The Future of Work: The Gig Economy and Pressures on the Tax System
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canadian tax journal / revue fiscale canadienne (2020) 68:1, 69 - 97
https://doi.org/10.32721/ctj.2020.68.1.sym.black
The Future of Work: The Gig Economy and
Pressures on the Tax System
Celeste M. Black*
PRÉCIS
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.
6970 n canadian tax journal / revue fiscale canadienne (2020) 68:1
ABSTRACT
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
CONTENTS
Introduction 71
The Employment Law Context 74
The Common-Law Multifactorial Test and Gig Workers 74
The Dependent Contractor Alternative 76
Income Tax: Is the “Right” Amount of Tax Being Paid? 77
Tax Base Issues: Deductions and Rates 77
Australia’s Personal Services Income Regime 78
Applying the PSI Rules to Gig Workers 80
Income Tax: Compliance Issues 81
Pay-As-You-Go Withholding on Wages 81
No-Australian Business Number Withholding and Voluntary Agreements 83
Pay-As-You-Go Instalments 84
Supporting the Voluntary Compliance of Workers 85
Reporting by Gig Platforms to Revenue Authorities 86the future of work: the gig economy and pressures on the tax system n 71
Retirement Contributions: A Potential Policy Problem 89
Compulsory Superannuation in Australia 89
Definition of “Employee” for Superannuation Purposes 89
Are Incentives Enough? 92
The CPP and Employment Insurance 92
Payroll Taxes in Australia: A Tax Base Problem for the States 93
Employees and Labour-Hire Arrangements 94
Relevant Contracts Extension 95
Conclusions and a Way Forward 95
INTRODUC TION
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 reliable 4 and may quickly become out of date.
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 7.1.72 n canadian tax journal / revue fiscale canadienne (2020) 68:1
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.the future of work: the gig economy and pressures on the tax system n 73
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).74 n canadian tax journal / revue fiscale canadienne (2020) 68:1
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.
T H E E M P L O Y M E N T L A W CO N T E 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.the future of work: the gig economy and pressures on the tax system n 75
Gostencnik 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 4.123.76 n canadian tax journal / revue fiscale canadienne (2020) 68:1
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’).”the future of work: the gig economy and pressures on the tax system n 77
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.
I N CO M E TA X : I S T H E “ R I G H T ” A M O U N T O F
TA X B E I N G PA I D?
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”).78 n canadian tax journal / revue fiscale canadienne (2020) 68:1
Although evidence of repetition and scale may be relevant for determining whether
an activity is a business 27 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 Act 29—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 Regime
Australia, 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 future of work: the gig economy and pressures on the tax system n 79
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, 2001.80 n canadian tax journal / revue fiscale canadienne (2020) 68:1
Applying the PSI Rules to Gig Workers
In 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.the future of work: the gig economy and pressures on the tax system n 81
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 Wages
Many 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 - 60.82 n canadian tax journal / revue fiscale canadienne (2020) 68:1
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.
55 TAA schedule 1, section 389 - 5.the future of work: the gig economy and pressures on the tax system n 83
No-Australian Business Number Withholding and
Voluntary Agreements
Individuals 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”).
59 TAA schedule 1, section 12 - 190.
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 than84 n canadian tax journal / revue fiscale canadienne (2020) 68:1
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 Instalments
As 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).the future of work: the gig economy and pressures on the tax system n 85
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 Workers
In 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).86 n canadian tax journal / revue fiscale canadienne (2020) 68:1
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 Authorities
The 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.Vous pouvez aussi lire
