Payroll tax and independent contractors

Payroll tax and independent contractors

In recent years, far too many real estate employers have paid a heavy price for failing to understand the difference between bona fide independent contracting arrangements and those ultimately found to be an employment relationship.

At a recent session by Revenue NSW, real estate employers were again put on notice that independent contracting arrangements (i.e. conjunction arrangements) will continue to be scrutinised. Where it’s found that such arrangements don’t satisfy any of the current payroll tax exemptions, interest and penalties may follow.


External versus internal conjunction arrangements

To help real estate employers understand this complex issue, Revenue NSW has made a general distinction between the two broad types of conjunction arrangements:

1. External conjunction arrangements

This type of arrangement involves agents from independent and unrelated real estate businesses working together to sell a property. The vendor of the property usually enters into an agency agreement and pays commission to one agent. The listing agent enters into a separate sub-agency or conjunction agreement with another agent. The agreement covers the transfer of rights to sell the property and how commissions are split.

A key characteristic of an external conjunction arrangement is that it involves a business-to-business or commercial relationship. There’s no ongoing or regular relationship between the parties. Once the property is sold, the agents split the commission and the conjunction arrangement ends.

2. Internal conjunction arrangements

This type of arrangement is between a real estate business and a licensed sales agent (i.e. the independent contractor) who routinely works for that business. There’s often a formal contract between the business and the sales agent setting out the terms of an ongoing arrangement. The main objective is for the real estate business to use the services of the sales agent.

In agency agreements with vendors, both the real estate business and the sales agent are usually listed together as ‘Agent’. All statutory requirements (including the handling of trust monies) are managed by the real estate business. The real estate business pays commission to the sales agent at a pre-determined rate.

In an internal conjunction arrangement, there’s often little or no distinction between the business and the sales agent, with the sales agent usually working or represented under the brand name of the real estate business. Both the business and sales agent are highly dependent on each other when it comes to their core income-producing activities.


Payroll tax issues

Generally, there are no payroll tax consequences for the commission paid under an external conjunction arrangement. However, there can be significant payroll tax consequences if an internal conjunction arrangement is treated incorrectly.

Many real estate businesses exclude internal conjunction arrangements from the calculation of payroll tax, relying on one or more of the exemptions allowed for under the Payroll Tax Act 2007 (NSW). But, when audited by Revenue NSW, many of these internal conjunction arrangements are found not to meet the required exemption criteria. In these cases, it’s been found that the commissions paid to the sales agent should have been assessed and declared as taxable wages in the payroll tax returns of the real estate business.

Revenue NSW often finds that mistakes are being made when claiming a contractor exemption due to:

  • a misunderstanding of what’s required to claim a particular exemption
  • claiming the wrong exemption for payments made under the arrangement
  • none of the exemptions are applicable, but at least one is claimed in any case.



There are generally four contractor exemptions that real estate businesses claim in respect of commissions paid to sales agents under internal conjunction arrangements.

1. Ruling PTA 020 – Hiring business requires the services of sales agent (contractor) for less than 180 days in the year.

This exemption would not apply to an internal conjunction arrangement. Selling property on behalf of vendors is essential for real estate businesses to continue operations. The services provided by a sales agent (the contractor) would therefore be ordinarily required throughout the year.

2. Ruling PTA 035 V2 – Sales agent (contractor) provides services for 90 days or less during the year.

This exemption can only be claimed if the real estate business can show that a sales agent worked for no more than 90 days in a year. Any type of work performed by a sales agent counts as a day worked, including taking a call from a prospective buyer, attending a property inspection or meeting with a vendor to sign an agency agreement.

Most real estate businesses don’t actively monitor or keep records of the hours/days worked by sales agents engaged under internal conjunction arrangements. In such cases, this exemption would not be available.

3. Ruling PTA 021 – Sales agent (contractor) ordinarily performs the same kind of services to the public (i.e. other businesses).

This exemption can only be claimed if the sales agent sells property on behalf of vendors for more than one real estate business during the year. The real estate businesses need to be independent and unrelated for the exemption to apply.

It’s common industry practice for internal conjunction agents to work predominately or exclusively for one real estate business. In such cases, this exemption would not be available.

4. Ruling PTA 023 – contractor ENTITY engages two or more employees to perform the services.

This exemption can only be claimed if the contractor entity employs two or more employees to assist in the selling of property under an internal conjunction arrangement. To qualify for the exemption, each employee must:

  • have been engaged and paid directly by the internal conjunction agent; and
  • have performed real estate services to the hiring real estate business on behalf of the internal conjunction agent. General administrative work would not meet this criteria. Sales support work (commonly performed by a sales assistant or salesperson) may meet this criteria if the work was directly related and a significant part of the real estate services/sales contract.


Anti-avoidance provisions

These payroll tax exemptions were intended for contracts between independent businesses, not arrangements within the one business. Real estate businesses should therefore be extremely cautious when claiming a contractor exemption for payments made under any internal conjunction arrangements.

Furthermore, Revenue NSW has warned that even if one of the above exemptions applies, they may still exercise payroll tax anti-avoidance provisions to an internal conjunction arrangement when:

  • the main object of the arrangement is for the real estate business to obtain the personal services of a licensed sales agent;
  • there are high levels of integration and dependency between the real estate business and licensed sales agent;
  • the relationship is similar to that of an employer/employee;
  • there is evidence the arrangement between the parties reduces or avoids payroll tax.

In such circumstances, Revenue NSW will disregard the conjunction arrangement, including any contractual relationship, if the anti-avoidance provisions apply. The real estate business then becomes the employer and all commissions (and any other payments) for the services of the sales agent are taxable wages for the purposes of calculating payroll tax.



Where Revenue NSW finds that a real estate business has understated their payroll tax obligations, they will require back payment of any outstanding payroll tax and may apply interest as well as penalties, starting from 25 per cent of the unpaid tax.

The information for this article was sourced from the Revenue NSW website with permission. More information about payroll tax can be found at


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