Edited version of your written advice

Authorisation Number: 1013023029731

Date of advice: 1 June 2016

Ruling

Subject: PAYG Withholding

Question

Are the performers engaged by the entity considered to be employees for the purposes of section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commences on:

1 July 2015

Relevant facts and circumstances

The entity is an incorporated association that was established in the 1980s.

The entity provides a range of services to the wider community including:

• Cultural heritage

• Land management

• Cultural practices for events

• Education and training

• Language and naming

• Cultural consultancy

Cultural practices for events include various ceremonies, music and dance performances, gifts for exchange and commissioned art works.

The entity is requested to provide performers to perform dance and music performances at a variety of functions and events, such as sporting events, Council functions, schools and private group events to espouse their cultural heritage to the wider community.

It is the members of the community who perform at these events.

The entity itself takes on an administrative role for organising and booking the events on behalf of its members.

A function involving a traditional music and dance performance consists of traditional dance, chanting, and musical performances.

A performance typically involves between three and six members.

The duration of the dance is generally determined by the time allocated to the performance by the client who booked the event. On average, the duration of the dance is typically between 10 to 20 minutes.

The performers have the discretion to modify and adapt each performance based upon the time allocated by the third party client that booked the performance.

The entity receives a single flat fee for the dancers attending and performing at a function, which includes all travel costs.

The entity retains a commission and then they pay the balance to the group of performers.

The head member of the group reports to the entity the names of the performers who performed at a particular event, and the entity then pays these performers individually.

The rates for this vary in accordance with the head members instructions.

The payment of the performance is fixed, irrespective of how many performers. For example, a performance involving three performers is paid the same as a performance involving six performers.

The number of performances that they perform each week is irregular. The performers could perform two to three times per week, or once every couple of weeks. It is contingent upon the level of demand by organisations to book the performers to perform at different functions.

Critical features of the engagement are as follows:

Control

• The entity organises the cultural events in an administrative capacity, booking the events on behalf of the performers.

• It is up to the third party client to determine what work is to be performed, such as a various relevant ceremonies, and/or a music or dance performance is to be undertaken.

• The performers themselves have the discretion as to the nature of the individual performance, such as the choreography and musical direction of the dance, including determining how many and which specific performers will perform in a particular routine.

• The duration of a specific performance is dictated by the third party client running the event and as such, the performers have the flexibility to modify their routine to fit within the time constraints imposed by the third party client.

Organisation or Integration

• The entity has the exclusive rights to the services of the family groups.

• The entity does not restrict the performers from performing for particular clients within the relevant boundaries.

• The aim of the performer is to share and acknowledge their cultural heritage.

• The performers operate on their own account and not in the business of the entity.

Results

• The performers are contracted to produce a result, being the completion of a traditional music and dance routine.

• Each engagement has a clear endpoint milestone, being the completion of the performance at a client's function.

• The performers are paid a fixed amount per performance, as opposed to being paid on an hourly rate , with an amount being retained by the entity as a commission.

• The performing group are paid the same amount in total regardless of the number of performers performing the routine.

• For example, if the entity receive an amount for a performance, the entity will retain a commission, and then would pay the balance to the head member of the performance group. The head member of the group then distributes the amount equally to each of the performers who performed in the routine.

Delegation

• The entity have no say in deciding which individuals will perform in a particular performance, nor do they determine how many individuals will perform.

• This discretion lies within the individual group for determining who will perform.

Provision of tools and equipment

• The performers provide their own equipment for the performance.

• Any audio equipment required is supplied by the venue at which the performance is performed.

Relevant legislative provisions

Taxation Administration Act 1953 Section 12-35 of Schedule 1

Reasons for decision

Section 12-35 of Schedule 1 to the TAA provides that you must withhold an amount from a payment of salary, wages, commission, bonuses or allowances you pay to an individual as an employee.

A determination of whether an individual under a specific arrangement is an employee must be made by a consideration of the total factual circumstances in light of all of the indicators determining the status of that individual. It is the totality of the relationship that needs to be considered.

Taxation Ruling TR 2005/16 considers the various indicators the courts have considered in establishing whether a person engaged by another individual or entity is an employee within the common law meaning of the term.

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 is paid to achieve the contractually specified outcome.

• The delegation test: Whether the work can be delegated or subcontracted (with or without the approval or consent of the principal).

• The risk test: Whether the worker bears the legal responsibility and expense for the rectification or remedy in the case of unsatisfactory performance.

• Which party provides tools, equipment and payment of business expenses?

Control

The test for determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. A common law employee is told not only what work is to be done, but how and where it is to be done. The importance of control lays not so much in its actual exercise as in the right of the employer to exercise it.

A high degree of discretion or latitude in the manner in which a task is performed does not, of itself, indicate a contract for services.

Further, although it is not uncommon for a contract to specify how the contracted services are to be performed, this does not necessarily imply an employment relationship. A high degree of direction and control is not uncommon in contracts of service. In contractual arrangements any control or direction must be expressed in terms of the contract only, so that outside the contractor is free to exercise their own discretion, because they work for themselves.

The entity directs where a performance is to be held. However, this is at the premises required by the client and is considered neutral.

