Introductory note re ITA 2015 tax treatment of employment income

Earlier in the course we looked at income from employment. The main focus was on the case
law: Beak v Robson; Hochstrasser v Mayes; Tennant v Smith etc. As regards the ITA 2015
we looked only at ss.15 and 16. This week we look in detail at the tax treatment of
employment income under the ITA 2015.

A recap
Let me begin with a quick recap of our earlier reference to the ITA and employment income.

Section 15 provides a definition of ‘employment income’. (It includes some receipts and
gains that are not income on general principles. Parliament is expanding the tax net.)
Employment income together with business income (s.17) and property income (s.18)
composes ‘gross income’ (s.14). Gains from an employee share scheme (s.16) also enter
gross income.

Gross income less allowable deductions produces chargeable income (s.13). As regards
deductions, s.22(1) provides no deduction is allowed for ‘(b) an expenditure or loss incurred
by an employee in deriving employment income’.

Thus chargeable income includes any employment income of the taxpayer but no expenses
related to the derivation of employment income.

Chargeable income is subject to Income Tax (s.8(1)) and beyond $270,000 also subject to
SRT.

As regards the tax treatment of employment income this constitutes what we might call the
general story. Employment income but not expenses is included in chargeable income and
subject to the general tax on income called Income Tax.

And this week

This week we look in detail at the tax treatment of employment income under the ITA 2015.
What we find is something very different from the general story found in ss.15, 14, 13. 22(1)
(b) and 8(1). We find that the Act creates two specific taxes concerning income from
employment and that for most workers income from employment will not enter chargeable
income and will not be subject to Income Tax. ‘Most workers’ but not ‘all workers’. It’s
complicated.

The two specific taxes are PAYE Final and Fringe Benefits Tax.