the future of work: the gig economy and … 2020/issue 1...7 miriam a. cherry and antonio aloisi,...

canadian tax journal / revue fiscale canadienne (2020) 68:1, 69 - 97https://doi.org/10.32721/ctj.2020.68.1.sym.black

69

The Future of Work: The Gig Economy and Pressures on the Tax System

Celeste M. Black*

P R É C I S

Dans un certain nombre de pays où la common law est appliquée, les travailleurs à la demande ( gig workers) (c’est-à-dire les travailleurs qui fournissent des services par l’entremise de plateformes numériques Web) ont récemment cherché à obtenir des protections des travailleurs réservées aux employés, telles que le salaire minimum, les congés de maladie et la protection contre les licenciements abusifs. Ces cas impliquent souvent l’application du critère multifactoriel de l’emploi en common law à ce nouveau contexte, et les résultats dépendent de la particularité de chaque cas. En outre, la classification en tant que salarié a des répercussions sur toute une série de questions fiscales. Dans cet article, l’auteur examine si les règles fiscales actuelles s’appliquant aux emplois atypiques sont suffisamment souples pour couvrir les travailleurs à la demande. L’analyse porte sur les impôts australiens (en particulier, l’impôt sur le revenu, les cotisations obligatoires d’épargne-retraite, et les cotisations sociales), mais l’article fait également référence à des questions semblables dans la législation canadienne. L’auteur soutient qu’en ce qui concerne l’impôt australien sur le revenu, le travail à la demande ne présente pas de risque substantiel pour l’assiette fiscale en tant que question juridique; cependant, un risque pour l’assiette fiscale nationale provient de l’écart de conformité qui est révélé lorsque les travailleurs ne sont plus couverts par les mécanismes de retenue des employeurs, mais ne sont pas non plus pris en charge par les régimes d’administration fiscale conçus pour les grandes entreprises. L’auteur laisse entendre que le recours à l’enregistrement des petites entreprises au moyen du numéro d’entreprise australien, combiné à un nouveau régime de déclaration obligatoire pour les plateformes de travail à la demande, contribuerait grandement à combler le manque de transparence, et que cela favoriserait la conformité volontaire des travailleurs à la demande, et fournirait à l’administration fiscale des données pouvant être utilisées pour détecter les cas de non-conformité. Il existe un risque réel que de nombreux travailleurs à la demande soient exclus du champ d’application du régime de cotisations de retraite et des cotisations sociales. Le gouvernement devrait en conséquence examiner s’il est approprié de modifier la loi pour inclure ces travailleurs à la demande.

* Associate professor, the University of Sydney Law School, Australia.

70 n canadian tax journal / revue fiscale canadienne (2020) 68:1

A B S T R A C T

In a number of common-law jurisdictions, gig workers (that is, workers who provide services through the use of web-based digital platforms) have recently sought to claim labour protections reserved for employees, such as the minimum wage, sick leave, and protection from unfair dismissal. These cases often involve the application of the multifactorial common-law test of employment to this new context, and the outcomes turn on the specifics of each case. In addition, classification as an employee has ramifications for a variety of tax matters. In this paper, the author considers whether the tax rules currently in place to capture non-standard employment arrangements have sufficient flexibility to capture gig workers. The focus of the analysis is Australian taxes (in particular, income tax, compulsory retirement savings contributions, and payroll tax), but reference is also made to similar issues under the laws of Canada. The author submits that, with respect to Australian income tax, gig work does not present a substantial risk to the tax base as a legal matter; however, a risk to the national revenue base comes from the compliance gap that is exposed when workers are no longer covered by employers’ withholding mechanisms but are not picked up by tax administration regimes designed with larger businesses in mind. The author suggests that reliance on the registration of small businesses through the Australian business number, coupled with a new mandatory reporting regime for gig work platforms, would go a long way toward filling the transparency gap, and that doing so would both foster the voluntary compliance of gig workers and provide revenue authorities with data that could be used to detect non-compliance. A real risk exists that many gig workers will be outside the scope of the retirement contributions scheme and payroll tax and that the government, in consequence, will need to consider whether it is appropriate policy to change the law to include these on-demand workers.

KEYWORDS: GIG WORKERS n INCOME TAXES n TAX ADMINISTRATION n SUPERANNUATION n PAYROLL

TAXES n AUSTRALIA

C O N T E N T S

Introduction 71The Employment Law Context 74

The Common-Law Multifactorial Test and Gig Workers 74The Dependent Contractor Alternative 76

Income Tax: Is the “Right” Amount of Tax Being Paid? 77Tax Base Issues: Deductions and Rates 77

Australia’s Personal Services Income Regime 78Applying the PSI Rules to Gig Workers 80

Income Tax: Compliance Issues 81Pay-As-You-Go Withholding on Wages 81No-Australian Business Number Withholding and Voluntary Agreements 83Pay-As-You-Go Instalments 84Supporting the Voluntary Compliance of Workers 85Reporting by Gig Platforms to Revenue Authorities 86

the future of work: the gig economy and pressures on the tax system n 71

INTRO DUC TIO N

The OECD’s 2018 interim report, Tax Challenges Arising from Digitalisation, high-lighted the fact that digitalization, which has bolstered the rise of the so-called gig economy and sharing economy, is changing the nature of work and testing the traditional distinction between employees and independent contractors.1 These developments have obvious implications for employment law; in a number of common-law jurisdictions, gig workers have recently sought to claim labour protections provided to employees, such as the minimum wage, sick leave, and protection from unfair dismissal.2 There are also obvious implications for the revenue base, notably in the areas of income tax, social security and retirement savings contributions, and payroll tax. This issue is hardly new, however, and employment law and taxation policy have long sought to address the trend of converting employees into what Harry Arthurs, back in 1965, coined “dependent contractors.”3 The gig economy has analogies with piecework and labour-hire arrangements, but with a web-based twist. What is perhaps new is the relative ease of engagement with such platforms—for both requester and worker—and the resulting scale of engagement, along with the greater possibility that the worker, requester, and platform operator may be located in different jurisdictions. Although the gig economy presents challenges from a tax base and tax administration perspective (challenges that are addressed in this paper), the electronic information generated through web-based platforms presents opportunities to assist both workers and revenue authorities with tax compliance.

Any potential legislative or administrative response to these challenges must take into account the scale of the challenge, in circumstances where measures of the sharing and gig economy may not be reliable4 and may quickly become out of date.

Retirement Contributions: A Potential Policy Problem 89Compulsory Superannuation in Australia 89

Definition of “Employee” for Superannuation Purposes 89Are Incentives Enough? 92

The CPP and Employment Insurance 92Payroll Taxes in Australia: A Tax Base Problem for the States 93

Employees and Labour-Hire Arrangements 94Relevant Contracts Extension 95

Conclusions and a Way Forward 95

1 Organisation for Economic Co-operation and Development, Tax Challenges Arising from Digitalisation—Interim Report 2018: Inclusive Framework on BEPS (Paris: OECD, 2018), chapter 7.

2 See, for example, in the United States: O’Connor v. Uber Technologies Inc., 904 F. 3d 1087 (9th Cir. 2018); and in the United Kingdom: Uber BV v. Aslam, [2018] EWCA Civ. 2748.

3 Harry W. Arthurs, “The Dependent Contractor: A Study of the Legal Problems of Countervailing Power” (1965) 16:1 University of Toronto Law Journal 89 - 117.

4 Tax Challenges Arising from Digitalisation, supra note 1, at 195, box 7.1.


Work completed by Deloitte Access Economics for the New South Wales (NSW) Department of Finance, Services and Innovation showed a growth in revenue from the collaborative (sharing and gig) economy in NSW of 68 percent from 2015 to 2016 and a doubling of the number of users generating income in the same period, when income from this economy represented 0.5 percent of the gross NSW state product.5 More recent work commissioned by the Victorian Department of Premier and Cabinet shows that 7.1 percent of respondents either currently or in the last 12 months earned income by working through a digital platform and that another 6 percent had done so in the past (but not in the last 12 months).6

My focus in this paper is “gig work”—the provision of services through the use of web-based digital platforms. Although I emphasize the tax issues that arise under Aus-tralian law with respect to such work, I also refer to comparable concerns under Canadian law. Other important tax issues raised by other kinds of digitalized eco-nomic activity—such as the sharing economy (for example, the rental, or “sharing,” of accommodation or the hiring of motor vehicles) and the online sales of goods—are outside the scope of this paper. Another area that I do not address is the international tax implications raised by cross-border gig arrangements.

