Contractor or employee – tax implications

Arborist trims tree branch with chainsaw and heavy equipment

Contractor definitions and responsibilities need to be understood. Brian Beecroft of the Timber Trade Industrial Association helps navigate the contractor relationship as viewed by the ATO.

Just when you thought the legal and tax implications imposed on business was already far too complicated, it gets worse every time the government or its departments focus in again on any aspect of the contractor relationship. It’s becoming patently clear that, just because an agreement states a worker is an independent contractor, this does not mean they are a contractor for tax and superannuation purposes according to the ATO.

Where there is a written contract, the rights and obligations of the contract need to support that an independent contracting relationship exists. The fact a contractor has an ABN does not necessarily mean they have genuinely been engaged as a contractor. The ATO says that: “At its core, the distinction between an employee and an independent contractor is that:
* An employee serves in the business of an employer, performing their work as a part of that business, and
* An independent contractor provides services to a principal’s business, but the contractor does so in furthering their own business enterprise; they carry out the work as principal of their own business, not part of another.

Contracts over time

The ATO points out a contracting agreement at the start of a relationship may not continue to be one over time. For example, if the project the contractor was engaged to complete has finished, but the worker continues working for the company, the classification needs to be revisited.

What happens if there is no contract?

If no contract exists, it’s important to look at the form and substance of the relationship to come to a reasonable position about whether an employment or contractor relationship exists.

That said, it is important to have a written contract clearly stating the terms of the services provided and the nature of the relationship. This will assist if the matter is tested by a third party.

Workers compensation work, break and journey claims

An employee may be able to make a claim for injuries incurred during work breaks and some work-related journeys.
• Work-break claims: an employee may be able to claim for injuries received during an ordinary work break (eg: morning tea or lunch break) or authorised temporary absence;
• Claims while on a journey: if a worker is injured while travelling for the purposes of work, they may be able to lodge a claim for workers compensation.

If injured while travelling to or from work and their home, they may be able to lodge a claim for workers compensation. This is determined on a case-by-case basis. Speak with your insurer for more information.

For compensation to be payable there must be a real and substantial connection between the worker’s employment and the accident or incident which resulted in the injury. However, if the injury in a motor-vehicle accident occurred while travelling between the workplace and home, there may be an entitlement to compensation under the Compulsory Third Party (CTP) Scheme.

For more information, log on to

Legal support for TTIA members

If you need assistance or legal advice on a contractor agreement you may have as a business, contact TTIA’s Legal Department for practical plain-English assistance on 02 9264 0011. To see more from TTIA, click here.

A portrait of Brian Beecroft. CEO of the Timber Trade Industrial Association.
Brian Beecroft. CEO of the Timber Trade Industrial Association. Image: TTIA


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