Edited version of private advice

Authorisation Number: 1052160757646

Date of advice: 29 September 2023

Ruling

Subject: Fringe benefits tax

Question 1

Does Y need to withhold from payments made to the Workers?

Answer

No.

Question 2

Does Y provide any fringe benefits to the Workers?

Answer

No.

This advice applies for the following periods:

1 July 2020 to 30 June 2024

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.     The Z Program (the Program) is administered by Y. The program commenced in the 2000s.

2.     The Program links the Workers with people in Y's relevant facilities.

Induction handbook

3.     The Induction Handbook is provided to every Worker who participates in the Z program. It sets out the Worker's role and responsibility, the protocol to be observed whilst in the relevant facilities and the administration of the program including fees and reimbursements. Relevantly, the induction handbook provides:

a. How appointments are made.

b. Resignations: if a Worker wishes to resign they can do so at any time, though it is encouraged that a suitable replacement be nominated prior to ceasing participation in the Program.

c. Obligations: the Workers will be subject to Y's Code of Conduct whilst conducting the program business within a relevant facility.

d. Details of the role and function.

e. Frequency of tasks: the Workers are required to work in the facility a minimum of X times per year to carry out the functions listed above. The Workers may also be requested at interval times to assist with other related business.

f. Duration of tasks: The duration of the task is facilitated over a several-day period with an additional day either side allowing for travel from residential location to relevant facility location and the return travel from relevant facility location to residential location. Other task duration will differ depending on the circumstances.

g. Protocol to be observed: The handbook sets out the protocol that the Workers will follow when attending a relevant facility.

h. Safety and security: The handbook provides that the Workers are subject to the same safety and security requirements as everyone else who enters the facility.

i. Inquiries and complaints: The handbook sets out the following protocol the Workers are to follow when receiving and responding to inquiries and complaints:

•         When dealing with inquires and complaints Workers should:

­   Clarify details of the inquiry or complaint.

­   Ascertain what action previously has been taken or information provided in response to the inquiry or complaint.

­   Deal with an inquiry or compliant by bringing it to the attention of the appropriate senior staff of Y

­   Record details of inquiries or complaints.

j. Privacy and confidentiality:

­   Any information gained by a Worker during the course of their duties should be treated with respect and confidentiality to protect the privacy and safety of others and for the running of the operations of Y.

­   Any matter raised with a Worker is confidential. A Worker does not have to disclose the content of any inquiry or complaint discussed with them to anyone else other than if they wish to do so to resolve an issue.

­   ...

­   However, a Worker should be aware that if any information is disclosed to them that would affect the safety or well-being of people in the facility, or the security of the facility then the Worker has a "duty of care" to disclose that information to the appropriate authority.

k. The fees: the Workers will be paid a fee of $XXX per task in the relevant facility along with travel allowance for the period spent away from their residential address.

l. Motor vehicle allowance: the Workers who use their own motor vehicle for transport to and from their residence to their relevant facility are entitled to be paid a motor vehicle allowance. The rate and conditions of the allowance are the same as that paid to Y's employees and is in accordance with their standard 'Terms and Conditions'. An accurate record of dates and distances travelled must be kept for claims. The vehicle needs to be comprehensively insured. The allowance is: Employee: $0.XX per km.

All costs associated with accommodation and travel transport whilst travelling for the Program's business is covered by the Program.

4.     The final page of the Induction Handbook is an acknowledgement of receipt for the Workers. Here, a Worker signs their name in an acknowledgment that they have received a copy of it and will make themselves aware of their obligations under the Code. They also agree to discuss with their manager/ senior officer if they are unclear at any time of the requirements of the Code or consider that they may be at risk of breaching the Code.

Additional information on the Program

5.     Y has confirmed that the Workers are paid $XXX per day they are on a task rather than $XXX per task.

6.     Accommodation is booked and paid directly to accommodation providers through the allocated Program budget; accommodation payments are not made to the Workers.

7.     Y confirmed that the Workers do not have any responsibilities as part of the Program that they are not remunerated for.

