Payroll tax exemptions for contractor payments
Arrangements with contractors involving services are almost always considered relevant contracts for payroll tax purposes. These contracts are taxable unless an exemption applies.
You only need to satisfy one of the 9 exemptions below for your contractor payment to be exempt from payroll tax.
You can watch this video to learn more about the exemptions for contractor payments.
Services provided for no more than 90 days in a financial year
Contracts are exempt if a person provides you with the same or similar services for a total of no more than 90 days in a financial year. On the 91st day, the entire period becomes liable for payroll tax.
This 90-day exemption applies to the person who is providing the service and focuses on the number of days a person works for you.
A 'day' is 1 calendar day, from midnight to midnight. Any length of time worked in a day will count as a whole day.
A contract security officer works for Night Ltd for 80 night shifts (on non-consecutive days) in total for a financial year. The security officer works from 10pm to 6am in each shift. This means 1 shift is considered to be 2 days. Therefore, the security officer has worked for 160 days. All Night Ltd's payments to him are liable for payroll tax.
You contract Bob as a concreter for 30 days and to drive a cement mixer for another 75 days. Because Bob provides you with similar services for a total of 105 days, any amounts paid to him are taxable.
Read the public ruling on the contractors 90-day exemption (PTA035) for more information.
Services required by your business for less than 180 days in a financial year
Contracts for services of a kind usually needed by the business for less than 180 days in a financial year are exempt relevant contracts.
It is the type of service required by the business that is relevant, so it doesn't matter:
- whether a contractor or employee provides these services
- how many people provide these services at a time
- whether your business requires these services on consecutive days.
This 180-day exemption in no way extends the 90-day exemption.
A building company hires a contract landscape gardener (Landscaper A) to perform landscaping services for 100 days in a financial year. A second contract landscape gardener (Landscaper B) is hired to perform the same services concurrently (i.e. at the same time) for 95 days. No other landscaping work is required by this building company for the rest of the financial year.
As the building company only requires landscaping services for 100 days in the financial year, it is exempt under the 180-day exemption. No payroll tax is payable on payments made under both contracts with Landscaper A and Landscaper B, as they are exempt relevant contracts.
However, if Landscaper B performed the 95 days of service after Landscaper A has completed his 100 days of service, the 180-day exemption does not apply. This is because the total number of days that the building company requires landscaping services is 195 (100 days + 95 days). As a result, contracts entered into with Landscaper A and Landscaper B are relevant contracts. Payments made under these contracts are subject to payroll tax, unless one of the other exemptions under the contractor provisions applies.
Two librarians are given a fixed fee to work in a legal firm's library. They only work on weekends and are the only librarians of the firm. The 180-day exemption will apply because the legal firm needs librarian services for less than 180 days in that financial year.
A ski resort requires instructors for 160 days in each financial year. For the busiest times in that period, the resort hires extra contractors for 100 days. As the ski resort requires instructors for less than 180 days (i.e. 160 days), the contracts are exempt.
Read the public ruling on the contractors 180-day exemption (PTA020) for more information.
Services performed by 2 or more people
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.
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.
Orange Ltd is a consultancy firm. Black Ltd contracts the services of Orange Ltd for an IT project. Orange Ltd employs a contractor to perform IT consulting services. The contractor brings in his wife to help with his bookkeeping and general administration. Black Ltd cannot gain an exemption as only 1 person is performing the actual work of the contract.
Read the public ruling on contractors engaging others (PTA023) for more information.
Services ancillary to the supply of goods
A contract may be exempt from payroll tax if its main purpose is to supply goods, and the labour or services provided by the contractor are only incidental to this.
Black Ltd needs a crane. Orange Ltd supplies the crane under a contract. A condition of the contract is that Black Ltd must also hire the crane operator from Orange Ltd. Amounts paid to the contractor are exempt because the supply of the crane is the principal purpose and the operator's services are secondary.
Read the public ruling on contractor services ancillary to the supply of goods (PTA033) for more information.
Services not ordinarily required by your business
A contract may be exempt from payroll tax where:
- your business does not normally need those services
- the contractor provides the same type of services for the general public and derives less than 40% of gross trading income from your business in that financial year.
A bank hires painters to paint its new office. As a bank does not usually require its offices to be painted and the painters work for the public generally that year, this contract is exempt.
A large bank hires painters to paint all of their offices in Queensland. As soon as one office is complete, the painters begin work on the next office. As the painters do not have time to work for any other businesses in that financial year, this contract is not exempt.
Read the public ruling on contractor services not ordinarily required (PTA022) for more information.
Services approved by the Commissioner as exempt
If a contractor working for you provides similar services to the general public, you can apply for an exemption, even if the arrangement does not fit the following:
- services not ordinarily required exemption
- 180-day exemption
- 90-day exemption.
The contractor must have actually provided services to the public - simply being available to provide them is not enough. For a contract to be exempt, we require evidence that these services have been provided within the relevant financial year.
We consider a number of factors to confirm this; for example:
- the extent and nature of advertising undertaken by the contractor
- the range of clients serviced by the contractor
- the extent and nature of plant and equipment provided by the contractor while performing the services
- the nature of contracts (e.g. formal long-term or informal rolled-over contracts)
- whether work is performed on separate contracts concurrently
- whether the contractor quotes competitively for jobs on an all-inclusive basis (i.e. all labour and materials).
None of the above factors is conclusive on its own; and we will also consider any other matters relevant to the exemption and the contractor’s situation.
You can claim an exemption without applying to us if the contractor's services are provided to 2 or more principals (or businesses) during a financial year, for an average of 10 days or less per month (excluding months in which no services are provided).
Services provided by an owner-driver
If a contractor carries goods in their own vehicle and only provides incidental services, the contract is exempt. The main purpose of the contract must be to deliver goods.
Among other things, the owner-driver:
- cannot be your employee
- must provide the vehicle.
Courier cyclists are not regarded as owner-drivers.
Read the public ruling on exemption for payments to owner-drivers (PTA006) for more information.
Services relating to door-to-door sales
If you are a business hiring a contractor to sell goods door-to-door for domestic purposes, amounts you pay that contractor may be exempt.
Among other things, the salesperson:
- cannot be your employee
- must sell directly to the public (for their use only, and not for resale)
- must only sell goods at the buyer's home or work.
Read the public ruling on contractor provisions for door-to-door sale of goods (PTA007) for more information.
Services relating to selling insurance
If you are an insurance company and hire a contractor to sell insurance for you, commissions paid to that contractor - for the sale of insurance - are exempt.
Exempt insurance agents:
- are not your employees
- are genuine independent contractors with an agency business
- must hold an Australian Financial Services licence or be an authorised representative of an insurance business that holds an Australian Financial Services licence.