Private ruling: PAYG and Superannuation obligations
Date of advice: 17 December 2015
Published: March 2016
Ruling period: Year ended 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2014

Ruling: Q1: Is there an obligation to withhold in respect of payments made to X under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (ITAA 1953)? | A1: No. | Q2: Are X considered to be employees under the Superannuation Guarantee Administration Act 1992 (SGAA)? No.

Relevant facts and circumstances: You receive an agreed amount per quarter of from a government department to enable you to obtain the services of X. You advertised for the services of X. The applicants were required to meet certain requirements. Several X's have been engaged for a number of hours per weekday. No X works more than X hours per week and they do not work overnight or on weekends. The hours of work and specific tasks are set for each day. Each X has a current registered Australian Business Number (ABN) as a sole trader/contractor. Each X has signed a contract of service which outlines the strategies and required capabilities required to assist you in reaching your goals as set out by the department. The X can accept or decline any hours of work offered. The X is able to subcontract work to others with your express permission and consent. You also have the right to refuse the subcontractor if you do not believe a subcontractor to be of the same quality as that provided by the X. The contract, achieved outcomes and remuneration are reviewed on a weekly basis. Currently the rate is $XX per hour. The contract rate is inclusive of all aspects of the service. The X is compensated for any out-of-pocket costs incurred. Each X is responsible for their individual taxation and superannuation obligations. The X invoices you directly on a regular basis. The X can accept contracts from other clients as long as the new client's hours do not interfere with your agreed times. The X is not your agent and does not have the authority to enter into any commitment on your behalf. The X bears responsibility and liability for any poor work or injury sustained in the performance of the tasks associated with their service. The X agrees to indemnity you against any action, suit, claim, demand, cost or expense arising out of any damage, injury or loss caused by or resulting from any wilful or negligent act by the X. You maintain a relevant workers compensation policy. You are not in the business of providing this service.

Relevant legislative provisions: Taxation Administration Act 1953 Section 12-35 of Schedule 1 | Superannuation Guarantee (Administration) Act 1992 Section 12 | Superannuation Guarantee (Administration) Act 1992 subsection 12(3)

Reasons for decision: Detailed Reasoning - Pay as you go (PAYG) withholding rules: Section 12-35 of Schedule 1 to the TAA 1953 provides that you must withhold an amount from a payment of salary, wages, commission, bonuses or allowances you pay to an individual as an employee. TR 2005/16 outlines the various indicators to be considered in establishing whether a person engaged by another individual or entity is an employee within the common law meaning of the term. These indicators include: • The control test: The degree of control which the payer can exercise over the payee. • The organisation or integration 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 payment of business expenses? Conclusion After assessing the facts against these indicators, it is considered that X are not employees but rather they are independent contractors. Therefore, you are not required to withhold an amount from payments you make to them. | Detailed Reasoning - Superannuation guarantee: The SGAA states that an employer must provide the prescribed minimum level of superannuation support for its employees (unless the employees are exempt employees) or they must pay the SGC. While the term 'employee', which is defined in section 12 of the SGAA, includes common law employees, it also extends to include workers who are engaged under a contract wholly or principally for their labour. The employment relationship is often referred to as a 'contract of service'. This relationship is distinguished from a 'contract for service' which is typically a contractor and principal type of relationship and does not attract any SGC liability (Superannuation Guarantee Ruling SGR 2005/1). Therefore, it is necessary to consider not only whether there is a common law relationship of employer/employee between the parties, but also, if the common law test is not met or is inconclusive, whether the extended definition of 'employee' in subsection 12(3) of the SGAA applies. As discussed above, we accept X are not common law employees but it is necessary to consider the extended definition of employee. | Detailed Reasoning - Extended definition of employee under subsection 12(3) of the SGAA: Where an individual who has been engaged under a contract is not a common law employee or there is some doubt as to the status of the individual at common law, that individual will be an employee under subsection 12(3) if: • the individual is remunerated wholly or principally for their personal labour and skills • the individual performs the contractual work personally (there is no right of delegation) • the individual is not paid to achieve a result. In this case X have a contractual 'right to delegate their work' (whether or not that right is exercised). Therefore as not all three conditions have been met, it is considered that the contract is not wholly or principally for their labour and X are not your employees under this extended definition. Conclusion It is accepted X are not your employees under either the common law definition or the extended definition and you do not have an obligation to pay superannuation contributions on their behalf.