[Question 1 A]
PART A) Employee VS Contractor
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Issue: whether William is an employee or Independent Contractor?
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Theory:
An employee is a person hired by a company that must follow all instructions according to the contract. Employee are on wages and must follow rosters (if applicable). Companies have got high level of control over an employee
A Contractor is a Person who works independently for the company. Contractors has got good amount of freedom to perform their task. Contractors get paid on their invoices rather than Wages like an employee and they are responsible for their own tax and other expenses like Vehicle maintenance and tools required to perform duties
There are five types of tests that helps to determine a person is an employee or Contactor.
Control Test:
Determine the degree of control of an employer has over an employee or contractor in the manner of work performed. There are certain controls like method of work, Time of work and have to be present with uniform if required.
Organisation or Integration: Determines whether the person is really integrated into the business. Work performed indicates if person is an employee or a contactor like hours he/she works is continuous or one-off, Is the same work performed by other?
Independent Test: A level of independency determines whether the person is an employee or contractor. A contractor has high level of independence as compared to an employee.
Intension:
This test examines the intensions of the parties regarding the nature of the relationship.
Economic Reality:
This test determines whether a person is genuinely in business on her/his own account? There are some criteria like the deadline for completing work and worker can be dismissed for unsatisfied work.
Application:
· As per control test, William has some control like he has to get to the class on time and must be dressed and presented in professional manner. He is not allowed to accept any gift from students or involved in any intimate relationship with students enrolled in the class. William required to attend the teaching committee meetings with the programme leaders at NZBTC.
· According to Integration test we can say that Teaching can be done by another employee. William is providing free service as a substitute teacher during his non-teaching time and that is beneficial for NZBTC so William is more likely to be an employee.
· In Independence test, William is provided with all teaching material, desk, computer and iPad. He is responsible for his dress but there is no uniform for teaching as far as professional clothes are required So William looks an employee in this test.
· According to intension test, William is not getting paid for holidays and sick leave and in this test he is more likely to be a contactor.
· William is get paid as per his hours worked and he also charges for administration work. In economic realty test we can say William is an independent contractor as he seems to be in business rather than his own.
Conclusion:
After performing 5 different tests William is more likely to be an independent contractor even if he has got some control.
PART B :
An employee are paid wages and gets PAYE Deduction at the rate indicated in the IR340 or IR341. It is important to distinguish between employee and contactor to know that the person will be liable for payroll tax or withholding tax. Independent contractors are doing their own business and they uses withholding tax and they are responsible to pay their taxes on their own. Contactors deduct tax at the withholding rate indicated in the IR340 or IR341.
[Question 2 A]
Income
Ans 1) Pam has got reimbursement to cover the expense that she did for the company. it is not actually an income and that’s why it is an exempt income as per
Income Tax Act 2007 section CW 62B sub sections 1,2,3 and 4 and CW 17.
Ans 2) Winning Lotto ticket is exempt income.
According to Income Tax Act 2007 section CW 48
winning lotto is not an income.
Ans 3) Dawn has awarded with $500 and it is part of his job income and it is assessable income as per
Income Tax Act 2007 ss CA 1(2), CB1, CE1 and the case law of G V C of IR (1961) NZLR 994
Ans 4) James has subdivided the land and gained $30,000. Gain is from subdivision and he sold that within 10 year of time it is an assessable income as per
Income Tax Act 2007 section CB 6A sub section 2 and CB 10 section 1 and section 2
Ans 5) Imputed dividend is an income and as per
Income Tax 2007 section CD 1, YA 1
dividend is an income.
Ans 6) As it is matter of loss of dignity and humiliation due to wrongful dismissal it is an exempt income referred to
Reid v C of IR (1983) 6 NZTC 61624
[Question 2 A]
Deductions
Ans 1)
Toyota HiAce is a capital expenditure. As per
Income Tax Act 2007 section DA 2
capital expenditures are not deductible.
Ans 2)
Prepaid rent is deductible as it does not exceed the minimum amount of $26,000 and prepaid period of 6 month as per
Income Tax Act 2007 section EA 3; TAA 91 AAC of Determination E-12 states.
Ans 3)
It was a business trip so airfare is deductible. As vacation was not intentional, meal and accommodation is also deductible.
Ans 4)
Prepaid insurance is an allowable deduction as it does not exceed $12,000 and 12 months duration according to
Income Tax Act 2007 section EA and TAA91AAC. [Determination E12].
Ans 5)
Penalties and fines are not deductible income.
Ans 6)
Andrew can claim $10,000 as Andrew is defending the patent of the company. This is deductible expense as per
Income Tax 2007 Act ss DB 36, DB 38, DB40, DZ 15
Ans 7)
The 50% of amount is deductible as
Income Tax Act 2007 ssDD1-DD11.
Only $1000 is deductible in this case.
Ans 8)
It is doubtful debt and not written off so it is not deductible according to
Income Tax Act 2007 section DB31
References:
· Kluwer, W. (2017).
NZ master tax guide.
Auckland: CCH New Zealand Limited.
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http://www.ird.govt.nz/payroll-employers/become-employer/ru-employer/emp-become-employer-employee-contractor.html
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