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Edited version of your private ruling

Authorisation Number: 1012346365026

Ruling

Subject: PAYG Withholding and Superannuation Guarantee obligations

Question

Does the trust have any obligations regarding PAYG Withholding or Superannuation Guarantee payments in relation to a person who operates through a company?

Answer

No

This ruling applies for the following period

Year ending 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

The trust operates a business.

The trust contracts with a company (through which a worker operates) for the purpose of providing services of a worker in accordance with the Agreement.

The agreement states the contractor (the company) agrees to perform its obligations under the agreement in a competent and professional manner and to ensure that all staff employed or sub-contracted to carry out the contractor's obligations are of a standard sufficient to satisfy its obligations under this agreement.

The agreement further states the trust shall pay the contractor (company) a certain percentage of monies receipted through the business for the services provided by the contractor (company) and the trust shall also pay the contractor (company) a certain percentage of after-hours call out monies receipted through the business for the services provided by the contractor (company).

The agreement also states it constitutes a relationship of principal (on behalf of the practice) and Independent Contractor (company) and no employment, partnership or joint venture relationship is constituted. The contractor is responsible for its own employees, agents and sub-contractors and carries out the services at its own risk.

Assumptions

Nil

Relevant legislative provisions

Tax Administration Act 1953 Section 12.35 of Schedule 1

Superannuation Guarantee (Administration) Act 1992 Section 12

Reasons for decision

PAYG Withholding

Taxation Ruling TR 2005/16 discusses Pay As You Go - withholding from payments to employees.

Paragraph 10 states Section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (TAA) applies to payments made to individuals in their capacity as employees. It does not apply to payments made to other entities - provided the arrangement is not a sham or a mere redirection of an employee's salary or wages.

Paragraph 58 in part states a sham is an arrangement that creates the appearance of rights and obligations different from those actual rights and obligations that the parties intended to create.

In this case an agreement exists between the trust and the company. There is no agreement between the trust and an individual worker. The individual worker is not an employee of the trust. The individual worker has a relationship with the company (either an employee or sub-contractor) but not with the trust. The trust has no obligation in respect to Section 12-35 of Schedule 1 of the TAA as there are no payments made to the worker. Payments are made to the company. This arrangement is what both parties (the trust and the company) intended to create, consequently no sham exists.

Superannuation Guarantee

Section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA) states subject to this section, in this Act, employee and employer have their ordinary meaning.

Subsection 12(3) of the SGAA states if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

Superannuation Guarantee Ruling SGR 2005/2 discusses work arranged by intermediaries.

Paragraph 10 states the following principles apply in determining whether there is an employment relationship for the purposes of subsections 12(1) and (3) of the SGAA 1992.

Paragraph 11 states whatever the circumstances of a particular tripartite working arrangement, it is first necessary to determine whether a contract for the performance of work exists and with whom it exists. Only after this is established can the precise nature of the relationship (whether employee or otherwise) be determined.

Paragraph 12 states if there is no contract between the worker and end-user in a tripartite working arrangement, the worker cannot be an employee of the end-user. Similarly, if there is no contract between the worker and the intermediary, the worker cannot be an employee of the intermediary.

Paragraph 13 states the manner in which the relationship between the parties to a tripartite working arrangement is labelled or described is not conclusive in determining the nature of the relationship involving the parties to the arrangement. Expressions such as 'employment agency' and 'labour hire firm' that are often used to describe the use of various forms of labour market intermediary have no precise legal meaning.

Paragraph 14 states in tripartite working arrangements; it is the ultimate or legal control over the worker that is most relevant; not the day-to-day direction and control.

Paragraph 17 states if a worker is not contracted personally to perform work or services but via an interposed entity such as a company or trust, neither the end-user nor the intermediary is the employer of the worker, because any contract they have is with the interposed entity and not with the worker. The worker may be the employee of the interposed entity.

Companies and trusts

Paragraph 79 states sometimes a worker is not contracted personally to perform work or services or provide their labour but rather via an interposed entity. Typically, this is a family company or trust. The company or trustee enters into a contract instead of the worker, although the worker still performs the work or services or provides their labour.

Paragraph 80 states in this situation neither the end-user, nor the intermediary, will be an employer because they would not be party to any contract with the worker as an individual. Rather, they have entered into a contract with the company or trustee.

Paragraph 81 further states in these situations, the worker may be the common law employee of the company or trustee, or an employee under a contract wholly or principally for labour. This will depend upon the particular factual circumstances.

In this case a tripartite working arrangement exists between the individual worker, the trust and the company. The trust has signed an agreement with the company. The agreement states the contractor (company) is to provide services provided by workers. As there is no agreement or contract between the trust and the individual worker, the individual worker is not an employee of the trust. Consequently there are no obligations on the trust in relation to superannuation guarantee payments for the individual worker.

Conclusion

The trust has a contract with the company and not with the individual worker. The trust has no obligations in relation to PAYG withholding or Superannuation Guarantee payments to the individual worker.

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