Jenkins and Secretary, Department of Employment and Workplace Relations
[2007] AATA 1218
•5 April 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1218
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W 200600094
GENERAL ADMINISTRATIVE DIVISION ) Re KATE JENKINS Applicant
And
SECRETARY, DEPARTMENT OF EMPLOYMENT & WORKPLACE RELATIONS
Respondent
DECISION
Tribunal Mr A Sweidan, Senior Member Date5 April 2007
PlacePerth
Decision The Tribunal affirms the decision under review. ..........(Sgd. Mr A Sweidan).................
Senior Member
CATCHWORDS
Social Security - parenting payment - partner's income - whether partner an employee or self-employed.
LEGISLATION
Social Security Act 1991 s8(1A), s 1072, s 1073, s1074, s 1075
CASES
Re Haynes and SDFaCS (1999) AATA 64
Federal Commissioner of Taxation v Barrett (1973) 129 CLR 395
Hollis v Vabu Pty Limited t/a Crisis Couriers (2001)
REASONS FOR DECISION
5 April 2007 Mr A Sweidan, Senior Member Background
1. The applicant Mrs Jenkins seeks a review of the decision of the Social Security Appeals Tribunal (SSAT) dated 28 February 2006 that reviewed the decision made by a Centrelink officer on 3 August 2005 to cancel Mrs Jenkins Parenting Payment (PP) from 27 July 2005 due to her partner’s income.
2. The SSAT set aside the decision under review and sent the matter back to Centrelink for reconsideration in accordance with a direction that Mrs Jenkins’ entitlement to PP be reassessed on the following basis:
(a)Mr Jenkins was an employee of Aerial Imaging Pty Ltd. Each taxable amount paid by Aerial Imaging Pty Ltd for the relevant period is to be taken into account as commission for 12 months under s 1073 of the Social Security Act 1991 (‘the Act’).
(b)Mr Jenkins was an employee of Midline Unit Trust Training and Coaching with the retainer of $300 per week to be taken into account as earnings and any additional commission earned is to be taken into account as commission under s 1073 of the Act.
(c)If after recalculation of Mrs Jenkins’ PP her rate is more than nil, her payment should not have been cancelled on 27 July 2005 and she is to be paid arrears;
(d)If after recalculation of Mrs Jenkins’ parenting payment her rate is nil, her parenting payment is to be cancelled.
3. Mrs Jenkins was in receipt of PP from 1 July 2004.
4. On 24 January 2005 Mr Jenkins registered an Australian Business Number (ABN) as an individual or sole trader.
5. Centrelink received information through electronic data matching on 17 May 2005 identifying that Mr Jenkins had signed a Tax Declaration Form (TDF) on 6 November 2004.
6. On 3 August 2005 a delegate for the Secretary decided to cancel Mrs Jenkins’ PP from 27 July 2005 due to Mr Jenkins’ income.
7. In determining Mrs Jenkins’ rate of PP the income that Mr Jenkins’ received from Aerial Imaging Pty Ltd and Midline Unit Trust trading as Midline Unit Trust Training and Coaching was taken into account on the basis that he was an employee and no deductions were allowed.
8. The decision to cancel Mrs Jenkins PP was reviewed and affirmed by a Centrelink Authorised Review Officer (ARO) on 8 December 2005.
9. The ARO’s decision was then reviewed by the Social Security Appeals Tribunal (SSAT) which made the order referred to above.
The Issues for determination by this tribunal are:
10. How should Mr Jenkins’ income from Aerial Imaging Pty Ltd and Midline Unit Trust Training and Coaching be assessed?
11. Should Mrs Jenkins’ parenting payment have been cancelled?
Applicant’s Evidence and Contentions
12. The applicant was represented by her husband, Mr Jenkins, who gave evidence and made submissions on her behalf.
13. In essence Mr Jenkins claimed that he was self-employed during the relevant periods and that his income should be determined after allowing for deduction of business expenses.
14. Mr Jenkins produced documents showing that the Australian Taxation Office had accepted that for taxation purposes, he was self-employed during the relevant period.
Respondent’s contentions
15. The issue for the Tribunal is whether or not Mr Jenkins’ income should be determined on the basis of him being an employee of Aerial Imaging Pty Ltd (Aerial) and Midline Unit Trust Trading as NLP Training and Coaching for the purposes of the Social Security Act 1991 (the Act) during the relevant period. The relevant legislation in this matter is contained in Part 3.10 of the Act.
16. As a preliminary matter s 503 of the Act states that parenting payment for a partnered person is to be calculated according to the rate calculator set out at the end of s 1068B of the Act.
