Edited version of private advice

Authorisation Number: 1051722428090

Date of advice: 18 November 2020

Ruling

Subject: PAYG withholding

Question

Is Pay As You Go (PAYG) withholding required to be applied to payments made to specified classes of workers under section 12-45 of the Taxation Administration Act 1953 (TAA)?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The government department appoints a range of independent decision makers under an Australian law.

The decision makers carry out functions as provided for in Australian law.

The decision makers are appointed for periods set out under Australian law, providing permanency to the office, rather than on an ad hoc basis.

The decision makers are appointed in their individual capacity and not through a company, trust or partnership.

Relevant legislative provisions

Taxation Administration Act 1953 section 12-45

Reasons for decision

Paragraph 12-45(1)(b) of Schedule 1 to the TAA imposes a withholding obligation on the paying entity to withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as a person who holds, or performs the duties of, an appointment, office or position under the Constitution or an Australian law.

The heading to section 12-45 of Schedule 1 to the TAA provides that the section applies to payments to an "office holder". While the heading should be taken into account, it cannot impose an unnaturally constricted or expanded meaning when determining the application of the section.

On the words of the provision, withholding applies not only to office holders in a generic sense but to a person who holds or performs the duties of an appointment or position under an Australian law.

These terms, and the term 'office holder' are not defined in the legislation and therefore take on their ordinary meaning. The mode of appointment should not be regarded as a matter that by itself determines whether a person falls within section 12-45 of Schedule 1 to the TAA. The focus will be on if the duties being performed are provided for under an Australian law.

Paragraph 14 of Taxation Ruling 2002/21 Income tax: Pay As You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to office holders provides that an individual is considered to be appointed or engaged under an Act where you can identify:

•         the particular office, position or appointment; or

•         the constitution of the relevant body (such as the panel, board committee or tribunal to which the individual has been appointed).

Paragraph 15 of TR 2002/21 provides that the appointment, office or position must have the following characteristics:

•         Independent existence: The office must exist regardless of the individual who occupies the office from time to time - that is, if the individual vacates that office, the office must continue to exist to be filled by another individual;

•         Duties, functions, responsibilities or powers: The office must have identifiable duties, functions, responsibilities, or powers other than a mere advisory function. These features of the office (or of the panel board, committee or tribunal to which the individual has been appointed) would usually be specified in the legislation;

•         The relevant duties, functions, responsibilities or powers must attach to the office itself, rather than the individual who occupies the office.

TR 2002/21 specifically provides that a person is more likely to be an employee or an independent contractor rather that an office holder where:

•         the office holder's duties and responsibilities are set out in a contract with the payer;

•         the duties are independent duties deriving from a source other than the orders of the payer or a contract with the payer. For example, the duties, functions or powers will arise from statutory instruments, or the common law;

•         the office holders are able to exercise the authority to make decisions without reference to or the control of a superior. However, those decisions are limited to the extent of the duties, functions or powers attached to that office.

In your case, the decision maker falls within paragraph 12-45(1)(b) of Schedule 1 to the TAA and the ATO view in Taxation Ruling 2002/21 as:

•         the position is appointed under Australian law;

•         the duties and functions of the decision makes are provided for in Australian law; and

•         the decision makers are appointed for periods set out under Australian law.