Private ruling: PAYG Withholding
Date of advice: 5 June 2019
Published: July 2019
Ruling period: Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022 | Year ended 30 June 2023 | Year ended 30 June 2024
Date scheme commenced: 1 July 2018

Ruling: Q1: Is the applicant required to withhold an amount from Player Payments under Division 12 of Schedule 1 to the Taxation Administration Act 1953? | A1: Yes.

Relevant facts and circumstances: You are a football club ('the club') engaged in local competition in and around a local district within Australia. You make payments to your players for each game they play. Players are paid each month. No payments are made in the off season. The players are under contract with the club and so cannot play, enter into negotiations, discussions or contracts with any other football club. The amount of payment varies between players and payments for each game range from $150 to around $400. Payments are separately negotiated with each player. The average is around $300 and the average payment each players gets per season is approximately between $5000 and $6000. The players are insured by the club for injury but receive no sick or annual leave payments. The players pay for their own travel to training and football matches. The Club supplies the players with team uniforms. All players participate in another form of paid employment and do not need the income from the team sport to pay for their living expenses. The players view their position in the football club as a hobby or pastime.

Relevant legislative provisions: Taxation Administration Act 1953 Schedule 1 Division 12-1 | Taxation Administration Act 1953 Schedule 1 section 12-35

Reasons for decision: Summary: Section 12-35 of Schedule 1 to the TAA 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. A determination of whether an individual under a specific arrangement is an employee must be made by a consideration of the total factual circumstances in light of all of the indicators determining the status of that individual. It is the totality of the relationship that needs to be considered. Taxation Ruling 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. 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? | Detailed Reasoning - Terms and the circumstances of the formation of the contract: In determining the nature of the contractual relationship, it is important to consider all the terms and conditions of the contract between the parties whether express or implied, in light of the circumstances surrounding the making of the contract. Contractual arrangements often contain a clause that purports to characterise the relationship between the parties as that of principal and independent contractor and not that of employer and employee. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole- that is, the parties cannot deem the relationship between themselves to be something that is not. The parties to an agreement cannot alter the true substance of the relationship by simply giving it a different label. If the underlying reality of the relationship is one of employment the parties cannot alter that fact by merely having the contract state (or have the worker acknowledge) that the worker's status is that of an independent contractor. As Gray J stated in Re Porter: re Transport Workers Union of Australia (1989) 34 IR 179 at 184: Although the parties are free, as a matter of law, to choose the nature of the contract which they will make between themselves, their own characterisation of that contract will not be conclusive. A court will always look at all of the terms of the contract, to determine its true essence, and will not be bound by the express choice of the parties as to the label to be attached to it. As Mr Black put it in the present case, the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck. It is important to note that each of the players in the Club is subject to a written contract. The contracts are standard between the players and cover items such as: · remuneration for each game played- players irrespective of game score of varying amounts. · that medical insurance will be covered by the club. · the team apparel supplied to the team member by the club which the player must wear. · the requirement to attend games, training and social events (subject to injuries etc) · the requirement of the · player to adhere to the Club's code of conduct; and · the player exclusively plays for the Club and is prohibited from entering into discussions or negotiations with any other Club. Given that a contact exists, in which the players are paid to exclusively play for the Club, it points more towards an employer/employee relationship because an intention to create legal relation exists. As mentioned above, Taxation Ruling 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 or contractor 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? | Detailed Reasoning - Control: The test for determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. A common law employee is told not only what work is to be done, but how and where it is to be done. The importance of control lays not so much in its actual exercise as in the right of the employer to exercise it. A high degree of discretion or latitude in the manner in which a task is performed does not, of itself, indicate a contract for services. Further, although it is not uncommon for a contract to specify how the contracted services are to be performed, this does not necessarily imply an employment relationship. A high degree of direction and control is not uncommon in contracts of service. In contractual arrangements any control or direction must be expressed in terms of the contract only, so that outside the contractor is free to exercise their own discretion, because they work for themselves. In this case, the football player is under a high degree of control by the Club. Subject to injuries, the player must attend each football match and play to the best of their ability, they must also attend training and social functions. The player is under the direction of the team coach. The player must wear the team uniform. The player's behaviour is also subject to a code of conduct and the player's contract may be terminated if they breach the code of conduct. It appears that there is very little autonomy exercised by the players over the manner in which their services are conducted. This level of control is indicative of an employer/employee relationship. | Detailed Reasoning - Organisation or integration: In an employment relationship, tasks are performed at the request of the employer and the employee