Gig workers can be considered independent contractors or employees, or sometimes the platform operator is classed as an employment agent. It depends on the business structure and the workers’ employment relationship. Click the arrow to read the new ‘Gig economy businesses’ page.
Real estate businesses often make mistakes that have significant payroll tax consequences.
Conjunction arrangements
A conjunction arrangement is when real estate agents share commissions on the sale of a property.
Conjunction arrangements are common and widely accepted within the real estate industry.
There are two broad types of conjunction arrangements – internal and external.
Internal conjunction arrangements
There may be significant payroll tax consequences if an internal conjunction arrangement is treated incorrectly.
An internal conjunction arrangement is between a real estate business and an agent who routinely works for that business.
There is often a formal contract between the business and the agent that sets out the terms of an ongoing arrangement.
The main objective of the arrangement is for the real estate business to use the services of a licensed real estate agent.
Key characteristics
There is often little or no distinction between the business and the agent. The agent usually works or represents themselves under the brand name of the real estate business.
Both the business and agent are highly dependent on each other when it comes to their core income-producing activities.
In agency agreements with vendors:
both the real estate business and the agent are usually listed together as ‘Agent’
all statutory requirements, including the handling of trust money, are managed by the real estate business.
the real estate business pays commission to the agent at a pre-determined rate.
Example
The Best Agency Pty Ltd is a real estate sales and property management business. The business made an offer to an existing sales agent to work for them as an internal conjunction agent.
A formal contract was drawn up, which set out the terms of the new arrangement. Under the new contract, the commission paid for each property sale increased by 10 per cent. The agent was required to set-up a company and get a corporate real estate licence. All commissions from that point forward were paid to the agent’s company directly from the Best Agency trust account.
The agent continued to be represented under the brand name and work exclusively for the Best Agency. In turn, the agency managed all statutory requirements and covered all costs associated with running the real estate business.
Watch a video on internal conjunction arrangements
Contractor exemptions for internal conjunction arrangements
There are four contractor exemptions real estate businesses commonly claim for the commissions paid to agents under internal conjunction arrangements. Our current practice is to accept an exemption where all required criteria are met.
Our audits find most internal conjunction arrangements do not meet the required criteria. In these cases the commissions paid to the agent should be declared as taxable in your payroll tax returns.
Open the headings below for more details about the required criteria.
This exemption can only be claimed if the real estate business can show that a sales agent worked for no more than 90 days in a year.
Any type of work performed by an agent counts as a day worked. This could include:
taking a call from a prospective buyer
attending a property inspection, or
meeting with a vendor to sign an agency agreement.
Most real estate businesses do not actively monitor or keep records of the hours/days worked by agents engaged under internal conjunction arrangements.
In this case the exemption would not be available to the hiring real estate business.
This exemption can only be claimed if there were two or more workers who provided real estate services under an internal conjunction arrangement.
To qualify for the exemption, each worker must have:
been engaged directly by the internal conjunction agent (contractor entity), and
performed work directly related to the real estate services contract between the real estate business and the internal conjunction agent.
General administrative work is not considered to be directly related.
Sales support work performed by a sales assistant or salesperson may meet this criteria if the work was directly related and a significant part of the real estate services contract between the real estate business and internal conjunction agent.
A real estate business employs several licenced sales agents, auctioneers and property managers. In addition to its employees, they engage four sales agents as contractors, who are referred to as internal conjunction agents.
Each of these agents employ another person to perform general administration and reception work which includes bookkeeping, paying invoices, filing documents, and answering calls.
Although each of the four internal conjunction agents employ another person to perform work, only one agent employs a registered salesperson and is an exempt contractor for the exemption claimed.
Revenue Ruling PTA 023 clarifies the ‘person(s) must be engaged by the contractor to perform the work which is the object of the contract’.
General administrative and reception work is not the object of a real estate sales or internal conjunction contract. Therefore, the commissions should be declared for the other three agents as liable for payroll tax.
Records to keep for internal conjunction arrangements
At a minimum, you should keep the following records in relation to your internal conjunction arrangements:
the contract with the agent (or the contractor entity)
agency agreements, where the agent is a listed party
records showing how the agent was paid, and
evidence for the exemption(s) claimed.
