Prescribed Payments System

PPS Bulletin 4

How it affects the engineering services industry

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Date of Issue: 9 January 1997

Valid from 9 January 1997

If you are carrying on a business in an industry covered by the Prescribed Payments System and you pay another person for work in that same industry, then you may be obliged to deduct tax from any payments you make to that person.

This bulletin explains what Prescribed Payments are and how they affect the engineering services industry. The other 8 industries covered by PPS are:

• • building and construction

• • architectural services

• • cleaning

• • road transport

• • joinery and cabinet making

• • motor vehicle repair

• • surveying

• • professional building and construction services

Similar bulletins are also available for each of these other industries.

What is a prescribed payment?

A prescribed payment must satisfy all of the following conditions:

• • It must be a payment made under a contract which involves the performance of work.

• • The work performed must consist of an activity within an industry covered by PPS.

• • The activity must be carried out for a prescribed person. (See the section titled Who must the work be carried out for?)

Note also that PPS doesn't only apply to payments to individuals. It can also apply to payments to companies, partnerships, trusts, trustees of trust estates, body corporates, etc.

Once you have determined that a payment is prescribed, please refer to the relevant booklet titled "PPS Payers", "PPS Payees", or "PPS Tax exempt organisations & businesses in non-prescribed industries". These publications explain what you must do when making or receiving a prescribed payment and are available from your local Tax Office.

Which payments are not covered by PPS?

The following payments are not covered by PPS:

• • a payment made under contract only for the sale of goods or materials

• • a payment of salary or wages made to a common law employee.

Which engineering services industry activities are included in PPS?

Activities in the engineering services industry that are covered by PPS include soil testing, research and development, environmental testing, analysis and metallography, weld pre-heating and welding supervision etc. in connection with any of the activities described for in the building and construction industry such as the construction, erection, installation, alteration, modification, repair and improvement of any structure, road or thoroughfare.

For more information about the building and construction industry see the PPS Bulletin Number 2 titled "The Prescribed Payments System - How it affects the building and construction industry".

For whom must the work be carried out?

To be a prescribed payment the work must be carried out for any person who is carrying on a business that consists:

• • in whole or in part of carrying out any of the above engineering activities for other persons; or

• • in whole or in part of furnishing or arranging the services of another person to carry out any of the above engineering services activities; (i.e. people who are not directly involved in performing any of the activities described above but carry on a business [agency] that provides the services of others to perform these activities).

A person who satisfies either of these conditions will be a prescribed person for the engineering services industry.

What about draftspersons?

Draftspersons can sub-contract in any four industry categories, ie. architectural, engineering, surveying or professional building and construction services. They draw plans and specifications from information or designs supplied to them by persons in those industries.

For the purposes of PPS, if a draftsperson is subcontracting to an engineer in relation to a building and construction project, the activity will be prescribed.

Engineering services industry decision chart

The diagram set out below is designed to help you determine if a payment is a prescribed payment in the engineering services industry.

Examples

A building company with a structural engineering division has a contract to carry out soil testing and stress determination on a building site. The company's engineering division subcontracts this work to a structural engineer. The payment from the building company to the structural engineer will be prescribed as there is a service provided, under contract within the engineering services industry. The building company has it's own engineering division and so they are partly in the business of providing engineering services (in connection with the building and construction industry).

A retailer sells heating and air conditioning systems. They advertise that they can have systems designed to their client's specifications. A builder contracts with the retailer to have an air conditioning system designed and supplied for an office block he is constructing. The retailer in turn contracts with an engineer to design the air conditioning system. The payment from the retailer to engineer will be prescribed because there is performance of an activity and that activity falls within the engineering services industry. The retailer is in the business of furnishing or arranging the services of another person to carry out a prescribed activity.

Do you need more information?

If you have any questions or need more information about how PPS applies to you, please contact your local Tax Office:

This bulletin is a guide to the law only. It has been produced to help you understand the Prescribed Payments System. It is current as at 09/01/97.

ATO references:
NO NAT 2396.01.97

Related Rulings/Determinations:
PPS Bulletin 4 - Notice of Withdrawal