Klewer and Department of Family and Community Services

[2001] AATA 729

DECISION AND REASONS FOR DECISION [2001] AATA 729

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q2000/1075

GENERAL ADMINISTRATIVE  DIVISION       )          
           Re      LUCY KLEWER     
  Applicant
           And    SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES        
  Respondent

DECISION

Tribunal       Mr. D.W. Muller, Senior Member

Date22 August 2001        

PlaceBrisbane

Decision      The Tribunal varies the decision under review:  1.  If the amount of $139.25 collected by Lucy Klewer as Goods and Services Tax was passed on to the Commonwealth Government it is not to be included in the assessment of her income. 2.  The Tribunal otherwise affirms the decision under review.           
  ............(Signed)..................................
  D.W. MULLER
  SENIOR MEMBER
CATCHWORDS
PARENTING PAYMENT – rate of payment – whether carrying on a business – allowable tax  deductions – business expenses
Social Security Act 1991: S 8(1), 1072, 1075
Income Tax Assessment Act 1936: s.51
Income Tax Assessment Act 1997:  s.8-1, 87

REASONS FOR DECISION

Mr. D.W. Muller, Senior Member             

1. This is an application to review a decision not to deduct business expenses claimed by Lucy Klewer, the applicant, from her income as a taxi driver, on the grounds that she is not carrying on a business.

2. For the period under review, Ms. Klewer was in receipt of parenting payment (PP).  The rate of payment of PP is affected by other income received by the recipient.

3. Both parties to this review requested that the matter be decided "on the papers".  The written material provided by the parties reveals the following facts:

   (a)Ms. Klewer has sole responsibility for her four children who are all dependent on her.

   (b)On 21 September 2000, Ms. Klewer returned a form headed, "Parenting Payment review – for sole parents", to the Coffs Harbour office of Centrelink.  In the body of that form, Ms. Klewer declared that she operated the business of "taxi cab driving" and that the name of her business was "Coffs Harbour Taxi Network".

   (c)Ms. Klewer provided Centrelink with a profit and loss statement covering the period 1 July 2000 to 31 August 2000.  She also provided a statement headed "Driver Report – Detailed Earnings", prepared by Holiday Coast Transportation Services Pty. Ltd.  The two documents show that for the period stated Ms. Klewer took total fares of $3,829.80 and was paid $1,532.00 commission.  She also claimed the following "expenses".

   Goods and Services Tax  $139.25
   Uniform laundry  40.00
   Fuel towards commuting to work  140.00
   Mobile phone use  40.00
   Non payment of full fare by passengers  80.00
   Loss of work due to taxi cab breakdown  400.00
   Loss of work due to family & self sick days  200.00
   Baby sitting costs  240.00
   Total Expenses  $1,279.25

(d)The cab or cabs which Ms. Klewer drove were supplied to her by Coffs District Taxi Cab Network Pty Ltd (the cab company).  The agreement between her and the cab company was called a Bailment Agreement, dated 4 November 1999, and covered such matters as the supply of cab or cabs, operation of the cab, payment by the company of all fuel, oil, maintenance, registration and licence fees in respect of the running of the cab.  The percentage of the fares to be retained by Ms. Klewer was said by the agreement to be "that amount as agreed upon from time to time".

(e)Ms. Klewer had an Australian Business Number (ABN).

1. The relevant legislation is contained in the following sections of the Social Security Act 1991.

   s.8(1) "income", in relation to a person, means:

   (a)an income amount earned, derived or received by the person for the person's own use or benefit; 

   General meaning of ordinary income

   1072.  A reference in this Act to 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, other than a reduction under Division 1A.
   1075.(1)  Subject to subsection (2), if a person carries on a business, the person's ordinary income from the business is to be reduced by:
   (a) losses and outgoings that relate to the business and are allowable deductions for the purposes of section 51 of the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997, as appropriate;"

1. Income relates only to that money received by the person for the person's own use or benefit.  The amount of $139.25 collected by Ms. Klewer as GST and, presumably, passed on to the Commonwealth Government, was not for her own use or benefit.  It was neither income nor a deduction under the provisions of the income tax Acts.  If she paid the GST out of her commission of $1,532, her income should be reduced accordingly.

