Private ruling: Contractor v employee
Published: April 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Should a worker be treated as an employee for the purposes of section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)? | A1: No.

Relevant facts and circumstances: You employed a worker as a casual and were paid under an enterprise bargaining agreement (EBA). The worker asked to be paid as a contractor instead of an employee. The worker requested to be paid at the EBA rates plus on-costs to cover superannuation, insurance and other personal expenses. You accepted their terms. Since that acceptance the worker has been paid through their company of which they are the sole director and shareholder.

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

Reasons for decision: Summary: The distinction between employment and contract is the difference between a contract of service indicating an employee/employer relationship and a contract for service indicating a contractor/principal relationship. The relationship between an employer and an employee is a contractual one. It is often referred to as a contract of service (or, in the past, as a master/servant relationship). The relationship between the independent contractor and the principal is referred to as a contract for services. An independent contractor typically contracts to achieve a result whereas an employee contracts to provide his or her labour (typically to enable the employer to achieve a result). An independent contractor works in his or her own business (or on his or her own account); an employee works in the service of the employer, that is, in the employer's business. Whether the true nature of an arrangement between a payer and payee is that of employer/employee or principal/independent contractor is a determination which must be made by reference to the various indicators developed by the Courts. These indicators have been collated in Taxation Ruling TR 2005/16. TR 2005/16 provides key indicators that should be considered when determining whether an individual is an employee or independent contractor. With consideration of all the facts presented and with reference to the indicators provided in Taxation Ruling TR 2005/16 it is considered that the worker meets the requirement to be considered a contractor and therefore you have no withholding obligations under section 12-35 of Schedule 1 to the TAA.