Edited version of administratively binding advice

Authorisation Number: 1011557484408

This edited version of your advice will be published in the public Register of private binding rulings after 28 days from the issue date of the advice. The attached Tax Office advice fact sheet has more information.

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Advice

Subject: Employee or independent contractor

This ruling applies for the following periods:

Year ended 30 June 1999

Year ended 30 June 2000

Year ended 30 June 2001

Year ended 30 June 2002

Year ended 30 June 2003

Year ended 30 June 2004

Year ended 30 June 2005

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

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 Section 12

Superannuation Guarantee (Administration) Act 1992 Subsection 12(1)

Superannuation Guarantee (Administration) Act 1992 Subsection 12(3)

What this advice is about

Is a jeweller considered to be an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Relevant facts and circumstances

· A request for written binding advice was received by the ATO regarding the employee status of a jeweller working in a jewellery store.

· Included in the applications were the following details:

· The jeweller works in the store as a jeweller. The payer takes in repairs or remakes or new makes, the jeweller provides a quote, the payer gives the jeweller the work to do and the jeweller provides an invoice each week. The invoice contains the name and ABN of the jeweller, a job number, one line description and a GST inclusive amount. This amount is for labour and materials combined. This is known in the industry as piece work. The jeweller does their own BAS and tax.

· Jobs were taken in on a day but promised anywhere from 4-12 days after the drop off day, not for the next day (except for quick emergencies). Therefore, the jeweller had ample time to organise a schedule for doing the jobs in whatever way or order suited them. For a remake the payer would set a completion date of 3-4 weeks later. The jeweller ultimately chose when they did the work.

· The jeweller takes work home to do.

· The jeweller signed a written agreement on two separate occasions.

· The payer provided evidence that the jeweller has never complied with the hours as stated in the agreement. The jeweller comes and goes as they choose. Early/late start, taking 1-3 hours during the day off or not even returning for the day.

· The jeweller does not solely do labour as they supply all the gold, solder, plating solution etc needed for these jobs.

· The jeweller can set stones, however they do send some rings to another person (a setter) to set stones in order to complete the job. The jeweller pays this person directly.

· The payer supplies the jeweller with the larger equipment required to do their work in store but the jeweller supplies their own hand tools.

· The jeweller did not have meetings with any clients or the payer. The payer would have a conversation to discuss possibilities or problems etc as drawings with measurements and customers requirements were given with the job packet.

· No one supervised the jeweller. The payer only checked the product/job on completion before handing to the customer.

· The jeweller could refuse a job which was not profitable for them. The payer could not force them to take a job.

· The jeweller was never asked to leave if they didn't complete a job on time. The payer would phone customers and delay them picking up their jobs often because the jeweller didn't get the job completed. The payer would take the jobs to other jewellers to get them done.

· The jeweller would advise the payer first that gold etc was costing them more and that they needed to adjust their price accordingly.

· The jeweller is able to repair/make their own private jobs in the payer's store

· Both the payer and jeweller completed a questionnaire relating to the working relationship between the two parties.

Commencement of arrangement

1 July 1998

Advice

The jeweller is not an employee under the common law definition or under subsection 12(3) of SGAA.

Detailed reasoning

The SGAA states that an employer must provide the prescribed minimum level of superannuation support for its employees (unless the employees are exempt employees) or the employer must pay the superannuation guarantee charge (SGC).

While the term 'employee' which is defined in section 12 of the SGAA, includes common law employees, it also extends to include workers who are engaged under a contract wholly or principally for their labour. The employment relationship is often referred to as a 'contract of service'. This relationship is distinguished from a 'contract for service' which is typically an independent contractor and principal type of relationship and will not attract any SGC liability.

The task of defining the characteristics of the contract of service - the employment relationship - has been the subject of much judicial consideration. As a result, some general tests have been developed by the courts to assist in the determination of the nature of the relationship. However, defining the contractual relationship between the employer and employee can be a difficult task and will depend on the facts of each case.

