Haynes and Department of Family and Community Services [1999] AATA 62 (4 February 1999)

Last Updated: 11 February 1999

Administrative

Appeals

Tribunal

DECISION AND REASONS FOR DECISION [1999] AATA 62

ADMINISTRATIVE APPEALS TRIBUNAL )

) N o S1998/132 & S1998/133

GENERAL ADMINISTRATIVE DIVISION )

Re PETER ALAN HAYNES

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Deputy President B.H. Burns

Date 4 February 1999

Place Adelaide

Decision The decisions under review are affirmed

................(signed)..................

Deputy President B.H. Burns

CATCHWORDS

SOCIAL SECURITY - newstart allowance - income test - deductions to ordinary income allowable "if a person carries on a business" - deductions not allowable if person is an employee - applicant carrying on a business as accountant and working with a company registered as a tax agent - nature of the applicant's relationship to the company - whether applicant an employee - administrative error - decisions affirmed.

Social Security Act 1991 - ss 1072, 1075, 1224, 1237A

Income Tax Assessment Act 1936 - s51(1)

Secretary, Department of Social Security v Ekis [1998] FCA 940/98; applied

Federal Commissioner of Taxation v Barrett (1973) 129 CLR 395; considered

Stevens v Brodribb Sawmilling Co Pty. Ltd (1986) 160 CLR 16; considered

Vabu Pty Limited v Federal Commissioner of Taxation (1996) 96 ATC 4898; considered

REASONS FOR DECISION

4 February 1999 Deputy President B.H. Burns

1. These are applications by Peter Alan Haynes ("the applicant") for review of two decisions of the Social Security Appeals Tribunal dated 27 February 1998. The first decision under review affirmed a decision of a delegate of the Secretary, Department of Family and Community Services (formerly Secretary, Department of Social Security) ("the respondent") dated  18 September 1997, as affirmed by an authorised review officer, to raise and recover a debt of newstart allowance for the period 4 July 1997 to 28 August 1997 amounting to $1,247.75. The second decision under review affirmed a decision of a delegate of the respondent dated 30 October 1997, as affirmed by an authorised review officer, to raise and recover a debt of newstart allowance for the period 29 August 1997 to 9 October 1997 amounting to $589.90.

2. The Tribunal had before it the documents lodged pursuant to s37 of the Administrative Appeals Tribunal Act 1975 (the "T" documents) together with the other documentary material tendered by the parties at the hearing. In addition, the Tribunal heard oral evidence from the applicant as well as Mr P. Collis, an officer of Centrelink, who gave evidence on behalf of the respondent.

3. The applicant appeared in person before the Tribunal and the respondent was represented by Ms M. Boylan, a departmental advocate.

4. By way of background, the applicant is a qualified accountant and registered tax agent. In the relevant periods under consideration, the applicant was in receipt of newstart allowance whilst also receiving income from various activities related to his professional qualifications. In particular, he derived income from professional services rendered in the course of conducting his own accountancy and tax agency business which traded as "Peter A. Haynes" whilst he also received income from services rendered to H & R Block Ltd ("H & R Block"), a registered tax agent.

5. Newstart allowance is of course subject to the income test. Ordinarily, a person's income will be ascertained according to section 1072 of the Social Security Act 1991 ("the Act") which provides as follows:

"1072 General meaning of ordinary income

A reference in this Act to a person's ordinary income for a period is a reference to the person's gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A."

Section 1075 in Division 1A provides as follows:

"1075 Permissible reductions of business income

1075 (1) Subject to subsection (2), if a person carries on a business, the person's ordinary income from the business is to be reduced by:

(a) losses and outgoings that relate to the business and are allowable deductions for the purposes of section 51 of the Income Tax Assessment Act 1936 ...; and

(b) depreciation that relates to the business and is an allowable deduction for the purposes of subsection 54(1) of the Income Tax Assessment Act 1936 ... ; and

(c) ..."

6. The expression "carries on a business" in s1075 of the Act is to be given the same meaning as the phrase "carrying on a business" in s51(1) of the Income Tax Assessment Act 1936 (Secretary, Department of Social Security v Ekis [1998] FCA 940/98). Further, it is clear that the phrase "carrying on a business" excludes working as an employee. In Ekis, Drummond J held relevantly:

"...While the term "business" as used in s 51(1) the ITAA is defined by s 6(1) of the Act to include "any profession, trade, employment, vocation or calling", it is also defined to exclude "occupation as an employee". It follows that, if a pension applicant who claims to be carrying on a business for the purposes of s 1075 is, in truth, an employee, losses and outgoings incurred in respect of the person's employment are not deductible as business losses or outgoings under s 51(1) and so cannot be brought into account in the pension entitlement calculation."

Therefore, in the course of calculating a person's entitlement to a benefit under the Act, income derived by that person in the course of carrying on a business will be subject to allowable deductions for business losses and outgoings whereas income derived in the capacity as an employee will not.

7. It was agreed as between the parties that in the relevant periods, the applicant earned income from his private practice as well as from H & R Block. In accordance with a benefit recipient's notification obligations under the Act, question 5 of the fortnightly form "Application for payment of Newstart/Youth Training Allowance" asks: "Did you undertake any part-time or casual work in the [relevant fortnightly] period ...If Yes, what is the amount earned before tax or other deductions?". In answering this question on fortnightly forms pertaining to the periods under consideration (T15 & T27), the applicant consistently provided figures representing his total net income after deductions for business losses and outgoings which had been made against both sources of income. The applicant also provided fortnightly profit and loss statements which indicated the sum total of income derived from both sources in each fortnight together with an itemised list of business losses and outgoings claimed as allowable deductions which gave the net figure supplied in answer to question 5. Significantly, at all material times the applicant claimed deductions against income from both his private practice and H & R Block.

