Edited version of your private ruling

Authorisation Number: 1012041741571

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Ruling

Subject: goods and services tax (GST) and providing services to the gaming industry.

Question 1

Are you entitled to an ABN?

Answer

No (based on the information provided).

Question 2

Are you required to be registered for GST?

Answer

No (based on the information provided).

Question 3

Are your supplies of services to X GST-free?

Answer

Yes.

This ruling applies for the following periods:

The scheme commences on:

Relevant facts and circumstances

You, an individual, are supplying consulting services relating to the gaming industry to X, an overseas company that does not have an office in Australia.

Your services relate to bookmaking.

You provided a copy of the contract you have with X.

The contract refers to you as an independent contractor.

You have freedom in the way you do the work.

You get paid by X for the hours you work; not for achieving a specified result.

You also may get paid a bonus. This bonus depends on the performance of X

You cannot delegate or subcontract your work.

You bear no risk of the costs arising out of damages resulting from you carrying out the work.

You provide your own equipment to perform the work. However, X reimburses you for this.

You are reimbursed by X for expenses you incur in connection with the work, for example, broadband, Pay TV and business related phone calls.

You get a number of weeks paid annual leave each year.

There is no mention of sick leave in the contract. You have taken the odd day off sick here and there but it has not affected your pay. Other external traders have told you that they were able to take paid leave for a week or so when it has been necessary (hospital treatment etc).

You do not have to wear a company uniform.

Your work hours are set by X

You cannot make a profit or loss from the work you perform for X.

You do not provide services to the general public and other businesses (other than X)

You are not free to accept or refuse work from X.

You may receive over $75,000 a year from X.

Relevant legislative provisions

A New Tax System (Australian Business Number) Act 1999 subsection 8(1)

A New Tax System (Australian Business Number) Act 1999 section 41

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decisions

Question 1

Summary

You are not entitled to an ABN because you are not a company and you are a common law employee and the activities of an employee are not an enterprise.

Detailed reasoning

In accordance with subsection 8(1) of the A New Tax System (Australian Business Number) Act 1999 (ABN Act), you are entitled to have an ABN if

(a) you are carrying on an enterprise in Australia; or

(b) in the course or furtherance of carrying on an enterprise, you make supplies that are connected with Australia

A Corporations Act company is also entitled to have an ABN.

Section 41 of the ABN Act provides that the term 'enterprise' has the meaning given by section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Paragraph 9-20(1)(a) of the GST Act provides that an enterprise includes an activity or series of activities done in the form of a business.

Paragraph 9-20(2)(a) of the GST Act excludes the activities done by an employee in that capacity from the definition of enterprise.

If you are an employee of X, your activity of working for X is excluded from the definition of enterprise.

We shall now consider whether you are an employee of X.

Miscellaneous Taxation Ruling MT 2006/1 provides the meaning of employee for the purposes of paragraph 9-20(2)(a) of the GST Act.

Paragraph 334 of MT 2006/1 provides that employee for the purposes of paragraph 9-20(2)(a) of the GST Act means employee at common law.

Paragraph 335 of MT 2006/1 states:

335. For a discussion on what is meant by an employee, reference should be made to Taxation Ruling TR 2005/16 Income Tax: Pay As You Go - withholding from payments to employees. As this Ruling does not add to or change the discussion in TR 2005/16 it can be referred to for a fuller discussion on the meaning of 'employee'.

Paragraphs 25 to 52 of TR 2005/16 state:

Key indicators of whether an individual is an employee or independent contractor

25. The features discussed below have been regarded by the courts as key indicators of whether an individual is an employee or independent contractor at common law.

Control

26. The classic 'test' for determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. A common law employee is told not only what work is to be done, but how and where it is to be done. With the increasing usage of skilled labour and consequential reduction in supervisory functions, the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it. As stated by Dixon J in Humberstone v. Northern Timber Mills:

The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter's orders and directions.

27. Likewise, the High Court in Zuijs described the significance of control in the following way in the context of skilled employment where the nature of the work performed left little scope for detailed control:

What matters is lawful authority to command so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters.

