Edited version of private advice

Authorisation Number: 1052060818791

Date of advice: 28 November 2022

Ruling

Subject: PAYG withholding - payments to umpires

Question 1

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

Answer

No.

Question 2

Is there an obligation on the recreational organisation to withhold from payments made to official coaches 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

Officials provide their services to various leagues.

The annual completion of an online registration form is the only mandatory requirement to be able to officiate.

The season commences in early February and concludes around the middle of September each year. Officials undertake approximately 6 to 8 weeks of pre-season training and then train weekly throughout the regular season, formally consisting of 2 hours a week but are expected to do another 2 hours of training a week to improve their fitness.

Officials do not receive any direct form of payment to attend training but will receive a training allowance.

Individual official performance is evaluated on a regular basis by the Head Coach and other appointed observers.

Appointment of officials to specific matches is the responsibility of the Head Coach. The recreational organisation is responsible for the appointment and employment of the Head Coach. The Head Coach then appoints the other coaching staff and appoints the observer panel.

Officials are formally assessed on regular basis to monitor their competencies and suitability for specific grades of matches. They are provided with formal feedback (both written and verbal) and as such constantly undertake coaching for their continual improvement in performance. Officials are required to be currently accredited or actively undertaking accreditation, at all times to ensure a minimum level of competency while officiating.

Official appointments are made on the basis of merit, such that the best available officials are appointed to the most vital games. If an official advises, at short notice, that they are unavailable, the Head Coaches liaises with the relevant coach if applicable, with a view to find a suitable replacement.

Clubs registered within each league pay affiliation fees to the recreational organisation, of which part is attributable to the provision of officials for their matches.

Officials are paid a match fee for each match they officiate. The amounts paid vary from league to league and dependent on what grade is officiated and the type of official.

An official is appointed to a match generally on the Tuesday of the week of the game. The official formally accepts the appointment electronically. They arrive at the game where the match is played a minimum of one hour prior to the game starting. The official officiates the game as required (usually around 2 hours), and at the conclusion of the match the official completes the required paperwork online (e.g. players votes for best on ground, incident referrals). The time required to complete the online "paperwork" component before and after each game is around 20 to 30 minutes.

An official is permitted a travel allowance of $X if they are appointed to officiate a match that is more than X kilometres from their normal place of residence.

An official is eligible for a training allowance which is calculated as X% of their Match Payments for the calendar month, provided they attend X% or more of training sessions during the calendar month.

An official is permitted a Tribunal allowance of $X when they are required to attend any of:

•         Hearing of the recreational organisation tribunal;

•         Hearing of the recreation organisation appeals board;

•         Mediation or conciliation conference in connection with the recreation organisation racial vilification code.

Officials are paid directly by the recreation organisation on or around the 15th of the month following the match officiated.

The maximum an official would receive for a standard rostered match is currently not greater than $X. Current match fees are such that officials are unlikely to receive more than $X in a season.

During the 20XX football season, officials were paid between $X and $ depending on their position.

Match payments are not intended to, nor do they usually cover expenses. The purpose of payments is to encourage members of the community to participate in local sporting activities by subsidising their participation.

Officials are required to incur expenditure on their shoes, whistles, wrist bands, training gear and other related officiating equipment. The recreation organisation supplies one uniform (top, short and socks) free of charge.

Officials also volunteer to officiate some high school and junior/senior representative carnivals whereby they receive no payment.

Each league normally has one or two official coaches. They are experienced former officials who educate the current officials in their various roles.

Except in rare circumstances, they do not officiate any matches, their primary roles involves teaching and educating current officials.

The organisation recreation provides an honorarium to each of the type of official coach (field, boundary and goal) of up to $X per year designed to reimburse them for some, but not all expenses incurred during the year. The payment is usually shared if there is more than one person in the official coach role.

A match day coach receives a gratuity of $X per game from the organisation recreation. These are experienced former officials who review and assess a general official's performance during and after the game. Their review is in the form of verbal and written feedback.

They attend and review up to X games per year. They do not officiate matches.

They incur travel and miscellaneous expenses. The gratuity is designed to reimburse them for some but not all expenses they incur during the year.

Relevant legislative provisions

Taxation Administration Act 1953 Section 12-35 of Schedule 1

Reasons for decision

Question 1

Summary

The recreational organisation is not required to withhold pay as you go (PAYG) withholding amounts from payments made to officials under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

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 (whether of that or another entity).

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 of Schedule 1 to the TAA.

The term 'employee' is not defined in the TAA. For the purposes of withholding under section 12-35 the word 'employee' has its ordinary meaning.

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.

TR 2005/16 also 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 sub-contracted (with or without the approval or consent of the principal).

•         The risk test: whether the worker bears the legal responsibility and expense of 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, otherwise the contractor is free to exercise their own discretion, because they work for themselves.

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.

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.

Delegation

The power to delegate or sub-contract 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 sub-contract 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.

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.

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 recreation organisation uses officials to officiate in games. The officials are only told the time and venue of the game they are required to officiate in. They are not told how to officiate the game. Officials are paid for a given result, i.e. the satisfactory officiating of a game. The official is chosen to officiate in a game because they have the requisite skills so it is assumed that the official cannot sub-contract their officiating role in any game.

After considering the facts against the above factors it is considered that officials are not employees of the recreation organisation, therefore there is no obligation to withhold from payments made to them under section 12-35 of Sch 1 to the TAA.

Question 2

Summary

The recreational organisation is not required to withhold PAYG withholding amounts from payments made to official coaches under section 12-35 of Schedule 1 to the TAA.

Detailed Reasoning

In this case, the recreational organisation uses official coaches to assist in the development of current officials. These coaches are told the time and venue of the training. They are not told how to provide that training. Official coaches are paid for a given result i.e. the satisfactory development of current officials. The official coach is chosen because they have the requisite skills. It is assumed that they cannot sub-contract their coaching role.

After considering the facts against the indicators listed above, it is considered that official coaches are not employees of the recreational organisation.

As official coaches are not employees of the recreational organisation, amounts paid to them are not paid as a consequence of employment. Therefore, there is no obligation to withhold from payments made to them under section 12-35 of Schedule 1 to the TAA.