Accessing superannuation – Retirement and other life events
13/03/2023FBT for 2023 – Electric vehicles exemption
13/03/2023
Employee / Contractor Distinction
The classification of a worker as an employee or contractor can impact on a range of areas such as income tax, PAYGW, SG, ABN, state-based obligations. Recent High Court decisions have impacted on how this area should be approached.
Contract v Conduct
- The High court has clarified that it is necessarily to focus on the terms of the written contract between the parties to establish the character of the relationship, if that contract is an accurate and accepted record of the agreement struck between the parties.
- A wide-ranging review of the parties’ subsequent conduct is not necessary or appropriate.
- Need to consider the totality of the relationship
- The label given to the arrangement is of minimal importance.
- Workers who invest in a significant asset are more likely to be contractors
The characterisation of the relationship often hinges on two considerations.
1. Control test
- Extent to which the employer has the right to control how, where and when the work is performed
2. Business integration test
- Extent to which the worker is operating their own business as distinct from the business of the employer
Other factors
- Whether the contract is on results basis
- Delegation of work
- Risk
- Provision of Tools and equipment
- Business expenses
- Uniform
- Other
Court may look beyond a written contract and consider the conduct of the parties in circumstances where:
- The contract is an oral contract, or is partly written and partly oral to determine when the contract was formed and the contractual terms that were agreed;
- The terms of the written contract have been varied;
- The terms of the written contract are being challenged as invalid; or
- A party to the contract asserts rectification, estoppel or any other legal, equitable or statutory rights or remedies.
ATO Rulings
TR 2022/D3
The ruling explains how to determine whether a worker is an employee under the ordinary meaning of the terms and in the context of the PAYG withholding rules. The ruling specifically takes into account the High Court decision in the Personnel Contracting case.
- Where a worker engages to perform work for a business as a partner of a partnership or through a company or trust then this may indicate an intention by all parties not to create an employment relationship.
- However, a different conclusion may be reached if a worker uses an interposed entity but is also directly a party to the contract with the engaging entity.
PCG 2022/D5
The ATO has issued a draft PCG which explains how the ATO will allocate compliance resources in connection with the classification of a worker as an employee or independent contractor.
Consequences of a worker’s classification.
If the worker is treated as an employee of the engaging entity;
Engaging entity | Worker |
- Report via STP
- Withhold amounts under PAYG regime
- Make superannuation contributions or be liable for superannuation guarantee charge
- Meet fringe benefit tax obligations for benefits provided
- Not entitled to claim input tax credits for wages paid
| - Not entitled to ABN
- Not entitled to register for GST and no GST reporting obligations
|
If the worker is treated as a genuine independent contractor;
Engaging entity | Worker |
- Report via Taxable Payments Annual Reporting as legislated or on a voluntary basis if they satisfy the turnover-threshold test
- If the worker satisfies the extended definition of employee, make superannuation contributions or be liable for the superannuation guarantee charge
- If the engaging entity and worker are both registered for GST, claim eligible input tax credits
- If the worker does not quote an ABN when required, or the parties enter into a voluntary agreement, withhold amounts under the PAYG withholding regime
| - Make provision for income tax through PAYG instalments, if required
- Entitled to apply for an ABN
- Register for and paying GST, if required
- Consider the personal services income implications
|
Risk framework that will be used by the ATO for worker classification
Issues
Very low
- Evidence that both parties agreed on classification
- Evidence that both parties understand tax and super consequence
- Performance of arrangement hasn’t deviated significantly from contractual rights and obligations
- Business obtained specific advice confirming classification was correct
- Business is meeting correct tax, super and reporting obligations
Will compliance resources be applied?
Low
- Same criteria as ‘very low’
- No evidence to show both parties understood tax and super consequences
Will compliance resources be applied?
- will only be applied to determine whether the worker meets the extended definition of an employee if the ATO is responding to an unpaid superannuation query
Medium
- Evidence both parties agreed on classification
- Business obtained advice confirming classification was correct
Will compliance resources be applied?
- YES, but will be given lower priority than high risk arrangements
High
- does not fall in the very low, low or medium-risk categories.
Will compliance resources be applied?
- YES, and will be given highest priority
- Business may be subject to higher penalties if classification is wrong
Disclaimer
This content is intended for general information in summary form on tax and legal matters at the time of first publication and is not intended to provide and should not be relied upon in place of appropriate professional advice. Please consult your tax, legal and accounting advisors before acting or relying on any content provided.
博通税务墨尔本会计事务所是荣获澳洲AAA荣誉,享有CPA资格认证, 拥有丰富本地经验的,最专业的墨尔本会计师团队。我们以最优质的专业服务,建立了最坚实的客户口碑!致力于为澳大利亚大中小企业和高净值人士提供专业的生意结构重组、企业优化管理、税务规划、投资结构及财务账目管理等服务。墨尔本会计,墨尔本会计事务所,墨尔本自营养老金,墨尔本188移民会计,墨尔本商业移民咨询,墨尔本华人会计师,墨尔本报税,澳洲股权变更,墨尔本企业财务与咨询,墨尔本财务托管,墨尔本投资结构及财务账目管理等服务。