Private ruling: PAYG Withholding and Superannuation Guarantee obligations
Published: December 2012
Ruling period: Year ended 30 June 2006 | Year ended 30 June 2007 | Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2005

Ruling: Q1: Is there an obligation on the principal to withhold from payments made to trusts or companies (Contractor) for the work of key persons? | A1: No | Q2: Is there an obligation on the principal to make Superannuation Guarantee payments for key persons? | A2: No


Relevant legislative provisions: Tax Administration Act 1953 Section 12.35 of Schedule 1 | Superannuation Guarantee (Administration) Act 1992 Section 12

Reasons for decision: Summary: PAYG Withholding Taxation Ruling TR 2005/16 discusses Pay As You Go - withholding from payments to employees. Paragraph 10 states Section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (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. Paragraph 58 in part states a sham is an arrangement that creates the appearance of rights and obligations different from those actual rights and obligations that the parties intended to create. In this case, a Contractor's Agreement exists between the principal and either a company or a trust. There is no Contractor Agreement between the principal and any individual (key person). Key persons are not employees of the principal. The key persons have a relationship with the company or trust (either as employees or sub-contractors) but not with the principal. The principal has no obligation to withhold in respect to section 12-35 of Schedule 1 of the TAA as there are no payments made to key persons. Payments are made to either a company or a trust with which the principal has a Contractors Agreement in place. This arrangement is what both parties (the principal and either the company or the trust) intended to create, consequently no sham exists. Superannuation Guarantee Section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA) states subject to this section, in this Act, employee and employer have their ordinary meaning. Subsection 12(3) of the SGAA states if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract. Superannuation Guarantee Ruling SGR 2005/2 discusses work arranged by intermediaries. Paragraph 10 states the following principles apply in determining whether there is an employment relationship for the purposes of subsections 12(1) and (3) of the SGAA 1992. Paragraph 11 states whatever the circumstances of a particular tripartite working arrangement, it is first necessary to determine whether a contract for the performance of work exists and with whom it exists. Only after this is established can the precise nature of the relationship (whether employee or otherwise) be determined. Paragraph 12 states if there is no contract between the worker and end-user in a tripartite working arrangement, the worker cannot be an employee of the end-user. Similarly, if there is no contract between the worker and the intermediary, the worker cannot be an employee of the intermediary. Paragraph 13 states the manner in which the relationship between the parties to a tripartite working arrangement is labelled or described is not conclusive in determining the nature of the relationship involving the parties to the arrangement. Expressions such as 'employment agency' and 'labour hire firm' that are often used to describe the use of various forms of labour market intermediary have no precise legal meaning. Paragraph 14 states that in tripartite working arrangements, it is the ultimate or legal control over the worker that is most relevant; not the day-to-day direction and control. Paragraph 17 states if a worker is not contracted personally to perform work or services but via an interposed entity such as a company or trust, neither the end-user nor the intermediary is the employer of the worker, because any contract they have is with the interposed entity and not with the worker. The worker may be the employee of the interposed entity. Paragraph 79 states sometimes a worker is not contracted personally to perform work or services or provide their labour but rather via an interposed entity. Typically, this is a family company or trust. The company or trustee enters into a contract instead of the worker, although the worker still performs the work or services or provides their labour. Paragraph 80 states in this situation neither the end-user, nor the intermediary, will be an employer because they would not be party to any contract with the worker as an individual. Rather, they have entered into a contract with the company or trustee. Paragraph 81 further states in these situations, the worker may be the common law employee of the company or trustee, or an employee under a contract wholly or principally for labour. This will depend upon the particular factual circumstances. In this case a tripartite working arrangement exists between the key person, the principal and the trust or the company (which has entered into a Contractor Agreement). The ultimate or legal control over the key person belongs to the trust or the company and not the principal even though the principal may have day-to-day direction and control over the key person. The principal has entered into a Contractor Agreement with the trust or company. The agreement states the Contractor is to provide services as outlined in the agreement. As there is no agreement or contract between the principal and the key person, the key person is not an employee of the principal. Consequently there are no obligations on the principal in relation to superannuation guarantee payments for the key person. | Detailed Reasoning - Conclusion: The principal has entered into a Contractors Agreement with the trust or company and not with the key person. The principal has no obligations in relation to PAYG withholding or Superannuation Guarantee payments to the key person.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: The principal regularly enters into Contractor Agreements with companies or trusts. (Contractor) | The principal never enters into Contractor Agreements with individuals. | The same Contractor Agreements have been used since 1 July 2005. | A key person is an employee, contractor or a sub-contractor, agent or officer of the Contractor. | Money for the services of the key person is paid directly to the bank account of the Contractor. | The principal employs employees on a full-time and part-time basis, permanent and casual, and on a salary and on an hourly rate. These employees are engaged on separate terms to the Contractor Agreement and are not the subject of this private ruling.