The clients request the length and style of performance from the entity. Within these requirements the performers have autonomy in how they do their performances. Similarly, taking into consideration the needs of the client, the performers decide how they dress and what items they use in any performance. The control over the theme of the event lies with the client, but the performers exercise their own control in the delivery of the entertainment.

The performers have the right to refuse work and there is not a strict binding agreement between the entity and the performers. These facts support the notion that the performers had control over the work they performed.

Organisation or integration

In an employment relationship, tasks are performed at the request of the employer and the employee is said to be working in the business of the employer. An independent contractor carries on a trade or business of their own. An independent contractor enters into a contract to perform specific tasks and has a high level of discretion and flexibility about how the work is to be performed, even if the contract contains precise terms about methods of performance.

An employee works in the business of the employer and the work performed may be said to be integral to that business. An independent contractor works for the payers business but the work is not integrated into the business rather is an accessory to it.

In this case, the performers receive income from working in another job on a full time or part time basis separate to the entity and the performing is done merely for the pleasure and cultural significance of it.

Performing is restricted to native family members of the group. The group are the native land owners and therefore have an exclusive right to perform dances and ceremonies within the boundaries of their land.

The performers are not integrated in to the entity and are therefore an accessory to the business.

Results

Where the substance of a contract is for the production of a given result, there is a strong indication that the contract is one for services.

'The production of a given result' means the performance of a service by one party for another where the first-mentioned party is free to employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome. Satisfactory completion of the specified services is the 'result' for which the parties have bargained.

The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to hours worked. If remuneration is payable when, and only when, the contractual conditions have been fulfilled, the remuneration is usually made for producing a given result.

The performers are engaged to produce a result, being the completion of a traditional music and dance routine. There is a clear finish to each activity for which they are engaged. The nature of the work does not continue indefinitely.

You pay the performers a fixed amount per performance that they undertake. It appears that the relationship is that of a contractor rather than an employee

Delegation

The power to delegate or subcontract is a significant factor in deciding whether a worker is an employee or independent contractor. If a person is contractually required to personally perform the work, this is an indication that the person is an employee.

Whereas if an individual has unfettered power to delegate the work to others (with or without approval or consent of the principal), this is a strong indication that the person is engaged as an independent contractor. The contractor is free to arrange for their employees to perform all or some of the work or may subcontract all or some of the work to another service provider. In these circumstances, the contractor is the party responsible for remunerating the replacement worker.

A common law employee may frequently 'delegate' tasks to other employees, particularly where the employee is performing a supervisory or managerial role. However, this 'delegation' exercised by an employee is fundamentally different to the delegation exercised by a contractor outlined above. When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker, rather the workers have merely organised a substitution or shared the work load. This is not delegation consistent with that exercised by a contractor.

In this case the entity has no say in deciding which individuals will perform in a particular performance. The discretion lies with the group to determine the make-up of the performance and who performs. This indicates that this is not an employer employee relationship.

Risk

An employee bears little or no risk of the costs arising out of injury or defect in carrying out their work. An independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor is usually expected to take out their own insurance and indemnity policies.

Whether the worker is contractually obliged to accept liability for the cost, in terms of time or money, for the rectification of faulty or defective work is a relevant consideration in determining if that worker should be regarded as an employee or independent contractor.

Commonly, an independent contractor or entity would solely bear the risk and responsibility of liability for their work if it does not meet an agreed standard and would be required to either rectify this defective work in their own time or at their own expense.

An employee on the other hand, would bear no such responsibility and the liability for any defective work of the employee, either to a third party or otherwise, would fall to the employer in terms of the burden of cost or time for rectification.

The performers use their own equipment and their performances are not supervised by the entity. The performers structure their own performances, within the specifications required by the clients, and they take risks with their own equipment.

These facts all indicate that the performers bear the majority of risks associated with the work they perform. As the workers bear the responsibility, it is likely that the nature of the relationship is that of an independent contractor.

Provision of tools and equipment and payment of business expenses

The provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor.

However, the provision of necessary tools and equipment is not necessarily inconsistent with an employment relationship. The provision and maintenance of tools and equipment and payment of business expenses should be significant for the individual to be considered an independent contractor.

There are situations where very little or no tools of trade or plant and equipment are necessary to perform the work. This fact by itself will not lead to the conclusion that the individual engaged is as an employee. The weight or emphasis given to this indicator (as with all the other indicators) depends on the particular circumstances and the context and nature of the contractual work.

Further, an employee, unlike an independent contractor, is often reimbursed (or receives an allowance) for expenses incurred in the course of employment; including for the use of their own assets such as a car.

In this case, the performers provide their own equipment for the performance. Any audio equipment is provided by the client engaging the dancers. This is indicative of a contractor relationship.

Conclusion

After assessing the facts against the indicators in TR 2005/16, it is considered that the workers are contractors, and there is no obligation on the entity to withhold from payments made to the workers

Additional Information

In your application, you also requested information as to whether the performers are conducting an enterprise.

We are unable to provide a private ruling to the entity as the ruling application is from the business, but it is the performers that are the suppliers of the services to the entity. The entity does not have the authority from the performers in relation to this ruling application. The performers would have to apply for the ruling either directly or by giving authority for a representative to do so.