The gig economy comprises a wide variety of arrangements. This diversity, along with the rapid pace at which new platforms are developed, makes categoriza-tion difficult and complicates the development of legislative responses. This new on-demand labour can be grouped into two types, following Cherry and Aloisi’s analysis:7 (1) application or web-based platforms used to deploy workers to perform

5 Deloitte Access Economics, Developments in the Collaborative Economy in NSW, commissioned by the New South Wales Department of Finance, Services and Innovation (Sydney: Deloitte Access Economics, 2016), at 4. The data for revenue generated and users were sourced from the businesses’ websites. The number of users generating income is measured at 92,400 out of a total state population of approximately 7.5 million (so 1.2 percent of the population), but the user numbers do not appear (and are not likely) to adjust for unique participants. Another report, by RateSetter, found that 60 percent of respondents used a sharing-economy service in the relevant six months and that 21 percent earn at least $50 per month through such services. However, 16 percent of the users reported using Uber and only 3 percent used service platforms (the largest share, at 53 percent, being sales of goods), and the breakdown of sources of income are not provided. These data are based on a survey of 1006 respondents. See “Sharing Economy Trust Index: Winter 2016,” Ratesetter.com.au (www.ratesetter.com.au/blog/posts/ratesetter -sharing-economy-trust-index-winter- 2016). According to its website, Airtasker has over 2 million registered workers (roughly 8 percent of the Australian population), which seems rather high in comparison with the other data. See Airtasker.com (https://www.airtasker.com).

6 Paula McDonald, Penny Williams, Andrew Stewart, Damian Oliver, and Robyn Mayes, Digital Platform Work in Australia: Preliminary Findings from a National Survey (Melbourne: Victorian Department of Premier and Cabinet, June 18, 2019), at 10. The survey produced more than 14,000 usable responses and included individuals from across Australia. The report is available through the Victorian Government’s inquiry, currently underway, into the Victorian on-demand workforce: See “Inquiry into the Victorian On-Demand Workforce” (https://engage.vic.gov.au/ inquiry-on-demand-workforce).

7 Miriam A. Cherry and Antonio Aloisi, “ ‘Dependent Contractors’ in the Gig Economy: A Comparative Approach” (2017) 66:3 American University Law Review 635 - 89.


tasks in the real world and (2) cloud labour, where transactions are wholly online and whose workers can be located anywhere. The first category requires location-specific work, such as transporting a person or food from one location to another (for example, Uber or DoorDash) or cleaning or assembling furniture (for example, Airtasker or AskforTask), as arranged through the platform. This type of gig work is perhaps more familiar to the general public and more likely to be used by private individuals. Cloud labour is more akin to labour outsourcing: a requester makes a call for work through a platform, and the workers with the necessary skills are matched, bid for the gig, get accepted by the requester, perform the work wherever they are located, submit online, and are paid online. Gig work can be further sub-divided into (1) project work, in which the task is more complex and “manually managed” by the requester; and (2) scalable micro-tasks in which work is broken down into small constituent parts that are programmatically managed by the platform (more akin to piecework).8 Examples of platforms that use cloud labour are Free-lancer, Upwork, and Amazon’s Mechanical Turk (MTurk). Payments are ordinarily for the completion of a task, though some platforms do have gigs paid on the basis of hours worked.9

What is consistent across these models is the platform’s role as the facilitator and coordinator of the connection between requester and worker and as the means of processing the payment by the requester to the worker, with the platform oper-ator retaining a fee of some description. The contractual arrangements are often three-sided, or tripartite: there are often contractual relationships between the requester and the platform operator, the worker and the platform operator, and the requester and the worker. These relationships may be compared with trad-itional labour-hire arrangements, which involve worker-agency and agency-client agreements but no worker-client contracts.

In the second part of this paper, I provide an overview of the way in which the tension inherent in the binary distinction between employee and independent con-tractor is being manifested in the context of gig workers, and I introduce Arthurs’s “dependent contractor” alternative. As my discussion shows, many provisions in the tax legislation attempt to address certain contractor and labour-hire arrangements, and I proceed to consider tensions in the revenue system.

Arguably the greatest concern is how to treat gig work under income tax law. This is the first question I consider in the third section of this paper, where I analyze both tax base and tax administration issues. Two other tax issues related to gig work are discussed in this paper. In the fourth part of the paper, I consider mandatory

8 Robert Kern, Dynamic Quality Management for Cloud Labour Services: Methods and Applications for Gaining Reliable Work Results with an On-Demand Workforce (Cham, Switzerland: Springer, 2014), chapter 2 (http://doi.org/10.1007/978 - 3 - 319 - 09776 -3).

9 Freelancer’s online support pages discuss the options of fixed-price versus hourly projects: “Fixed-Price vs Hourly Projects,” Freelancers.come.au (www.freelancer.com.au/support/Project/fixed-price-vs-hourly-projects).


social security/retirement savings contributions, and in the fifth part I address state-level payroll taxes. I suggest that the tax base issues posed by the gig economy are not likely to be as significant as the administrative challenges, and that a cooperative approach between platforms and revenue authorities, as well as between revenue authorities, has great potential to support revenue collection and voluntary taxpayer compliance.

THE EMPLOYMENT L AW CO NTE X T

Characterization of a worker as an employee, rather than as an independent contractor, has been called the gateway to a variety of protections provided by employment legislation, such as rights to minimum wage and to benefits, and pro-tection from unfair dismissal. Employee status also activates a number of employer obligations, such as contributions to worker insurance and social security, and it is a trigger for many tax rules, such as payroll tax liability and employer withholding obligations.

The Common-Law Multifactorial Test and Gig Workers

At law, the classification of a worker as an employee generally commences with a common-law test that developed in relation to the tort of vicarious liability and contract law, but this test may be augmented by the legislature, depending on the context. The application of these tests to workers engaged in precarious employ-ment is litigated with some regularity, largely because the determination of whether to classify a worker as an employee or an independent contractor is a factually based determination. The rise of gig work continues to trigger litigation as the pre-carious nature of this work is being more fully realized by the workers involved.

In Australia, the binary common-law divide between employees and independent contractors has been maintained as the relevant test for federal employment-law purposes.10 As in other common-law jurisdictions, the employment test is multifac-torial and takes into account such matters as who controls the manner, location, and timing of the performance of the work; who bears the risk of rectification; who provides tools and equipment; whether delegation of the work is allowed under the contract; whether the worker maintains a separate place of work and holds herself out to the public for similar services; and how remuneration is calculated (that is, by hour or by task).11

Australia’s Fair Work Commission (FWC) has recently applied these tests to workers in the gig economy. A decision of the FWC in late 2017 determined that Uber drivers were not employees and therefore not eligible for the “unfair dismissal” protections afforded by the Fair Work Act 2009, although Deputy President

10 Australia Fair Work Act 2009, No. 28, 2009, section 11.

11 For consideration of these tests by the High Court of Australia, see, for example, Stevens v. Brodribb Sawmilling Co. Pty Ltd. (1986), 160 CLR 16; and Hollis v. Vabu Pty Ltd. (2001), 207 CLR 21.


Gos tencnik noted that the traditional notions of employment that he was bound to apply are perhaps now outmoded.12 A 2019 investigation by the Fair Work Ombuds-man recently reconfirmed the conclusion that Uber drivers are not employees.13 In contrast, the FWC applied the multifactorial employment test to a Foodora (food delivery platform) worker and found that the bicycle delivery worker was an em-ployee and therefore entitled to a remedy for unfair dismissal.14 The Fair Work Ombudsman commenced legal action to test some of these principles before the Federal Court of Australia but was forced to abandon the case when Foodora entered voluntary administration.15

The details of arrangements with gig workers are not standardized; thus, the determination of whether, in any particular case, the worker is an employee under the common-law test will be determined by weighing up the various relevant facts. In many cases, gig workers may fall outside the definition of “employee.” The employ-ment status of gig workers was recently considered in some depth by a select com-mittee of the Australian Senate, as part of an enquiry into the future of work.16 The committee, on the basis of the evidence provided, rejected the view that gig workers are “independent contractors in the true spirit of the term”17 and, recognizing the workers’ dependence on the platform for work and income,18 called for legislative

12 Kaseris v. Raiser Pacific VOF, [2017] FWC 6610. The commission noted as relevant that both the driver and Uber exercised elements of control but that the driver (1) provided his own equipment, (2) was not required to wear a uniform or identify the car with the platform, (3) was registered for GST, and (4) was managing his own tax affairs like a small business operator; and that the contract identified the relationship as one of independent contractor.

13 Australian Government, Fair Work Ombudsman, “Uber Australia Investigation Finalised,” Media Release, June 7, 2019. Key points made by the ombudsman were that “Uber Australia drivers have control over whether, when, and for how long they perform work, on any given day or any given week” and that “Uber Australia does not require drivers to perform work at particular times and this was a key factor in . . . [the] assessment.” See ibid. This accords with the conclusion reached by the general counsel of the US National Labor Relations Board, Peter Robb, that Uber drivers are independent contractors and not employees: see United States, National Labor Relations Board, Office of the General Counsel, Advice Memorandum (AM) 13 -CA- 163062, April 16, 2019 (www.nlrb.gov/case/13 -CA- 163062).

