Edited version of private advice

Authorisation Number: 1051570941760

Date of advice: 13 September 2019

Ruling

Subject: Withholding from payments to sporting team coaches

Question

Do we need to withhold an amount from the payments to our sporting team coaches under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

Yes, the Club must withhold an amount from the payments to sporting team coaches as salary, wages, commission, bonuses or allowances that it pays to the coaches as employees.

This ruling applies for the following period:

Financial Year ending 30 June 2020

Relevant facts and circumstances

You are a not-for profit community sporting club which provides the opportunity for your members to play a sport in the state league.

According to the Constitution provided by you and dated 2019, the objects of the Club are as follows:

·   to promote, encourage teach and improve the standards of the sport among adults and children;

·   to facilitate participation by children and adults in playing the sport socially and/or competitively;

·   to provide coaching and training programs to build and develop skills of members;

·   to foster and promote good relationships between all bodies engaged in the provision and promotion of the sport; and

·   to promote true sportsmanship among the players of the sport.

Your members play in a number of grades, including aged 6 to 11, aged 12 to 18 and for aged 18+. Last summer season, you tallied approximately 180 registered members across all playing groups.

As you are a relatively new club, you do not have older members who have the training and experience to coach the teams. As a result, you have invited experienced coaches who have come in to assist and are paid an hourly rate to direct training and to coach teams during matches. Your coaches assist with taking mid-week training, and also with coaching teams during state league fixtures.

It has come to your attention that your payments made by the Club may be considered as honorariums to your coaches rather than salary or wages. You are unsure whether you have treated the payments to your coaches correctly and seek to gain clarity on this issue; and therefore, you have requested that we rule on whether payments to your Club coaches, given the stated facts and circumstances, need to have amounts withheld under the Pay as You Go (PAYG) system. The state league currently pays honorariums to referees who assist with refereeing state league matches during the season. You believe the nature of the payments made by the state league to their referees may be similar to those made to your coaches and you are seeking clarity on this issue.

Your coaches are allocated teams that they are responsible for. If they are unable to coach due to unavailability, another coach will fill in for them. If a coach does not attend a game or training session, they do not receive any payment.

All of your coaches have "day jobs" are not professional full time coaches of the sport. The majority are in fact university or high school students. They are paid either $20 or $30 per hour spent coaching, depending on age and experience and are not paid travel time or travelling expenses. It is a requirement that all your coaches have a satisfactory Working With Children clearance, and also have completed an online certification with the national body for the sport. There is no cap on how much a coach could receive during a season. The more they coach, the more they would receive. The Club has settled on an hourly rate basis of compensating your coaches, and is not intending to change this approach, but the coaches are paid per task at an hourly rate - 1.5 hours for training sessions and 1 hour for games, no matter how long they run. So coaches are paid a fixed 1 hour for coaching a game in the state league competition regardless of the actual time the game takes to complete, but it is likely to take about an hour. Coaches need to pay any sporting ground entry themselves, and are not paid travelling time or a cents per km rate for travelling. The coaches are also rostered to take club training during the week and also on weekends as appropriate.

In the past few seasons, the Club has run a formal payroll. You have various levels of hourly coaching commitment, ranging from 1 or 2 hours per week during the 6 month season, through to up to 5 to 7 hours per week for the more active coaches.

In terms of the degree of control that your Club has over the coaches, the coaches need to coach their teams when the games are scheduled by the state league. How they coach is up to them, although the committee will get feedback from parents if the coach is not doing a good job. The coaches operate at the pleasure of your association's Committee and are not carrying on a trade or business of their own.

There is no specified result to achieve, other than to coach the team to a reasonable standard, aligned with the values of the Club, and in line with the programme outlined by the Head Coach.

Your Club has workers compensation insurance in place for the coaches which is a statutory requirement under state law and your Club covers this cost. The Club also has insurance coverage for public liability under the sporting grounds' Public Liability Insurance and playing members have insurance coverage as part of their membership fees under the national body's insurance policy for registered Club members.

The coaches are provided with a Club long-sleeved polo with "Coach" written on the back which they are required to wear while coaching. They are also provided whistles (for training sessions) and the Club is looking to provide the coaches with small hand-held whiteboards they can use during games to provide guidance and explain game strategy during scheduled breaks in play at quarter time, half time, three quarter time and during any timeouts.

The Club has the right to suspend or dismiss a coach if they breach the agreement in an egregious fashion, or breach any working with children laws.

There is no exclusivity of services. For example, one coach last year also did some specialised coaching at the state's Institute of Sport.

You do not pay for sick leave, Long Service Leave or provide any other benefits.

The coaches are generally found by word of mouth, there is no advertising, rather "someone knows someone" and one of the Club committee would approach them to discuss if they would be interested in coaching. From September 2019, your Club enters into agreements with its coaches and you have provided a copy.

At the start of the 2019 season, you held a coaches planning day from 9am until 3pm and you rolled out the new contract to existing coaches on this day. All the officers of the Club attended and detailed discussions of expectations, requirements, philosophy, club culture, standards of players, behaviour management, disciplinary issues, organisation of training, goals and procedures, among other things, were conducted.

Relevant legislative provisions

Section 12-35 of the Taxation Administration Act 1953 (TAA)

Reasons for decision

Question 1

Do we need to withhold an amount from the payments to our sporting team coaches under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Summary

Yes, you must withhold an amount from the payments to sporting team coaches as salary, wages, commission, bonuses or allowances that it pays to the coaches as employees.

Detailed reasoning

Section 12-35 of Schedule 1 to the TAA states an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee.

The term employee is not defined in the TAA. Therefore, for the purposes of withholding under section 12-35 employee has its ordinary meaning.

