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Ruling

Subject: Principal/agent and employee/employer relationships

Question

Are you the employer of the service providers who utilise your facilities?

Answer

No.

This ruling applies for the following periods

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You operate a professional services facility.

Professional service providers operate from your facility.

You enter into a facilities agreement with each service provider.

Under the agreement you are responsible for the provision of professional rooms, assistants, equipment, supplies, office administration systems and procedures, collection of fees from clients and other matters in relation to the operation of the facility.

As consideration for the provision of these services, you receive a management fee which is a percentage of the client fees received by each service provider.

Each service provider is paid for the professional services they personally provide to the clients.

You do not provide professional services to the clients.

Under the current computer system, you collect the client fees and bank them into a separate facility account held in your name.

Each week you calculate the management fees owing to you and remit these funds to your operating account.

The remaining funds in the facility account are remitted to each respective service provider on a weekly or fortnightly basis. That is, each service provider is paid weekly or fortnightly their client fees less their management fees.

Each service provider

· is educated and holds all appropriate licences, registrations, approvals and qualifications to be recognised as a professional in their field of professional services

· does not provide any services to you

· is registered for GST either personally or through a related entity

· holds professional indemnity insurance, and

· holds all professional memberships as required for the proper and lawful conduct of their profession.

Relevant legislative provisions

Taxation Administration Act 1953 Schedule 1 Section 12-35

Reasons for decision

Summary

You are not considered to be an employer of the service providers you enter into a facilities agreement with.

Detailed reasoning

Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that you must withhold an amount from a payment of salary, wages, commissioner, bonuses or allowances you pay to an individual as an employee.

The term 'employee' is not defined in the taxation legislation.

Whether a person is an employee of another is a question of fact to be determined by examining the terms and circumstances of the contract between them having regard to the key indicators expressed in the relevant case law. Defining the contractual relationship is often a process of examining a number of factors within the context of the relationship between the parties. No one indicator of itself is determinative of that relationship.

Taxation Ruling TR 2005/16 states that the following factors should be considered in determining if an employment relationship exists between two parties:

· the terms and conditions of the contract between the parties, whether express or implied, in light of the circumstances surrounding making the contract

· the degree of control which one party can exercise over the other party in relation to the provision of services

· does the worker operate on their own account or in the business of the payer

· whether the contract is to achieve a specified result

· whether the work can be delegated or subcontracted

· the level of risk the worker bears of costs arising out of injury or defect or carrying out their work

· the provision of tools and equipment and payment of business expenses, and

· provision of benefits such as annual leave, sick and long service leave and other benefits prescribed under an award for employees.

In your case:

· the service provider is solely responsible for controlling the manner in which they provide services to their clients

· the service providers operate on their own accounts, you do not provide professional services

· the service providers hold insurance and are responsible for any loss or liability resulting from any wilful, unlawful or negligent act or omission in connection with the provision of professional services

· whilst you provide the tools and equipment and pay for administrative business expenses the service providers pay you a facility fee for this service

· the service providers are responsible for their own expenses incurred in performing the professional services, and

· no provision is made for annual leave, sick or long service leave within the facilities agreement.

It is considered that an employer/employee relationship is not created between yourself and the service provider by entering into a facilities agreement with the service provider.