Edited version of your written advice

Authorisation Number: 1012740928178

Advice

Subject: Superannuation Guarantee (SG)- status of the worker

Question 1

Is the worker an employee of the principal by virtue of paragraph 12(8)(a) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Advice

No. Please see 'Reasons for decision' below.

Question 2

Is the worker an employee of the principal by virtue of paragraph 12(8)(c) of the SGAA?

Advice

Yes. Please see 'Reasons for decision' below.

This ruling applies for the following period

After 1 July 2009

Relevant facts

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

The worker was engaged by the principal to produce the certain products.

The principal separately engaged a company, to provide services for the work. The worker could utilise these services and they worked under his instruction.

The worker controlled the final content in relation to the products.

No payment was made by the principal until the required final content submitted by the worker is approved by the principal.

The worker was engaged as an individual and not via an interposed entity.

Contentions

Your application contained the following relevant contentions:

• The worker was not paid to 'actively participate' in the performance of any of the activities listed in paragraph 12(8)(a) of the SGAA, therefore the provision should not apply.

• You contended that the words 'performance of services' in paragraph 12(8)(c) of the SGAA implies that the services of the worker must be provided in an employee like manner, under ordinary common law principles, for the benefit of, and under the control of, the payer. You argue that the worker is not engaged in an employee like manner, as for example any mistakes are made at the worker's cost and obligation to rectify.

• Payments made by a payer only fall within subsection 12(8) of the SGAA where there is a causal link between the payment and the 'performance' or a 'performance of services'. If the purpose of the payment is for a result/pre-determined outcome (notwithstanding that it incorporates a performance services),such as the case with this worker, then it does not fall within subsection 12(8) of the SGAA.

• A distinction is made between payments to sportsperson for their participation and payments made rewarding a particular result; with the latter not being considered an activity falling within subsection 12(8) of the SGAA. You argued that the same distinction applies in this case between payments made for labour and those made for a result. You contended that the payments made to the worker are results-based, therefore analogous to prize money to sportspersons and not falling within subsection 12(8) of the SGAA.

• You have argued that the facts of this case should be distinguished from General Aviation Maintenance Pty Ltd v Commissioner of Taxation [2012] AATA 120 ('General Aviation Maintenance') The payments made by the principal to the worker were for a product, notwithstanding that the worker performs services in the making of the product. In contrast, in General Aviation Maintenance the performance of services by the worker in assisting descents was the cause of the payment. This case can therefore be distinguished from General Aviation Maintenance as the worker is not paid for the performance of services but for the end result.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(8)

Reasons for decision

Summary

The worker does not meet the expanded definition of employee under paragraph 12(8)(a) of the SGAA as they do not actively participate in a relevant activity.

The worker does meet the expanded definition of employee under paragraph 12(8)(c) of the SGAA as they perform services in connection with the relevant activity.

Therefore, the principal has an obligation to pay superannuation guarantee (SG) contributions on behalf of the worker.

Detailed reasoning

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

Subsection 12(1) of the SGAA provides that the terms employee and employer have their ordinary meaning. However, for the purposes of the Act, subsections 12(2) to 12(11) expand the meaning of those terms and make particular provision as to the status of certain persons.

Paragraph 61 of SGR 2005/1 explains the expanded employee definitions as follows:

Although the term 'employee' has its ordinary meaning in the SGAA, subsections 12(2) to 12(11) list a number of further persons who are also treated as employees. These subsections deem persons who come within these subsections to be employees for the purposes of the SGAA, even if they are not common law employees and are clearly distinguishable from common law employees.

Therefore, regardless of whether or not there is a common law employment relationship between the parties, the worker will be an employee of the principal if an expanded definition of 'employee' in subsection 12(8) of the SGAA applies. If a worker is not an employee under both subsections 12(1) and 12(8) of the SGAA, their status is described as an independent contractor and there is no SG obligation.

Question 1

Is the worker an employee of the principal by virtue of paragraph 12(8)(a) of the SGAA?

Expanded definition under paragraph 12(8)(a) of SGAA

Paragraph 12(8)(a) of the SGAA states that:

a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment.

Paragraphs 84 and 85 of SGR 2005/1 explain what types of activities are included under paragraph 12(8)(a):

84. One clear limitation on these words is that the active participation of the artist or sportsperson is required. If not, it could not be said that the person is 'paid to perform or present' the activity. A painter, for instance, does not perform or present a painting exhibition. They merely produce the works used in the exhibition. Therefore, even though the products of their work can form part of, for example, a display, individuals who produce paintings or photographic displays do not usually come within the scope of paragraph 12(8)(a).