17. Section 1068B- A2 provides the steps to determine the rate and s 1068B-D1 identify that a person or the person’s partners’ income is to be taken into account in working out the effect of income on the maximum payment rate of PP.
18. If the combined income exceeds the ordinary income amount for the period the rate of PP will reduce accordingly.
19. Section 500I(1) of the Act states that ‘a parenting payment is not payable to a person if the person’s parenting payment rate would be nil’.
Income
20. Section 8 of the Act defines ordinary income as income that is not maintenance income or an exempt lump sum’. The affiliated note 3 states that s 1072 and s 1073 are to be referred to for ordinary income concept, and s 1074 and s 1075 for business income.
21. Section 1072 of the Act states that ‘a person's ordinary income for a period is a reference to the person's gross ordinary income from all sources for the period calculated without any reduction....’
22. Section 1073 of the Act relevantly provides that a ‘person is, for the purposes of this Act, taken to receive one fifty-second of that amount as ordinary income of the person during each week in the 12 months commencing on the day on which the person becomes entitled to receive that amount’.
23. This provision provides for the determination of various forms of employment income such as commission. Section 8(1A) of the Act relates to employment income and reads relevantly, in part,:
“A reference in this Act to employment income, in relation to a person, is a reference to ordinary income of the person:
(a) that is earned, derived or received, or that is taken to have been earned, derived or received, by the person from remunerative work undertaken by the person as an employee in an employer/employee relationship; and
(b) that includes, but is not limited to, salary, wages, commissions and employment-related fringe benefits that are so earned, derived or received or taken to have been so earned, derived or received....”
24. Section 1075(1) of the Act permits certain deductions, depreciation and allowances, provided for in the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997, to be offset against income for social security income test purposes, but only where the person ‘carries on a business’ and only in respect of deductions, depreciation and allowances in relation of that business.
25. The Secretary contends that the SSAT was correct in determining that Mr Jenkins was an employee of Aerial and Midline Unit Trust and the income received was correctly taken into account as commission in accordance with s 1073 of the Act, with no deductions.
Tribunal’s findings
Aerial Imaging
26. Aerial Imaging involves selling aerial photos to farmers.
27. Mr Jenkins worked for Aerial Imaging from 6 November 2004 to 5 May 2005 as a freelance commission sales person.
28. Aerial Imaging deducted tax, superannuation, work cover expenses but reimbursed Mr Jenkins’ accommodation and travel expenses.
29. On his ‘2005 e-tax return for individuals’ Mr Jenkins income is listed as salary or wages that was received from Aerial Imaging.
30. In Re Haynes and SDFaCS (1999) AATA 64, the Tribunal considered the position of a registered tax agent who did tax return work for H&R Block. There was a written contract of employment between the parties which clearly indicated that the applicant was an employee. H&R Block provided the office facilities, met all necessary overheads and paid the applicant on both time worked and a supplementary commission basis. H&R Block deducted PAYE tax, paid workers compensation and superannuation payments. The Tribunal affirmed the requirement to consider all the various indicia as a whole in determining whether an employment relationship existed, but saw the existence of the written contract of employment coupled with the PAYE and superannuation payments as being persuasive in favour of an employment relationship.
31. The Secretary contends that Mr Jenkins was an employee of Aerial Imaging and that the gross income for the period is to be calculated without deductions, in accordance with s 1072 of the Act and that the income is to taken as commission for 12 months from the date it was received as specified under s 1073 of the Act.
32. The Tribunal notes that Mr Jenkins accepts that he was an employee of Aerial Imaging during the period referred to above and that he was receiving commission which is taken into account for 12 months from the date of receipt.
Midline Unit Trust
33. The SSAT noted that Mr Jenkins ‘does not consider himself to be an employee of Midline Unit Trust Training and Coaching, but self-employed’.
34. Mr Jenkins entered into an agreement on 3 March 2005 with Midline Unit Trust T/A Midline Unit Trust Training and Coaching which is referred to as the Principal.
35. The document at T37 page 328 states that the agreement is a contract for service and that no master / servant or partnership relationship exists.
36. Mr Jenkins services is to sell training and coaching courses presented by Midline Unit Trust. Mr Jenkins claims he has control over the methods used to sell these courses as well as who and when he contacts a perspective buyer and can dictate his own hours of work.
37. The amount of $1300 per month as a retainer and commission from sales is paid to Mr Jenkins by Midline Unit Trust. Mr Jenkins is also reimbursed travelling and other expenses and is entitled to a two weeks incapacity period.
38. Mr Jenkins is responsible for managing and paying his own tax and superannuation
39. Mr Jenkins has a registered ABN claimed that he and provides all equipment and materials for work. He also claimed that he leases a telephone and office space from Midline Unit Trust.
