Determining The Employment Status Of William: Legal Tests And Tax Implications

Legal Tests for Employment Status

1.Issue

Determining the employment status of William is the issue in thus given situation

Theory

There are five specific legal tests which have to be used to analyze the issue in hand. These tests are as follows:

• Control test – The way in which the work is to be carried, when it is to be done and where is all decided by the employer.
• Organization or integration test- whether the work activity is done in the same way by a person who is an employee
• Economic reality test –  whether the activity is carried on for own or for the employer
• Intention test –  The way in which the person is paid and a few other similar questions
• Independence test – The court takes into consideration the supply of tools to the person for the purpose of  getting the work done.  (Cascio, 2018)

The definition of an employee is provided by Section YA1 of the Income Tax Act 2007. As per the section any person who actually receives or is entitled to receive payment for PAYE income is an employee.

All other considerable elements along with the actual nature of relationship are to be considered by the court for determining employment status as per the provisions of Bryson v Three Foot Six Limited, (2005).

In the case of TNT Worldwide Express (NZ) v Cunningham, (1933) the court applied the various tests discussed above to determine whether the plaintiff had a contract for service or a contract of service.

Application

Control test- If the provisions of this test is applied in the situation it can be stated that William has been provide with a specific time to come and also a particular uniform to wear and thus NZBTC has control over the activities of William. However the way in which he is supposed to teach is not controlled by NZBTC. Thus upon the balance of probabilities NZBTC has control over William.

Integration-   teachers are primary part of a school and thus as William is a teacher he is also a integral part of NZBTC

Intention- William has the right to work for other institutes as a teacher thus  it depicts that NZBTC did not have the intention to treat William as an employee.

Economic reality- The services of William as a substitute teacher is on his own account. He also has to make payments for transport and cloths. Thus the test does not provide that he is an employee.

Independence- William is not able to work independently as he is supplied with a place to work as well as teaching materials. This is not considered as independent work style.

Conclusion

Thus on the balance of probabilities William is an employee.

b.It is important to determine employment statues for tax as employees are not allowed to make deductions from the income gained from employment. Independent contractors have the right to deduct the expenses incurred while gaining the income for tax purpose.

For independent contractors no tax needs to be deducted by the employer. Conversely, for an employee, employer has to deduct PAYE (Woellner et al., 2012). 

2.Part A  

1. It has been provided through CW 62B of the Income Tax Act 2007 when a person is provided reimbursement for any expenses incurred by him for as a volunteer it is an exempt income. Pam’s income is therefore exempt.
2. A windfall gain is not treated as a taxable income based on the principles of Reid v CIR 1985. Thus the irregular lottery income earned for $20000 is not taxable in relation to income tax.
3. When an income is gained in relation to the employment of a person it is treated as a taxable income as per BC5 of the ITA 2007. Thus the prize which Dawn has won is a taxable income as it has been gained by him being employed as a teacher.
4. According to the intention test or the fruits and tree test which has been stated through the case of Eisner v Macomber 1919 when a part of a property is sold it is actually the tree which has been sold not the fruits which may be the rent. Thus as James has sold a part of his property and earned $30000 it is a capital gain which is not assessable for income tax purpose.
5. Dividends on which the company has already paid the tax are called fully imputed dividends. No income tax is applicable on them as per Section HA 15 of the Income Tax Act 2007. Thus the fully imputed dividends received by Patrice are not taxable.
6. A compensation which is provided through Employment Relation Act 2000 is not an assessable income as per Public Ruling BR Pub 06/05. In the same way Kevin would not have $36000 accessed as Income.

Part B

1. When a asset has been purchased for being used in business it is a eligible to be deducted from the income of a person under DA 1(b) of the ITA 2007. Thus the purchased car amount would be treated as a deduction.
2. When a rent has been pre paid in relation to a period of six month and is of a value which is not more than $26000 it is deductible against the income was stated in the provisions of 91AAC of the Tax Administration Act 1994Schedule column. According to the principles $16000 which is pre paid for six month would deductible.
3. In the given situation it has been provided that the trip was partially used for business purpose and partially for personal use. Deductions can however be made only in relation to the expenses which have been incurred for business purpose use as per Section DA 2 (2) of the ITA 2007. The amount which would be deducted in the given situation is that is the air fare and the days for business use. Thus the amount which is to be deducted as per Mallalieu v Drummond is $4500.
4. Under Section CH2 and DB 50 of the ITA 2007 expenses in relation to insurance premium can be deducted if they include an unexpired portion. In addition under the provisions of FO9 of the ITA 2007they are added back if they are for a 9 month period as it is in this case. Thus the expenses are deductible.
5. Penalties which have been imposed in relation to not paying tax on time cannot be deducted under Section DB1 (1)(e) of the ITA 2007. Thus the expenses in context are not deductible.
6. Under section DB 62 of the ITA 2007 these expenses can be deducted of their amount is less than or equal to $10000. Thus they are deductible (Barkoczy, 2016).
7. A fringe benefit is an additional benefit to the employees given by the employer. Under section DD8 of the ITA 2007 they are not deductible. In the same as the party is a fringe benefit it would not be deducted.
8. Unless a bat debt has been written off on paper it is not eligible to be a deductible expense under DB 31 of the ITA 2007. In the given situation as the bad debt is yet to be written off they cannot be treated as deductions. 

References

Barkoczy, S. (2016). Core tax legislation and study guide. OUP Catalogue.

Bryson v Three Foot Six Limited (2005).

Cascio, W. (2018). Managing human resources. McGraw-Hill Education.

CIR v Banks , 61,236 (NZTC 1978).

Eisner v Macomber , 252 US 189 (1919).

legislation.govt.nz. (2018, March  27). Tax Administration Act 1994. Retrieved from legislation.govt.nz: www.legislation.govt.nz/act/public/1994/0166/350.0/contents.html

Legislation.govt.nz. (2018, March 27). Income Tax Act 2007. Retrieved from www.legislation.govt.nz: https://www.legislation.govt.nz/act/public/2007/0097/latest/DLM1517683.html#DLM1517683

Mallalieu v Drummond 57 TC 330

Reid v CIR, 7 NZTC 5,176 (1985).

TNT Worldwide Express (NZ) v Cunningham (1933).

Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2012). Australian taxation law. CCH Australia.