The Cassandra Complex
Section 221 Explained
In this section I provide the full legal process that applies to section 221 and Schedule 4 of the Accident Compensation Act 2001. As I have demonstrated here, the Corporation has essentially usurped the role of the New Zealand Governor General and has exceeded its power under legislation. Every argument the Corporation submits is a subversion of the strictly interpreted legislation that applies, in this case section 221.
When the arguments the Corporation has provided are examined in detail, it becomes very clear that the Corporation has advanced an unlawful process over the legislation in question.
Section 221 has a stated purpose and that purpose is to allow the deductions of levies at the time of PAYE Income Payments. This applies to salary and wage earner and shareholder employees. Both those categories' of earner seem to be being managed lawfully. It is a third category of a PAYE earner that was introduced into the Income Tax 2007 in 2007 that is not being managed lawfully.
These earners are: Self-Employed Earners who receive PAYE Income Payments for the purpose of the PAYE rules. For more information on how the system works for these earners and how they came to be part of law is explained here.
221 Collection of levies by deduction from employee earnings
(1) For the purpose of enabling the collection of the levies payable under section 219 by instalments,—
(a) when an employer or a PAYE intermediary for an employer makes a payment to an employee that is included in the earnings of the person as an employee of the employer, the employer or person must, at the time of making that payment, make a deduction in accordance with this section from that amount on account of the levy payable:
Essentially the section demands that ALL employers MUST deduct the required levy at the time of payment. Under tax law ALL employer payments to employees are in fact PAYE Income Payments according to the Income Tax Act 2007. It is very clear then that ALL PAYE Income Payments MUST be levied at the time the payment is made. That is what is states right here under section 221 (1)(a).
Schedule 4 applies to any deduction under subsection (1), and applies to private domestic workers with any necessary modifications.
We see here that s 221 (1) provides the sections stated purpose, s 221 (1)(a) places a compulsory requirement on all employers to deduct levies at the time of payment, those payments being PAYE payments as defined in the Income Tax Act 2007.
Section 221 (2) specifically states that any deduction under s 221 (1) is subject to the legislation provided in the Accident Compensation Act 2001, Schedule 4.
The Corporation is currently actively trying to evade the wording in Schedule 4 , specifically clause 22 of that Schedule being the definitions that apply to the process in question.
Subject to this schedule, the PAYE rules of the Income Tax Act 2007 (the PAYE rules) apply, with all necessary modifications, with respect to—
(a) any amount included in the earnings as an employee of an employer as if such amount were a PAYE income payment (or, as the case may require, salary or wages under section RD 5 of the Income Tax Act 2007) of the employee for the purposes of the PAYE rules; and
(b) the levy payable by any employee under this Act as if such levy were income tax; and
(c) the deduction required to be made under section 221 as if such deduction were an amount of tax, which amount is—
(i) on account of income tax; and
(ii) made or required to be made for the purposes of the PAYE rules; and
(d) any employer under this Act as if such employer were an employer for the purposes of the PAYE rules; and
(db) a PAYE intermediary as defined in section YA 1 of the Income Tax Act 2007; and
(e) any employee under this Act as if such employee were an employee for the purposes of the PAYE rules;
For the purposes of this schedule, combined tax and earner-related payment, Commissioner, employee, employer, income tax, PAYE intermediary, PAYE income payment, salary or wages, and shareholder-employee have the same meanings as in the Income Tax Act 2007.
Clause 1 of the Schedule adds context to s 221 (1) and the wording is designed to ensure that all earners who receive PAYE Income Payments are levied under law at the time of payment.
Clause 22 provides the definitions of various words that appear in the Schedule. First we start with what is a PAYE Income Payment? That is the category of Income that applies to the question. As we can clearly see the definitions that apply to this process are the same meanings that are found under the Income Tax Act 2007.
Income Tax Act 2007 YA1 Definitions
PAYE means pay-as-you-earn and refers to an amount payable as income tax under the PAYE rules
PAYE income payment is defined in section RD 3 (PAYE income payments)
The Accident Compensation Act has its own section dedicated to definitions which is section 6. Under the AC Act 2001 it is s 6 that provides the definitions that apply UNLESS there is other legislation in place that provides its own stated process as is the case here. The process in question is the process outlined by section 221 and Schedule 4 of the AC Act 2001.
The wording of section 6 specifically states that if there is another context provided in the legislation then it is that context that will apply under law.
(1) In this Act, unless the context otherwise requires,
So we can clearly see that as Schedule 4 has its own context under clause 22 of that Schedule then it is clause 22 of Schedule 4 that is required. Section 6 also contains a definition for PAYE Income Payment.
PAYE income payment has the same meaning as in section RD 3(1) of the Income Tax Act 2007
So we can clearly see that BOTH section 6 and Schedule 4 clause 22 clearly state that the meaning of PAYE Income Payment is the meaning provided by the Income Tax Act 2007 RD 3.
RD 3 PAYE income payments
(1) The PAYE rules apply to a PAYE income payment which—
(i) a payment of salary or wages, see section RD 5; or
(ii) extra pay, see section RD 7; or
(iii) a schedular payment, see section RD 8:
So far we are dealing with the levy side of the process but of course there is a corresponding entitlement process. The process for providing entitlement to self-employed earners is found under Schedule 1 clause 38. I provide one of the calculation formulas as a working example.
Clause 38 source legislation
(b) for claimants for whom the relevant year was the first year during which they received earnings as a self-employed person, the amount calculated using the following formula:
(a + b) ÷ c where—
a is the claimant’s total earnings as an employee in the 52 weeks immediately before his or her incapacity commenced
b is the claimant’s earnings as a self-employed person in the relevant year
For the purposes of this article I point to the wording of a. The claimants total earnings as an employee. We can see in the formula that there are two considerations for the entitlement. The TOTAL earnings the self-employed earner has received in the CURRENT tax year the injury occurred AND the earnings that are shown in the previous financial year after all business expenses have been deducted.
So we have one category of earner whose earnings change classification depending on what financial year is to be applied. In the current year, the earnings are treated as PAYE Income Payments which are taxed AND supposed to be levied at the time of payment. When the financial year ends then a tax return is submitted and all expenses presented to IRD for deduction. After those deductions are applied then the final figure is income minus deductions equals the amount of earnings for the previous / relevant year also known as earnings received as a self-employed person. If the deductions outweigh the income then IRD will issue a tax refund off the PAYE that was paid throughout the year in question.
Additional information on clause 38 entitlement process
So essentially we have one category of earner who receives earnings in the current financial year under the PAYE category of Income and the deducted earnings in the previous financial year are treated as earnings received as a self-employed person. So the category of earner stays constant, the category of earnings alters according to the financial year that is being applied.
When we look at the entitlement formula we see that "a" is all "employee" earnings received in the 52 weeks immediately before incapacity. So the word that now sits dominate in the consideration is the word "employee".
The entitlement is levied under the s 221 / Schedule 4 process in the legislation and on that basis the definitions that apply to the corresponding entitlement clause are found in Schedule 4 clause 22 definition of employee. Clause 22 states that the definitions that apply are the definitions listed in YA1 of the Income Tax Act 2007.
(a) means a person who receives or is entitled to receive a PAYE income payment:
This takes us straight back to the meaning of PAYE Income Payment under RD 3 of the Income Tax Act 2007 that clearly lists schedular payments as PAYE Income Payments and it is these payments that the Corporation is refusing to levy under law. As a result the corresponding entitlements have not been paid out for what will soon be thirteen years.