BASIC CHAPTER 13 Q1 BUSINESS SECTION

 

S1

 

The taxpayer is a common law employee, rather than being genuinely in business. Therefore he does not qualify for the STS.

 

P1

 

Personal services income (PSI)

 

 

Did you receive any personal services income?

YES

Read on.

Part A

 

 

Did you satisfy the results test?

NO

Read on.

Have you received a PSI business determination?

NO

Read on.

Did you receive > 80% of your PSI from one source?

YES

Go to part B.

 

What is personal services income (PSI)?

 

PSI is when it is the person’s skills and abilities which are being contracted. The following are NOT PSI:

 

  • Sale of stock – the customer wants the used car or frying pan, rather than the salesman;
  • Main asset businesses (e.g. an articulated truck) – the customer wants the use of the main asset, rather than specifically wanting the person who owns the main asset;
  • An employee for a large company – the customer is doing business with the company, rather than with that specific employee.

 

The results test

 

For at least 75% of their income:

 

  • Under their contract or arrangement, the taxpayer was paid to achieve a specified result or outcome. This means that the taxpayer was not just doing ongoing work as an employee would do, but was hired to do a specific job, which is how a genuine business operates.

AND

·         The taxpayer had to provide his own tools and equipment. Again, this is how a genuine business operates. An employee uses the tools and equipment of the employer.

AND

  • The taxpayer was liable for rectifying defects in their work. This too is characteristic of a business contract.

 

Thus the results test is designed to separate the genuine businesses from the virtual employees. If ALL the three questions of the results test are passed, then the income and expenses go at item 14.

 

Part B

 

Label O

 

 

 

45,697

Label L

 

 

 

932

 

Internet

168

Home office

22

 

Stationery

87

Depreciation

579

 

Repair to laptop

76 (378 x 20%)

 

 

Label A

 

 

 

44765

 

Not deductible

 

  • Business suit and dry cleaning of suit.
  • His home is not his place of business, and therefore he cannot claim rates, mortgage interest etc.
  • His car travel to work is just commuting, because his home is not a place of business, and he is like an ordinary employee going to work.

 

NOTE: Given the new treatment whereby D.V. rate is 200% of P.C. rate, it is not to the taxpayer’s advantage to begin a low value pool.