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April 2012 News Letter

 Business put on Notice - Contractors versus Employees

There have been a number of cases recently before the Courts and the Administrative Appeals Tribunal between Employers and the Commissioner of Taxation about the correct classification of their workers.  The payer argues that the worker is an independent contractor – in which case the payer has no obligation to provide superannuation guarantee or PAYG Withholding in respect of the worker.  The Commissioner of Taxation argues that the worker is in fact an employee.  The outcome of all Court and Tribunal proceedings of late have been that the worker in question was found to be a common law employee.
 
The Government is seeking to address a number of problems by focusing on this area, ranging from protecting workers rights (eg employers attempting to shift the responsibility of workers compensation and super guarantee to the worker) to protecting the PAYG revenue base.
 
Making the correct distinction between an independent contractor and an employee is crucial, however is easier said than done:
·        There is no single definition of employee.   Sometimes an independent contractor is not an employee at common law, but can be deemed to be an employee for certain purposes (eg superannuation under the extended definition);
·        The Courts adopt a “multi-factual” approach whereby the totality of an arrangement is examined in order to determine the relationship between the parties – such as degree of control and ability to delegate.  The Courts describe this as an “Elephant Test”, that is, an animal too difficult to define but easy to recognise when you see it.
 
To add to employer woes, it is becoming increasingly difficult for an employer who has misclassified a worker to “hide”.  The issue may come to light by a simple phone-call of a disgruntled worker.  The ATO are also increasing their audit activity of employers in relation to this area.
 
Action  For now, all businesses should avoid contracting with individuals.  Instead, to obtain some level of protection, payers should only contract with and make payments to companies or trusts.  Even the above recommendation is not “watertight” since the Courts have indicated a willingness to look through such companies or trusts to see the essential nature of the arrangement. 
 
The above action point is the safest harbour for now.  If this is not able to be achieved, you need to be sure that your treatment of workers compensation, superannuation and PAYG Withholding in relation to the contract payment is correct.
 
SMSF trustee information packs
The Tax Office has announced that, over the coming weeks, it will be reviewing all self-managed super fund (SMSF) trustee and member details and amending registration records when required.
As a result of this work, existing SMSF trustees may receive a trustee education letter and information pack for the first time from the ATO.
 This pack includes publications relating to the role and responsibilities of an SMSF trustee.
The ATO advises that this letter and information pack is for educational purposes only to support a tax agent's clients in their role as a trustee.

 
New personal tax rates 2012/13
From 1 July 2012, personal tax rates are to be adjusted by:
  • raising the tax-free threshold from $6,000 to $18,200;
  • lifting the first two marginal tax rates from 15% to 19% and from  30%  to  32.5%; and
  • reducing the low-income tax offset from $1,500 to $445.
 
Tax rates for 2012/13
2012/13
Taxable income
Tax Payable
0 – $18,200
Nil
$18,201 – $37,000
19% of excess over $18,200
$37,001 – $80,000
$3,572 + 32.5% of excess over $37,000
$80,001 – $180,000
$17,547 + 37% of excess over $80,000
$180,001 and over
$54,547 + 45% of excess over $180,000
  
ATO warns of 25,000 reports of scams last year
The Tax Commissioner has warned the community about scammers trying to trick people into giving away their money by providing their tax file number.
"To catch people off guard, scammers use phone calls, letters, SMS messages, emails, bogus websites and even fake job advertisements."
"Last year we had about 25,000 reports of telephone and email scams using the ATO brand."
A range of tricks are used to make scams appear authentic. For example:
*     including a legitimate-sounding message at the start of a call, such as the call is being recorded 'for training purposes'; and
*     sending emails that appear to have come from the ATO, which when opened or downloaded infect a taxpayer's computer with malicious software. 
 
Super contribution not in on time costs a taxpayer dearly
A recent tax case involved a superannuation contribution of $7,215 mailed by the taxpayer's employer on 28 June 2007 but which was not recorded as income by the fund until 5 July 2007.
Unfortunately, the taxpayer ignored the amount as a contribution for the 2007/08 year, and contributed another $50,000 to the fund – exceeding the super cap by more than $7,000.
The ATO issued an Excess Contributions Assessment – on the contributions above the $50,000 cap.
The Tribunal held that there were no special circumstances which would allow the Commissioner or the Tribunal to allocate the amount to another year.
The taxpayer simply got it wrong and "ignorance of that kind is not a special circumstance".
 
 
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

 

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