Under certain circumstances, payments to contractors are taxable. Generally, those circumstances are where the contractor:

  • provides essentially labour services; and
  • works exclusively or primarily for one principal.

The term ‘contractors’ is a generic one, which includes sub-contractors, consultants and outworkers. The provisions apply regardless of whether the contractor provides services via a company, trust, partnership or as a sole trader.

In practical terms, the contractor provisions initially capture all contracts for the performance of work. However, the provisions contain several exemptions and if any one exemption applies to a particular contract, the payments under that contract are not taxable.

The contractor provisions are not applicable where a contract worker is provided under an employment agency contract. Find out more on our Employment Agency Contracts page.

Who is deemed to be the employer?

The employer is deemed to be the person (or business) who, during a financial year, under a relevant contract:

  • supplies services to another person;
  • is supplied with the services in relation to the performance of work; or
  • supplies goods to another person.

Where a contractor employs additional workers to perform the work, the contractor is deemed the employer.

Who is deemed to be the employee?

The employee is deemed to be the person who, under a relevant contract:

  • performs work for or in relation to which the services are supplied to another person; or
  • being a natural person re-supplies goods to an employer.

What payments are deemed to be taxable wages?

Any amounts paid (or benefits provided) in relation to the performance of work, or re-supply of goods under a service contract, are deemed wages. These deemed wages may be subject to GST, if this is the case, payroll tax will not be charged on the amount of GST.

How is a contractor determined?

There are 3 steps involved in determining if payments made to a particular person are subject to payroll tax. In summary, the steps are:


Step 1:
Is the person an employee?

If the person is an employee, the payments made to, or in relation to, that person are subject to payroll tax. If the person is not an employee, it is necessary to consider Step 2.


Step 2:
Is the contract a relevant contract?

If the contract involves being supplied with services, or supplying services, or giving out goods for their resupply, it is a relevant contract and it is necessary to consider Step 3. If the contract does not involve any of these, it is not a relevant contract, and payments under the contract are not subject to payroll tax.


Step 3:
If the contract is a relevant contract, does the contract fall within one of 6 exemptions or are the services of a type exempted by legislation?

Payments under a relevant contract are not taxable if:

If none of the exemptions apply, the payments made under the relevant contract are subject to payroll tax.


Contractor Decision Tools are available to assist you in determining if a worker is classed as a contractor or an employee.

What happens if the contract provides for the supply of equipment and/or materials in addition to labour?

Where a contract distinguishes between payment for work performed and material/equipment supplied, only the portion that relates to the work performed is taxable.

Where a contract does not distinguish between labour and other costs, the Commissioner has made the following determinations of the percentage attributable for providing materials and/or equipment. These amounts can be excluded.

Deductions below are for the non-labour components where the contractor provides equipment and/or materials. Based on submissions made by employers and industry representatives, the Commissioner has allowed the following percentage deductions:

Find out more about contractor deductions in:

What are the 3 exemptions for classes of contracts?

There are 3 classes of contracts specifically excluded from the operation of the contractor provisions, these are:


Owner-driver contracts

Where the services are only ancillary to the carriage of goods by means of a vehicle provided by the goods carrier.

An owner-driver is generally a contractor engaged primarily to transport goods where the contractor provides and drives the vehicle used for the transport of those goods.


Insurance sales agents contracts

Where the services are supplied to a person (for example, an insurance company) for the purposes of selling insurance policies of that person.

In relation to insurance agents, the provision exempts contracts under which a person is supplied with services solely for, or in relation to the procurement of persons desiring to be insured by the person.

The exemption applies to contractors who sell general and life insurance on a commission basis for insurance companies. The exemption does not apply to commissions from the sale of other non-insurance products.


Door-to-door sales agents contracts

Where the services are supplied to a person whose goods are offered for sale by the door-to-door sales agent.

In relation to door-to-door sellers, the Commissioner has ruled that, to satisfy this exemption, a number of criteria must be met. These criteria include a requirement that the goods sold are essentially domestic goods and the sale of the goods is made at the purchaser’s residence.


In order for an exemption to apply, the services must be provided by a contractor and not an employee. Accordingly, payments made to contractors who provide any of these 3 types of services are not taxable even if none of the 6 exemptions listed below apply.

Should the Commissioner determine that the contract or arrangement was entered into with an intention of either directly or indirectly avoiding or evading the payment of tax by any person, the exemption will not apply.

What are the 6 exemptions that exclude contracts from payroll tax?

Generally, payments under a relevant contract are taxable unless at least one of the following 6 exemptions applies:


90 day exemption

The contractor provides services to one designated person on no more than 90 days in a financial year.


180 day exemption

The services are of a type ordinarily required by the designated person for less than 180 days in a financial year.


Engaging others

The contractor engages others to do all or part of the work pursuant to the contract (subject to certain conditions being met).


Services ancilliary to the supply of goods

The provision of labour is ancillary or secondary to the supply of materials or equipment by the contractor.


Services not ordinarily required

The services provided under the contract are of a type not ordinarily required in the designated person’s business and the contractor usually provides those services to a range of clients.


Ordinarily Rendering Services to the Public

The Commissioner is satisfied that the contractor ordinarily renders services of the type under the contract to the public generally in a financial year.


Should the Commissioner determine that the contract or arrangement was entered into with an intention of either directly or indirectly avoiding or evading the payment of tax by any person, the exemption will not apply.

Information Circulars and Revenue Rulings

Information Circulars and Revenue Rulings include decisions on the interpretation of legislation administered by RevenueSA and of changes in administrative practices or taxation laws.

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