WA is not harmonised with the other jurisdictions regarding the treatment of contractors. For further information on the payroll tax treatment of contractors in other jurisdictions, please contact the relevant state or territory revenue office.
In certain circumstances, payments to contractors will be liable for payroll tax. Where the relationship between a principal and a worker is determined to be akin to an employee/employer relationship, all payments to the contractor will be taxable (excluding any GST component).
The key to determining whether such payments are taxable is in examining the totality of the relationship that exists between the contractor and the party they are providing services to.
The term employee is not defined in the PTA Act and therefore takes its ordinary or common law meaning. The courts have established a number of principles that assist in determining whether a worker is a common law employee.
Some of the more significant factors that have been considered by the courts in determining whether a worker is an employee include:
- contract and practical relationship
- working to achieve a given result
- control and direction by the principal over the worker and the work performed
- the extent to which the contractor operates an independent business
- the contractor's ability to delegate and subcontract work
- the degree of integration of the worker, and the services they perform, with the principal.
Totality of the relationship
Show moreThe issue of determining whether a worker is a common law employee or a contractor is a complex matter. It is important to bear in mind that no single test will be a conclusive indicator in isolation.
In considering the above factors, it should be noted that numerous court decisions have held that the totality of the relationship between the parties must be taken into account before deciding whether a worker is an employee or a contractor.
Contractor determinations
Show moreRevenue Ruling PT 6 ‘Guidelines on Subcontracting Arrangements and Employment Agents’ and its addendum provide further clarification of the case law and guidelines as to how the Commissioner will consider certain contracting arrangements for payroll tax purposes.
Employers who are still uncertain as to the liability of contractor payments after reading this ruling are encouraged to seek professional advice or contact us by completing a web enquiry form to obtain a determination.
Form FPRT6 ‘Questionnaire: Contractor Payments’ has been developed for the purpose of gathering information on all aspects of the relationship between the business operator and the worker.
In reaching a determination as to whether a worker is a common law employee, the Commissioner may obtain further documentation and/or interview both the principal and contractor to draw out sufficient information on which to base a decision.
This approach, which is based on the legal principle of examining the totality of the relationship, requires that each case be considered on its own particular facts.
Employment agents
Show moreAn employment agent is a person who provides the services of another person (the worker) to a third party (the client) on a contractual basis. Under the employment agency provisions in the PTA Act, the agent is deemed to be the employer, and as such is liable for payroll tax on the payments made.
Under an employment agency arrangement, the employment agent provides the services of a worker to a client for a fee relating to the period of service of the worker. The amounts that the employment agent subsequently pays to the worker are liable to payroll tax.
- Example: A temping service supplies temporary workers to their clients for a daily fee of $200. The employment agent then pays the worker a daily wage of $140. In this case, payroll tax is payable on the amount paid to the worker ($140).
A recruitment agency needs to be distinguished from an employment agency. Recruitment agencies tend to perform a one-off service by finding a suitable employee for their client.
Harmonised Revenue Ruling PTA 029 ‘Recruitment Agencies/Placement Agencies/Job Placement Agencies’ clarifies who bears the payroll tax liability in circumstances where a recruitment agency places a worker with an employer who is a client of the agency.
There may be instances where an employment agency arrangement includes multiple employment agents (‘chain of hire’), for further details on chain of hire, see Revenue Ruling PT 7 ‘Employment Agency Arrangements – Chain of On-hire’.