8. The primary dispute as between the parties is whether or not the applicant is to be considered for the purposes of the Act as being an employee of H & R Block in the relevant periods. If the applicant was to be considered as an employee of H & R Block, he was not entitled to deduct business losses and outgoings from income derived from that source. In this scenario, deductions were only allowable from the non-H & R Block income, in which case it was submitted that the applicant had made false statements as to his income (albeit in good faith) on his fortnightly forms. Where a benefit under the Act has been paid because the recipient or another person has made a false statement, the amount so paid becomes a debt due to the Commonwealth by virtue of s1224 of the Act which reads as follows:

"1224 Debts arising from recipient's contravention of Act

1224(1) If:

(a) an amount has been paid to a recipient by way of social security payments; and

(b) the amount was paid because the recipient or another person:

(i) made a false statement or a false representation; or

(ii) failed or omitted to comply with a provision of this Act or the 1947 Act;

the amount so paid is a debt due by the recipient to the Commonwealth."

If the applicant's relationship to H & R Block in the relevant period was not that of employee but was such that it could be said that in working at H & R Block he was carrying on a business, then deductions for business losses and outgoings would be allowable against any income derived from this source. Accordingly, if the Tribunal was so minded, it was submitted that the applicant should be held to have correctly stated his income in which case s1224 would not apply and so there would not be any debts due to the Commonwealth.

9. There was a secondary dispute as between the parties in the event that the Tribunal found there to be debts due to the Commonwealth, namely, as to the applicability of the waiver provision in s1237A which reads as follows:

"1237A Waiver of debt arising from error

Administrative Error

1237A(1)Subject to subsection (1A), the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.

Note: Subsection (1) does not allow waiver of a part of a debt that was caused partly by administrative error and partly by one or more other factors (such as error by the debtor)."

10. In this regard, the respondent did not dispute the issue of good faith. Instead, it contended that the debts were not solely due to administrative error on the part of the Commonwealth and, for this reason, waiver was not appropriate. The applicant on the other hand contended that he had been mislead by an officer of the respondent so as to have caused him to provide false statements as to his income in the fortnightly forms. In this way, he contended that the debts could be solely attributable to administrative error such that the respondent must waive the whole of the debt pursuant to s1237A of the Act.

THE EVIDENCE

11. The applicant gave oral evidence before the Tribunal. He described the circumstances surrounding his association with H & R Block which he maintained was in the nature of an agent/client relationship as opposed to one of employee/employer. The applicant gave evidence that he performed two types of task at H & R Block, one being the checking and "signing off" on tax returns already prepared by in-house preparers for which he was paid a set fee per signed tax return and the other being the preparation of more complex tax returns for which he was paid an hourly rate plus commission. In support of his contention that he was not an employee of H & R Block, the applicant gave evidence that he maintained his own computer which he took to and used at the H & R Block office, that he decided when, where and how much he worked, and that as a nominee of the company whose job it was to sign off on tax returns, his decisions could not be overturned by others in the office who lacked his expertise.

12. During cross-examination, the applicant was questioned at length as to his understanding of a document headed "Terms and Conditions of Employment" which was signed by himself and the district manager of H & R Block, Mr Sanders (Exhibit A1) - hereinafter referred to as "the written contract". The applicant agreed that he signed a written contract similar to the one provided at Exhibit A1 in each of the years he had been associated with H & R Block. The terms of the written contract, where relevant, were as follow:

"TERMS AND CONDITIONS OF EMPLOYMENT

The undersigned EMPLOYEE hereby accepts employment with H & R Block Limited (A.C.N. 084 268 800) hereinafter referred to as COMPANY and agrees to the following terms and conditions of employment...

1. EMPLOYEE'S DUTIES shall consist of preparing accurate tax returns which are based upon information EMPLOYEE believes is true and correct. CHECKING ONE RETURN FOR EVERY RETURN PREPARED and performing general office services in accordance with COMPANY'S policies and procedures.

2. This agreement shall take effect on the date hereof.

3. COMPANY'S SCHEDULE OF CHARGES is to be followed as closely as practical and in no event is there to be any charge or monies collected for services other than preparation of tax returns....

4. As compensation for services rendered hereunder EMPLOYEE shall receive an hourly rate of pay as an advance as hereinafter set forth to be applied toward a percent of the total gross dollars realised by COMPANY from tax returns accurately prepared by EMPLOYEE during the period of this agreement.

A EMPLOYEE acknowledges that the hourly rate has been verbally agreed upon, the evidence of which rate shall appear on the first payroll advice form, and that hourly-rate wages by paid fortnightly by remittance to a nominated bank account.

B On, or before, 15 November following termination hereof an amount that is 17.5% of said gross dollar volume exceeds hourly pay received hereunder shall be paid providing EMPLOYEE remains continuously available for work if required through 31 October next. If EMPLOYEE does not remain continuously available for COMPANY'S employment through 31 October next, the said percent of gross dollar volume will be three (3) percent points less.

C EMPLOYEES "Longevity Percent" shall be shown in the schedule below. EMPLOYEE'S longevity percent will be computed as follows.