In an ongoing relationship, such as in the payer's case, it is not always clear when the precise moment the legal criteria of a contract is fulfilled, therefore it becomes necessary to determine the true nature of the whole relationship between the payer and the jeweller, as to whether there is a common law employer/employee relationship, or whether the jeweller meets the extended definition of employee under subsection 12(3) of the SGAA.

According to the responses provided in the payer's and the jeweller's questionnaires, the period covered by the request extends from approximately between 1998/1999 to 2009/2010. The relevant ATO view of the application of section 12 of the SGAA from 1998/1999 was documented in Superannuation Guarantee Ruling SGR 93/1 'Who is an employee?' until 25 October 2004, at which time it was withdrawn due to a number of legislative changes and judicial developments which added relevance to the definition of 'employee' in section 12 of the SGAA.

In a brief summary of paragraphs 20 to 23 of SGR 93/1, the ruling explains that courts have developed a method for applying the ordinary, or common law, meaning of 'employee'. Their approach is to look at a wide range of factors which would indicate whether a person is an employee or not. The courts' decisions tend to be taken on balance, after considering the relevant factors. Historically, the two most important (often decisive) indicators have been the control test and integration test.

The control test asks whether the employer has the right to control how, when and where the work is done, and the integration test examines whether the worker's services are an integral part of the employer's business or merely ancillary to it.

The ATO's view on 'Who is an employee?' for the purposes of section 12 of the SGAA between 26 October 2004 and 22 February 2005 was expressed in SGR 2005/D1 which was a draft ruling eventually finalised on 23 February 2005 as SGR 2005/1.

Similar to the SGR 93/1, paragraph 25 of SGR 2005/1 explains that the Courts have considered the common law contractual relationship between parties in a variety of legislative contexts, including income tax, industrial relations, payroll tax, vicarious liability, workers compensation and superannuation guarantee. As a result, a substantial and well-established body of case law has been developed on the issue. The relevant factors are examined within the context of the totality of the relationship and no one indicator of itself is determinative of that relationship.

Whether the jeweller was your employee during the relevant period is a question of fact to be determined by examining the terms and circumstances of the contract and having regard to the key indicators expressed in the relevant case law. In accordance with the views expressed in the relevant rulings, the features regarded by the courts as key indicators of whether an individual is an employee or independent contractor at common law are discussed below.

Common law employee

Terms of engagement

The fundamental task is to determine the nature of the contract between the parties. The terms and conditions of the contract whether express or implied, in the light of the circumstances surrounding the making of the contract, whether verbal or written, will always be of considerable importance to the proper characterisation of the relationship between the parties.

Indicators which may be persuasive of an employer/employee relationship are:

· the provision of benefits such as annual, sick and long service leave;

· payer prescribed times and location for the performance of work;

· payer's discretion in respect of task allocation and termination of engagement;

· the worker uses the assets or materials provided by the payer, or is reimbursed or paid compensatory allowance for expenses incurred in the use of their own assets and materials; and

· the method of remuneration.

The list is not exhaustive and it must be emphasised that there is no standard set of conditions applicable to an employee and another to an independent contractor.

It might be argued that the parties' intention in forming a contract is not subjective, but an objective one; that is, the task is not to discover the intention of the parties involved but to decide what each could reasonably conclude from the actions of the other. In the observation made by Isaacs J in Curtis v. The Perth and Fremantle Bottle Exchange Co Ltd (1914) 18 CLR 17:

Where parties enter into a bargain with one another whereby certain rights and obligations are created, they cannot by a mere consensual label alter the inherent character of the relations they have actually called into existence. Many cases have arisen where Courts have disregarded such labels, because in law they were wrong, and have looked beneath them to the real substance.

Therefore, simply defining someone as a contractor does not necessarily lead to the conclusion that the individual is providing services as part of an operation of their own independent business.

The circumstances surrounding the formation of the contract may assist in determining the true character of the contract. However, the questionnaire responses to the question regarding the initial engagement are inconsistent, with the payer stating the jeweller came to the payer offering their services, and the jeweller stating that they responded to an advertisement. However, the payer concedes that the payer cannot remember exactly how it happened although the payer believes the payer was not in a position to advertise at that time.