14 Klooger v. Foodora Pty Ltd., [2018] FWC 6836.

15 Proceedings were commenced in June 2018, alleging that Foodora engaged in sham contracting that sought to classify employees as independent contractors in order to avoid its responsibilities as employer, thus resulting in underpaying employees. Proceedings were discontinued in September 2018. See Australian Government, Fair Work Ombudsman, “Fair Work Ombudsman Commences Legal Action Against Foodora,” Media Release, June 12, 2018 (www.fairwork.gov.au/about-us/news-and-media-releases/2018 -media-releases/june- 2018/ 20180612 -foodora-litigation).

16 Parliament of Australia, The Senate, Select Committee on the Future of Work and Workers, Hope Is Not a Strategy—Our Shared Responsibility for the Future of Work and Workers (Canberra: Commonwealth of Australia, September 2018), at paragraphs 4.58 - 4.84 and 4.115 - 4.124.

17 Ibid., at paragraph 4.122.

18 Ibid., at paragraph 4.123.


amendment to broaden the definition of “employee” to include gig workers for employment law purposes.19 This recommendation has not been taken up by the Australian government.

The Dependent Contractor Alternative

Employment law in Canada has in some important respects moved beyond the binary test to recognize the need to extend certain protections to a third category of worker, the “dependent contractor,” a category based on Arthurs’s influential work.20 The scenarios described by Arthurs involved small businesses, such as truck owner-drivers, taxi operators, and fishers, that are economically dependent on a larger company but are contractors at law. Arthurs’s main concern was the ability of these dependent contractors to engage in collective action in order to balance the power of the larger company.21

Bendel notes that rules deeming dependent contactors to be employees for the purposes of collective bargaining law were adopted in seven jurisdictions in Canada in the 1970s; these rules varied in some degree from Arthurs’s recommendations and from that of the 1968 Woods Task Force on Labour Relations, and they varied from province to province.22 For example, such a deeming rule for dependent contractors can now be seen in the Canada Labour Code, part I, in relation to indus-trial relations.23 A more recent review of Canada’s federal labour standards, headed by Arthurs in 2006, recommended that certain minimum standards and conditions in part III of the Canada Labour Code be extended to a subset of dependent con-tractors identified as “autonomous workers,” with the criteria for such status being set on a sector-by-sector basis to include persons who provide services comparable

19 See recommendation 10 in ibid., at paragraph 4.129.

20 Arthurs, supra note 3.

21 Arthurs, supra note 3, at 89.

22 Michael Bendel, “The Dependent Contractor: An Unnecessary and Flawed Development in Canadian Labour Law” (1982) 32:4 University of Toronto Law Journal 374 - 411, at 376.

23 Canada Labour Code, RSC 1985, c. L- 2, section 3(1). For the purposes of part I, the term “employee” is defined to include a “dependent contractor,” which includes, in paragraph (c), the following meaning: “any other person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person.” By way of comparison, in Ontario’s Labour Relations Act (1995), SO 1995, c. 1, schedule A, section 1(1), “employee” includes a “dependent contractor,” defined as “a person, whether or not employed under a contract of employment, and whether or not furnishing tools, vehicles, equipment, machinery, material, or any other thing owned by the dependent contractor, who performs work or services for another person for compensation or reward on such terms and conditions that the dependent contractor is in a position of economic dependence upon, and under an obligation to perform duties for, that person more closely resembling the relationship of an employee than that of an independent contractor; (‘entrepreneur dépendant’).”


to those provided by employees.24 This recommendation has not been adopted, however. A similar approach has been taken in the United Kingdom, where individ-uals defined as “workers” are provided with some but not all of the rights extended to “employees” (for example, workers are entitled to the minimum wage but not to protections against unfair dismissal).25

As these government reviews show, there are legitimate concerns that the current employment law framework may not provide adequate protections for workers en-gaged in non-standard employment, including but not limited to gig workers. The test of employment under the common law may evolve over time to include such workers in the category of employees, but recommendations to date have been for more immediate and controlled parliamentary intervention to extend worker protections to at least some of these classes of workers. Such action will not auto-matically affect revenue laws, however, and it must be acknowledged that the policy goal in protecting those engaged in precarious work (that is, the goal of extending the right to collective action and minimum work standards) does not automatically involve a requirement to change tax rules. In the following sections of this paper, I consider (1) the three main imposts on employers in Australia that are triggered by services arrangements (that is, the Commonwealth income tax, mandatory retire-ment savings contributions, and state-based payroll taxes); (2) how the law and administrators have sought to deal with non-standard workers; and (3) whether further intervention may be required.

INCOME TA X : IS THE “ RIGHT ” A MO UNT O F TA X BEING PA ID?

A concern expressed in some commentary about gig workers is that they are not paying the “right amount” of tax and that the tax base consequently suffers. Although some income tax base issues clearly arise under Australian law when a worker oper-ates as an independent contractor rather than as an employee, I would suggest that the bigger issue in this regard is one of compliance—gig workers either failing to appreciate the tax consequences of their income-earning activities, lacking adequate records to support voluntary compliance, or wilfully ignoring their obligations.

Tax Base Issues: Deductions and Rates

The two main income tax base issues for gig workers are deductions and rates. Whether receipts are assessable income is not really a question, given that both rewards for services (whether provided by an employee or an independent con-tractor) and income from business are assessable as ordinary income in Australia.26

24 See recommendations 4.2 and 4.3 in Harry W. Arthurs, Fairness at Work: Federal Labour Standards for the 21st Century (Gatineau, QC: Government of Canada, 2006), at 61 - 65.

25 Employment Rights Act 1996 (UK), 1996, c. 18, section 230. 26 Income Tax Assessment Act 1997, No. 38, 1997, section 6-5 (herein referred to as “the ITAA

1997”).


Although evidence of repetition and scale may be relevant for determining whether an activity is a business27 and thus whether the proceeds are business income, criteria related to repetition and scale are not necessary for determining whether a receipt is income from services; the important test under Australian tax law is whether the amount is a product or reward for the services provided.28 The issues of deductions and rates have been addressed in both Australia and Canada, and integrity measures already in place may be sufficiently effective to control these issues.

In Canada, provisions within the Income Tax Act29—in particular, the “personal services business” rules—limit the benefits that might otherwise be obtained from offering services through a corporate structure. The “incorporated employee” rules are triggered when a corporation carries on a business of providing services, and the incorporated employee, who is a specified shareholder, “would reasonably be regarded as an officer or employee of the person or partnership to whom or to which the services were provided but for the existence of the corporation.”30 The Act limits the deductions that the corporation can claim to those expenses that are listed,31 and the rate of tax payable is adjusted32 so as to be significantly higher than the small business or general business rates.

Australia’s Personal Services Income RegimeAustralia, too, has rules that target the issues of deductions and rates. The “personal service income” (PSI) rules operate to limit the deductions available to individuals and companies earning the PSI of an individual.33 PSI is a key concept, defined as income that is mainly a reward for an individual’s personal effort or skills, and, importantly, it applies regardless of whether the income is earned for doing work or for producing a result.34

To prevent taxpayers from taking advantage of the gap between the top individ-ual income tax rate (currently 45 percent plus a Medicare levy of another 2 percent) and the company tax rate for small active businesses (currently 27.5 percent), the rules attribute PSI of the company to the individual if that amount is not otherwise promptly paid out by the company to the individual as wages.35 This ensures that

27 See, for example, Ferguson v. Federal Commissioner of Taxation, 1979 FCA 29.

28 Hayes v. Federal Commissioner of Taxation (1956), 96 CLR 47 (HCA); and Scott v. Federal Commissioner of Taxation, 1966 HCA 48.

29 Income Tax Act, RSC 1985, c. 1 (5th Supp.), as amended (herein referred to as “the Act”).

30 Subsection 125(7) of the Act.

31 Paragraph 18(1)(p) of the Act.

32 Section 123.5 of the Act.

33 ITAA 1997 divisions 85 and 87.

34 ITAA 1997 section 84 - 5.

35 ITAA 1997 division 86. Sole traders carrying on a small business are also entitled to an income tax offset that recognizes the rate differential between individuals and companies. The rate of the offset is currently 8 percent of the small business net income (up to a maximum of AU $1,000)


the PSI is taxed to the individual at the individual’s marginal rate. These conse-quences can be avoided if the company is carrying on a personal services business (PSB), as defined in the ITAA.36

The “limitation on deduction” rules broadly limit business-related deductions incurred in producing PSI to those that would have been available had the income been derived as an employee.37 This restriction reflects the perception that busi-nesses are entitled to certain expense deductions that are not otherwise available to employees. The denial-of-deduction rules apply both to companies with PSI and to individuals who are in business as independent contractors. Certain expenses are still allowed (such as advertising and income protection insurance premiums), and specific ones are denied (some home-office expenses and payments to associates). If the business is in the form of a company, other expenses, such as entity maintenance (for example, business registration fees), are specifically allowed.38

The full range of deductions will still be available if it can be shown that the business is a PSB. This serves to limit the application of these rules to situations that are identified as having the potential to erode the tax base—that is, cases of depend-ent contractors and of services provided in an employee-like manner.39 The first PSB test is the results test. This test is satisfied if at least 75 percent of the individual’s income meets the following three criteria: (1) the income is for producing a result; (2) the individual is required to supply any necessary tools; and (3) the individual bears the commercial risk (expressed in the legislation as being liable for the cost of rectifying any defect).40 The results test picks up some of the traditional criteria for distinguishing independent contractors from employees.

