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Subbies caught in tax change crossfire

SOME 300,000 subbies, contractors and their families are in the Federal Government’s sights under changes proposed in the Ralph report.

Under the proposed changes, one-person companies that provide services in an employee-like manner will be treated as if they were on the pay-as-you-earn system.

This means contractors will pay up to 47 per cent tax rather than the proposed company or trust tax rate of 30 per cent.

The crackdown on tax avoidance, expected to add $500 million a year to government coffers, is seen as necessary to compensate for the lower capital gains tax rate and ensure changes are revenue neutral.

Companies and trusts receiving 80 per cent or more of their income from one source, who work out of the premises of their main client, do not set their own hours or split their income through a trust with others who have

little or nothing to do with the business will all be taxed as individuals under the proposed changes.

The Housing Industry Association has critised the recommendations put forward by the review.

HIA managing director Ron Silver-berg said the recomendation to treat self-employed contractors as employees for income tax, combined with the lack of clarity on the eligibility for an Australian Business Number, meant an uncertain future for contractors in the housing industry.

Setting up a company or trust has become attractive not only for the tax benefits, but also because unfair

dismissal laws make employing a contractor attractive compared with the alternative.

The Australian Tax Office believes something ought to be done to stem the flow of people forming one-person companies.

The number of people who own and manage their own incorporated business has grown three times faster than the increase in the number of self-employed people and the number of ordinary workers since 1978.

While Mr Costello himself has decided to delay the implementation of the proposals until he has talked to all the groups affected by the proposed changes, Shadow Treasurer Simon Crean said Labor would not endorse the package until two ‘fundamentals were satisfied.

“Firstly, that the business tax reform meets the revenue neutrality test and, secondly, that the government is serious about the anti-avoidance measures,” Mr Crean said.

Dr Silverberg said the association was relieved the government had decided to defer Ralph’s recommendations on the tax treatment of payments to contractors.

He said the recommendations would result in an increase in the cost of houses that would flow to new home buyers.

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