Page 262 - SAIT Compendium 2016 Volume2

IN 17 (3)
Income Tax acT: InTeRPReTaTIon noTes IN 17 (3)
The appropriate provisions of the Act (sections 11(a), (b), (d), (e) etc) are applicable independently of the employees’ tax deeming provisions of the Fourth Schedule. A common law independent contractor who is deemed not to be independent as a result of exclusionary paragraphs (ii) of the de nition of the term ‘remuneration’ may therefore still claim expenses that would have been allowed had he/she/it not been deemed not to be independent (see also Circular Minute No. 40 of 1995).
Viability on termination
A person (worker or ‘business’) who is not viable on termination of that person’s current contractual relationship may be regarded as being an employee (a form of the ‘economic reality’ test). This factor may be persuasive or even nearly conclusive in favour of non-independence for purposes of paragraph 2(5) of the Fourth Schedule. In this regard:
• A person (worker or ‘business’) may be said to be ‘viable on termination’ when the person is economically independent of the client in that the person can survive the termination of the contractual relationship with that particular client without being obliged to approach an employment agent or labour broker (at least in the medium term). This indicator might be less signi cant in the case of a person with prior activity as an independent contractor, or a person regarded by prevailing norms and customs as an independent contractor.
• Where a person seeking to be classi ed as an independent contractor has a prior history in business circles as being an independent contractor, then indicators such as the lack of a multiple concurrent client base, or economic dependency on the current employer, would possibly be less signi cant.
Industry norms and custom
There may be a norm or custom in the industry that the person (worker or ‘business’) is an independent contractor, in which case it may be less likely that that person would contract in the form of an employee. Norms or customs might create a ‘trading climate’, which either militates against or promotes economic viability.
9.3.10
9.3.11
10. Summary
The ow diagram in Annexure A should be followed when a determination is to be made in terms of either exclusionary sub-paragraph (ii) of the de nition of the term ‘remuneration’ in the Fourth Schedule or paragraph 2(5) of the Fourth Schedule.
Legal and Policy
South African Revenue Services
Date of rst issue: 28 March 2003 Date of second issue: 9 January 2008
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