Employment agency contracts workers on-hired to Government
Version Number: 1
Legislation: Payroll Tax Act 2009
Date Issued: 1 July 2009
Revenue Rulings do not have the force of law.
The Payroll Tax Act 2009 (the “Act”), which commenced on 1 July 2009, rewrote and repealed the Pay-roll Tax Act 1971 and provides fully harmonised legislation with New South Wales, Victoria, Tasmania and Northern Territory.
The employment agency provisions in Division 8, Part 3 of the Act apply to a labour hire arrangement where a person (the employment agent) contracts with another (the client) for the provision of labour where there is no agreement between the worker and the client.
Under the employment agency provisions, the employment agent is taken to be the employer (Section 38 of the Act) and the on-hired worker is taken to be the employee (Section 39 of the Act). Amounts paid or payable under the employment agency contract are taken to be wages (Section 40(1) of the Act). Consequently, under Section 41 of the Act, the employment agent is liable to pay payroll tax on the amounts taken to be wages.
The purpose of this ruling is to clarify the correct payroll tax treatment of payments made by an employment agent to a worker on-hired to a government department.
Generally, the Crown in right of the Commonwealth is not liable for payroll tax. Examples of Commonwealth Government departments are Department of Defence and Department of the Treasury.
Although the Commonwealth Government is not liable for payroll tax, an employment agent is still liable for payroll tax on wages paid to workers on-hired to Commonwealth government departments under an employment agency contract. This is because payroll tax is imposed on employment agents.
An exemption is only available to an employment agent under Section 40(2) of the Act on payments where:
- the wages would have been exempt from payroll tax under Part 4 except for Division 4 or 5 of that Part or Section 50 had the on-hired worker been paid directly by the client as an employee, and
- the client has made a declaration to that effect to the employment agent, in respect of the on-hired worker.
Organisations exempt from payroll tax listed in Part 4 do not include the Commonwealth Government.
In South Australia, State Government departments are liable for payroll tax. Therefore, an employment agent must pay payroll tax on wages paid to workers on-hired to South Australian Government departments under an employment agency contract. Examples of South Australian Government departments are Department of Health, Department of Primary Industries and ResourcesSA, and Department for Transport, Energy and Infrastructure.
Wages paid by local government (municipal councils) are exempt from payroll tax under Part 4 of the Act (Section 58), except for wages for or related to certain activities which are outlined in Section 60 of the Act. Consequently, an employment agent is exempt from payroll tax on wages to workers on-hired to a municipal council if the workers are not engaged in the activities listed in Section 60 of the Act.
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