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Edited version of private advice
Authorisation Number: 1012630858907
Ruling
Subject: PAYG withholding obligations
Question
Is there an obligation on the entity to withhold from payments made to an individual under section 12-35 of Schedule 1 of the Taxation Administration Act 1953?
Answer
No
This ruling applies for the following period
Year ending 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
An end user will approach the entity for certain services.
The entity will fulfil the request from the end user and when certain expertise is required the entity will contact a relevant agent and request the services of an individual to fill the role.
The agent, for an agreed commission as outlined in the contractual agreement between the individual and the agent, arranges the details of the task for the individual. The individual will perform their agreed duties at an agreed rate (the minimum is dictated by an award) under the direction of the end user and the entity.
At this point the agent will issue the entity an invoice for services rendered by the individual. The invoice will contain details of the individual and details for payment into the agent's trust account.
The entity charges the end user for services rendered, including agreed costs incurred by the entity, on the end user's behalf. Upon receipt of the payment, the entity forwards the payment into the agent's trust account. The agent then deducts their agreed commission, as outlined in the agreement between the agent and the individual, and then forwards the balance to the individual.
Relevant legislative provisions
Schedule 1 of the Taxation Administration Act 1953 Section 12-35
Reasons for decision
Summary
Based on the information you have provided, the Commissioner considers that there is no obligation to withhold from payments made to agents under section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (TAA).
Detailed reasoning
Section 12-35 of Schedule 1 to the TAA provides that you must withhold an amount from a payment of salary, wages, commission, bonuses or allowances you pay to an individual as an employee.
A determination of whether an individual under a specific arrangement is an employee must be made by a consideration of the total factual circumstances in light of all of the indicators determining the status of that individual. It is the totality of the relationship that needs to be considered.
Taxation Ruling TR 2005/16 considers the various indicators the Courts have considered in establishing whether a person engaged by another individual or entity is an employee within the common law meaning of the term.
These indicators include:
• The control test: The degree of control which the payer can exercise over the payee.
• The organisation or integration test: Whether the worker operates on their own account or in the business of the payer.
• The results test: Whether the worker is free to employ their own means and is paid to achieve the contractually specified outcome.
• The delegation test: Whether the work can be delegated or subcontracted (with or without the approval or consent of the principal).
• The risk test: Whether the worker bears the legal responsibility and expense for the rectification or remedy in the case of unsatisfactory performance; and
• Which party provides tools, equipment and payment of business expenses?
In this case there is no agreement between the individual and the entity. The individual works through an agent. The only agreements the entity has are with the agent and the end user. As there is no agreement the individual is not an employee of the entity therefore there is no obligation on the entity to withhold from a payment made to the agent under section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (TAA).
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