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Inland Revenue

Tax Policy

PUBLISHED 9 May 2000

Definition of "employee" in ER Bill and for tax purposes

The definition of "employee" in the Employment Relations Bill will have no direct effect on the current definition of "employee" used for tax purposes. Revenue Minister Michael Cullen today issued a statement reassuring contractors that their tax status would not be directly affected by the provisions of the ER Bill, which is before Parliament. See media statement 9 May 2000.

Employment Relations Bill Will Not Affect Employees' Tax Status

Revenue Minister Michael Cullen today reassured contractors that their tax status will not be directly affected by the provisions of the Employment Relations Bill.

"Some independent contractors have expressed concern that their tax treatment will be affected if the new employment relations bill, once enacted, defines them as employees," Dr Cullen said.

"Becoming employees for tax purposes would mean, of course, that they would not be able to claim deductions for employment-related expenses, which could have major consequences for people such as courier drivers.

"However it will be possible for a person to be defined as an employee under the new employment relations legislation, as currently worded, while remaining an independent contractor for tax purposes.

"At a later date there may have to be some consideration of whether there should be two definitions of "employee." But this would be done only after wide consultation with full consideration to any tax consequences.

"I also want to clarify that forthcoming tax legislation to stop employees avoiding the top tax rate by "diverting" income to a company, trust or partnership is not an attempt on the Government's part to bring more people into the "employee" fold and deny them deductions. That legislation will not affect the deduction of income-related expenses by those concerned."

Contact: Patricia Herbert [press secretary] 471-9412 or 025-270-9013.