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Contractor engages others exemption

Payments made to a contractor will be exempt from payroll tax if:

  • the contractor engages others to provide the services they are contracted for
  • 2 or more people are needed to fulfil the purpose of the contract.

'Employee' and 'contractor' may have different meanings for payroll tax purposes from what you might expect.
Please review the meanings of employees and contractors to determine which definition applies to each employment arrangement. If the contractor has an employee/employer relationship with the principal, the contractor provisions will not apply.

If the contractor is a partnership of 2 or more people, the exemption only applies if 1 or more partners and 1 or more employees provide the services. The exemption will not apply if the work is only performed by the partners.

The services performed must be only for the purpose of the contract before the exemption can apply. There are specific anti-avoidance provisions.

Example

Orange Ltd is a consultancy firm. Black Ltd contracts the services of Orange Ltd for its IT project. Orange Ltd employs a contractor to perform IT consulting services. The contractor brings his wife to help with his book keeping and general administration. Black Ltd cannot gain an exemption as only one person is performing the actual work of the contract.

See Public Ruling PTA023—Contractors engaging others for more information.

Top call centre questions

Can I have more time to pay my periodic, annual, or final payroll tax liability?

You must pay payroll tax when it is due and, as a rule, we do not grant extensions.

If you are experiencing extreme financial difficulties, contact us before the date your return or assessment is due.

Unpaid tax interest will start to accrue if a payroll tax return is lodged and paid late. Penalty tax may also apply if you do not lodge a return by the due date.

I accidentally underpaid tax in a previous periodic return. Should I adjust this in my next periodic return?

No. Notify us in writing as soon as you become aware of the error and tell us how it occurred. We will reassess your payroll tax for that period using the correct figure for your taxable wages. You should pay any amount owing as soon as possible, as unpaid tax interest will be accruing daily.

If the error was in a periodic return during a previous financial year, we will reassess your liability for that year (and/or for the particular period), using the correct figure for your taxable wages.

I overpaid payroll tax in my last periodic return. Can I claim a refund?

Yes. Claim a refund within 5 years of the date of the overpayment in writing, outlining:

  • how the overpayment occurred
  • the amount of wages included in error
  • the return period in which you overpaid tax.

If we approve the refund, we may:

  • send you a cheque
  • apply the amount to your current payroll tax or revenue liability
  • hold the amount for liability arising within 60 days.

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Last reviewed 17 January 2012

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