Edited version of private advice

Authorisation Number: 1052134040727

Date of advice: 24 July 2023

Ruling

Subject: PAYG withholding - micro-influencers

Question

Is the entity required to withhold from payments made to micro-influencers engaged via its online marketing platform pursuant to subsection 12-60(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA) and paragraph 27(c) of the Taxation Administration Regulations 2017 (TAR)?

Answer

In circumstances where a micro-influencer receives a payment as an individual (including a sole trader):

Yes, provided the micro-influencer is not engaged primarily because he or she is a sportsperson.

In circumstances where a micro-influencer receives a payment via an interposed entity (such as a company or a trust):

No, although the interposed entity will be required to quote an Australian Business Number (ABN) to avoid an amount being withheld from the payment received.

This ruling applies for the following periods:

Year ended 30 June 2023

Year ending 30 June 2024

The scheme commences on:

1 July 2022

Relevant facts and circumstances

1.    The entity sources social medial talent to assist with product marketing. As part of this talent management business, the entity enters into contracts with clients who sell certain products and services. Under these client contracts, the entity undertakes to source 'micro-influencers' to promote the products and services offered by the entity's clients on their various social media platforms.

2.    The entity facilitates this engagement with micro influencers via its online marketing platform. The platform functions as a 'pool' of potential influencers who may at times be deemed suitable to promote the products and services of the entity's clients. The entity contracts with a number of micro-influencers on a non-exclusive basis via the platform.

3.    Micro-influencers who have signed up for the platform are not managed or represented by the entity in any way, and they are free to work with other talent management businesses without requiring the consent or approval of the entity.

4.    The entity is of the view that the micro-influencers contracted through the platform do not have significant social media presences or business operations, as such, the social media work is not a full-time or overly professional endeavour. This understanding is reflected in the fees paid to the micro-influencers, which are not significant.

5.    The micro-influencers will enter into a broad terms and conditions document with the entity as part of joining the platform. The vast majority of micro-influencers engage with the entity as individuals/sole traders holding ABNs, with the remainder engaged via an interposed entity (such as a company or trust). The entity does not employ any of the micro-influencers, as stipulated in the engagement agreements.

6.    The entity's clients will brief the entity as to the nature of the product and the audience it is seeking. The entity then uses this information to make offers to micro-influencers via the platform.

7.    The micro-influencers are made offers via email. These offers outline the nature of the product, and the client's requirements regarding the desired content of the social media posts. The micro-influencer is free to decline the work or negotiate on the fees offered by the entity.

8.    Once an agreement is reached as to fees and the posts are published by the micro-influencers on their social media accounts, consistent with the requirements of the brief, payment is made by the entity to the micro-influencers.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 202C

Income Tax Assessment Act 1997 subsection 405-25(2)

Income Tax Assessment Act 1997subsection 405-25(3)

Taxation Administration Act 1953 subsection 12-60(2) of Schedule 1

Taxation Administration Act 1953 section 12-190 of Schedule 1

Taxation Administration Regulations 2017 paragraph 27(c)

Reasons for decision

Summary

A micro-influencer engaged through the entity's online marketing platform to promote or endorse a product or service on social media is for PAYG withholding purposes a 'performing artist'.

As such, in circumstances where the entity makes a payment to a micro-influencer as an individual (including a sole trader), the entity is required to withhold from that payment pursuant to subsection 12-60(2) of Schedule 1 to the TAAand paragraph 27(c) of the TAR(though not where the individual is engaged primarily because he or she is a sportsperson). Under the PAYG Withholding Variation: Performing Artists 2018 Legislative Instrument, a withholding rate of 20% applies to these payments.

In circumstances where the entity makes a payment to a micro-influencer through an interposed entity (such as a company or a trust), subsection 12-60(2) of Schedule 1 to the TAA does not apply as the payment is not made to an individual. However, such an interposed entity may still be subject to withholding pursuant to subsection 12-190(1) of Schedule 1 to the TAA unless one of the exceptions in subsections 12-190(2) to 12-190(7) applies. That is, an interposed entity will be required to quote an Australian Business Number (ABN) to avoid PAYG withholding being applied under subsection 12-190(1).

Detailed reasoning

Subsection 12-60(2) of Schedule 1 to the TAA

Payments made to actors, variety artists and other entertainers may be subject to Pay As You Go (PAYG) withholding under subsection 12-60(2) of Schedule 1 to the TAA, which states that:

An entity that carries on an enterprise must withhold an amount from a payment that it makes to an individual in the course or furtherance of the enterprise if the payment is, in whole or in part, for work or services and is of a kind prescribed by the regulations. [Emphasis added]

The Commissioner accepts that the entity is one that carries on an enterprise.

Paragraph 27(c) of the Taxation Administration Regulations 2017

Having regard to the requirements in subsection 12-60(2) of Schedule 1 to the TAA, the Commissioner considers that a payment made by the entity to an individual in the course or furtherance of the entity's enterprise is, in whole or in part, for work or services, and is of a kind prescribed by paragraph 27(c) of the TAR, which includes:

payments under a contract to an individual engaged as a performing artist to perform in an activity in which the individual:

(i) endorses or promotes goods or services; or

(ii) appears or participates in an advertisement;

unless the individual is engaged primarily because he or she is a sportsperson. [Emphasis added]

A 'sportsperson' is defined in subsection 405-25(6) of the Income Tax Assessment Act 1997 (ITAA 1997) as one who competes in a sporting competition. A 'sporting competition' is defined in subsection 405-25(7) as a sporting activity to the extent that:

(a) human beings are the only competitors in it, or it is one in which human beings:

(i) compete by riding animals or exercising other skills in relation to animals; or

(ii) compete by driving, piloting or crewing motor vehicles, boats, aircraft or other forms of transport; or

(iii) compete with natural obstacles or natural forces, or by overcoming them; and

(b) participation in it by human competitors involves primarily their exercising physical prowess, physical strength or physical stamina.

