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PM enters tax brawl

LABOUR hire firms and financial planners are claiming a win in their fight to be excluded from the Alienation of Personal Services Income provisions of the new tax system, with Prime Minister John Howard entering the fray.

Under the alienation provision, people earning more than 80 per cent of their income from one source are, for tax purposes, deemed to be employees.

The Recruitment & Consulting Services Asso-ciation and the Financial Planning Association have joined forces to free their industries of the 80 per cent rule.

Jackson McDonald tax consultant Graham Harrison, who is involved in the case, said the Australian Tax Office had released a ruling that confirmed the RCSA’s fears.

“There is a real risk agencies will cut out of the contracting chain unless this is fixed,” Mr Harrison said.

FPA chief executive Ken Breakspear said a meeting he had with Mr Howard over the alienation provision had been “very positive”.

“The Prime Minister has given a personal undertaking to investigate the matter further and provide an answer on this issue within two weeks time,” Mr Breakspear said.

RCSA chief executive officer Julie Mills said her organisation was waiting to see if the issue would get a full hearing, but was realistic enough to know Budget issues took precedence.

She said contractors had indicated they would rather be working through agencies than trying to go it alone.

However, contractors won’t feel the full effects of the alienation provisions until they start filling out their tax returns.

Running foul of the 80 per cent rule means contractors working through labour hire firms lose any business tax benefits. They could be taxed at the highest marginal tax rate of 47 per cent if they earn more than $60,001, rather than the 34 per cent company tax rate.

Financial planners not licensed by the Australian Securities and Investments Commission have to work on authority from licensed securities dealers. The 80 per cent rule catches them because all of their income comes from the licensed dealer.

Access Economics reports the alienation legislation could cost the financial planning industry and the government about $120 million in the first year and $150 million thereafter in compliance and administrative costs.

The recruitment and contract services industry is Australia’s largest employer with a turnover of $7.8 billion annually, according to the Australian Bureau of Statistics.

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