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Ruling

Subject: Volunteer, employee or contractor

Questions:

Is the operator of your slipway an employee or contractor for the purposes of your PAYG withholding obligations?

Answer: No

Do the compensation amounts you pay your slipway operator have the nature of honorary rewards ('an honorarium') and thus non-assessable to the operator?

Answer: This question is invalid as the question is in relation to the tax affairs of the operator.

This ruling applies for the following periods:

Year ending 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You are a non-for-profit organisation run for the benefit of your members. You have a license to operate a small slipway for your members so yours members can perform maintenance on their boats. Under its license, the slipway can be used in a community manner and not a commercial manner.

You currently charge your members around half of what commercial marinas charge. One of the conditions of your license is the slipway must be operated in the presence of a member of your management committee who is sufficiently experienced. The slipway is only accessible at high tide so when it is used it is often done so during extreme hours, such as early morning or late evening.

Currently, only one of your members has sufficient experience to operate the slipway. He is not a professional slipway operator. He learned his slipway skills through helping your former volunteer slipway operator. In recognition of his commitment to your association and its members, and his discomfort endured, you provide the operator of your slipway some compensation for each slipping. One slipping (both in and out) may take four to five hours to complete and performed during extreme hours. The amount you pay is around one-third to half of the amount a commercial slipway operator would charge.

The operator may also be required to use part of the payment for incidental costs, such as for fuel for the slipway winch motor and minor spare parts. Also, as at least two people are required for the slipping, the operator must often give a gift (such as case of beer) for another person to render assistance during the slipping process, where the boat owner cannot.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 15-2

Reasons for decision

Section 12-35 of the Taxation Administration Act 1953 (TAA 1953) states an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Whether a person is engaged as an employee or an independent contractor is outlined in Taxation Ruling TR 2005/16. The ruling lists features which have been regarded by the courts as key indicators of whether an individual is an employee or independent contractor that have been regarded by the courts at common law. 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 paid to achieve the contractually specified outcome.

· The risk test, whether the worker bears the legal responsibility and expense for the rectification or remedy in the case of unsatisfactory performance.

· The delegation test, whether the work can be delegated or subcontracted (with or without the approval or consent of the principal).

· Which party provides tools, equipment and payment of business expenses.

Your slipway operator is not an employee because he is not paid for time worked on an hourly basis that is set by an agreement or award. He is not paid for the provision of services based in his personal profession. He renders services to help maintain a communal association established for recreational and private purposes, of which he is also a member for recreational and private purposes. He is paid an amount far below commercial rates and his and your activities are not indicative of a commercial activity. It follows you do not have any withholding obligations in relation to your slipway operator.

Also, your slipway operator is not an independent contractor because he is one of your committee members performing a somewhat burdensome but compulsory volunteer role. To be licensed, it is required one of your committee members supervise the slipway operation. Of the six tests found detailed above, as your slipway operator is performing a dual role as slipway supervisor, he fails the organisation (integration) test, the delegation test and the tools/equipment/business expenses test for an independent contractor. As a committee member, he also retains aspects of the control test on your behalf. The risk test is not applicable. Thus only the results test weighs in favour of an independent contractor in your case.