First year...................................1%

Second year ..............................2%

Third year .................................3%

Fourth year ...............................4%

Fifth year...................................5%

Six year....................................6%

Seventh year.............................7%

Eighth year................................8%

Ninth year.................................9%

Tenth year and thereafter...........10%

D This constitutes the full remuneration to be received by the EMPLOYEE from COMPANY, it being expressly agreed the intention hereof is for EMPLOYEE to be paid solely on the basis of a percentage of the gross dollar volume of tax returns prepared, but if the remuneration thus paid is less than EMPLOYEE'S entitlement for annual leave then holiday pay will be paid in lieu of this percentage of gross dollar volume. EMPLOYEE'S duties are categorised as those of an interviewer.

5. EMPLOYEE'S HOURS OF EMPLOYMENT shall be as hereafter agreed upon with COMPANY, such hours necessarily subject to modification and change from time to time due to the seasonal nature and fluctuation of COMPANY'S business. PROVIDED, HOWEVER, NO ADDITIONAL HOURS SHALL BE WORKED WITHOUT THE WRITTEN AUTHORISATION OF COMPANY.

6. The employment herein granted is seasonal only, limited to the income tax filing period beginning on 1 July and ending on 31 October next. EMPLOYEE warrants and affirms that EMPLOYEE will at no time knowingly prepare a false income tax return while employed by COMPANY or suggest to COMPANY'S customers any information which might tend to lead them to make false statements on their tax returns. EMPLOYEE assumes full responsibility and liability for all costs and penalties which might devolve upon EMPLOYEE, the customer, COMPANY or its Nominees as a result of such fraudulent actions. COMPANY reserves the right to discharge EMPLOYEE and terminate this agreement instantly should EMPLOYEE'S services for any reason be deemed unsatisfactory.

7. Should EMPLOYEE fail to turn over all business receipts of COMPANY or become indebted to company in any manner whatsoever, COMPANY is hereby authorised to offset such indebtedness against any compensation due to EMPLOYEE hereunder.

8. In consideration of employment hereunder EMPLOYEE agrees that at no time while employed by the COMPANY nor within two (2) years after termination of such employment will EMPLOYEE disclose any of COMPANY'S customer lists to any person whomsoever, nor will EMPLOYEE copy names of lists of such customers or make any other unwarranted or unauthorised disclosures. EMPLOYEE further agrees that during said two (2) years period following the termination of this agreement EMPLOYEE shall not, within ten (10) kilometres of any COMPANY office where EMPLOYEE was employed hereunder, prepare an income tax return for any of COMPANY'S customers, such customers being defined as taxpayers whose last filed income tax returns were prepared by COMPANY. During the period of the employment here under, EMPLOYEE agrees that all tax returns prepared by EMPLOYEE with the exception of returns prepared for members of EMPLOYEE'S immediate family (spouse, parents, grandparents, children grandchildren, brothers and sisters) shall be processed through COMPANY in all respects the same as returns for COMPANY'S customers.

If any provisions of this paragraph 8 shall be violated, the EMPLOYEE agrees to pay the COMPANY all monies and other consideration received by EMPLOYEE, his agents or assigns as a result of or pursuant to the unauthorised act or acts plus liquidated damages of $1,000 for each violation. It is further stipulated that the foregoing provision is not an exclusive remedy, but is cumulative to any and all other remedies available to the COMPANY at law or in equity.

..."

When asked why he had signed the written contract, the applicant replied to the effect that everyone had to no matter what position they held within the company including the company directors. Further, the applicant strenuously maintained that H & R Block were one of his major clients and that without signing the written contract, he would not have been able to conclude the "verbal contract" which he said established the agent/client relationship between them.

13. During cross-examination, the applicant agreed that he worked at the Plympton offices of H & R Block although he said he could have chosen to take work elsewhere with the permission of the office manager. He conceded that although he chose to use his own pens and computer from time to time, all the necessary facilities required to perform his tasks were available at H & R Block premises. He described keeping a regular working timetable during the tax season and being paid regularly on a fortnightly basis - further indicia of an employee/employer relationship in the respondent's submission. When questioned about the client base of H & R Block, the applicant conceded that the clients he dealt with at H & R Block premises were clients of H & R Block and not his own and he accepted that he was earning money for the company. The applicant also accepted that pursuant to the written contract, there were certain obligations placed on him including prohibitions against soliciting clients of H & R Block or knowingly preparing a false tax return. Further, the applicant acknowledged that he had filled in an employment declaration which was lodged with the tax office in order that he might take advantage of the tax-free threshold and, in this regard, was treated by the tax office as being an employee of H & R Block. He did not dispute that superannuation payments and Workcover levy were provided by H & R Block on his behalf.

14. The applicant was also questioned as to the differential treatment he has given from time to time to income received from H & R Block as distinct from that received from his private practice. Specifically, four separate documents were put to the applicant. The first was a letter written by him to the Tribunal specifying the grounds for his appeal (T1) where he wrote:

"...As I had asked the pertinent questions of how to declare any income I may receive from my business as well as from H & R Block I feel that I did for fill (sic) my duty of care to the act."

The second was a letter written by the applicant to the respondent (T6) where he said:

"...Income from H & R Block P/L for the period according to your letter is $1569.29. Actual income from my client base was $2595.00, ..."

The third was a statement written by an officer of the respondent and signed by the applicant (T8) where it was stated that:

"Client is a registered tax agent... The client has stated that some work that he does for H & R Block is as an Employer/Employee and some is contract work. He is not able to separate the two. Client did sign an Employment Declaration Form and understands what that for is (sic)."