If the results test is not met, the next question is whether 80 percent or more of the PSI comes from one service acquiror (this situation is similar to the dependent contracts scenario from Arthurs’s work). If so, the taxpayer must apply to the Aus-tralian Taxation Office (ATO) for a determination that there is a PSB; if not, taxpayers can self-assess under the other PSB tests. If the business involves any one of the fol-lowing elements, it is a PSB and therefore not subject to the integrity rules: it has two or more clients that are obtained by advertising (and thereby passes the un-related clients test); it engages at least one employee to do at least 20 percent of the principal work; or it maintains and uses exclusive and separate business premises.41

but will rise to 16 percent by 2021 - 22. ITAA 1997 section 328 - 355. An individual earning PSI cannot access this offset unless he or she is carrying on a PSB. ITAA 1997 section 328 - 365.

36 ITAA 1997 division 87. 37 ITAA 1997 section 85 - 10. 38 ITAA 1997 subdivision 86 -B. 39 Australia, Review of Business Taxation, A Tax System Redesigned: More Certain, Equitable and

Durable (Canberra: Australian Government Publishing Services, July 1999), at 286 - 94. 40 ITAA 1997 section 87 - 18. 41 ITAA 1997 subdivision 87 -A. The ATO’s views on the application of these tests can be found

in Australian Taxation Office, Taxation Ruling TR 2001/8, “Income Tax: What Is a Personal Services Business,” August 31, 2001.


Applying the PSI Rules to Gig WorkersIn applying this regime to the typical gig worker, who would usually be unincorpor-ated, the concern would be the limitation on available deductions. The payments for gig work would likely be PSI. Although some gig work does require that the worker provide sizable assets (for example, a vehicle for providing rides or deliver-ing parcels), it is still likely that the payments would be mainly for the worker’s services. The legislation provides an example of a commercial truck owner-driver whose income is not PSI,42 but the ATO’s guidance materials distinguish this case from that of a person using an ordinary vehicle (that is also used for private purposes) for deliveries, which, in the ATO’s opinion, does give rise to PSI.43 So the analysis turns to whether there is a PSB.

In many cases, a contract to provide gig work will provide for payment based on the production of a result rather than on (for example) time, and the gig worker would ordinarily provide his or her own equipment and be liable if the service or result is not acceptable. The results test would therefore usually be satisfied, such that the other tests need not be considered. If one proceeds to the “80 percent from one source” and “unrelated clients” tests, the issue is whether one tests the platform or the requester as the client. The ATO’s ruling states that a labour-hire firm would often be considered one source under the 80 percent test,44 and the legislation pro-vides that using a service arranger (such as a labour-hire firm) to obtain work does not qualify as advertising under the unrelated-clients test.45 However, arrangements with a platform operator differ in nature from arrangements with a labour-hire firm, especially in that gig contracts may specifically provide that the customer is paying the worker and that the platform is merely an intermediary facilitating such pay-ment (reflecting the tripartite nature of the contracts). The employment test and the business premises test would likely be difficult for a gig worker to satisfy.

In summary, the typical gig scenario, where the worker is an unincorporated independent contractor, does not risk a lower tax rate, but it may give the con-tractor access to deductions as a small business operator that would not be available to an employee. On the basis of the analysis above, Australia’s current PSI rules are not likely to be triggered by gig work, especially if the PSB results test is satisfied, and this may be entirely appropriate, given the commercial risk assumed by a gig worker. If the gig work produces an overall loss in a given year, the “non-commercial loss” rules could apply to quarantine that loss from other income.46 If the residual

42 Example 2 included in ITAA 1997 section 84 - 5(1). 43 Australian Taxation Office, Taxation Ruling TR 2001/7, “Income Tax: The Meaning of

Personal Services Income,” August 31, 2001, examples 4 and 5, at paragraphs 81 - 90. 44 TR 2001/8, supra note 41, at paragraph 88. 45 ITAA 1997 section 87 - 20(2). 46 ITAA 1997 division 35. A business will be considered “commercial,” such that the loss is not

quarantined, if any one of the assessable income, profits, real property, and other assets tests are satisfied.


risk to the revenue base of allowing these deductions is considered material, legis-lative amendment would seem necessary in order to include gig workers in the PSI regime or to otherwise limit their deductions. It would appear, however, that the greater risk is non-compliance, which I consider next.

Income Tax: Compliance Issues

The greater risk to the revenue base, from an income tax perspective, comes argu-ably from difficulties in administration and compliance. The systems for tax reporting and collection have developed according to the binary classification of employee versus business operator. Some issues may be solved by greater taxpayer education, but improvements to withholding or tax instalment regimes may be desirable.

The risk of non-compliance in relation to informal transactions is not new (the Australian government is currently partway through a reform agenda directed at the so-called black economy);47 what is new is (1) the relative ease of participation in gig work transactions owing to their web-based operations, and (2) the perceived growth in such participation. As the Organisation for Economic Co-operation and Develop-ment (OECD) has recognized, however, the digitalization of transactions itself offers a new potential for tax authorities,48 since information is recorded in forms of data that may be made more readily available to such authorities. In the next section of this paper, I will describe the current reporting and tax collection regimes in Australia that are relevant to the gig economy, and I will identify some of their weaknesses.

Pay-As-You-Go Withholding on WagesMany jurisdictions employ a collection mechanism like the one used in Australia and Canada, whereby employers are obliged to withhold income tax from the pay of their employees and forward this tax to the revenue authority in advance of assessment. This operates as a system of instalments in advance. The Australian mechanism is called pay-as-you-go withholding (PAYGW), and it applies to payments for work and services (as well as to other payments not relevant to this discussion). This system mainly applies to payments made to individuals as employees (in the ordinary [common-law] meaning of “employee”),49 but the regime also extends to payments under labour-hire arrangements,50 whereby the withholding obligations

47 Australia, The Treasury, Black Economy Taskforce: Final Report (Canberra: Commonwealth of Australia, October 2017).

48 Tax Challenges Arising from Digitalisation, supra note 1, at paragraph 467. For a detailed consideration of such opportunities, see Clement Okello Migai, Julia de Jong, and Jeffrey P. Owens, “The Sharing Economy: Turning Challenges into Compliance Opportunities for Tax Administrators” (2018) 16:3 eJournal of Tax Research 395 - 424.

49 Taxation Administration Act 1953, schedule 1, section 12 - 35 (herein referred to as “the TAA”). See also Australian Taxation Office, Taxation Ruling TR 2005/16, “Income Tax: Pay As You Go—Withholding from Payments to Employees,” August 31, 2005.

50 TAA schedule 1, section 12 - 60.


apply to the labour-hire firm. As discussed above, gig workers will in many cases not meet the definition of “employee” under common law, so PAYGW will not be trig-gered on this basis.

In a labour-hire arrangement, the labour-hire firm arranges for workers to pro-vide labour or services to a client, and the worker does not become an employee of the client. The client pays the firm, and the firm pays the workers. PAYGW applies to the firm’s payments to the workers for that work or those services, and in the opinion of the ATO, it is irrelevant, in this particular context, whether the individual worker is an employee of the firm or an independent contractor.51 An important distinction between labour-hire and gig work is in the contractual relationships of the parties. As the ATO points out in its guidance, a labour-hire situation involves no contract between the client and the worker.52 This is a material difference from tripartite gig arrangements; as a result of the contract between the requester and the worker, a platform operator is unlikely to be characterized as a labour-hire firm. The legislation extending PAYGW to labour-hire arrangements also allows for addi-tional payments to be specified in the regulations. Currently, however, only four quite specific types of payments are listed in the regulations (for example, payment for certain translation and interpretation services provided to government).53

The ATO provides online electronic calculators to assist payers in determining the amount to withhold. The system requires that the individuals provide their tax file number (TFN) and asks whether the workers want to claim the benefit of the tax-free threshold in relation to this payer (it can be claimed only once a year), and the calculation assumes that the amount is received as regular earnings throughout the year. If a gig worker is caught as either an employee of the platform operator or a labour-hire worker, such that PAYGW applies to the payments, the worker will in many cases have another, primary employment situation for which he or she will be claiming the tax-free threshold; therefore, the withholding rate on gig payments will be relatively high. The payer (which in this case would likely be the platform operator) is obliged to withhold the required amount from the payments, to report such withholding, and to pay the withheld amounts to the commissioner.54 Under a new initiative currently being rolled out, which is called “single touch pay-roll,” wages and withholding are to be reported in real time to the ATO.55

51 Australian Taxation Office, “Labour-Hire Firms and Their Workers” (www.ato.gov.au/business/payg-withholding/payments-you-need-to-withhold-from/labour-hire-firms -and-their-workers).

