Revenue ruling PTA-021v2 has been published following public consultation. It deals with the payroll tax exclusion for contractors who ordinarily provide services to the public and addresses these issues:
- Certain contractors are deemed to be employees, and payments to them are deemed to be taxable wages.
- Certain contractors are not deemed to be employees and payments to them are not deemed to be taxable wages if the Commissioner of State Revenue is satisfied that the contractors ordinarily perform services of the same kind to the public generally in the relevant financial year.
This ruling outlines how the Commissioner makes such a determination and is harmonised with the other payroll tax jurisdictions
A contract between a principal and a contractor may be a ‘relevant contract’ under the contractor provisions in Division 7 of Part 3 of the Act.
If the contract is a relevant contract, the principal who engages the contractor is deemed to be an employer (section 33), the contractor is deemed to be an employee (section 34) and payments made under the contract for the performance of work are deemed to be wages (section 35). Deemed wages are wages (section 13(e)) and are taxable in Victoria if they meet the nexus provisions under section 11 of the Act. Taxable wages are subject to payroll tax (section 6).
While most contracts for the provision of services come within the meaning of ‘relevant contract’ under section 32(1) of the Act, a contract is not a relevant contract if any of the exclusions under section 32(2) of the Act applies.
If a contract is not excluded under any of the exclusions under section 32(2)(b)(i) to (iii) of the Act, the exclusion in section 32(2)(b)(iv) of the Act may apply. Section 32(2)(b)(iv) of the Act provides that a contract is not a ‘relevant contract’ in relation to a financial year if the Commissioner is satisfied that the person who performed the services under the contract ordinarily performs services of that kind to the public generally in that financial year.
The purpose of this Revenue Ruling is to explain how section 32(2)(b)(iv) of the Act applies to exclude a contract from the definition of ‘relevant contract’ for the purposes of the contractor provisions in Division 7 of Part 3 of the Act.
Factors which may be relevant to the exclusion
In determining whether a contractor who performed services under a contract ordinarily performs services of that kind to the public generally in a financial year, the Commissioner will consider a range of factors in the context of the contractor’s particular circumstances. The Commissioner considers that the following factors may be relevant and would generally support a finding that the exclusion applies:
- The contractor provides the same type of services to a range of principals in the financial year (however, providing the same type of services to members of the same payroll tax group is not a strong factor supporting a finding that the contract is not a relevant contract).
- The contractor derives income from principals other than the principal claiming the exclusion in the financial year. The case for exclusion is stronger when the proportion of the contractor’s income obtained from other principals is greater.
- The contractor enters into contracts which do not tie the contractor to the principal and do not restrict the contractor from providing the same type of services to other principals in the financial year.
- The contractor is proactive in sourcing work from a range of principals in the financial year for example, by advertising to the public. However, merely advertising to the public without actually providing services to the public is not a strong factor supporting a finding that the contract is not a relevant contract.
- The contractor performs work on separate contracts with separate principals concurrently in the financial year.
None of the above factors is conclusive on its own. In addition to the above list of factors, the Commissioner will also consider any other factors that are relevant to the particular circumstances. In some circumstances, the Commissioner may determine that the exclusion applies to a contract for a given financial year but not for another financial year; in such cases, the exclusion will only apply to the amounts paid or payable under the contract in the financial year in which the Commissioner has determined that the exclusion applies.
This information has been sourced from the Victorian State Revenue Office and is subject to change. For the most up-to-date version of the ruling please visit: https://www.sro.vic.gov.au/legislation/contractors-who-ordinarily-perform-services-public