The fourth was a handwritten note written by the applicant (T11) following a meeting with Mr P. Collis at the Department of Social Security offices, Salisbury where the following was stated:

"We then started talking about how I had declared my income in the past and what would happen if I got some [illegible] work in the future. Pat said I should total all income from my tax work into one lump sum and claim all deductions as in the past per Sec 51 of Tax Act. I could also pro rata depn and insurance expenses.

I then asked about income from Blocks and if that needed to be shown as separate on P and L statement. Told no by Pat."

15. The applicant also gave evidence about what he said happened at the aforementioned meeting with Mr Collis. He maintained he was instructed by Mr Collis to declare his income on his fortnightly newstart allowance forms in the manner in which he did. His evidence in this regard was at variance with oral evidence given by Mr Collis. Relevantly, Mr Collis maintained that the meeting had been convened in order to deal with a complaint made by the applicant in respect of the conduct of an officer at the Salisbury office. Mr Collis stated to the Tribunal that had the applicant raised issues concerning how to declare his income on the fortnightly form, he would have offered to send out the relevant information to the applicant. Mr Collis denied he would have stated that which the applicant alleged in evidence and in the handwritten note above as he had no technical knowledge at the time of such matters, nor has he ever had such knowledge. Mr Collis said he was working in a managerial position at the relevant time meaning he would not have been qualified to give advice on technical matters.

16. The Tribunal has had the advantage of listening to and observing the witnesses during the giving of their oral testimony. The Tribunal formed the distinct impression that the applicant, while not being prepared to acknowledge the reality of the nature of his relationship with H & R Block, was nonetheless a truthful witness as to certain matters of fact, especially those pertaining to the practical circumstances surrounding his association with H & R Block. The Tribunal has no hesitation accepting this aspect of his evidence. The same however cannot be said for other parts of his evidence. In particular, the Tribunal found his evidence relating to the circumstances surrounding the meeting with Mr Collis to be self-serving and unreliable and is of the view that it ought not be accepted where it might be said to be at variance with the evidence of Mr Collis. In addition, the Tribunal is not mindful to place any weight on what might be described as opinion evidence, namely, where the applicant proffered views as to the nature of his relationship with H & R Block and as to the significance of certain factors which arose in the course of that relationship.

17. The Tribunal found Mr Collis to be an impressive witness who did his best to portray the factual situation regarding his meeting with the applicant as accurately as his memory would permit. The Tribunal has no hesitation in accepting the entirety of his evidence.

THE QUESTION OF WHETHER THE APPLICANT WAS AN EMPLOYEE

18. There was no dispute that the applicant was carrying on a business as tax agent and accountant in so far as it relates to his private practice and private clients and the Tribunal so finds. The primary issue for determination by the Tribunal is whether or not the applicant was, at the relevant times, an employee of H & R Block for the purposes of the Act. Were the Tribunal to be satisfied that he was an employee, he cannot also be said to be carrying on a business as a tax-agent and accountant in so far as it relates to the income derived from H & R Block. Were the applicant found not to be an employee however, the Tribunal would then be required to consider whether he was carrying on a business for the purposes of s1075 of the Act in the course of performing work for H & R Block.

19. The Tribunal is mindful that whether or not there is a relationship of employment is a question to be decided according to the particular circumstances of each case. Accordingly, although there will be certain helpful criteria one might ordinarily look to, no single criterion will be determinative. As Mason J stated in Stevens v Brodribb Sawmilling Co Pty. Ltd (1986) 160 CLR 16, at p29:

"...Rather it is the totality of the relationship between the parties which must be considered."

Nevertheless, there are certain criteria which have been utilised by courts and tribunals from time to time in the course of considering this issue. Having considered the importance of the existence of control over the activities of a worker as a factor indicating a relationship of employment, Mason J said at p24:

"...Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee."

Wilson and Dawson JJ said at p36-7:

"The other indicia of the nature of the relationship have been variously stated and have been added to from time to time. Those suggesting a contract of service rather than a contract for services include the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like. Those which indicate a contract for services include work involving a profession, trade or distinct calling on the part of the person engaged, the provision by him of his own place of work or of his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion and the payment to him of remuneration without deduction for income tax. None of these leads to any necessary inference, however, and the actual terms and terminology of the contract will always be of considerable importance."

The Tribunal would thus indicate that while all or some of the abovementioned factors may shed light on the nature of the applicant's relationship with H & R Block, and while there may be other factors not mentioned above which assist in this process, ultimately, it will be the totality of the relationship that must be considered by the Tribunal.

20. The first factor that the Tribunal has had regard to in determining whether or not the applicant is an employee is the degree of control or supervisory authority that H & R Block retained over the applicant. In this regard, the applicant's submission was that he was an expert consultant who needed little supervision and whose expertise exceeded that of others in the office. The applicant made much of the fact that as a nominee of the company "signing off" completed tax returns, he could not be directed to perform that function. He personally was required to be satisfied that a return was compliant with tax law and his decisions in this regard could not be overridden by any other person in the office lacking his expertise. The applicant contended that ultimately, it was the Australian Tax Office and the Tax Agent's Board, not H & R Block, who regulated the quality of his work and who could take action against him for poor performance. In terms of control over the logistics of work, the applicant submitted that he had ultimate control over when, where and how much he worked. In conclusion, the applicant submitted that there was ample evidence to support the proposition that H & R Block had little control over his activities which leant weight to the inference that he was a contractor as opposed to an employee.

