Contractor decision tools
Employers are confronted by the taxation implications of engaging workers at both the Federal level (for example, PAYG income tax) and the state level (for example, payroll tax).
To assist employers to understand and comply with their obligations, use the Australian Taxation Office Employee/Contractor Decision Tool (Federal) and the South Australian Payroll Tax Contractor Decision Tool (state).
These tools however serve differing purposes and it may be necessary to work through both tools to ensure proper adherence to Federal and state laws. Both of these decision tools provide guidance, to assist you in determining if a contractor is an employee or not, if you are unsure you should seek legal professional advice or contact the relevant tax office.
The Australian Taxation Office Employee/Contractor Decision Tool is presented first because if the determination is that the worker is an employee for Federal purposes they will also be considered an employee for State purposes.
However should the Australian Taxation Office Employee/Contractor Decision Tool determine a worker is not an employee, but a contractor, for Federal purposes, the South Australian Payroll Tax Contractor Decision Tool would need to be used to determine the matter for payroll tax purposes.
Two contractor decision tools are available to assist you in determining whether any payments made to contractors are liable for payroll tax:
The Australian Taxation Office Employee/Contractor Decision Tool is designed to help you (as a payer) understand whether your individual workers are employees or contractors.
It is not designed for situations where you enter into an agreement with a company, partnership or trust for them to provide a worker, or obtain workers through an intermediary such as a labour hire firm, or where you are a labour hire firm. In these situations the South Australian Payroll Tax Contractor Decision Tool can be used as the basis for your determination.
Australian Taxation Office Employee/Contractor Decision Tool Outcome
If the Australian Taxation Office decision tool process leads to the answer that the:
- worker concerned is an employee for Australian Taxation Office purposes you should;
- include such payments for payroll tax purposes; and
- the South Australian Payroll Tax Contractor Decision Tool is not required to be completed.
- worker concerned is not an employee for Australian Taxation Office purposes, the South Australian Payroll Tax Contractor Decision Tool should also be completed to determine if the worker is not an employee for payroll tax purposes.
The South Australian Payroll Tax Contractor Decision Tool is designed to help you understand whether any business agreements and any payments made to contracted workers are liable for payroll tax. Any payments you make to persons working under a relevant contract are taxable.
For RevenueSA to exclude the contractors from the Contractor provisions it will need to be demonstrated to the Commissioner of State Taxation that the contractors conduct independent trades or businesses and have been consistently rendering such services to a significant range of unrelated clients.
Often a payer will engage an individual to perform the work, but in some cases;
- the payer will enter into an agreement with a company, partnership or trust established by the worker for them to provide a worker (usually themselves), or
- the payer may obtain workers through an intermediary such as a labour hire firm or employment agent. If you engage all your contractors through a labour hire firm or an employment agent, the labour hire firm or the employment agent should be paying the payroll tax.
In all cases you are encouraged to complete the questionnaire for each contractor that you engage.
Once you have answered a series of questions, you will be able to print the decision for your records. We recommend you record the contractors Australian Business Number (ABN) on the print out.
If your business is subject to audit and the contractor(s) engaged are reviewed this report will provide evidence of your attempt to address the issue and if properly and correctly undertaken will show that reasonable care has been attempted to ensure that the correct tax is paid, and may provide a basis for a partial remission of any penalty tax should the investigation lead to the alternative answer with respect to the contractor(s).
For additional information please refer to Information Circular 005.
Any further questions regarding contractors can be directed through the voluntary disclosure process. Information regarding voluntary disclosures is available on our Voluntary Disclosures page.
A voluntary disclosure itself will result in zero penalty if made before an audit is commenced. Interest will still be applicable.