Does the definition of a 'performing artist' include influencers?

A 'performing artist' is:

•                     a singer

•                     a dancer

•                     an actor (including extras)

•                     a model

•                     a musician or comedian, providing that they are endorsing or promoting goods or services, or appear in an advertisement

•                     an individual who is no longer an active sportsperson but is engaged in promotional activities because of their sporting reputation

•                     a similar individual who is engaged to use his or her intellectual, artistic, musical, physical or other personal skills.

This definition stems from the definition of a 'performing artist' as provided in subsections 405-25(2) and 405-25(3) of the ITAA 1997.

An 'influencer' is defined in the Macquarie Dictionary as 'a person with a high public profile who is used to market or promote a product, especially on their social media'.

Therefore, the Commissioner considers that an 'influencer' falls within the definition of a 'performing artist' for PAYG withholding purposes as a 'similar individual who is engaged to use his or her intellectual, artistic, musical, physical or other personal skills'.

As such, having consideration to the facts in the current circumstances, the Commissioner is of the view that micro-influencers engaged via the entity's online marketing platform - who promote or endorse a product or service on social media - are for PAYG withholding purposes 'performing artists'.

Payments to influencers as an individual

As provided by the wording in both subsection 12-60(2) of Schedule 1 to the TAA and in paragraph 27(c) of the TAR, withholding from payments to a performing artist only applies to those made to individuals. As such, in circumstances where the entity makes a payment to a micro-influencer as an individual (including a sole trader) - provided the individual is not engaged primarily because he or she is a sportsperson - the entity is required to withhold from that payment pursuant to subsection 12-60(2) of Schedule 1 to the TAAand paragraph 27(c) of the TAR.

The Pay As You Go (PAYG) Withholding Variation: Performing Artists 2018 Legislative Instrument applies to payments that are covered by subsection 12-60(2) of Schedule 1 to theTAA that are of a kind prescribed by paragraph 27(c) of the TAR. Under this Legislative Instrument, a withholding rate of 20% applies to payments made under a contract to an individual engaged as a performing artist to perform in an activity in which the individual:

              i.        endorses or promotes goods or services; or

             ii.        appears or participates in an advertisement;

unless the individual is engaged primarily because he or she is a sportsperson.

Therefore, where the entity makes a payment to a micro-influencer as an individual (including a sole trader) - and that individual is an Australian resident and engaged under a contract with the entity to perform in an activity to endorse or promote goods or services (and is not engaged primarily because he or she is a sportsperson) - a withholding rate of 20% applies to these payments under the PAYG Withholding Variation: Performing Artists 2018 Legislative Instrument.

Exceptions to this withholding requirement includes circumstances where:

•                     the individual has not provided the entity with a Tax File Number (TFN) declaration

-        In the current circumstances, there is a payer and payee relationship between the entity and a micro-influencer such that the micro-influencer has a TFN declaration obligation under section 202C of the Income Tax Assessment Act 1936. Where a TFN declaration is not provided to the entity, the entity is required to withhold 47% from payments made to Australian resident payees.

•                     the individual is under 18 years old (that is, PAYG withholding may be varied to nil[1] if certain conditions are satisfied), and/or

•                     the entity has received a notice from the ATO to vary the amount to withhold.

It is also noted that an influencer (performing artist) can only be registered for goods and services tax (GST) if they are conducting an enterprise. If a payment made to an influencer is subject to withholding, the activity is not conducted as part of an enterprise. No GST applies to payments subject to PAYG withholding. No input tax credits are available to a performing artist for GST incurred in connection with earning payments subject to PAYG withholding.

Information on the PAYG withholding requirements in respect of payments made to performing artists contracted to perform a promotional activity can be found on the ATO's website [ato.gov.au] on the page 'Performing artists contracted to perform promotional activity' (using quick search code 'QC 16528').

Payments to influencers through an interposed entity

In circumstances where the entity makes a payment to a micro-influencer through an interposed entity (such as a company or a trust), subsection 12-60(2) of Schedule 1 to the TAA does not apply as the payment is not made to an individual.

However, such an interposed entity may still be subject to withholding pursuant to subsection 12-190(1) of Schedule 1 to the TAA unless one of the exceptions in subsections 12-190(2) to 12-190(7) applies. That is, an interposed entity will be required to quote an ABN to avoid PAYG withholding being applied under subsection 12-190(1).

Conclusion

The Commissioner is of the view that:

•                     a micro-influencer engaged through the entity's online marketing platform to promote or endorse a product or service on social media is for PAYG withholding purposes a 'performing artist'

•                     in circumstances where the entity makes a payment to a micro-influencer (a performing artist) as an individual (including a sole trader), and the individual is not engaged primarily because he or she is a sportsperson, the entity is required to withhold from that payment pursuant to subsection 12-60(2) of Schedule 1 to the TAAand paragraph 27(c) of the TAR. Under the PAYG Withholding Variation: Performing Artists 2018 Legislative Instrument, a withholding rate of 20% applies to these payments (unless specific exceptions apply), and

•                     in circumstances where the entity makes a payment to a micro-influencer through an interposed entity (such as a company or a trust), subsection 12-60(2) of Schedule 1 to the TAA does not apply as the payment is not made to an individual. However, such an interposed entity may still be subject to withholding pursuant to subsection 12-190(1) of Schedule 1 to the TAA unless one of the exceptions in subsections 12-190(2) to 12-190(7) applies.

[1] Further information is available in the Taxation Administration: Withholding Variation to Nil for Low Income Minors Legislative Instrument 2022.

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