40. As a result Mr Jenkins believes that he should be considered as self employed.
41. The Secretary contends that Mr Jenkins situation should be looked at holistically and although Mr Jenkins’ agreement with Midline Unit Trust describes him as a contractor, it is necessary to examine the substance of the agreement, not simply the form.
42. The Tribunal and Courts have previously dealt with the issue of what constitutes a contract of service (employee) and a contract for service (contractor).
43. In the High Court decision of Federal Commissioner of Taxation v Barrett (1973) 129 CLR 395 land sales people were considered employees because their duties were considered an integral function of the business entity for which they worked. Despite the freedom the sales persons had about how they performed the work, they were considered employees as they are subject to control of the organisation (at 19), carried out work as representatives of the organisation (at 21), abided by directions relating to the organisation (at 21), and the salesperson had no control over advertisement and the form of contracts that induce buyers (at 21).
44. While Mr Jenkins is able to apply various sales techniques and is not governed by a rigid regimen or detailed supervision, in the Tribunal’s view this is not of itself an indication of lack of control by Midline Unit Trust.
45. Stephen, J. stated in Barrett:
“17. It is, to my mind, of little significance that these employers, when dealing with persons working for them who are remunerated by commission, do not, in the particular circumstances of this case, impose upon those persons what the majority refer to as "a detailed regimen". When the work involved is that of the persuasion of buyers the manner in which it is performed must perforce vary from salesman to salesman; each employs his preferred techniques which experience has taught him and any attempted imposition of a uniform method of work might well prove very disadvantageous in the outcome. The nature of the work is precisely of that kind in which it might be expected that an employer would deal with his expert and experienced salesmen in very much the way the respondents did; I would not for that reason regard those salesmen as other than employees (at p404).
18. What the respondents have done, and with what appears to be marked success - it was said in evidence that their firm handles two-thirds of the sales of vacant land in Adelaide - is to give to their salesmen great scope for individual initiative because by that means they are best able to use their individual talents; yet at the same time these salesmen remain very much a part of the respondents' organization and are subject to control in respects to which I will shortly refer and which affect the way in which they perform their work (at p405).
19. Each of those other circumstances present in this case and which may suggest that the salesmen are not employees are, I think, intimately associated with the fact that the salesmen are remunerated solely by a percentage of the commission earned on sales effected. Because of this the employers are not concerned with questions of hours worked, of holidays taken or, generally, of time gainfully employed. They know that they will not be the losers through idle time, at least in the sense that they are not paying for that time; they know, too, that the economic incentive afforded by payment of a share of commission should ensure a satisfactory level of sales. Of course they could, no doubt, not tolerate as part of their full-time sales staff in the metropolitan area representatives who did not supply adequate services in that area since this would adversely affect the firm's sales performance; but the regularity of hours worked or the extent of holidays taken is of no concern to them so long as an overall satisfactory rate of selling is maintained.... ...However, generally speaking, remuneration by commission only, with the financial incentive it provides, is, no doubt, enough to stimulate activity on the part of salesmen and if they are experienced and are carefully selected, as the respondents' salesmen are, there will be little call for supervision apart from ensuring that, in their dealings with the public, proper ethical standards are observed. It therefore need occasion no surprise that there is in this case little evidence of detailed supervision, its absence is not so much an indication of lack of the right to control as of an efficiently organized business in which financial incentives and good relations with responsible, carefully selected staff take the place of close supervision but without in any way affecting the subsisting relationship of employer and employee (at p405).”
46. Schedule 11 of the Midline contract defines the services as training, sales and negotiations and operational activities for the training products and related services and other specified tasks as requested by Midline Unit Trust.
47. Clause 5.1 of the contract states that Mr Jenkins must, amongst other things:
(a)conform with reasonable and legal instructions of Midline Unit Trust;
(b)obey, comply and conform with covenants, conditions and undertakings made by Midline Unit Trust with another; and
(c)comply with all relevant legislation, regulations and codes of conduct.
48. The Tribunal notes that the document at T34 Pages 277 to 291 states that Mr Jenkins has to follow directions of the Trust and is subject to directions relating to confidentiality [clause 5.2], intellectual property right [clause 5.3], restraint of trade [clause 8 & 14.1] and any other tasks requested by the Trusts [par. 2 of the Schedule].
49. In the Tribunal’s view Mr Jenkins is advertising and selling Midline Unit Trust products and doing so as a representative of the Trust.