The payer has stated an attempt to offer the jeweller 21 hours a week (Mon-Thur 9am to 3pm) in the form of 2 agreements was brought about by their inability to be reliable. On many occasions the payer told the jeweller not to work on Saturdays yet they chose to come in to make up for their lost time during the week and to complete personal clients work.

The payer provided evidence that the situation in reality was that the jeweller worked the hours that suited them and that they worked from their home as well as in the shop. There is no evidence that the jeweller is entitled to leave benefits such as annual or sick leave.

On the facts available, the jeweller was taxed as an independent contractor and registered for GST. They were not paid salary or wages on an hourly rate, but rather invoiced the payer and was paid per finished item. This arrangement has continued on and off since they first commenced work for the payer. The jeweller had continued to conduct themself as an independent contractor and their payment continued to be made on what the payer refers to as a piece work basis.

There is also no doubt that the jeweller possesses particular skills which enable them to run their independent business and it is therefore reasonable to consider that the jeweller can be engaged as an independent contractor for results-based work.

In conclusion, the Commissioner considers that the engagement of the jeweller was more like that of a contractor/principal relationship.

Control test

A prominent factor in determining the nature of the relationship between parties is the degree of control which the employer has over the employee, as it goes to the root of the classical view of the master-servant relationship. The degree of control varies on the type of job, as the increasing usage of skilled labour has seen a consequential reduction in supervisory functions. The issue of control does not always rely on whether the employer exercises it, although this is clearly relevant, but rather whether they have the right to exercise it.

The degree of control will vary according to the type of work, but the general rule is that the greater the obligation on a person to obey the orders of another as to the manner of the performance of work, the more conclusive it will be that the worker is the employee of the principal/payer.

It is not necessary for the employer to exercise day to day control over the worker. What is important is that the employer has the legal right of control. As stated by Dixon J in Humberstone v. Northern Timber Mills (1949) 79 CLR 389;

The question is not whether in practice the work was done subject to direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in performance of his work resided in the employer so that he was subject to the latter's orders and directions.

The classic test for determining a common law relationship is to consider if the worker is told what work needs to be done, when it is to be done, how it is to be done and where it is to be done.

In consideration of the type of work the jeweller did and the skills they possessed, the Commissioner believes that telling the jeweller what the customer required to be done to the jewellery is a basic minimum of information required for the jeweller to determine whether they could/would accept the job, and did not amount to an exercise of control over how they were to perform the work. The Commissioner considers that the 'how' was determined by the jeweller via the skills they possessed, and for which they had been engaged.

In relation to the matter concerning the hours the jeweller was required to attend work, the payer stated in the questionnaire that the payer would have preferred 9am to 4.30pm for 5 days per week. However, the payer provided evidence that the jeweller came and went when they wanted to.

Furthermore, the jobs required to be done were sometimes completed in the jeweller's own workshop rather than in store and the payer provided evidence of this as well.

The payer stated the payer did not direct the jeweller where each job had to be done:

· White gold ring, every week had to go to their home workshop to be rhodium plated.

· Each casting job or cast ring make was carried out at the jeweller's home workshop. This is where their casting equipment was situated. It is a long 6 hour operation.

· The setting jobs that went to the setter.

· The jeweller manufactured bangles for the payer of which they took to another jeweller's workshop to do

· The jeweller did take your work home to do on many occasions, either over the weekend or when they had had enough of working in the shop, even when they were having work done around their home

In contrast, the jeweller contends that they were required to be in store 9am to 5pm Monday to Friday and sometimes on Saturday mornings, as the payer advised customers that the jeweller works on site. Furthermore, the jeweller asserts that all work was carried out in your shop. The evidence available does not support the jeweller's contentions.

On the balance of the evidence provided, the Commissioner can effectively conclude that when the jeweller commenced working in store for the payer, the payer did not have right of control over when and where the work was required to be done.

The Commissioner also considers that there was no significant right to control what work needed to be done and how it was to be done.

Therefore, the results of this test favour an independent contractor.