28. The mere fact that a contract may specify in detail how the contracted services are to be performed does not necessarily imply an employment relationship. In fact, a high degree of direction and control is not uncommon in contracts for services. The payer has a right to specify how the contracted services are to be performed, but such control must be expressed in the terms of the contract; otherwise the contractor is free to exercise their discretion (subject to any terms implied by law). This is because the contractor is working for themselves.

29. While control is important, it is not the sole indicator of whether or not a relationship is one of employment. The approach of the Courts has been to regard it as one of a number of indicia which must be considered in determination of that question.

30. However, even though the modern approach to defining the contractual relationship is to have regard to the totality of the relationship between the parties, control is still the most important factor to be considered. This was recognised by Wilson and Dawson JJ in Stevens v. Brodribb (1986) 160 CLR 16 at 36), where they state:

In many, if not most cases, it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee.

31. In Hollis v. Vabu , the fact that the couriers engaged by Vabu had little control over the manner of performing their work (the corollary being that Vabu had considerable scope for the actual exercise of control over the performance of the courier's activities) was an important factor leading to the conclusion that the bicycle courier in question was a common law employee of Vabu. Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ observed that:

Vabu's whole business consisted of the delivery of documents and parcels by means of couriers. Vabu retained control of the allocation and direction of the various deliveries...Their work was allocated by Vabu's fleet controller. They were to deliver goods in the manner in which Vabu directed. In this way, Vabu's business involved the marshalling and direction of the labour of the couriers, whose efforts comprised the very essence of the public manifestation of Vabu's business.

Does the worker operate on their own account or in the business of the payer?

32. In Hollis v. Vabu , the majority of the High Court quoted the following statement made by Windeyer J in Marshall v. Whittaker's Building Supply Co (1963) 109 CLR 210:

... the distinction between an employee and independent contractor is 'rooted fundamentally in the difference between a person who serves his employer in his, the employer's business, and a person who carries on a trade or business of his own.

This distinction is also referred to as the integration or organisation test.

33. In Hollis v. Vabu , the High Court considered this distinction when determining whether a bicycle courier was a common law employee of Vabu. The majority found that the bicycle courier was a common law employee of Vabu and stated:

Viewed as a practical matter, the bicycle couriers were not running their own business or enterprise, nor did they have independence in the conduct of their operations.

34. While the majority did, in reaching its decision, consider lawful authority to command (that is control) and other relevant aspects of the relationship between the parties, it at the same time was concerned with the fundamental question of whether the worker was operating their own business or was operating within Vabu's business. Therefore, whenever applying the indicators of employment listed in this ruling it is also necessary to keep in mind the distinction between a worker operating on his or her own account and a worker operating in the business of the payer.

'Results' contracts

35. Where the substance of a contract is to achieve a specified result, there is a strong (but not conclusive) indication that the contract is one for services. In World Book (Australia) Pty Ltd v. FC of T Sheller JA said:

Undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor'.

36. The phrase 'the production of a given result' means the performance of a service by one party for another where the first-mentioned party is free to employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome. Satisfactory completion of the specified services is the 'result' for which the parties have bargained. The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to hours worked. If remuneration is payable when, and only when, the contractual conditions have been fulfilled, the remuneration is usually made for producing a given result.

37. In contracts to produce a result, payment is often made for a negotiated contract price, as opposed to an hourly rate. For example, in Stevens v. Brodribb , payment was determined by reference to the volume of timber delivered, and in Queensland Stations where it was a fixed sum per head of cattle delivered.

38. Having regard to the true essence of the contract, the manner in which the payment is structured will not of itself exclude genuine result based contracts. For example, there are results based contracts where the contract price is based on an estimate of the time and labour cost that is necessary to complete the task, or may even be calculated on that basis, subject to reasonable completion times.

39. While the notion of 'payment for a result' is expected in a contract for services, it is not necessarily inconsistent with a contract of service. The High Court in FC of T v. Barrett & Ors found that land salesmen who were engaged by a firm of land agents to find purchasers for land entrusted to the firm for sale and who were remunerated by commission only were employees and not independent contractors. Likewise, the High Court in Hollis v. Vabu considered that payment to the bicycle couriers per delivery, rather than per time period engaged, was a natural means to remunerate employees whose sole purpose is to perform deliveries. Further, the Full Court of the Supreme Court of South Australia in Roy Morgan found that interviewers who were only paid on the completion of each assignment, not on an hourly basis, were employees and not independent contractors.

