Pay as you go (PAYG) voluntary agreements enable businesses to withhold amounts from payments they make to contract workers to help the workers pay their income tax. In the racing industry, contractor jockeys and drivers can enter into voluntary agreements with their racing bodies.
If you are a jockey or driver (payee) and are not an employee, you may enter into a written agreement with the racing body (payer) to bring payments into the PAYG withholding system. A voluntary agreement excludes these payments from the GST system and also assists you to meet your income tax obligations.
Entering into a voluntary agreement
To enter into a voluntary agreement:
- you must be an individual
- you must have an ABN, and
- the payments you receive must not be subject to any other PAYG withholding.
This means that jockeys or drivers who are engaged as employees, such as apprentices, are not able to enter into a voluntary agreement.
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If you enter into a voluntary agreement, the racing body withholds amounts from payments it makes to you (such as riding or driving fees) and sends the amounts withheld to us. You are not required to pay PAYG instalments for that income when you lodge your activity statement.
A voluntary agreement must be a signed written agreement that includes:
- the commencement date of the agreement
- what the payments are for
- the payee's ABN, name and address
- the payer's ABN, name and address
- the rate of withholding
- a statement that the payments made under the agreement are subject to a voluntary agreement under section 12-55 of Schedule 1, Part 2-5 of the Taxation Administration Act 1953.
Amount the payer withholds
The rate of withholding under voluntary agreements is either your instalment rate or a flat rate of 20%.
If you are liable to pay PAYG instalments, we will generally notify you of your instalment rate (called the Commissioner's instalment rate (CIR)) which is normally used to calculate PAYG instalments.
You must disclose your CIR or state that you do not have one in the voluntary agreement. If you do not have one or it is not known at the time of the agreement, the flat rate of 20% applies.
If your CIR is greater than 20%, the racing body must withhold at the CIR. If your CIR is 20% or less, the racing body must withhold at the flat rate of 20%, unless you agree with the racing body to use the CIR.
The racing body withholds at the appropriate rate from the gross amount payable.
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Ending a voluntary agreement
A voluntary agreement can cover payments relating to a specific task or apply to successive arrangements between the payer and payee.
Either party can end a voluntary agreement at any time by notifying the other in writing. You may need to enter into a new agreement when you are advised of a new CIR.
Both the payer and the payee must keep a copy of the voluntary agreement while it is in force and for five years after the last payment is made under the agreement. It is not necessary to send a copy to us.
GST and voluntary agreements
If a payee is not registered for GST, they cannot include GST in the price of the goods or services they supply, nor are they entitled to GST credits.
If a payee is registered for GST, they only charge GST under the voluntary agreement if the payer is not entitled to a full GST credit for the goods or services being supplied. The payer must indicate, on the voluntary agreement form, whether or not they are entitled to a full GST credit.
If the payer would normally be entitled to a full GST credit, the payee cannot charge GST on the goods or services they supply under the voluntary agreement.
If the payer is not entitled to a full GST credit, the payee (if registered for GST) must charge GST on any taxable supplies they make under the voluntary agreement (taxable supplies are goods and services that are subject to GST).
Either way, a GST-registered payee can claim GST credits for any GST paid on goods or services bought and used in performing the work under the voluntary agreement.
Example: Voluntary agreement
Harry is a professional jockey who has an ABN and is registered for GST. Harry and the state racing body enter into a written voluntary agreement so that the racing body withholds tax from payments to Harry.
Harry has been notified by the ATO that his instalment rate (CIR) is 15% for the current financial year and Harry and the racing body agree to use this rate of withholding.
The payments covered under this voluntary agreement are not subject to GST; however Harry may still claim GST credits for any GST paid on goods or services used in performing his work.
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