Private ruling: PAYG Withholding
Published: May 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you required to withhold any amounts, under the Pay As You Go (PAYG) withholding system, from the settlement paid to your sub-contractors employee? | A1: No. | Q2: Do you have to supply a PAYG payment summary to your sub-contractors employee? | A2: No.

Relevant facts and circumstances: You sub-contract work to an external agency. You pay the sub-contractor for work undertaken. The sub-contractor employed a person who carried out the work for you. This person was paid by the sub-contractor. Following an alleged incident of discrimination the person no longer carried out the work for you. A sum of money was paid to the person as a result of an out of court settlement. The settlement payment comprised of general damages and loss of income. You did not withhold any amounts under the PAYG withholding system for this payment.

Relevant legislative provisions: Taxation Administration Act 1953 section 12-35 and | Taxation Administration Act 1953 section 16-155.

Reasons for decision: Detailed Reasoning - PAYG withholding obligations: Schedule 1 of the Taxation Administration Act 1953 (TAA) contains, among other things, the provisions of the PAYG withholding system. Under the PAYG withholding system, an entity that makes certain kinds of payments must withhold an amount from the payment, and then pay that amount to the Commissioner. Section 12-35 of Schedule 1 to the TAA states that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee. The term 'employee' is not defined in the TAA; therefore it has the ordinary meaning. In most cases, it will be self evident whether an employer/employee or principal/independent contractor relationship exists. According to Taxation Ruling TR 2005/16 the relationship between an employer and employee is a contractual one. It is often referred to as a contract of service . Such a relationship is typically contrasted with the principal/independent contractor relationship that is referred to as a contract for services . An independent contractor typically contracts to achieve a result whereas an employee contracts to provide their labour (typically to enable the employer to achieve a result). | Detailed Reasoning - PAYG payment summary requirements: Section 16-155 of Schedule 1 to the TAA advises that where an entity (the payer) has made one or more withholding payments under section 12-35 of Schedule 1 to the TAA to another entity (the recipient) the payer must, within 14 days after the end of a financial year, give a payment summary (and a copy of it) to the recipient. | Detailed Reasoning - Application to your circumstances: In your case, you were required to pay a sum of money to a person as a result of an out of court settlement. Even though the payment included an amount for loss of income, it is agreed that this person was not an employee of yours but was in-fact an employee of your sub-contractor. As such, the settlement payment is not considered to be salary, wages, commission, bonuses or allowances paid to an individual as an employee. Therefore you are not required to withhold an amount from this payment under section 12-35 of schedule 1 to the TAA. In addition, as you have not made a withholding payment to this person you are not required to issue them with a PAYG payment summary.

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