Birchstone Brief for the week ended 16 December 2022

Draft guidance on employee/contractor distinction

The ATO has released a draft ruling and practical compliance guideline regarding the employee/contractor distinction. 

TR 2022/D3 explains the Commissioner’s view regarding when an individual is an ’employee’ of an entity within the meaning of section 12-35 of Schedule 1 to the TAA 1953 for PAYG withholding purposes. It replaces TR 2005/16 (which has been withdrawn with effect from 15 December 2022), and is proposed to have retrospective application once finalised. As the term ’employee’ is not defined in section 12-35 (or any other tax or superannuation legislation), the draft ruling sets out the Commissioner’s view of the meaning of that term at common law. Interestingly, although the common law meaning of ’employee’ is also relevant for the purposes of section 12(1) of the SGAA 1992, TR 2022/D3 is expressly stated not to be binding on the Commissioner in relation to that provision. 

Unsurprisingly, the draft ruling takes account of the High Court’s landmark decisions in Personnel Contracting and Jamsek, expressly stating that:

• whether a worker is an employee of an entity within the ordinary meaning of that term is a question of fact to be determined through an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute that relationship (at paragraph [7]); and 
• where the parties have comprehensively committed the terms of their relationship to a written contract and the validity of that contract is not in dispute, it is the legal rights and obligations in the contract alone that are relevant in determining whether a worker is an employee (at paragraph [9]). 

PCG 2022/D5 outlines the Commissioner’s compliance approach for businesses that engage workers and classify them as employees or independent contractors. The draft PCG:

• covers all federal tax and superannuation obligations administered by the ATO and sets out information intended to help businesses assess their risk rating;
• contains four risk zones (ranging from ‘very low risk’ to ‘high risk’) and explains the likely level of ATO involvement in respect of situations that fall within each zone where it either receives a complaint from a worker or proactively initiates a review; and 
• will apply from its date of issue once finalised. 

Notably, paragraph [11] of the draft PCG states that while SGR 2005/1 is being reviewed in light of Personnel Contracting and Jamsek, it still represents the Commissioner’s published view on the extended definition of an employee for superannuation guarantee charge purposes until it is updated. 

Guidance regarding GST and certain supplies made by residential colleges finalised

PCG 2022/3 finalises PCG 2022/D3 (first discussed in the Birchstone Brief for the week ended 16 September 2022) and sets out the Commissioner’s compliance approach for universities and residential colleges that are supplying accommodation, meals, tertiary residential college courses and religious services to resident students and claiming associated input tax credits. The purpose of the guideline is to assist these taxpayers to determine if such supplies can be treated as GST-free. 

Class and product rulings issued

The ATO has issued: 

• CR 2022/111 – Horizon Oil Ltd – Return of capital and dividend; 
• CR 2022/112 – BNK Banking Corporation Ltd – Special dividend and return of capital; 
• PR 2022/10 – Swiss Life (Singapore) Pte. Ltd Life Asset Portfolio Universal Asia; and 
• PR 2022/11 – Allianz Guaranteed Income for Life.