21. The Tribunal is of the view that the relevance of the above criterion will depend upon the nature of the work performed as was correctly submitted by the respondent. In the case of Federal Commissioner of Taxation v Barrett (1973) 129 CLR 395, the fact that real-estate salesmen were free from supervision in their primary task of selling land did not derogate from the Court's finding that they were employees. In considering the totality of the relationship between the salesmen and the company, the Court stated at p404 that:

"...The nature of the work is precisely of that kind in which it might be expected that an employer would deal with his expert and experienced salesmen in very much the way the respondents did;..."

At p407, the Court went on to say:

"... This lack of supervision is in large measure accounted for by the nature of their work and their careful selection and resultant skill and responsibility, coupled with the fact that payment by commission itself provides adequate incentive so as to safeguard the interests of the respondents."

The Tribunal is of the view that the observations of the Court in Barrett are apposite to the particular facts of this case. The Tribunal's considered opinion is that the nature of the work in question here was precisely of the kind in which it might be expected that H & R Block would engage experienced and responsible persons with expertise in the field of taxation who could perform their duties free of supervision from others in the company who, in any event, lacked the necessary technical expertise to superintend the work. As the applicant himself acknowledged, the company required, by law, nominees to act independently in their capacity as registered tax agents in the signing off on tax returns. It follows that it is of little moment that the applicant's manager could not direct him to sign off tax returns. As stated, this is no more than a practical manifestation of one of the reasons why H & R Block engaged his services, namely, because they required appropriately qualified professionals to act as independent nominees for the company in the course of preparing and lodging tax returns.

22. The respondent submitted that although the applicant's manager did not exercise control over technical aspects of his work, the applicant was nonetheless expected to comply with standard office procedure and methodology in the course of performing both tasks, namely, "signing off" tax returns and preparing more complex returns. In this regard there is the applicant's evidence in which he described the procedure involved in signing off tax returns:

"...The other work that you did was with respect to tax returns that had already been completed as it were? - - - I mean, I did the final completion job. I checked the legality of them, yes.

Right. That would involve what? - - - Sitting there in front with a pile of tax returns going through ... the work sheets to see what is being claimed and the relationship of those claims against the occupation that has been stated.

All right. Yes, okay. What would you do then? - - - Well, if I felt - if I had no problems with the return I would sign as the Nominee for the company. If there was a problem with it I would yellow slip the return and put that to one side to be given back to the person that - the consultant that actually prepared the return. They would be then liable to fix the problem to my satisfaction, notify the client of H & R Block of the changes within their return and get the return back to me to be lodged as soon as possible.

Right? - - - Hopefully, within 24 hours.

Yes, and you would actually do the electronic lodging of the return? - - - No, I left that to someone else within the office."

The respondent also relied on the applicant's evidence to the effect that he was required to adopt a standard fee structure in the course of billing clients following the preparation of tax returns and was required to use H & R Block stationary including letterheads, work-sheets, standard forms and receipts. Having regard to the written contract, the respondent also relied on the fact that the applicant was under certain ethical obligations to the company including the turning over of all business receipts to the company and not knowingly lodging a tax return which contained false information as evidence that H & R Block exercised a significant degree of control over the applicant.

23. While the applicant acknowledged the abovementioned factors, his submission was that they were not particularly suggestive of a relationship of employment. He maintained that use of company stationary was commonly expected of experts hired by a company to work on their behalf while the ethical obligations stipulated in the written contract were things that would be expected of any registered tax agent. He submitted that adherence to the H & R Block office methodology (which he said was very similar to his own methodology in terms of common forms and software in any event) was common to employees and contractors alike as a practical means of preventing a breakdown in order in the office.

24. The Tribunal is prepared to accept that such factors like the use of H & R Block stationary and adherence to an office methodology are not necessarily strong indicia of the applicant's status as an employee. In the Tribunal's view these are neutral circumstances surrounding the particular work that, as acknowledged by the applicant, might be adopted by employee and contractor alike and, for this reason, do not greatly assist in the process of identifying one from the other. The Tribunal is also prepared to accept that certain professional and ethical obligations would have been expected of the applicant whether he was a contractor or employee.

25. In regard to the applicant's assertion that he was free to determine when, where and how much he worked, the Tribunal is of the view that while these factors may, in certain circumstances, tend to indicate the existence of a relationship of agent/client, they will not necessarily do so, especially in the context of an increasingly flexible work-force and a labour-market favouring casual and part-time positions. Again, it will depend on the totality of the relationship. In the Tribunal's view, it is of little moment that the applicant asserted to be free to come and go as he pleased. The telling fact in that regard is that he maintained a relatively regular working timetable during the tax season and was encouraged to do so by reason that he was remunerated on a commission-like basis, that is, on the basis that the more returns he signed and prepared, the more money he made. In this way, there is a direct analogy to be drawn between the situation here and that in Barrett (supra) where the Court said, at p405:

"However, generally speaking, remuneration by commission only, with the financial incentive it provides is, no doubt, enough to stimulate activity on the part of the salesmen and if they are experienced and are carefully selected, as the respondents' salesmen are, there will be little call for supervision apart from ensuring that, in their dealings with the public, proper ethical standards are observed. It therefore need occasion to no surprise that there is in this case little evidence of detailed supervision, its absence is not so much an indication of lack of the right to control as of an efficiently organised business in which financial incentives and good relations with responsible, carefully selected staff take the place of close supervision but without in any way affecting the subsisting relationship of employer and employee."

