Private ruling: PAYG(W)
Date of advice: 1 April 2019
Published: May 2019
Ruling period: Year of income ended 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Does the organisation A have a requirement under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to withhold from payments made to an individual in relation to its contract with organisation B? | A1: Yes

Relevant facts and circumstances: Organisation A is an unincorporated not for profit organisation. Organisation A has contracted with another unrelated organisation, organisation B, for the provision of services to clients of organisation B (the contract). It is expected that these services will be provided by an individual who is a member of organisation A. There is no written contract between the individual and organisation A. Under the terms of the contract, organisation A will invoice organisation B on a monthly basis for services provided by organisation A. Organisation A will obtain the necessary Professional Indemnity and Public Liability Insurance for services that are provided under the contract. Organisation A will provide all equipment required by the individual that is not supplied by organisation B. The individual will not be required to provide any equipment. In accordance with the Articles of organisation A, the individual will receive payment from organisation A for the services she provides to organisation B under the contract.

Relevant legislative provisions: Taxation Administration Act 1953 Schedule 1 section 12-35

Reasons for decision: Summary: Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that you must withhold an amount (PAYG(W)) from a payment of salary, wages, commission, bonuses or allowances you pay to an individual as an employee. Whether an individual under a specific arrangement is an employee is determined after considering all of the facts concerning the terms and conditions of the contract. That is, it is the totality of the relationship that needs to be considered. Taxation ruling TR 2005/16 discusses the various indicators that the courts have considered in establishing whether a person engaged by another individual or entity is an employee within the common law meaning of the term. The contract between organisation A and organisation B is a contract between two organisations, and therefore there is no employment relationship between those two organisations, and no requirement for organisation B to withhold PAYG(W) under section 12-35 of Schedule 1 to the TAA in relation to payments made to organisation A under the contract. Taking into account the following factors: ● The contract is between organisation A and organisation B, ● The individual is not named in the contract as the individual that will be providing the services, ● Any equipment required will be provided by organisation A, and not the individual, and ● organisation A will pay the individual for the work done, it is considered that the individual will be an employee of organisation A. Therefore, organisation A has a requirement to withhold an amount of PAYG(W) under section 12-35 of Schedule 1 to the TAA, in relation to payments made to the individual.