March 2009
Taneja and Commissioner of Taxation [2009] AATA 87 (11 February 2009)
The case
Mr Taneja is a computer systems analyst. He works through his own PTY company. The income of the company was distributed to Mr Taneja and his wife. The Tribunal determined that the arrangement failed the results test and made several relevant points:
- Mr Taneja’s company was liable for rectifying defects, but this on its own was not sufficient to pass the results test.
- Mr Taneja’s company was paid on an hourly basis. But being paid on an hourly rate does not mean that one fails the results test. It can simply be a way in which remuneration is organized.
- Mr Taneja claimed he was an independent contractor at common law and therefore would pass the results test. It appears that no evidence was produced to show why he was an independent contractor. The tribunal reasoned that even though it could be accepted that Mr Taneja was an independent contractor under general law, this did not mean that the results test is automatically passed.
- Nothing in the written agreements that Mr Taneja’s company had with any of the businesses that engaged him indicated that he was being paid to produce a result.
- There was no evidence of Mr Taneja’s company making offers of work to the public at large or achieving work this way.
Mr Taneja failed the results test because there was not sufficient evidence that Mr Taneja’s company was being paid to produce a result.
The outcome of the decision is that all the income earned by Mr Taneja’s company is being treated as his personal income and being taxed accordingly. The allocation of income to Mr Taneja’s wife and the superannuation contributions made on her behalf are being treated as Mr Taneja’s income.
Lessons—particularly for the IT sector
ICA’s general knowledge of the IT sector is that many arrangements could be similar to those of Mr Taneja. IT independent contractors who work through their own company or trust, and businesses in the IT sector that engage them, would benefit from studying this case and reviewing their arrangements to ensure compliance with the results test. The wording of the contract at least should indicate the result that is being sought however this is not sufficient on its own. The ATO attitude to partnerships is, however, different.
ICA has extensive information for members on the PSI rules and the results test. We trust our information will assist. A full reading of our commentary on the first test case should also help.