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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012611991814

Ruling

Subject: Contractor v employee

Question

Should a worker be treated as an employee for the purposes of section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts and circumstances

You employed a worker as a casual and were paid under an enterprise bargaining agreement (EBA).

The worker asked to be paid as a contractor instead of an employee. The worker requested to be paid at the EBA rates plus on-costs to cover superannuation, insurance and other personal expenses. You accepted their terms.

Since that acceptance the worker has been paid through their company of which they are the sole director and shareholder.

Relevant legislative provisions

Taxation Administration Act 1953 section 12-35 of Schedule 1

Reasons for decision

The distinction between employment and contract is the difference between a contract of service indicating an employee/employer relationship and a contract for service indicating a contractor/principal relationship.

The relationship between an employer and an employee is a contractual one. It is often referred to as a contract of service (or, in the past, as a master/servant relationship).

The relationship between the independent contractor and the principal is referred to as a contract for services. An independent contractor typically contracts to achieve a result whereas an employee contracts to provide his or her labour (typically to enable the employer to achieve a result).

An independent contractor works in his or her own business (or on his or her own account); an employee works in the service of the employer, that is, in the employer's business.

Whether the true nature of an arrangement between a payer and payee is that of employer/employee or principal/independent contractor is a determination which must be made by reference to the various indicators developed by the Courts. These indicators have been collated in Taxation Ruling TR 2005/16.

TR 2005/16 provides key indicators that should be considered when determining whether an individual is an employee or independent contractor.

With consideration of all the facts presented and with reference to the indicators provided in Taxation Ruling TR 2005/16 it is considered that the worker meets the requirement to be considered a contractor and therefore you have no withholding obligations under section 12-35 of Schedule 1 to the TAA.