8.     Y confirmed that the Workers do not submit timesheets or provide a tax invoice in order to receive payment for their tasks. "Tasks are scheduled in advance and payment is made following completion on the day of the task by using Y's System to process the travel, accommodation, travel allowance and consultant fee ($XXX per day of task). Should a Worker be unable to attend a scheduled task "the monies are returned to Y".

9.     If a Worker attend a meeting that is related to the Program's business outside of a task in the relevant facility they are also paid the flat rate of $XXX.

10.  The Worker no longer signs the last page of the handbook but instead sign a Program code of conduct, which refers to 'the Code of Conduct', notwithstanding that 'the Code of Conduct' is only binding on Y's employees.

11.  Under 'the Code of Conduct', the Workers agree to comply with the following obligations:

•        discharge their responsibilities with due care and diligence;

•        act openly, honestly and in good faith in the interest of the Program;

•        not use their position to benefit themselves or any other person, or to cause detriment to the Program or any person;

•        maintain confidentiality of information;

•        disclose any personal, professional, financial or commercial interest where a conflict of interest arises;

•        disclose any self-harm information that may cause harm to a person or other people;

•        not take prohibited items to the facility and

•        attend all meetings scheduled as part of the Program, or advise the Manager if unable to attend.

12.  The Code of Conduct also states:

The Workers must recognise their responsibility for maintaining a reputation of integrity and propriety in all respects and agree to adhere to this Code of Conduct and the Y's Code of Conduct

GENERAL PRINCIPLES

The Workers shall observe the highest possible standards of ethical conduct so as to support the continuance of the Program and observe the highest standards of behaviour and accountability.

The Workers will avoid any action, or inaction, which could in any way impair Y's capacity to carry out its functions, or compromise it's standing. The Workers must foster a reputation for integrity, fairness, honesty and independence.

Relevant legislative provisions

Taxation Administration Act 1953, section 12-35 of Schedule 1

Fringe Benefits Tax Assessment Act 1986, section 136

Reasons for decision

Question 1

Does Y need to withhold from payments made to the Workers?

Summary

Y does not need to withhold from payments made to the Workers, as the Workers are not employees of Y under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

Detailed reasoning

Intention to create a legal relationship

13.  The employment relationship with which the common law is concerned must be a legal relationship.[1] The relationship between an employee and an employer is a contractual one, often referred to as a contract of service.

14.  The mutual intention to create legal relations is an essential requirement in the formation of a contract.[2] To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement.[3]

15.  The search for the "intention to create contractual relations" requires an objective assessment of the state of affairs between the parties.[4] Although the word "intention" is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.[5]

16.  The majority judgement of the High Court in Ermogenous cautioned against the use of "presumptions" in the context of intention to create legal relations.[6] In the history of this case, references were made to "the usual non-contractual status of a priest or minister" and factors which "generally militate against" a finding of intention to create legal relations, which in practice can make it difficult to find that there was a contract of employment in this case, "distorting the proper application of basic principles of the law of contract".[7]

17.  The majority found that the Industrial Magistrate had not made an error in this case and had examined all of the objective circumstances which bore on whether the parties intended to make a contract, as distinct from an arrangement binding only in honour.[8]

18.  Whilst there is no legal definition of 'volunteer' for tax purposes, a volunteer does not work under a contractual obligation for remuneration and would not be an employee or independent contractor. Volunteers can be paid in cash and/or be given non-cash benefits. These payments can be given various descriptions, including 'honorariums' or 'gratuities'. An 'honorarium' is either an honorary reward for voluntary services, or a fee for professional services voluntarily performed. A 'gratuity' is not defined in the Income Tax Assessment Acts and thus takes its ordinary meaning.

Application

19.  We cannot presume that the Workers are not employees of the Y but instead must look at the documents underlying their relationship.

20.  In this case, the Workers are provided with a copy of the Handbook and sign the Code of Conduct. These two documents set out the obligations and expectations between the Workers and Y.

21.  The Handbook prescribes the role of a Worker and their responsibilities in Y which includes how a Worker will be appointed, how they resign and their obligations when attending a relevant facility. The language used in the Handbook goes beyond a volunteer relationship as there are expectations placed on the Workers in terms of the frequency and duration of visits to relevant facilities.

