Contractors

An independent contractor is an entity that agrees to produce a designated result for an agreed price. Contractors can include:

• sub-contractors
• consultants
• sole traders
• companies
• partnerships
• trusts.

In most cases a contractor:

• is paid for results achieved
• provides all or most of the necessary materials and equipment to complete the work
• is free to delegate work to other entities
• has freedom in the way the work is done
• provides services to the general public and other businesses
• is free to accept or refuse work
• is in a position to make a profit or loss.

Services provided by a contractor to one business, or a small number of businesses, in a financial year are taxable.

What is an employee? outlines the differences between employees and contractors.

A relevant contract is any kind of arrangement where you:

• supply services
• are supplied with services
• re-supply goods.

Re-supply means supplying goods to someone else who performs a service in relation to those goods and gives them back:

• in an altered form
• as other goods that incorporate them.

Contractor provisions—when do they apply?

Before you consider whether you are paying amounts under a relevant contract, look at whether the:

• person providing services is your employee 
• person’s services are provided to you by an employment agent.

If you are satisfied that neither of these apply, you can then look at whether a relevant contract exists.

Exemptions

Arrangements involving services are almost always relevant contracts. Contracts are taxable unless the services are:

• ancillary to the provision of goods 
• not ordinarily required by your business 
• required by your business for less than 180 days in a financial year 
• provided for less than 90 days in a financial year 
• approved by the Commissioner as exempt 
• performed by two or more people 
• provided by an owner–driver 
• for selling insurance 
• as a door-to-door salesperson.

You only need to satisfy one of the above for those particular wages to be exempt from payroll tax.

Deductions

If your contract is taxable, you are only liable for payroll tax on the labour component. This is the amount payable to a contractor purely for work they have done (not for goods or materials). Use the approved percentages to work out the non-labour component deduction.

You should also deduct GST before calculating payroll tax.

For more information, see the following Public Rulings:

• PTA018—Contractor deductions  
• PTA019—Contractors—Labour and non-labour components  
• PTA008—GST considerations for the calculation of payroll tax liability.

We may fully remit penalty tax and unpaid tax interest (UTI) on payroll tax liabilities if the following conditions apply:

• the amounts paid or payable by the employer are for the period 1 July 2008 to 31 December 2008
• the amounts are taken to be wages under the relevant contractor provisions (relevant wages)
• the employer has failed to include relevant wages in the appropriate payroll tax return
  
  and
  
  
• we are satisfied that the employer did not include the wages due to making necessary changes to comply with obligations under the relevant contractor provisions.

You must ask us in writing to remit the penalty tax and UTI, and tell us why you did not include the relevant wages in your payroll tax return.

We will not remit penalty tax or UTI that has been imposed on payroll tax liabilities for wages that are not relevant wages (e.g. for wages paid to employees).

See Public Rulings TAA060.1—Remission of unpaid tax interest and TAA060.2—Penalty tax for more information about penalties and UTI payable on other payroll tax liabilities.