Self-employment

Self-employment

Establishing the level of Normal Weekly Earnings or the Ability to Earn in Suitable employment of a self-employed client presents particular difficulties.  However the same principles can be followed in assessing both NWE and AE for both full-time and Reserve clients.

What is required is to establish the amount of net taxable income which can be attributed to the client's mental or physical labour.  No account is to be taken of any income the client may be earning purely from the application of the client's capital.

At the simplest level, the assessor could determine a notional AE amount by reference to the greater of:

• the net taxable income of the business; or
• the cost of employing another person to do the work the client is doing in the conduct of the business.

Taxation returns, statements from accountants or copies of business accounts can be used to determine this issue.  where current earnings details are not reasonably available, and the client's annual taxation return has not yet been completed, returns from previous year(s) can be used as a guide.

The Department of Vererans' Affairs has the power under s 58 of the SRC Act to require the client to provide a copy of taxation returns or other relevant details.  Where the client refuses to provide this information, without a reasonable excuse, s 58(3) can be applied to refuse to deal with the claim until the information is supplied.

If the assessor is not satisfied that the stated income (or loss) is a reasonable reflection of the client's earnings from labour in their employment, NWE or AE can be deemed as the amount it would cost to employ someone to do the work the client was doing in conducting the business.  If the client is not actively working in the business, but the evidence indicates the client is able to do so, it is permissible to deem on the basis above.

If the client is totally incapacitated in any week and unable to contribute to the running of the business, the AE for the week should be zero even though the business itself may continue to derive an income.

If the business is making a loss, it is NOT permissible to treat the AE amount as a negative amount.

Where the client is able to contribute at some level or for some periods within a week, the proportion of gross income which can be attributed to the client's labour should be counted as AE.

Another method is to compare the client's earnings (or business earnings) before a period of incapacity and after it.  It would be reasonable in some cases, in the absence of other reliable evidence, to deem the difference as the client's loss.

The case of Cage Developments Pty Ltd v Schubert (1983) gives some guidance on this issue.