22.  Further, the Handbook provides that the Workers will be paid $XXX per visit, however this term was varied by conduct and the Workers are paid $XXX per day. The language of the Handbook makes it clear that the Workers "will be paid" and "all costs associated with accommodation and travel transport whilst travelling for Program business is covered by the Program". Further, the rate and conditions of the travel allowance provided to the Worker is the same as that paid to Y's Employees. The nature of the language used around the program fees, indicates that there is an obligation on the Y to remunerate the Workers in accordance with the terms prescribed in the Handbook. This in turn, creates an expectation of payment on behalf of the Workers. We consider that the Workers would be able to rely on the Handbook if a pay dispute arose with Y.

23.  Lastly, the Workers are required to comply with the Code of Conduct which sets obligations on the Workers, including to perform their role with due diligence and skill and to attend all meetings scheduled as part of the Program or advise if they are unable to attend. The fact that the Workers sign this Code of Conduct in recognition of their obligations, indicates an intention to create a legal relationship between the parties.

24.  The Handbook and Code of Conduct set out the relationship between the Workers and Y. The language that is used in these documents, indicates an intention to create a legal relationship. The Workers agree to perform their role in exchange for remuneration from Y. There is an expectation that the Workers will be paid for each day they work as a worker for Y. These expectations and obligations set a Worker's role apart from a typical volunteer relationship where there is no expectation of payment. We find that the Workers are not volunteers of Y.

Employee or contractor

25.  Section 12-35 of Schedule 1 to the TAA provides 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)'.

26.  For section 12-35 of Schedule 1 to the TAA to apply, there must be a payment of salary, wages, commission, bonuses or allowances made by an entity (the entity does not need to be the employer) to an employee:

a.    as a consequence of their employment, and

b.    as an individual[9] in their capacity as an employee.

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

28.  The leading case outlining the principles governing the ordinary meaning of 'employee' is Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contacting Pty Ltd[10] (Personnel Contracting). The majority of the High Court in Personnel Contracting confirmed that whether a worker is an employee of a putative employer is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute that relationship.[11]

29.  At its core, the distinction between an employee and an independent contractor is that:

a.    an employee serves in the business of an employer, performing their work as a representative of that business

b.    an independent contractor provides services to a principal's business, but the contractor does so in furthering their own business enterprise; they carry out the work as principal of their own business, not a representative of another.[12]

30.  The various employment indicia established by the Court aid in answering this question. Common law indicia include the extent of integration of the worker into the business, the level of control exerted by the putative employer, whether the worker is able to delegate, whether the remuneration is for a specified result, whether the worker uses their own tools and equipment, whether either party generates goodwill and the level of risk borne by each party. Importantly though, the indicia are not to be applied as if they are a mechanical checklist.[13]

31.  Where the worker and the engaging entity have comprehensively committed the terms of their relationship to a written contract and the validity of that contract has not been challenged as a sham nor have the terms of the contract otherwise been varied, waived, discharged or the subject of an estoppel or any equitable, legal or statutory right or remedy, it is the legal rights and obligations in the contract alone that are relevant in determining whether the worker is an employee of an engaging entity.[14] However, evidence of how a contract was actually performed may be considered for other purposes consistent with general contract law principles, including to demonstrate that a subsequent agreement has been made varying, waiving, or discharging one or more of the terms of the original contract.[15]

Control

32.  An employer is usually able to control how, where and/or when its employee performs their work. The importance of control in this context lies not in its actual exercise, but rather in the contractual right of the employer to exercise such control.[16]

33.  Where the main operating activity of the business is the supply of labour or a service of some kind, often a critical element of the business is the need to retain control over that labour or the workers providing the service. This was emphasised by Kiefel CJ, Keane and Edelman JJ in Personnel Contracting:

"... the existence of a right of control by the putative employer over the activities of the putative employee serves to sensitise one to the subservient and dependent nature of the work of the employee, so as to assist in an assessment of whether a relationship is properly to be regarded as a contract of service rather than a contract for services."[17]

34.  A term in a contract that purports to confer a right to control must be interpreted in the context of the broader contract and the services being provided. A contract may afford an employer a different kind of control, such as control over how long a casual worker can work, or the clause may allow 'reasonable direction' as distinguished from a true right to control a worker.[18]

Application

35.  Under the Code of Conduct the Workers agree to discharge all of their responsibilities with due care and diligence.

36.  The Handbook states that the Workers are required to be in the relevant facility a minimum of X times per year,[19] however information provided by Y indicates that this term was varied and this is not a true requirement on the Workers.[20] Y advised that there are many variables as to why a worker may not be able to attend for a minimum of X times per year.