40. Accordingly, the contractual relationship as a whole must still be considered in order to determine the true character of the relationship between the parties.

hether the work can be delegated or subcontracted

41. The power to delegate or subcontract (in the sense of the capacity to engage others to do the work) is a significant factor in deciding whether a worker is an employee or independent contractor. If a person is contractually required to personally perform the work, this is an indication that the person is an employee.

42. If an individual has unlimited power to delegate the work to others (with or without the approval or consent of the principal), this is a strong indication that the person is engaged as an independent contractor. Under a contract for services, the emphasis is on the performance of the agreed services (achievement of the 'result'). Unless the contract expressly requires the service provider personally to perform the contracted services, the contractor is free to arrange for their employees to perform all or some of the work or may subcontract all or some of the work to another service provider. In these circumstances, the contractor is the party responsible for remunerating the replacement worker.

43. A common law employee may frequently 'delegate' tasks to other employees, particularly where the employee is performing a supervisory or managerial role. However, this 'delegation' exercised by an employee is fundamentally different to the delegation exercised by a contractor outlined above. When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker, rather the workers have merely organised a substitution or shared the work load. This is not delegation consistent with that exercised by a contractor.

Risk

44. Where the worker bears little or no risk of the costs arising out of injury or defect in carrying out their work, he or she is more likely to be an employee. On the other hand, an independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor often carries their own insurance and indemnity policies.

Provision of tools and equipment and payment of business expenses

45. It had been held that the provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor.

46. In Stevens v. Brodribb , the High Court observed that working on one's own account (as an independent contractor) often involves:

the provision by him of his own place of work or of his equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion...

47. Similarly, in Queensland Stations the droving contractor was required to find and pay for all the men, plant, horses and rations necessary and sufficient for the task. Their own means were employed to accomplish a result.

48. However, the provision of necessary tools and equipment is not necessarily inconsistent with an employment relationship. As highlighted in Hollis v. Vabu , the provision and maintenance of tools and equipment and payment of business expenses should be significant for the individual to be considered an independent contractor. The majority of the High Court stated that:

In classifying the bicycle contractors as independent contractors, the Court of Appeal fell into error in making too much of the circumstances that the bicycle couriers owned their own bicycles, bore the expenses of running them and supplied many of their own accessories...A different conclusion might, for example, be appropriate where the investment in capital was more significant, and greater skill and training were required to operate it.

49. There are situations where, having regard to the custom and practice of the work, or the practical circumstances and nature of the work, very little or no tools of trade or plant and equipment are necessary to perform the work. This fact by itself will not lead to the conclusion that the individual engaged is as an employee. The weight or emphasis given to this indicator (as with all the other indicators) depends on the particular circumstances and the context and nature of the contractual work. All the other facts must be considered to determine the nature of the contractual relationship.

50. Further, an employee, unlike an independent contractor, is often reimbursed (or receives an allowance) for expenses incurred in the course of employment, including for the use of their own assets such as a car.

Other indicators

51. In addition to the above, other indicators of the nature of the contractual relationship have been variously stated and have been added to from time to time. Those suggesting an employer-employee relationship include the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged, provision of benefits such as annual, sick and long service leave and the provision of other benefits prescribed under an award for employees. However, the fact that a contract does not contain provisions for annual and sick leave will not, in itself, be an indicator of a principal/independent contractor relationship.

52. The requirement that a worker wear a company uniform is an indicator of an employment relationship existing between the contracting parties. In Hollis v. Vabu , the fact that the couriers were presented to the public and to those using the courier service as emanations of Vabu (the couriers were wearing uniforms bearing Vabu's logo) was an important factor supporting the majority's decision that the bicycle couriers were employees.

Additionally:

§ Where the worker agrees to provide their personal services, this is an indicator that the worker is an employee.

§ Where the worker's work hours are set by an agreement or award, this is an indicator that the worker is an employee.

