Payments to contractors are liable for payroll tax unless an exemption applies. To determine if an exemption applies, first check:
You cannot claim an exemption if the contractor is an employee or if you have an employment agency contract.
For more information, read our common errors page.
If you engage a sub-contractor, you should obtain a signed copy of this declaration from the sub-contractor even if the payments you make to the sub-contractor are exempt under one of the contractor exemptions.
This form contains a declaration that during the financial year in which the sub-contractor performed work for you, the sub-contractor paid its own payroll tax liability.
If you don’t obtain this declaration you may be liable for any unpaid payroll tax liability of the sub-contractor. You may also be liable for any unpaid workers compensation premiums or wages owed by the subcontractor relating to the sub-contractor’s workers who provided services to you.
Even if you obtain a sub-contractor’s declaration, you are still liable for payroll tax on the payments you make to the subcontractor unless one of the contractor exemptions apply.
If you satisfy one of the following exemptions, then the payments you make to the contractor are exempt from payroll tax. If an exemption does not apply, you may be able to claim a deduction for the non-labour component but you must pay payroll tax on the remaining amount:
This exemption applies if the main purpose of a contract is to supply goods or equipment, and the services provided by the contractor are only ancillary to this. When the amounts relating to goods or equipment are more than 50 per cent of the total contract amount, the provision of labour under the same contract is considered ancillary.
For more information, read Revenue Ruling PTA 033, our case studies and the practice note (CPN 007) on payroll tax contractors.
A drill is supplied under a contract for $200,000. A condition of the contract is that a drill operator must also be engaged at a cost of $50,000. The total contract value is $250,000. Amounts paid to the contractor are exempt because the supply of the drill is the principal purpose and the operator's services are incidental.
A contract is exempt from payroll tax when:
A bank hires painters for their new branch. As a bank does not usually require painting services and the painters generally work for the public during the year, this contract is exempt.
A bank hires painters for their new branches. The painters don't provide services to anyone else during the year. This contract isn't exempt.
For more information, read Revenue Ruling PTA 022.and the practice note (CPN 007) on payroll tax contractors.
This exemption applies if you require a specific type of service for 180 days or less. It’s the type of service required that is relevant, so it does not matter:
This is different to the 90 day exemption, which focuses on the contractor and the number of days they provide their services. The 180 day exemption does not extend the 90 day exemption.
For more information, read Revenue Ruling PTA 020, PTA 014, our case studies and the practice note (CPN 007) on payroll tax contractors.
A company contracts a landscape gardener for 100 days in a financial year. A second contract landscape gardener is engaged at the same time to perform the same services for 95 days. No other landscaping work is required for the rest of the financial year.
As the the landscaping services are required for only 100 days in the financial year, both contracts are exempt and payments are not subject to payroll tax.
A software development company engages additional software consultants during their busiest time. Together they provide these services for 120 days in a financial year. The company also has full time employees performing the same kind of work. The 180 day exemption will not apply for the consultants as the company requires these services throughout the financial year.
This exemption applies if the contractor provides the same or similar services for 90 days or less in a financial year. If the services are provided for more than 90 days, the wages paid for the entire period become liable for payroll tax.
Any amount of time worked on a day is counted as a full day and the days worked by the contractor do not have to be consecutive.
For more information, read Revenue Ruling PTA 035v2, PTA 014, our case studies and the practice note (CPN 007) on payroll tax contractors.
A plumber installs the piping in the building within 80 days in a financial year and does not provide any other service. As services were provided for less than 90 days in a financial year, this exemption will apply.
A company provides website design services for 80 days and website re-design services for another 50 days in a financial year. As similar services were provided for more than 90 days in a financial year, this exemption will not apply.
If a contractor provides similar services to the public, you can request this exemption even if the following exemptions do not apply:
We’ll consider a range of factors including:
The contractor must actually provide services to the public, simply being available to provide them is not sufficient.
You can claim this exemption without applying to us if the contractor provided services of that type to:
For more information, read Revenue Ruling PTA 021, our case studies and the practice note (CPN 007) on payroll tax contractors.
This exemption applies if a contractor engages two or more workers to provide the contracted services.
If the contractor is a partnership or sole trader, this exemption will only apply if one or more workers provide the services in addition to the partner or sole trader. This exemption may apply where:
|Type of contracting entity||Persons performing the work under the contract|
|Company||Two or more|
|Partnership of natural persons||Partner(s) and at least one other person, or two or more people none of whom is a partner|
|Sole trader||The sole trader and at least one other person(s), or two or more people none of whom is the sole trader|
The services performed must be directly for the purpose of the contract before the exemption can apply. There are also additional conditions you must meet before claiming this exemption.
For more information, read Revenue Ruling PTA 023, our case studies and the practice note (CPN 007) on payroll tax contractors.
A company contracts another business. The work is completed by one person with a second person doing the invoicing. The exemption cannot be claimed as there’s only one person doing the actual work of the contract. The invoicing is not for the purpose of the contract.
A partnership of natural persons provides human resources consultancy under a contract. Both partners provide the services and do not engage anyone else. This exemption cannot apply as the work is only performed by the partners.
This exemption applies if the services provided by the contractor are incidental to the transportation and delivery of goods in a vehicle provided by the contractor. The vehicle provided by the contractor must not be owned or leased by the employer and the employer must not contribute to the capital or running expenses of the vehicle.
Courier cyclists are not regarded as owner-drivers.
A whitegood company uses a courier to deliver fridges. The courier owns and operates the truck without any contributions from the employer. The courier does not provide any other services. This exemption will apply.
For more information, read Revenue Ruling PTA 006, our case studies and the practice note (CPN 007) on payroll tax contractors.
The payroll tax anti-avoidance provisions apply when an arrangement reduces or avoids a liability for payroll tax. We do not need proof that the arrangement was intentionally designed to achieve this outcome, what matters is the effect the arrangement has on the payroll tax liability. Where the payroll tax anti-avoidance provisions are applied, the arrangement between the parties is disregarded and all contractor payments may be included for payroll tax.
When both services and labour are provided under a contract, only payments relating to labour are liable for payroll tax.
If the contract does not separate the materials or equipment from the labour, the following deductions are applied:
|Trade||Deduction from gross payments to contractor|
|Building supervisors who provide their own vehicles and inspect more than 6 sites per week||25%|
|Cabinet makers/kitchen fitters||30%|
|Painters who provide their own paint||30%|
|Painters who do not provide their own paint||15%|
|Resilient floor/vinyl layers||37%|
|Wall and ceiling plasterers||20%|
|Wall and floor tilers||25%|
If your trade is not listed in the table or you believe a higher deduction should apply, contact us for a decision.
A reduction does not apply for other costs such as transport and home office.
The goods and services tax component is not liable.