ZDENKA THOMAS and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

[2009] AATA 650

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 650

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2009/1053

GENERAL  ADMINISTRATIVE  DIVISION		)
Re		ZDENKA THOMAS

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS  

Respondent

DECISION

Tribunal Brigadier C Ermert (Retd), Member  

Date24 August 2009  

PlaceMelbourne

Decision For reasons given orally at the hearing, the Tribunal affirms the decision under review. 

(sgd) C. Ermert

Member

SOCIAL SECURITY –– benefits affected by the ordinary income of a partner – partner income earned from commission sales – whether earning related expenses are deductable from gross income – expenses deductable only when income is business related - whether commission income is business related income – are circumstances those of employee or of running a business – taxation, superannuation and workcover paid by company – no business insurances – no current Australian Business Number (ABN) – income not business related - decision affirmed.

Social Security Act 1991

Re Petkovic and Secretary, Department of Family and Community Services [2003] AATA 635

Re Jenkins and Secretary, Department of Employment and Workplace Relations [2007] AATA 1218

REASONS FOR DECISION

24 August 2009 Brigadier C Ermert (Retd), Member 

INTRODUCTION

1.      Mrs Zdenka Thomas, the applicant in this case, has been receiving social security payments that are subject to tests on the her income and that of her partner, Mr Peter Thomas.  Mr Thomas is a commission salesman engaged in selling the roof-restoration services of New Life Roofing Industries Pty Ltd (New Life).  Mr Thomas has provided details of his income to Centrelink, the agency acting for the respondent.  He has also explained to Centrelink his employment arrangements as a commission salesman for New Life and requested that his income be assessed on the basis that he is self‑employed.  Being assessed as self-employed would allow his gross earnings to be reduced by the amount of his work-related expenses.

2.      A Centrelink Complex Assessment Officer reviewed the assessment of Mr Thomas’ earnings and determined that Mr Thomas is an employee of New Life and that he is not self-employed.  This affirmed the earlier decision that work‑related expenses could not be deducted from Mr Thomas’ gross income.  Mr Thomas applied for a review of that decision.  On 30 January 2009 the Social Security Appeals Tribunal (SSAT) affirmed the decision under review.  This matter is an application for review of the SSAT decision.

THE HEARING

3. At the hearing Mr Thomas represented his wife, who was not present. Ms Bramley, an advocate from the Centrelink Legal Services Branch, represented the respondent. I had before me the documents lodged by the respondent pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (the T-documents).  I took into evidence Exhibits A1 to A7 for the applicant and Exhibits R1 and R2 for the respondent.

4.      After hearing the evidence and submissions from the parties I delivered an oral decision, as contained in paragraphs 14 to 24 of these reasons for decision.  The written reasons are provided at the request of Mr Thomas.

THE ISSUE

5.      In preliminary discussions the parties agreed that the only issue to be determined is whether Mr Thomas’ income for the purposes of assessment of his wife’s social security payments is more akin to that of an employee or whether it is income from the running of a business.  Neither party contested the calculations of the payments or other issues in the decision under review.

EVIDENCE AND SUBMISSIONS

6.      Mr Thomas said that in theory he might be considered an employee but in practice he was self-employed.  His circumstances are unique.  He said that he spends thousands of dollars in expenses for his car and other items which he does not get back.  He does his own door knocking.  Mr Thomas said that he is not paid for his effort.  He is paid only commission for the sales he achieves and nothing else.  He said that when he makes a sale New Life takes over and arranges for the work to be done. 

7.      Mr Thomas referred the Tribunal to his Statement of Reasons and Facts about this application (Exhibit A1) and emphasised a number of the points in that statement:

(i)He works on his own without supervision, guidance or assistance from New Life;

(ii)He works from home and goes to the New Life offices only once per month;

(iii)He does every stage of the work by himself, including finding customers, making appointments, and doing roof inspections;

(iv)He gets paid only for his results and not the effort he makes;

(v)He is not paid for work hours, sick leave, overtime, public holidays, annual leave;

(vi)He is not paid for the use and maintenance of his car;

(vii)His car is essential to his work: no car – no work – no income;

(viii)He has to meet his own expenses for the telephone, stationery, postage, sales aids and equipment;

(ix)His work expenses are a large, varying from 41.98% to 65.03% of his gross income; and

(x)His work expenses are an inseparable part of his work.

8.      Mr Thomas said that risk taking is a hallmark of his work in that the risk of not finding work is entirely his.  If he does not find work he is not paid by New Life. 

9.      Mr Thomas explained that he relies on New Life to arrange his taxation contributions and his superannuation payments.  He said that he did not know about the Australian Taxation Office treating him as a wage and salary earner and he did not know into which fund his superannuation was paid. 

10.     In his evidence Mr Thomas said that he was “totally independent” from New Life.  He said that he was not bound to work exclusively for New Life, however he did not have the time to work for anyone else and if he did he would have to make arrangements identical to those he had with New Life. 

11.     When asked whether he had sought advice about running his own business, Mr Thomas said that he did not have the time for the paperwork involved, that he is not trained in book-keeping and the paperwork would distract him from his sales work, that he would be worried about the business.  He agreed that he did not have the skills, knowledge or experience to run his own business.  Mr Thomas said that he is not capable of managing his own affairs and that running his own business would be a disaster.  Mr Thomas said that an Australian Business Number (ABN) in his name was cancelled on 2 May 2007. 