Integration test

The integration test is primarily concerned with establishing whether the individual providing the service/s does so as an individual carrying on a business of their own or as an integral part of another's business organisation.

Whether the worker operates on their own account or as part of a business of the payer is sometimes viewed as a consideration of whether the worker would be viewed by a third party as carrying on their enterprises as independent contractors and whether they could be expected to generate goodwill in their own right.

In the case of Stevenson, Jordan and Harrison v. MacDonald and Evans [1952] 1 TLR 101, Denning LJ said:

...under a contract of service a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.

The skills involved in carrying out the work are also a useful guide in determining whether a person is carrying on their own business or not. The provision of professional skill or skilled labour may imply that the contractor is able to make an independent career by selling that skill. In the case of a contractor with an independent career, it may be implied that the contractor is able to conduct their own business using those skills.

The factors to be taken into account in deciding whether the integration test is satisfied include:

· whether the relationship between the worker and payer is an ongoing one,

· whether the worker's activities are effectively restricted to providing services to only one master, and

· whether the worker will generally profit commercially from sound management in the performance of his or her tasks (that is, whether the worker is so inextricably integrated in the business' organisation that any benefit from the worker's performance would flow to the business organisation).

The payer has contended that the jeweller was engaged by the payer for what is known in the industry as piece work, which is over $450 per month, for which the jeweller invoices the payer and charges Goods and Services Tax (GST). The jeweller also does their own Business Activity Statements (BAS) and tax. Furthermore, they operated and promoted their own business.

With the introduction of Australian Business Numbers (ABN) and GST under the A New Tax System, instituted in July 1999, there have been no amendments to the definition of employee in the SGAA. The ABN and GST registration by the jeweller will not alter the essence of their relationship with the payer.

The payer provided evidence that the jeweller did do private and other personal work in the shop during business hours. The payer has also provided evidence that the jeweller's friends and personal clients came into the shop.

The payer states that the jeweller advertised their services in horse trade magazines, on the internet and in pamphlets printed and the payer has provided evidence that the payer has the jeweller's pamphlets in the shop to show customers.

The payer states the jeweller has built a reputation as a great jeweller in the local area. They did receive a lot of goodwill while working with the payer - enough to give them the confidence to open their own shop.

The payer contends that the jeweller did retain some value from repairs jobs done. Although it is the payer's practice to return pieces of gold/broken chain to the customer there are gold filings (known as lemmel or sweeps) which over a period of time can be refined and cashed in. The payer has provided evidence that an employee would have to return all filings etc.

The payer states that the jeweller did buy scrap gold from customers who came into the store, at a lower rate than new gold. This would also be classed as an asset as they were able to use it to produce a retail piece at less of a cost to them and make more profit. The payer has provided evidence of a note by the jeweller as to how much they paid for scrap gold.

In view of the evidence provided the Commissioner considers that the jeweller is an independent contractor under this test.

Results test

A contract to produce a given result is one in which the focus is on what ultimate result the contract requires, rather than what must be provided during the performance of the required tasks. Satisfactory completion of the specified services is the result for which the parties have bargained.

The meaning of the phrase 'producing a result' means the performance of a service by one party for another where the first mentioned party is free to employ his/her own means to achieve the contractually specified outcome. The essence of the contract has to be to achieve a result and not to do the work. That is, a payment becomes payable when, and only when, the contractual conditions have been fulfilled.

While the notion of payment for result is expected to be a contract for services, it is not necessarily inconsistent with a contract of service. The High Court in Hollis v. Vabu, considered that the payment to the bicycle couriers per delivery, rather than per time period engaged, was a natural means to remunerate employees whose sole purpose is to perform deliveries. Further, the Full Court of the Supreme Court of South Australia in the case of the Commissioner of State Taxation v. The Roy Morgan Research Centre Pty Ltd [2004] SASC 288; 2004 ATC 4933; (2004) 90 SASR 12 found that interviewers who were only paid on the completion of each assignment, not on an hourly basis, were employees and not independent contractors.