26. Having regard to all the foregoing, the Tribunal is of the view that this criterion is not particularly helpful one way or other in shedding light on the true nature of the applicant's relationship with H & R Block. As was the case in Barrett (supra), it might be said here that an absence of detailed supervision or control over the applicant reflects more so on the nature of the particular work in question and the fact that H & R Block retained responsible persons with particular expertise in the field of taxation to perform particular tasks with appropriate financial incentives rather than indicating that there was no relationship of employment. For this reason, the Tribunal does not consider this criterion to be particularly persuasive.

27. The second criterion relevant to the question as to whether or not the applicant is an employee of H & R Block are the actual terms and terminology of the contract of employment which, in the words of Wilson and Dawson JJ in Stevens (supra) "will always be of considerable importance". The relevant document is the written contract already referred to in these reasons. Relevantly, it names the applicant as the "employee", states his employee number and stipulates his length of service. In signing this document, the applicant purports to agree to "Terms and Conditions of Employment" which include many factors one might expect to see in a contract of employment. Relevantly, it describes his duties and the requirement to abide by the company's scale of fees and charges, stipulates the mode of remuneration and the means by which hours of work shall be set, sets out certain ethical obligations and, importantly, retains in the company the right to discharge the applicant and terminate the agreement should his services be unsatisfactory.

28. In the applicant's evidence, there was mention of the fact that there was a further verbal agreement between the applicant and H & R Block which the applicant maintains was in fact the source of the contractual relationship between them. The written agreement was, in his submission, a necessary precursor to the latter. There was also some suggestion that the verbal agreement "superseded" the written contract however the Tribunal was not convinced by his evidence in this regard which was not substantiated in any way other than by the applicant's own self-serving statements. It is the view of the Tribunal that a verbal agreement did exist which, in the applicant's words, "is basically that I'm going to get paid $10 an hour and $1.25 a return for signing". He also said that the verbal contract governed the aspect of his duties relating to the signing off of tax returns which he said was not covered under the written contract, a proposition which the Tribunal is prepared to accept. The Tribunal's view however is that the verbal agreement, which was of limited ambit, was entirely consistent with the written contract and dealt with supplementary matters as opposed to matters which might have superseded the written agreement.

29. The applicant also submitted that contrary to the express provision in clause 5 of the contract, he alone determined what hours he would work. He denied consulting with H & R Block as to when he would be available which was at some variance with a statement provided by the district manager, Mr Sanders, to the effect that consultation did occur (Exhibit A2). The applicant submitted further that contrary to clause 8, he was able to conduct his private practice without being required to turn over to H & R Block monies received by him for the preparation of tax returns of his private clients and without incurring the other penalties stipulated under the contract. He submitted that these factors lent weight to the inference that the written contract did not accurately reflect the terms of his relationship with H & R Block.

30. Taking into consideration the fact that there were extrinsic matters to the written contract as agreed between H & R Block and the applicant as well as the fact that from time to time there may have been terms of the contract which were not strictly enforced by the company, on balance, the Tribunal is of the view that the terms of the written contract are more suggestive of a contract of employment than a contract for services and so finds. Significantly, at all times H & R Block retained the right to terminate the agreement and dismiss the applicant should it be of the view that his performance was below par, a factor which strongly suggests a relationship of employment. Further, the Tribunal considers the applicant's explanation to the effect that everyone at H & R Block was required to sign such a document has little bearing on the ordinary inference to be drawn from the actual terms of the document which, ultimately, will be of considerable importance in shedding light upon the nature of the particular relationship.

31. The third criterion that the Tribunal has had regard to is the mode of remuneration of the applicant. The applicant submitted that he was paid in the form of a lump sum on a commission basis calculated at the conclusion of tax season and that throughout the tax season, he claimed "progress payments" on the basis of the number of hours worked. He said that the balance between total progress payments claimed throughout the season and the final lump sum owed to him became payable to him at the conclusion of the contract. The applicant submitted that this mode of payment was more indicative of a contractual relationship than that of a relationship of employment.

32. The Tribunal would indicate that upon careful consideration of the mode of the applicant's remuneration and, in particular, having regard to the relevant terms of the written contract together with Exhibit A6 (a letter from H & R Block to the applicant dated 31 October 1997 regarding the calculation of payment owed to him at the end of the 1997 tax season), a different remuneration picture emerges than the one painted by the applicant in his evidence and submissions.

33. For the signing off aspect of his duties, the Tribunal accepts that the applicant was remunerated fortnightly on a piece by piece basis which is equivalent to payment by commission. As stated, the Tribunal is prepared to accept that this aspect of the applicant's remuneration was regulated by the agreement which supplemented the terms of the written contract. On the authority of Barrett (supra) however, it is clear that remuneration on a commission basis will not necessarily lead to a finding that there is not a relationship of employment. Ultimately, this will depend on the totality of factors surrounding the relationship in question.

34. For the preparation of tax returns, however, it would be incorrect to say that the applicant was paid by way of a lump sum due at the end of the tax season and that his fortnightly payments were "progress payments". What becomes clear from the relevant documentation is that the applicant is paid fortnightly based on the number of hours worked. At the end of the tax season however, a calculation is made whereby the amount payable to him if he were to be remunerated solely on a commission basis - basic commission (17.5%), plus longevity commission (3% at 1997) less superannuation already paid - is compared with the amount payable to him if he were to be remunerated solely on an hourly basis - total wages already paid including superannuation plus holiday pay and leave loading. The greater of the two sums then becomes the total remuneration payable to the applicant pursuant to clause 4 of the written contract.

