a pharmacist works for his son a broker on weekends doing admin at his own pace & time for 20% of his work time as a sole trader.But during the week he works for fixed hours at the same pharmacy from Mon-Fri for the 80% from 8- 5 pm ,but sometimes on Satu
Important:
This answer is based on tax law year ending 28 February 2016.
Answer:
We are not sure why you believe the legislation is ambiguous in this regard. SARS has made its view available in the practice generally prevailing.
The point is that, in terms of its definition in paragraph 1 of the Fourth Schedule to the Income Tax Act, a ‘personal service provider’ in the first place requires the service to be “rendered on behalf of such company or trust to a client of such company or trust”. An individual can therefore not be a ‘personal service provider’.
The facts provided are then confusing – you refer to the fact that the one party, his son, is “a broker” and also that the individual works ‘at the same pharmacy’. We accepted that the reference to ‘two principals’ implies that the individual works for the son and also for the pharmacy, in the latter case, in addition to the hours to be rendered in terms of the employment contract.
We submit that, with regard to the services rendered to the pharmacy, it would be remuneration and, because of section 23(m) of the Income Tax Act, no deduction would be permissible against that income. The travel expenses may in any case be of a personal nature and can’t be deducted.
The issue, as far as the services is rendered to the son, is whether it is rendered in a capacity as a person carrying on a trade independently. Generally speaking, a person deriving an amount (in respect of services rendered) by way of a fee would be in receipt of remuneration UNLESS the individual rendered the services in the course of a trade carried on independently (as required by proviso (ii) to the definition of remuneration in paragraph 1 of the Fourth Schedule to the Income Tax Act) by him or her).
As explained in the current practice generally prevailing (issue 4), it “is the responsibility of the employer to determine whether the provisions of exclusionary subparagraph (ii) of the definition of “remuneration” are applicable and whether payments are subject to employees’ tax.” It is SARS’s view that the employer “is in the best position to evaluate the facts and the actual situation”. The ‘employer’ in this instance would be the son or broker.
The legal relationship between the parties must therefore be gathered from the terms of the (written) agreement between them. The general principle was explained as follows by Judge Streicher in the Niselow case. The Judge said that "… an employee is a person who makes over his or her capacity to produce to another; an independent contractor, by contrast, is a person whose commitment is to the production of a given result by his or her labour…" The judge then concluded by saying that the relationship between the parties must remain one in terms of which the person doing the work undertook to produce a certain result and not to render personal services to person paying for it to be a contract in terms of which independent services are rendered.
The current practice generally prevailing, referred to above, deals with the statutory tests (including how to apply the statutory tests) and common law dominant impression test. The flow diagram on page 19 is useful. The fact that the individual pays, or doesn’t pay, expenses is relevant in this regard.