Our newsletter item of 23 December 2004 described the new rules for Pay-roll Tax where an employment agency supplies a service provider to a client of the agency. Under the amended provisions of the Pay-roll Tax Act 1971, liability for pay-roll tax shifts to the agency.

In a new Revenue Ruling, the liabilities for pay-roll tax are explained in situations where there is a "chain of on-hire", i.e. where Agency 1 supplies a service provider to Agency 2 who, in turn supplies the service provider to a client of Agency 2. Under the new rules, both agencies appear to have a pay-roll tax liability.

The ruling of the Commissioner is that, where there is a 'chain of on-hire', the agent closest to the ultimate client is the agent that is liable for Pay-roll Tax. In the situation above, Agent 2 would pay Pay-roll Tax on the payment made to Agent 1.

In situations where Agent 2 does not have a Pay-roll Tax liability because it pays total wages below the taxable threshold, Pay-roll Tax would be payable by Agent 1 on the payment to the service provider.

In order for Agent 1 and Agent 2 to know exactly what their respective Pay-roll Tax obligations will be, and to overcome situations where both Agent 1 and Agent 2 pay Pay-roll Tax on essentially the same employment agency contract arrangement, the SRO has developed a declaration form that Agent 1 should arrange for Agent 2 to complete.

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...back to 6 January 2005


Further information:
State Revenue Office website
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