ATO still watching contractors
Thursday, 28 October 2004
The Tax Office still has contractors under the spotlight. A couple of cases have been reported recently, both of which the contractor lost.
The first involves time sheets, cash payments, overtime and bonuses. The second involves those PSI rules again. The results test was failed.
In the first case, the contractor / taxpayer received an amended assessment following an ATO audit of the employer company. The amendment added $22,810 for cash payments received for bonuses and overtime worked over weekends in 1996. The taxpayer argued amongst other things, that he was not entitled to, and did not receive, cash payments, and that any payment should have tax deducted.
Nor surprising, the Tribunal held that these payments had the character of ordinary income. More importantly, the Tax Office relied on timesheets. The tribunal held that there was no reason to conclude that certain items identified in the timesheets were paid to the workers, while other amounts were not. And on re-examination, there was no arrangement to deduct tax.
In the second case, The Tax Office refused to grant a personal services business determination, which the Tribunal affirmed. The taxpayer was a company, which provided computer consultancy to one client in the relevant year, through an employee / director. A common enough arrangement. The taxpayer argued that it qualified to be treated as a "personal services business" as it satisfied the "results" test.
The Tribunal found in effect that the taxpayer was economically integrated within the client, and did not possess any independent discretion. The taxpayer was not retained to produce a result.
The Tribunal considered the following matters relevant:
- the taxpayer had only one client during the year of income,
- the taxpayer was paid monthly in arrears according to services supplied to it,
- the taxpayer was paid according to time spent on projects for which it was engaged,
- the client reimbursed it for out-of-pocket expenses,
- the engagement was enduring and ongoing,
- the taxpayer could not delegate without consent,
- the taxpayer moved seamlessly from one project to another within the client organisation.
There was more reported, but the message is clear: in both cases the contractor failed, and yet the circumstances outlined are, in my opinion, only too common. If these facts apply to you, the best advice would be to have your circumstances appraised by an accountant familiar with contractor issues. Amended assessments might be necessary, and/or restructuring of your affairs.
Max Pegler is a Chartered Accountant, and a director of The Contractors Back Office Company Pty Limited
Max Pegler (admin@cboc.com.au )
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ATO still watching contractors Brainbox This appears to be the classic 'contractor' scenario but upon inspection it is more like the 'Friday Employee - Monday Contractor' Scenario What is relevant includes the situation where the contractors work has the following criteria: # the engagement was enduring and ongoing, How many years had this contractor been with the Group? What 'tenure' had they had or do they have - Was he/she a real contractor who did not have any ongoing work - as in reality - may have had a contract that lasted 6 months or 1 year but then had to go and find another contract with another company (unrelated to the first company). I submit that if you have a contract that runs for 6 months or even a year and then you have to leave and get another contract with an unrelated company that you are a contractor and the nature of your work may be specialised such that there are not many places you can go but none of the work is enduring and ongoing. If the 'contractor' had been working for the company for a number of years and just went from contract to contract around & within the one organisation without engagement letters & invoice negotiations etc etc then yes they are an employee given the other items listed. What about PI cover & responsibility for errors - Do you have your own PI cover and income protection cover via your businesss entity or do you merely get paid by the hr for every hr regardless of the quality of the work, or do you fix errors in your own time ie a result, or further do you get your contract cancelled or not renewed if you don't perform then you are still likely to satisfy the results test. Do you provide your own equipment eg laptop or desktop computers or do you do some of your work from your home office or do you only use the computers at work during 9am to 5pm like a 'normal employee' Do you drive your own car or do you have a company car ie what is the real nature of your work employee/contractor relationship. Do you get paid annual leave, sick leave or even LSL Salary plus super? No, well how can you be an employee! All of these will be relevant to gaining a favourable PSI determination. David Robertson BR Accountants David Robertson, 10/28/2004 05:54:05 AM
ATO Still watching contractorsJust curious if anyone has obtained a favourable determination from the ATO for a contractor? And if they have then sought a Private Binding Ruling on the tax planning consequences? Simon Mitchell Achieve, Corp. Simon Mitchell, 11/19/2004 04:57:20 PM
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