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Newsletter September 2005

Under state legislation employers must have workers compensation insurance to cover their workers.  A worker is a person who has entered into or who works under a contract of service or apprenticeship with an employer.

A contractor may also be defined as a worker.  From 1 July 2003 the principal contractor should ensure that their contractors have taken out appropriate workers compensation insurance and that such insurance is current.

In NSW wages includes salary & wages, overtime, allowances, commissions paid to employees, bonuses, superannuation, the grossed up value of fringe benefits, long services leave, termination payments and trust distributions to workers where the distribution is in lieu of wages for work done for the trust.

Home owners should have workers compensation insurance to cover the situation of domestic staff eg cleaners, baby sitters. NRMA insurance, for example, has their domestic workers compensation included as an extra in their home contents insurance policy for a flat rate of $20.57 per year.

Payroll tax is a state tax.  In NSW payroll tax is levied where the annual Australian wages exceed $600,000.  The tax is 6% of wages above $600,000 pa. The definition of wages is as above and includes payments to contractors where there is a relevant service contract.

The definition of a relevant contract is involved but generally an individual who operates through a company and performs services exclusively for another company would be regarded as a contractor for payroll tax purposes.

A recent tax office ruling provides guidance as to whether an individual is paid as an employee for the purposes of the PAYG provisions. The ruling, TR 2005/16 considers the various indicators the courts have considered in establishing whether a person is an employee.  Whether a person is an employee of another is a question of fact to be determined by examining the terms and circumstances of the contract.  No one indicator of itself is a determination of that relationship.

The classic test for determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter.

The fact that an individual has an ABN does not prevent that individual from being engaged as an employee.

Motor vehicle expenses are costs incurred as a result of using your motor vehicle for work related travel.  Motor vehicle expenses do not include expenses for vehicles other than cars, for example motor cycles, utility trucks or panel vans with a carrying capacity of one tonne or more.

Individuals can use one of four methods to work out your motor vehicle expenses.  You can choose the method that gives you the largest deduction.  The four methods are:

1.         Cents Per Kilometre Method

This method allows you to calculate a claim for deductible motor vehicle expenses based on a standard rate per kilometre.  You can use this method to claim a maximum of 5,000 work related kilometres per motor vehicle, even if you have travelled more than 5,000 work related kilometres.

You do not need written evidence if you use this method, you are allowed to use a reasonable estimate of work related kilometres but you may need to be able to show how you worked it out.

2.         12% Original Value Method

If you bought the motor vehicle, you can claim 12% of the cost of the motor vehicle each year.  If you leased the motor vehicle, you can claim 12% of its market value at the time you first leased it. The maximum deduction you can claim is 12% of the luxury car limit which for the 2004/2005 year is $57,009.

You can only use this method if you used your car to travel more than 5,000 business kilometres in an income year.  You do not need written evidence if you use this method, you are allowed to use a reasonable estimate of work related kilometres but you may need to be able to show how you worked out the kilometres.

3.         One-Third Actual Expenses Method

This method allows you to claim one-third of each motor vehicle expense.  Expenses do not include capital costs, such as the initial cost of the motor vehicle or improvements to it.  You can only use this method if you used your car to travel more than 5,000 business kilometres in an income year.

To use this method, you must have kept written evidence for all you motor vehicle expenses, except for fuel and oil costs.  If no evidence of fuel and oil costs has been kept, a reasonable estimate is allowed based on odometer records.

4.         Log Book Method

Using the log book method, you work out the business use percentage of your motor vehicle and you can claim this percentage of each motor vehicle expense.  Motor vehicle expenses do not include capital costs, such as the initial cost of the motor vehicle or improvements to it.  To use this method you must keep a log book, odometer records, and written evidence for all motor vehicle expenses, except for fuel and oil costs.

The log book must be kept for a period of at least 12 consecutive weeks and it is valid for 5 years.