is said to be working in the business of the employer. An independent contractor carries on a trade or business of their own. An independent contractor enters into a contract to perform specific tasks and has a high level of discretion and flexibility about how the work is to be performed, even if the contract contains precise terms about methods of performance. An employee works in the business of the employer and the work performed may be said to be integral to that business. An independent contractor works for the payers business but the work is not integrated into the business rather is an accessory to it. In this case, the player is under contract to play football for the football club. The player is part of a team under the direction of the coach and is required to participate in football matches as part of a team. The player is also required to attend social events as part of the team. The player wears a team uniform at the matches and generally speaking, integrated into the Club's Football team. This level of control and integration of the player in the team is indicative of an employer/employee relationship. | Detailed Reasoning - Results: Where the substance of a contract is for the production of a given result, there is a strong indication that the contract is one for services. 'The production of a given result' means the performance of a service by one party for another where the first-mentioned party is free to employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome. Satisfactory completion of the specified services is the 'result' for which the parties have bargained. The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to hours worked. If remuneration is payable when, and only when, the contractual conditions have been fulfilled, the remuneration is usually made for producing a given result. In this case, the player is paid a fixed amount for each football match play irrespective of whether the team wins, loses or draws in the football match. It appears that the basis of the contract, there is no result needed to be paid for the match. Having said this, these players will not be paid if they do not play in the match. Overall, it appears that the player is under a contractual obligation to play the match but is under no obligation or incentive to produce a targeted score or competitive outcome. This absence of any contractual obligation to produce a certain 'result' is indicative of an employer/employee relationship between the player and the Club. | Detailed Reasoning - Delegation: The power to delegate or subcontract 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. Whereas if an individual has unfettered 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. In these circumstances, the contractor is the party responsible for remunerating the replacement worker. A common law employee may frequently 'delegate' tasks to other employees, particularly where the employee is performing a supervisory or managerial role. However, this 'delegation' exercised by an employee is fundamentally different to the delegation exercised by a contractor outlined above. When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker, rather the workers have merely organised a substitution or shared the work load. This is not delegation consistent with that exercised by a contractor. In this case, it would be reasonable to assume that the contracted football player would not be able to delegate or subcontract their services to another player (whether within or outside the Club) for any reason. It would be reasonable to assume that if the player could not play the match then it would be matter for the Club to find a player to replace the contracted team player. As the team player could not reasonably be expected to delegate their position in the team to another third party, it is a strong indicator that the player is engaged in an employment relationship with the Club. | Detailed Reasoning - Risk: An employee bears little or no risk of the costs arising out of injury or defect in carrying out their work. An independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor is usually expected to take out their own insurance and indemnity policies. Whether the worker is contractually obliged to accept liability for the cost, in terms of time or money, for the rectification of faulty or defective work is a relevant consideration in determining if that worker should be regarded as an employee or independent contractor. Commonly, an independent contractor or entity would solely bear the risk and responsibility of liability for their work if it does not meet an agreed standard and would be required to either rectify this defective work in their own time or at their own expense. An employee on the other hand, would bear no such responsibility and the liability for any defective work of the employee, either to a third party or otherwise, would fall to the employer in terms of the burden of cost or time for rectification. It would be reasonable to expect that the football player bears some risk to their reputation being adversely affected for poor playing performance during the football season. This may affect their pay or future opportunities in other teams in the future. Having said this, under the current contract, the player will still be paid the same amount by the Club despite poor playing performance. This level of 'risk' that the player has as a consequence of poor performance is neutral in considering whether an employer/employee relationship exists between the player and the Club. | Detailed Reasoning - Provision of tools and equipment and payment of business expenses: 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. 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. 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. Further, 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. In this case, the player is supplied with their team uniform. The player supplies their own boots and other incidentals such as mouthguards etc. The player also pays for their own car and fuel to get to training and football games. As the players is supplied with most of the equipment (like the team uniform) in order to perform the services of playing football, it is more indicative of an employee/ employer relationship. | Detailed Reasoning - Conclusion: After assessing the facts against the indicators in TR 2005/16, it is considered that the players are in fact employees of the Club and the Club is therefore required to continue to withhold amounts from payments made to the players of the Club pursuant to Division 12 of Schedule 1 of TAA 1953.