TAX INFORMATION

[FAQ]

Disclaimer-The information obtained from the interview in between Michael Hung & Taxation Office on Vietnamese television C31 Australia. Therefore we however, cannot guarantee that every document will appear in the correct tax year, should check the content of all documents returned by this web site in response to your query and seek independent advice before embarking on a transaction.

Employee or contractor?

It is important to determine the status of a worker for tax purposes as there are different obligations under Pay As You Go or PAYG system. These obligations are some times different and will depend on whether you are an employee, labour hire worker or work as an independent contractor under a voluntary agreement. Can you explain these differences?

Certainly. The relationship between an employer and an employee is often called a contract "of service".

This differs from a contract "for services" which applies to an independent contractor.

In a contract of service you work for or in the business of, the payer is an employee. (this does not make sense)

If you are contracting for a service, the worker works on their own account is a contractor.

In the past, the degree of control over a worker was a key indicator in determining the worker's status. Today, even though control is important, there are many other factors that need to be considered. Could you provide more detail on these ?

In most cases, it is obvious which type of contract applies to you , however this is not always the case and you need to consider a number of factors to determine which type of contract exists. No one factor is conclusive so it is important to consider all the facts in each case.

Let 's look at a few of the considerations one at a time, starting with lawful authority to command.

An employer usually has the right to direct and control the work of an employee. Where the nature of the work involves the professional skill or judgement of the worker, the degree of control over the manner of performance is diminished. What is important is that the lawful authority to command rests with the payer.Where the terms of the contract are for a given result the worker is a contractor.

Where tasks are performed at the request of the employer, the worker is considered to be working in the business of the employer.A worker enters into a contract to perform a specific task or series of tasks. The worker has a high level of discretion and flexibility as to how the work is performed and because of this the worker is a contractor. Where the contract contains precise terms as to the materials and methods of performance, the worker may still be a contractor.Levels of risk can also help determine whether a worker is an employee or a contractor. Could you clarify this.

The commercial risk of making a profit is borne by the employer, who is also responsible for any loss caused by poor workmanship or employee negligence. An employee bears little or no risk.An independent contractor bears the commercial risk as he or she will make a profit or loss on the task. The contractor bears the liability and responsibility for any poor workmanship or injury resulting from the task.

What about other issues like:hours of work, leave entitlements, payment, expenses, appointment, termination and delegation.

These are all important and need to be considered when determining whether a person is an employee or contractor.

After looking at the terms of the contract, you will need to decide whether the worker is an employee or an independent contractor. You may also like to consider whether you have engaged your worker under a labour hire arrangement. On the screen are two Tax Office publications that will be useful.A number of our viewers are in the clothing industry, do you have an example that would relate to them?

Lets look at Hue the machinist. Hue considers herself to be a contractor as she is paid for every garment she makes. The Tax Office considers Hue to be an employee for a number of reasons. Hue does not work from home but uses the premises and machinery supplied by the employer. She is not responsible for any loss caused by poor workmanship and is paid a piece rate. Hue is paid sick and annual leave.

We have now covered the differences between employee and contractor. From the payer's perspective, having employees trigger certain obligations. Can you go through some of these?

The obligations include pay as you go (PAYG) withholding superannuation, and fringe benefits tax (FBT).Other obligations at a state and federal level exist. It is important to contact your appropriate adviser about these.

Where you have employees you have to withhold the correct amount of tax from their wages. You then forward these amounts to the Tax Office. This is part of the pay as you go withholding system. Remember this includes wages and salaries paid to you as a company director or office holder as well as any family members paid a salary or wage by your business.Is there anything else you would like to add?

At the end of the year, you give each employee a payment summary and then lodge a pay as you go withholding annual report. These responsibilities are the same for both permanent and casual employees.

What about contractors?

With contractors, the business is not required to withhold any amounts from the payments to the contractor where an ABN has been supplied, unless a voluntary agreement has been entered into. More information can be found on our website.If no ABN has been supplied, you are required to withhold 48.5% from the payments to that contractor under the no-ABN withholding rules.

What should employers be aware of when it comes to superannuation?

We have covered superannuation in previous shows. It is important to remember that as an employer you have an obligation under the superannuation guarantee to pay 9% of an employee's base earnings as super contributions. More information can be found on our website.

I hope that viewers now understand the differences between an employee or contractor. Before we go onto viewer questions, we seem to be hearing lot about the cash economy and businesses that may not be recording all the cash they receive as income. Can you tell us a bit about this?

Certainly. The Tax Office is focussing on businesses that do not correctly record all income the business receives, particularly cash sales. The Tax Office will be paying special attention to certain industries: including taxis, clothing, cafés, restaurants, takeaways and hairdressers.It is important that your business keeps complete records of cash receipts and cash payments and include all sales and income when you are completing your activity statement and income tax return. It is also important to lodge these statements and returns on time.