Independent contractors and tax - Tax basics for non-profit organisations

Note: This document forms part of our publication Tax basics for non-profit organisations. To view the full publication, click here.

Introduction

Under the pay as you go system, independent contractors can either provide for their own income tax liability by paying PAYG instalments, or enter into voluntary agreements authorising their payers to withhold amounts from their payments.

Voluntary agreements

If an organisation that is carrying on an enterprise engages an individual contract worker who has an ABN, the organisation and the worker can make a voluntary agreement to bring the worker’s payments into the PAYG withholding system. They can only do this if the payments are not subject to any other PAYG withholding requirement and the payment is in whole or part for the performance of work or services.

If the organisation and the worker make a voluntary agreement, the organisation will withhold amounts from payments it makes to the worker and send these amounts to the Tax Office. The contract worker will not be required to pay PAYG instalments for that income because it has already been subject to PAYG withholding and therefore is not included in the worker’s instalment income.

An organisation and a worker can enter into a voluntary agreement only if the worker is an individual who has an ABN. If the worker is working under a company, partnership or trust structure, they cannot enter into a voluntary agreement.

To enter a voluntary agreement, the organisation and the worker may complete the PAYG voluntary agreement form (NAT 2772). These forms are available from the Tax Office. It is not compulsory to use this form. You can make your own written agreement as long as it includes all information required by the form.

For more information refer to PAYG voluntary agreement (NAT 3063).

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Labour hire arrangements

Labour hire arrangements commonly involve at least two contracts. A user of labour (the client) typically contracts with a labour hire firm for the provision of labour of a specified kind. The labour hire firm does not contract to perform the work; it merely contracts to provide labour to work under the direction of the client. The labour hire firm then contracts with the worker and pays the worker. There is no contract between the worker and the client.

Under PAYG withholding, a labour hire firm must withhold amounts from payments it makes to its workers for performing services for its client under the labour hire arrangement. There is no requirement for the client organisation to withhold from the payment to the labour hire firm (unless the labour hire firm has not quoted its ABN).

For more information refer to PAYG withholding and labour hire firms (NAT 3473).

To obtain this publication, see More information.

Last Modified: Monday, 15 October 2007

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