We may request these records, and others, during an audit to validate any contractor exemptions.
External conjunction arrangements
There are generally no payroll tax consequences for the commission paid under an external conjunction arrangement.
An external conjunction arrangement involves agents from independent and unrelated real estate businesses working together to sell a property.
The vendor of the property usually enters into an agency agreement and pays commission to one agent.
The listing agent enters into a separate sub-agency or conjunction agreement with another agent.
The agreement covers the transfer of rights to sell the property and how commissions are split.
Key characteristics
The arrangement involves a business-to-business or commercial relationship.
The agents usually work and represent themselves separately.
There is no ongoing or regular relationship between the parties.
Once the property is sold, the agents split the commission and the conjunction arrangement ends.
Example
Agency A Pty Ltd entered into an exclusive agency agreement with a property vendor for the sale of their property. The property was on the market for a long time without much interest, so the vendor instructed the agent to reduce the price.
Soon after, the agent was contacted by an agent from Agency B Pty Ltd with an offer to market the property. The terms of the arrangement were agreed on and a written sub- agency agreement for the property was drawn up.
A buyer was found by Agency B and following price negotiations the vendor agreed to the sale. A deposit was paid and held by Agency A in its trust account. At settlement, each real estate business received their share of the sales commission, and the arrangement ended.
Other common errors
Not declaring all group members
Some real estate businesses do not declare all group members and incorrectly claim more than one threshold.
Businesses can be grouped for payroll tax purposes because they have a common controlling interest (more than 50 per cent) via directorship, shareholdings or beneficiaries.
Grouping can also apply if businesses are related corporations (parent companies/subsidiaries) or use common employees.
Declaring the exempt component of allowances as taxable wages
Allowances paid to employees are liable for payroll tax.
Overnight accommodation and motor vehicle allowances are not taxable unless the amounts paid exceed the exempt component. Read the allowances page for more details.
There are specific rules that apply to motor vehicle allowances for real estate sales agents.
Sales agents for a real estate business use their personal vehicles to meet with vendors and buyers. To compensate agents, they are paid a fixed weekly car allowance of $300. This allowance is in addition to other remuneration, such as superannuation, leave loading and sales commissions. The business does not require the agents to keep track of their business kilometers travelled.
Revenue Ruling PTA 025 outlines how car allowances paid to real estate sales agents can be treated for payroll tax. Where no records of business kilometers are kept, the formula of 250km × exempt rate can be used to determine the exempt portion of a car allowance.
Using this approach for the 2022-23 financial year, only $120 of the weekly allowance ($300 minus $180) paid to each agent is liable for payroll tax.
Incorrectly exempting payments
Any payments to contractors are liable for payroll tax.
Exemptions may apply if the contract meets one of the seven exemptions.
The payroll tax contractor exemptions were intended for contracts between independent businesses.
Although our current practice is to accept an exemption where all the criteria are met, we may consider applying the payroll tax anti-avoidance provisions in certain cases.
the main object of the contract was for the real estate business to obtain the personal services of a licensed real estate agent
there were high levels of integration and dependency between the real estate business and real estate agent
the relationship is similar to an employer/employee
there is evidence the arrangement between the parties reduces or avoids payroll tax.
We disregard the arrangement, including contracts, if the anti-avoidance provisions are applied.
The real estate business then becomes the employer and all commissions (and any other payments) for the services of the sales agent are taxable wages. If the anti-avoidance provision is applied, we will send out a notice with all the details.
What you need to do
You should conduct an internal review of your business to determine the correct payroll tax treatment of payments made to conjunction agents.
Registered businesses
If you have identified an underpayment, or not declared liable amounts in your monthly payroll tax return for the current financial year, include these additional amounts in your next return due for lodgement.
Unregistered businesses
If your taxable wages exceed the monthly payroll tax threshold in the current financial year, or the last four financial years, you must register for payroll tax.
Voluntary disclosures attract a reduced level of penalty tax compared to cases where we identify an underpayment. Interest will still be imposed.
Non-compliance identified through our data matching activities will result in penalty tax and interest charges, in addition to any underpayments detected.
Contact us to make a voluntary disclosure if you have not declared all liable amounts in your returns, including previous financial years.
