Prescribed Payments System

PPS Bulletin 5

How it affects the joinery and cabinet-making 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 joinery and cabinet-making industry. The other 8 industries covered by PPS are:

• • building and construction

• • architectural services

• • cleaning

• • engineering services

• • motor vehicle repair

• • road transport

• • 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 joinery and cabinet-making industry activities are affected by PPS?

The term 'joinery' is broad enough to cover some goods that might be described as furniture. Only those payments related to the performance of work on items of joinery which is intended to become a fixture will be prescribed. A fixture is an article or accessory annexed to a house or land and regarded legally as part of it.

Items of joinery of a kind which commonly form fixtures in a structure will generally satisfy all the following guidelines:

• • they are purpose built to fit and designed to become permanently affixed to a particular part of a particular building;

• • they are never completely finished until installation and are not offered for sale as freestanding furniture;

• • they need to be assembled, adjusted (to some extent) or fitted on-site;

• • they cannot be easily removed and relocated without either structural modifications or substantial repairs becoming necessary.

The most obvious type of joinery that meets these tests is a product that typically forms part of the building during its construction. Some examples would be doors, staircases, verandah posts, roof trusses, wall and window frames. Kitchen cabinets will also meet these criteria.

In some cases built-in furniture may also be regarded as a fixture of a building. Examples of this are: furniture items built up on-site and purpose built pre-fabricated or modular cupboards, wardrobes and other built-in furniture cut off-site to pre-measured specifications, transported to the site in a disassembled form and then installed.

The carrying out of any activity such as the veneering, laminating, polishing, staining, or painting of such items of joinery will be a prescribed activity.

Cupboards, wardrobes and other furniture will not be considered as fixtures where any of the following situations apply:

• • they are considered to be freestanding furniture before installation;

• • they are offered for sale as complete units or fully finished articles; or

• • they are not designed to fit a particular part of a building and require no on-site adjustment.

Work on items of joinery of these types will not be a prescribed activity. Some common examples of furniture which are not considered to be fixtures, even though they may be attached to structures, are bedheads, bedside tables, bookcases and chairs (including barstools), dressing table drawer units and luggage racks.

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:

• • wholly or principally of carrying out any of the above joinery and cabinet making activities; or

• • in part of carrying out any of the above joinery and cabinet making activities for other persons; or

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

A person who satisfies any of these conditions will be a prescribed person for the joinery and cabinet making industry.

Is there anything else I need to know?

The finishing of items manufactured by a cabinet-maker, such as the application of a veneer or laminate, is also a prescribed activity. For example, if a manufacturer of timber windows contracts a specialist to install lead lighting in a window, then that activity will be prescribed.

Where an item of joinery is installed in a structure, that activity brings the person doing the installation into the building and construction industry for PPS purposes.

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".

Joinery and cabinet-making services industry decision chart

The diagram set out below is designed to help you determine if a payment is prescribed for the joinery and cabinet making services industry.

Examples

A cabinet maker manufactures kitchen units. Another joiner and cabinet maker, purchases some units, some of which are pre-made stock items and others made to specification. In this case, the payment would not be prescribed because it is for the supply of goods.

A kitchen manufacturer contracts a french polisher to apply a finish to some cabinets for him. As the contract is one which requires the performance of work and the items are to become fixtures in a structure the payment will be prescribed.

A builder contracts a kitchen manufacturer to supply a kitchen unit and install it into a house. The contract includes the installation of the kitchen unit into a structure. This activity falls within the building and construction industry. As this industry is also covered by PPS the payment for the supply and installation of a kitchen unit would be subject to PPS.

A joiner contracts with a lumber yard to supply timber cut to certain lengths. The lumber yard also turns and routs some of the wood so that it is ready to be assembled and form a staircase. In this situation the payment from the joiner to the lumber yard is prescribed. Both the lumber yard and the joiner are in the joinery and cabinet making industries for PPS purposes.

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 2397.01.97

Related Rulings/Determinations:
PPS Bulletin 5 - Notice of Withdrawal