50. Mr Jenkins has no control over the financial aspects or profit of Midline Unit Trust. Mr Jenkins must invoice the Trust every week [T34: pg. 281: clause 7.2]. Commission is paid on financial receipt of the money which can be deferred by participants.
51. Mr Jenkins does not advertise for his goods or services or employ others to work for him. Clause 8 provides that Mr Jenkins will not either directly or indirectly be involved in any business or undertaking the same as or similar to the business, and under clause 16.2 Mr Jenkins cannot assign the rights or benefit of employment.
52. In Hollis v Vabu Pty Limited t/a Crisis Couriers (2001), the High Court held that a bicycle courier was an employee, not an independent contractor. In this case the couriers provided their own bicycles and had to bear the expense of providing for and maintaining them. They provided their own street directories and telephone books. Very importantly they received no wage or salary. They were paid a prescribed rate for the number of successful deliveries they made. The courier's contracts also provided no payments for annual leave, sick leave and no superannuation deductions.
53. Gleeson CJ and Gaudron, Gummow, Kirby and Hayne JJ said in Hollis, amongst other things:
“First, these couriers were not providing skilled labour or labour which required special qualifications. A bicycle courier is unable to make an independent career as a free-lancer or to generate any "goodwill" as a bicycle courier (at 48).
Secondly, the evidence shows that the couriers had little control over the manner of performing their work.... (at 49).
Thirdly, the facts show that couriers were presented to the public and to those using the courier service as emanations of Vabu (at 50).
Fourthly, there is the matter of deterrence. Reference has been made to the findings of fact in this case respecting the knowledge of Vabu as to the dangers to pedestrians presented by its bicycle couriers and the failure to adopt effective means for the personal identification of those couriers by the public. … (at 53).
Fifthly, Vabu superintended the couriers' finances: Vabu produced pay summaries and couriers were required to dispute errors. There was no scope for the couriers to bargain for the rate of their remuneration.... (at 54).
The method of payment, per delivery and not per time period engaged, is a natural means to remunerate employees whose sole duty is to perform deliveries, not least for ease of calculation and to provide an incentive more efficiently to make deliveries.
The fact that the couriers were responsible for their own bicycles reflects only that they were in a situation of employment more favourable than not to the employer; it does not indicate the existence of a relationship of independent contractor and principal (at 56).
Finally, and as a corollary to the second point mentioned above, this is not a case where there was only the right to exercise control in incidental or collateral matters. Rather, there was considerable scope for the actual exercise of control. Vabu's whole business consisted of the delivery of documents and parcels by means of couriers. Vabu retained control of the allocation and direction of the various deliveries. The couriers had little latitude... ...to its customers they were Vabu and effectively performed all of Vabu's operations in the outside world. It would be unrealistic to describe the couriers other than as employees (at 57).”
54. Mr Jenkins has a home office and is able to work from home, however he normally works at NLP’s premises and uses their equipment. Mr Jenkins contributes to the cost of telephone calls as part of the fee he pays for the ‘seat costs’ which was taken into account in his commission fee structure.
55. The Tribunal is of the view that the seat cost and work setup reflects ‘a situation of employment more favourable than not to the employer and it does not indicate the existence of a relationship of independent contractor and principal’.
56. It is clear from the evidence that Midline Unit Trust hold the rights to the intellectual property and Mr Jenkins has little latitude regarding the structure or form of the product that is being sold, or advertisement material available for distribution.
57. The fact that Mr Jenkins is regarded by the Australian Taxation Office (ATO) as self-employed for taxation purposes does not, in the Tribunal’s view, determine the issue under social security legislation. The Tribunal notes that there is no evidence as to the basis on which the ATO made its determination and further that the relevant taxation law provisions are different to the social security laws which are in issue here.
58. In the Tribunal’s opinion the Social Security Appeals Tribunal was correct in finding that Mr Jenkins is not carrying on a business for the purposes of the social security legislation and should be regarded as an employee and not self-employed. Consequently, Mr Jenkins’ gross income from Midline Unit Trust, should be considered, without any deductions, when determining Mrs Jenkins’ rate of Parenting Payment (PP) and the $1,300 per month retainer to be taken as earnings and the commission taken in account in accordance with s 1073 of the Act.
Decision
59. The Tribunal affirms the Social Security Appeals Tribunal (SSAT) decision under review.
I certify that the 59 preceding paragraphs are a true copy of the reasons for the decision herein of Mr A Sweidan, Senior Member.
Signed: ...............(Sgd.) Ms R Riberi................................
AssociateDates of Hearing 8 September 2006 and 8 December 2006
Date of Decision 5 April 2007
Applicant’s representative Mr C JenkinsRespondent’s representative Ms M Conlon
Centrelink
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