Edited version of private advice

Authorisation Number: 1052302460746

Date of advice: 16 October 2024

Ruling

Subject: Superannuation - contract employee

Question 1

Are individuals who perform as a group accompanying the individual performer who is contracted by the Principal employees under the expanded definition of employee under subsection 12(8) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Answer 1

No.

Question 2

Are individuals who perform as a group accompanying an individual performer but are contracted and paid by the Principal employees under the expanded definition of employee under subsection 12(8) of the SGAA?

Answer 2

Yes.

This advice applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Your advice is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

The Principal will contract an individual performer directly (referred to as Performer A). Where necessary, Performer A then contracts additional performers to deliver the required service, such as accompanying Performer A during a performance.

The additional performers are usually members of the same musical band and working together but working under Performer A's sole-trader ABN as opposed to a non-individual ABN for the group or their own individual ABNs.

The Principal has stated they are aware of their obligation under subsection 12(8) SGAA 1992 to make super guarantee (SG) contributions for Performer A as they have directly engaged this individual.

The Principal currently also engages the individuals contracted by Performer A to meet their SG obligations.

The Principal has a standard contract they use when engaging performers. A copy of a standard contract known as 'Services Agreement (Procuring) (Individual)' (referred to as the Contract) was provided on 2 August 2024.

The following clauses in the Contract are relevant to this application:

2. (a) The Supplier (performer - added) must supply the services, and in doing so must (i) provide the Results and/or deliverables (as specified in the Details).

2. (c) The Supplier must not sub-contract the performance of any part of the Services without the prior written consent of (the Principal), which will not be unreasonably withheld.

3. (a) (The Principal) will pay the Supplier the Fees at the times specified in the details within 30 days of the end of the month in which (the Principal) receives a valid tax invoice for the corresponding payment from the Supplier.

3. (e) Unless otherwise agreed in writing by the parties, the Supplier will bear the risk of, and the Principal will not accept any liability for increased costs arising from currency fluctuations from time to time.

4.1 (a) (The Principal) may be required under this agreement to pay superannuation contributions to the Supplier's nominated fund.

4.1 (b) The Supplier must accurately complete and return to (the Principal) the declaration set out at Annexure 1 of the Agreement. (Paraphrased -) the Supplier acknowledges and agrees that UoM will rely on information provided by the Supplier in the declaration to determine if SG is payable.

Annexure 1 requires the Supplier to complete an SG conditions of payment and declaration form. The Supplier is required to indicate the categories of service they are providing or the nature of the performance. This document provides advice to the Supplier that the (Principal) may be required to pay SG under the extended definition of an employee and may require the Supplier to provide superfund account details.

An individual performer is required to invoice the Principal for provision of the service, after which they receive an electronic payment. Subject to the terms and conditions within the contract, if a scheduled performance did not proceed, the individual performer would not receive a payment.

The individual performer can sub-contract to other parties as they deem appropriate. If there is a variation to the service being provided or the cost to do so, a formal variation to the original contract is recorded.

Depending on the circumstances, an additional payment may be made to Performer A or the Principal will directly engage an additional performer who has been requested or recommended by Performer A.

Where the original contract has been varied, SG is paid only to Performer A on the value of the full contract value.

Where the Principal engages a second performer(s), SG is paid on the value of the individual contracts to these performers individually.

The Principal's current practice is when having engaged a formal group (with it's own non-individual ABN) or a number of individual performers who will perform together, each individual/group member is paid directly by the Principal. This allows the Principal to contract each performer individually and make separate individual SG payments.

The individual performers within the group would be required to provide their own equipment, materials and insurances.

Assumption

The performers are Australian residents for taxation purposes.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 - Section 12(8)

Further issues for you to consider

We have limited our advice to the question raised in your application. There may be related issues that you should consider, including:

The Commissioner of Taxation has published Draft Taxation Ruling TR 2023/4DC1 Income Tax and superannuation: who is an employee? (TR 2023/4DC1)which states at paragraphs 22- 24:

22. The totality of the relationship between a worker and an engaging entity comprises the legal rights and obligations they have in respect of each other - that is, the contractual relationship between the parties. To determine the nature of the contractual relationship between a worker and an engaging entity, it is the terms of the contract alone, whether express or implied, which are to be taken into account.

23. As such, the first step in determining whether an employment relationship exists is to identify the contract between the parties. Employment contracts may be:

•                     Wholly in writing

•                     Wholly oral, or

•                     Comprised of any combination of written terms, oral terms and terms implied from conduct.

