Editors --- "Carer payment: income test; whether self-employed contractor or employee" [2006] SocSecRpr 2; (2006) 8(1) Social Security Reporter, Article 2

• LAMING and SECRETARY TO THE DFaCS
• Background
• The law
• The evidence
• Consideration
• Formal decision

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Carer payment: income test; whether self-employed contractor or employee

LAMING and SECRETARY TO THE DFaCS

(2005/1137)

Decided: 17th November 2005 by B. J. McCabe.

Background

Laming received carer payment in respect of the care he provided to his adult son. Laming also worked as a tutor. Centrelink decided that for the period 12 August 2000 to 27 June 2003, Laming had not declared all of the income earned from his tutoring, and was therefore overpaid carer payment. Centrelink recalculated his entitlement during that period and raised a debt of $5,768.98.

Laming appealed this decision on the basis that Centrelink erred in working out his actual income from tutoring. He argued that he had always worked as a self-employed contractor, and as such was entitled to deduct reasonable business expenses from his income before reporting the balance to Centrelink. Laming submitted that if viewed in this light, no debt arises.

The law

The Social Security Act 1991 (‘the Act’) states that a person’s rate of carer payment is to be worked out according to the rate calculator in s.1064. That section states that a person’s income is to be taken into account when working out the rate of payment. Section 1072 of the Act further provides that, for the purposes of assessing a person’s income, the ‘gross ordinary income from all sources’ must be used.

Section 1075 provides an exception to s.1072 in cases where a person derives income from a business. The relevant part of that section states:

Permissible reductions of business income

1075.(1) Subject to subsection (2), if a person carries on a business, the person’s ordinary income from the business is to be reduced by:

(a)losses and outgoings that relate to the business and are allowable deductions for the purposes of section 51 of the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997, as appropriate; and

(b)depreciation that relates to the business and is an allowable deduction for the purposes of subsection 54(1) of the Income Tax Assessment Act 1936 or Division 42 of the Income Tax Assessment Act 1997; and

(c)amounts that relate to the business and are allowable deductions under subsection 82AAC(1) of the Income Tax Assessment Act 1936.

The evidence

Laming gave evidence at the hearing as to the way in which he earned income from tutoring. The Tribunal accepted Laming’s oral evidence.

Laming explained that he decided to operate a business as a psychological consultant, as his caring responsibilities for his son meant that he could not work on a full-time basis. To this end he established ‘Peter Laming Consulting Services Pty Ltd’. Laming tutored indigenous students. The tutoring was funded under the Aboriginal Tutorial Assistance Scheme (‘ATAS’). ATAS was funded by the Department of Education Science and Training (‘DEST’) and Charles Darwin University (‘CDU’). Laming registered his interest and availability to provide tutoring services under the ATAS as a contractor.

Laming provided a copy of a written contract with DEST, that stated explicitly:

By signing a contract you do not become an employee of [DEST]. As a contractor you will be required to make your own insurance arrangements. This includes public liability, professional indemnity and personal accident covers.

DEST withheld income tax from Laming’s payments, and so did CDU. Laming also received payslips and group certificates from DEST and CDU. Further, in August 2002, Laming signed an employment declaration form stating that he was a casual employee of CDU.

Laming gave evidence as to the way this arrangement worked in practice. He stated that students who required tutoring under the ATAS would be referred to him by DEST or CDU. If Laming wished to take that student on, he completed an application form to the ATAS administering body. Laming could reject or accept as many students as he liked. He was also responsible for working out the time and place that the tutoring would take place. There was no guidance or direction from DEST or CDU as to what material should be covered in a tutorial. Tutors such as Laming were entitled to submit claims for payment at the end of every fortnight, although sometimes Laming waited longer. Laming did not have to report on what was covered in each tutorial to either DEST or CDU.

Consideration

The Tribunal considered whether or not Laming was an employee or an independent contractor. If he was the latter, then he could take advantage of s.1075.

The Tribunal looked to the High Court’s decisions in Steven v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1; (1986) 160 CLR 16 and Hollis v Vabu Pty Lrd [2001] HCA 44 in order to determine Laming’s status. Quoting the Court in Vabu’s case, the Tribunal considered the following list of factors as relevant to the determination of the issue:

· That Laming was a skilled worker and capable of working as an independent consultant in his own business;

· That CDU and DEST did not place any limit on his capacity to accept engagements from other organisations;

· That Laming ran his business and dealt with the students more or less as he saw fit;

· That DEST and CDU referred students on the basis that the tutoring would be conducted on a private basis, even though the tutors were approved by the ATAS;

· That there was little supervision of Laming’s work by CDU or DEST;

· That Laming operated outside the structure of CDU and DEST; and

· That both organisations exerted some control over Laming’s finances.

After considering all of these factors the Tribunal was satisfied that Laming’s relationships with CDU and DEST should not be characterised as employment relationships. It followed that he was entitled to deduct his business expenses and have his income assessed on that basis.

Formal decision

The Tribunal decided to set aside the decision under review, and substituted a decision that the applicant was an independent contractor and was entitled to deduct his legitimate business expenses from his gross income for the purposes of the income test in s.1064 of the Act.

[ D.A.]