37.  Y has also advised that a schedule of tasks is drafted each calendar year, which is provided to stakeholders, including the Workers, for feedback and review.[21] However, these dates may change due to circumstances outside their control including bad weather, operational matters from XX.[22]

38.  No clause within the Handbook truly affords Y control over how the Workers discharge their responsibilities. However, Y does determine where the Workers are performing their work.

39.  Given the lack of control Y purports to have over the Workers' role in terms of how the work is to be performed and when it is to be performed, we consider that this leans towards a finding that the Workers are independent contractors rather than employees of Y.

'Results' contracts

40.  Where the substance of a contract is to achieve a specified result, there is a strong (but not conclusive) indication that the contract is one for services.[23] The reference to a 'result' in this context is the performance of a service by one party for another where the first-mentioned party is free to employ their own means to achieve the contractually specified outcome. Satisfactory completion of the specified services is the 'result' for which the parties have bargained.

41.  The way in which a worker is remunerated for their services, and the process through which the parties determine this remuneration, can help to identify whether a worker is being engaged to serve in an engaging entity's business or has merely contracted with that business to produce a specified result.

42.  Consideration for a specified result is often a fixed sum paid on completion of the particular job[24] as opposed to an amount paid by reference to hours worked, activities performed or a commission.

43.  In contracts to produce a result, payment is often a negotiated price for the specified outcome. For example, in Stevens, payment was determined by reference to the volume of timber delivered[25] and in Queensland Stations Pty Ltd v Federal Commissioner of Taxation[26] it was a fixed sum per head of cattle delivered. A payment is more likely to be for a result if it bears little to no reference to the time spent working to produce the outcome

Application

44.  The Workers are paid a flat rate of $XXX per day while working with the Program. In addition, their travel and accommodation are covered by the Program. Workers can use their own motor vehicle for transport to and from their residence to their assigned facility and are entitled to be paid a motor vehicle allowance. The Workers will be required to keep an accurate record of dates and distances travelled for claims and the vehicle must be comprehensively insured.

45.  We consider that as the Workers are paid a flat rate per day plus for attendance at any meetings that leans towards a finding that the Workers are being paid for their labour. This is because they are providing their time at a set daily rate in order to perform their role at the Program. However, they are also being reimbursed for the use of their motor vehicle. We do not consider this factor points either way to an employee or subcontractor relationship.[27]

Ability to delegate or sub-contract work to others

46.  An unlimited, unfettered power to delegate or subcontract to others to perform the work is usually an indication that the worker is not an employee.[28] That is so even if the contractor actually does perform the work personally and had no intention of doing otherwise. In contrast, where a person is contractually required to personally perform the work, this points to the person being an employee. Personal service is generally seen as a critical feature of an employment relationship, whereas a contractor having the ability to utilise their own workforce is consistent with carrying out their own business.

47.  Some contracts may provide a "limited or occasional" power of delegation where the scope and operation of the power is narrow and the worker cannot exercise it unilaterally, for example because the engaging business needs to provide consent before a subcontractor is engaged. This factor is not necessarily inconsistent with an employment relationship[29], as the engaging business effectively has full control over who provides the services.

Application

48.  The Handbook and subsequent emails provided by Y are silent on whether a Worker can specifically delegate. We therefore find that a Worker does not have a right to delegate their responsibilities in the Program. We consider that this factor is not determinative either way and does not point towards a finding of an employee or an independent contractor.

Tools and equipment

49.  A worker who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required for their work and be reimbursed for business expenses by the employer. This includes being given a reimbursement or allowance for the use of the worker's own assets such as a car.

50.  In comparison, independent contractors carrying on their own business often provide and pay for their own assets, tools, equipment, maintenance costs and other expenses.[30] Usually, they will have factored these costs in their overall fee or will seek separate payment for such expenses from the principal.

