Each month, members of The Tax Institute can access a complimentary, recently-published technical paper that provides up-to-date information on a relevant issue for tax professionals.

The paper for May was Employees v contractors by Nicholas Gangemi CTA.

Nick is a Barrister on Second Floor Selborne Chambers. He works in tax and commercial litigation, tax disputes and the provision of tax and legal advice.

In the paper, he says the distinction between ‘employees’ and ‘independent contractors’ is one that comes up regularly in the tax law. It’s an important distinction that affects income tax, payroll tax, fringe benefits tax and superannuation guarantee charge rules, with an oblique impact on the GST. In the income tax law, it has a large impact on the pay-as-you-go withholding system, employee share scheme rules and, to a lesser extent, the personal services income rules.

The concept of employment (and its distinction from independent contractors) is that used in the ordinary, general law. This concept has been developed over several centuries in several legal concepts, not just taxation, but also in the areas of vicarious responsibility, workplace compensation, employee benefits and unfair dismissal. Even though the concept is consistent in each of these areas, the focus of each is different.

There is no overarching statutory definition of ‘employee’ in either the ordinary law or in the tax law. Even so, the tax law does expand the scope of various taxing regimes to cover certain non-employee service arrangements. This ‘expansion of scope’ is not consistent across the tax law, and has led to differing regimes applying across different tax areas. In particular, each of these different rules has different exceptions. Additionally, all of these rules are expansive only and do not define the concept of employment. Rather, they build upon it.

The concept of employment is therefore still an important starting point and will in many instances cover the arrangements discussed in the paper, which looks at the leading cases in the area and the tests applicable to determining the arrangement. It also takes a survey of the various rules that expand the scope of various taxing regimes beyond the employment relationship.

If you’re a member of The Tax Institute, you can download the paper here without charge. If you’re not an Institute member, a fee will apply.