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Edited version of private ruling
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Ruling
Subject: PAYG Withholding
Question 1
Do you have an obligation to withhold amounts from payments to recipients under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?
Answer:
No.
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
A program was introduced as one of the government initiatives.
The program will consolidate existing payment programs in this field.
Eligible parties who meet certain guidelines will continue to receive payments under the original scheme rather than the new program.
The original scheme was established over ten years ago.
Various government agencies will determine the eligibility of people claimed the payments.
There are no conditions or obligations on the claimants on how to use the payments. Claimants may opt out of the program and the government agencies will cease to generate the payments.
You do not employ the claimants who claim the payments nor have any influence to direct or control the work they perform.
Reasons for decision
These reasons for decision accompany the Notice of private ruling.
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
PAYG Withholding
Division 6 of Schedule 1 to the TAA requires taxpayers to pay income tax at regular intervals as it is earned during the year. This system of collecting is called Pay As You Go (PAYG), which has two components: PAYG withholding and PAYG instalments. Subsection 6-5(2) of Schedule 1 to the TAA states that:
Under PAYG withholding, amounts are collected in respect of particular kinds of payments or transactions. Usually, someone who makes a payment to you is required to withhold an amount from the payment, and then to pay the amount to the Commissioner.
Section 10-5 of Schedule 1 to the TAA provides a summary of the different kinds of payments that are subject to PAYG withholding. Of these, two types of payments have relevance to your arrangement - these are payments of salary, wages or bonuses to an employee and payments were no ABN is quoted by the recipient of the payment.
Section 12-35 of Schedule 1 to the TAA states that you must withhold an amount from salary, wages, commission, bonuses or allowances you pay to an individual as an employee (whether of you or another entity).
Application of law to your circumstances
Section 12-35 of Schedule 1 to the TAA - Salary and wages
The payments under the original scheme are designed to provide incentives to eligible people. Various government agencies will determine the eligibility of the claimants for the payments under the scheme. This, on its own, does not indicate that the basis of the payments is due to the claimants being employees of the payer or any other entity.
Taxation Ruling TR 2005/16 provides guidance on determining whether a relationship constitutes an arrangement of employment.
Paragraph 12 of TR 2005/16 explains that payment does not necessarily have to be between employer and employee for the payment to be covered by Section 12-35 of Schedule 1 to the TAA. However, the payment made to the individual must be in their capacity as an employee, either of the payer or another entity. The essential element is the nature of any connection between the payment and the individual's employment with the payer or any other entity.
Notwithstanding the payments constituting an advantage to the recipients, we do not consider the payments to be a 'bonus' paid to the recipients as a consequence of their employment. The payments in question are not considered to be salary, wages, bonuses or another type of employment-related payment.
Therefore we do not consider the essential elements of section 12-35 to be in existence and withholding from the payments under that provision is not required.
This is despite the fact that the payments would be assessable income under section 6-5 of the Income Tax Assessment Act 1997.
The claimants would be able to claim any amounts withheld during the course of an income year under section 12-190 of Schedule 1 to the TAA as a credit on their annual income tax returns.