But, for a complete answer to the question, Miller says it is appropriate to consider whether a freelancer is entitled to superannuation under a contract with an employer.
Under an expanded interpretation of an employee for superannuation purposes, if a freelancer is engaged on a contract that is wholly or principally for their labour, says Miller, the business that engages them may be liable for the 9.5 per cent superannuation payment.
Whether a freelancer is deemed to be an employee can come down certain facts like if you are performing the work on the employer’s businesses premises using their equipment and must perform the work yourself. There is a good chance then you will be considered an employee.
Another consideration is whether the individual must perform the work personally with no right to delegate it to someone else and that the individual is not paid to achieve a result.
That point about achieving a result, says Miller, can be misleading but ultimately it comes down to control and whether the contractor can employ their own means to achieve an outcome, such having their own plant and equipment and other labour.
Courts have held that interviewers for research companies, couriers for delivery companies, and interpreters for translating companies have all been employees for superannuation purpose despite elements of the above conditions not being met.
The actual answer may also be reliant on how your freelance business is structured, says Miller. If the freelance work is performed via a company or trust and the contract is engaging that entity then there is no superannuation obligation.
That said, it cannot be taken for granted that putting another entity between the two parties will mean that the contract isn’t wholly or principally for labour. If the work is to be performed by one specific person because of their skills, that may tip the scales in favour of them being deemed to be an employee.
Question: I have a question about the deeming rules and the grandfathering of the Commonwealth Seniors Health Card prior to January 1, 2015. Can you tell me what Centrelink law validates this, as well as the law that validates the doctrine of deeming? John.
Answer: The Social Security Act 1991 contains the law that applies – or deems – a set rate of income to a wide range of financial investments which since January 1, 2015 has included balances held in account-based superannuation income streams and annuities.
The government policy behind deeming, says Graeme Colley, a private wealth manager with self-managed super administrator SuperConcepts, is to treat returns from investments earned by retirees seeking government age pensions and entitlements like the Commonwealth Seniors Health card Card in a similar way no matter how they are invested.
The broad principle behind deeming is to encourage retirees to choose investments on merit rather than by how much government age pension it will entitle them to.
To calculate the income that will be assessed, deeming rates are applied to the total market value of a retiree’s financial investments. The actual returns from the investments, whether in the form of capital growth, dividends or interest, are not used for income assessment, even if the investment returns are above the deeming rate.
The current deeming rules assume financial investments earn 0.25 per cent for amounts up to $53,000. This is called the lower deeming rate. Amounts above $53,000 are deemed to earn a higher rate of 2.25 per cent.
For couples, the lower 0.25 per cent deeming rate applies to combined investments worth up to $88,000 while the higher 2.25 per cent rate applies to amounts over $88,000.
Before deeming was introduced in 1991, many government age pensioners concentrated on maximising their government pension entitlements, instead of their total income from a combination of government pension and investment returns. They did so by deliberately investing in low-interest accounts rather than higher-returning term deposits.
Bank account deeming was introduced in 1991 to encourage government age pensioners to maximise their total disposable income by investing to gain returns of at least the deeming rate. While successful in changing the low-interest habit, bank deeming did not address the problem of other capital growth investments.
This saw deeming legislation extended in 1996 to include all bank style financial investments, managed investments and listed shares.
From January 2015, the deeming provisions were further extended to new account-based income streams established by government age pensioners aligning their treatment with the deeming provisions that apply to other financial investments. This also included account-based annuities.
Account-based income streams held by government age pensioners immediately before January 1, 2015 were grandfathered and continue to be assessed under special return of capital rules that existed before January 2015.
These more generous rules as far as an age pension entitlement is concerned have part of the super pension income not counted because it is regarded as a return of the capital that was used to start the pension.
But, that said, the right to this grandfathered treatment can be lost if an account-based pension is altered in any way. If the pension is, for example, stopped to add more contributions to the account balance or the pension is wound up to transfer super to an industry fund.
Losing pension grandfathering can be an important issue when it comes to an entitlement to the Commonwealth Seniors Health Card, the government benefit that entitles retirees to discounted medicines.
Because the health card has an income threshold, currently $55,808 a year if you’re single and $89,290 a year for couples, if a pension is deemed and if this additional income pushes you over the income test limit then the CSHC will be lost.