85. That the word 'similar' is used also shows clearly that 'activity' is limited to things of a like kind. We consider that the activities covered by paragraph 12(8)(a) are those which derive their artistic or sporting content from the performance or presentation because that is the common thread running through the listed activities.

Application to your circumstances

In your case, the worker was paid to provide a product in relation to one of the listed activities under paragraph 12(8)(a) of the SGAA. On the facts provided, the worker did not feature or perform in the product, but rather performed 'behind the scenes' tasks.

Based on the above tasks, the worker does not actively participate in the performance or presentation of an activity listed in paragraph 12(8)(a) of the SGAA. Therefore the extended definition under paragraph 12(8)(a) of the SGAA does not apply to the worker.

Question 2

Is the worker an employee of the principal by virtue of paragraph 12(8)(c) of the SGAA?

Expanded definition under paragraph 12(8)(c) of SGAA

Paragraph 12(8)(c) of the SGAA states that:

a person who is paid to perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast is an employee of the person liable to make the payment.

Paragraph 88 of SGR 2005/1 explains that paragraph 12(8)(c) of the SGAA does not require the person to actively participate in a performance or other activity described within paragraph 12(8)(a) to be defined as an employee; rather the person will be an employee if they provide a service in connection with the activity:

For example, a technician engaged to control the sound quality for a concert is not an active participant in any performance. Even though the technician is not within paragraph 12(8)(a), they are still an employee because they are paid for services in connection with a musical performance.

Paragraph 87 of SGR 2005/1 also notes that paragraph 12(8)(c) of the SGAA is not limited to contracts wholly or principally for a person's labour, such as subsection 12(3), however:

…it is necessary that the particular person is actually paid to provide services rather than for some other purpose. For example, a person engaged to write a script is performing services but one who sells existing scripts is not - they are merely selling property.

Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons (SGR 2009/1), although specifically dealing with sportspersons and prize money, still provides the ATO view on the general operation of subsection 12(8) of the SGAA. There is no distinction made in subsection 12(8) between sportspersons, dancers and musicians and other workers in the entertainment industry.

Paragraph 9 of SGR 2009/1 states:

Subsection 12(8) applies on a payment by payment basis. The character of the payments received by a sportsperson are determinative of whether that person will be treated as an employee of the payer under subsection 12(8) for the purposes of the SGAA. In determining the character of the relevant payment, reference must be made to the substance of the arrangement, and not merely by reference to what the parties have agreed to label the payment. Each case must be examined on all the facts and circumstances.

Paragraphs 79 to 84 of SGR 2009/1 discuss the application of the words 'in connection with' under paragraph 12(8)(c) of the SGAA. The words do not have a specific technical meaning and therefore take on their ordinary meaning, having regard to the context in which they appear.

Paragraph 82 of SGR 2009/1 states:

However, having regard to the context in which the term appears in the SGAA, 'in connection with' requires that the services a person provides or performs must relate directly to the relevant activity in question. Services provided or performed before or after the relevant activity occurs may fall within the scope of paragraphs 12(8)(b) or 12(8)(c) as long as the services are 'bound up or involved in' that activity. That is, the use of the term 'in connection with' in paragraphs 12(8)(b) and 12(8)(c) is intended to cover persons providing the 'behind the scenes' services which enable the relevant activity to occur.

Paragraph 84 of SGR 2009/1 also provides:

For example, persons paid to appear in a television broadcast or to provide the 'behind the scenes' services that directly relate to the making of that broadcast will be employees under paragraph 12(8)(c) for the purposes of the SGAA.

As stated above, the principles regarding sportspersons in SGR 2009/1 can be applied to other like activities in subsection 12(8). Therefore persons who perform services, including 'behind the scenes' services before or after the relevant activity, will satisfy the expanded definition under paragraph 12(8)(c).

The case of General Aviation Maintenance Pty Ltd v Commissioner of Taxation [2012] AATA 120 (General Aviation) briefly considered the application of subsection 12(8) of the SGAA. In that case the worker provided services as a 'tandem master' for skydiving and was responsible for packing and operating parachutes, controlling the descents and making video recording of the descents.

While it was found that the worker was an employee under subsection 12(1) of the SGAA, in the corresponding ATO Decision Impact Statement on General Aviation the Commissioner stated:

Further, if the amounts paid to the worker were not otherwise salary or wages, then s 12(8) applied. The Tribunal found that the worker was contracted to participate in the provision of entertainment and therefore was an employee within the extended definition in subsection 12(8)(a) of the SGAA. The Tribunal further found that the Applicant paid the worker to produce a film or disc, which is a service within the scope of the extended definition in subsection 12(8)(b) and (c). Accordingly payments made by the Applicant to the worker for the production of video recordings of the descent formed part of the worker's salary and wages.

