The High Court has delivered two important decisions concerning independent contractors. The Court held that where a written agreement governs the relationship between the parties, generally that agreement will determine whether a person is an employee or independent contractor.
Two cases were heard together by the High Court and judgments handed down on the same day. The High Court’s approach provides greater certainty for businesses who have properly recorded their independent contractor relationships in written contracts that accurately reflect the nature of the relationship.
The decisions are a significant departure from the approach previously applied by Australian courts which involved an extensive assessment of the actual circumstances of the working relationship between the parties to determine (not just their contract) whether or not an employment relationship exists.
What should employers do next?
The High Court decisions in Jamsek and Personnel Contracting mean that in general, the existence of an employment or contractor relationship depends on an assessment of the totality of the parties’ relationship based on their contractual terms and conditions. The previous approach of considering the subsequent conduct of the parties as well as their contract when making this assessment is no longer correct.
The key messages for principals when engaging contractors are:
Expenses relating to the use or ownership of a home are domestic and are not deductible. However, in specific cases some expenses may be allowed as a deduction if there is a sufficient connection with your employment activities.
If you work from home, you may be entitled to claim some running expenses of a home office. This may include heating, cooling, lighting, cleaning and depreciation of home office furniture and equipment. You cannot claim your home occupancy expenses such as rent, mortgage interest, water, and rates.
Calvin is employed as a software developer by ABC Pty Ltd, a company based in the Melbourne CBD. Calvin lives in a rented property in Geelong and wants to limit his need to commute to the office in the Melbourne CBD. His employer gives him permission to work frequently from home, but he needs to come into the office for team meetings and on other days as required.
Calvin sets up a spare room as his work office and he doesn't use it for any other purpose. Calvin would be able to claim running expenses in respect of his home office but would not be able to claim any portion of his rent as it is a cost of maintaining a place to live and domestic in nature (that is, an occupancy expense).
If claiming for a home office, you can only claim the additional running expenses incurred as a result of working from home.
Ian occasionally works from home. As Ian has a dedicated room to work from, he is entitled to claim the additional running expenses that he incurs as a result of working from home during the day. This would include the cost of lighting, heating, and cooling the room he works in for the time he spends working there.
If Ian had instead worked from his dining room or living room when other family members were present, he would not be entitled to claim a deduction for the running expenses such as the cost of lighting or heating and cooling as he incurs no additional cost as result of working from home in those circumstances.
If you are entitled to claim running expenses, you can claim the work-related portion of the following expenses:
• heating, cooling, and lighting
• cleaning costs
• computer consumables (such as printer paper and ink), and stationery
• home office equipment such as computers, printers, furniture, and telephones - for these you can claim the
o the full cost for items up to $300
o decline in value for items over $300.
You can claim running expenses either at the fixed rate or as actual expenses. In response to the increased number of employees working at home due to COVID-19, a new temporary method, called the shortcut method has also been introduced.
The shortcut method is a deduction of 80 cents per hour worked from home. This method is temporary and will only be available to use from 1 March 2020 to 30 September 2020.
To claim the shortcut method, you must:
• be working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls
• have incurred additional running expenses as a result of working from home.
You don't have to have a separate or dedicated area of your home set aside to work from, such as a private study.
The shortcut method covers all additional deductible running expenses, including decline in value of electronic devices. If you use this method, you can't claim any other expenses for working from home for that period.
When you are calculating the number of hours you worked from home, you need to exclude any time you took a break from working, for example the time you spent to stop and eat your lunch or to assist your children with home schooling.
You must keep a record of the number of hours you have worked from home. This could be a:
• diary, or
• similar document that sets out the hours you worked.
If you use the shortcut method to claim a deduction in your tax return, include the amount at the other work-related expenses question in your tax return and include 'COVID-hourly rate' as the description.
For employees guide for further deduction, go to https://www.ato.gov.au/law/view/document?LocID=%22SAV%2FEGWE%2FFTACCOMMODATION%22&PiT=99991231235958#FTACCOMMODATION
The Federal Court has ruled that certain assets of two undischarged bankrupts were not held in their SMSF and were therefore divisible among the creditors of their bankrupt estates. They sought to rely on s 116(2)(d)(iii)(A) of the Bankruptcy Act 1966 which provides an exception to assets available to creditors for "the interest of the bankrupt in...a regulated superannuation fund". However, the court determined that they failed to show that the disputed assets were held on the terms of the SMSF for the beneficiaries of the SMSF. (Frigger v Trenfield (No 10)  FCA 1500, 1 December 2021.) Comment: This case therefore provides some important lessons for SMSF trustees on the importance of keeping records of SMSF assets and maintaining compliance for the fund.