In both responses the payer agrees that the jeweller was only paid for the work they completed. Although the jeweller was not required to submit a quote to the payer for standard jobs, there would be occasion to provide one for more complex or unusual jobs based on their knowledge of the time and materials required to complete it. However, the payer has indicated that the jeweller will not always be successful in obtaining the job if their quote is too high and the payer can find another contractor to provide a lower quote.

While the jeweller's payment may have factored in the time taken to be completed, it is nevertheless only received on completion of the job, rather than being paid for the hours spent on completing the job.

The invoices provided by the jeweller only provide the invoice number, their name and ABN, a brief description of the job and the price inclusive of GST. Although there is no doubt that some jobs would involve materials such as gold and stones, these expenses were included in the total price submitted. Based on the evidence, it is clear that some jobs, such as a simple repair or resize are likely to be wholly or principally for a labour component, whereas a remake or new make may require considerable more work and subsequently the material component of that job could be more than the labour component. However, the labour component of each job cannot be determined at this time simply because no invoices provided the labour/material ratio.

On the basis of the evidence available the outcome of this test is inconclusive and the decision will be based on the totality of the relationship.

Delegation test

The unlimited power to delegate or subcontract work is a significant factor in deciding whether the worker is an employee or an independent contractor. If an individual has unlimited power to delegate the work to others (with or without the approval or consent of the principal), this is a strong indication that the person is being engaged as an independent contractor.

Delegation is not simply the distribution of the task from one employee to another or the ability to swap shifts or request a colleague to perform some of the duties on their behalf. It is the right for a worker to employ their own means to achieve a specified outcome for the other party of the contract. Practically speaking, we consider that professional independence of the worker will be a critical consideration and whether the worker would be responsible for paying others who perform some of the work on their behalf.

The question regarding whether the jeweller was given specific instructions to complete the work personally was inconsistent in both questionnaire responses. The payer states that there was neither a written nor verbal instruction that the jeweller had to complete all work personally. The jeweller could and did organise parts of their work to be completed by someone else e.g. stone, setter, engraver.

The payer advises if a customer came in and the payer drew a ring design, the jeweller would give the payer a single figure quote. The jeweller did not say whether they were subcontracting the stone setting or subcontracting the making of a setting or whether they were doing it themselves. The payer has provided evidence of the jeweller's quote book.

The payer advises the jeweller was let down by the setter several times in regards to costs, stone breakages and not doing the work requested. Some of these were the payer's repairs/remakes/new makes that had been quoted and accepted to be done by the jeweller.

The jeweller was responsible to fix it and they did. The payer states that the payer had nothing to do with any faults or charges on the setter's behalf. The jeweller would pay the setter cash for the setting done; the payer was never shown any invoices to show costing. The payer states that the payer had nothing to do with the arrangement between the setter and the jeweller and the jobs they did for the jeweller.

The payer also states the jeweller was capable of doing all types of setting (and did) however they chose to forward the job to someone else if they felt they could achieve the same result in a shorter amount of time so they were free to move onto another job. The payer was only informed of this when the jeweller would go to drop the job off and they would tell the payer they were going out. The payer has provided evidence of this.

Based on the information available, it is the Commissioner's view that it is more likely than not that the right to delegate existed, a further indicator in favour of the relationship being one between principal and independent contractor.

Risk test

Whether the worker is contractually obliged to accept liability for the cost, in terms of time or money, for rectification of fault or defective work is a relevant consideration in determining if that worker should be regarded as an employee or independent contractor. Commonly, an independent contractor would solely bear the risk and responsibility of liability for their work if it does not meet an agreed standard and would be required to either rectify this defective work in their own time or at their own expense.

An employee on the other hand, would bear no such responsibility and the liability for any defective work of an employee, either to a third person or otherwise, would fall to the employer in terms of cost for rectification.

The responses provided in both questionnaires indicate that the jeweller would pay for the materials used to correct the mistake. However, the jeweller qualified that response to indicate it was only for small or inexpensive stones, they did not know who would be responsible for expensive items, as it had not happened.

