The ATO recently released Draft Tax Ruling TR 2023/4DC1: Income Tax and Super Guarantee – Who is an Employee.

The ruling consolidates several rulings into one document. It clarifies the extended meaning of “employee” under Section 12(3) of the Superannuation Guarantee (Administration) Act 1992.

To satisfy section 12(3), it must be established that:

1. There is a contract (written or verbal).
2. The contract is wholly or principally for the labour of the person.
3. The person performs the work under the contract.

The work must be performed in their own capacity and not via an interposed entity such as a company, trust, or partnership.

The draft ruling outlines three key considerations to support the view that the contract is not wholly or principally for the labour of the person:

1. There is a right to delegate, subcontract, or assign the work to others.
2. The contract is for the provision of a result.
3. The contract is principally for a benefit other than the labour of the worker, such as the provision of equipment.

The ruling clarifies that the mere existence of a right to delegate or subcontract is sufficient, whether or not it is subject to the consent of the engaging party. However, the right must not be a sham or legally incapable of exercise.