35. In effect then, the remuneration scheme for preparation of tax returns is rather unique in so far as the applicant is remunerated on an hourly basis (receiving holiday pay plus leave loading at the end of the tax year as well as superannuation payments which would strongly suggest a relationship of employment) unless the amount of his commission is greater whereupon he would be treated, retrospectively as it were, as being remunerated on a commission basis (whereupon superannuation payments would be deducted from the commission and he would receive no holiday pay which would suggest a relationship other than one of employment). For the taxation year in question, as the applicant's total pay due on a commission basis did not exceed what he was entitled to on the basis of hours worked, he was remunerated on the basis of hours worked and which attracted holiday pay, leave loading and superannuation (Exhibit A6).

36. In summary, the applicant's mode of remuneration in the tax season under consideration was both on a commission basis (for signing off) and on the basis of hours worked (for tax preparation). Further, his mode of remuneration may vary from year to year, sometimes being wholly constituted by commission and sometimes not. Due to the idiosyncratic and amorphous nature of the applicant's mode of remuneration, the Tribunal is not minded to place much weight on this factor as an indication one way or other as to the nature of the relationship between the applicant and H & R Block.

37. The fourth criterion relevant to the issue at hand is that of capital provision and maintenance and whether any significant proportion of the applicant's remuneration was expended on the provision of equipment or capital items. This factor proved telling in the case of Vabu Pty Limited v Federal Commissioner of Taxation (1996) 96 ATC 4898 where the fact that couriers were responsible for the provision and maintenance of their vehicles and other equipment, which entailed a considerable degree of personal expense on their behalf, was a strong indication that they were not employees of the courier company. The same could not be said for the applicant here. The Tribunal finds that H & R Block provided him with an office at their Plympton branch, a desk and chair, stationary and access to computer and communications facilities as well as some reference sources, although the applicant preferred to rely on his own computer facilities which had a CD ROM reference facility. In this regard, the applicant accepted that it was his choice to provide his own computer as it was his choice to provide pens which were more to his liking than those provided by H & R Block. Further, unlike the couriers in Vabu (supra), the applicant incurred little personal expense in relation to his work at H & R Block and certainly a great deal less than those incurred in the running of his private practice, a proposition he agreed to during the giving of his evidence. The Tribunal would note also that expenses such as registration fees, memberships and professional indemnity insurance are not exclusive to the applicant's work at H & R Block but relate to his private practice as well. Hence, they would require pro rata depreciation accordingly, thereby further reducing the applicant's personal expenses in relation to H & R Block work. In summary, the Tribunal is satisfied that H & R Block provided everything that was essential for the day to day performance of the applicant's duties while the applicant's personal expenses were minimal, including only a percentage of things such as insurance and registration which the applicant required in any event for the conduct of his private practice. This criterion clearly points to a relationship of employment.

38. Another relevant factor is whether or not there was any obligation on the applicant to perform the subject work or not as the case may be. The Tribunal would indicate that it has touched upon this issue in the course of considering the degree of control exercised over the applicant. To recap briefly, the Tribunal is of the view that although there is no obligation per se on the applicant to work, there is nonetheless sufficient incentive to encourage him to work, namely, the fact that he is financially rewarded on a commission basis and on account of the number of hours worked. Further, clause 4 of the written contract purports to give the applicant incentive to be available for work if required "through October 31 next" in so far as the percentage of commission payable will be reduced if he is not so available. On balance, this factor is not overly helpful one way or the other.

39. The Tribunal has also had regard to the taxation position of the applicant. It was not disputed by the applicant that he signed an employment declaration form which had the effect of indicating to the Australian Taxation Office that he was an employee of H & R Block and that, pursuant to the declaration, pay-as-you-earn (PAYE) tax deductions were made by H & R Block from his income and a group certificate issued to him.

40. In this regard, the applicant submitted that H & R Block was required by law to make PAYE deductions at the highest marginal rate were he not to provide an employment declaration. He claimed this would prove financially unworkable meaning, as a matter of commercial necessity, that he was required to take advantage of the tax free threshold which necessitated the lodging of an employment declaration. He said that H & R Block was then required to issue him with a group certificate which had the effect of requiring him to declare this income on his tax return separately from his other business income.

41. The Tribunal was not convinced by the applicant's explanation as to why, if he was in fact hired as a contractor, H & R Block should have been minded to deduct any tax at all under the PAYE system. The Tribunal would indicate that the relevant provisions of the Income Tax Assessment Act 1936 dealing with the lodgement of employment declarations, the making of compulsory PAYE tax deductions and the issuing of group certificates are directed at situations where there is a relationship of employment. Tellingly, had H & R Block viewed the relationship as a contract for services, there would have been no requirement at law for them to make PAYE tax deductions, hence, the "commercial necessity" spoken of by the applicant would never have arisen. Accordingly, the applicant would not have needed to lodge an employment declaration nor would he have to have been issued with a group certificate. In this way, the Tribunal was not persuaded by the applicant's elaborate explanation as to why the tax position was the way it was. Rather, the Tribunal is of the view that the taxation position clearly indicates that H & R Block viewed the relationship as one of employment.

42. The Tribunal has also had regard to the fact that the Superannuation Guarantee and Workcover levies were paid by H & R Block on behalf of the applicant and that he also received holiday pay (Exhibit A6) which are further indicia of the applicant's status of employee as opposed to agent of H & R Block. Again, the Tribunal was not impressed with the applicant's explanation as to why, if he was not an employee of H & R Block, that they should have felt the necessity to make statutory payments on his behalf.