24. The second step is to identify the terms of the contract, that is the legal rights and obligations agreed between the parties, whether written, verbal or a combination of the two.

If a person is an employee within the meaning of section 12, the employer will only have a superannuation guarantee charge liability if the employee has been paid 'salary or wages' within the meaning of the Act. Relevantly, subsection 11(1)(d) includes in the definition of 'salary or wages':

(d) payments to a person for work referred to in subsection 12(8).

Accordingly, a person may be an employee if they are 'paid to perform' or 'paid for services provided in connection with an activity', but only those relevant payments will form part of their 'salary or wages'. If the person receives additional payments for some other purpose from the employer, those payments may not form part of the person's 'salary or wages' and not attract any liability for the superannuation guarantee charge.

Only those individuals that can show that a contract (oral or written) was formed between the individual and the Principal will be eligible for SG payments from the Principal.

Reasons for decision

These reasons for decision accompany the Notice of advice.

Question 1

Are individuals who perform as a group accompanying the individual performer who is contracted by the Principal employees under the expanded definition of employee under subsection 12(8) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Answer 1

No

Question 2

Are individuals who perform as a group accompanying an individual performer but are contracted and paid by the Principal employees under the expanded definition of employee under subsection 12(8) of the SGAA?

Answer 2

Yes

Detailed reasoning

The Law

Subsection 12(8) of the SGAA extends the definitions of 'employee' and 'employer' as follows:

(a)           a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment;

(b)           a person who is paid to provide services in connection with an activity referred to in paragraph (a) is an employee of the person liable to make the payment;

(c)           a person who is paid to perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast is an employee of the person liable to make the payment.

Where a person is paid for participation in or provision of services in connection with certain activities described in subsection 12(8), the person will be treated as an employee of the payer under subsection 12(8) for the purposes of the SGAA.[1]

In determining the character of the relevant payment, reference must be made to the substance of the arrangement, and each case must be examined on all the facts and circumstances.

Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons provides the Commissioner's view as to how subsection 12(8) applies to sportspersons and persons providing services in connection with sporting activities. However, the general concepts in the SGR may assist in applying the law to artists, musicians or other performers who are also referred to in subsection 12(8).

Payments for participation or performance - paragraph 12(8)(a)

In order to fall within the scope of paragraph 12(8)(a), the person must receive a payment that is directly referable to the person's performance or participation in the performance of the activity, regardless of the result achieved from that participation.[2]

The person is also required to actively participate in the activity[3] and that performance or participation must involve the exercise of the person's physical or personal skills, irrespective of the level of success achieved.[4]

You have advised that the Principal contracts Performer A to perform. At times, to provide the services they have been contracted for, Performer A will sub-contract other performers to perform as a group alongside Performer A.

Payments for services provided in connection with an activity - paragraph 12(8)(b)

The words 'in connection with' under paragraph 12(8)(b) do not have a specific technical meaning and should take on their ordinary meaning having regard to the context in which they appear.[5] This term has been judicially considered in the context of income tax legislation. Wilcox J in Our Town FM Pty Ltd v Australian Broadcasting Tribunal[6] provides a useful summary, in particular referencing Re Nanaimo Community Hotel Ltd where the trial judge said:[7]

One of the very generally accepted meanings of 'connection' is 'relation between things one of which is bound up with or involved in another'; or, again 'having to do with'. The words include matters occurring prior to as well as subsequent to or consequent upon so long as they are related to the principal thing. The phrase 'having to do with' perhaps gives as good a suggestion of the meaning as could be had. (emphasis added)

Consequently, 'in connection with' requires that the services a person is paid to provide or perform must relate directly to the relevant activity in question. It covers persons providing the 'behind the scenes' services which enable the relevant activity to occur.[8]

Services provided or performed before or after the relevant activity occurs may fall within the scope of paragraphs 12(8)(b) as long as the services are 'bound up or involved in' that activity.[9]

The terms of paragraph 12(8)(b) will not be satisfied where services are provided at the same time as the activity but are provided for some other purpose, for example, advertising.[10] In such circumstances, the direct causal link required by paragraph 12(8)(b) will not exist.

You have stated that you currently provide contracts to performers that Performer A sub-contracts to fulfil their performance contractual duties to cover your SG obligations.

