Self-employed or employee? 043-03020000

If a customer indicates that they are self-employed, their Form I (individual tax return) is obtained. Income details are contained at item one of the tax return where all payments of salary, wages, commissions, bonuses, etc., including income from part-time and casual jobs, from which tax was withheld, are listed. If income is recorded here, the person may be an employee and not self-employed.

Income from commission may be assessed as business income where allowable deductions can be made, or as employment income. This will depend on whether the customer can be characterised as an employee or self-employed. It is sometimes difficult to characterise the employment relationship of commission sales people because differences between being self-employed or an employee are not always obvious.

Each employment situation must be assessed to determine if the customer meets the characteristics of self-employment or employee.

A person employed on a commission basis to sell a product and/or recruit other commission salespersons is employed under a contract for services and is self-employed. See Commission sales persons considered as self-employed.

A person employed on a commission only basis, for example, a real estate sales person is an employee. See Commission sales persons considered as employees.

A self-employed person may:

• be a sole trader
• be in a partnership
• be involved in a company or trust
• contract their services or equipment to other people
• work on a commission basis

Customers who are self-employed may include:

• child care workers
• primary producers (including farmers and fishers)
• market gardeners
• tradespeople
• business owners
• cottage/backyard industries
• seasonal workers
• contractors
• pieceworkers

Under the income test, gross income from salary or wages is maintained as income. However, if a person is carrying on a business, it is the net business profit, after allowing expenses incurred in earning revenue that is assessable as income.