12.     In his submissions Mr Thomas said that he wanted to continue to work in the same way.  His work expenses are very high and that without incurring those expenses he would have no income.  He also asked the Tribunal to take into account the purpose of the legislation, saying that he would not think that it was intended to apply to his situation. 

13.     Ms Bramley submitted that some of Mr Thomas’ circumstances were similar to a self-employment situation.  These were that he was paid only on results, that he was independent of New Life in regard to the territory in which he worked and that he was not paid for annual leave or sick leave.  Ms Bramley submitted, however, that he had no current ABN, that New Life paid his tax and superannuation payments and that his personal tax returns were lodged as a wage and salary earner.  Ms Bramley referred the Tribunal to two earlier decisions involving commission salesmen: RePetkovic and Secretary, Department of Family and Community Services [2003] AATA 635 and Re Jenkins and Secretary, Department of Employment and Workplace Relations [2007] AATA 1218. Ms Bramley submitted that the common features in all cases were that the applicants earned income only from commissions and that they were independent from the companies.

CONSIDERATION

14. The effect on Mrs Thomas’ benefits from the earnings of Mr Thomas is governed by Part 3.10 of the Social Security Act 1991 (the Act) which provides the General Provisions Relating to the Ordinary Income Test.  Section 8 of the Act provides for ordinary income with Note 3 directing the reader to sections 1072 and 1073 (Division 1) of the Act for the ordinary income concept and to sections 1074 and 1075 (Division 1A) of the Act for business income.  Section 1072 of the Act provides the general meaning of ordinary income as the person’s gross ordinary income from all sources for the period calculated without any reduction (emphasis added), other than a reduction under Division 1A.  The result of these provisions is that expenses can be deducted from gross income only if the income is business related income under sections 1074 and 1075 of the Act. 

15.     Mr Thomas has applied to have his earning related expenses taken into account in the application of his income to the calculation of his wife’s benefits.  Thus, the issue in this matter is whether Mr Thomas’ income is to be treated as gross income calculated without any reductions (section 1072) or whether it is income from a business with permissible reductions (section 1075).  The question to be determined is whether Mr Thomas carries on a business. 

16.     Mr Thomas’ case is that his expenses are an integral part of his earnings.  He can not earn income without incurring expenses for his car, telephone, fax and other expenses.  His earning related expenses are high, varying in amount from about 40 to 65 per cent of his gross earnings.  He is paid on results only, that is he is paid on the number of sales he makes.  He is not paid for time, finding customers, sick leave, annual leave or public holidays.  He is also not paid for using his car for his work.  He is paid on commission only. 

17.     Mr Thomas says that he is independent in the way he makes his sales.  He says also that he would be free to work for another company but he does not have the time.  A statement from New Life says that Mr Thomas is engaged as a self-employed sub-contractor and that he is paid on a commission basis for his services. 

18.     I note the evidence from Mr Thomas that New Life retains a percentage of his commission and pays his tax contributions, the contributions to his superannuation fund and the Workcover insurance payments.  Mr Thomas said he pays no separate work related insurances.  He does not have a current ABN, the previous registered number having lapsed in May 2007.  The Australian Tax Office processes his tax returns as a wage and salary earner, that is as an employee and not as self-employed. 

19.     In regard to his independence and his freedom to work for another company at the same time, I note Mr Thomas’ evidence that such work would be under the same conditions as he has currently with New Life.  I consider such a situation to be more akin to two part-time jobs rather than self‑employment. 

20.     The circumstances of commission sales have been considered in previous decisions of the Tribunal.  The most relevant are Re Petkovic and Re Jenkins.  Both decisions drew on earlier decisions of the Federal Court which directed that the whole of the circumstances need to be considered in making the decision whether a person on commission is an employee or is self-employed.  The circumstances of Mr Thomas are similar to those in Re Petkovic and Re Jenkins in which both applicants were found to be employees, earning ordinary income for the purposes of the Act which was their gross income without any reductions in accordance with section 1072 of the Act. 

21.     In this case, while I understand the very difficult situation in which Mr Thomas finds himself, I can not find that his income is other than ordinary income.  Being self‑employed entails incurring the time and costs of running a business, including keeping accounts, lodging tax returns for the business, paying the statutory superannuation contributions and carrying the essential business insurances.  Mr Thomas is doing none of these things.  Mr Thomas has taken a very deliberate decision to not run a business as he feels that he does not have the skills, knowledge or experience.  He prefers to have business activities done on his behalf by the companies for whom he works. 

22.     In considering the whole of the circumstances, I find that Mr Thomas is not self-employed and that his income is not business income.  I find that his circumstances come within the provisions of sections 1072 and 1073 of the Act.  This means that his ordinary income is his gross income without any deductions.  This means further that Mr Thomas’ earning related expenses can not be deducted from his gross income for the purposes of assessing his wife’s social security payments.  As a result Mrs Thomas’ application is not successful. 

DECISION

23.The Tribunal affirms the decision under review. 

I certify that the twenty-three [23] preceding paragraphs are a true copy of the reasons for the decision herein of:

Brigadier C Ermert (Retd), Member

(sgd)             Dianne Eva
  Clerk

Date of Hearing:  24 August 2009

Date of Decision:  24 August 2009

Advocate for the applicant:                 Mr Peter Thomas, husband of the applicant

Advocate for the respondent:             Ms Ailsa Bramley, Centrelink Legal Services Branch