However, the payer has contended that in a recent case where the jeweller would have been liable for the cost of an expensive lost stone, the payer offered to pay half out of sympathy because of their friendly relationship with the jeweller so that they would not incur too great a financial loss on the job, rather than any legal or contractual obligation to do so.

The jeweller on the other hand disputes this and contends that their job was to resize the ring and they were not responsible for the loosely set stone because they did not make the ring, nor were they asked to reset it. The jeweller then contends that the payer agreed that the cost should not be borne by the jeweller.

Both responses seem to focus on the liability for stones, which you indicate are always provided by the payer, however it is apparent that the jeweller had their own supply of smaller stones, which they conceded was for smaller jobs.

However, since the jeweller supplied all the gold, silver and solder etc, it is reasonable to expect that they would be responsible for any defective gold work, for example incorrect resizing of rings, and they concede that they would bear the cost of any loss of materials incurred by the mistake.

Therefore, in consideration of all the information provided the Commissioner believes that the facts would favour an independent contractor/principal relationship.

Capital expenses test

A strong factor indicating that a worker is operating as an independent contractor is where they are required to provide a significant amount of capital investment, and to personally bear the cost of providing and maintaining the capital item, where that capital item is integral or necessary to the performance of the worker's services under the contract. The significance of this indicator is considered greatly reduced where that capital item is merely incidental to the provision of service under the contract of engagement.

A worker who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required for their work, by the employer.

The higher the degree to which a worker is exposed to the risk of commercial loss (and the chance for commercial profit) the more he or she is likely to be regarded as being independent. Typically, a worker who derives piece work payments and sustains large outgoings would be so exposed. The higher the proportion of the gross income which the worker is required to expend in deriving that income, and the more substantial the assets which the worker brings to his or her tasks, the more likely it is that the contract is for services.

In the case of Queensland Stations Pty Ltd v. FC of T (1945) 70 CLR 539; (1945) 19 ALF 253: (1945) 8 ATD 30; [1945] ALR 273, it was found that the droving contractor was an independent contractor because they were required to find and pay for all the men, plant, horses and rations necessary and sufficient for the task. Their own means were employed to accomplish a result.

The weight or emphasis given to this indicator depends on the particular circumstances and the context and nature of the contractual work.

For the period commencing when the jeweller worked in store, they were not required to provide any tools or equipment to perform the services required, which is confirmed in both responses to the questionnaires. Furthermore, the jeweller advised that when the payer moved to a larger store, they assisted the payer in selecting the equipment that would be necessary for the payer to purchase for the workshop, after the payer advised them that in future the payer wanted them to work in store.

Although the jeweller has indicated that they supply a small number of hand tools, the payer has contended, as a further example of the informality of the relationship, that the jeweller found it inconvenient to take these home so the payer purchased some hand tools to assist them in store. The payer has also advised that the jeweller has expensive casting equipment and rhodium plating equipment at their home workshop to fulfil the payer's job requirements and their own clients.

While the jeweller supplied most of the materials for the jobs they performed, with the exception of large stones, these are not capital expenses and at the end of the job they were fully reimbursed for the cost of those materials.

Independent contractors carrying on a business for themselves often pay and provide for their own assets, tools, equipment, maintenance costs and other expenses. As stated by McKenna J in Ready Mixed Concrete (South East) Limited v. Minister of Pensions and National Insurance (1968) 2 QB 497 at 526:

...the ownership of assets, the chance to profit and the risk of loss in the business of carriage are his and not the company's.

In the case of Vabu Pty Limited v. FC of T (1996) 96 ATC 4898, Judge Meagher JA stated:

In view of the fact that each courier provides his own capital and faces the loss of that capital if the venture does not work out, I am of the view that the courier is working for himself.

Based on the facts provided, the results of this test are inconclusive and the decision will be based on the totality of the relationship.

Consideration of 12(3) of the SGAA

As discussed above, there are compelling features which lean towards a contract for service for the period commencing after the jeweller began to work in store for the payer.

