Contractor payments

Taxable payments

Under certain circumstances, payments to contractors are taxable. Generally, those circumstances are where the contractor:

  • essentially provides labour services, and
  • works exclusively or primarily for one principal.

The provisions relating to contractors deem such contractors to be 'employees' and the payments made to them, excluding goods and services tax (GST), are deemed to be wages.
The term 'contractors' is a generic one, which includes sub-contractors, consultants and outworkers. The provisions apply regardless of whether the contractor provides services via a company, trust, partnership or as a sole trader.  


In practical terms, the contractor provisions initially capture all contracts for the performance of work. However, the provisions contain several exemptions and if any one applies to a particular contract, the payments under that contract are not taxable.

These provisions allow the Commissioner to disregard, and treat as taxable, an arrangement that exists only to reduce or avoid payroll tax.

The six contractor exemptions are:

  1. The contractor provides services to the principal on no more than 90 days in the financial year.
  2. The contractor engages other labour to perform work under the contract.
  3. The provision of labour is ancillary to the provision of materials and equipment under the contract.
  4. The services provided by the contractor are not ordinarily required by the principal and the contractor ordinarily renders such services to the public generally.
  5. The services are of a kind ordinarily required by the principal on less than 180 days in the financial year.
  6. The contractor ordinarily renders services of that type to the public generally in that financial year.

Non-taxable payments

In addition, payments to the following classes of contractors are not taxable even if none of the six exemptions applies:

  • owner-drivers,
  • insurance agents,
  • door-to-door sellers.

Further references

See Revenue Rulings:


If you need more information on this topic, contact our payroll tax enquiry service on 13 21 61.