52 Ibid.

53 Taxation Administration Regulations 2017, regulation 27.

54 TAA schedule 1, division 16.



No-Australian Business Number Withholding and Voluntary AgreementsIndividuals carrying on business as independent contractors (and not in labour-hire arrangements) may also be subject to PAYGW through two additional channels: voluntary agreements and no-Australian business number (no-ABN) withholding. Both of these regimes link to the ABN system, so a brief overview of that system is warranted. The ABN is an 11 -digit business identifier that is primarily needed to engage with the goods and services tax (GST) system and is required in addition to a tax file number (TFN). Individuals are entitled to an ABN only if they are “carrying on an enterprise” in Australia,56 where the meaning of “enterprise” is linked to the GST legislation.57 This requires that a business or activity be in the nature of a trade, but it specifically excludes employees and individuals who are receiving payments subject to the PAYGW labour-hire rules.58

The no-ABN withholding rule encourages individuals in business to obtain and quote their ABN; the rule requires payers to withhold tax at the top marginal individual income tax rate plus the Medicare levy (thus, a combined total rate of 47 percent) in relation to payments to an individual for the supply of goods or ser-vices if the individual does not quote an ABN.59 Some exclusions are provided, the most relevant being the one provided to the individual payee who provides a written statement to the payer that the supply is made without reasonable expectation of profit or gain or as part of a hobby or wholly private or domestic in nature.60 Many gig contracts are based on the assumption that the worker is an independent con-tractor, and signing up to the platform often requires the provision of an ABN. I would suggest that prompting a gig worker to apply for an ABN when signing up reduces the risk of misclassifying an income-producing activity as a mere hobby. If an ABN is not provided, the effective penalty rate of withholding will apply, so the worker has an incentive to obtain and quote the ABN even if there is doubt as to eli-gibility. If the ATO disagrees with the independent contractor classification and concludes that the workers are in fact employees, it can cancel their ABNs (the ATO is also the administrator of the ABN registry), but such cancellation has potentially dire commercial consequences for the workers.61

56 A New Tax System (Australian Business Number) Act 1999, No. 84, 1999, section 8 (herein referred to as “the ABN Act”).

57 ABN Act section 41.

58 A New Tax System (Goods and Services Tax) Act 1999, No. 55, 1999, section 9 - 20 (herein referred to as “the GST Act”).


60 TAA schedule 1, section 12 - 190(6).

61 A special investigation report by the ABC’s Four Corners television program and Fairfax media in 2018 described a case where, allegedly, as part of an ATO audit of a transcription business, the ATO concluded that the workers completing the transcribing were employees rather than


In short, if a gig worker believes that he or she is carrying on a small business, the worker is entitled to hold an ABN and, by quoting one, will avoid no-ABN PAYGW. However, the downside of such an approach is that the worker may be surprised by a large tax debt on assessment, since no advance payments have been made. Such an assessment may trigger the operation of the pay-as-you-go instalments (PAYGI) regime (described below), but this process is subject to a lag in operation and has its own weaknesses. Another option available to a (non-employee) worker who holds an ABN is to enter into a voluntary agreement with the payer such that PAYGW applies at a flat rate of 20 percent (or at a rate otherwise notified by the ATO, based on a previous year’s assessment of business income).62 A potential reform would be to make PAYGW mandatory for gig work payments, perhaps at the flat 20 percent rate, but I would suggest that it is preferable, in the short term, to seek to bolster compli-ance with improved reporting, as discussed below.

Pay-As-You-Go InstalmentsAs the alternative to PAYGW, the PAYGI regime imposes obligations related to small business reporting and tax instalments through a regular business activity state-ment.63 This regime operates similarly to PAYGW, and it requires instalments of income tax to be made throughout the year and in advance of assessment. One weakness of the system is that the obligations are first triggered only if the ATO has notified the taxpayer of their PAYGI rate. This rate is based on the effective tax rate resulting from the most recent tax return,64 which could mean a delay of 18 months to two years between the commencement of a business and the due date for the first instalment.

Many of the details of the operation of the PAYGI system in relation to any spe-cific individual are based on the ATO notice,65 and the ATO has a degree of flexibility in the application of the regime. The ATO’s approach is to include individuals in the instalment system only if the amount of gross business and investment income is AU$4,000 or more for the previous year.66 Although the frequency of instalments

independent contractors and cancelled the ABNs of the contractors. See Adele Ferguson, Lesley Robinson, and Lucy Carter, “ ‘It’s Malicious and It’s Vengeful’: The Tax Office Is Facing Calls for Curbs on the ‘Draconian’ Powers It Uses To Target Small Businesses,” ABC News, April 7, 2018 (www.abc.net.au/news/2018 - 04 - 07/australian-tax-office-accused-of-misusing -draconian-powers/9613808).

62 TAA schedule 1, section 12 - 55. 63 TAA schedule 1, part 2 - 10. 64 The commissioner may notify a taxpayer of an instalment rate under TAA schedule 1,

section 45 - 15, which is then applied to the instalment income for the period (ibid., section 12 - 120) or, alternatively, instalments will be based on a GDP adjusted figure derived from the prior year’s return (ibid., section 45 - 112).

65 TAA schedule 1, section 45 - 15. 66 This is according to the guidance provided in Australian Taxation Office, “PAYG Instalments”

(www.ato.gov.au/General/PAYG-instalments).


can also vary, the usual payment and reporting cycle for small and medium-sized businesses is quarterly; however, taxpayers assessed a low amount of tax may instead be allowed an annual instalment.67 Another weakness of the system is that the instal-ment amount or rate is based on the previous year’s return and therefore does not automatically adjust to variations in business turnover in the way that PAYGW can. Although a taxpayer does have the option to vary instalments down, penalty interest can be triggered if the variation proves to be excessive.68

This system is subsidiary to PAYGW, so if the worker opts for a PAYGW voluntary agreement, payments covered by that agreement will not be subject to PAYGI.69 Given that many gig workers are not classified as employees and have ABNs, they will, unless they voluntarily enter the PAYGW system, be covered by PAYGI once their annual gig work turnover exceeds the ATO’s set threshold.

Supporting the Voluntary Compliance of WorkersIn conjunction with these systems, the ATO and the Canada Revenue Agency (CRA) have made it a priority to assist workers and employers to voluntarily comply with their obligations. To this end, both tax authorities currently provide a wide range of guidance and advice materials on the distinction between employees and independ-ent contractors and on the variety of compliance obligations.70 For example, in addition to providing formal advice, the ATO has designed an “employee/contractor decision tool,” which is available online,71 both to assist in making this determina-tion and to alert potential employers of their various obligations. However, this tool is not designed to be used by workers.

The ATO has a detailed set of materials available through a gateway called “The Sharing Economy and Tax,”72 which covers both the gig economy and the sharing economy, with an emphasis currently on sharing platforms and ride-sourcing. The

67 See Australian Taxation Office, “How Often You Lodge and Pay” (www.ato.gov.au/General/PAYG-instalments/How-often-you-lodge-and-pay).

68 The general interest charge can be applied to the underpayment due to the excessive downward variation.

69 TAA schedule 1, section 45 - 120(3).

70 See Canada Revenue Agency, “Compliance in the Sharing Economy” (www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/sharing-economy .html). The United States Internal Revenue Service launched a detailed site in 2016, The Sharing Economy Resource Center, that includes information regarding estimates of income tax payments and voluntary withholding (like the systems in Australia) as well as self-employment taxes (social security and Medicare taxes). See Internal Revenue Service, “Sharing Economy Resource Center” (www.irs.gov/businesses/small-businesses-self-employed/sharing-economy -tax-center).

71 See Australian Taxation Office, “Employee/Contractor Decision Tool” (www.ato.gov.au/calculators-and-tools/employee-or-contractor).

72 See Australian Taxation Office, “The Sharing Economy and Tax” (www.ato.gov.au/general/ the-sharing-economy-and-tax).


emphasis on ride-sharing is in part owing to special GST rules that require all providers of taxi services, which have been held judicially to include Uber’s ride-sourcing,73 to be registered for GST regardless of turnover.74

Reporting by Gig Platforms to Revenue AuthoritiesThe ATO has both broad and specific information-gathering powers that may assist in fostering compliance as well as in detecting non-compliance. These powers have been used to some extent in relation to the gig economy, and the government is currently considering whether to legislatively expand these powers.

