipient and is deemed to be an employee of the recipient for the purposes of the SGA Act. As such, the recipient is under a statutory obligation to provide superannuation support contributions for the entity. The deeming effect of the definition of employee in the SGA Act is for the purposes of providing superannuation support only and does not alter the contractual relationship between the parties. For GST purposes, the effect of the deemed employee relationship is that payment of the superannuation support contribution is not consideration for something done in the course or furtherance of an enterprise carried on by the entity (paragraph 9-20(2)(a) of the GST Act). On this basis, the superannuation support contributions made by the recipient are not part of the total payment for the taxable supply of labour. Therefore, the superannuation support contributions made on behalf of the entity, by the recipient of the entity's services, do not form part of the consideration for the entity's taxable supply of services to the recipient under section 9-5 of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 paragraph 9-20(2)(a)
Subject references: Goods & services tax GST supplies & acquisitions GST consideration Taxable supply