Payments for provision of services in, or in connection with, any television or radio broadcast - paragraph 12(8)(c)

A person who is paid to appear on a television or radio broadcast will be an employee of the payer under paragraph 12(8)(c). The terms of paragraph 12(8)(c) do not require that the person participate or perform in such a broadcast using their physical or personal skills.[11]

The term 'in connection with' is read in a similarly narrow way as that under paragraph 12(8)(b) - that is the payment is made for services that are directly related to the making of any film, tape or disc or of any television or radio broadcast.[12]

Application

Meaning of 'activity' in 12(8)

The purpose of subsection 12(8) is to expand and make provision to avoid doubt as to the status of certain persons engaged in particular activities - in this case music', 'play', 'dance' or 'entertainment'. Subsection 12(8) by its terms applies to 'any... music, play, dance or entertainment... or any similar activity...involving the exercise of intellectual,... physical or other personal skills...'. In the context in which the term appears, it is considered that 'music', 'play', 'dance' or 'entertainment' should be given a broad meaning for the purposes of the SGAA and should not be read narrowly to limit the scope of subsection 12(8).

In SGR 2009/1, the Commissioner's position was that the word 'similar' is used to show that 'activity' is limited to things of a like kind. 'It is considered that activities covered by paragraph 12(8)(a) are those which derive their sporting content from the performance or presentation because that is the common thread running through the listed activities.' We can apply the same reasoning to the performances in this content.

Relevantly, SGR 2009/1 stated that the scope of paragraph12(8)(a) was written to apply to 'any person' who is paid to perform, present or participate. They found that the application of the test is dependent on the character of the payments made and therefore there is no need to differentiate between 'amateur' or 'professional'.[1]

Paragraphs 12(8)(b) and 12(8)(c) of the SGAA do not require the person to actively participate in a performance, presentation, broadcast or other activity described within paragraph 12(8)(a) to be defined as an employee; rather the paragraphs specify that the person will be an employee if they provide a service in connection with the activity. For example, a technician engaged to control the sound quality for a concert is not an active participant in any performance. Even though the technician is not within paragraph 12(8)(a), they are still an employee because they are paid for services in connection with a musical performance.

Workers who are providing services in connection with the provision of the performance under paragraph 12(8)(a) of the SGAA fall under paragraph 12(8)(b) and paragraph 12(8)(c) of the SGAA depending on the activity.

In your case

The Principal directly engages Performer A to provide services, i.e., for a performance. Performer A may directly engage other performers who perform together as a musical group or as additional performers to accompany Performer A.

Performer A is paid directly by the Principal for engaging in specific activities for which they are paid to perform and participate in. The Principal is liable to make such payment; as a recipient of that payment, Performer A meets the definition of employee under subsection 12(8) of the SGAA.

The Principal acknowledges that it is required to make SG payments pursuant to subsection 12(8) of the SGAA for Performer A.

The Principal's current practice is to directly engage additional performers (who may be members of a formal group) accompanying Performer A on an individual basis. Whilst they have been required or recommended by Performer A, these individuals are contracted and paid by the Principal for their performance. Performer A does not make payments to the sub-contracted performers.

Conclusion

As the Principal is engaging and paying the additional performers for their performance directly, rather than through a third party/Performer A, the additional performers meet the definition of an employee under subsection 12(8) of the SGAA.

Where the Principal directly engages and pays an individual performer for their service/performance, the Principal is required to make SG payments to that performer pursuant to section 12(8) of the SGAA.

The Principal is not required to make SG contributions where they are not liable for the payments to the individual performers sub-contracted by Performer A.

[1] See Commissioner of Taxation v Racing Queensland Board [2019] FCAFC 224 at [50-52], and Commissioner of Taxation v Scone Race Club Limited [2019] FCAFC 225 at [10-11], per Griffiths J (adopted by Steward J at [82] and [84], whose reasons were agreed with by Derrington J at [80]).

[2] SGR 2009/1 at [74-76].

[3] SGR 2009/1 at [69-70]. See also General Aviation Maintenance Pty Ltd v Commissioner of Taxation [2012] AATA 120 (General Aviation) at [30].

[4] SGR 2009/1 at [71-73].

[5] SGR 2009/1 at [81].

[6] (1987) 16 FCR 465 at [479-480]; (1987) 77 ALR 577 at [591-592].

[7] [1945] 3 DLR 225 at [639].

[8] SGR 2009/1 at [82].

[9] Ibid.

[10] SGR 2009/1 at [12].

[11] SGR 2009/1 at [13].

[12] Ibid.