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Re: Gainfully employed for the work test

Newbie

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The "Work Test" requires one to be gainfully employed for at least 40 hours in a 30 day period.

My understanding is that "gainfully employed" involves any endeavour, where a person receives remuneration for their efforts.
This includes farming, babysitting, cleaning, lawnmowing, gardening, consulting and any other paid employment


My question is in the light of the above would a person satisfy the work test, if they were paid a fair wage by their spouse, to perform the domestic household chores?

And if not why not?

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ATO Certified Response

Former Community Support

Replies 3

Hi Jeff,

 

What an interesting question! It’s important to note that we can only provide you with general information – we can’t offer you financial advice.

 

For the purposes of the work test for voluntary super contributions, 'gainfully employed' means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. 'Gain' or 'reward' is the receipt of remuneration such as wages, business income, bonuses and commissions, in return for personal exertion from these activities.

 

However, it becomes more complicated when you look into what it means to have an employee. As an employer, you'd need to withhold tax from any payments that you make to your employee and register for Pay As You Go Withholding. You'd need to meet workplace health and safety requirements, arrange insurance and worker's compensation requirements and ensure that all employee entitlements are provided. You'd also need to ensure that all relevant business records are kept and that the appropriate employment awards and contracts are completed.

 

Your obligations to withhold superannuation for your employee are also important. You'd need to report and pay super electronically to ensure it met SuperStream requirements, and to check with the relevant fund to find out what reporting options they have available. The fund may also ask for additional information to verify your employee's status.


If you intended to claim a tax deduction for personal contributions, you must complete and lodge a notice of intent with your super fund and have this notice acknowledged (in writing) by your fund. You would need to check with your fund to find out if they would acknowledge your request, given your circumstances.


You and your employee would also need to lodge an income tax return each year to declare income and report any earnings.
 

You can still continue to make personal contributions to your spouse's superannuation - your spouse only needs to meet the work test in order for you to be eligible to claim the deduction.

If you’d like written advice on how tax legislation applies to your specific circumstances, you can ask us for a private ruling. Private rulings are a free service we provide, and we usually write back to you within 28 days.

 

Thanks.

7 REPLIES 7

Former Community Support

Replies 1

Hi @JeffLas

 

Thanks for getting in touch. It sounds like your question relates to personal super contributions. Without disclosing any of your personal details, can you tell us a little more about your circumstances and what specific information you’re looking for?

 

Thanks.

Newbie

Replies 0

Hi Jodie,

 

Yes the question relates to voluntary super contribution made by a 68 year old.

 

As the person is older then 65 years, they must be gainfully employed for at least 40 hours in a 30 day period.

My question revolves around the definition of gainfully employed.

If a person is employed by their spouse, to perform genuine domestic duties such as cleaning, cooking, etc, at market related rates (ie   $20 per hour), will such a person be deemed to have been gainfully employed for the purpose of the work test?

 

Thanks

Jeff  

 

Most helpful response

ATO Certified Response

Former Community Support

Replies 3

Hi Jeff,

 

What an interesting question! It’s important to note that we can only provide you with general information – we can’t offer you financial advice.

 

For the purposes of the work test for voluntary super contributions, 'gainfully employed' means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. 'Gain' or 'reward' is the receipt of remuneration such as wages, business income, bonuses and commissions, in return for personal exertion from these activities.

 

However, it becomes more complicated when you look into what it means to have an employee. As an employer, you'd need to withhold tax from any payments that you make to your employee and register for Pay As You Go Withholding. You'd need to meet workplace health and safety requirements, arrange insurance and worker's compensation requirements and ensure that all employee entitlements are provided. You'd also need to ensure that all relevant business records are kept and that the appropriate employment awards and contracts are completed.

 

Your obligations to withhold superannuation for your employee are also important. You'd need to report and pay super electronically to ensure it met SuperStream requirements, and to check with the relevant fund to find out what reporting options they have available. The fund may also ask for additional information to verify your employee's status.


If you intended to claim a tax deduction for personal contributions, you must complete and lodge a notice of intent with your super fund and have this notice acknowledged (in writing) by your fund. You would need to check with your fund to find out if they would acknowledge your request, given your circumstances.


You and your employee would also need to lodge an income tax return each year to declare income and report any earnings.
 

You can still continue to make personal contributions to your spouse's superannuation - your spouse only needs to meet the work test in order for you to be eligible to claim the deduction.

If you’d like written advice on how tax legislation applies to your specific circumstances, you can ask us for a private ruling. Private rulings are a free service we provide, and we usually write back to you within 28 days.

 

Thanks.

Newbie

Replies 2

Hi Amanda,

From your answer, it appears as if the employee is gainfully employed and would therefor pass the work test, provided they worked at least 40 hours in a 30 day period.

The rest of your reply (paragraph 3 onwards), this revolves around the employers obligations and should not effect the employee.
I agree that the employer needs to comply with his legal obligations, but this is not as onerus as it may first appear. 

a) As the employee will earn less then $18,200 so there is no withholding tax. 

b) As a Victorian employer, who does not expect to pay more than $7,500 a financial year in rate-able remuneration, there is no need to register and pay workcover.

c) Reporting and paying super is not a problem, as the purpose of the excercise is to increase the employees super balance.
    The super contribution tax will be a mere $11.40 - Calculated as 40 hours x $20 per hour = $800 x 9.5% = $76 @ 15% = $11.40

 

d) The employer does not intend  to claim a tax deduction as this is a private expense and not incurred in the production of income.

 

Thanks

 


 

 

Taxicorn Registered Tax Practitioner

Replies 1

I recommend that you apply for a ruling, because you are describing paying a wage to someone for what they have been doing already as part of a domestic arrangement. 

 

There have been a number of tax cases where no deduction was allowable for wages paid for duties which the court decided were really just domestic arrangements.  It would follow domestic arrangements are not gainful employment.

 

This case is an example of the reasoning involved:

 

http://law.ato.gov.au/atolaw/view.htm?docid=LIT/ICD/2007/4517-4521/00001

 

The ATO has already put out a statement about applying part IVA to this sort of arrangement.

 

Newbie

Replies 0

I will certainly obtain a tax ruling as recommended by both Bruce and Amanda, before proceeding with the proposed scheme.

 

I also accept that as a learned tax practitioner Bruce's reply may be correct.


However, if I may play devils advocate and for the purpose of this discussion, I would argue as follows:


1) The recipient and payee are different taxpayers. Just because a payment is not an allowable deduction for the payee (eg a personal expense), it may still form part of the recipients taxable earnings for services provided, and therefore play no part in the determination of their employment status.

2) The question revolves around superannuation and therefore one should look to the SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 - REG 1.03 which defines "gainfully employed " as meaning employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. I believe providing domestic services is a recognised occupation.

3) Superannuation Guarantee (Administration) Act 1992 Part 2 Section 12 defines an employer and employee as their meaning in common law with some expansions and and provisions as laid out in 12(2) to 12(11). Section 12(11) states " A person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not regarded as an employee in relation to that work." Refer to https://www.legislation.gov.au/Details/C2017C00230

I would therefore conclude, that provided there was an arrangement (preferably in witting) to perform more than 30 hours of domestic work a week, at a fair market rate, the person providing the service would be considered gainfully employed for the purpose of the superannuation work test. The relationship between the employer and employee, and the fact that the employee may have previously performed these duties voluntary at no charge are of no consequence in the determination of gainfully employment. 

Taxicorn

Replies 0

As long as you declare the income as taxable income.