Separately, the results of most of the tests would appear to indicate that the jeweller was not a common law employee, but in considering the totality of the relationship, paragraph 27 of SGR 93/1 explains that if a person is not a common law employee, it is necessary to consider whether that worker will be an employee under subsection 12(3) of the SGAA.

In addition, paragraph 77 of SGR 2005/1 also advises that subsection 12(3) of the SGAA must be considered where there is no common law employment relationship or where there is doubt as to the common law status of the worker.

For the sake of clarifying the intention of subsection 12(3) of the SGAA, paragraph 78 of SGR 2005/1 explains:

Where the terms of the contract in light of subsequent conduct of the parties indicate that:

· the individual is remunerated (either wholly or principally) for their personal labour and skills;

· the individual must perform the contractual work personally (there is no right to delegate); and

· the individual is not paid to achieve a result

the contract is considered to be wholly or principally for the labour of the individual engaged and he or she will be an employee under subsection 12(3).

In assessing whether a person has been remunerated wholly or principally for labour and skills, the ATO's view is that the word 'principally' assumes its commonly understood meaning, that is, 'chiefly' or 'mainly'. Paragraph 28 of SGR 93/1 specifies it is where the labour content exceeds 50% of the value of the contract.

For the period when the jeweller performed work for the payer, the facts leans more towards that a contract for service, for which the Commissioner must then also consider the application of subsection 12(3) of the SGAA. The three fundamental requirements are discussed below:

Was the jeweller remunerated (either wholly or principally) for their labour?

In considering whether the jeweller was remunerated wholly or principally for their labour, it is necessary to examine the invoices they provided. However, the invoices did not itemise the labour v material components of each job. Furthermore, the payer has conceded that the payer was not able to provide any clarification on the breakdown of the prices listed by the jeweller.

According to the jeweller, 80% of their work consisted of basic repairs in which the payment he received was principally (approximately 80%) for their labour as there was no significant cost of materials involved.

In the case of new makes where the materials were not provided by the customer, which comprised approximately 5% of the jeweller's annual workload, then the jeweller conceded that the labour and material component is likely to equal 50/50.

On the basis that there is no evidence available, the Commissioner cannot conclude that the jeweller was remunerated (either wholly or principally) for their labour.

Was the jeweller required to perform the work personally?

The second requirement of subsection 12(3) of the SGAA is that it requires the personal labour of the contracted worker. That is the worker does not have the right to delegate or subcontract the work to another party. Even if the contractor has no intention to delegate or subcontract the work and actually performs the work personally, the contract itself is still not for the labour of the person if there is a possibility of delegating work to another person.

As established above in the discussion under the delegation test, the Commissioner concludes there were delegation rights for the period commencing when the jeweller was required to work in store.

Therefore, as there is no evidence of any agreement expressly demanding that the jeweller personally do the work, the Commissioner considers that the jeweller had the right to delegate.

Was the jeweller paid to achieve a result?

The third and last requirement of subsection 12(3) of the SGAA is that the payments received by the worker must not be in relation to the production of a given result, but instead should be for their labour.

Although there was an obvious change in the terms of engagement in relation to the location for the work once the jeweller commenced working for the payer in store, the jeweller advised that there was no change in the rates or method of remuneration when they were working from home.

However, as discussed in the results test above, there is insufficient evidence available to make a conclusive decision to determine that the jeweller was not paid to achieve a result.

Conclusion

Although there are features which may lean towards the jeweller being characterised as a common law employee, the Commissioner's view is that all of the requirements specified in paragraph 78 of SGR 2005/1 are not satisfied.

Therefore, upon consideration of all the available facts and evidence provided by both the payer and the jeweller, the Commissioner considers that the jeweller is not an employee under the common law definition or under subsection 12(3) of SGAA.

Disclaimer

You cannot rely on the written binding advice in the Register of private binding rulings in your tax affairs. You can only rely on advice that we have given to you (or to someone acting on your behalf).

The Register of private binding rulings is a public record of written binding advice issued by the Tax Office. The Register is an historical record of written binding advice, and we do not update it to reflect changes in the law or our policies.

The written binding advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict Tax Office policy or decisions.

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