Taxation Ruling
IT 2511
Income tax : paye tax instalment deductions : insurance agents
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FOI status:
May be releasedFOI number: I 1211573PREAMBLE
This Ruling considers the question of whether or not tax instalment deductions are required to be made from commission income paid to insurance agents.
2. Subsection 221C(1A) of the Income Tax Assessment Act requires an employer to deduct tax instalments from payments of salary or wages made to an employee. "Salary or wages", "employer" and "employee" are defined in subsection 221A(1) and are discussed in Taxation Ruling No. IT 2129. Commissions paid to an employee as such are specifically included in the definition of "salary or wages".
RULING
3. Adopting the principles outlined in Taxation Ruling No. IT 2129, an insurance company is required to deduct tax instalments from commission income paid to an insurance agent in any case where, either a master and servant relationship exists between the agent and the company, or where the commission is paid under a contract that is wholly or principally for the labour of the person to whom the payment is made. Whether or not a particular insurance agent falls within these provisions is a question which can only be determined on the facts of each case. Nevertheless, the following general guidelines may be of assistance.
4. In a number of situations tax instalment deductions are not required to be made. First, paragraph 15 of Taxation Ruling No. IT 2129 states that the scope of the PAYE provisions is limited to income, described as "salary or wages", derived from the personal exertion of an individual. It follows that insurance commissions paid to a company or to a person in his or her capacity as a partner in a partnership or as a trustee of a trust estate are not subject to tax instalment deductions, unless the arrangement can be said to be a sham, see paragraphs 41 and 42 of Taxation Ruling No. IT 2121.
5. Secondly, where commissions are payable to individual agents who conduct their agency activities as an adjunct to other commercial activities, for example, brokers, accountants, stock and station agents, it is accepted that the payments do not fall within the definition of salary or wages for the purposes of section 221A, and thus are not subject to tax instalment deductions.
6. In addition, many individual agents who do not fall within the paragraph 5 category are understood to operate on the following basis:
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- they are remunerated solely by way of commission income;
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- they are not entitled to holiday pay, sick pay, long service leave or superannuation benefits funded by the insurance company;
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- they provide their own office accommodation stationery and clerical support;
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- they are not required to attend the insurance company's offices nor need they report their activities and movements; and
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- while they may attend motivational and training sessions offered by the insurance company, attendance is not compulsory.
7. By way of contrast, commissions received by individual agents who do not fall within the paragraph 5 or paragaraph 6 categories would generally come within the definition of salary or wages contained in section 221A. Employers are, therefore, required to deduct tax instalments from the commissions in such cases. This is required whether the commissions are from either a life insurance office or a general insurance office. The fact that an agent receives commissions from more than one company does not affect this general view.
COMMISSIONER OF TAXATION
22 December 1988