Self-Employed or Self-Employed Income

Hey all,

I'm just wondering what is the formal definition for 'self-employed' or 'self-employed income? I couldn't find any definitions from the ATO website.

Some times it confuses me. For instance, whether the distribution income received from a trust is considered as self-employed income? and is the sole trader considered as self-employed?

Thanks.

 

I too am interested in this question. For example, I am paid as a monthly salary from a company that I run (as the sole director/employee) - is that self employed?

Jason

 

You probably won't find any definitions on the ATOs website as the term 'self employed' is not a tax related definition.

Typically, if you are running your own business - regardless of the structure (company / trust etc) and how you are remunerated (wages, salary, dividends, drawings, trust distributions etc) you will be deemed to be self employed.

If you are in that situation, you will probably realise that it is a lot easier to get finance if you are an employee rather than being 'self employed' - for this reason I frequently structure my clients who operate a business via either a company or trust to draw a wage and pay themselves as an employee.

It has advantages:
- Gets them paying their tax on a regular basis
- Assist them with personal budgeting (no big unexpected tax bills as the end of the year)
- They can genuinely state (and prove) on applications that they are an employee of business X and here are the pay slips and tax returns to prove it

I don't want to have the debate whether the above is ethical when completing applications or not - it is factually correct.

If you are a sole trader you probably won't have a choice - you are 'self-employed' - what ever that means.

I hope this answers the questions and makes sense.

SM

 

s.995-1(1) ITAA97: "business" includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

Self-employed does not mean employed by yourself - this is the principle of mutuality in taxation law.

By the definition, you are in business if you perform active duties, or employ your skills, not passive ones like mere holding of property for investment.

However, the definition excludes performance of duties as an "employee".

The ATO interprets the definition of "employee" as being the common law usage of the term for PAYG and FBT purposes (TR 2000/14).

Basically, if the principal has control over how you render the personal services, you are paid regardless of the result, you cannot assign somebody else to perform the task and the principal is liable for workcover and superannutation then you are likely an employee.

Cheers,

Rob

 

Thanks guys! that helps a lot!