Contractor change threatens

MOVES to pull contractors earning more than 80 per cent of their income from the one source into the PAYE net could create a minefield for employers.

The proposal, which came in the second Ralph report release, is aimed at individuals setting up as contractors by using a company or other structures to minimise their tax liability.

It appears to be aimed at those using companies, trusts or partnerships to deliver personal services, paying tax at the 36 per cent corporate rate rather than the top marginal rate of 48.5 cents in the dollar.

The 80 per cent rule is a self-assessment test for the contractor and not one the hiring employer has to satisfy.

Chamber of Commerce and Industry manager employee relations services Bruce Williams said the rule blurred the lines between employees and contractors.

“The biggest area of this is unfair dismissal,” Mr Williams said.

“If the person is a contractor, then at the end of the contract the term of employment is deemed to be ended.

“Many employers take people on on this basis for that reason.

“However, because the person is being treated as an employee for tax purposes it may be thought other industrial rights apply.”

Combined Small Business Associations of WA president Oliver Moon said, if the proposed Ralph changes were taken on face value, they could have a major impact on employers.

“The trouble is we don’t know what the fine print says,” Mr Moon said.

“On face value this is particularly onerous, particularly for the building industry where companies often use the same sub-contractors for each job.

“These sub-contractors will usually be earning all of their money from one source – or what about professional people who work on a contract for three or four years.

“Ralph says these people will be treated as employees for tax purposes.

“Yet we don’t know how industrial or common law will approach this,” he said.