From 1 January 2005, the former employment agency contract provisions of the Pay-roll Tax Act 1971 (PRT Act) cease to have effect and are replaced by new provisions. A detailed ruling has been issued by the State Revenue Office to explain the circumstances under which an employment agency can be exempt from Pay-roll Tax.

The new provisions define an employment agency contract as:

"a contract, whether formal or informal and whether express or implied, under which a person ('the employment agent') procures the services of another person ('the service provider') for a client of the employment agent."

Although the definition of an employment agency contract remains largely unchanged, the liability for Pay-roll Tax under the new provisions shifts from the client of the employment agent to the employment agent directly.

The new provisions deem:

1. the employment agent to be the employer of the service provider; and
   
   
2. the person who performs work for, or in relation to which services are supplied to the client (the 'onhired worker') to be an employee of the employment agent; and
   
   
3. any amount paid or payable to or in relation to the service provider (gross payment excluding GST) to be wages paid or payable by the employment agent, including:
   
   
   • any employer superannuation contribution made in respect of the on-hired worker
     
     
   • the value of any fringe benefits provided to the onhired worker.
     
     

An exemption for the employment agent is provided under section 5(3) of the PRT Act, for the wages paid to the on-hired worker, under an employment agency contract, where:

1. the wages would be exempt from Pay-roll Tax under section 10 of the PRT Act had the on-hired worker been paid by the client as an employee; and
   
   
2. the client has provided a declaration to that effect to the employment agent, in respect of the on-hired worker (a relevant declaration).

Organisations that are exempt from Pay-roll Tax under section 10 of the PRT Act include:

• charitable bodies
• public Benevolent Institutions (PBI's)
• religious Institutions
• public Hospitals
• not-for-profit Private Hospitals
• municipalities, and
• certain not-for-profit schools.

It should be noted that the wages paid by exempt organisations are only exempt from Pay-roll Tax to the extent provided under section 10 of the PRT Act.

A number of updated publications and public rulings relating to Pay-roll tax are available.

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...back to 23 December 2004


Further information:
Victoria State Revenue Office website
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