You are an accountant and tax advisor. A new client, Carys, provides you with the facts outlined
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Question:
Scenario
Carys owns a land-scaping business setting up gardens for new houses built in newly developed subdivisions. Her business is run through a company named New Leaf Limited (NLL). Three people work in the business with Carys. They are Lin, David and Grace.
Lin carries out administrative tasks for NLL. She takes phones calls to the business between 9.00am and 3pm (when the phone calls are diverted from Carys' phone), takes messages for Carys, manages client bookings, any plant supplier issues, and she does all of the bookkeeping for NLL. Lin carries out her activities from her home using a phone and laptop supplied by NLL. Sometimes she performs the bookwork in her evenings or weekends. Carys doesn't mind as long as the work gets done and the phone is always answered.
Lin works 30 hours per week and does not work for anyone else. Lin and Carys meet twice a week to discuss bills, and upcoming work etc. Sometimes this is at Carys' house, sometime Lin's house and sometimes at a client's house or even at a café. NLL pays Lin $825 per week before tax. Carys does not pay Lin during school holidays when Lin spends all her time with her children. Carys told Lin that she is not entitled to holiday pay because she is a contractor, this was made clear in Lin's contract.
David is an apprentice gardener who works 40 hours per week for NLL and has done so for the past year. He accompanies Carys to all the work sites. NLL has provided David with a single-cab utility vehicle (ute) (Isuzu D-Max, LX Single Cab Ute) with a large tray for transporting plants. The ute is branded with NLL's logo of a cabbage plant, NLL's name and phone number. David is allowed to take the ute home at night and for weekends. He can use it as he wants on the basis he doesn't take it out of Auckland without asking Carys first. David travels to see his girlfriend in Hamilton most weekends, so he takes his motorbike on those days and leaves the ute in his garage.
When he's working David wears overalls, fleeces and hats and gumboots all provided by NLL. Everything has the NLL logo printed on, except the gumboots. He bought himself a top-quality reflective raincoat because he didn't think the one NLL provided was bright enough for working in the dark winter mornings.
David doesn't usually need to use his phone for work but to make up for the occasions he does, Carys pays him an extra $20 per week. Carys knows this is hard work for David and although he is paid the standard appreciate wage of $25 per hour, she buys him lunch every Friday. This comes to $15 every week.
Grace works for Carys 24 hours per week. She has worked for NLL since Carys started the business 10 years ago. Grace finds the physical aspect of the job very difficult these days. While she used to work full-time for NLL she has worked only three days per week for the past year, starting when David was employed by NLL.
When she is not working for NLL, Grace is further developing her expertise in roses, breeding new varieties and selling young roses to a growing online following she has developed in addition to selling some to NLL. This activity is something she has been working on over the past 4 years and as she approaches full retirement from NLL, she hopes she will derive a little extra pocket money to help her get by.
Questions:
Oh what you have learnt in Income Tax Act 2000, (https://www.legislation.govt.nz/act/public/2007/0097/4.0/DLM1512301.html?search=sw_096be8ed802901f2_%22assessable+income%22_25_se&p=1#DLM1513337)
1. Is Lin an employee of NLL?
2. Is David's clothes and the Ute FBT payable?
3. Are the payments for David's lunch and phone use assessable income to David?
4. Is Grace carrying on a business?
Related Book For
Auditing and Assurance Services
ISBN: 978-0077862343
6th edition
Authors: Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws
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