|Ruling number||PTA 026|
|Date issued||30 June 2008|
|Issued by||Tony Newbury|
Chief Commissioner of State Revenue
|Effective from||1 July 2007|
|Effective to||30 June 2011|
|Status||Replaced by PTA 026v2|
The employment agency provisions in Division 8 of Part 3 of the Act apply to a labour hire arrangement where a person (the employment agent) contracts with another (the client) for the provision of labour where there is no agreement between the worker and the client.
Under the employment agency provisions, the employment agent is taken to be the employer (section 38 of the Act) and the on-hired worker is taken to be the employee (section 39 of the Act). Amounts paid or payable under the employment agency contract are taken to be wages (section 40(1) of the Act). Consequently under section 41 of the Act, the employment agent is liable to pay payroll tax on the amounts taken to be wages.
However, certain types of payments are exempt from payroll tax under section 40(2) of the Act. The exemption applies where:
Organisations that are exempt from payroll tax under the Relevant Provisions include:
This Revenue Ruling explains the operation of the exemption under section 40(2) of the Act and its requirements.
To claim the exemption under section 40(2) of the Act, the employment agent has to obtain a Relevant Declaration from its client. The Relevant Declaration must be in writing and must state that:
OSR Payroll Tax Form OPT 006 (Employment Agency Contracts - Declaration by Client) which is available on www.osr.nsw.gov.au may be used to make the Relevant Declaration. This form is not a prescribed form and employment agents are free to develop their own version of the declaration.
Employment agents are liable for any payroll tax liability if a Relevant Declaration is found to be incomplete or does not meet the requirements outlined above. For this reason, employment agents should ensure that their exempt clients have completed the Relevant Declaration in full.
If a client has provided a Relevant Declaration which is later found to be incorrect (because the client is not exempt or the on-hired worker is not used by the client in an exempt activity), the employment agent will only be exonerated from any payroll tax liability if the employment agent has acted in good faith at all times. If the Chief Commissioner of State Revenue believes that the employment agent has not acted in good faith, he may impose a payroll tax liability on the employment agent.
The Act requires a separate Relevant Declaration for each employment agency contract entered into between the employment agent and their client(s). However, the Chief Commissioner recognises that this requirement may be impractical and onerous.
For this reason, the Chief Commissioner will be satisfied if the employment agent obtains one Relevant Declaration from its exempt client for each calendar year if the type of work performed by all persons on-hired by that employment agent to that client is identical. Employment agents must ensure that a new Relevant Declaration is made prior to the commencement of each calendar year.
If an employment agency found out that its client is exempt under the Relevant Provisions of the Act after having paid payroll tax on the wages under an employment agency contract, the employment agency may apply for a refund under section 18 of the Taxation Administration Act 1997 (TAA).
A refund application must be accompanied by a Relevant Declaration and written confirmation from the client stating that the Relevant Declaration is made for a retrospective period correlating to the refund period. All refund applications are subject to the windfall gain provisions contained in section 20 of the TAA.
All Relevant Declarations must be kept by the employment agent for five years. Employment agents must ensure that all Relevant Declarations can be readily produced upon request by the Chief Commissioner.
If an employment agency contract has the effect of reducing or avoiding payroll tax, section 42 of the Act allows the Chief Commissioner to impose payroll tax on any payment made under the contract on any party to the contract including the client of the employment agency or the service provider.
This Revenue Ruling is effective from 1 July 2007.
Please note that rulings do not have the force of law. Each decision made by the Office of State Revenue is made on the merits of each individual case having regard to any relevant ruling.