Employment agent exemption from payroll tax
An employment agency contract is not considered a 'relevant contract' for payroll tax purposes, meaning exemptions on payments to contractors do not apply.
As an employment agent, from 1 July 2008, the wages you pay workers of a client who is exempt from payroll tax are also exempt if the:
- wages would be exempt if the client paid the workers directly
- client provides a declaration to that effect in the approved form to the employment agent.
Your client must be exempt under Part 2, Division 2 of the Payroll Tax Act 1971 for this exemption to apply.
Find out more about exempt employees.
Certain charitable institutions and local governments are exempt.
Client Ltd runs a hospital, which is an exempt institution. Client Ltd does not pay payroll tax on employees at the hospital.
Healthy Ltd provides nurses for Client Ltd's hospital. Healthy Ltd does not have to pay tax on those nurses' wages.
Before 1 July 2008, the worker was also required to perform employee-like functions for the arrangement to be regarded as an employment agency contract. This requirement no longer applies.
Claiming an exemption
To claim this exemption, you must:
- be an employment agent
- have your client complete a declaration by exempt client form (Form P9)
- keep this declaration for 5 years – we may ask for this in the future (you do not need to send this to us unless we request it).
Note: Employment agency contracts whose purpose or effect is to reduce or avoid payroll tax may not be considered when applying this exemption.
Read the public ruling on employment agency contracts and declaration by exempt clients (PTA026) for more information.
Number of declarations required
You only need 1 declaration from the exempt client per financial year, as long as the services provided by all the on-hired workers are similar.
If the workers are on-hired for more than 1 financial year, only 1 declaration is required.
You will need a separate declaration for any workers on-hired to provide different services.
Agent XYZ on-hired 6 workers to Client D (a public hospital) for 5 consecutive financial years. All 6 workers performed accounts payable work for Client D for the whole period.
Agent XYZ is entitled to the exemption because Client D and the services provided by the 6 workers are exempt from payroll tax. To claim this exemption, Agent XYZ must obtain 1 declaration from Client D for the 6 workers.
In the 2022 calendar year, Agent XYZ on-hired 3 engineers to Client D in addition to the 6 accounts payable workers. The 3 engineers were engaged to conduct maintenance work on Client D's ventilation system. The services provided by the 3 engineers are also exempt.
To claim the exemption for the 3 engineers on-hired to Client D, Agent XYZ must obtain a separate declaration from Client D for the engineers.
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