Edited version of your private ruling

Authorisation Number: 1012585203634

Ruling

Subject: Status of workers - sports programs

Question

Will workers you engage for community sport and exercise programs be independent contractors?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You are a sole trader working in the sport and fitness industry and have obtained a contract to provide some community sport and exercise programs.

You plan to identity and engage suitably qualified workers to fulfill roles you cannot do yourself.

In consultation with the relevant community organisations, the suitably qualified workers will plan, prepare and deliver the sessions as they see fit and will provide their own equipment and insurance.

Although only obligated to work for one hour, they will be paid per session and therefore not any overtime if they work additional time. The rate of payment will be negotiated between you and the worker rather than a rate of payment set by an external body.

The workers will have the right to sub-contract or delegate their work to suitability qualified persons.

Relevant legislative provisions

Taxation Administration Act 1953 Section 12-35 of Schedule 1

Reasons for decision

Section 12-35 of Schedule 1 to 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.

Taxation Ruling TR 2005/16 provides guidance as to whether an individual is paid as an employee for the purposes of section 12-35 of Schedule 1 to the TAA 1953.

Paragraph 7 of TR 2005/16 explains 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. It explains no one indicator of itself is determinative of that relationship. The totality of the relationship between the parties must be considered.

The key indicators are:

1. The control test. For an employee, the payer has the right to direct the way in which the worker performs their work. For a contractor, the worker has freedom in the way the work is done subject to the specific terms in any contract or agreement.

2. The organisation or integration test, about whether the worker operates on their own account or whether the worker operates in the business of the payer. This includes:

(i) the nature of the services rendered by the worker;

(ii) whether they are an integral part of the business activities carried on by the payer;

(iii) whether the worker would be perceived (by a third party) to carry on their own business or enterprise and;

(iv) whether the worker could be expected to generate business goodwill in their own right.

3. The results test, about whether the worker is paid to achieve a contractually specified outcome. An independent contractor, such as a house builder, is paid a quoted price for a pre-determined or agreed result, which may include progress payments, and generally uses their own equipment to achieve that result. Whereas a worker paid on an hourly basis, by commission or on a price per item or activity basis is generally an employee (paragraph 39 of TR 2005/16).

4. The delegation test, about whether the work can be delegated or subcontracted (with or without the approval or consent of the principal). An employee cannot delegate or subcontract work. Where as an independent contractor can delegate or subcontract work.

5. The risk test. Unlike an independent contractor, an employee generally does not bear legal responsibility and expense for rectification and remedy in the case of unsatisfactory performance.

6. Tools, equipment and payment of business expenses test. Unlike an employee, an independent contractor will generally provide tools, equipment and payment of business expenses.

In your case, the control, organisation, delegation and tools and equipment tests provide a strong weighting towards a contractor relationship because the workers you engage must be suitably qualified, will plan and provide their specialised services as they see fit, can sub-contract and must provide any equipment for the programs they plan. The risk test is neutral. The results test weighs in favour of an employee relationship due to the mandatory one-hour work period (although the worker is not payed for any planning time, which may be a contractor feature).

In conclusion, a weighing up of the key indicators finds your workers will be independent contractors.