Edited version of your written advice

Authorisation Number: 1012921317833

Date of advice: 3 December 2015

Ruling

Subject: Is there an obligation to withhold from payments made under PAYG Withholding legislation

Question 1

Is income paid to X by you assessable income under Section 6-5 or section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Invalid

Question 2

Is there an obligation on you to withhold from payments made to X under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

No

This ruling applies for the following period

Year ending 30 June 20YY

The scheme commenced on

1 July 20XX

Relevant facts

You suffer from a medical condition.

As a result of the medical condition you are no longer capable of managing your affairs including your ordinary personal needs.

A person was appointed as your financial manager by a relevant authority.

A person was appointed your guardian by a relevant authority.

The financial manager and guardian have engaged carers to provide 24 hours a day and 7 days a week care for you. The carers are engaged through an agency and are paid on an hourly basis. The PAYG Withholding and related obligations are dealt with by the agency for the engaged carers.

For some time the financial manager and guardian have made a monthly allowance to X.

The amount paid by the financial manager and guardian comes from your funds. The amount is not excessive and is modest when compared with your assets and is comparable to the allowance that might be paid by you to a spouse or life partner. The amount paid is not determined by hours or periods of service. No instructions or directions are provided by either the financial manager or guardian to X. The support provided by X has no fixed term.

X attends to your personal needs. In particular X settles you for the evening and then, the following morning, prepares you for the day by attending to your washing, dressing and breakfast. X will usually take you on an outing each day for exercise and stimulation.

X has no separate source of income. The allowance paid is not determined by the time spent by X attending to you. X is not required to carry out any specific activities and any services X provides you are voluntary on X's own initiative.

X is not in the business of providing nursing or similar care nor is X rewarded for services provided. The services X provides are voluntary. The care and affection provided by X to you is derived from the affectionate relationship between you. The amount paid is to cover X's out-of-pocket costs and incidentals including housekeeping costs.

Assumptions

Nil

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Taxation Administration Act 1953 Subsection 12-35 of Schedule 1

Taxation Administration Act 1953 Subsection 359-5(1) of Schedule 1

Reasons for decision

Question 1

The Commissioner can only provide a private ruling in response to a valid application. Subsection 359-5(1) of Schedule 1 to the TAA states the Commissioner may, on application, make a written ruling on the way in which the Commissioner considers a relevant provision applies or would apply to you in relation to a specified scheme.

The question you have asked is: "Whether the amounts paid by the financial manager and guardian to X are assessable income pursuant to either section 6-5 or section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?" As a relevant provision does not apply (or would apply) to you the Commissioner will not provide a private ruling on this question as discussed during our telephone conversation.

That question could however be addressed if X applies for a private ruling.

Question 2

Under section 12-35 of Schedule 1 of the TAA an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that entity or another entity).

An 'entity' is defined under section 960-100 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean an individual, body corporate, body politic, partnership, any other unincorporated association or body of persons, a trust, a superannuation fund and an approved deposit fund.

Where section 12-35 of schedule 1 of the TAA refers to an employee, the reference is to an employee at common law.

There is no one factor that determines whether a person is an employee or an independent contractor. A number of factors must be considered.

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).

Such a relationship is typically contrasted with the independent contractor/principal relationship that, at law, is referred to as a contract for service. 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 his or her own account) while an employee works in the service of the employer that is in the employer's business.

Whether a payee is considered to be engaged as an employee or as an independent contractor for taxation purposes is a question of fact that is looked at on a case by case basis.

Factors in deciding the relationship

The first consideration must be the terms of the contract. At all times, the underlying consideration is whether the worker is working:

• in the service of another, as an employee, or

• on their own behalf, as an independent contractor.

Taxation Ruling TR 2005/16 provides guidance on the types of factors to be considered in each case. These features, which are discussed below, have traditionally been regarded by the courts as indicators to assist in determining the true nature of the contract.

The control test
The basic test for determining whether the relationship of master and servant exists is the exercise of control over the manner in which work is performed. With increasing usage of skilled labour and consequential reduction in supervisory functions, the focus of the control test has changed from the actual exercise of control to the right of control. Moreover, while control is important, it is not the sole indicator of whether or not a relationship is one of employment.

The 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 his or her discretion (subject to any terms implied by law). This is because the contractor is working for himself or herself.

Under a contract of service, on the other hand, the employer has an implied right within the limits imposed by industrial relations laws, to direct and control the work of an employee. This is because the employee is working in the employer's business and the owner of a business has the right (within the confines of applicable law) to manage that business as the owner sees fit.

The High Court stated that what matters is lawful authority to command, so far as there is scope for it.

The more control that is held over the person performing the work, the more likely it is that the person will be an employee.

Results test

In a contract for services, the contract specifies the services to be performed in return for an agreed payment. Satisfactory completion of the specified services is the 'result' for which the parties have bargained. Conversely, under a contract of service, payment is not necessarily (but may be) dependent on the completion of specified services.

Delegation test

The power to delegate was considered to be an important factor in deciding whether a person is an employee or an independent contractor. An unlimited power to delegate work is an important indication that the service provider is an independent contractor.

Conditions of engagement
Provision of paid leave entitlements, for example, sick leave, long service leave and superannuation are persuasive indicators of an employment relationship.

It should be noted that there is no standard set of indicators applicable to an employee and a different set applicable to an independent contractor. Most conditions of engagement when viewed individually are equivalent as indicators of the true character of the relationship.

Hours of work and mode of payment
An employee generally works standard or set hours. An independent contractor, on the other hand, generally sets their own hours of work.

Business risk and expenses
Where the worker bears little or no risk of the costs arising out of injury or defect in carrying out his or her work, he or she is more likely to be an employee. The higher the degree to which a worker is exposed to the risk of commercial loss (and the chance of commercial profit) the more he or she is likely to be regarded as being independent. Typically, a worker who derives piece rate payment and sustains large outgoings would be so exposed.

The higher the proportion of the gross income which the worker is required to expend in deriving that income, and the more substantial the assets which the worker brings to his or her tasks, the more likely it is that the contract is for services.

Place of performance
Workers under a contract of service will generally perform the tasks on the payer's premises using the payer's assets and equipment. A contractor, on the other hand, generally provides all their own assets and equipment.

Integration
The question of whether the work is integrated into the business is another factor to consider. The presence of other workers doing the same work for the principal would indicate that the worker is an integral part of the business.

In this case there does not appear to be any control exerted over X by you, your financial manager or your guardian. X is not paid to produce a given result. There is nothing in the information supplied which suggests that X would delegate what X does as X performs things for you because of a personal relationship you have. From the information provided there is no indication that provision of paid leave entitlements or superannuation entitlements are made on X's behalf. X does not work a standard set of hours. The place of performance is mostly your home but X does take you out of the home on an outing each day for exercise and stimulation.

Conclusion

It is clear from the facts that X is not an employee of yours therefore there is no obligation to withhold from payments made to X under PAYG withholding legislation.