ATO Mired In Controversy Again Over Contractors' Taxation

by Mary Swire, Tax-News.com, Hong Kong

09 July 2001

The Australian Taxation Office has provoked so many storms of controversy over the past few months that you would think that waterproofs would be standard issue for tax officials by now. However, they seem to have outdone themselves this time, with the introduction of measures to crack down on self employed small business operators that earn more than 80% of their income from one source.

The regulations require self-employed business people and contractors to prove that they are not really employees via a series of tests, and were introduced on the 1st July, having been approved by the government last year. However, on top of the resoundingly unpopular Business Activities Statement (BAS) and the introduction of GST, many feel that it's just too much.

'It's the second BAS,' said Dr Ron Silberberg, the chief executive of the Housing Industry Association, which is just one of the groups which will be affected. 'The government should tear up the legislation and start again.' Although the tax office estimates that only 160,000 people will fall into the category that is required to prove their status, government figures are substantially higher, and they expect to collect an extra AU$1.4 billion over four years by forcing in the region of 230,000 contractors to pay more tax.

Despite the fact that Labour had supported the changes last year, the Shadow Government was quick to criticise the introduction of yet another unpopular measure which may have prejudiced John Howard's chances of remaining Prime Minister after the forthcoming election. Shadow Chancellor Simon Crean criticised the ATO for mismanaging the introduction of the 'Alienation of personal services income tax'.

'What seems to be the problem is it's in the detail attaching to those tests that the Tax Office is really tightening the screws,' he said last week. 'The problem with this government is it never gets involved in the detail. It thinks all it's got to do is pass a piece of legislation and the rest looks after itself.' In response to this, and the widespread criticism from industry and accounting groups alike, Mr Howard offered a reassuring but vaguely unsatisfying (or unsatisfyingly vague, whichever you prefer) sweetener, saying that the government was prepared to listen to concerns, and was 'always willing to fine tune major changes to the tax law.'

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