Editors --- "Parenting payment cancellation: partner's income; whether partner an employee or self-employed" [2007] SocSecRpr 15; (2007) 9(2) Social Security Reporter, Article 2

• JENKINS and SECRETARY TO THE DEWR
• Legislation
• Facts
• The decision
• Formal decision

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Parenting payment cancellation: partner's income; whether partner an employee or self-employed

JENKINS and SECRETARY TO THE DEWR

(2007/1218)

Decided: 5th April 2007 by A. Sweidan

The SSAT by decision dated 28 February 2006 reviewed the decision made by a Centrelink officer on 3 August 2005 to cancel Jenkins’ parenting payment (PP) from 27 July 2005 due to her partner’s income.

The SSAT set aside the decision under review and sent the matter back to Centrelink for reconsideration in accordance with a direction that Jenkins’ entitlement to PP be reassessed on the following basis:

Mr Jenkins was an employee of Aerial Imaging Pty Ltd. Each taxable amount paid by Aerial Imaging Pty Ltd for the relevant period was to be taken into account as commission for 12 months under s.1073 of the Social Security Act 1991 (the Act).

Mr Jenkins was an employee of Midline Unit Trust Training and Coaching with the retainer of $300 per week to be taken into account as earnings and any additional commission earned was to be taken into account as commission under s.1073 of the Act.

If after recalculation of Jenkins’ PP her rate was more than nil, her payment should not have been cancelled on 27 July 2005 and she was to be paid arrears;

If after recalculation of Jenkins’ parenting payment her rate was nil, her parenting payment was to be cancelled.

Jenkins appealed to the AAT. Mr Jenkins, on her behalf, claimed that he was self-employed during the relevant periods and that his income should be determined after allowing for deduction of business expenses. He produced documents showing that the Australian Taxation Office had accepted that for taxation purposes, he was self-employed during the relevant period.

The AAT determined the issue before it was whether or not Mr Jenkins’ income should be determined on the basis of him being an employee for the purposes of the Act during the relevant period.

Legislation

The relevant legislation is contained in Part 3.10 of the Act. Section 8 of the Act defines ordinary income as income that is not maintenance income or an exempt lump sum. Note 3 states that s.1072 and s.1073 are to be referred to for ordinary income, and s.1074 and s.1075 for business income.

Section 1072 of the Actstates that ‘a person’s ordinary income for a period is a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction....’

Section 1073 of the Act provides for the determination of various forms of employment income such as commission. It provides that a ‘person is, for the purposes of this Act, taken to receive one fifty-second of that amount as ordinary income of the person during each week in the 12 months commencing on the day on which the person becomes entitled to receive that amount’.

Section 8(1A) of the Act relates to employment income and reads, in part:

‘A reference in this Act to employment income, in relation to a person, is a reference to ordinary income of the person:

(a) that is earned, derived or received, or that is taken to have been earned, derived or received, by the person from remunerative work undertaken by the person as an employee in an employer/employee relationship; and

(b) that includes, but is not limited to, salary, wages, commissions and employment-related fringe benefits that are so earned, derived or received or taken to have been so earned, derived or received....’

Section 1075(1) of the Act permits certain deductions, depreciation and allowances, provided for in the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997, to be offset against income for social security income test purposes, but only where the person ‘carries on a business’ and only in respect of deductions, depreciation and allowances in relation to that business.

Facts

Aerial Imaging Pty Ltd sold aerial photos to farmers and Mr Jenkins worked selling for Aerial Imaging from 6 November 2004 to 5 May 2005 as a freelance commission sales person. Aerial Imaging deducted tax, superannuation, work cover expenses but reimbursed Mr Jenkins’ accommodation and travel expenses.

The Secretary contended that Mr Jenkins was an employee of Aerial Imaging, that the gross income for the period was to be calculated without deductions in accordance with s.1072 of the Act and that the income was to be taken as commission for 12 months from the date it was received in conformity with s.1073 of the Act.

Mr Jenkins conceded that he was an employee of Aerial Imaging during the period and that he was receiving commission. That commission was therefore to be taken into account for 12 months from the date of receipt.

