Private ruling: Pay as you go (PAYG) withholding
Date of advice: 1 February 2019
Published: May 2019
Ruling period: Year ended 30 June YYYY
Date scheme commenced: I July XXXX

Ruling: Q1: Is there an obligation on the University to withhold from payments made to theses markers under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)? | A1: No.

Relevant facts and circumstances: 1. The applicant is a university (‘the University’). 2. Some of the degrees offered by the University require students to submit a thesis to theses markers (‘Examiners’) for examination and marking. 3. All of the Examiners which are the subject of this private ruling are Examiners of Masters, PHD’s and High and Professional Doctorates and research and theses/projects. 4. The Examiners are academics or professionals whose area of expertise relates to the theses that they mark. 5. The Examiners have a high degree of independence and discretion and are sought out by many universities for their knowledge of the relevant subject matter. 6. Each of the Examiners are unlikely to mark more than 10-12 theses throughout the course of their careers. 7. The Examiners have a period of six weeks to examine the theses and return their independent report to the school of graduate research. 8. The amount of time spent examining a thesis varies, however an estimate would be approximately 25-30 hours per thesis. 9. The University offers the following fees to the Examiners: ● Less than $300 for Masters theses and non-research Professional Doctorates; and ● less than $500 for Doctor of Philosophy theses, High Doctorates, and Professional Doctorates. 10. The fees paid to the Examiners are an honoraria prescribed by Universities Australia and they are paid as a gesture of goodwill. The amount offered is not reflective of any hourly rate for services rendered. 11. The Examiners do not have any contractual obligations or affiliations with the University, and would be disqualified to act as examiners if they had any collaboration with the University within the last five years. 12. The Examiners perform marking offsite from the University at a time and place that is convenient to them. For project based examinations, the Examiners may choose to attend a presentation or installation either at a campus of the University or any other external venue of their choice. 13. The Examiners are not provided with any tools or equipment by the University. 14. The Examiners must follow the University’s guidelines in relation to marking theses; however, the University does not have control over when and where the Examiners conduct the marking. 15. The Examiners are not expected to incur costs in undertaking their role as examiners and any costs are reimbursed by the University. 16. The Examiners do not bear any risk of the costs arising out of a defect in their work, however, their individual standing as academics and experts in their field would be impacted by a failure to meet the marking requirements. 17. The Examiners are expected to provide their own computer, internet access and telephone which are integral to marking the theses. 18. The University does not provide any resources or funding to cover the cost of marking other than: ● the honorarium payment; and ● the travel costs, if any, where the Examiners are required to undertake travel in connection with the assessment. 19. The Examiners do not accrue any leave entitlements; are not required to wear a uniform or have any obligation to work on any given day. 20. A high proportion of the Examiners are not residents for Australian income tax purposes .

