PAYG Withholdings cannot be circumvented by treating a person as if they were a contractor and have them quote an ABN.
The Australian Taxation Office outlines key areas to consider when deciding whether the nature of the arrangement is an employer/employee or contractor. These are listed as following:
- Control over work: An employee works in the business of the employer and has an implied obligation to undertake duties as directed by his or her employer. A contractor on the other hand will be contracted to perform a specific duty or outcome d they are in control (subject to contract conditions) as to how that is done.
- Independence: An employee performs work in accordance with an employment contract, whereas a contractor provides the service as per the contract and further services are only by agreement.
- Payment: An employee is often paid on the amount of time worked, whereas a contractor is usually paid on performance of the contract services.
- Commercial Risks: An employee generally bears no commercial risk in undertaking their job. They work for an employer who is legally responsible for the work of the employee. A contractor assumes legal responsibility for their work. They can either profit or loss from a contract and are liable to defects at their own cost.
- Ability to Delegate: An employee usually performs the work personally and does not have the ability to delegate their duties to others. A contractor (unless specified in the contract) can delegate to others or subcontract the work.
- Tools of Trade: In most cases an employee will be provided with all the necessary tools of trade to complete their tasks. A contractor would normally provide their own tools of trade.
An important consideration in this is the master servant test that applies in court as well. There needs to be a master and a servant relationship relation if the contractor test fails.
Contact your nearest TaxAssist Accountant for advice on this subject, as the ATO has a zero-tolerance approach to contractors with no ABN.
Date published 09 Jan 2017 | Last updated 31 Jan 2025
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