§ Where the worker cannot make a profit or loss from the work performed, this is an indicator that the worker is an employee.

§ Where the worker provides services to the general public and other businesses this is an indicator that the worker is not an employee.

§ Where the worker is free to accept or refuse work from the payer, this indicates that the worker is not an employee.

Application to your circumstances

Control

The contract you have with X does not express the control X has over how and where the work is to be done. Additionally, you stated that you have freedom in the way you do the work. This indicates that you may not be an employee of X.

Integration

You have an ongoing working relationship with X. Additionally, X has the right to your exclusive services. Therefore, you are integrated into X's business. This indicates that you may be an employee of X.

Results contracts

You are getting paid for your time. You are not paid to achieve a specified result. This indicates that you may be an employee of X.

Whether the work can be delegated or subcontracted

You cannot delegate or subcontract the work you agree to do. This indicates that you may be an employee of X.

Risk

You bear no risk of the costs arising out of damages resulting from you carrying out your work. This indicates that you may be an employee of X.

Provision of tools and equipment and payment of business expenses

You provide all the equipment necessary to perform the work. However, it is reimbursed by X. The fact that these expenses are reimbursed by X indicates that you may be an employee of X.

You are reimbursed by X for expenses you incur in connection with the work, for example, broadband, Pay TV and business related phone calls. This indicates that you may be an employee of X.

Other indicators in TR 2005/16

X has the right to dismiss you. X has the right to your exclusive services (it may allow you to work for other entities, but this is at X's discretion). You are paid for a number of week's annual leave each year. It appears that you may be paid for time taken off work due to sickness.

This indicates that you may be an employee of X.

Worker agrees to provide their personal services

You agreed to provide your personal services to X. This indicates that you may be an employee of X.

The worker's work hours are set by an agreement or award

Your work hours are set by X. This indicates that you may be an employee of X.

Ability to make a profit or loss from the work performed

You cannot make a profit or loss from the work you perform. This indicates that you may be an employee of X.

Providing services to the general public and other businesses

You do not provide services to the general public and other businesses (other than X). This indicates that you may be an employee of X.

The worker is free to accept or refuse work from the payer

You are not free to accept or refuse work from X. This indicates that you may be an employee of X.

Conclusion

All but one of the indicators of being an employee of X are present in your case. Additionally, the fact that you are paid for your time rather than to achieve a specified result is a strong indicator that you are an employee (undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor). The overall impression based on analysing the relevant factors is that you are an employee of X.

In accordance with paragraph 21 of TR 2005/16, if the underlying reality of the relationship is one of employment the parties cannot alter that fact by merely having the contract state (or have the worker acknowledge) that the worker's status is that of an independent contractor. Hence, the fact that the contract in your case refers to you as an independent contractor cannot alter the fact that you are an employee of X.

Therefore, your activity of working for X is excluded from the definition of enterprise. Hence, this activity does not result in you being entitled to an ABN.

You are not a company either.

Therefore, you are not entitled to an ABN (based on the information provided).

Question 2

Summary

You are not required to be registered for GST as you are not carrying on an enterprise.

Detailed reasoning

Section 23-5 of the GST Act provides that an entity is required to be registered for GST when:

§ it is carrying on an enterprise; and

§ its GST turnover meets the registration turnover threshold.

You are not carrying on an enterprise (based on the information provided). Therefore, you are not required to be registered for GST (based on the information provided).

Question 3

Summary

You make a GST-free supply of services to a non-resident under section 38-190 of the GST Act as you satisfy the requirements of item 2 in the table in subsection 38-190(1) of the GST Act.

Detailed reasoning

A supply of something other than goods or real property is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act where the supply is made to a non-resident who is not in Australia when the thing supplied is done; and

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or

(b) the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered for GST.

You are supplying services to a non-resident entity which is not in Australia when the thing supplied is done.

These supplies are not supplies of work physically performed on goods situated in Australia when the work is done; nor supplies directly connected with real property situated in Australia.

Therefore, you satisfy the requirements of item 2 in the table in subsection 38-190(1) of the GST Act. Hence, you make a GST-free supply under section 38-190 of the GST Act.