Page 267 - SAIT Compendium 2016 Volume2

IN 17 (3) Income Tax acT: InTeRPReTaTIon noTes IN 17 (3)
Services to be rendered in terms of a contract of service are at the disposal of the employer who may in his or her own discretion (subject, of course, to questions of repudiation) decide whether or not he or she wants to have them rendered.
The independent contractor is bound to perform a certain speci ed work or produce a certain speci ed result within a time xed by the contract of work or within a reasonable time where no time has been speci ed.
The employee is subordinate to the will of the employer. He or she is obliged to obey the lawful commands, orders or instructions of the employer who has the right of supervising and controlling him or her by prescribing to him or her what work he or she has to do as well as the manner in which it has to be done.
The independent contractor is notionally on a footing of equality with the employer. He or she is bound to produce in terms of his or her contract of work, not by the orders of the employer. He or she is not under the supervision or control of the employer. Nor is he or she under any obligation to obey any orders of the employer in regard to the manner in which the work is to be performed. The independent contractor is his or her own master.
A contract of service is terminated by the death of the employee
The death of the parties to a contract of work does not necessarily terminate it.
A contract of service terminates on expiration of the period of service entered into
A contract of work terminates on completion of the speci ed work or on production of the speci ed result.
The current South African position remains that the ‘dominant impression’ test must be applied. However, in distinguishing between an employee and an independent contractor, one must commence with an analysis of the written employment contract. The object of the contract (acquisition of productive capacity or result) must be established. The object of the contract is not a mere indicator, but determines the legal nature of the contract, because it determines the respective parties’ rights and obligations under the contract. The parties’ rights and obligations under the contract in turn determine the nature of the contract. The object which one must establish is the pre-eminent object.
If the object is the placing of one person’s labour power or productive capacity (whether capacity to provide a service or to produce things) at the disposal of another, enabling the acquisition of that productive capacity itself and not simply the results of that productive capacity, then the contract is one for employment of an employee (locatio conductio operarum, a contract of service). The essence of an employee contract is the acquisition of productive capacity by the employer, and the concomitant surrender of productive capacity by the employee.
If the object is the acquisition of the result of deployed productive capacity (of a produced thing or of a provided service), then the contract is for the employment of an independent contractor. The essence of an ‘independent contractor’ contract (locatio conductio operis, contract for services or work) is that the independent contractor only commits him or herself to deliver the product or end-result of that capacity.
The object of the contract must be determined by an analysis of the terms of the contract.
To the extent that the written contract is in any way insuf cient for this purpose (if there is no written contract, or if the written contract (the form) is a sham), the object of the overall (oral) contractual relationship may be determined from an analysis of the parties’ own perception of their relationship (loosely, the oral contract), and the manner in which the contract is carried out in practice (the substance of the relationship). Even if a written contract does exist, one should always interview the other parties to the contract, and related third parties. The more widely the assessor investigates in this fashion, the more effectively the assessor contests the evidential terrain (and discovers whether or not the written contract is a sham) and prevents the taxpayer from one-sidedly determining a false but favourable factual matrix according to which his or her case is then assessed.
While words such as ‘employment’ and ‘employer’ are ambiguous and can describe either an employer/employee relationship or an employer/independent contractor relationship, the word ‘employee’ is unambiguous and cannot be used to describe an independent contractor. However, in determining the true relationship, labels (whether at the head of or in the body of the contract, whether written or oral) are not decisive, but if the labels used are not set out to deceive, they are an important indicator of what the intended object was. By parity of reasoning, mere invoicing, registration with a professional or trade association, and statutory compliance (for example, VAT registration, any LRA, UIA (UIF) or COIDA (WCA) registration), should not be decisive (unless bona de).
The current South African position is similar to that of the USA, Australia, and the UK. For example, while English law used to place heavy emphasis on the supervision and control test, it now holds that—
‘There is no one test which is conclusive for determining whether services are performed by an employee under a contract of service or by a person carrying on business on his own account: There are a number of badges of one or other of the relationships and those badges, depending on the context, may carry greater or lesser weight, an overall view must be formed.’*
Other relevant and interesting cases are—
• •
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Medical Association of SA & others v Minister of Health & another [1997] 5 BLLR 562 (LC);
Building Bargaining Council (Southern & Eastern Cape) v Melmons Cabinets CC & another [2001] 3 BLLR 329 (LC)
LAD Brokers (Pty) Ltd v Mandla [2001] 9 BLLR 993 (LAC)
* Quoted from Barnett v Brabyn (HM Insp. of Taxes) (1996) STC 716, 69 TC 133 at 134.
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