Employers have many tax and superannuation obligations when it comes to their employees.
While there is a common law test for whether someone is an ‘employee’, different legislation expands the ordinary meaning to deem particular individuals to be employees when they are not. This can create significant problems where employers or their advisers miss or misapply the deeming provisions and there is a shortfall tax liability over a number of years.
The Federal Court recently considered whether jockeys were deemed to be employees for the purposes of superannuation obligations in Racing Queensland Board v Commissioner of Taxation  FCA 509 and in Scone Race Club Limited v Commissioner of Taxation  FCA 976.
Under the Superannuation Guarantee (Administration) Act 1992 (Cth), the superannuation guarantee charge (SGC) is payable on superannuation guarantee shortfalls. There will be no superannuation guarantee charge where the employer contributes the appropriate percentage (currently 9.5%) of an employee’s ‘ordinary time earnings’ into their superannuation fund.
The Act includes an extended definition of an ‘employee’. This definition was relevant in both Racing Queensland and Scone Race Club.
Under the legislation, a person who is paid to perform or present, or to participate in the performance or presentation of any:
- display or promotional activity
or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills, is deemed to be an employee of the person liable to make the payment.
In both cases, it was uncontroversial that thoroughbred racing is a sport and that jockeys are paid to participate in the sport. The question was: who was liable to make the payment to the jockeys?
What happened in Racing Queensland?
In Racing Queensland, the Commissioner raised assessments on the basis that the Racing Queensland Board was the person ‘liable to make the payment’ to the jockeys and, therefore, the jockeys were deemed to be employees of the Board under section 12.
In 2000, the Board implemented a centralised prize money system for processing the payment of prize money to owners, trainers and jockeys. The purpose was to reduce the administrative burden of complying with the new GST legislation.
The Commissioner argued that jockeys were deemed employees of the Board. The jockeys applied to the Board for their licences and the licence application form stated that the Board would pay riding fees to the jockeys via its payment system.
The Board argued that granting a jockey a licence did not give rise to a contract between the jockey and the Board.
The Court found in favour of the Board on the basis that:
- when a jockey completed a licence application, the jockey agreed to be bound by the various rules in return for being permitted to ride in races
- when a trainer completed a similar application, the trainer also agreed to be bound by the rules in return for being permitted to race a horse at meetings
- the jockey was engaged by an owner or trainer to ride a particular horse and, when this happened, the jockey entered into a separate contract with that owner or trainer
- the payment system did not change these relationships or create a separate liability for the Board to pay the jockey a riding fee – that liability rested with the owner or trainer who engaged the jockey.
Therefore, the Board was a not a person ‘liable to make the payment’ to the jockey under the extended definition of ‘employee’ in section 12 of the Act.
What happened in Scone Race Club?
In Scone Race Club, the Court considered whether the Scone Race Club was liable for SGC for unpaid superannuation contributions on amounts it paid to jockeys for riding horses in races.
There was an additional rule that applied to the relationship between the jockeys and the Club, which did not apply in Racing Queensland. It stated:
Clubs shall pay such fee for a jockey or apprentice jockey in consideration for their riding a horse in a race or a barrier trial as may be set from time to time by the Board [i.e. Racing NSW].
The Commissioner assessed the Club for SGC on the basis that it should have made superannuation contributions to jockeys in relation to the riding fees it paid to the jockeys.
Similar to his findings in Racing Queensland, Logan J found that:
- the trainer, on behalf of the owners, engaged jockeys to ride in the race
- the Club paid the riding fees to the jockeys on behalf of the owners.
The additional rule did not give rise to a separate contract between the Club and the jockey.
Significantly, there was no evidence that the Club engaged a jockey to ride in a race.
The jockey was therefore not a deemed employee under section 12 of the Act.
What should employers do?
These cases highlight the ATO audit activity in this area. They also highlight the importance of reviewing arrangements with contractors and others. In both of these cases, differently worded contracts could have resulted in very different outcomes.
Missing or misapplying deeming provisions, such as the extended definition of ‘employee’ in section 12 of the Act, can often have severe consequences for clients. Those consequences may also involve different tax liabilities and directors may be personally liable.
The Commissioner has appealed the Racing Queensland decision and the appeal deadline for Scone Race Club has not yet expired, so there may be some more horsing around to come.