Taxation Law Assignment Ruling

Question: As a contract pilot he agrees to provide his services as, for example, a Gulfstream qualified pilot for flights aboard an aircraft owned or operated by a client? Answer: Introduction The below segment of the assignment will define the laws of judging whether the person in context is an employee or a contractor, through the effective description of the characteristics of both, for Australian taxation purposes. Body Definition of an employee Under the taxation ruling of TR 2005/16, at common law, an employee is an individual who has a contract of service relationship with the employer, and is usually compensated in cash for the labour rendered to the employer, over a period of time, with no specific task involved (ATO 2015), so as to facilitate the employer to achieve his set goals and results. Also as per s. 12(1) of the Superannuation Guarantee Administration Act (SGAA) 1992, if an individual is an employee at common law, he is deemed to be an employee under SGAA 1992 as well (OBryan and James 2012). However, even if an individual is not an employee at common law, through the structure of s. 12(2-7), 12(8a), 12(8c), 12(9a), 12(9b) and 12(10), he is said to be an employee as per SGAA 1992 for superannuation purposes. Definition of a contractor Under the taxation ruling of TR 2005/16, at common law, a contractor is an individual or individuals who is/are on a relationship with the client, of contract for services, and is typically engaged to achieve a particular set of task, rather than for a holistic goal (ATO 2015). Therefore, the contractor has the fixed task to achieve a particular goal, and makes profits or incurs losses based on his performance of those tasks. Characteristic Discussion about the differences between an employee and contractor with context to Toby Financial Risk - There is no financial risk involved with employees (Fairwork Ombudsman 2015). It means that the business operations of the company do not affect the salary of the employee. In the case of a contractor, he bears the risk to make profits or incur losses, and is considered to be the game changer for his contractual services. Toby prepares his hourly rate in such a manner that his profits are returned to Tobyair, on successful completion of work. This relates to the fact that his nature is more contractual than actually that of an employee. Leave The employees are entitles to paid leaves, which is limited to particular number of days in a financial year (Fairwork Ombudsman 2015). A contractor, on the other hand, is more of a freelancing nature and in case he decides to take leaves from work, he bears losses for those paid leaves. In the case of Toby, he calculates the prospective losses on leaves for sickness, and attaches them to the service charge for his flying abilities. Results - An employee performs on a regular routine with multiple desirable results, and does not work with the idea to achieve just one goal. A contractor is required to deliver a specific result, which is more based on the guideline of obtaining the same for his financial profitability. Toby is engaged in contractual services which involve the success of the flight, and hence has just one desirable result. Tobys remuneration model is based on the flights success rates, and hence the more the smoother, the complete the payment is granted to him. Financial Compensation - The financial compensation of an employee may be fixed or variable, or a mixture of both but certainly exists. There is no fixed financial compensation involved herein in the case of a contractor as he is entitled to receive as per the delivery of his task. Toby receives his remuneration only on the successful completion of his task, which implies that his services are in line with those of the contractors. Degree of responsibility The degree of responsibility may be shifted from one employee to another (Fairwork Ombudsman 2015). However, in the case of a contractor, it cannot be shifted to any other individual considering that the services are highly personalized. Toby delivers additional than what he is required to, and hence does not shift his degree of work. His services are highly personalized, and that is exactly what he is paid for. Employee/Contractor Decision Tool The employee/contractor decision tool is based on the Taxation Ruling 2005/16 and Superannuation Guarantee Ruling 2005/1 (Australian Taxation Office 2015). Given that the payments are made to the company Tobyair for the services rendered by Toby, and also that no labour hire payment is made in this case, the employee/contractor decision tool states that the contract has been entered with a contractor and hence the service provider is not the employee of the given client(s) (Australian Taxation Office 2015). Thus, for income tax purposes, Toby must be considered as a contractor and not an employee of any company. Also, it must be noted that the characteristics of a contractor are reflected by the working patterns of Toby. Firstly, Toby is paid on the outcome basis, or the results achieved for his work, his expertise comes on board for the work delivered, he is free to accept an assignment or reject it and at the same time, can incur a profit/loss for any piece of work (Taxpayers Austr alia 2014). Conclusion Thus, we have fairly concluded that Toby is a contractor for income tax purposes based on the characteristic features which an employee lacks, and contractors possess which are in correspondence with the nature of Tobys services (Loki Systems 2014). However, since Tony is a contractor, his clients do not have the right to withhold taxes. Nevertheless, it is mandatory for Toby to provide his Australian Business Number (ABN) or otherwise, the clients are required to withhold taxes as per law (Marshall 2006). Also, for the purpose of superannuation obligations, Toby is not an employee as he does not fulfil the condition of the individual is not paid to achieve a result as stated in s. 12(3) of the SGAA 1992 (ATO 2015). The workers compensation and payroll tax also do not fall under the obligatory payments by the clients since Toby is a contractor for tax purposes. References Australian Taxation Office (2015). Employee/contractor decision tool. 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