Distinction between Employee and Independent Contractor

Discuss about the Analysis on Income Tax, Deductions &Employee.

An employees is defined to be that person hired and tasked to work on certain cores as per agreed employment terms for economic benefit of the employer whereas and independent contractor is that person who works with the principal on contractual basis and is not bound to any labour laws but is liable to any contractual agreement set in place. The below notes explains in detail the parallel distinction of an employee and independent contractor;

An employee relation exists; if there is written employment agreement between the employer and employee if there is minimum expected benefit and entitlements

Of wage and salary and finally if there exist holidays, offs and leave days entitlements.

Independent contractual relation on the other hand likewise exists on the grounds that they are self-employed hence eligibility to earnings upon invoicing the principal on the goods/services rendered. Independent contractors are not covered by any labour/employment laws whatsoever thus allowing the civil law determine their rights as based on the ruling made on case study of Ace Insurance Vs Trifunovski. By virtue of being self-employed, they are their own boss hence can choose when to work and when thus not, entitled to annual or sick leave.

It’s prudent to likewise note that this relation is next to zero on basis of choice thus no one chooses preferable relation but nature does it on their behalf. The reason as to why the choice of preferable relation does not exist is because there are no options of foregoing tax requirements as well as employment entitlement willingly instead all this happens as a matter of chance.

William by nature of his work he is bounded by a contractual agreement that dictates the principal expectation as he conducts his service from dressing code to interrelation with the students as well as expected general rules. Just like any other independent contractor William is not entitled to any sick leave, holiday pay or any other entitlement twain (Pg.3). IRD case explains that a member who operates as an independent contractor is allowed to work freely for any other organizations at own free time without notifying the principal in any case he is allowed to be paid for the number of hours he worked for the principal. It’s from this clause that we are able to define William as an independent contractor he is allowed to work at his own time and for any firm as well as being paid for the exact number of hours he works.

Tax Implications of Employee and Independent Contractor

Although Williams relation seems to strongly lie on the contractual site, the tasks on provision of equipment’s by the organisation slightly makes him to be partly employee since it is expected as an independent contractor to use his own tools and equipment however we can assume that the tools were given in good faith and as per the contractual agreements set in place that defines general gross conduct and expectation. Leave or duck test, intention relation test and that of economic reality strongly makes William an independent contractor since he is entitled to terminate the agreement anytime he wishes to, is eligible to an invoice of $50000 payment of the number of hours he worked and finally his contractual relationship is that described by the nature of his job rather than preferable choice.

The employee verses independent contractor is of great pivotal importance to state and parties especially when it comes to the statutory tax obligation. Whereby the state via tax department is able to experience smooth tax planning and follow-ups while the parties are given access conducive environment of operation free from penalties and prosecution.

For tax purposes, an employer on behalf of the employee is expected to submit and pay PAYE deduction to the Inland Revenue Department as statutory and mandatory failure to which there may exist penalties, impairment of company goodwill or rather reputation and the worst of all operation closure.

Independent contractual agreement declaration is likewise vital since the party is made aware of his tax obligation i.e. he is informed that he is not eligible to PAYE subjection as well as other accounts levies but he is eligible to pay GST of an invoice payment made to him of a value more than $60000. Proper distinction of contractual independence and that of employee relation ought to be made so as to determine lawful tax position as well as its expectation.

1. Red Cross is a registered international charitable organization whose activities are exclusively charitable in nature thus any activity under taken by this organization is deemed to have all its funds exempt from income tax this is as per Income Act Tax 2007.This, therefore, limits Pam from subjecting the $30 reimbursement made for the rental room used for the meeting for the charitable organization activities. Reimbursement is tax-free or exempt.
2. Gaming Duties Act prohibits tax charge on lump sum winning as per taxation schedule on windfall gain but instead declares it taxable upon the interest earned resulting from the lump sum deposit. The lump sum amount won by Howard is therefore not taxable referenced by Webber (2010.Pg 700). Although the lump sum amount is tax exempted if the winner decides to bank the amount there exist tax charge of 45% plus a 1.5% Medicare on any interest earned from that deposit.
3. Australian Tax Office has set the minimum value of gift worth $300 to be minor benefit thus exempted Hopkins (2011.Pg21). In our case Dawn reward is above $300 thus does not qualify to be minor benefit hence declared expensed benefit and should be subjected to fringe benefits tax Herring (2006. Pg7).
4. James’ $30000 gain is classified as capital gain and should report the gain in the income tax return. James is therefore expected by the CGT Act to have this gain included in his income for tax bracket purposes and should be aware that there is no separate tax subjected on this gain alone.
5. By virtue of the dividends being imputed Patricia’s share of $250 is eligible for the tax credit or offset since the frank distribution share was done from the share of the net profit after tax thus by subjecting this share of dividend to tax again will be crucifying Patricia to double taxation or tax cascade as defined in Australian Double Taxation Relief Order 2010.
6. Kelvin’s damage compensation is seen to indemnify him to the initial state he was in before dismissal and thus, therefore, there seem to be no gain on this and thus the amount of $36000 compensation is free from taxation Braithwaite (2007.Pg4)

The purchase of the motor vehicle by Andree is seen to be for the sole benefit of the business operation this, therefore, allows him to claim the tax credit for the GST included while purchasing the vehicle, however, it’s only applicable if he is registered for GST this is according to Goods and Services Tax Act 1985.

Income Tax Act 2007 declares that advanced payment of rent is only applicable to the period in which revenue relates thus the rent is for the business operation hence tax deductible but only to the extent of when it was incurred can’t claim for the deductible for a future expense event.

Tax deductions

detailed documents proving this. However, the two days expenses spent on vacation may or may not be accounted for tax purposes on the basis of work related proximity it has on the business thus being left to the discretion of the commission for domestic tax.

If we rely on the need to report expenses and income as per Income Tax Act on respective financial period incurred or earned thus Andree need to ask him as to when the income earned and the expenses are for which period. If there exist advanced prepayment or income made thus the need to claim for deductibility and vice versa. However, both can happen upon the agreed laws of the insurer and the commission Henry (2009.Pg 12).

This is not deductible because it is a penalty or punishment relating to noncompliance, in any case, it won’t serve the purpose of penalty if waived Miller (2016.Pg 13).

This legal fee relates to the company business operation i.e. the patent thus the need to claim for the deductible expense is allowed since the fee is for the best interest of the company.

Christmas lunch is a gift in kind accorded to employee due to their performance since this is seen to be a fringe benefit to employees and is thought by giving this incentive the employees are encouraged to work even more smart thus Andree can claim this as an allowable as long as he can proof economic benefit from it Herring (2006. Pg7).

Bad debts written off are expenses directly relating to the company hence by claiming for the expense is important since do not form part of the receivables used to calculate income tax.

References 

Braithwaite, V., 2007. Responsive regulation and taxation: Introduction. Law & Policy, 29(1), pp.3-10.

Henry, K., Harmer, J., Piggott, J., Ridout, H. and Smith, G., 2009. Australia’s future tax system. Canberra, Commonwealth Treasury.

Herring, R.J., 2006. Booms and busts in housing markets: how vulnerable is New Zealand? Research Paper.

Hopkins, B.R., 2011. The law of tax-exempt organizations (Vol. 5). John Wiley & Sons.

Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.

Twain, M., FILM AND MEDIA TAX GUIDE.

Webber, S., 2010. Thin capitalization and interest deduction rules: a worldwide survey. Tax notes international, 60(9), pp.683-708.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2011. Australian Taxation Law Select: legislation and commentary. CCH Australia.