43. The Tribunal has also taken into consideration the applicant's submission that the fact he would be personally liable for any losses incurred by the company on account of errors made by him is a factor which lends weight to the inference that the relationship was unlike that of an ordinary relationship between employer/employee. Having regard to the other factors indicating the nature of the relationship between the applicant and H & R Block, the Tribunal is of the view that the applicant's personal liability is more in the nature of a particular requirement of the work in question, namely, that experts who are retained on account of their expertise be held personally accountable for errors which would not be expected of them in the ordinary course, rather than an indication that the relationship was in the nature of a contract for services.

44. Finally, the Tribunal has also had regard to the fact that there was no goodwill or saleable asset generated by the applicant in the course of his work at H & R Block. At all times, he was dealing with clients of H & R Block and was bringing in receipts that were the sole property of the company. On the other hand, the applicant could not be said to bear any of the commercial risks of the running of a business. He was at all times contracted for his labour and expertise only. Any personal liability for errors made by him in the performance of his duties falls to be seen as the means by which he was held accountable rather than the assumption of a risk associated with the running of a business.

45. Having considered the entirety of the material before it together with the submissions of both parties, the Tribunal is of the view that the indicia supporting the inference that the applicant was an employee of H & R Block far outweigh those which tend to suggest the contrary. Having regard in particular to the terms of the written contract, the provision of capital and equipment by H & R Block and the lack of substantial personal expenses on behalf of the applicant, the taxation position, and the provision for other statutory requirements by H & R Block, and having given careful consideration to the totality of the relationship between the applicant and H & R Block, the only conclusion open on the material before the Tribunal is that the applicant was an employee of H & R Block and the Tribunal so finds. It follows that he was not carrying on a business in respect of work performed at H & R Block.

46. As the applicant has been found not to be carrying on a business with respect to work performed at H & R Block, s1075 of the Act does not apply thereby precluding the applicant from being entitled to make business deductions from the H & R Block income. As the applicant did make such deductions throughout the relevant periods, it follows that the relevant statements as to his income on each of the fortnightly forms in the period under consideration constituted false statements for the purposes of the Act, and the Tribunal so finds. In making this finding, the Tribunal is not to be taken as making a finding that the applicant in any way intentionally made such statements. Indeed, his bona fides have not been challenged during these proceedings.

47. Pursuant to s1224 of the Act, amounts paid to the applicant by way of social security payment as a result of false statements are deemed to be debts due to the Commonwealth. The Tribunal would indicate that a false statement does not have to have been made intentionally for it to constitute a false statement for the purposes of s1224. The Tribunal finds that the applicant owes debts to the Commonwealth in the amounts of $1,247.75 for the period 4 July 1997 to 28 August 1997 and $589.90 for the period 29 August 1997 to 9 October 1997.

THE QUESTION OF WAIVER

48. The respondent submitted that were the Tribunal to be satisfied that there were debts due to the Commonwealth, there was no justification for the debts or any part of them to be waived. Ms Boylan submitted that the evidence of Mr Collis should be preferred to that of Mr Haynes and, on this basis, the Tribunal should find that the applicant had not been told that he was to declare his income in the manner in which he had. The respondent submitted that as the error was made solely by the applicant, there were no grounds for concluding that the debts were solely attributable to administrative error on the part of the Commonwealth. The respondent submitted that in any event, the applicant had not correctly answered the relevant question on the fortnightly forms pertaining to income as he had consistently supplied figures representing net income as opposed to gross income "before tax or other deductions" as was required by the question. On this basis, the respondent submitted that the applicant had contributed to any error made by the Commonwealth such that it could not be said that the debts were solely attributable to such error.

49. On the other hand, the applicant submitted that there had been an administrative error which was the sole cause of any debts due to the Commonwealth. He maintained that he had consistently filled in his fortnightly forms in accordance with advice given to him by officers of the respondent including Mr Collis and that for this reason, should not be taken as having contributed in any way to the creation of the debts in question

50. As stated previously in these reasons, the Tribunal prefers Mr Collis's account of the meeting at which the applicant claims he was provided with misleading information. Accordingly, the Tribunal is satisfied that the applicant did not receive instructions to the effect that he should combine income from both sources into a lump sum and then claim all deductions according to s51 of the Income Tax Assessment Act 1936 as was alleged by the applicant. Accordingly, the Tribunal finds that the debts were not attributable to any administrative error made by the Commonwealth meaning s1237A is not applicable.

51. In any event, had the Tribunal preferred the applicant's account of the relevant meeting and found that there had been administrative error by the Commonwealth, the provisions in s1237A would still not apply for the simple reason that the applicant made an error in declaring net income on the form when requested to declare "the amount before tax and other deductions". As the applicant made an error it could not then be said that the debts were attributable solely to administrative error made by the Commonwealth. For this reason also, the waiver provision in section 1237A does not apply.

52. There are no other waiver provisions applicable to the situation at hand.

53. For these reasons, the decision of the Tribunal is that the decisions under review are affirmed.

I certify that this and the twenty four (24) preceding pages are a true copy of the decision and reasons for decision herein of Deputy President B H Burns

Signed: .....................................................................................

Peter Psaltis (Associate)

Date/s of Hearing 9 November 1998

Date of Decision 4 February 1999

Counsel for the Applicant In person

Solicitor for Applicant -

Counsel for the Respondent Ms M Boylan

Solicitor for the Respondent Centrelink