Taxation Ruling TR 2005/16 "Income Tax: Pay As You Go - withholding from payments to employees" provides guidance as to whether an individual is paid as an employee for the purposes of section 12-35.

As set out in TR 2005/16 at [7]:

"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 and evaluating those factors within the context of the relationship between the parties. No one indicator of itself is determinative of that relationship. The totality of the relationship between the parties must be considered."

TR 2005/16 then 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.

The factors and indicators to be taken into account when determining whether an individual is an employee are:

·   The terms and circumstances of the formation of the contract.

·   The control test: the degree of control which the payer can exercise over the payee.

·   The integration or organisation 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 makes payment of business expenses.

·   The right to suspend or dismiss the person engaged.

·   The right to the exclusive services of the person engaged.

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

·   Provision of a uniform, for example hat or shirt.

We have considered the above indicators within the context of the relationship between the sporting coaches and your Club and have concluded that the coaches are common law employees of your Club. This is based on weighing up the following factors on balance:

1.    Terms and circumstances of the formation of the contract

You have requested a ruling from 1 July 2019 to 30 June 2020 and during this period, there is a written agreement between your Club and each sporting coach. The agreement outlines the requirements and expectations for being a coach at the Club and serves as an acknowledgement and acceptance of the principles, requirements and expectations by the coach. The coaches are expected to abide by the Club's Code of Conduct. It is also expected that coaching will be delivered through structured and planned training programs which are developed in conjunction with and under the direction of the Club's Head Coach and aligned to the Club's principles. Attendance, setting up, packing up, preparing and securing and un-securing the sporting grounds are basic requirements for each coach for training sessions. For games, attendance from 15 minutes before a game is expected and the uniform provided should be worn at all official games. The agreement sets out a pay scale for different levels of coach. Coaches are paid an hourly rate but they are paid for a standard amount of time for each game and training session no matter how long it actually runs - 1 hour for a game and 1.5 hours for training. Records are to be kept and the Head Coach is responsible for providing coaching direction, mentoring and developing the Club's coaches, and working with coaches to help them develop coaching plans for the season. This is a very detailed document and the level of structure in the reporting and payment arrangements in particular indicates it is a contract of employment between the Club and the coaches.

2.    The degree of control which the payer can exercise over the payee.

Under the agreement, the Club not only tells the coaches to run and plan training sessions and attend games, but also to do that in accordance with stated principles and that the training program is to be developed in conjunction with and under the direction of the Head Coach. Accordingly, how they coach is up to the coach to an extent, but there is also a degree of control. Moreover, the detailed discussions of the planning day also indicate that the Club has a degree of control over how and where the coaching is to be done and the manner of performing the coaching. Additionally, the Club is able to dismiss a Coach. This indicates a comparatively high degree of control which the Club exercises of the sporting coaches.

3.    Whether the coach operates on their account or in the business of the Club

The coaches operate at the pleasure of the committee that runs the Club and they are not running their own coaching businesses in the sport. Even if a coach does engage in other services related to the sport, the coaches all have 'day' jobs and coach at the Club in their leisure time. That they are not running a coaching business of their own, while at the same time operating in a structured way pursuant to a written agreement with a defined pay scale and rate of pay, indicates that the coaches are employees.

4.    Whether the coach is free to employ their own means and is paid to achieve the contractually specified outcome

The contract is not to achieve a specified result. However, the pay structure is per task rather than per time period engaged, and this can be indicative of being paid to achieve results. Nonetheless, being paid per game and training session may be a natural means to remunerate employees whose sole purpose is to coach games and training sessions.

5.    Whether the work can be delegated or subcontracted

Games are rostered by the state league body, and coaches are expected under the agreement to attend. Training sessions are rostered by the Club, with coaches advising their availability, and coaches are expected under agreement to attend. For both games and training, Club coaches need to organise among themselves for another coach of the Club to attend if they cannot on a particular day, or give the Head Coach sufficient notice. Coaches are only paid for the game or training sessions they actually attend. Being rostered to attend and being expected to distribute work among other Club coaches indicate employment rather than delegation or subcontracting.

6.    Whether the worker bears the legal responsibility and expense for the rectification or remedy in the case of unsatisfactory performance

The Club has workers compensation insurance in place for the coaches which is a statutory requirement under state law and this cost is met by the Club. The Club also has insurance coverage for public liability under the sporting grounds' Public Liability Insurance. In addition, playing members have insurance coverage as part of their membership fees under the national body's insurance policy for registered club members. That the Club bears the expense of insurance against liability for their performance rather than the coaches personally indicates that they are employees.

7.    Which party provides tools, equipment and makes payment of business expenses

The coaches are provided with a Club long sleeved polo with "Coach" written on the back which they are required to wear while coaching. They are also provided whistles for training sessions. In future, the Club intends to provide the coaches with small hand-held whiteboards for use during games. Coaches need to pay for their own travel and sporting ground entry and these expenses are not reimbursed by the Club.

8.    The right to suspend or dismiss the person engaged

The Club can dismiss a coach for breach of the agreement in an egregious fashion or of any working with children laws.

9.    The right to the exclusive services of the person engaged

There is no exclusivity of services. For example, one former coach has also given specialised goal-keeping coaching at the state Institute of Sport.

10.  Provision of benefits such as annual, sick and long service leave or other benefits under an award

The Club does not pay for sick leave, Long Service Leave or provide any other benefits. The Club pays Superannuation Guarantee.

11.  Requirement to wear a uniform

The Club pays for coaches to be provided with a long sleeve polo short which they are required under the agreement to wear.

While some of the factors set out above indicate that the coaches may not be employees, these are outweighed on balance by the factors indicating that the coaches are employees. Therefore, we have concluded that the sporting coaches are employees of the Club.