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

Reasons for decision: Summary: The Commissioner has determined that the theses markers are not common law employees of the University. Accordingly, the University does not have an obligation to withhold from payments made to theses markers under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | Detailed Reasoning - Detailed reasoning: 1. Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) states 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). 2. Taxation Ruling TR 2005/16 Income Tax: Pay As You Go – withholding from payments to employees provides guidance as to whether an individual is paid as an employee for the purposes of section 12-35 of Schedule 1 to the TAA. 3. The term ‘employee’ is not defined in the TAA. Therefore, for the purposes of withholding under section 12-35 the term ‘employee’ has its ordinary meaning. 4. Whether a person is an employee of another is a question of fact to be determined by examining the terms and circumstances of the contract/arrangement between them having regard to the key indicators expressed in the relevant case law. 5. TR 2005/16 considers the various indicators 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. 6. These indicators include: ● The control test: the degree of control which the payer can exercise over the payee. ● The integration or organisation test: whether the worker operates on their own account or in the business of the payer. ● The results test: whether the worker is free to employ their own means and is paid to achieve the contractually specified outcome. ● The delegation test: whether the work can be delegated or subcontracted (with or without the approval or consent of the principal). ● The risk test: whether the worker bears the legal responsibility and expense for the rectification or remedy in the case of unsatisfactory performance. ● Which party provides tools, equipment and makes payment of business expenses. 7. These indicators regarded by the courts as the key indicators of whether an individual is an employee or independent contractor at common law are discussed more fully below. | Detailed Reasoning - Control: 8. The extent to which an entity has the right to control the manner in which the work is performed is the classic test for determining the nature of a working relationship. A common law employee is told not only what work is to be done, but how and where it is to be done. With the increasing usage of skilled labour and consequential reduction in supervisory functions, the importance of control lays not so much in its actual exercise, but in the right of the employer to exercise it. 9. However, the mere fact that a contract may specify in detail how the contracted services are to be performed does not necessarily imply an employment relationship. In fact, a high degree of direction and control is not uncommon in independent contractor relationships. The payer has a right to specify how the contracted services are to be performed, but such control must be expressed in the terms of the contract; otherwise the contractor is free to exercise their discretion (subject to any terms implied by law). Similarly, the right to supervise how the work is to be performed does not constitute an employment contract where the essence is one of independent contractor. | Detailed Reasoning - Integration or organisation: 10. It is considered that the distinction between an employee and independent contractor is the difference between a person who serves their employer, in their employer’s business, and a person who carries on a trade or business of their own. Therefore, when applying the indicators of employment listed in TR 2005/16, it is also necessary to keep in mind the distinction between a worker operating on their own account and a worker operating in the business of the payer. 11. Where the worker's services are an integral and essential part of the business that engages them, there is a strong (but not conclusive) indication that they are a common law employee. If the worker is providing services as an individual carrying on their own business, there is a strong (but not conclusive) indication that they are an independent contractor. | Detailed Reasoning - Results: 12. The meaning of the phrase 'producing a result' means the performance of a service by one party for another where the first mentioned party is free to employ their own means (that is, third party labour, plant and equipment) to achieve the contractually specified outcome. The essence of the contract has to be to achieve a result and not to do work. 13. Satisfactory completion of the specified services is the result for which the parties have bargained. That is, a payment becomes payable when, and only when, the contractual conditions have been fulfilled. Payment is often made for a negotiated contract price, as opposed to an hourly rate. | Detailed Reasoning - Delegation: 14. The power to delegate or subcontract (in the sense of the capacity to engage others to do the work) is a significant factor in deciding whether a worker is an employee or independent contractor. If a person is contractually required to personally perform the work, this is an indication that the person is an employee. 15. If an individual has unlimited power to delegate the work to others (with or without approval or consent of the principal), this is a strong indication that the person is engaged as an independent contractor. The contractor is free to arrange for their employees to perform all or some of the work, or may subcontract all or some of the work to another service provider. | Detailed Reasoning - Risk: 16. Generally, employers are liable for negligence and injury caused by their employees. Therefore, an employee bears little or no risk of the costs arising out of injury or defect in carrying out their work. 17. Conversely, an independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of their work. As such, an independent contractor is usually expected to take out their own insurance and indemnity policies and is required to either rectify defective work in their own time, or at their own expense. 18. This is consistent with the focus on the chance of profit and the risk of loss as a traditional indicator that a worker is an independent contractor conducting their own business. | Detailed Reasoning - Provision of tools and equipment and payment of business expenses: 19. The provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor. 20. However, the provision of necessary tools and equipment is not necessarily inconsistent with an employment relationship. The provision and maintenance of tools and equipment, and payment of business expenses, should be significant for the individual to be considered an independent contractor. 21. There are situations where very little or no tools of trade or plant and equipment are necessary to perform the work. This fact by itself will not lead to the conclusion that the individual engaged is as an employee. The weight or emphasis given to this indicator (as with all the other indicators) depends on the particular circumstances and the context and nature of the contractual work. 22. Furthermore, an employee, unlike an independent contractor, is often reimbursed (or receives an allowance) for expenses incurred in the course of employment, including for the use of their own assets such as a car. | Detailed Reasoning - Other indicators: 23. In addition to the above, other indicators of the nature of the contractual relationship have been variously stated and have been added to from time to time. Those suggesting an employment relationship include the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged, provision of benefits such as annual, sick and long service leave, and the provision of other benefits prescribed under an award for employees. 24. We have considered the above indicators within the context of the relationship between the Examiners and the University and have determined that the Examiners are not common law employees of the University. This determination is based on the following factors: ● the Examiners do not have any contractual obligations or affiliations with the University; ● the University has no legal obligation to pay the Examiners; ● the Examiners have a high degree of independence, discretion and flexibility in how, when, and where the theses are marked; ● the Examiners are paid a fixed fee per thesis, not on a time basis; ● the Examiners are not provided with any tools or equipment by the University; ● the Examiners’ individual standing as academics and experts in their field would be impacted by a failure to meet the marking requirements; ● the University does not provide any resources or funding to cover the cost of marking; ● the Examiners do not accrue any leave entitlements are not required to wear a uniform; and ● the Examiners are free to offer their services to other universities. 25. Although it is acknowledged that it is unlikely that the Examiners would delegate marking to another individual, there is no expressed right for the Examiners to delegate. Also, the Examiners are subject to control in the form of a requirement to follow the University’s guidelines. These aspects of the relationship are indicative of an employer/employee relationship. However, when balanced against the indicators at paragraph 24 above, our determination that the Examiners are not common law employees of the University is unchanged. | Detailed Reasoning - Conclusion: 26. The theses markers (‘Examiners’) are not common law employees of the University. 27. Accordingly. the University does not have an obligation to withhold from payments made to theses markers under section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (TAA).