Private ruling: Whether there is an obligation to withhold from payments
Published: February 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the entity required to withhold from payments made to a private company under an arrangement under section 12-40 of Schedule 1 of the Taxation Administration Act 1953 (TAA)? | A1: No


Relevant legislative provisions: Taxation Administration Act 1953 section 12-40 of Schedule 1

Reasons for decision: Summary: Section 12-40 of Schedule 1 of the TAA states a company must withhold an amount from a payment of remuneration it makes to an individual: · if the company is incorporated - as a director of the company, or as a person who performs the duties of a director of the company; or · if the company is not incorporated - as a member of the committee of management of the company, or as a person who performs the duties of such a member. Taxation Ruling TR 2005/16 states that section 12-35 of Schedule 1 of the TAA applies to payments made to individuals in their capacity as employees. It does not apply to payments made to other entities - provided the arrangement is not a sham or a mere redirection of an employee's salary or wages. In application to this case it is proposed that the entity will amend an existing agreement. After the amendment to the agreement has been enacted the entity will be contracted with a private company to supply a service. This arrangement does not appear to be a sham or a mere redirection of an employee's remuneration. As the entity will be remunerating a private company for services there is no obligation on the entity to withhold from payments under section 12-40 of Schedule 1 of the TAA.

Relevant facts: The entity operates a business. | The entity will amend an existing contract so that it will be using the services of a private company. | A payment for those services will be paid to the private company.