Application to your circumstances

In your case, the worker was paid to provide a product in relation to one of the listed activities under paragraph 12(8)(a) of the SGAA. On the facts provided, the worker did not feature or perform in the product, but rather performed 'behind the scenes' tasks.

The worker was paid for their services involved in the making and producing of the relevant activity. This is contrasted with the example described in paragraph 87 of SGR 2005/1, where a worker selling existing scripts is described as in fact selling property. The worker in this case does not simply sell existing products but performs services for the making of these products.

The worker performed services 'in connection with' the making of an applicable product for the purposes of paragraph 12(8)(c) of the SGAA. Applying the explanation given to this term in paragraph 82 of SGR 2009/1, the services performed are directly related to the relevant activity. Furthermore, paragraph 82 of SGR 2009/1 explicitly states that 'behind the scenes' tasks, such as those performed by the worker in this case, are services that directly relate to the making of a product under paragraph 12(8)(c) of the SGAA.

The case of General Aviation held that a worker paid to produce a film will come within the expanded definition of employee under paragraph 12(8)(c) of the SGAA. Applying the principle of this case to the current facts, the worker was paid to produce a product and would therefore also fall within the employee definition under paragraph 12(8)(c) of the SGAA.

You contended that the words 'performance of services' in paragraph 12(8)(c) of the SGAA implies that the services of the worker must be provided in an employee like manner, under ordinary common law principles, for the benefit of, and under the control of, the payer.

However, subsection 12(8) is intended to expand the definition of 'employee' beyond what is already encompassed by common law principles. It is therefore not necessary under paragraph 12(8)(c) that the worker performs services in an employee like manner, or else the provision would not act to extend the definition of employee beyond the ordinary common law meaning.

You also contended that the payments made to the worker are for a result only and are therefore not captured by paragraphs 12(8)(a) or 12(8)(c) of the SGAA.

Paragraphs 90 and 91 of SGR 2009/1 state:

it is clear that a distinction is drawn between payments that are made because of a result achieved due to the person's 'sporting prowess' and payments made in order to secure the sportsperson's participation regardless of whether they secure a place.

91. Prize money is paid to a sportsperson on achieving a certain level of success in a competition. Although participation in the sport using the sportsperson's physical or personal skills is a prerequisite to achieving the relevant result, the entitlement to the prize money arises because of the result achieved. Mere participation in the sport does not give rise to the entitlement to be paid the prize money. Therefore, where the purpose for the payment is to reward or acknowledge a result achieved, the sportsperson receiving the payment would not be an employee of the payer under paragraph 12(8)(a).

You have argued that payments made to the worker are analogous to prize money to sportspersons, in that they are both payments made for a result.

We have found that payments made to the worker are distinguishable to those described as prize money payments to sportspersons. Prize money is paid to a sports person a reward or bonus for a performance or result. It is different than participation payments, or payments made for finishing the event. By contrast, the worker in your case is not paid as a reward for achieving some sort of analogous performance-based award. They are paid simply for performing the expected services and finishing their product as specified.

You have argued that the facts of this case should be distinguished from General Aviation on the basis that the worker in that case was paid primarily for his services in assisting skydiving descents; whereas the worker in your case is paid for the end result of the product. You submitted that this case can therefore be distinguished from General Aviation as the worker is not paid for the performance of services but for the end result.

We find that the case is not distinguishable on these grounds. The performance of the worker's services in producing the product, and the outcome of those services being the resulting product, are inextricably linked and cannot be artificially separated out under this provision. Applying paragraph 82 of SGR 2009/1, the services performed by the worker are all "bound up or involved in" the activity. Furthermore, that the worker in this case performs their services for no other reason than the making of the product serves to strengthen the finding that their services are performed in connection to the making of the relevant product under by paragraph 12(8)(c) of the SGAA.

Conclusion

While subsection 12(1) of the SGAA provides that the term employee has its ordinary meaning, subsection 12(8) expands the definition of employee for the purposes of the SGAA.

The worker does not meet the expanded definition of employee under paragraph 12(8)(a) of the SGAA as they do not actively participate in a relevant activity.

However, the worker does meet the expanded definition of employee under paragraph 12(8)(c) of the SGAA as they perform services in connection with the making of a relevant product.

Therefore, the principal has an obligation to pay SG contributions on behalf of the worker.

ATO view documents

Decision Impact Statement on General Aviation Maintenance Pty Ltd v Commissioner of Taxation [2012] AATA 120

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee?

Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons

We considered the following case law

General Aviation Maintenance Pty Ltd v Commissioner of Taxation [2012] AATA 120

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