Edited version of private ruling

Authorisation Number: 1011508899224

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Ruling

Subject: Pay As You Go (PAYG) Withholding

Are the administrative procedures outlined by you in the booklet correct and compliant with the current taxation laws?

Yes.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a non profit community care organisation providing community based support services for aged and disabled people.

You have established a program where you transfer funds to those people with disabilities and/or their families who wish to share in the management of their own support or care services.

Doing this delegates responsibility for the management of all or part of the care services and the funds required to provide such services to a responsible person or a family member. The assistance likely to be provided under the program is time limited and casual, such as baby sitting, cleaning and vocational care.

You have provided a copy of a prospective guidance handbook that you plan on providing to families within the community that are receiving services and support services in relation to aged or disabled people.

You have requested that we provide you with a private binding ruling that confirms whether various sections within this handbook comply with taxation legislation specific to PAYG Withholding and employer obligations.

The program is designed to provide the simplest way for clients, families and responsible people to pay for support which is flexible and responsive to their specific individual needs.

You have produced the handbook partly to provide guidance and advice in relation to the administrative process required to comply with various elements of the income tax legislation.

You state that the majority of the information, advice and guidance subject to this private ruling is contained in a section of the handbook, but note that specific relevant comments and advice is provided in other sections and appendices.

Funds used as part of the services are provided by a government agency and on receipt, you on-pay the relevant amounts to the person responsible for organising the care.

You have made mention to Class Ruling CR 2006/84 Income Tax: Department of Human Services (Vic) Disability Support Direct Payment Plan within which it was found that Family Managed Funds are not assessable income.

The handbook deals with payments made to individual workers, carers and helpers and provides the following advice:

· the handbook notes that if a reader is unsure about their obligations they can contact the ATO directly

· the handbook information is provided regarding the use of a Statement by a supplier form (NAT 3346) and on obtaining an ABN.

· information is provided on registering for GST.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Pay As You Go (PAYG)

Part 2-5 (sections 10-1 to 20-80) of Schedule 1 to the Taxation Administration Act 1953 (TAA) relates to the PAYG withholding system.

Section 12-35 and 12-40 of Schedule 1 to the TAA provides that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee or company director.

Section 12-190 of Schedule 1 to the TAA provides that an entity must withhold from a payment made in relation to a service or supply provided by an entity where no ABN is provided unless one of the exceptions provided within this section applies.

Application of law to your circumstances

You have provided a booklet which contains detailed information that is designed to advise families in receipt of financial assistance from your organisation of the possible taxation implications of these payments.

More specifically, it provides them with advice on the taxation implications of using these amounts to pay individuals to provide services to these families - either just to help out in a private capacity, or as professional providers of assistance.

No ABN Withholding

Section 12-190 of Schedule 1 to the TAA details the requirements of the No ABN Withholding provisions.

As explained within this section, where an entity (the service provider) provides a service or supply to another entity (the payer), the payer must withhold at the top marginal rate unless the service provider supplies the payer with their Australian Business Number (ABN).

However, this section provides a number of exceptions where this withholding requirement does not apply.

One of these exceptions is where the payment for a service does not exceed $50 of value (Subsection 12-190(4) of Schedule 1 to the TAA).

There is also an exception where the service provider supplies the payer with a signed statement declaring that they are either involved in the activity as a hobby or recreational pursuit or that their involvement in the activity is purely private in nature.

This declaration can be made on the Statement by a Supplier (NAT 3346) form.

The payer in this circumstance can accept the validity of the statement providing they have no reasonable grounds to believe that the statement is false or misleading in a material particular.

In your booklet you have provided detailed and accurate information on when the Statement by a Supplier (NAT 3346) form is required, why it is used and how to obtain it. You may wish to also include the first exception described above where the payment for a service does not exceed $50 in value.

Where a service provider is conducting a business as a sole trader and their service relates to that business activity, then the payer must obtain an ABN from that service provider or be required to withhold at the top marginal rate.

In your booklet you have also provided detailed and accurate information on the circumstances in which a payer should obtain an ABN from a service provider.

You also provide the families with the sound advice that in situations where an ABN is provided to a family by a worker, it is the worker that is responsible for their own taxation obligations.

You may wish to also include information on when no ABN withholding may apply in this situation (that is, where no ABN is provided by a worker who is conducting an enterprise as a sole trader).

One off gift vouchers

In your booklet you explain that in relation to 'one-off' occasions, families can reimburse people for support they have provided by giving them a gift voucher, petrol voucher or equivalent compensation which has a tax invoice.

You state that this payment is considered a gift and is not required to be declared by the recipient as income.

The taxation circumstances of the recipient of this type of gift or voucher may vary and would not generally be regarded as the responsibility of the family providing this gift or voucher.

One-off gifts to family members, friends and neighbours are generally considered outside the tax system. This is because one-off gifts would not usually meet the definition of ordinary income as provided in Section 6-5 of the Income Tax Assessment Act of 1997 (ITAA 1997) and as a result of this, they would not generally be regarded as assessable income.

Ongoing regular and substantial support - PAYG withholding

Where a worker is employed by a family in relation to the provision of services to that family on a regular and continual basis, the family would need to register for PAYG Withholding.

Once registered, they would need to commence withholding amounts from payments of salary and wages to that worker. The amounts that the family withholds in this situation would need to be reported and remitted on an activity statement that would be sent to the family to be completed on a monthly or quarterly basis.

The family would also need to obtain a signed Tax File Number (TFN) Declaration form (NAT 3092) from the employee and provide a copy of this document to the Tax Office. This form is filled out upon commencement of employment.

Advice on whether an arrangement constitutes an employment or independent contracting relationship can be found in Taxation Ruling TR 2005/16.

You may wish to add these points to your booklet.

With the inclusion of the TFN declaration requirements this section of your booklet will contain accurate and concise information.

Ask you to consider employing the worker

The content of this paragraph does not relate specifically to taxation legislation. This paragraph discusses circumstances that may warrant a decision from you to employ a worker on behalf of a family. This is a decision between you and the family involved.

As such, this paragraph does not have any specific taxation implications on which we can comment. We advise that there is nothing stated within it that would contravene taxation legislation.

Buy products or services - obtaining a tax invoice

In this section it appears that you are requesting a tax invoice from the families in order to keep a record of how the money that has been provided to the families is spent.

Tax invoices are specifically required where an entity conducting an enterprise wishes to claim the input tax credit on an expense they have incurred in carrying on that enterprise (section 7-1 and 11-20 of A New Tax System (Goods and Services Tax) Act 1999.

An input tax credit is the Goods and Services Tax (GST) that has been charged on an item or in this case an expense.

Again, there is nothing within this section of the booklet that would contravene any current taxation legislation.

Other sections

The other section and Appendix cover or reiterate information already provided in one chapter of the handbook. There is nothing within these sections and Appendix that contravenes taxation legislation and it is our view that this information is correct and current.

Conclusion

We advise that the information you have provided within your booklet is accurate and does not contravene current taxation legislation. Where further information or clarification may be helpful we have commented on this within the body of this notice.

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