Private ruling: PAYG withholding - volunteers
Date of advice: 24 June 2022
Published: 23 January 2023
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the Company required to withhold PAYG under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) from the Payment it makes to the Volunteers? | A1: No. Superannuation Guarantee | Q2: Will the Payment referred to in Question One be considered: a. 'Ordinary times earnings' as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA), and b. 'Salary or wages' as defined in subsection 11(1) of the SGAA? | A2: a. No. b. No. This private ruling applies for the following periods: Income Tax Year Ending 30 June 20XX Income Tax Year Ending 30 June 20XX Income Tax Year Ending 30 June 20XX Income Tax Year Ending 30 June 20XX

Relevant facts and circumstances: The Applicant (hereafter referred to as 'the Company') is a not-for-profit public benevolent institution. One of the Company's functions is to place Volunteers at various locations to perform volunteer work. There is a rapidly increasing demand for Volunteers in the Company's industry but a reduction in the number of people willing and able to become Volunteers. For this reason, the Company would like to make payments (hereafter referred to as 'the Payment') to these Volunteers as a 'thank you' for the work they perform and for their resilience and dedication. Each year the amount of the Payment and number of eligible Carers will vary, depending on budgetary constraints and other industry-specific factors. However, the discretion and high-level criteria regarding who may receive the Payment will not change. Due to the nature and varying lengths of time of the volunteer work, the Payment may not be equally shared across all Volunteers. Some Volunteers may receive the Payment every year, while other Volunteers may receive the Payment in alternate years. It is also possible for a Volunteer not to receive the Payment at all over the period of time they are a Volunteer with the Company. The Company will have controls in place to ensure, from a governance perspective, there is no favouritism or misuse of its funds. There would be no requirements for Volunteers who receive the Payment to use those funds in a specific manner. There would be no expectations on a Volunteer to provide any services or activities as a result of receiving the Payment, nor would the Volunteer be agreeing to provide any additional services or activities by accepting the Payment. The Company is not under a legal obligation to make the Payment. There is no contract or agreement in place between the Company and the Volunteers in relation to the Payment as there is no exchange of services linked with the Payment. The Volunteers are not employees of the Company, and are not carrying on an enterprise (anywhere) related to the volunteer work performed. The Volunteers may also receive various support payments from the Government in respect of the volunteer work they perform. Assumption For the purpose of this ruling, it is assumed that receipt of the Payment will constitute assessable income of a Volunteer pursuant to sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 . The Commissioner has not otherwise considered or made a decision in respect of the assessability of the Payment.

Relevant legislative provisions: Section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 6-5 of the Income Tax Assessment Act 1997 | Section 6-10 of the Income Tax Assessment Act 1997 | Subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 | Subsection 11(1) of the Superannuation Guarantee (Administration) Act 1992 | Section 12 of the Superannuation Guarantee (Administration) Act 1992 | Subsection 6-5(2) of Schedule 1 to the Taxation Administration Act 1953 | Subsection 10-5(1) of Schedule 1 to the Taxation Administration Act 1953 | Division 12 of Schedule 1 to the Taxation Administration Act 1953 | Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 | Section 12-40 of Schedule 1 to the Taxation Administration Act 1953 | Section 12-120 of Schedule 1 to the Taxation Administration Act 1953 | Section 12-190 of Schedule 1 to the Taxation Administration Act 1953