Mr Jenkins did not concede that he was an employee of Midline Unit Trust Training and Coaching, but rather contended he was self-employed.

Mr Jenkins entered into an agreement on 3 March 2005 with Midline Unit Trust T/A Midline Unit Trust Training and Coaching (Midline) which stated that the agreement was a contract for service and that no master/servant or partnership relationship existed. Mr Jenkins’ service was to sell training and coaching courses presented by Midline. Mr Jenkins claimed he had control over the methods used to sell these courses as well aswho and when he contacted a prospective buyer and could dictate his own hours of work. $1300 per month was paid as a retainer and amounts by way of sales commissions were paid over and above that amount by Midline. He was reimbursed travelling and other expenses. He was entitled to a two-week incapacity period. He was responsible for managing and paying his own tax and superannuation. He had a registered ABN and claimed that he provided all equipment and materials for work. He leased a telephone and office space from Midline.

The Secretary contended that although Mr Jenkins’ agreement with Midline described him as a contractor, it was necessary to examine the substance of the agreement, not simply the form.

The decision

The fact that Mr Jenkins was regarded by the Australian Taxation Office as self-employed for taxation purposes did not, in the Tribunal’s view, determine the issue under social security legislation. The Tribunal noted that the relevant taxation law provisions are different to the social security laws.

The AAT considered authorities relevant to the issue of what constitutes a contract of service (employee) and a contract for service (contractor).

The AAT referred to the High Court decision of Federal Commissioner of Taxation v Barrett [1973] HCA 49; (1973) 129 CLR 395. Land sales-people were found to be employees. Despite the freedom the sales-persons had about how they performed the work, they were considered employees subject to control of the organization; they carried out work as representatives of the organization, abided by directions relating to the organization and had no control over advertisement and the form of contracts that induce buyers.

The AAT observed Mr Jenkins could apply various sales techniques and was not governed by a rigid regimen or detailed supervision, but that was not of itself an indication of lack of control by Midline.

The AAT observed that the Midline contract defined the services as training, sales and negotiations and operational activities for the training products and related services and other specified tasks as requested by Midline. It required Mr Jenkins to amongst other things conform with reasonable and legal instructions of Midline, obey, comply and conform with covenants, conditions and undertakings made by Midline with another and comply with all relevant legislation, regulations and codes of conduct. It required Mr Jenkins to follow directions of Midline and he was subject to directions relating to confidentiality, intellectual property rights and restraint of trade. Mr Jenkins was found to be advertising and selling Midline products and doing so as a representative of the Trust. He had no control over the financial aspects or profit of Midline. He was required to invoice Midline every week and Midline paid him commission on financial receipt of the money by Midline which could be deferred by participants. He did not advertise for his goods or services or employ others to work for him. He could not either directly or indirectly be involved in any business or undertaking the same as or similar to Midline’s and he could not assign the rights or benefit of employment to another.

The AAT reviewed the indicia of direction and control considered by the High Court in Hollis v Vabu Pty Limited t/a Crisis Couriers (2001), in reaching its conclusion that a bicycle courier was an employee, not an independent contractor. Couriers provided their own bicycles and bore the expense of maintaining them. They supplied their own street directories and telephone books. They received no wage or salary but were paid a prescribed rate for the number of successful deliveries made. Their contracts provided no payments for annual leave, sick leave and no superannuation deductions.

Despite Mr Jenkins having a home office and the ability to work from home, he normally worked at Midline’s premises and used their equipment. Whilst he contributed to the cost of telephone calls as part of the fee he paid for the ‘seat costs’ which was taken into account in his commission fee structure, the AAT found that the seat cost and work set-up reflected ‘a situation of employment more favourable than not to the employer and it does not indicate the existence of a relationship of independent contractor and principal’ adopting the approach in Hollis.

Formal decision

The AAT affirmed the decision of the SSAT that Mr Jenkins was not carrying on a business for the purposes of the social security legislation and should be regarded as an employee and not self-employed. His gross income from Midline Unit Trust, should be considered, without any deductions, when determining Jenkins’ rate of PP with the $1300 per month retainer to be taken as earnings and the commission taken in account in accordance with s.1073 of the Act.

[I.T.]