Income for an independent contractor and commission income 043-03050030

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

Each employment situation should be assessed on its merits and factors to determine self-employment examined to check if it meets the characteristics of self-employment or the characteristics of an employee. Examination of the arrangements for taxation, superannuation and worker's compensation may also assist in determining employment status.

If customers, or their partners, have ceased any seasonal, intermittent or contract work in the 6 months prior to claiming, they may be subject to a Seasonal Work Preclusion Period (SWPP).

For the purposes of a SWPP, seasonal work is work that is available for part or parts of the year at approximately the same time each year. For example, cray fishing, abalone diving, deep sea fishing, shearing, pearl diving and fruit picking.

Commission income is assessed for the number of days for which the income is paid.

For example, commission is paid for the whole of March; the period paid is 1 March to 31 March, being 31 days. This income will be apportioned for 31 days, starting from the Entitlement Period Start Date (EPSD) of the entitlement period in which it was paid.

This applies where an income support payment continues and when an income support payment is cancelled and reclaimed.

A taxi driver can be:

• an owner driver. Likely to be treated as self-employed
• a driver:
• who has a lease on the taxi. Likely to be treated as self-employed
• who drives (for the lease-holder or owner) for a share of the takings. May be treated as either self-employed or an employee
• who drives under bailment arrangements. In the taxi industry, some drivers (the bailee) who operate under a bailment arrangement, make a payment to the owner (the bailor), allowing them to use the taxi to earn income. These payments may take the form of fixed payments or a percentage of shift takings. Some bailee drivers may also be responsible for some of the running expenses of the taxi (including petrol costs). Bailee drivers may be treated as either self-employed or an employee
• a bailee driver who is an employee cannot deduct any expenses. However, the amount paid to the bailor is not included as part of the driver's gross income, as it is not an amount paid to the driver for their personal use

Ride share or delivery services for example, Uber and Uber Eats, are generally a person using their personal vehicle to provide a passenger or food delivery service for a fee. If the provided service is within a business structure (sole trader, partnership, company, etc.) allowable business expenses can be deducted from the income.

A person may work for multiple ride share or delivery services within their business structure. This is treated as one business.

This information should only be used as a guide in conjunction with the characteristics of an employee and the characteristics of self-employment. In all cases, Service Officers should use the Decision Support Tool to determine if a customer is self-employed or an employee.

Income for employees who receive contract income is assessed at the gross amount of income received, because employees cannot deduct any expenses incurred in earning the contract income. The income can be treated in different ways, depending on if the amounts are received:

• periodically, treat contract income as employment income. If the contract is for a period of up to a fortnight, it is assessed as income in the entitlement period in which it is paid. If it is for a period of more than a fortnight, income is apportioned over the period it relates to, starting from the Entitlement Period Start Date of the entitlement period in which it was paid
• as a lump sum after claiming an income support payment, treat contract income as a remunerative lump sum that can be held as income for the period the payment represents. That is, spread out over a period in the future equal to the length of time the work was done, starting from the Entitlement Period Start Date of the entitlement period in which it was paid

Income for self-employed contractors who receive contract income is allowed to be reduced by any costs incurred in generating the income. The income can be treated in different ways, depending on how the amounts are received. If the contract is:

• part of the customer's business, treat the contract income as business income
• received as a lump sum after claiming an income support payment, treat the contract income as a remunerative lump sum, see Treatment of lump sums

Commissions received by employees are assessed as remunerative lump sums if received after claiming an income support payment.

Any part received as a wage or retainer is treated as employment income.

If the customer had a partner in receipt of income support at the time of claiming, any lump sums received by the customer before claiming payment, would have been assessed and will continue to be assessed as long as the partner was in receipt of income support when the customer claimed.

If the employee receives an advance of a future commission, a review of their contract should determine if the advance is:

• a repayable loan, which is not income, or
• a wage or retainer, assessed as income when it is paid

See Commission sales persons considered as employees.

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. The costs of obtaining the income are allowed to be deducted in the same manner as for businesses. The net commissions are assessed (from the date they are entitled to be received) as remunerative lump sums, even where the payments are small and/or regular. For example, people who are generally characterised as self-employed include consultants for Avon, Tupperware, Amway and other similar consultants and distributors.

See Commission sales persons considered as self-employed.

The table on the Resources page explains how to assess commission income for employees.

Commission-only real estate sales people are regarded as employees because their duties (selling real estate) are considered an integral function of the business entity for which they work.

Despite the freedom the sales persons may have about how they perform the work, they are considered employees as they meet the characteristics of an employee.

Customers who are employees and receive commission income from the sale of real estate will have each payment held as income. The period is determined by the length of time the commission payment was earned. Generally, the period is from when the property is listed until the property is sold. This is because during this period, the customer will undertake work related to selling of the property, such as, administrative tasks, advertising and holding showings of the property.

The customer may receive regular payslips showing commission payments paid. However, the income should not be attributed to this pay period if it is clear it was earned over a different period. The assessment period will begin on the EPSD of the period the commission payment is paid. The table on the Resources page explains the assessment of commission income.

If the customer receives a wage/salary separate from commission payments, this income is treated as ordinary employment income. See Recording and correcting employment income details.

When an employee, such as a taxi driver, has takings including Goods and Services Tax (GST), the amount of GST is not considered income if the amount is remitted to the Australian Taxation Office (ATO). This is similar to the treatment of business income where GST is forwarded to the ATO.

When the customer is assessed as self-employed, income from self-employment is not employment income. Income from self-employment is ordinary income and is included with all other ordinary income when calculating the accrual of Working Credits. The customer is unable to deplete their Working Credit balance to offset this income.

When the customer is assessed as an employee, they may be eligible to use any Working Credit, balance to offset this income. Apply the Working Credit rules to the total ordinary income before applying the Income Test.

If the customer is a pensioner, and of Age Pension age (excluding Parenting Payment Single), they may be entitled to the Work Bonus. The work bonus can be applied if the self-employment is from personal exertion see Work Bonus and balance for pensioners of Age Pension age.

Note: there is no entitlement to the Work Bonus if the customer is paid under the transitional rules for pension customers however the Work Bonus will still be used in the comparison calculations and partners may still benefit by the reduction in total income.