Reasons for decision: Detailed Reasoning - Question 1: Is the Company required to withhold PAYG under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) from the Payment it makes to the Volunteers? | Summary: Payments and other transactions that are subject to PAYG withholding ('withholding payments') are covered by the provisions in Divisions 12 to 14 of Schedule 1 to the TAA, which include section 12-35. The Payment that the Company may provide to a Volunteer does not constitute a withholding payment pursuant to any of the provisions in Divisions 12 to 14. As such, there is no obligation for the Company to withhold PAYG from the Payment. For withholding to be required by section 12-35 of Schedule 1 to the TAA, the payee must be an individual and the payment must be made to the individual as an employee . As a Volunteer (the payee) is not an employee of the Company, the Company would not be required under this provision to withhold PAYG in respect of the Payment. | Detailed Reasoning - Detailed reasoning: Division 6 of Schedule 1 to the TAA requires taxpayers to pay income tax at regular intervals as it is earned during the year. This system of collecting is called Pay As You Go (PAYG), which has two components: PAYG withholding and PAYG instalments. Subsection 6-5(2) of Schedule 1 to the TAA states that: Under PAYG withholding, amounts are collected in respect of particular kinds of payments or transactions. Usually, someone who makes a payment to you is required to withhold an amount from the payment, and then to pay the amount to the Commissioner. For a list of the payments and other transactions to which PAYG withholding applies, see Division 10. Section 10-5 of Schedule 1 to the TAA lists a summary of the different kinds of payments that are subject to PAYG withholding, as covered in Divisions 12 to 14 of Schedule 1 to the TAA. Specifically, section 12-35 of Schedule 1 to the TAA outlines payments to employees. It states that 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). Paragraph 14 of Taxation Ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees (TR 2005/16) states that, for the provision to apply, there must be an employee, a payment of salary, wages etc. to an employee as a consequence of his/her employment and finally, the payment must be made by the entity. Paragraph 16 of TR 2005/16 provides that: The term 'employee' is not defined in the TAA 1953, therefore it has its ordinary meaning. In most cases, it will be self-evident whether an employer/employee or principal/independent contractor relationship exists. It is assumed for the purposes of this ruling that, on the basis of the nature and regularity of the Payment proposed to be made to a Volunteer, receipt of the Payment will constitute assessable income in the hands of the Volunteer. However, as per the Facts, the Volunteers are not employees of the Company. As such, there is no requirement for the Company to withhold from the (assessable) Payment made to a Volunteer under section 12-35 of Schedule 1 to the TAA on the basis that the Volunteer is not an employee of the Company. The Commissioner notes that the Payment does not constitute any other type of withholding payment as listed in section 10-5 of Schedule 1 to the TAA (which summarises the provisions in Divisions 12 to 14 of Schedule 1 to the TAA) including, for example: • section 12-40 of Schedule 1 to the TAA - as a Volunteer (in receipt of the Payment) is not a company director • section 12-120 of Schedule 1 to the TAA - as the Payment is not a compensation payment, or • section 12-190 of Schedule 1 to the TAA - as the Payment by the Company would not be for a supply of goods or services made in the course of an enterprise carried on by the Volunteer, where the Volunteer has not quoted their Australian Business Number (ABN). It is noted that, under this provision, where a payee provides a payer with a written statement to the effect that the supply is made in the course of a private recreational pursuit or hobby, or is wholly of a private or domestic nature for the payee, the payer does not have to withhold an amount from the payment for the supply. Therefore, as no other withholding provisions under Divisions 12 to 14 of Schedule 1 to the TAA would apply in circumstances where the Company provides a Volunteer(s) with the Payment, there is no obligation for the Company to withhold an amount from the Payment. | Detailed Reasoning - Question 2: Will the Payment referred to in Question One be considered: a. 'Ordinary times earnings' as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA), and b. 'Salary or wages' as defined in subsection 11(1) of the SGAA? | Summary: The Payment is not considered to constitute 'ordinary time earnings' as per the definition of that term in subsection 6(1) of the SGAA, nor is it considered to be 'salary or wages' as per the definition of that term in subsection 11(1) of the SGAA. | Detailed Reasoning - Detailed reasoning: Superannuation guarantee (SG) contributions are payable by employers to employees on their 'ordinary time earnings'. 'Ordinary time earnings', in relation to an employee , is defined in subsection 6(1) of the SGAA to mean: (a) the total of: (i) earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment: (A) a payment in lieu of unused sick leave; (B) an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997; and (ii) earnings consisting of over-award payments, shift-loading or commission; or (b) if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter-the maximum contribution base. The SGAA does not define the expression 'earnings in respect of ordinary hours of work', however Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) provides guidance on the meaning of 'earnings' for SG purposes. Paragraph 12 of SGR 2009/2 states that earnings are the 'remuneration paid to the employee as a reward for the employee's services', with the practical effect being that the expression 'earnings' means 'salary or wages'. The term 'salary or wages' is defined in subsection 11(1) of the SGAA to include: (a) commission; and (b) payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate; and (ba) payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract; and (c) remuneration of a member of the Parliament of the Commonwealth or a State or the Legislative Assembly of a Territory; and (d) payments to a person for work referred to in subsection 12(8); and (e) remuneration of a person referred to in subsection 12(9) or (10). Paragraph 7 of SGR 2009/2 provides that an amount can only be part of an employee's 'ordinary time earnings' if it is 'salary or wages' of the employee. Where a payment to an employee falls outside of the definition of 'salary or wages' for SG purposes, the payment will not contribute towards the employee's 'ordinary time earnings' in calculating the employer's SG obligation. Under subsections 11(2) and 11(3) of the SGAA, certain payments are excluded from being 'salary or wages', those being fringe benefits and remuneration under a contract for not more than 30 hours per week for activities that are wholly or principally of a domestic or private nature. The definition of 'salary or wages' under subsection 11(1) of the SGAA is an inclusive definition. Paragraph 49 of SGR 2009/2 states that 'unless specifically excluded, payments are included in the definition of "salary or wages" if they satisfy the ordinary or common law meaning of that term or if they fall within the extended definition in subsection 11(1)'. Subsection 12(1) of the SGAA provides that the term 'employee' in the SGAA has its ordinary meaning. Subsections 12(2) to 12(11) of the SGAA expand the meaning of 'employee' to make particular provision to avoid doubt as to the status of certain persons as an employee. As per the Facts, the Volunteers are not employees of the Company. The Commissioner is of the view that the Volunteers do not fall within any of the classes of persons within the expanded meaning of 'employee' in section 12 of the SGAA. The Commissioner does not consider the Payment provided to a Volunteer to constitute 'salary or wages' (as defined in subsection 11(1) of the SGAA) on the basis that there is no employment relationship between the Company and the Volunteers, and each Volunteer is not carrying on an enterprise (anywhere) related to the volunteer work performed. Further, the Company has no legal obligation to make the Payment. As the Commissioner does not consider the Payment to be 'salary or wages' under both the common law meaning and extended definition in subsection 11(1) of the SGAA, the Payment is also not considered to constitute 'ordinary time earnings' within the definition of that term in subsection 6(1) of the SGAA. Consequently, the Commissioner is of the view that the Company would not have any SG obligations in respect of the Payment provided to a Volunteer(s).