Posted on October 28, 2013 by Christabelle Harris
The correct classification of your workers as an employee or contractor is your responsibility. There are different tax and superannuation obligations for employees and contractors therefore it is important to consider the differences between the two types of relationships.
An employee works in your business and is part of your business. Alternatively, a contractor is running their own business and provides services to your business.
We have outlined the characteristics of each below:
| Employee |
Contractor |
| Control over work
Your business has the right to direct the way in which the worker performs their work. |
Control over work
The worker has freedom in the way the work is done subject to the specific terms in any contract or agreement. |
| Ability to sub-contract/delegate
The worker cannot sub-contract/delegate the work – they cannot pay someone else to do the work. |
Ability to sub-contract/delegate
The worker is free to sub-contract/delegate the work – they can pay someone else to do the work. |
| Basis of payment
The worker is paid:
- for the time worked, or
- a price per item or activity, or
- a commission.
|
Basis of payment
The worker is paid for a result achieved based on the quote they provided. |
Equipment, tools and other asset
- Your business provides all or most of the equipment, tools and other assets required to complete the work, or
- the worker provides all or most of the equipment, tools and other assets required to complete the work, but your business provides them with an allowance or reimburses them for the cost of the equipment, tools and other assets.
|
Equipment, tools and other assets
The worker provides all or most of the equipment, tools and other assets required to complete the work. The worker does not receive an allowance or reimbursement for the cost of this equipment, tools and other assets. |
| Commercial risks
The worker takes no commercial risks. Your business is legally responsible for the work performed by the worker and liable for the cost of rectifying any defect in the work. |
Commercial risks
The worker takes commercial risks, with the worker being legally responsible for their work and liable for the cost of rectifying any defect in their work. |
| Independence
The worker is not operating independently from your business. They work within and are considered part of your business. |
Independence
The worker is operating their own business independently from your business. The worker performs services as specified in their contract or agreement and is free to accept or refuse additional work. |
It is important to remember that there is no single factor that will be conclusive in determining whether your worker is an employee or contractor. You will need review the whole working arrangement and examine the specific terms and conditions under which the work is performed.
We see many businesses make the wrong decision as they are using incorrect information.
None of the following makes a worker a contractor:
- your business only needs them for short term or irregular work (such as during busy periods)
- you are using their specialist qualifications or skills
- the industry ‘norm’ is to use contractors
- they have an Australian business number (ABN)
- they have a registered business name.
If you are unsure if you have classified your workers correctly or would like more information on the above, please contact the office.
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Posted on March 1, 2013 by Christabelle Harris
The end of the Fringe Benefits Tax (FBT) Year is upon us, it is a good time to look at some forgotten areas of FBT and how decisions you make during the year could significantly impact your FBT liability particularly in relation to motor vehicle benefits.
When an employer provides an employee the use of a car it has potential to give rise to FBT. The amount of FBT payable can be determined in two ways, using the Log Book Method or the Statutory Method.
As the name suggests the Log Book Method requires you to maintain a log book providing an indication of your private use of a vehicle. FBT is then determined with reference to the private use percentage on all running and maintenance costs of the car. In general terms the lower the private use of a car the lower the FBT payable will be.
The Statutory Method is a lot less onerous and only requires you to keep track of your total kilometers travelled for the FBT year. A rate is determined by reference to the total kilometers you travel, this rate is then multiplied by the ‘base value’ of your car to determine the FBT liability. In short the more travel you do the lower the FBT. However, in this day and age of environmental awareness it is thought that this encourages pollution and from May 2011 the government commenced phasing out the sliding scale. From 1 April 2014 only one statutory rate (20%) will apply irrespective of the amount of travel you do. If after 10th May 2011 you continue with your pre existing arrangement the pre 10th May 2012 rates will continue to apply.
The Benefits of holding a vehicle for more than 4 years – reduction of base value under the statutory method
Although it’s nice to trade in your vehicle for the latest model, if it’s not necessary, there can be significant FBT advantages from holding on to the old car for a bit longer. On the 4th anniversary of the date on which you first owned or leased the vehicle, the base value of the car is reduced by one third. This can have significant savings particularly for luxury cars. For example, if an employer purchases a car for $90,000 on 1 July 2013, the employer can reduce the base value of the car by 1/3 ($30,000) in the FBT year beginning 1 April 2018, the FBT is calculated on a base value of $60,000 instead of $90,000.
Swapping cars between employees – be careful
So you’ve just promoted one of your long-standing employees to a manager, and you’ve generously upgraded their two year old car to the latest model. You decide to give the old car to your office assistant and then sell their four year old car.
This scenario gives us a couple of things to consider. Firstly, the changing of motor vehicles may mean the new transitional statutory rates apply immediately. So if either employee was travelling over 40,000 km a year, they will be worse off as the statutory rate increases from 7% to 20% of the base value of the car. But, if they were travelling less than 15,000km, they will be better off as the rate decreases from 26% to 20%. Please note that the use of an employer’s fleet car by different employees will not be considered to be changes to a pre-existing arrangement.
Secondly, as noted above, the assistant’s vehicle would have been entitled to a 1/3 cost base reduction, which would have reduced their FBT liability.
Therefore, it’s worth discussing with your accountant the FBT consequences of moving vehicles between employees before undertaking the transaction.
Similar Vehicles – different FBT consequences
Choosing what new vehicle to purchase can sometimes be a difficult decision – what make and model, petrol or diesel, what accessories etc? The choice of vehicle can have a significant impact on the amount of FBT you pay.
First and foremost is the notion that not all cars are actually “cars” by definition of the FBT legislation. According to the FBT legislation a “car” is designed to carry less than one tonne or fewer than nine occupants. The Tax Office provide a comprehensive list of what is and isn’t a car for the purposes of FBT.
For a vehicle to be exempt from FBT, it must be primarily used for work related purposes, it’s private use is minor, infrequent and irregular and the vehicle is not an ineligible vehicle.
For example, if you were considering purchasing a Mitsubishi Pajero GLS diesel or the GLX diesel, it is worth knowing that only one is considered to be an eligible exempt vehicle .
It is important to note, that just because a vehicle is listed as an eligible exempt vehicle, it does not mean that it is automatically exempt from FBT. The pattern of use and availability of a second vehicle are also factors that will be taken into account when considering if a fringe benefit will arise. Assuming these conditions are met, the GLX is exempt, however the GLS is not as it is listed on the ATO’s ineligible vehicle list.
It should also be noted that where an employee maintains a personal vehicle and is provided a work vehicle and the only personal travel the work vehicle does is travelling from home to work and back again, the work provided vehicle will still be subject to FBT.
So, next time you look at buying a new vehicle please contact one of our Accountants on 9316 7000 to ensure that there are no FBT surprises!
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