Following two landmark decisions handed down by the High Court, the ATO has issued a new draft ruling on determining whether you are an employee or independent contractor.

Ensuring that you are correctly classified as either an employee or contractor is important and can have significant ramifications for you. For example, employees (and some contractors deemed to be employees) are eligible for superannuation guarantee on their salary and wages. On the other hand, if you are an independent contractor, you may need to obtain an ABN to avoid the top rate of tax being withheld from the payments you receive. 

In the new ruling, the ATO still looks at the totality of the relationship between the parties to determine the classification. What has changed in the new guidance as a result of the High Court decision is that the ATO has confirmed that where the parties have entered into a written contract, the analysis of whether it is a contractor or employee relationship should focus on the terms of that contract to establish the nature of that relationship (rather than just the conduct of the parties).

Merely being labelled an independent contractor doesn’t necessarily make it so if this is inconsistent with the rights and obligations under the contract. A genuine independent contractor will typically be:

·        Autonomous rather than subservient in their decision-making;

·        Financially self-reliant rather than economically dependent upon the business of another; and,

·        Chasing profit (that is a return on risk) rather than simply a payment for the time, skill and effort provided.

Need Help?

Talk to us if you want assistance determining whether you are an employee or independent contractor.

Please note that many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. Should you have any further questions, please email us at RGA Business and Tax Accountants at reception@rgaaccounting.com.au . All rights reserved. Brought to you by RGA Business and Tax Accountants. Liability Limited by a scheme approved under Professional Standards Legislation