As noted above, payments subject to PAYGW must be reported regularly to the ATO. However, what has been coined a “transparency gap” exists if a worker is out-side PAYGW, since the ATO must (1) rely on information provided in the annual tax return to identify business income and then (2) determine whether to include the taxpayer in the PAYGI system from then on, which further relies on voluntary com-pliance. In addition, there is no statutory legal requirement that platforms provide any regular reports to workers, though some platforms do provide this assistance—a good example is Uber in Australia.75 A similar transparency gap has been identified in the United States.76 An entity making payments to a non-employee for services in excess of US $600 is required to lodge a form 1099 -MISC (rather than the form W- 2 for employees), but this form is not to be used if such payments are made by credit card or payment card. In that case, the payment settlement agency must instead report on form 1099 -K; however, this form has a reporting threshold of US $20,000 in value or 200 transactions.77 Work done by Bruckner identifying this gap suggests that a substantial number of US gig workers are not receiving any form 1099.78

73 Uber BV v. Commissioner of Taxation, 2017 FCA 110.

74 GST Act section 144 - 5. The usual GST turnover threshold is AU $75,000. There is a specific ride-sourcing and tax information product available: Australian Taxation Office, “Ride-Sourcing” (www.ato.gov.au/General/The-sharing-economy-and-tax/Ride-sourcing).

75 According to its website, Uber provides Australian drivers with monthly and annual tax summaries to assist them in managing their tax affairs, as well as providing them with some general tax information and links to tax and accounting service providers that can provide additional assistance. See “Australian Rideshare Tax Requirements,” UBER.com (www.uber.com/ au/en/drive/tax-information). PwC has designed a specific business product called “Airtax” that links to the driver’s Uber account to streamline tax processes. See “Get Tax-Ready with Airtax,” Airtax.com.au (https://rideshare.airtax.com.au).

76 Caroline Bruckner, Shortchanged: The Tax Compliance Challenges of Small Business Operators Driving the On-Demand Platform Economy (Washington, DC: American University, Kogod School of Business, Kogod Tax Policy Center, May 2016) (www.american.edu/kogod/research/upload/shortchanged.pdf ).

77 Internal Revenue Service, “2019 Instructions for Form 1099 -MISC,” 2018, at 2.

78 Bruckner, supra note 76, at 15.


In Australia, in order to fill a similar gap, specified categories of payments must be reported annually under the taxable payments reporting system (TRPS). The TRPS, which was designed for the building and construction industry (considered to be at high risk of non-reporting) and commenced in legislation in 2012, requires purchasers of construction services who are themselves primarily engaged in building and construction to report data on such purchases annually to the commis-sioner.79 This is similar to Canada’s contract payment reporting system. As a conse-quence of the work of the Black Economy Taskforce,80 the TRPS has been extended to certain other contractor payments—initially, in 2018, to payments for cleaning and courier services, and then, in 2019, to road freight, security, and information technology (IT) services.81 A reporting entity is one that itself makes a supply of the type of specified service, and the transaction that is reportable is payment to another entity to supply such services (thus, in effect, this definition covers payments by contractors to subcontractors).82

Although the Black Economy Taskforce did not support an earlier recommen-dation to extend the TRPS to all contractor payments,83 it did recommend that improvements to current reporting in the sharing economy be considered.84 The ATO currently relies on its general information-gathering powers to run data-matching programs,85 whereby participants in certain sectors are identified and required by notice to provide the specified information, if they have collected such information. Such programs are currently in place for ride-sourcing (facilitators and their financial institutions) and for sharing-economy accommodation (platforms

79 The basics of this regime are provided in TAA schedule 1, division 405, while the specification of relevant purchasers and relevant transactions is provided in the regulations: Taxation Administration Regulations 2017, part 6, division 5. The legislation provides for quarterly reporting but this can be varied by the commissioner: TAA schedule 1, section 405 - 10.

80 Black Economy Taskforce, supra note 47, at 128.

81 Rather than include these new categories by way of regulation, a different reporting regime has been amended to include these transactions. Australian Treasury Law Amendment (Black Economy Taskforce Measures No. 1) Act 2018, amending TAA schedule 1, section 396 - 55, to add items 11 (cleaning) and 12 (couriers), effective July 1, 2018; and items 13 (security) and 14 (IT), effective July 1, 2019.

82 The commissioner has issued a ruling providing additional details as to the meaning of various terms in the legislation and its operation: Australian Taxation Office, Law Companion Ruling LCR 2018/8, “Expansion of the Taxable Payments Reporting System to Courier and Cleaning Services,” October 31, 2018. A separate ruling was issued by the ATO in relation to the other categories that came into the system in 2019: see Australian Taxation Office, Law Companion Ruling LCR 2019/4, “Expansion of the Taxable Payments Reporting System to Road Freight, Security, Investigation or Surveillance, and Information Technology Services,” August 14, 2019.

83 See Australian Government, Inspector General of Taxation, Taxation Ombudsman, “Review into the ATO’s Employer Obligations Compliance Activities,” December 2016.

84 Black Economy Taskforce, supra note 47, at 136.



and financial institutions).86 However, the use of this information-gathering power depends on two conditions: (1) that the information exists and is held by the data owner (that is, the ATO’s power is to obtain information that exists but not to require that data be collected); and (2) that the data owner or a related party is operating the business in Australia and is therefore governed by Australian law.87 Another weakness is that the ATO cannot specify the form in which the data are provided—the legislation requires only that the information be provided in whatever form it is held. The Australian government released a discussion paper in January 2019 to canvass proposals for strengthening the regime by formalizing the requirement to report through legislative amendment.88 Both the OECD and the Black Economy Taskforce recognize that requiring platforms to report will also reinforce the message that in most cases, payments received by workers are taxable, and it may allow the data to be used by revenue authorities for pre-filling returns.89

A potentially more difficult issue, as identified by the OECD, is how to obtain information on local workers’ earnings when a platform does not have a presence in the home jurisdiction.90 If the other jurisdiction has a mechanism in place to obtain the relevant data, international collaboration among tax administrators may be possible, and the OECD’s Forum on Tax Administration is working on this issue. The forum’s 2019 report provides a number of suggestions on how to improve the provision of usable data to tax administrators.91 A system such as the common report-ing standard (CRS) could be an option, with standardized reporting, formatting, and due diligence,92 combined with automatic exchange. However, it must be judged whether the scale and scope of potential tax avoidance warrant such a response. It

86 Details of the various data-matching protocols can be found here: Australian Taxation Office, “Data Matching Protocols” (www.ato.gov.au/General/Gen/Data-matching-protocols/?page=1).

87 The information must be in the custody or under the control of the local entity. See Australia and New Zealand Banking Group Limited v. Konza, [2012] FCAFC 127, in which a notice seeking information regarding the operation of a Vanuatu subsidiary was deemed valid because the data were held in a database under the control of the Australian head company. See data-matching protocol for ride-sourcing, 2018 - 19, Australian Taxation Office, “Data Providers” (www.ato.gov.au/General/Gen/Ride-sourcing- 2016 - 19 -data-matching -protocol/?page=2#Data_providers).

88 Australia, The Treasury, Tackling the Black Economy: A Sharing Economy Reporting Regime— A Consultation Paper in Response to the Black Economy Taskforce Final Report (Canberra: The Treasury, January 2019) (https://static.treasury.gov.au/uploads/sites/1/2019/01/Consultation -Paper-A-sharing-economy-reporting-regime- 1.pdf ).

89 Tax Challenges Arising from Digitalisation, supra note 1, at paragraph 484; Black Economy Taskforce, supra note 47, at 138.

90 Tax Challenges Arising from Digitalisation, supra note 1, at paragraph 485; Black Economy Taskforce, supra note 47, at 140.

91 Organisation for Economic Co-operation and Development, The Sharing and Gig Economy: Effective Taxation of Platform Sellers: Forum on Tax Administration (Paris: OECD, March 2019) (https://doi.org/10.1787/574b61f8 -en).

92 Ibid., at 41.


may be possible to encourage voluntary engagement by relying on platform oper-ators’ principles of corporate social responsibility, with no need for penalties such as internet service provider (ISP) blocking.93 Australia’s experience with the applica-tion of GST to imports of services and digital products (since 2017) and low-value goods (since 2018) may prove to be instructive regarding approaches to the admin-istration of situations where the supplier, or in this case the platform, does not have a physical presence in the jurisdiction.94

RE TIREMENT CO NTRIBUTIO NS: A P OTENTI A L P O LIC Y PRO BLEM

Although the regimes differ, employers in both Australia and Canada are required to make payments related to the provision of retirement benefits to employees. In Australia, the public pension is funded out of consolidated revenue, but employers are legislatively required to make contributions to superannuation fund accounts for the benefit of their employees, with such savings ultimately becoming payable to the specific employee upon his or her retirement under this concessionally taxed but heavily regulated system. The closest comparison in Canada is the requirement that employers make contributions to the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP), as appropriate.

Compulsory Superannuation in Australia

Under the Australian system, employers must make contributions of 9.5 percent of an employee’s ordinary-time earnings to a complying superannuation fund or else be subject to the superannuation guarantee charge (equal to the shortfall in contri-butions plus interest).

Definition of “Employee” for Superannuation PurposesThe key issue in this context is the meaning of “employee,” which commences with the ordinary (common-law) meaning and then has a number of extensions.95 Most relevantly, if “a person works under a contract that is wholly or principally for the labour of the person,” the person is considered to be an employee of the other party to the contract.96 However, a person working no more than 30 hours per week doing work of a wholly domestic or private nature is not considered to be an employee for

93 ISP blocking was suggested as a potential last-resort compliance tool in the report of the Black Economy Taskforce, supra note 47, at 136.

