Employers are confronted by the taxation implications of engaging workers at both the Federal level (e.g. PAYG income tax) and the state level (e.g. payroll tax).
To assist employers to understand and comply with their obligations, this site provides access to both the ATO Employee/Contractor Decision Tool (Federal) and RevenueSA Relevant Contracts 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 ATO 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 ATO Employee/Contractor Decision Tool determine a worker is not an employee, but a contractor, for Federal purposes, the RevenueSA Relevant Contracts Decision Tool would need to be used to determine the matter for payroll tax purposes.
The ATO 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 RevenueSA Contractor Decision Tool can be used as the basis for your determination.
You can access the ATO decision tool at the link below:
ATO Employee/Contractor Decision Tool Outcome
If the ATO decision tool process leads to the answer that the:
- include such payments for payroll tax purposes; and
- the RevenueSA Contractor Decision tool is not required to be completed.
The RevenueSA Relevant Contracts 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;
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 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 here.
A voluntary disclosure itself will result in zero penalty if made before an audit is commenced. Interest will still be applicable.