51.  However, there are situations where, having regard to the custom and practice of the work, or the practical circumstances and nature of the work, very little or no tools of trade or plant and equipment are necessary to perform the work.

Application

52.  In this case, the Workers are reimbursed for their car expenses they incur. The rate of reimbursement they receive is the same as is paid to Y's employees.

53.  Further, any accommodation a Worker requires is booked directly through Y, meaning a Worker does not incur any expenses when performing their role.

54.  We accept that the nature of the Worker role does not require them to use any tools and equipment, beyond a car to be able to travel to the relevant facility. The fact that they are reimbursed for this travel leans towards a finding that they are employees as they are treated the same way as other employees of Y.

Conclusion as to employee under section 12-35 of Schedule 1 to the TAA

55.  We find that the contractual terms that establish the parties' relationship indicate that the Workers are independent contractors of Y. This is because, Y does not have any significant right to control how the Workers perform their role; there are no set days for work and the Workers are consulted on the task timetable; there are no consequences if they are unable to attend a task due to other commitments.

56.  Therefore, the Workers are not employees of Y and Y does not need to withhold under section 12-35 of Schedule 1 to the TAA from any payments made to the Workers.

Question 2

Does Y provide any fringe benefits to the Workers?

Summary

Y does not provide any fringe benefits to the Workers, as the Workers are not employees of Y.

Detailed reasoning

57.  A fringe benefit is a 'payment' to an employee, but in a different form to salary or wages.

58.  Section 136 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) defines an employee as

c.     A current employee

d.    A future employee

e.    A former employee

59.  An employee is a person who is, was, or will be entitled, to receive salary or wages, or benefits in lieu of salary and wages.[31] Salary or wages is defined to mean payments from which a PAYG amount must be withheld including under section12-35 of Schedule 1 to the TAA 1953.[32]

Application

60.  As discussed in Question 1 the Workers are not employees of Y.

Conclusion as to fringe benefits

61.  Y does not provide any fringe benefits to the Workers as they are not employees, pursuant to the definition provided in section 136 of the FBTAA.

[1] Personnel Contracting at [44].

[2] Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 at [457].

[3] Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at [24].

[4] Ibid at [25].

[5] Ibid.

[6] Ibid at [26].

[7] Ibid at [27].

[8] Ibid at [44].

[9] Section 12-35 does not apply to payments made to other entities provided that the arrangement is not a sham or a mere redirection of an employee's salary or wages.

[10] Personnel Contracting [2022] HCA 1.

[11] Personnel Contracting at [61] and [172-173].

[12] Marshall v Whittaker's Building Supply Co [1963] HCA 26 at [5], per Windeyer; Colonial Mutual Life Assurance Society Limited v Producers and Citizens Co-operative Assurance Company of Australia Limited [1931] HCA 53; (1931) 46 CLR 41 at [48].

[13] Personnel Contracting at [34].

[14] Personnel Contracting at [43], [59] and [173]; WorkPac Pty Ltd v Rossato [2021] HCA 23 at [56-57] and [63].

[15] Personnel Contracting at [55], [59], [173] and [185-189].

[16] Zuijs v Wirth Bros Pty Ltd [1955] HCA 73; 93 CLR 561 (Zuijs) at [571-573]; Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1; 160 CLR 16 (Stevens) at [9] and [15-20], per Mason J.

[17] Personnel Contracting at[73].

[18] ZG Operations at [69] and [105].

[19] The Handbook at p.X.

[20] Email from Y dated X X 202X.

[21] Ibid.

[22] Ibid.

[23] World Book (Australia) Pty Ltd v Commissioner of Taxation (1992) 92 ATC 4327 at [4334], per Shelley JA.

[24] Neale v Atlas Products (Vic) Pty Ltd [1955] HCA 18; 94 CLR 419 at [424-425].

[25] Stevens at [10].

[26] [1945] HCA 13; (1945) 70 CLR 539 at [542].

[27] JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76 at [45].

[28] Australian Mutual Provident Society v Chaplin and Anor (1978) 18 ALR 385 at [391]. See also Neale (DFC of T) v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 at[425].

[29] Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 at 515, cited with approval in On Call at [283].

[30] Stevens at [12].

[31] Section 136 of the FBTAA.

[32] Ibid.