94 Australia’s GST system requires offshore merchants and electronic distribution platforms that are importing to consumers low-value goods and digital products and services to register in Australia and to charge and pay the relevant amount of GST to the ATO. See GST Act division 84.

95 Superannuation Guarantee (Administration) Act 1992, No. 111, 1992, section 12 (herein referred to as “the SGAA”).

96 SGAA section 12(3).


these purposes.97 The ATO considers that this exclusion covers, for example, clean-ing, childminding, home repairs, and gardening,98 and thus might apply to some types of gig work.

There is also a de minimis rule whereby the contribution requirements are gen-erally triggered only if AU$450 or more is paid to the worker in a calendar month. It is arguable that the requester is paying for the work rather than the platform, so that the lower-value one-off jobs would not trigger the contribution requirements, regardless of the worker’s status as an employee or contractor.

The phrase “contract that is wholly or principally for the labour of the person” has been interpreted by the courts. This element of the test was formerly part of the PAYGW regime (payments under such a contract were treated as salary or wages), but it is no longer included. An early decision of the High Court, interpreting the phrase in the context of the services of a roof-tiling contractor, concluded that when the contract allows the contractor to employ another person to do the work, the payment is not “for the labour of the person”; rather, it is a contract to produce a given result.99 In a later case, the “contract for the labour of the person” test was applied to an encyclopedia sales agent who was paid a commission for each product order secured.100 Owing to intervening amendments, the focus of this case was not on the power to delegate but on whether the contract was for the labour of a person or a result. The court concluded that, on the facts, the commission payment was for a result and therefore not subject to withholding.101

The ATO has issued guidance on the interpretation of the definition of “em-ployee” in the context of the superannuation legislation.102 The “contract for the labour of the person” extension (noted above) will apply if, having regard to the terms of the contract and the conduct of the parties, the following three elements are found:

n the individual is remunerated (either wholly or principally) for his or her per-sonal labour and skills;

n the individual must perform the contractual work personally (there is no right of delegation); and

n the individual is not paid to achieve a result.103

97 SGAA section 12(11).

98 Australian Taxation Office, Superannuation Guarantee Ruling SGR 2005/1, “Superannuation Guarantee: Who Is an Employee,” February 23, 2005, at paragraph 98.

99 Neale v. Atlas Products (Vic) Pty Ltd., 1955 HCA 18, at paragraph 3 (emphasis added).

100 World Book (Australia) Pty Ltd. v. Federal Commissioner of Taxation (1992), 108 ALR 510, at 513 - 14 (decision of the New South Wales Supreme Court—Court of Appeal).

101 Ibid., at 518 - 20.

102 SGR 2005/1, supra note 98.

103 Ibid., at paragraph 11.


This definition also captures labour-hire arrangements, in which the agency (not the client) is the employer and the worker is the employee.104 The legislative history of this provision reveals that it was intended to capture some independent contractors who principally supply their labour and therefore are “in fact not very distinguish-able from an employee.”105

The specific SGAA extension of the meaning of “employee” to include a person working under a contract wholly or principally for the labour of that person was considered in the context of deliverers contracted with a document courier-services company.106 The Court of Appeal of the Supreme Court of NSW considered this option after first concluding that the couriers were not employees, a conclusion with which the High Court later disagreed in a different matter.107 The Court of Appeal’s conclusion that the “contract for the labour of the person” extension also did not capture the arrangements was unanimous, but the opinions supporting this conclusion were based on somewhat differing grounds: (1) that the test asked whether the courier was “working for himself ” (which, it was concluded, he was);108 and (2) that the courier contracted to produce a result (the delivery of a particular parcel to a particular client).109 The High Court’s later decision on a different matter that involved the same courier company held that the couriers were employees, so the court did not need to consider the “contract for the labour of the person” exten-sion. However, given the commonality of the criteria, the Court of Appeal’s reasoning is subject to some doubt.

In a decision of the Federal Court with respect to contracted interpreters and translators, there was a suggestion that a contract for a result was not automatically outside the scope of the “contract for the labour of the person” extension,110 but, since these comments were made in obiter and diverge from authority to date, the ATO has expressed the view that it will continue to apply the results test as per the earlier cases.111 The concept of the contract for the labour of a person is there-fore, in effect, rather narrow and is unlikely to capture the typical gig worker, who is paid for a result even though, ordinarily, the gig worker is not allowed, under the

104 Ibid, at paragraphs 79 - 80.

105 Ibid., at paragraph 68, referring to Parliament of Commonwealth of Australia, Second Report of the Senate Select Committee on Superannuation: Superannuation Guarantee Bills (Canberra: Australian Government Publishing Services, June 1992).

106 Vabu Pty Ltd. v. Federal Commissioner of Taxation (1996), 33 ATR 537.

107 Hollis v. Vabu Pty Ltd., 2001 HCA 44.

108 Vabu Pty Ltd., supra note 106, at 539 (per Meagher JA).

109 Ibid., at 542 (per Sheller JA).

110 On Call Interpreters and Translators Agency Pty Ltd. v. Commissioner of Taxation (No. 3), 2011 FCA 366, at paragraph 311.

111 Australian Taxation Office, “Decision Impact Statement: On Call Interpreters and Translators Agency Pty Ltd. v. Commissioner of Taxation” (www.ato.gov.au/law/view/document ?DocID=LIT/ICD/VID409of2009/00001).


contracts with the platform, to subcontract out the work (given, especially, that these systems rely on an individual’s ratings from customers to maintain quality assurance).

Are Incentives Enough?A broader policy question for government is whether it is desirable that the com-pulsory superannuation system be applied to payments to individuals who are technically not employees. The system currently relies on a number of incentives to encourage rather than require sole proprietors to contribute to superannuation,112 and it also provides capital gains tax concessions in relation to the sale of small busi-ness assets,113 the proceeds of which can then be used to self-fund retirement—an alternative to the government pension. A deduction for personal contributions was, until 2017, available only to individuals who had employment income less than 10 percent of total earnings,114 which might have excluded many gig workers, but this rule has now been removed and the limit comes through a cap on “conces-sional” (which includes deducted) contributions from all sources of AU$25,000 per annum.115 Whether this system should be further adjusted in light of the growth in non-standard work would be a matter for government.

The CPP and Employment Insurance

The CPP provides a retirement pension to individuals that is based on their contri-butions and is a factor of earnings, up to a current cap of Cdn $1,154.58 per month in 2019.116 Under the laws of Canada, when a worker is characterized as an em-ployee, the employer is obliged to make CPP contributions and pay employment insurance (EI) premiums as well as deduct and forward to the CRA the employee’s portion of CPP contribution, EI premiums, and income tax under the payroll system. The total CPP rate is currently 10.2 percent of earnings (up to a cap of Cdn $57,400 per annum in 2019). The ordinary test for employment status is whether the worker is employed under a contract of service. As a general matter, self-employed workers pay both portions of CPP contributions, but EI applies only on election. However, certain self-employed individuals (for example, barbers, hairdressers, and taxi driv-ers) are deemed to have insurable employment, and therefore the deemed employer must pay both the worker’s and the deemed employer’s share of EI premiums.117 As

112 The main incentive is the combined effect of an available deduction (see ITAA 1997 section 290 - 150) and a concessional (15 percent) tax rate on contributions and earnings in the hands of the complying superannuation fund.

113 ITAA 1997 division 152. 114 Former ITAA 1997 section 290 - 160. 115 ITAA 1997 section 291 - 20(2). 116 See Government of Canada, “Canada Pension Plan: Overview” (www.canada.ca/en/services/

benefits/publicpensions/cpp.html). 117 CRA guide T4001, “Employers’ Guide—Payroll Deductions and Remittances.”


a result, unless one of the special industry regimes operates, the employee/self-employed test operates in the same way for the various regimes.

The CRA has issued guidance on the operation of the test for employment status, which is relevant for both income tax and CPP and EI contributions.118 The CRA will begin by examining the intention of the parties (that is, whether the contract is intended to be a contract of service [employment] or a contract for services [business relationship]) and then will apply a multifactorial test.119 Aside from the “intention of the parties” test, introduced into law by the Wolf v. Canada decision in 2002,120 the factors are the same in nature as those considered relevant in Australia for these purposes, and it is likely that many gig workers will not be characterized as employ-ees of either the platform operator or the requester and will instead be considered self-employed for CPP and EI purposes.

