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So you work on contract? Don't let TAX be a shocker!
So you work on contract? Don't let TAX be a shocker!
So you work on contract? Don't let TAX be a shocker!
If you're an Australian Tax Office 'client' ... a little known tax ruling may come as a bit of a (timely) shock
Last week, I had an eye-opening discussion with Neil Fairley, an old colleague of mine, and what he told me needs to be out there. It’s a ruling mandated by the Australian Tax Office that could have you saying, “WHAT! You’ve got to be kidding!”.
It’s this …
If you contract out your personal services, OR you own or manage a company that engages contractors who do, you may be failing to comply with an ATO ruling. According to Neil, lots and lots of companies and contractors are unwittingly NON-compliant. And the risks are just not worth it.
Neil should know. He is joint MD of the Workforce Advisors Group. He and his team specialise in helping corporates AND contractors to meet the complex compliance minefield of requirements in contractor arrangements.
What shocked me in particular, was his revelation that even if the contractor is the holder of an ABN, this does NOT automatically exempt the company engaging them from any statutory responsibilities for PAYG and superannuation guarantee contributions. To quote Neil:
“On its own, the holding of an ABN simply means that the individual is registered with the ATO for the purposes of collecting and remitting GST.
The fact is that any individual providing personal services or labour only, is caught under the Personal Services Income (PSI) Legislation unless they meet an appropriate exemption.
A variety of tax rulings along with common law precedents make it quite clear that an ABN is not automatic presumption of contractor status for the purposes of PAYG and Superannuation Guarantee Charge.
Furthermore the Australian Tax Office clearly mandates that a contractor engaged by only one company cannot use conduit entities such as ABN, Company or Family Trusts to receive income and pay tax below their individual marginal tax rate.
Many contractors providing personal services are frequently and wrongly advised to set up a partnership, trust, or company and then claim business tax deductions. They will claim that the company is doing the work and pay tax at the company rate, rather than the higher personal tax rate.
The truth is that contractors engaged in a non compliant manner run a significant business risk, as do the companies engaging them. The penalties for non compliant or sham contracting, if enforced to their maximum, have the potential to close down your business.”
As I said, not my usual soapbox topic, but I believe important enough to bring this information to you. If you’d like to get a copy of the Workforce Advisors Group’s new free report on this, call them on Brisbane (07) 3726 1050. Or request it online.