2. Some of the other items on Ms. Klewer's list are not allowable deductions for the purposes of section 51 of the Income Tax Assessment Act 1936 nor section 8-1 of the Income Tax Assessment Act 1997.  Hence, they are not to be used to reduce her ordinary income for the purpose of calculating PP.

   (a)Fuel towards commuting to work - $140.00.  The costs associated with getting to and from work are not allowable deductions, unless the taxpayer fits into a special category like, for example, a person who has to transport heavy equipment from home to work and back again.

   (b)Non payment of full fare by passengers - $80.00.  This is not an allowable deduction.  It is a loss of anticipated income.  It is not an amount that was actually paid out.

   (c)Loss of work due to taxi cab breakdown - $400.00.  This is simply a loss of opportunity to earn income.  It is not an amount actually paid and is not an allowable deduction.

   (d)Loss of work due to family and self sick days - $200.00.  This is in the same category as (c) above.

   (e)Baby sitting costs - $240.00.  Unfortunately, this expense is regarded by the Commissioner of Taxation and the High Court as a personal expense which is not an allowable tax deduction.

3. The only two items on Ms. Klewer's list of expenses which may be allowable tax deductions are the laundry of her uniform ($40.00) and her mobile phone use ($40.00), provided that the expenses directly related to her deriving her income as a cab driver and that she has complied with the rules relating to substantiation of claims for deductions.

4. Ms. Klewer's income for the purposes of calculating her rate of payment of PP, may only be reduced by the said $80.00, if she is carrying on a business and the expenses are losses and outgoings that relate to the business.  The question of whether or not a person is carrying on a business or whether the person is in an employer/employee relationship has been the subject of numerous court and Tribunal cases.  It has also been the subject of much public and press debate over the last few months in relation to recent tax legislation which has attempted to provide a definition to cover self-employed contractors.

5. In general terms the question as to whether a person is carrying on a business, or is an employee of someone else, is determined by the degree of autonomy that the person has in the way in which they derive their income.  The greater the control which someone else has over their income earning activities, the less likely they are carrying on a business.

6. The Tribunal also gains some assistance from Division 87 of the 1997 Tax Act which sets out various criteria for determining whether or not an individual is conducting a personal services business for the purposes of that Act.  Those criteria also relate to the degree of autonomy or control which a person may have over their income earning activities.  Some of the criteria are:

• Does 80% or more of the individual's personal services income come from one source?

• Does the individual provide services to two or more entities that are not associates of each other, and are not associates of the individual during a tax year?

• Does the individual engage one or more entities to perform work?

• Does the individual maintain and use business premises which are physically separate from any premises that the individual uses for private purposes and that are physically separate from the premises of the entity to which the individual provides services?

• Does the individual supply plant and equipment, or tools of trade, needed to perform the work?

• Is the individual liable for the cost of rectifying any defect in the work performed?

1. The Bailment Agreement under which Ms. Klewer works for the cab company gives her very little scope for autonomy.  The cab company has obviously sought to have control over every foreseeable event in the operation of a cab.  Ms. Klewer does not satisfy one criterion of those set out in paragraph 10 above.

2. Ms. Klewer is not a person who "carries on a business" within the meaning of that term in s.1075 of the Social Security Act 1991. Consequently, she is not entitled to have her income reduced to the extent that she claims, for the purposes of calculating her PP.

3. Apart from the matter of $139.25 collected as GST, the Tribunal affirms the decision under review.

I certify that the 13 preceding paragraphs are a true copy of the reasons for the decision herein of Mr. D.W. Muller, Senior Member

Signed:         .....................................................................................
           B. Hitchcock, Secretary

Date/s of Hearing   Hearing on the papers
Date of Decision  22 August 2001