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Edited version of private ruling

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Ruling

Subject: Pay As You Go (PAYG) Withholding

Are the payments made to foreign resident teachers, engaged as specialist private contractors in Australia, exempt from withholding tax?

Yes

This ruling applies for the following period

1 July 2010 to 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You are setting up a business in Australia.

You wish to use specialist teachers from overseas to do short workshops and courses of one to two weeks duration.

You wish to use them as private contractors.

These private contractors do not have an ABN.

Relevant legislative provisions

Taxation Administration Act 1953 section 12-315 and

Taxation Administration Act 1953 section 12-90.

Reasons for decision

Taxation Ruling TR 2002/9 describes the circumstances under which a payer is required to withhold from payments where the supplier does not quote their ABN.

Section 12-315 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that an entity (the payer) that carries on an enterprise must withhold an amount from a payment it makes to another entity (the payee), or to other entities (payees) jointly where the payment is a kind set out in the regulations and the payee/payees is a foreign resident.

Section 12-190 of Schedule 1 to the TAA provides that an entity (the payer) must withhold an amount from a payment it makes to another entity if the payment is for a supply that the other entity has made, or proposes to make, to the payer in the course or furtherance of an enterprise carried on in Australia by the other entity.

For tax purposes, an enterprise is defined as an activity or a series of activities, done:

Contractors are workers who are self-employed and have a contract with you to provide services.

You generally do not withhold amounts from payments made to contractors. However, if a contractor does not quote their ABN, you must withhold amounts from the payments you make to them at the rate of 46.5% under the No ABN Withholding provision (section 12-190 of Schedule 1 to the TAA), unless the exceptions to the provision apply.

The exceptions to the No ABN Withholding provision under section 12-190 of Schedule 1 to the TAA include:

the total payment to the entity is $75 or less, excluding GST

the entity is an individual under 18 years of age, is not your employee, and the payments you make to that person do not exceed $120 per week

the supply is wholly input taxed under GST

the goods or services are supplied through an agent who has quoted their ABN on an invoice or some other document relating to the supply

the supply is made in the supplier's private capacity, or as their hobby

the entire payment you make is exempt income for the entity

the entity is not entitled to an ABN as they are not carrying on an enterprise in Australia

In terms of being eligible for exception, the entity should provide a written statement to the payer with all the required information.

TR 2002/9 states at paragraph 48, that if the payer does not have adequate evidence to satisfy itself that the payee is a non-resident and is not carrying on an enterprise in Australia, it would be prudent for the payer to seek a written statement from the Payee. The form (Statement from a Supplier) is available from the Tax Office website: www.ato.gov.au or the entity can create their own statement.

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