ARRANGEMENTS WITH CONTRACTORS MAY NOW BE SUBJECT TO PAYROLL TAX

CHANGE TO LEGISLATION

In a move designed to recoup increased amounts of payroll tax the Queensland State Government has introduced
changes to the Payroll Tax system. These changes will result in businesses having to pay payroll tax or paying more of
such tax. The changes are directed at ‘contractor arrangements’ entered into between a business and a contractor and
in effect deem certain of those arrangements to be subject to payroll tax impost.

AWARENESS

Businesses need to be aware of the changes to payroll tax and:-

(a) undertake an assessment of their ‘contracting arrangements’ to assess whether
     they are caught by the changes; and

(b) that a penalty amnesty is available until 31 March 2009. That is, the amnesty applies to disclosures
     made about a change to the liability for payroll tax from 12 October 2008 until 31 March 2009.

‘RELEVANT CONTRACTOR’ PROVISIONS

The change to include contracting arrangements that are considered to be employee arrangements resulted from
Queensland adopting ‘relevant contractor’ provisions from 1 July 2008. These provisions support the common law
employment tests on whether a person is an employee or contractor. If the contracting arrangements do not meet the
exemptions in the ‘relevant contractor’ provisions then payroll tax will be payable. The test centres on services being
provided for labour. This test may cast a net around most arrangements where the services are for labour only
depending upon the length of time they are provided to a business over a year.

EXEMPTIONS

There are 9 stated exemptions to the extended payroll tax regime, they are:-

1. The labour that is supplied under the contract is ancillary to supply or use of the goods by a contractor;
2. The services supplied under the contract are not ordinarily required by the principal and the contractor renders
   such services to the general public;
3. The services supplied under the contract are services that the principal ordinarily requires for less that 180 days
   in a financial year;
4. The services that are supplied under the contract are provided for 90 days or less in a financial year;
5. The Commissioner of State Revenue determines that the contractor provides services of the type provided under
   the contract to the public generally within that financial year;
6. The contractor engages other persons to fulfil the contract;
7. Under the contract the contractor conveys goods in a vehicle they provide;
8. Under the contract the contractor procures persons for insurance coverage;
9. Under the contract the contractor sells goods door to door solely for domestic purposes.

WAGES THRESHOLD

Currently employers with a wage bill of $1million or more must register for and pay payroll tax. The changes could result
in businesses now meeting that threshold and having to pay payroll tax; or increase any current liability to payroll tax due
to a further increased wages bill.

AUDIT

The Commissioner for State Revenue has indicated there will be an audit of businesses to check employment/contracting
arrangements to ascertain if they fall within the new provisions. If arrangements are found to be subject to the payroll tax
provisions then the Commissioner will conduct an audit over a period of the previous 5 years, and seek penalties on
unpaid tax interest.

AMNESTY

The details of the amnesty are as follows:

• no penalty tax will be imposed in relation to the contractor payments;
• the rate of unpaid tax interest will be halved in relation to the contractor payments; and
• only the previous three financial years will be reviewed.

MAIN IMPLICATIONS FOR EMPLOYERS:

• All businesses/employers should consider the contracting arrangements they have with persons who provide
  services for or to them. 
• If there is a concern the arrangements fall within the payroll tax provisions discussed in this Update then the
  arrangements need to be reviewed with the legislation in mind. 
• This should be done before the amnesty period expires on 31 March 2009. 
• Aitken Legal can assist you with the assessments of your contracting arrangements. 
• Please note Aitken Legal does not provide tax advice. Our advice will be about the determination of whether the
  arrangement is one for employment or contractor under the legislation.

If you have any questions or we can assist you with an assessment of your contractor arrangements please contact us on
5413 4000.

This Update has been prepared by Aitken Legal. We recommend that you seek legal advice before applying the information to particular circumstances.