Introduction
The process for determining whether the contractor provisions pursuant to the Pay-roll Tax Act 1971 (the Act) will apply is outlined in Public Rulings PUB-PT-2002-13 (Employment Relationships and Operation of the Contractor Provisions) and PUB-PT-2002-14 (Contractor Provisions – Exclusions).
The purpose of this Ruling is to assist a person engaging a contractor to perform work (“the principal”) to determine whether a contract for the services of an owner-driver may be excluded from being a ‘relevant contract’ under Section 3A of the Act and, where the contract cannot be excluded, to calculate how much of the contract payment is attributable to labour and is to be treated as wages for the purposes of the Act.
The exclusion provisions will not apply where the Commissioner determines that the contract was entered into with the intention of reducing or avoiding the payment of tax.
Ruling
The Act uses a broad definition of ‘relevant contract’ in determining liability for pay-roll tax [Section 3A]. Where a contractual arrangement is deemed a relevant contract, the pay-roll tax obligation applies only to that part of the contract payment that represents a labour component. This component is treated as wages and subject to tax.
However, under the contractor provisions of the Act, some contracts are excluded from being a relevant contract because the payments for services are not considered to be wages for pay-roll tax purposes.
Contracts for services by genuine owner-drivers are one of the types of contracts that may be eligible for exclusion under the contractor provisions. This is because the services supplied are usually ancillary to the supply and use of goods, in this case the owner-driver’s vehicle, and the vehicle is the property of the contractor [Section 3A(3)].
This Ruling provides information for the assistance of principals in determining:
1. whether a contract is with an owner-driver for the purposes of the contractor provisions; and
2. whether a contract with an owner-driver will be eligible for exclusion; and
3. when the contract is not excluded, what proportion of the contract with the owner-driver can be attributed to labour.
1. Is the contract with an owner-driver?
The Commissioner will accept that a contract is with an owner-driver when:
the substance of the contract is solely or predominantly for delivery, or other transport services, using the contractor’s own vehicle;
the contractor has exclusive rights of possession over the vehicle, by owning or leasing it;
the contractor has absolute control over the operation of the vehicle; and
the principal makes no contribution to the provision of, or to the capital or running expenses of, the vehicle.
All these conditions must apply.
2. Is the owner-driver contract excluded?
Section 3A(3) of the Act excludes a contract from being a relevant contract where the supply of labour is ancillary to the supply or use of goods. In these cases, the labour component is considered to be the ‘less important part’ of the contract. Section 3A(3) is intended to exclude from pay-roll tax obligation, principals who engage genuine owner-drivers as contractors.
In cases where a contractor’s vehicle is used but the conditions that would enable the contract to be excluded under Section 3A are not met, another exclusion category may apply. When the contract is not eligible under any category for exclusion from being a relevant contract, the labour component of the contract is treated as wages under the Act.
In deciding whether the labour component of the contract is ancillary to the supply or use of goods, it is necessary to determine the proportions of the contract cost representing:
· the labour of the driver; and
· the supply or use of the vehicle and other associated costs.
The Commissioner will accept that an owner-driver contract is not a relevant contract when the labour component is 60% or less of the gross contract payment. When this condition applies, the person who pays for the services (the principal) incurs no pay-roll tax obligations under the Act and does not have to treat any part of the contract payment as wages.
Where the labour component exceeds 60%, and no other exclusion type applies to the contract (refer to Public Rulings PUB-PT-2002-13 (Employment Relationships and Operation of the Contractor Provisions) and PUB-PT-2002-14 (Contractor Provisions – Exclusions)) the principal is required to treat as wages only the amount attributable to the labour component of the contract.
3. Determining the labour component of the contract.
Where the payment under the contract is clearly separated into labour and vehicle costs, determining eligibility for exclusion under Section 3A(3) is straight forward.
Where there is no clear separation, the costs of labour in the relevant industry can be used to estimate the proportion of the contract price that can realistically be allocated to the labour component.
In some cases, there will be a union endorsed contract rate which can be used in allocating costs to the labour and non-labour components. Such union endorsed contract rates are common in some industries.
Note: The labour/non-labour split may vary according to the tonnage of the vehicle used.
Where it is not possible to separate labour costs from vehicle-related costs using any of these methods, there may be other aspects of the contractual arrangement that can be used in establishing the proportion of costs that can be attributed to labour.
In such cases, a submission outlining the proposed basis of apportionment should be forwarded to the Commissioner for determination.
Whichever method is used, full details must be kept for five (5) years in case an audit is conducted by the Commissioner.
Enquiries in relation to this Revenue Ruling should be directed to the Revenue Advice and Audit Section on telephone (03) 6233 5438 or e-mail at audithelp@treasury.tas.gov.au. Copies of this ruling may be obtained from our Web site at www.treasury.tas.gov.au/tax and follow the "Revenue Rulings" link.
All rulings must be read subject to Revenue Ruling PUB-GEN-2001-1.
Peter Coe
COMMISSIONER OF STATE REVENUE |