Where the status relates to employment in Quebec for the purposes of the QPP, attention must be paid to the Civil Code of Quebec, which provides that a contract of employment is one whereby a person undertakes for a limited time to do work for remuneration according to the instructions and under the direction or control of the employer (a relationship of subordination).121 Self-employment is characterized as contracting to provide work or to provide a service for a price—an arrangement in which the contractor is free to choose the means of performance and there is no relationship of subordination.122 The criteria identified as relevant for this test by Revenu Québec are very similar to those for the common-law test, and so in many cases, gig workers in Quebec, as in common-law jurisdictions, are likely to be con-sidered self-employed.123

PAY RO LL TA X E S IN AUS TR A LI A : A TA X B A SE PRO BLEM FO R THE S TATE S

An important contributor to the revenue base of Australia’s states and territories is payroll tax, whereby employers are required to pay tax, usually at a flat rate, on the basis of the total value of their payroll for employees within the state. This is to be distinguished from the payroll program in Canada, which includes employers’ obligations regarding EI, CPP contributions, and income tax.

118 CRA guide RC4110, “Employed or Self-Employed?” 119 Ibid, at 5. 120 Wolf v. Canada 2002 FCA 96. For an analysis of the application of the employee/independent

contractor test in the tax context in Canada, and with specific consideration of the intention test, see Tamara Larre, “The Role of Intention in Distinguishing Employees from Independent Contractors” (2014) 62:2 Canadian Tax Journal 927 - 70.

121 Civil Code of Québec, CQLR c. CCQ- 1991, article 2085. 122 Ibid., articles 2098 and 2099. 123 Revenu Québec, Bulletin d’interprétation RRQ.1 -1/R2, “Statut d’un travailleur [Status of

Worker],” October 30, 1998 (www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=16&file=R9F1T1R2BULB.pdf ).


In Australia, a degree of harmonization across the states and territories has been achieved, and I will consider the law of NSW by way of example. According to the most recent budget statements, approximately 30 percent of NSW’s taxation revenue comes from payroll tax, making it the largest tax revenue contributor,124 so any structures that have the effect of removing workers’ pay from the tax base will be of concern.

Employees and Labour-Hire Arrangements

The tax base for payroll tax is the wages paid in the jurisdiction by an employer in relation to services performed by employees.125 The terms “employer” and “ employee” take their ordinary meaning for these purposes,126 but the legislature has recognized some non-standard working arrangements by including specific provisions for contractors and employment agencies.127 The employment agent (labour-hire) rules are relatively straightforward in that they determine the agency and not the client to be the employer and the service provider/worker to be an employee of the agency.128 As with PAYGW, a gig worker may not be a common-law employee of either the platform operator or the requester, and the employment agent provisions would also seem not to be triggered. These rules operate when there is a contract between the agency and the client and a contract between the worker and the agency, but no contract between the worker and the client.129 It seems unlikely that the tripartite contractual relationship between the requester, the platform, and the worker typical of gig work would be seen to have this character. Situations where there is a contract between the worker and the client have been addressed by the NSW revenue authority, which determined that the employment tests should then be applied to that contract to see whether the client, not the agency, will be the employer.130

124 New South Wales Government, Budget Statement 2019 - 2020, Budget Paper no. 1, June 18, 2019, at 4.4, under the heading “Taxation Revenue” (www.budget.nsw.gov.au/sites/default/files/budget- 2019 - 06/2019 - 20%20Budget%20Paper%20No.%201%20 -%20Budget%20Statement%20%281%29.pdf ).

125 New South Wales Payroll Tax Act 2007, No. 21, section 11.

126 New South Wales Revenue, Revenue Ruling PTA 038, “Determining Whether a Worker Is an Employee,” July 29, 2011.

127 New South Wales Payroll Tax Act 2007, part 3, divisions 7 and 8, respectively. Inserted into the previous Payroll Tax Act 1971, No. 22 in 1985: New South Wales Payroll Tax (Amendment) Act 1985, No. 175, schedule 1.

128 New South Wales Payroll Tax Act 2007, sections 38 and 39.

129 New South Wales Revenue, Revenue Ruling PTA 029, “Recruitment Agencies/Placement Agencies/Job Placement Agencies,” June 30, 2008.

130 Ibid.


Relevant Contracts Extension

The alternative contractor provisions turn on the concept of a “relevant contract,” under which the person providing the work is deemed to be an employee131 and the person to whom the services are provided is deemed to be an employer.132 The po-tential employer in a gig context would therefore seem to be the requester. The concept of a relevant contract begins with a contract in relation to the performance of work, but then it carves out a number of types of contracts, excluding, broadly, contracts under which (1) the services provided by the contractor are ancillary to the supply of goods; (2) the services are not integrated into the business (not ordin-arily required, ordinarily required for less than 180 days, or actually provided for less than 90 days); (3) the services are provided by a contractor who normally pro-vides those services to the public; and (4) the services are performed by two or more people.133 Where a relevant contract includes the provision of goods, the non-service component is excluded from the deemed wages.134 The contractor provisions are not likely to capture gig arrangements, given that the on-demand services, when viewed from the perspective of the requester, are by their nature provided on a short-term basis and therefore would be excluded by the 90 -day rule.

Depending on the manner in which the gig work is organized and controlled, the revenue authority may argue (as, according to media reports, NSW Revenue argued in relation to Foodora) that gig workers are employees under the common-law test and therefore the payments to them are subject to payroll tax;135 however, this has not been tested in court. Where the common-law tests are not satisfied, the nature of the contracts between worker, requester, and platform makes the em-ployment agency and contractor provisions unlikely to apply to gig workers in a consistent way. For these arrangements to be included within the scope of the payroll tax, legislative intervention would therefore appear necessary to extend the deeming rules (perhaps through the contractor rules) to include gig workers whose work arrangements fall outside traditional employment, and it would seem most appro-priate to deem the platform to be the employer for these purposes.

CO NCLUSIO NS A ND A WAY FO RWA RD

It can be argued that the growth in the gig economy represents not so much a disruption of employment markets as the digitalization of non-standard labour

131 New South Wales Payroll Tax Act 2007, section 34. Similar contractor deeming provisions exist in all Australian jurisdictions except for Western Australia.

132 Ibid., section 33.



135 Anna Patty, “Foodora Faces Claims for Unpaid Tax and Superannuation,” The Sydney Morning Herald, August 28, 2018 (www.smh.com.au/business/workplace/foodora-faces-claims-for -unpaid-tax-and-superannuation- 20180828 -p5007n.html).


contracting. These new platform-based arrangements raise many concerns, includ-ing concerns about worker protection and the impact of outsourcing on the economy more broadly. In this paper, I have focused on tax issues, specifically with regard to income tax, compulsory superannuation contributions, and payroll tax in Australia. In each case, the common-law notion of “employment” is a key determiner of the tax outcome, but each regime also incorporates provisions aimed at contractors and other forms of on-demand labour. In each case, however, it is apparent that the tripartite arrangements common to gig work—between platform operator, worker, and requester—do not easily fit within these classification rules.

In relation to income tax, I have argued that the shift from employment to gig worker/contractor does not present a substantial risk to Australia’s income tax base on a technical basis, although the PSI rules could be slightly reformulated to deal more clearly with gig arrangements. The real challenge—because of the transpar-ency gap that emerges when revenue authorities can no longer rely on employers to withhold and report on worker earnings—is compliance. I would submit that, rather than creating a new category of deemed employee, the current ABN system plus enhanced reporting can fill the gap.

Requiring workers to quote an ABN reinforces the message that participating in gig work is carrying on taxable business, and meaningful data could be created and reported by way of an enhanced mandatory periodic reporting mechanism for platforms. Workers could also be encouraged to opt into voluntary withholding arrangements or otherwise to rely on the PAYGI system to report actual receipts on a quarterly basis. The current PAYGI threshold of AU $1,000 per quarter of earnings would operate to capture only those workers who are either regularly engaged or are providing high-value services, when these taxpayers are likely to be the focus of compliance action. These data can be used for detecting non-compliance as well as for pre-filling returns, further encouraging voluntary compliance. Of course, some weaknesses must be acknowledged. Voluntary PAYGW arrangements would create administrative costs for platforms, making it less likely that platforms would encour-age such arrangements, and any mandatory reporting regime has compliance costs attached.

In the case of superannuation, non-employee gig workers will often not be en-gaged under a “contract for the labour of the person” and therefore will not benefit from mandatory superannuation contributions. The system will instead operate on a basis of incentives. Non-standard contract work, depending on its market penetra-tion, runs the risk of creating a generation of workers with insufficient private savings for retirement, which will increase the pressure on a public pension system that is already under stress.

In the case of payroll tax, a shift to the outsourcing of labour to gig workers has the potential to erode the tax base, and legislative amendment, perhaps in the form of an extension of the notion of “relevant contracts,” may be considered necessary for platform operators to be deemed employers.

The growth of cloud labour and offshore platforms has created particular chal-lenges, but coordination between revenue authorities can lead to the creation of


meaningful data sets that can then be exchanged, especially if the platform requires the quotation of a relevant business number before payments can be released to bank accounts. With regard to (at least) platforms with a domestic presence, com-bining a new payment-reporting regime with the current ABN system could be sufficient to reach acceptable compliance rates, with no need for more draconian measures, such as mandatory withholding.

the future of work: the gig economy and … 2020/issue 1...7 miriam a. cherry and antonio aloisi,...

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