Edited version of private advice

Authorisation Number: 1051963806852

Date of advice: 11 November 2022

Ruling

Subject: PAYG withholding

Question

Does the Entity have an obligation to withhold pay as you go (PAYG) amounts from the fee paid to the Performer under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

This Entity is a talent agency which represents Performers ('the Performer') featuring in productions, endorsement and promotional and advertising material of advertising, production and events companies, and retailers, publishers and broadcasters ('the End User').

The Entity and the Performer enter into a written Managerial Agreement for an initial period of X years.

The relationship between this Entity and the Performer is not an employer/employee relationship. Rather, the Entity is hired by the Performer to be an independent contractor who acts as an intermediary between the Performer and the End User.

The Performer and the End User enter into a separate contract ('the Performance Agreement') for the performance of services. Pursuant to the Performance Agreement, the End User pays the Performer a fee for the Performer's services.

Under the terms of the Managerial Agreement, the Performer is required to instruct the End User to remit the fee to a trust account managed by the Entity.

Assumptions

•                     The Performer is not a foreign resident for income tax purposes.

•                     The Performer is paid solely for work undertaken in Australia.

•                     The Performer and the Entity do not enter into a voluntary agreement to withhold PAYG.

•                     The Entity and the End User have not entered into arrangement which results in the Entity being paid a fee by the End User for the provision of a suitable Performer for the End User.

Relevant legislative provisions

Taxation Administration Act 1953 section 12-35 of Schedule 1

Reasons for decision

Summary

The Entity does not have an obligation to withhold PAYG amounts from the fee paid to the Performer under section 12-35 of Schedule 1 to the TAA, as there is no employer/employee relationship between the Entity and the Performer.

Detailed reasoning

Section 12-35 of Schedule 1 to the TAA states that:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Taxation Ruling 2005/16 Income tax: Pay As You Go - withholding from payments to employees (TR 2005/16) discusses the Commissioner's view on whether an individual is paid as an employee for the purposes of section 12-35 to the TAA. Paragraph 17 of TR 2005/16 provides that:

The relationship between an employer and employee is a contractual one. It is often referred to as a contract of service. Such a relationship is typically contrasted with the principal/independent contractor relationship that is referred to as a contract for services. An independent contractor typically contracts to achieve a result whereas an employee contracts to provide their labour (typically to enable the employer to achieve a result).

The term 'employee' is not defined in the TAA and for the purposes of withholding under section 12-35 of Schedule 1 to the TAA, the word 'employee' has its ordinary meaning.

As stated in paragraph 12 of TR 2005/16, a payment does not necessarily have to be between an employer and an employee for the payment to be covered by section 12-35 of Schedule 1 to the TAA. However, it is a requirement that the payment be made to the employee 'in their capacity as an employee', either of the payer or another entity.

Further, paragraph 12 of Taxation Ruling TR 2003/15 Income tax: Pay As You Go (PAYG) Withholding - Payments made by trustees under the Bankruptcy Act 1966 to former employees states:

Section 12-35 in Schedule 1 to the TAA 1953 only applies to payments made to individuals in their capacity as an employee. For section 12-35 to apply, the individual does not have to be an employee of the entity making the payment, nor does the employment relationship necessarily have to exist at the time of payment. The essential element is the character of the payment and not the identity or capacity of the entity making the payment.

Based on the terms of the Managerial Agreement between the Entity and the Performer, the legal form of the relationship between the Entity and the Performer is that of an independent contractor/principal (a contract for services). The Entity is hired as an independent contractor who acts as an intermediary between the Performer and the End User. The fee paid to the Performer is not made in the Performer's capacity as an employee of the Entity. As there is no employer/employee relationship between the Entity and the relevant parties, the Entity does not have any PAYG withholding obligations under section 12-35 of Schedule 1 to the TAA