Private ruling: PAYG withholding liabilities
Date of advice: 27 February 2018
Published: June 2018
Ruling period: 1 July 2016 to 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Does the Trustee for the Trust trading as a business name have a liability to withhold PAYG tax from payments made to workers, pursuant to section 12-35 of the Taxation Administration Act 1953 (TAA)? | A1: Yes

Relevant facts and circumstances: The Applicant has stated: On 1 July 2016 the Trustee of a second Trust (Trust 2) entered into an Agreement with the Trustee of the Trust trading as a business name (Trust 1). Since 1 July 2017 another company has operated for the benefit of the second Trust. Trust 1 has entered into Employment Agreements with personnel whose services are provided to Trust 2 by Trust 1. Tax invoices are issued in respect to the taxable supply inclusive of on-costs. An individual executed an Employee Agreement at the start of this ruling period. Neither Trust 2 nor the employees of Trust 1 are liable for PAYG, Superannuation and other Statutory Charges relayed to employment of employees by Trust 1.

Relevant legislative provisions: Section 12-35 Taxation Administration Act 1953 | Section 12-1 Taxation Administration Act 1953

Reasons for decision: Summary: Section 12-35 of the TAA states: 12-35 An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). The exemptions to section 12-35 are contained in section 12-1 of the TAA and include: ● If the whole of the payment is exempt income of the entity receiving the payment – subsection 12-2(1) ● If the whole of the payment is non-assessable non-exempt income of the recipient of the payment – subsection 12-1(1A) ● So much of the payment which is a living away from home allowance benefit as defined by section 136 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) – subsection 12-1(2) ● So much of the payment which is an expense payment benefit (sec 136 FBTAA) or is not an exempt benefit under section 22 FBTAA – subsection 12-1(3) ● If the whole of the payment is a superannuation income stream benefit that is paid from a capped defined benefit income stream – subsection 12-1(4) As part of the Private Ruling application you have provided a copy of an executed Standard Executive Employment Agreement signed by a representative for Trust 1 and the relevant staff member, in this case Individual. Under Part 3 – Remuneration package, the agreement states inter alia: 3.3 Your Remuneration Package includes any fringe benefits tax payable in respect of the components and You acknowledge that You will bear the cost of all those components. ………. 3.8 The salary component is currently payable in instalments as disclosed on the Schedule. The payment frequency and method of payment is subject to change, provided that We give You two (2) weeks’ notice. The salary payments will not be less frequent than monthly. The salary payments may be made in cash, by cheque or by direct deposit. Your salary payments shall be reduced by any direct personal expenses paid by Us, any fringe benefits, any fringe benefits tax, or other tax liability grossed up for non-deductibility. ……….. 3.10 We will make superannuation contributions on Your behalf in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cth.) as amended from time to time. The Employment Agreement also includes terms relating to employee responsibilities, hours of work, use of timesheets, annual leave, personal/carer’s leave and termination etc. The Commissioner considers that the terms of the Employment Agreement are indicative of an employer/employee relationship. The Commissioner therefore accepts that, where such employment agreements are valid, for the purposes of the PAYG Withholding provisions, section 12-35 of the TAA will apply. As such, the Trustee of Trust 1is required to withhold PAYG tax from its valid employees and remit the same to the Commissioner.